Lending Laws on Refinances
- Referred to as RESPA, the Real Estate Settlement Procedures Act requires two disclosures at application. The first is called the Good Faith Estimate, and it itemizes the costs of your refinance. This is the document that will show you the fees that the bank intends to charge. If you are shopping for the best mortgage, comparing the Good Faith Estimate from different institutions will give you a good picture of the differences between the loans being offered. The other RESPA disclosure that you will receive at application is called the Servicing Transfer Disclosure, and it will tell you whether or not your lender intends to sell your loan to another institution.
After your loan closes, you will be provided with what is called a HUD-1 statement, required by RESPA, that shows the breakdown of all the fees you paid in conjunction with your refinance. This will also show the amount that your new lender paid to the holder of your old mortgage. - When you apply for your refinance, Regulation Z requires that you be given a disclosure that shows what the estimated Annual Percentage Rate on your new loan will be. The annual percentage rate differs from the simple interest rate in that it takes into consideration the other costs of your loan, such as processing fees or settlement fees. Comparing this rate amongst banks before committing to a refinance will let you know how expensive a loan will truly be.
Regulation Z also requires that when a mortgage is refinanced, the consumer be given what is called the "right of rescission." This means that after you sign the documents of your new loan, the bank must give you a period of three business days to reconsider the loan. If after signing the papers you decide that you would rather stick with the loan terms you had on your previous mortgage, you can tell the bank that you would like to rescind your loan, and they are required to refund any fees you paid and cancel the refinance. - The Home Mortgage Disclosure Act (HMDA requires banks to report certain information about their loans to the government. While they never report the names of their customers, they are required to report the amount and purpose of the loan, the income of the customer and other information. One of the things banks must report is the demographic information about their customers. Because of this, when you apply for your refinance the mortgage representative will ask you to supply them with your race, ethnicity, and sex. You are encouraged to provide the information, but you may refuse. If your application was taken face-to-face and you refuse to provide the information, the loan officer is required to report it to the best of their ability based on visual observation.
- Regulation B is the regulation that enforces the Equal Credit Opportunity Act. This legislation says that a lender may not discriminate on their lending decision based on "race, color, religion, national origin, sex, marital status or age--provided that the applicant has the capacity to enter into a binding contract. Also, the fact that all or part of the applicant's income derives from any public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act." This means that the bank may not charge you a higher rate, require more documentation, or turn down your refinance based on any of the above factors.
- Whenever a bank makes, renews, extends or refinances a mortgage loan, it is required by flood insurance laws to pull a flood determination. A flood determination will tell the bank whether your property falls within a FEMA designated special flood hazard area. If it does, the bank must ensure that you have flood insurance before they complete the loan. If you already have a mortgage on your home, you will already know if your home is within a flood zone. If it is, you will receive a notice that you must have flood insurance just like you did when you took out your original loan. If it is not, you will receive no notice.
