If you’ve ever applied for a credit card, a student loan or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print,,, but what often happens as a result is that many Americans are caught by hidden fees and penalties, or saddled with loans they can’t afford.
Barack Obama, signing the Dodd-Frank Wall Street Reform and Consumer Protection Act, as reported in the New York Times here.
The President said the law would crack down on abusive practices in the mortgage industry, simplifying contracts and ending hidden fees and penalties, “so folks know what they’re signing.” Id. Some are already saying the law will do little to prevent the next crisis because it does not go far enough (e.g., CNN Money). Maybe so. (It certainly did nothing to help car loan borrowers.)
Consistently, people tell borrowers to read their loan documents, ask questions, and get informed before they sign anything. For many reasons, most people don’t. Well some of the reasons are obvious: the language is confusing, the language is poorly written, the language is in an unreadable font. Maybe this new law will address these issues so folks know what they are signing as promised by the President. But these reasons are not the main reason people don’t read the documents.
People don’t read their loan documents because they cannot be changed. If you want the house, sign the documents. Making things clearer is nice, but it does not fix the incredible overreaching lenders and their lawyers impose on borrowers in their loan documents, and believe me, ignorance is bliss.
As the President was signing the Dodd-Frank Wall Street Reform and Consumer Protection Act, I was reviewing closing documents to refinance my own home. I read them all, as I usually do, and just try to bite my tongue every time I see another waiver, another trap for me, another way out for them. Then I got to the “Compliance & Authorization Agreement” which states in part:
Borrower(s) agree … by completing and executing … documents as may be deemed necessary or desirable in the reasonable discretion of Lender, including, without limitation, execution and delivery of the following:
…
3. Any additional or different documents, as may be requested or required by anyone to whom this Loan is being transferred or who otherwise obtains any interest in this Loan.
…
[F]ailure of Borrower(s) to comply with their obligations under this Agreement within seven (7) days of request by Lender SHALL CONSTITUTE A DEFAULT UNDER THIS LOAN ….
Compliance & Authorization Agreement (proposed by Capstar Lending LLC) here.
I have obtained many home loans in the past, but this provision in one of the many loan documents was new. I could read the provision well enough. I understood the language and asked questions. I was called by three people and told not to worry. I was told this is for minor things. I was told that this would not authorize a substantive change to the loan documents. I was told this is new. I was told that this protects the lender. I was told that all lenders have provisions like this in the loan documents nowadays.
First, nothing they told me was in writing and even if it was, it is irrelevant (another document demanded by the lender is an agreement that no oral or other representations make any difference – the loan documents control, and in Texas the Deceptive Trade Practices Act that prohibits oral misrepresentations rarely applies to lending). Second, what is a minor thing? The provision does not have any limiting language — it does not say that substantive terms of the loan cannot be changed for example. It does not say they cannot require disclosures, tax returns, or other items ten years from now when the loan is not even in default. It of course may not be the original lender that wants an “additional or different” document signed, but another transferee of the loan 20 years from now that has developed a new trick, trap or scheme to tweak borrowers. The most honest answer was that this provision protects the lender. I believe that. What protects me? What does reasonable discretion mean? Who can afford to sue over that phrase? I was told everyone is doing this provision these days. So what.
The lender refused to make any changes to their form agreement citing their attorney as authority. One attorney for Capstar Lending (whose mission is “to serve our customers with honesty, integrity and competence” here) allegedly signed the form himself for a loan he obtained. Happy for him. It appears that the industry and their attorneys have yet to realize that overreaching, unfair documents make the entire agreement suspect. Colleagues thought I was right to object, but said they would just sign it and enjoy the lower monthly payments the refinance would get me. My loan broker asked what I was worried about. I guess I was not really worried. I know how to sue lenders and can afford to do it if they pushed me too far – but it would come with risk of losing and loads of time lost. I know my hook is “reasonable discretion.” But in the end I did not sign it because it infuriates me how this industry treats people, and I had a choice, most don’t.
Making things clearer as promised by the President is not going to change the industry’s culture of getting people to sign anything their lawyers dream up, and then try to orally convince borrowers not to worry about it. This situation reminds me of “just sign here, we’ll refinance you out of this horrible loan later.” The industry will of course need a lot more than this law to cure their practices, treatment and attitudes toward the people that ultimately fund their grand homes and extended vacations.
Filed under: Advice for Borrowers, National Foreclosure News
