Q: I had been reading Robert J Bruss’s real estate column for years and of course he has since passed away and now I read your column. In one of Robert’s columns however, he answered a question that pertained to a mortgage loan document that required the “mortgagor” to give the “mortgagee” access to the “mortgagor’s” financial records – FOREVER. Bruss’ response was to put an end date in the contract so that it would not be open-ended.

Well recently, I had a similar experience with a mortgage company. I recommended changing the “open-endedness” to a duration of 6 months and then to permit future authorizations on a case by case basis. The lender essentially told me to go pound sand.

The document was called the “Borrower’s Certification & Authorization” and the paragraph in question was worded as: “I authorize you to provide [name of the mortgage company] and to any lender to whom [the mortgage company] may transfer my mortgage, any and all information and documentation that they may request. Such information includes but is not limited to employment history and income; bank, money market and similar account balances; credit history; and copies of income tax returns. [The mortgage company] or any investor that holds the mortgage may address this authorization to any party named in the loan application.”

And I just wanted to limit the above statement to “for a period not to exceed 6 months after the date of closing but such authorization may be authorized thereafter on a case by case basis”.

Because they’ve refused to work with me, I am not going to get a mortgage with them. But they’re now charging my credit card $500 ($325 for an appraisal and $175 administration costs). I will pay the appraisal fee (but only if I am provided a copy of it) but the $175 fee I refuse to pay. What are your opinions on the matter?

A: According to a real estate attorney I consulted, mortgage companies have always been able to do this. The big difference is that now mortgage companies are actually checking your credit to make sure that it hasn’t taken a sudden turn for the worse. It’s like working with a credit card company – credit card companies continually check your credit to make sure that it has stayed the same. Unlike a credit card company, however, mortgage companies usually do not have the right to raise the interest rate on your mortgage if your credit history changes.

Perhaps you’re wondering why lenders want the right to check your credit history and pull your credit score if they aren’t going to do anything with the information they find. Well, one reason they check your credit is to see if you’re a candidate for other products that they sell. And, a lender likely wants to conduct checks on the credit strength of the pool of borrowers.

The language you cite is standard in just about every loan agreement the attorney I consulted has seen. And, he’s never seen anyone be permitted to make that change. I can’t tell you what Bob Bruss was referring to, or when he wrote the column you saw. I would say that it’s quite unlikely that a mortgage lender is going to allow you to limit its right to pull a copy of your credit history. And as you’ve experienced, it’s a take it or leave it situation, particularly in this economic environment.

The only other thought I had is to go to a local lender who plans to keep the loan in its portfolio. Portfolio lenders sometimes have more flexibility with loan terms. If they keep the loan and service the loan, that lender can be somewhat more flexible with their documentation.

If, however, you like the loan offer you’re getting, and you’re ready to refinance, I’d try to make the deal work so that you don’t lose any cash on the deal.

April 24, 2009