Find the original copy of the Note and Deed of Trust.
-- Look for the initial interest rate.
-- Find the date the interest is set to change and how often it will change.
-- Study the paragraph that describes how the new rate will be calculated.
-- Find your loan's index and the date the index will be applied.
The index is typically a benchmark interest rate used by major players in the lending industry. Some of the common indices are the 11th District Cost of Funds, the one-year United States Treasury Security (T-Bill), the six-month London Interbank Offered Rate (LIBOR) or local Certificates of Deposit.
"Many of the problems with adjustments had to do with the older ARMs that were tied to some very flaky index," said Darrell Devine, president of Mortgage Equities in Edmonds and former president of the Seattle Mortgage Bankers Association. "When I was acquiring some portfolio loans, I couldn't believe what some banks had done. With the newer ARMs and the better software available, we are seeing fewer mistakes."
Some loans are sold two and three times. Other lenders keep the loan and sell the servicing rights - the monthly billing, bookkeeping and mailing - for a fee. If your loan is transferred or the servicing rights sold, make sure the initial rate and yearly adjustments are the same ones you received at closing.
Auditing is available
Some companies, like Consumer Loan Advocates (708-615-0024), will audit your loan for a flat fee of $100. Mortgage Equities (1-800-448-3393) charges a flat fee or hourly fee, depending upon the services needed.
"Most lenders have been cooperative when we've presented them with an error," Powers said. "They can get a little defensive, though, when the loan is an old one and the error worth thousands of dollars."
Despite his negative findings, Powers is a big booster of adjustable loans. "I have an ARM and I monitor it like a hawk," Powers said. "ARMs are great instruments and sometimes the only way to qualify for a home."
Tom Kelly is a private real-estate consultant.
Copyright (c) 1993 Seattle Times Company, All Rights Reserved.
