In 1996 the State of New York Banking Department put out a communiqué to all mortgage brokers and lenders regarding their responsibilities during a mortgage transaction and home purchase. New York state law has some fairly specific statutes that are designed to make the mortgage lending process as transparent as possible. The memo issued by the department itemized the responsibilities of all professionals involved in the process and provided, in the process, a number of issues where consumers should be knowledgeable enough to ask the right questions.
Fees paid for simple referrals are generally prohibited. A banker or broker cannot pay for referrals unless the party providing the referral does some actual work in the mortgage and home sale process. A consumer may only be charged one application fee. A broker may not charge an application fee, only to have the bank or other lender charge another. The mortgage broker is required to disclose any application fee charged by any party during the pre-application process.
Third party fees collected from the borrower must be confined to the actual costs incurred. In other words, if a loan applicant is charged $100 for retrieval of his/her credit reports and the actual cost is 45$, the applicant must be refunded the $55 in excessive charges. This applies also to appraisal fees, tax reporting services and legal fees. There is also an overall prohibition for fees where no actual service is provided or duties performed.
No fees are allowed for opening and maintaining an escrow account, or for the waiving of an escrow account. Interest must be paid on any escrow funds that are held by any "mortgage investing institution." This section is applicable only to single family homes and buildings that have up to six living units.
The requirement for mortgage insurance cannot be imposed once the homeowner has gained equity of twenty five percent of the property's value as established at the time the loan was made. Mortgage investors are charged with the responsibility of monitoring their portfolio on this issue.
Mortgage brokers are required to notify the lender of any separate fee agreement, which should be explained not only in the pre-application process but also in the formal disclosure process made by the lender to the applicant. Any split fees allocated during the execution of a mortgage must be disclosed in writing to the applicant. The services rendered must be necessary to the transaction and cannot be duplicative of the services performed by others.
These are the some of the areas where closing costs can be run up on the unsuspecting consumer. It is up to the loan applicant to keep the heat on for full disclosure. That also applies to points or other charges that are being included in the interest rate in lieu of immediate payment. New York mortgage law provides a good deal of protection for the state's would-be homeowners, but borrowers must know what is required and, if necessary, demand compliance. In other words, trust everyone - but cut the cards.
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