- The Washington Times - Thursday, July 13, 2006

Q:I am disputing the amount of interest I am being charged by my credit union. I

recently got a fixed-rate home equity loan in the amount of $400,000, amortized over 10 years with an interest rate of 5.49 percent. Settlement was handled through the mail. All the loan documents are dated May 5, 2006.

There was a three-day right of rescission through May 8, 2006. I received the documents on May 8. There was a mix-up and one document that needed to be notarized was not included in the package I sent back.

The lender eventually funded the loan on May 26, 2006. My first payment was due July 1.

I have called twice and written once because I do not agree with the payment amount. The papers show a principal and interest payment of $4,357.58. The amortization program on my computer calculates the payment to be $4,339.07.

Also, the initial interest charged on the settlement statement is calculated from May 5 through June 30. How can they charge me interest for a period before the loan was funded?

I wouldn’t complain if they were charging interest for the three-day rescission period, but three weeks is entirely a different matter.

What can I do? I’ve gotten no response to my calls and letter.

A: I had to tap into the knowledge of a friend and colleague, Daniel Fitzgerald, president of Global Settlements in Fairfax, to get some answers.

When I described your situation, his first comment was that a loan settlement conducted through the mail is a “sloppy way to do business.” Your problems are proof that he’s right.

There are a number of things that went wrong and need to be corrected. First, taking out a second trust does require the three-day right of rescission, or “cooling off,” period.

But only business days are usually counted in the rescission period. May 5 was a Friday. Even if the lender counted a Saturday as a business day, the funding day wouldn’t be until Wednesday, May 10, allowing Saturday, Monday, and Tuesday as your time to decide to rescind the deal.

This is your credit union’s first error.

If the actual interest rate on the note is, indeed, 5.49 percent with a straight 10-year amortization, paid monthly, you are absolutely correct that the principal and interest (P&I) payment should be $4,339.07. My calculator tells me that a P&I payment of $4,357.58 would create an interest rate of 5.58 percent. It’s important that you clarify this.

The initial interest charged on your settlement statement covering the period from May 5 through June 30 is, Mr. Fitzgerald says, “ridiculous.” Lenders are supposed to charge interest only until the loan is actually funded. If everything was done correctly, your funding date should have been May 10.

Since the settlement was conducted over the mail, it was your responsibility to sign the documents and in front of a notary and send them back. Since an error was made, the lender didn’t fund the loan until May 26 and, therefore, cannot charge interest until that day.

There are 21 days between May 5 and May 26. Daily interest at 5.49 percent on a $400,000 loan is $60.16. The lender has overcharged you 21 days’ interest at $60.16, or $1,263.45.

Mr. Fitzgerald couldn’t be more accurate. It’s a sloppy way to do business.

My advice is to raise the volume when you complain. Insist on speaking with a bank officer and demand some answers. If you still receive no response, file a complaint with the state banking regulator.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail ([email protected]).

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