I just finished reading “Truth-in-Lending Disclosure Failure Leads to Mortgage becoming “UnSecured”" at The Big Picture. This article sent chills down my spine. The main reason being that if borrowers are successful in detaching the collateral from their mortgages then we are indeed headed for some really bad economic times.
The premise of the post is that many of the Truth in Lending Disclosure for 2/28 ARM Loans (sub-prime) did not adequately document the actual interest rate, payment and cost of the mortgage over the loan term. This is a direct violation of many state and federal lending laws. In the authors own words:
Let me put on my lawyer hat for a moment: The Truth-in-Lending Act requires “clear and conspicuous” disclosure to borrowers of the key provisions of their mortgages. This includes such details as the eventually reset interest rate, specific loan terms, and the total dollar amount the mortgage will cost over time:
And lawyers for borrowers losing their homes are very aware of this noncompliance of existing laws:
This seems to be where many of the subprime 2/28 ARMs ran afoul: They failed to meet the disclosure laws regarding actual interest amounts and payments.
Who has gotten tagged with these cases so far? Subprime lender NovaStar Financial Inc. (NFI) in Kansas City settled a class action suit for $5.1 million. And, consumers in Wisconsin recently won a class-action TILA suit (its under appeal).
Go over to the article and read the whole thing. It makes you wonder what everyone was thinking, especially those buying and selling mortgages. Aren’t they supposed to be reading this stuff?
Welcome to the Arizona Mortgage Guru blog, a great resource for all your home financing needs. If you're new here and like the content, you can subscribe to my RSS feed to get regular updates on all things related to mortgages. Thanks for visiting.
Option ARM, Pick-A-Pay, Flexible Mortgage: Learn the Truth!
Sub-prime lending shake-up
Interesting posts I’ve read lately on various mortgage blogs
Related posts brought to you by Yet Another Related Posts Plugin.
on Aug 22nd, 2007 at 10:38 am
Note that the borrower does not get to walk away, but the lender does lose their priority as a lien holder.
on Aug 22nd, 2007 at 11:44 am
Sad truth is that I don’t think they cared enough to bother. At least that was the case with Great Southwest Mortgage:
http://www.arizonahousingbubble.com/2007/still-think-that-the-housing-bubble-is-the-fault-of-the-buyers-and-not-the-lenders/
Here’s the Magnus PDF:
http://azdfi.gov/Final/Forms/First_Magnus_Financial_Corp.pdf
And the GSWM PDF:
http://azdfi.gov/Final/Forms/First_Magnus_Financial_Corporation.pdf
These two items on the 2nd pdf secured my thoughts:
“Allowed borrowers to sign regulated documents containing blank spaces”
and
“A branch manager made false promises and misrepresentations or concealed an essential or material fact in the course of the mortgage banker business”
They got nailed pretty hard though. While buyer’s can definitely be to blame in many scenarios, I’m sure you’ve come face to face with buyers who had the means and picked a decent purchase, but used a bad loan product to finance it with.
on Oct 6th, 2007 at 2:26 am
Who cares?