Dennis' Mortgage Blog

Question of the week:  What is a “rescission period?”

Answer:  To rescind is to revoke or annul; rescission is the act of rescinding.  A rescission is when you cancel or revoke something.  A rescission period is a time frame in which you may cancel an agreement or contract.   In California homeowners who refinance have a three day rescission period in which to change their mind and rescind, or cancel, their refinance transaction.  This rescission period only applies to owner occupied homes, including 2^nd or vactions home, whether the refinance is merely a modification of interest rate (called a rate and term refinance) or if the transaction is “cash-out” (new mortgage results in funds being paid to the borrower at close of escrow or paid to another on behalf of the borrwer).

The eligible refinances cannot fund, no exceptions, until the three day rescission period has expired.  The three days is counted starting the day after loan documents are signed, Sundays and holidays are not counted.  So if loan documents are signed on Wednesday the soonest the refinance can fund is Monday; provided there are no holidays between the signing and the Monday (for example this week, refinance documents for primary residences signed on Wednesday cannot fund until Tuesday: Thursday did not count as it was a holiday, Friday day 1, Saturday day 2, Sunday exempt, Monday day 3, Tuesday rescission period ends).

This is important to know when locking in interest rates, on refinances paying off FHA mortgages where once a new month starts the interest for the entire month is do as part of the pay-off, and calculating when loan documents expire. 

We are often asked by homeowners if they can waive the rescission period and the answer is “no.”  State law requires the three day rescission period to give the homeowner time to evaluate the transaction, the final loan documents and closing statement and if not what they want or like they can cancel the transaction.  When exercising their rescission option homeowners need not give a reason or cause, they can cancel for any reason during the three day period.

As part of every eligible refinance transaction the homeowner is giving a “Notice of Right To Rescind” as part of the loan documents, every signer on the loan is given his or her own copies of this document.  To rescind the homeowner must deliver the cancellation to the mortgage broker/lender and/or escrow prior to the expiration of the three day period—the deadline is stated on the Right to Rescind.  If you wish to rescind your refinance transaction it is suggested you deliver the signed Right to Rescind to both the closing agent (escrow officer) and your broker/lender. 

Note that if you do exercise your right to rescind that mortgage transaction is cancelled and if you change your mind a day or two after you have rescinded the transaction you must start the entire process over with a new loan package, appraisal, etc.  Also note that any fees incurred by the transaction are non-refundable.

While rescissions are rare with most lenders they do occur.  To prevent the expense in funds, resources, time and energy for almost completing a refinance transaction that does not close make sure before you initiate the transaction that it meets our needs and objectives; that the rate and terms of the refinance are what you want and that you stay in touch with your broker/lender throughout the transaction.  Most importantly, make sure you are given the rate and cost of the refinance not only at application when you get a Good Faith Estimate, Truth In Lending and Mortgage Loan Disclosure Statement (California only), but also confirm them when you lock in the rate and cost for the transaction. 

Obviously if the terms on the loan docs are different than what you had agreed to then you have reason to rescind the transaction, before signing the loan documents and then rescinding however contact your loan originator and let them know what is different.  A lot of hands touch a file and are involved in the submission, approval and loan document preparation process, along the way mistakes can be, and at times are, made.  Usually they are easily correctable with a phone call and re-drawing loan docs, make sure that is the case before going through the rescission process.

Have a question for me?  Ask me!

Short week with Thanksgiving but nonetheless some very interesting numbers have been reported this week.  First, the National Association of Realtors released a survey that said 94% of homebuyers eligible would have purchased their home even if there were no tax credit.  Given credence that the tax credit is a huge cost with little benefit and that the housing market activity is due to low prices and rates.  Second, it was reported that 23% of homeowners with a mortgage owe more than their home is worth.  This is important because increasingly Americans are walking away from mortgages that are upside down, it is estimated that almost 600,000 homeowners went into default last year even though they could afford their mortgage payment.  It should be noted that approximately 24 million homeowners have no mortgage, or approximately 32% of primary residences.  Some quick math: 68% of homes have a mortgage, 23% of those are upside down, 16% of all primary residences in the United States have mortgages that exceed their value. 

Short weeks mean light trading, light trading means big swings in prices as any move to buy or sell has a big impact on a small market.  That was the case this week with light trading, and a beneficial Treasury auction of more U.S. debt, led to gains early in the week.  On today’s abbreviated trading day stocks got hammered early and bonds benefited briefly on news that Dubai may default on $60 billion in debt.  That used to be the U.S. deficit. 

On the short and light trading week we saw a slight downtick in conforming rates and other products holding steady for the week with slight pricing improvements from last Friday.

Rates for Friday November 27, 2009:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.5%                                Down 0.125%

30 year conforming-jumbo 4.875%                   Unchanged

30 year FHA    4.5%                            Unchanged

30 year FHA jumbo 4.75%                              Down 0.125%

Remember we have true, honest to goodness quality Jumbo rates again! Call for quotes as they vary depending on LTV, FICO and loan amount. 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

I hope you had a wonderful Thanksgiving and plenty of opportunity to count and state your blessings and all you have for which to be grateful.  Now onto a hopefully lazy, restful and fun weekend with family and friends!

Until next Friday,   

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.

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