On Monday, the Federal Reserve released a 930 page document that finalizes many of the new rules and regulations that are included in the financial reform package – among the many changes is a proposed rule that would allow potential mortgage borrowers to cancel their mortgage application within 3 days and receive a refund of all up-front fees except for the credit report fee.
WHY THIS NEW RULE?
This new rule was likely inspired by a recent trend among mortgage lenders to charge up-front application fees ranging from a little as $25-50 to as much as $500-1,000. These fees were meant to save mortgage companies the costs associated with borrowers shopping between multiple companies and making a choice at the last minute in which case mortgage lenders would be out the cost of a credit report ($25-50), appraisals ($400+) and even lock fees (sometimes $100′s).
HOW WILL IT WORK?
With the new rule you can make application with several new lenders, and pay their fees if required at the time of application, however you’ll have 3 days from receiving , and presumably comparing, their disclosures to back out and receive a refund for any fees paid less the cost of the credit report they ordered to provide the disclosures.
This will make it easier, and cheaper, to compare multiple lenders and will likely lead to better rates and fees due to competition. However it will likely lengthen the process of getting a loan by 3-5 business days since lenders won’t order expensive services like appraisals until the 3 day period has expired. Additionally, this may effect borrowers ability to lock in some great ‘momentary’ rates that are only around for a day or two, since again lenders may not want to risk being stuck with the cancellation fees for the locked rate if the borrower backs out.
Like all rules this isn’t perfect, but it does appear that it will likely help more than it hurts.
For more information please read this article.