Your Mortgage Loan Borrower Rights

Part 1

www.HomeRefiNetwork.com wants you to know mortgage loan borrowers have important rights.  I am constantly amazed by how many people take out a mortgage without understanding the process, the legal contract they are signing, their liabilities and their protections.  Today’s post is meant to shed light on some of this, starting with what the terms mean.  Many of these terms, you may know, or believe you know because of repeatedly hearing them used, but I would like to list a few definitions that may help.  Feel free to skim past until you see terms you aren’t as familiar with. 

Mortgage:  the record of debt in which real property is pledged as security for the financial instrument, or note.  The mortgage is filed at your county recorder office.  If you default on the financial agreement, the firm offering your mortgage loan may foreclose to claim the real property in order to satisfy the outstanding debt.

Mortgage deed of trust: A written instrument by which land is conveyed; any instrument that is signed, sealed and delivered and that conveys some interest in property.  Some states allow lender to use a deed of trust.  In it, homeowners signing a note are pledging the real property as security, or collateral, for the note.  In case of default, the trustee may proceed to sell the property in order to satisfy the outstanding debt.  Trustees must still follow a process, but are not required to file a foreclosure in court.

Note: A negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.  Have you ever looked at a dollar bill and seen the words “Federal Reserve Note” at the top of the one dollar bill? As with the mortgage note, US dollars are financial instruments too, backed by the United States Federal Government.  if you default on repayment of the mortgage debt, you default on the note.

Loan Estimate Form: RESPA (Real Estate Settlement Procedures Act: part of Title 12) requires a written estimate of your home loan closing costs to be disclosed no later than 3 days following a borrower’s mortgage loan application.  This form, now known as the Loan Estimate Form has important loan information such as your loan interest rate, mortgage monthly payment amount, repayment term, and the costs associated with your loan.   Take some time with this form to get familiar with what you are being charged.  If there is a significant change in any of these costs or charges, your mortgage company must deliver a corrected Loan Estimate prior to your closing.  Keep in mind, non-mortgage related changes, such as monthly taxes escrow are not reasons to redisclose, because it is not a charge for which you can comparison shop.  Click on the term to see a sample interactive Loan Estimate form.

Having mentioned that the Loan Estimate must be delivered within 3 days of application, we should also mention that a loan application has been federally defined as when you have provided

• Your name,
• Your income,
• Your social security number (for the purpose of pulling a credit report),
• The property address,
• An estimate of the value of the property, and
• The desired loan amount.

Until this information has been provided and a Loan Estimate has been delivered to you, your loan officer cannot require you to provide documentation of the information you provided.  However, inaccurate information can lead to an inaccurate Loan Estimate.  Let your loan officer know if you are looking for specific terms such as a fixed or adjustable rate mortgage, a certain down payment amount, paying a percentage (points) upfront to reduce your interest rate, or any other specific features you would prefer to have in your mortgage.  A Loan Estimate form is a disclosure of what the lender believes they will be able to offer you based on the information you submitted on your loan application.  The actual loan may be different once documentation of your information and home value are received.

FHA (Federal Housing Administration) oversees a program of loan insurance to expand homeownership.  Mortgage insurance protects approved FHA lenders against losses if the homeowner defaults on the loan.  The FHA lenders have you pay an installment of the mortgage insurance each month.  Because the lender is insured against full loss in case of default, the loan programs offered to borrowers are more flexible than they might otherwise qualify for.

Fannie Mae (Federal National Mortgage Association, or FNMA) is a GSE (Government Sponsored Enterprise) who purchases and guarantees mortgages on the secondary market.  Fannie Mae does not lend to borrowers, does not offer mortgages to borrowers.  Fannie Mae offers to buy mortgages which meet its lending criteria and guarantees mortgages.  So as long as the lender follows Fannie Mae’s instructions in loan verification and approval, Fannie Mae will buy the mortgages the lender originates, thus providing the funds for the loan.

Freddie Mac (Federal Home Loan Mortgage Corporation, or FHLMC) is a GSE who purchases and guarantees mortgages on the secondary market.  Like Fannie Mae, Freddie Mac does not lend directly to borrowers, but facilitates the lending process by buying loans from lenders that meet FHLMC lending criteria. 

VA: The Veterans Affairs guarantees a portion of a loan offered by VA approved lenders.  Because the VA is guaranteeing a portion of the loan, the lender can offer better terms on the loan.  VA does not lend directly, but VA guaranteed loans provide for low or no down payment, streamlined refinances to reduce interest rate without all the normal closing costs in other loan refinances, and adapted housing grants for disabled veterans. 

There are many mortgage terms, and I am a mortgage nerd, who loves talking about mortgage programs.  There is one thought I want to share.  Taking out a mortgage loan, is a ten to thirty year commitment, on a debt that is largest most of us will take out in our lifetime.  Signing blindly on an agreement that determines our rights can be dangerous.  Trusting our banker seems reasonable, but sadly, in 2008, many realized that was not enough.  If you cannot make yourself read all of the disclosures, I get it.  A mortgage closing package is more like a book than a package.  Knowing the terms is unavoidably urgent.  Read your note before you sign.  Read your mortgage or deed of trust before you sign.  Read your Loan Estimate and Truth in Lending before you sign the mortgage or note.  Know what you are agreeing to, and know your rights if you have difficulty making the monthly payment down the road. 

Looking for a reliable, straightforward loan officer for your own refinance?  Visit www.HomeRefiNetwork.com to be connected to a loan officer ready to answer all your questions. 

Next week: What Happens After the Loan Closing