Donald Riegle: “I am extremely concerned about evidence that I have received indicating that lenders are repeatedly refinancing home…”

“I am extremely concerned about evidence that I have received indicating that lenders are repeatedly refinancing home equity loans, rolling the borrower from one loan into another. In the process, the lender extracts points and fees on each new loan while extending little in the way of new money. I am including for the Record a case that I have received from the National Consumer Law Center as an example. In this instance, an elderly Massachusetts couple wound up refinancing their loan 8 times in 39 months. Each refinancing included a prepayment penalty of 6 months interest as well as other fees. They finally repaid the loan through yet another refinancing with a different lender. By the end of the process, they had received a total of $48,630. For use of that amount, they paid $85,410. In the version of subtitle B of title I of S. 1275 reported by the Banking Committee, we attempted to address this problem by preventing lenders who refinanced loans covered by the legislation from charging points or fees on any portion of the loan refinanced. The lender could only charge points on new money originated. This approach is problematic, however, as it eliminates the incentive for a lender to refinance even when the terms of the new loan are clearly more advantageous to the borrower. Even worse, it seemingly encourages refinancings that enlarge the outstanding balance in order to generate fee income.”