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 of 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, NVR's Owings Millsbranch manager.
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.
A mortgage priced around 8 per cent a couple of weeks ago has risen to nearly 9 percent today.
Indeed, mortgage rates in the area rose about one-eighth of a percentage point yesterday alone, following predictions of economic recovery Wednesday by Federal Reserve Chairman Alan Greenspan. His comments helped push interest rates higher in the long-term bond market, which is closely linked to the mortgage market's rates.
At NVR, for instance, a customer could have received a 30-year, fixed-rate home loan at 8 percent in early January. The same loan carries a 9 percent interest rate now.
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 were drawn to low mortgage rates five years ago. But 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.
Regulations imposed under a 1989 law require 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.
Although state rules don't say exactly how quickly lenders must process a mortgage, they must move "expeditiously."
A lending firm found to have violated the law can not only lose its license, but officials at the firm can face a fine of up to $5,000, a year in jail or both, Mr. Reinhardt points out.
"As long as you're going to have a regulatory agency, you have to have regulations with some teeth in them," says Mr. Reinhardt, whose office oversees 1,200 mortgage banking firms that operate in Maryland.
Although no Maryland mortgage lender has been penalized under the state's regulations, the threat of such action has been an important factor causing lenders to limit the volume of refinance applications they accept, lenders and regulators agree.
"The majority of lenders are taking these regulations seriously. Lenders aren't taking any more applications than they know they can handle. They're afraid they'll run afoul of the regulations and be assessed penalties or have their licenses revoked," Mr. Reinhardt says.
"I would rather this branch do 60 loans in one month and have 60 happy customers than do 100 loans and have even a handful of unhappy customers -- some of whom could go to the state," says Mr. Koolhof of NVR Mortgage.
At Loyola Federal Savings & Loan, representative Andre Johnson makes the same point. "It's very important that we stay in compliance with state regulations," he says. Loyola announced earlier this month that it was closing its mortgage refinance window and the ban is now expected to last at least through March.