Over the past few months, we've written about a variety of issues that concern you and your mortgage. Here's an update on two regulatory matters that we've talked about before, and a follow-up on a real estate scam that's spreading across the nation.
The first regulatory matter involves home-equity loans, those popular accounts that let you tap the built-up appreciation in your house simply by using a credit card or special checks.
Many financial institutions that make these loans have long been criticized by some consumer groups, who say lenders don't do a good job when it comes to explaining how the loans work.
The most recent flap involves "rate caps" and a lender's ability to cut off a homeowner's credit line when the cap is reached.
For example, say you take out a typical adjustable-rate credit line with an initial 10% rate.
The loan papers state that there's a five-point limit, or "cap," on how high the rate can go--meaning your loan rate can never rise above 15%, even if inflation skyrockets in the future.
What the loan papers often don't tell you, however, is that the lender may have the power to cut off your credit line if the 15% ceiling is ever reached.
"You might have paid hundreds or even thousands of dollars to set the line up, but you wouldn't be able to borrow a nickel until rates went down again," said Michelle Meier of Consumers Union, an advocacy group that says these "cut-off clauses" are unfair.
The Federal Reserve Board, which governs the activities of banks, recently issued a ruling concerning Consumers Union's complaints--and the advocacy group isn't happy.
The Fed's new ruling allows lenders to retain their ability to cut off cash advances when the equity line's rate cap is reached.
However, beginning late next year, all lenders will have to state in their equity-line documents that they have the option to cut off the homeowner's credit line if the rate cap is reached.
Consumers Union is appealing a court ruling that essentially upholds the Federal Reserve Board's decision.
In the meantime, Meier said, "The banks have won a battle at the expense of consumers."
The second recent regulatory ruling that can affect your pocketbook concerns fees that realtors earn when they use computerized loan systems, which can be found in hundreds of real estate offices across the nation.
The systems have been touted as the "ultimate in one-stop real estate shopping": After you have agreed to purchase a home, you simply go back to the realtor's office, the agent turns on the computer and up pop a variety of loans offered by one or more lenders who have put their loan information into the computer's database.
Although these computerized "loan networks" can be convenient, they have drawn fire from some bankers and mortgage brokers who don't have their loans on each system's database.
These lenders say that consumers don't always understand that the loans offered via computer represent a mere fraction of the loans that are currently available: A borrower might be able to get a much better rate from a lender whose loan isn't on the database.
In addition, many bankers complain that the fees that some realtors charge borrowers to use the computerized systems jack up the cost of buying a home.
It took nearly six years of debate and study, but the U.S. Department of Housing and Urban Development last month finally ruled that it's all right for realtors to charge consumers for access to the systems.
The ruling "is a definite step in line with the way the industry is headed," said Norm Flynn, president of the National Assn. of Realtors.
"The real estate business, like everything else, is becoming more technology-oriented. These systems can be a great service to today's home buyers and save them a lot of time."
Although the ruling was praised by realtors who operate the systems, it wasn't a total victory for sales agents--nor a total loss for would-be borrowers.
Although realtors can continue collecting fees from borrowers, HUD said that realty firms must tell the borrower that they'll be charged for the computer service.
In addition, HUD hinted that it would cap the fees realtors can charge for their loan services when it issues its final rules next year. A spokesman for the agency said the fee would likely be limited to $200 or $300.
Ironically, a cap--which government officials hope will protect consumers--could wind up hurting borrowers in the long run. Some experts say lenders may raise their rates in order to buy their way into the realtors' systems.
About two months ago, we reported that loan-servicing scams were spreading across the country. But the problem seems to be getting worse, despite a growing number of stories about the rip-off schemes and warnings from several lending and consumer groups.
"It's a serious problem that's occurring around the country," said Warren Lasko, executive vice president of the Mortgage Bankers Assn. of America.