Washington -- Millions of homeowners could lose one of their key consumer protections -- the truth-in-lending right to rescind or cancel a mortgage refinancing -- if legislative efforts now under way on Capitol Hill succeed.
A bill endorsed by most of the Republican leadership of the House banking committee -- and pushed vigorously by mortgage lending industry lobbyists -- would amend the Truth-in-Lending Act to strip away the long-standing right of borrowers to cancel most refinancing transactions within three business days after closing. Companion legislation is slated for introduction in the Senate in the near future.
Under current law, a homeowner refinancing into a larger loan, or refinancing with a new lender, has a federally mandated three-day "cooling off" period to cancel the deal. The lender must provide written notification of this right, typically accompanied by other truth-in-lending disclosures about the mortgage's annual percentage rate (APR), payment schedule, total payments, finance charge and the amount financed.
Though the three-day right is exercised in only a small fraction of home refinancings, it carries a far greater protection than many consumers are aware of: You can get out of a refinancing for up to three years if your lender either incorrectly disclosed any of the required truth-in-lending information, or failed to provide you with notice of your rights. Any bill that terminates the three-day right would also terminate the three-year protection.
The three-year risk motivates most lenders to take pains to make their disclosures correctly in the first place.
Known as the Truth-in-Lending Act Amendments of 1995 (H.R. 1184), the bill would virtually eliminate rescission rights on all first lien refinancings. The main exceptions would be for so-called "high-cost mortgage" loans that involve rates in the high teens or lender fees in excess of 8 points. (Each point equals 1 percent of the mortgage amount.)
Where's this legislation headed? Both supporters and critics agree it's on Capitol Hill's fast track, and could zip through the House later this spring. Prospects in the Republican-controlled Senate are also considered strong. That could leave the final fate of truth-in-lending protections for refinancers in the hands of Bill Clinton.
Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.