USING THE SERVICES OF A MORTGAGE BROKER 25
The TILA right of rescission does not apply to all loans arranged by
mortgage brokers, so do not rely on the possibility of later rescission
as a substitute for careful study of the loan before you agree to it.
The TILA was amended in 1994 with respect to certain loans, other than
purchase money loans, construction loans, reverse mortgages or home
equity lines of credit, secured by the borrower’s principal dwelling. In these
“high-rate/high-fee” loan transactions, also known as Section 32 loans,
the TILA places some additional restrictions on creditors, requires more
disclosures, and gives borrowers cancellation rights. The amendment
denes a creditor as someone who, in any 12-month period, originates
more than one high-rate/high-fee loan. Also, any such loan arranged by
a mortgage broker is subject to the requirements. A high-rate loan is one
in which the APR exceeds by eight points or more on a rst-lien loan or
10 points or more on a second-lien loan, the yield on Treasury Securities
having a similar term. A high-fee loan is one in which the total points and
fees exceed the greater of 8 percent of the loan amount or, as of
January 1, 2006, $528 (adjusted annually on January 1 based on the
change in the Consumer Price Index). The TILA is enforced by the
CFPB, and CFPB can answer questions concerning the TILA and
high-rate/high-fee loans.
PROTECT YOURSELF IN THE LOAN PROCESS—DO NOT
FALL PREY TO PREDATORY LENDING!
The term “predatory lending” encompasses a variety of home mortgage
lending practices. Predatory lenders often try to pressure consumers into
signing agreements for loans they cannot aord or simply are not in the
consumer’s best interest. Often, through the use of false promises and
deceptive sales tactics, borrowers are convinced to sign a loan contract
before they have had a chance to review the paperwork and do the math
to determine whether they can truly aord the loan.
Predatory loans carry high up-front fees that are added to the balance,
decreasing the homeowner’s equity. Loan amounts are usually based in
the borrower’s home equity without consideration of the borrower’s ability
to make the scheduled payments. When borrowers have trouble repaying
the debt, they are often encouraged to renance the loan to another
unaordable, high-fee loan that rarely provides economic benet to the
consumer. This cycle of high-cost loan renancing can ultimately deplete
the homeowner’s equity and result in foreclosure.