QUESTION: I recently assumed a mortgage, and the savings and loan association charged me 2 1/2 points for the so-called "assumption fee." This was in addition to what I paid for a credit report and another appraisal of the property. I recently read that Freddie Mac has taken a position against such overcharges. I need your guidance on what I should do.
ANSWER: Freddie Mac is the abbreviated name for the Federal Home Loan Mortgage Corp. It is one of the major secondary mortgage markets, in that it makes money available for housing by buying mortgages from mortgage lenders--such as savings and loans associations--so that those lenders can have additional funds to make new loans to home buyers.
Most Freddie Mac mortgages in recent years have not been fully assumable, in that the mortgage document contained prohibitions against assumptions--commonly called the due-on-sale clause. But many of the older mortgages did not contain these due-on-sale clauses, and additionally many lenders were prepared to permit an assumption--regardless of the prohibition contained in their own documents.
In this discussion, we are only talking about assumptions at the same rate of interest as reflected in the original mortage documents. We are not referring to situations where a mortgage lender permitted an assumption at a higher, or blended, rate of interest.
According to Freddie Mac, a lender who has sold its loan to Freddie Mac can charge an assumption fee that reflects "no more than the actual or a reasonable estimate of the processing costs involved." Despite this clear language in the contract between mortgage lenders and Freddie Mac, it recently has been called to the attention of Freddie Mac that lenders across the country have been overcharging home buyers for the assumption of many mortgages. In Cleveland, for example, a newspaper investigation resulted in 60 home buyers obtaining refunds totaling more than $80,000. In one case, a borrower who was charged $4,556 to assume a $57,600 mortgage received a $4,033 refund. In effect, the actual costs for the loan processing were $523--rather than the $4,556 which the home buyer was charged.
When Freddie Mac learned of this problem, it immediately took a number of steps. If you assumed a mortgage at any time in the past, and if that particular mortgage was owned by Freddie Mac at the time of the assumption, you are eligible for a review of the assumption fee charged you.
The first thing you should do is contact your lender. Ask to see if Freddie Mac owns the loan. It is important to know that lenders are required, by contractual obligation with Freddie Mac, to tell the home buyer whether Freddie Mac owns the loan. If the lender gives you any static whatsoever, contact Freddie Mac or your attorney immediately.
If Freddie Mac owned the loan when it was assumed, and you have reason to believe that you were overcharged, you should contact Freddie Mac either in writing or by phone. The number is (202) 789-2207. If you are outside the Washington metropolitan area code, you may call collect. The hours to call are between 10 a.m. and 4 p.m., Monday through Friday. When a Freddie Mac operator answers, you should tell the operator you are calling with an "assumption inquiry."
You also may write Freddie Mac at: Federal Home Loan Mortgage Corp. P.O. Box 37248 Washington, D.C. 20013. Attn: Mr. Hugh Greene.
After you contact Freddie Mac, it will send you a list of information needed for Freddie Mac to review the case. After you send this information, Freddie Mac will investigate the situation, and if a refund is required, Freddie Mac will see that the lender returns the money to you.
Freddie Mac also has requested all lenders with whom it is dealing to immediately review their practices in processing assumptions of Freddie Mac loans.
According to a recent statement issued by the Federal Home Loan Mortgage Corp., officials there are very troubled by the reports about overcharging, and failure by lenders "to comply with our policy could result in suspension or transfer of servicing."
Thus, Freddie Mac has taken a very significant consumer stance to correct what appears to be a serious problem. Although Freddie Mac believes that only a small number of loans that it has purchased over the past several years are involved, no one knows for sure. Of course, the number of loans involved is--or should be--irrelevant. The fact remains that consumers have been overcharged, and should be compensated for that overcharge.
Indeed, it may very well be that consumers should be entitled to the loss of the interest on the money for which they were overcharged. But the first step is to contact your lender to make sure that the loan you assumed was, in fact, owned by Freddie Mac.