December 14, 2007 4:32 PM
Erin Toll to unveil pre-payment regulations on Monday
On Monday, Erin Toll, the head of the Colorado Division of Real Estate, will unveil new rules regarding pre-payment penalites.
I'm not going to be in the office on Monday and I'm not sure what she is going to say.
But a little background.
Pre-payment penalties kept thousands of borrowers in Colorado, from refinancing into market-rate deals, greatly contributing to the state's record number of foreclosures, according to critics.
People were getting lured into these loans with "teaser," or temporary rates on adjustable rate mortgages, which later would skyrocket. Some of the teaser rates were ridiculously low, such as 1.9 percent.
Unfortunately, for the borrowers, these rights sometimes quickly escelated to 7 percent, 8 percent or even higher, at a time when the market was hovering around 6 percent.
And these so-called 2-28 or 3-27 loans had huge pre-payments for the first two or three years of the ARM, so borrowers couldn't take advantage of the lower, market rates.
Now, lenders tell me many of these loans when away when the subrpime market drove off a cliff in August.
These type of regulations, whether enacted as an emergency rule or adopted by the Legislature, always address future transactions. They can't be retroactive for loans that people now wish they had never inked.
Earlier, the Division of Real Estate floated rules regarding pre-payment penalites that stated mortgage brokers "are prohibited from recommending or inducing a borrower into a transaction that does not contain a reasonable, net tangible benefit."
The rule went on to say that mortgage brokers who "recommended or induce a borrower into a transaction that contains a prepayment penalty, which extends past the adjustment date for any type of an adjustable rate mortgage, shall be presumed to have violated their duty of good fatih and fairy dealing requirment."
Whew! That's some legalese.
The division then breaks it down to say that the regulations would include:
a. Prepayment penalties that extend past the adjustment date of any teaser rate used to calculate a borrower's monthly morgage payment.
b. Prepayment penalites that extend past the adjustment date of any interest rates used to calculate a borrower's monthly mortgage payment.
c. Prepayment penaltie that extend past the adjustment date op any payment rate used to calculate a borrower's monthly mortgage payment.
d. Prepayment penalties that extend past the adjustment date of any like tool or instrument, similar to the teaser rate, payment rate or interest rate defined in this rule, used to calculate a borrower's monthly mortgage payment.
Toll, I'm sure, will translate whatever the final form of the pre-payment penalties take into understandable English, so even a dumb real estate reporter such as myself could understand. I'm serious. She's good at that.
And this part I do understand.
Individuals who violate the rule, could face discipinary actions including revocation of their license; refusal to renew a license; fines; and restitution for any financial loss.
According to the earlier documents I obtained, a hearing on the rules have been scheduled for Jan. 8, and the permanent rule would be effective on March 1, 2008.
We'll know more on Monday, so stay tuned.