The refinancing frenzy has cooled somewhat as interest rates have crept up from 20-year lows in January, but for some, painful memories linger.
The refinancing boom that started to build steam last fall and peaked over the last two months has caused a surge in complaints all over the country about inflated fees, exorbitant point charges and, in particular, failure to deliver on promised interest rates.
”We`ve had far more complaints than we usually get. People have been calling from all over,” said Peggy Miller, banking director for the Consumer Federation of America in Washington. ”It`s caught us all by storm.”
Complaint volume has been ”unusually high” at the Illinois office of savings and residential finance, said Patricia Cunningham, consumer affairs director of the agency, which licenses and regulates mortgage bankers and brokers.
National trade groups representing mortgage bankers and brokers, however, say they haven`t seen a big increase in complaints even though they anticipated it because of the tremendous demand for refinancings coming in a short period of time.
The number of complaints was much higher during the 1986 refinancing boom, when people who had taken out mortgages with rates in the mid-teens in the early 1980s rushed to get rates that went down to about 8.75 percent, according to Michael Hoogendyk, executive vice president of the Phoenix-based National Association of Mortgage Brokers.
”We would have been expecting to hear a lot,” said Brian Chappelle, vice president for government affairs of the Washington-based Mortgage Bankers Association of America. ”But our members haven`t indicated it.”
Cunningham, who agreed the problem hasn`t reached the mid-1980s levels
”at this stage,” said the most common complaint coming into her office involves delays by lenders that cause lock-in dates to expire before the loans can be closed.
A lock-in guarantees an interest rate until a certain date, usually 45 to 60 days from the time of loan application. Cunningham said she is taking a
”very hard look” at some cases in which the lender is suddenly ready to close just after the lock-in expiration.
She has seen some situations ”where (loan) disbursement can occur by magic one day after the lock period expires,” Cunningham said. ”I don`t believe in magic. I`m making no accusations. I`m saying we`re taking a hard look.”
Leonid Sagalovsky, a physicist working at Argonne National Laboratories, has filed a complaint with Cunningham`s department over expiration of a lock- in date, citing Associated Financial Services, a mortgage broker in Northbrook.
Sagalovsky, who lives in Des Plaines, claims Associated locked him into a a 7.5 percent interest rate with no points for the first five years of a 30-year mortgage, then delayed so much in processing his application that the 45-day lock-in period ran out, forcing him to take an 8 percent rate instead. Sagalovsky said he finally accepted the higher rate because he didn`t want to go through all the paperwork with a different company.
But Sagalovsky said he refused, on advice of an attorney, to sign a waiver releasing Associated from all liability. The waiver was presented to him at the loan closing.
Now, he said, Associated has sent him a letter accusing him of fraud because he didn`t sign the waiver and saying his loan, which was issued by California-based Countrywide Credit Industries, may be called in.
”If I didn`t know any better, I`d be scared,” Sagalovsky said.
Associated President Sherwood Zwirm said Sagalovsky ”is not being honest and truthful,” though he declined to listen to or respond to specific charges.
”Anything he is saying is totally unfounded,” Zwirm said.
Overcharging was cited as a common complaint by callers to the Consumer Federation, according to Miller. It also figured strongly in a survey by Lake Bluff-based Consumer Loan Advocates, a company that does audits for adjustable-rate mortgage holders to see if they have been overcharged through miscalculation of their rates.
The company said a survey of more than 200 of its clients doing refinancings showed 77 percent felt they were overcharged in fees by lenders for items such as credit reports, appraisals and the like.
Tom Buck, a Denver accountant and used-car wholesaler, got hit with a $200 ”tax audit” fee on his refinance closing statement and was told by a real estate broker friend that the customary fee was $15 for such a service, which involves checking that property taxes have been paid.
When he went back to his lender, Buck said, he was told it was a
”mistake” and the fee was reduced to $20.
Borrowers also expressed the view that lenders used the rapid decline in interest rates to charge higher points, the Consumer Loan survey said. Points- each one being 1 percent of the total amount of a mortgage-are almost always paid upfront. They cover the loan origination fee plus ”buy-downs,”
by which the borrower pays more upfront to get a lower interest rate.
The Consumer Federation`s Miller cited the same complaint. One protest came from a man in Michigan who told of lenders charging 4.5 points for refinancing, she said.
”That`s insane,” Miller said. ”That truly is usury.”
Still, some people may find such point charges acceptable to get the mortgage rate they want.
Kenneth Look, a Glenview pharmaceutical consultant, paid 4 points on a $240,000 30-year loan to get an adjustable rate starting at 6 percent, to be reviewed every year with a 2 percent annual and 4 percent lifetime cap.
In late December, he originally locked into an adjustable-rate mortgage starting at 7 percent, but rates dropped more than a point in mid-January, Look said. He went to his lender and was told he could start at 6 percent if he paid another 2 points, and Look agreed.
Since he was both refinancing his home down from 10.25 percent and adding in a consumer loan with a rate of more than 16 percent, Look said he was
”pleased” despite the points, which came to a $9,600 charge.
”Whether it`s smart or not, I really don`t know,” he said. ”If rates go up very quickly it could be a mistake, but I don`t think they will. If they stay reasonably low, it`s not a bad move.”
Consumer Loan Advocates advised homeowners who are refinancing adjustable-rate mortgages to scrutinize the loans they are closing out to make sure they haven`t been overcharged through miscalculation of adjustable rates by lenders.
During 1991, the firm found errors in almost 50 percent of the 9,000 adjustable-rate mortgages it audited. Seventy-seven percent of the errors represented an average overcharge of $1,588.
Refinancing is likely to remain a major preoccupation of lenders as long as interest rates remain relatively low. The Mortgage Bankers Association of America estimates there will be some 3 million refinancings in 1992, compared with 1.4 million in 1991.
While the pace is not as great now as it was in mid-January, when 73 percent of all mortgages were refinancings, it is still unusually strong. Forty-nine percent of mortgages were refinancings in the last week of February, compared with a typical level of about 15 percent, according to the mortgage bankers group.
Association official Chappelle said the most common consumer complaint he had heard during the January peak was that some lenders were refusing to take loan applications because they simply couldn`t handle the crush of business.
He also heard lenders complain that some consumers were making multiple applications and turning down one lender`s loan at the end of the application process when they found a better rate elsewhere.
