Attack on Borrowers' Right To Pull Out of Refinancings

WASHINGTON - Financial services executives are asking the Federal Reserve Board to eliminate consumers' right to cancel certain loans during the first 72 hours after closing.

They said consumers do not need this authority, known as the "right of rescission," when they refinance a home mortgage or equity loan with a different creditor.

"The rescission period, although initially well intended, actually results in more administrative burdens for lenders, and frustration and increased cost for borrowers, and should not be required at all for any first mortgage loan transaction," Navy Federal Credit Union president Thomas J. Hughes wrote in a comment letter filed with the central bank.

Also, bankers have trouble applying the nuances of the right of rescission, which is required by Regulation Z, said Marshall National Bank and Trust Co. senior vice president Michael A. Ewing.

"Perhaps the right of rescission could be repealed for all credit transactions," he wrote.

The comments came in response to a more modest Fed proposal to permit borrowers who are refinancing existing loans to waive their right of rescission. The proposal would apply to banks, credit unions, thrifts, and nonbank lenders.

A provision in the Riegle Community Development and Regulatory Improvement Act of 1994 required the Fed to report to Congress by March whether it should allow consumers to waive the right to rescind.

Regulators initially adopted the rule to protect homeowners from unscrupulous lenders.

Several comments said the Fed, rather than eliminating the right, should let customers waive their right of rescission in all cases.

"Consumers would receive even greater flexibility and benefit if they had the ability to waive the rescission on any loan they chose," wrote Missouri Bankers Association president Max Cook.

Letting consumers waive rescission would save time and paperwork, agreed C. Ordeen Monn, vice president at the First National Bank, Greencastle, Pa.

Not that bankers didn't support the Fed's original proposal.

"I am very much is favor of the consumer being able to waive the right of rescission under Reg Z," wrote Ronald E. Hall, president of Citizens Bank and Trust Co., Vivian, La. "Our customers always would like to be able to waive this right."

"The right of rescission portion of Reg Z is one regulation that I can honestly say has no positive value to the borrower," agreed Bruce W. Nathan, cashier of Yellowstone Bank, Columbus, Mont. "I can't think of a single instance where this regulation has helped one of our customers. In most cases, it is just an annoyance and inconvenience that causes delays for them."

Some bankers, however, urged the Fed to maintain the status quo.

"We believe there are still a lot of financial institutions out there that take advantage of the borrowers' ignorance about equity loans," said Gary M. Bramlette, president of Central Credit Union of Florida.

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