Fearing penalties, lenders turn away business

REFINANCE RETREAT

January 31, 1992|By Ellen James Martin

When Monica Farrow left her mortgage lender's office in Owings Mills yesterday, she felt "very, very ecstatic."

The civil engineer and her husband got in just under the wire with an application to refinance their yellow-brick town house. Today, at 5 p.m., the couple's lender, NVR Mortgage, will do what so many others across Maryland are doing: close its refinancing window.

Ironically, state regulations designed to protect consumers from lender abuses are a major reason why thousands of potential refinance customers are having their hopes --ed, mortgage specialists say.

Many homeowners trying to take advantage of low mortgage rates are being rebuffed by lenders frightened by the stiff criminal and civil penalties the state can impose for violations, they say.

"It kills me to send business away, because it's income, but the state penalties are incredible," says Buddy Koolhof, manager of NVR's Owings Mills branch.

What makes the situation all the more maddening for potential refinance customers is that mortgage rates, which fell to their lowest level in nearly two decades earlier this month, have already begun moving back up.

The state legislature imposed tight regulations after the last refinancing surge, in 1986-87. The surge of refinancing applications flooded lenders, and many were unable to process the paperwork before rates began rising and the period in which the interest was guaranteed expired.

Borrowers were later enraged when asked to accept higher rates, producing hundreds of complaints by mortgage applicants to state regulators.

The new regulations required that licensed lenders in Maryland "may not take on more applications than the licensee can reasonably expect to be processed and closed within established lock-in periods," notes Louis A. Reinhardt, Maryland's assistant commissioner of consumer credit.

A lender found to have violated the law can not only face loss of its license, but officials at the firm can face criminal penalties of a fine of up to $5,000, a year in jail or both, he points out.

Mainly to protect consumers during a time of rising mortgage rates, the legislature in Maryland -- like those in other states -- imposed tight regulations on its mortgage industry after the last refinancing surge, in 1986-1987.

As is the case today, homeowners customers were had been drawn to into the market by low mortgage rates five years ago.

But the surge of refinancing applications flooded lenders, and many were unable to process the paperwork. Borrowers were later enraged when asked to accept higher rates, producing hundreds of complaints by mortgage applicants to state regulators.

Regulations imposed under a 1989 law require that licensed lenders licensed to operate in Maryland "may not take on more applications than the licensee can reasonably expect to be processed and closed within established lock-in periods," notes Louis A. Reinhardt, Maryland's assistant commissioner of consumer credit.

Although state rules don't say spell out exactly how quickly lenders must process a mortgage, they must move "expeditiously."

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