Three Day Right to Cancel on Refinance: Good or Bad?

Of course, 99.9% of the time, the right to cancel is an annoyance. The loan officer sometimes forgets to tell the borrowers (or they forget) that there is a three day right, i.e. I can’t get my money today. So they get grumpy at me since I am the one with them. It holds up the plans they have for the money. The borrower has to come back to the office three days later to pick up their check. The borrowers are often paying off other debt and the mortgage loan is a lower payment and a lower interest rate. Home improvements or repairs are delayed a week. They are often consolidating multiple debts into one. Waiting three days to proceed is not in their best interests, but they still have to wait. The right to cancel is not good in the vast majority of loans. As usual, when government interferes with the freedom of contract, it is a bad thing.

I do not think that the 3 day right to cancel is necessary in South Carolina. Of course, the whole reason for the right to cancel is consumer protection. But of course, as I told you in my earlier column, South Carolina requires that an attorney perform a real estate closing. The biggest reason the South Carolina Supreme Court requires this is for consumer protection. The attorney is the gatekeeper between a borrower and a bad loan. It is not the attorney’s job to advise a borrower whether to take a loan or not; it is his job to explain the legal significance of the loan. No borrower leaves my conference room without understanding the documents and significance of their loan product. If the borrower cannot decide to take the loan then and there, then hr or she simply should not take the loan period. Three extra days should not matter either way.

The three day right to cancel applies to re-finances, mortgages that are not purchase money. In thinking about the mortgage crisis, most of these “bad mortgages”, “subprime mortgages” were for the purchases of houses. I am not suggesting that the day right to cancel expand to purchases; I am saying that bad mortgages come from purchases just as they do from re-finances and we do not have a right to cancel for purchases. It is inconsistent to have a right to cancel for re-finances, but not to purchases.

Even though I may sound like it, I am not necessarily in favor of completing getting rid of the right to cancel. However, I am certainly in favor of modifying this law. Certainly, the right to cancel should not exist and is not necessary if a borrower is getting a lower fixed interest rate and not getting any “cash out”, even if it is with a new lender. If a borrower has dealt with a certain broker or a certain bank before, the right to cancel should be allowed to be waived. The right to cancel is an example of government interfering with the freedom of contract. Let the market sort out bad banks and bad loans.