“Is there anything important that I ought to know when I shop for a mortgage that lenders are not required to disclose to me under Truth in Lending?”
Great question. I have identified five pieces of information that meet your specs. Not all apply to every borrower, but some do.
All you must remember is that if the TIL says that you “may have to pay a penalty,” it means you will have to pay a penalty.
When you “lock” the price of the loan, the lender is committed to the rate and points but not to fees. That paves the way for larceny at the closing table. The Federal Reserve could easily prevent this by requiring that all locks apply to the annual percentage rate, which is calculated from the rate and all lender fees. But it doesn’t, so borrowers must fend for themselves.
Say to the lender, “please specify, in writing, the total dollar fees I will pay at closing, and sign it.” You don’t care about the individual fees, only the total matters. Many lenders already do this without being asked, and they all would if shoppers demanded it.
Lenders always quote the initial rate on an ARM, but they seldom quote the margin and it is not a required disclosure. On an increasing number of ARMs, the initial rate holds only for 1-3 months. (This includes all flexible payment or option ARMs and all home equity lines). On these loans, the borrower knows the interest rate for the first few months, but often doesn’t know the lender’s markup over the remaining 29-plus years.
Ask the lender to write down the margin on your ARM.
It is a good idea to ask, but you aren’t going to know for sure unless you read the note before signing it at closing, and you may not know even then. I have seen cases where borrowers were switched to simple interest when the servicing of their loan was sold. The new servicer switched all loans where the note did not prohibit it. This is another reason why borrowers should be able to fire their servicing agent.
Policies of second mortgage lenders regarding subordination vary all over the lot, from a small fee and no conditions to absolute prohibition. Borrowers taking a second mortgage should get the lender’s subordination policy, in writing, before they close the loan. A form for this purpose is contained in “Why Isn’t Subordination Disclosed” on my Web site.
The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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