WASHINGTON - A bill that would make it harder for borrowers to back out of mortgage contracts is expected to be introduced this week by Rep. Bill McCollum, R-Fla.

The McCollum bill aims to mitigate some of the problems home lenders face because of the Rodash court decision.

The bill would place a three-year limit on a borrower's right of rescission for disclosure error. The limit would apply to all loan applications signed after Jan. 4, 1994.

Some states have allowed borrowers to back out of mortgage contracts because of disclosure errors as long as eight years after the agreement was made.

The bill would also nullify class actions that had not been "certified" as of Oct. 1, 1994. A class action is certified when a court decides that a complaint that applies to a number of people.

The Rodash decision "has been an enormous problem that has caused over 40 class action suits," said Warren Lasko, executive vice president of the Mortgage Bankers Association. "The magnitude is such that it has the senior people in the mortgage industry making their own visits to the Hill."

In order to expedite enactment of the measure, legislative sources said, Rep. McCollum may attempt to attach it to the subsection of the GOP "Contract with America" dealing with tort reform.

The bothersome precedent for lenders was set by a decision of the U.S. Court of Appeals for the 11th Circuit in Rodash v. AIB Mortgage, a case in which a minor Truth-in-Lending violation was deemed grounds for rescinding a refinanced home loan.

When Martha Rodash, blind and crippled by multiple sclerosis, applied to refinance her home to cover medical expenses, AIB Mortgage made what was considered by most to be small mistake. The lender listed a $22 shipping fee and a Florida intangibles tax of $204 as "amount financed" instead of "finance charge."

In addition to dealing with Rodash-type situations, the bill would exempt refinancings from existing laws that give borrowers three days to back out of mortgage contracts. Mortgages taken on for the purchase of a property would still be covered by the three-day right of recission.

The McCollum bill would also increase the dollar level at which disclosure errors are deemed "material" - from the current flat $10 limit prescribed by Truth-in-Lending to 1/16 of the amount of the loan.

"That $10 'materiality test' was one of the reasons that Truth-in- Lending was so high up on the list of the top 10 worst regulations," said banking consultant Karen Shaw, referring to a list of regulations recently released by the Senate Republican Regulatory Relief Task Force. Truth-in- Lending was ranked as the sixth-most-burdensome rule.

Ms. Shaw said the bill has a good chance of passage, in part because "it reflects some consensus with consumer groups," who agreed to the language abolishing the $10 materiality limit.

"The anachronisms and irritations of Truth-in-Lending make it a prime target," Ms. Shaw said.

Sen. Connie Mack, R-Fla., may introduce a similar bill, according to a House Banking Committee aide.

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