Truth In Lending?
My wife and I are purchasing a second home as a "second home" and not an investment property. We are only 4 days from closing and at the last minute the lender/underwriter is requesting a 2.5% (of loan amount) fee to secure the loan because they ASSUME our property is an investment house and NOT a second home. They have arbitrarily made this assumption based on the fact that it is not near a lake or beachfront or near a resort area, and they must now tack this 2.5% (or $2500 dollars on to the closing) costs onto the final docs. They stated the 2.5% fee is a fannie mae stipulation. However, after further checking with fannie mae itself I learned that is not true. Fannie Mae has very vague terms for second homes for which I qualify.
So this is where I am at........my question is this - I received a Truth in Lending statement from this lender weeks ago and nowhere did it state or mention this 2.5% to be included @ Act of Sale. This new fee of 2500 has been sprung on us at the very last hour and I'm livid of course. Can they do this? Do I have legal recourse?
I have refused to pay this amount and I am now in the unenviable situation of scrambling for another last minute lender to bring me to act of Sale on December 14th.
Also, is there anyway I can hold the original lender's feet to the fire on the original terms they stated through the truth in lending form?
Lemme guess, you're working with a morgage broker.
I think you should try to talk to the seller and explain the situation; we recenty went through a very similar ordeal and although I was able to scramble and locate another lender; after the shortfall that we had to endure (we ended up putting an extra 10% down) I wish i would have delayed the closing and had my attorney go visit the mortgage broker!
I'm curious where this 2500 is going; is this an extra origination fee? If possible show up at their office tomorrow and demand a full explanation from the management - if you believe they are trying to pull a fast one, let them know you'll have the cashier's check at the closing and go to the state dept of commerce - they'll be you best source of advise on how to attach them!
I would calmly ask for them to show you the rule, law ow whatever they are claiming that is "making" them charge this fee - while I was sitting in their office. Some brokers are notorious for last minute moves like these unfortunately. I would then have them put their request in writing for the fee and why they are charging it.
If what they are saying sounds somewhat reasonable and you think you are going to have to pay the fee, go talk to the seller and see what their feelings are with extending until the end of next week (2 days). If you are this far along in the process another lender can usually close pretty quickly since you have most of the process done like appraisals and the like.
You will probably need to make your decision on Friday though on what you are going to do, but any mortgage broker that knows what he is doing, should be able to wrap up a loan for you in a week with no problems.[ Edited by dnvrkid on Date 12/09/2004 ]
Yes! I am working with a broker.
What I'm so infuriated about is that fact I was given a loan number, a GOOD FAITH ESTIMATE OF SETTLEMENT charges. Nowhere, at anytime during this process was this 2.5 point fee discussed with either the broker or lender. It is not stated anywhere in the printed version of settlement charges. And now, three business days before closing, we are blindsided with a $2500 additional charge. What on earth are the good of "Truth in Lending" laws if a lender can summarily hit you with a 2500 dollar fee at the last minute???
I am in the process of doing what is suggested here and I thank you both for the responses.
I am not sure the Truth in Lending law applies here, though I am NOT a lawyer. Truth in Lending from my understanding just applies to what you will actually be paying over the life of the loan.
It is suppose to spell out for you that you borrowed $100K for XX amount of months and will be repaying $1,000,000 by the time it is all said and done, or whatever the real terms of the deal are. It does not apply to disclosing every fee, cost, etc. That is the Good Faith Estimate - which in my experience are seldom if ever correct.
As I stated in my prior post, get their cost in writing now and what is "requiring" them to charge it to you and see what they say. If the squirm, you know something is up.
Ever think of making the second home your primary residence. could always change your mind later. I think that would change the rules a little bit.
I'm still trying to understand what the purpose of a GOOD FAITH ESTIMATE OF SETTLEMENT CHARGES is, if the lender at the last minute can summarily tack on a $2500 fee, which was never disclosed at any time during the process of application, nor is it itemized on their settlement statement to us in writing.
Isn't the APR part and parcel to the "Truth in Lending Disclosure" so consumers can have a legitimate way to compare lenders. I received an APR of 6.042% on my TRUTH IN LENDING Disclosure, this did not include the $2500 now being tacked on at the last minute. That would change my APR, right?
I realize the Good Faith Estimates are only that - "estimates", and I expect numbers to change. However, to be blindside with $2500 last minute is in my opinion inexusable. How does a lender cover those tracks?
Thanks for your help and suggestions. I'm following through on your suggestion, btw, of having the lender explain the fee and put it into writing. Hopefully I'll smoke a rabbit out of the brushpile in the next 24 hours.
Reply to NBHOMES:
The lender is summarily saying this property is going to be an investment property. I don't know how they do that, but that in essence is the whole hangup. I do not own a second home as yet. I don't understand why this second home does not qualify as a "second home." They are tacking this last minute fee of $2500 dollars on because they feel it's rental property, and it is not. We live their in short order. My wife and I are even willing to sign an affidavit stating such.
Oh, I'm having so much fun fight this thing...
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Well bargain it sounds like you have your hands full. I am not sure the $2,500 would affect your APR as they are asking you to bring that to the table and are not going to finance it for you are they?
Regardless, as a person who has been down this road a few times, and in fact am going through another broker headache on a closing that is suppose to be taking place today - probably won't though. I would suggest you focus on the deal at hand and worry about what applies later.
I realize this is an emotional time for both you and your wife, but concentrate on how to get the deal done.
Get the letter outlining the costs, decide if you are going to stay with this broker or not, approach the sellers if you need to for a couple more days, decide whether you are going to pay this or not and CLOSE THE DEAL.
You can always take corrective action and determine if there was any wrong doing after the fact when you have more time to research it and talk it over. You just have to determine how important this deal is to you.
Good Luck!
Yes, that would affect the APR.
Did you get a lock-in agreement?
The points are part of the rate, just upfront bucks to sweeten somebody's pocket.
Fight, fight, fight.
Unfortunately, this is an area that continues to have many many areas for abuse... and abused it is. (In my humble opinion)
Do whatever you can to make them stick to the agreement.
** Has your broker asked you to submit a letter explaining why that property will be your 2nd home? Just supply a letter explaining why the property will be your 2nd. He should present that to the underwriters. IF he does not, question him!! Do you know this broker? Some have a reputation for this behavior!
Over the years, I have had to provide letters to explain acts that were 'out of the norm'; always worked.
Good luck !
<** Has your broker asked you to submit a letter explaining why that property will be your 2nd home? Just supply a letter explaining why the property will be your 2nd. He should present that to the underwriters. IF he does not, question him!! Do you know this broker? Some have a reputation for this behavior! >
Yes! This was suggested by my broker and we followed through on it, submitted it, broker then faxed it, and still wasn't good enough. Thus, a 2.5% points for what they are determining is a rental property.
My broker was found through the yellow pages. I do trust him. He is as exasperated as I am. He even called Fannie Mae's corporate office to find out about this whole loan conforming to their criteria as the lender had couched this fee as per Fannie Mae. This was not the case. It appears to be the lender/underwriter who is trying to make some last minute money on this whole deal. I'm still trying to smoke the rabbit out, though.
Too bad.
Good luck, at least you have the Broker on your team.
Did he tell you what lender he is dealing with? And he does not want to submit w/a different lender?
Is your deal (rate) so good that they really are doing a bait and switch? If so, just bite the bullet and proceed. What about the lock?
With investment properties there is a "hit" in price. Meaning in order to get the same rate, you will have to pay more. The $2500 is probably a discount fee. Meaning that you are paying to get that rate. If you didn't pay the mortgage broker would probably be "paying" the lender to do the loan for you... for free AND he owes the lender money. Being a mortgage broker myself, that is probably what they are doing, but they are being VERY shady about it! I have NEVER heard of that law. They cannot deem a house not a 2nd house if its not by the beach or mountains, etc. I did a 2nd home through Fannie/Freddie in Washington, D.C.!!! (Lived about 100 miles away from D.C. and worked in D.C., used that to live in on the weekdays!) That is as urban as it gets!
Basically, do not quote me on this, I think the 2nd home has to be about 60 or 70 miles away from your current primary residence to be classified as a 2nd home and you have to have a legitimate reason to buy this as a 2nd home if it isn't in a "vacation" type community.
<They cannot deem a house not a 2nd house if its not by the beach or mountains,>
But that is exactly what they (underwriters) did!
I have learned Fannie Mae has vague terms for second homes and I qualify, meet the terms. What I didn't know was that the lender/underwriter have themselves more stringent rules to which "second homes" qualify. And this particular lender has "resort area -beachfront-lake" criteria they use. My home is being purchased in the city limits of a small town - so bam - automatically reverted to investment property according to their own criteria. And yes, I would have to pay 2.5 points now that they have determined it's investment property. My broker has been going to bat for me, he's told the underwriters to just sell the loan to Fannie Mae because we at least meet their criteria for second homes.
The long and short of this whole stinking ordeal....we are submitting to another lender, and I believe will be able to still pull off the deal/loan without breaching the Dec 14th contracted closing date. I will have to pay a slightly higher rate (was 4.875 - now 5.25), but will save $2500 dollars in closing costs.
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