|
In
South Carolina, "The Predatory Lending
Act", became law as of January 1, 2004, as
a result of long-running concerns about the
mortgage broker industry. while the resulting
legislation as a whole is a good, reasonable,
workable law, it, like most other pieces of
legislation, had by the time of its passage
become a political football amongst lawmakers.
As a direct result of a law whose original
intent might have been well-meaning, there is
now an easily identifiable group of consumers
who will be adversely affected by its passage.
So many of the customers I speak with today have
variable rate mortgages, mostly 2/28's, and
their loans either are now or will soon leave
their fixed-rate periods. Faced with aggressive
margins and a Libor that rises weekly, and
Federal Reserve that's raised rates 16 times
since last August, many of these same customers
face huge increases in payments. These increases
threaten to wreak havoc with our customers'
budgets, and do imperil their ability to sustain
future mortgage payments.
For example: Customers of mine at this
moment has a 2/28, set to adjust in March of
2006. Their current rate, prior to leaving their
fixed period, is 7.75%. The home is valued at
$110,00, the middle score for the husband is
586. Their index is Libor, and their margin is
8.75. So, in March of 2006, their rate will leap
(in theory) to 13.28% (Libor @4.53 + 875
points). In actuality the terms of the note do
specify it will be no higher than 11.75% at
first adjustment. So their payment will leap on
a $93,000 loan from $666 to $938, and this is
just at first adjustment!!!!
Here's where the Predatory Lending Act begins
to have an adverse impact. In strict
accordance with the "Act", as it is
known, these customers cannot rewrite their
mortgage unless they are able to satisfy the
"net tangible benefit" portion of the
code which says variable rate mortgage holders
must be able to recoup their costs in 2 years,
with a lower rate of interest. Here's the rub:
with the scores they have and the fact they are
2x30 on the mortgage last 12 months, the best I
can find for them is 8.25 fixed. This loan,
according to the Department of Consumer Affairs,
cannot close until March of 2006 because only
then in this scenario would there exist a "rebuttable
presumption of benefit", since the rate
would then be 8.25%, much lower than their
11.25%. The problem with that is even if their
scores are the same in 5 months as they are now,
rates, we all know, will continue to rise, so
the 8.25% that is available now may not be in 5
months, and rates are likely to be much higher,
even assuming they do qualify. So, the net
effect of this legislation on my customers is
that the longer they are made to wait, the more
it will cost them, and the worse their position
will be when they do convert to a fixed rate. I
have asked for a clarification on this from the
"Department", and been told my
interpretation is correct. Of course, they don't
sniff at the idea that this is nonsensical, and
that it puts these kids in a terrible
predicament, by requiring, by statute, that they
wait.
Moral of the story: We should learn to
police ourselves, because when we let lawmakers
seeking face time do it, customers suffer. Article
written by John Fowler - Mentor, Secret!
University Give
us your thoughts about this issue on our
Discussion Board - CLICK HERE
|
|
