Truth in Lending Act changes opposed by consumer attorneys

Two local attorneys representing homeowners fighting foreclosure have joined more than 200 lawyers, more than 30 legal services organizations and a dozen consumer advocacy groups asking the Federal Reserve governors to preserve the right of borrowers to cancel a loan if they do not receive proper disclosures.

Soquel attorney Pamela Simmons and Henry Martin of the nonprofit Watsonville Law Center signed a Nov. 16 letter to the Federal Reserve governors, asking them to withdraw changes to the Truth in Lending Act proposed in FRB Docket R-1390.

The Fed announced the proposed changes, which run 250 pages in the Federal Register, Sept. 24 and is accepting comments until Dec. 23.

Existing law, enacted in 1968, allows consumers up to three years to cancel a loan through a process known as rescission if they did not receive proper disclosures when the loan was closed.

The proposed change would require the borrower to repay the loan before the loan could be canceled instead of afterward, which is the current procedure.

"This proposal would make it completely useless to all but the wealthiest borrowers," according to letter signed by the Center for Responsible Lending, Consumer Action and the National Coalition of Reinvestment Coalition.

"A homeowner can't borrow the money to pay off the lender unless the lender is willing to accept the lower payoff and agrees to release their security interest," Simmons said.

In the September announcement, the Fed said the proposal was designed to "simplify and improve the notice of the right to rescind to consumers at closing" and to "reduce undue compliance burden and litigation risk for creditors."

The Mortgage Bankers Association, which represents the real estate finance industry, has not yet finalized its comments to the Federal Reserve, "but we are inclined to support the proposed rule as it relates to rescissions, " spokesman John Mechem said.

Several years ago, Aptos insurance agent Sean Rovai worked with Simmons' partner, attorney William Purdy, to use the right of rescission to cancel a loan.

"One of the documents was not signed so it was not valid," said Rovai. "I went to another lender and got a new loan."

He attributed the problem to sloppy paperwork.

"The whole crisis is basically greed on everyone's part," he said. "You've got to live within your means. If you're working at Walmart, you don't live in a $900,000 house. Lenders need to be held accountable for the shady things they did."

It's very uncommon for someone to rescind a mortgage loan, according to Simmons.

"Our firm has been specializing in this issue for years," she said. "We've done hundreds."

When problems are found, a notice of rescission is sent to the lender, which must decide within 20 days whether to accept it. The lender cancels the lien on the property, and the borrower pays the loan balance, minus payments already made.

Simmons said clients generally refinance or sell the property to do that, though sometimes the lender may rewrite the loan at the new balance.

By JONDI GUMZ, Santa Cruz Sentinel

Source: San Jose Mercury News