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James R. DeBoth President--Mortgage Market Information Services, Inc.
Adjustable Rate Mortgages (ARMs) are and have been very popular among many first time buyers. By offering lower starting interest rates, ARM loans have lower initial monthly payments and in many cases can increase the borrower's home-purchasing power. A major concern for many ARM holders however is the controversy surrounding reports and articles which state that upwards of 50% of borrowers are being overcharged on these loans, due primarily to lender error. If you have an ARM loan and are not sure if you have been overcharged, there are several companies that are willing to provide this service for you.
Since the interest rate on an ARM loan can change frequently, and involves the combination of several factors (interest rate index, lender margin and periodic interest rate caps), there is the potential for error when calculating rate adjustments. Since real estate taxes and insurances on your home can also change, errors can also occur when making these recalculations.
Considering that most mortgage loans are for tens of thousands of dollars, even the slightest mistake can add up to big problems for both the homeowner and the lender. According to data supplied by Consumer Loan Advocates in Lake Bluff, Illinois, an interest rate error of 0.875% on a $150,000 loan at
10% interest will produce an over-charge of $109 a month. If uncorrected and left to compound for five years, this problem could grow to $22,952. If the error went undiscovered and the next interest-rate adjustment also was wrong, the cost would grow exponentially.
This one example just goes to show how it is possible that some homeowners are walking away with $20,000 - $30,000 even $50,000 in refunds. Not all lenders make mistakes when servicing ARM loans (adjusting & collecting the payments, paying real estate taxes and insurance) and not all errors are this dramatic in amount. Many are only small amounts. But, if an error has occurred, it is money which is yours, money which you never should have paid to the lender in the first place.
The growing number of companies that are offering ARM auditing services suggests that there are a lot of refunds due to consumers. One such company is American Homeowners Foundation. Through their GetARMoneyback program, they will audit your mortgage for free. If a refund is due to you, you then pay them a fee equal to one half of the total refund amount. This was the agreement from when the program was first started. Recent statements from the company now state that the Foundation is willing to work out another payment option, meaning that homeowners would pay for the audit up front and then retain the entire amount of the refund, should there be one.
There are other companies which are available for such services as well (Mortgage Monitor, Consumer Loan Advocates, LoanChek, Loantech to name a few). Some of
the companies which are out there specializing in this have worksheets and software programs available for purchase (costing from $30 - $100) or you may choose to have the firm audit the loan for you. Fees for an arm audit can range from upfront fees of $69- $250, or a percentage of the refund amount (up to one-half of the refund). Checking different firms and comparing prices and service will probably save you even more money.
Carefully choosing a firm to help with the calculations, software or services is very important. Another concern when selecting one of these companies is the amount of support which will be required should there be a refund due to you. Make sure to have each company you are considering give you a full explanation of what steps are required after a refund is found due. Will the company help you step by step? Will the company give you just a checklist of steps to take? Will the company handle everything for you and present you with a check in the end? Services like these are usually why there are such differences in price amongst competing companies.
Borrowers with Adjustable Rate Mortgages should always carefully read any loan statements that are sent to them by their lender. If at any time your payment goes up, contact your lender to verify any changes made. Pay particular attention to the index which was used and the use of any interest rate caps applicable to your loan. Also check escrow statements sent by your lender to verify tax and insurance amounts that were paid. Regular contact with your lender/loan servicer might help catch any errors before they get toolarge. American Homeowners Foundation can be reached at 1-800-489-7776 and Mortgage Monitor can be reached at 1-800-283-4887. The names and phone numbers of several other ARM auditing services can be found be conducting a simple search on the internet. Go to one of the popular internet search sites, and in the search box type 'ARM+loan+audit' (or type in 'ARM+audit'). |
