Magazine article American Banker

Attack on Borrowers' Right to Pull out of Refinancings

Magazine article American Banker

Attack on Borrowers' Right to Pull out of Refinancings

Article excerpt

WASHINGTON -- Lenders are asking the Federal Reserve Board to eliminate consumers' right to cancel certain loans during the first 72 hours after closing.

They said consumers do not need this authority, known as the "right of rescission," when they refinance a home mortgage or equity loan with a different creditor.

"The rescission period, although initially well intended, actually results in more administrative burdens for lenders, and frustration and increased cost for borrowers, and should not be required at all for any first mortgage loan transaction," Navy Federal Credit Union president Thomas J. Hughes wrote in a comment letter filed with the central bank.

Also, bankers have trouble applying the nuances of the right of rescission, which is required by Regulation Z, said Marshall National Bank and Trust Co. senior vice president Michael A. Ewing.

"Perhaps the right of rescission could be repealed for all credit transactions," he wrote.

The comments came in response to a more modest Fed proposal to permit borrowers who are refinancing existing loans to waive their right of rescission. The proposal would apply to banks, credit unions, thrifts, and nonbank lenders.

A provision in the Riegle Community Development and Regulatory Improvement Act of 1994 required the Fed to report to Congress by March whether it should allow consumers to waive the right to rescind.

Regulators initially adopted the rule to protect homeowners from unscrupulous lenders. …

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