WASHINGTON — Millions of homeowners could lose one of their key consumer protections--the truth-in-lending right to rescind or cancel a mortgage refinancing--if legislative efforts now under way on Capitol Hill succeed.
A bill endorsed by most of the Republican leadership of the House Banking Committee--and pushed vigorously by mortgage lending industry lobbyists--would amend the Truth-in-Lending Act to strip away the longstanding right of borrowers to cancel most refinancing transactions within three business days after closing. Companion legislation is slated for introduction in the Senate in the near future.
Under current law, a homeowner refinancing into a larger loan, or refinancing with a new lender, has a federally mandated three-day "cooling off" period to cancel the deal. The lender must provide written notification of this right, typically accompanied by other truth-in-lending disclosures about the mortgage's annual percentage rate (APR), payment schedule, total payments, finance charge and the amount financed.
Although the three-day right is exercised in only a small fraction of home refinancings, it carries a far greater protection than many consumers are aware of:
You can get out of a refinancing for up to three years if your lender either incorrectly disclosed any of the required truth-in-lending information, or failed to provide you with notice of your rights. Any bill that terminates the three-day right would also terminate the three-year protection.
The three-year risk motivates most lenders to take pains to make their disclosures correctly in the first place. The last thing they want to do is to refund thousands of dollars of fees, interest and closing costs to you two or three years down the road. Though most truth-in-lending abuses have involved mortgage companies who gouge elderly, lower-income and minority borrowers, the fact remains: The rescission hammer is available to any home refinancer, at any income level, who gets ripped off by a mortgage lender.
The exceptions to this rule are very narrow. There is no statutory right to rescind when you refinance with your current lender and don't increase the amount of your debt. You are allowed to waive your rescission rights in a refinancing when you are experiencing a personal finance emergency and need the refi money immediately--for example, a pending foreclosure against your home or similar disaster.
