Fed Giving Borrowers Time to Change Their Minds

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The Federal Reserve released a proposal earlier this week to give mortgage applicants three days to change their minds.

The proposal was part of a 930-page document that clarifies and finalizes the new financial reform law.

The Fed's document says that for closed-end loans secured by real property or a dwelling, a creditor must:

  • "Refund any appraisal or other fees paid by the consumer (other than a credit report fee), if the consumer decides not to proceed with a closed-end mortgage transaction within three business days of receiving the early disclosures (fees imposed after this three-day period would not be refundable); and

  • "Disclose the right to a refund of fees to consumers before they apply for a closed-end mortgage loan."

The Fed says this proposal will make it easier and cheaper for consumers to comparison shop. It also acknowledged that borrowers who want to close a transaction in a hurry would be handicapped because most lenders will delay sending out an appraiser for a few days.

Other proposals affecting home buyers included:

  • A ban on yield-spread premiums, which encourage mortgage brokers to push buyers toward more profitable mortgages.

  • A requirement for lenders to tell borrowers when their mortgage is sold or transferred.

  • An explanation of the effects of balloon payments, adjustable loan payment fluctuations, and minimum payments on loan balances.

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