IF YOUR ARM FEELS FUNNY...
Several years ago, consumers who questioned rate adjustments on their mortgages had little recourse. Today, though, public laws and private services are in place to redress the balance.
First and foremost is the Cranston-Gonzalez Affordable Housing Act of 1990. Under the act, when consumers complain to their bank in writing about a problem with their mortgage, the bank must acknowledge the letter within 20 days and address the problem within 60 days.
State statutes of limitations sometimes come into play as well. Even if a loan has been repaid, consumers may have several years from the date of repayment to get errors corrected.
Regulators are now taking an active interest in adjustable-rate mortgage rates. The Federal Financial Institutions Examination Council has developed guidelines to deal with banks and thrifts that set variable-rate mortgage rates incorrectly.
INSIDER INSIGHT. For consumers who would like to enlist the help of professionals, a dozen or more loan-auditing companies are happy to help. Several loan auditors, in fact, have had personal experiences with mortgage loans: David Machlin, president of ARM Technologies in Rockville, Md., used to make mortgage loans for a credit union, and John Geddes, head of
Consumer Loan Advocates, in Lake Bluff, Ill., uncovered numerous mortgages that had been priced incorrectly when he worked in quality control at a savings and loan, and then at the Federal Savings & Loan Insurance Corp. after his company became insolvent.
Typically, auditors charge $100 or so for a loan review. Such reports range from simple audits of a client's loan rates to mortgage-insurance and escrow analysis. Richard Roll, president of Mortgage Monitor in Norwalk, Conn., says his company offers a service for refinancers that looks at both the old loan and the new one. And some loan auditors, including Loantech, in Gaithersburg, Md., and Consumer Loan Advocates, offer do-it-yourself kits for consumers who want less than a full audit.
As a last resort, there are the courts. Class actions are pending against a number of lenders, but even borrowers who are not involved in the suits may sometimes benefit. Says Henry J. Price, a partner at the Indianapolis law firm Price & Barker: "The real advantage of these lawsuits is that we've been able to do a real in-depth examination of the portfolio and correct all the errors" if a bank appears to be making the same mistakes on a series of loans.
READ THE PAPERS. The most important defense against being overcharged, however, is vigilance. Experts recommend that consumers keep tabs on market interest rates and check their mortgage-rate adjustments against the rates published in newspapers.
"The banks seem to be making more simple mistakes because they're just overwhelmed" with the volume of refinancings and mortgage applications coming their way, says Consumer Loan Advocates' Geddes. If consumers want to avoid having their ARMs twisted by overworked mortgage servicers, they need to act as their own watchdogs.Kelley Holland in New York