Mortgage Lending Abuse Law Blog

According to the Mortgage News Daily, predatory lenders use different abusive tactics when dealing with sub-prime loans. Borrowers are often subjected to aggressive sales practices to steer or coerce them into refinancing when it is not in their best interest to do so.

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A traditional mortgage loan payment is ususlly applied partially to interest and partially to principal. Amortization is the paying off of the principal in regular installments over a period of time. On the other hand, negative amortization is when the borrower pays back less than the full amount of interest owed to the lender each month. Thus, the difference between what should have been paid and what was actually paid is added to the principal amount owed to the lender, resulting in the accumulation of more debt as opposed to equity.

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According to the Asbury Park Press, shady real estate players have given bad deals to unsophisticated Ocean County residents trapped in foreclosure proceedings. Steve Mecka, an investigator with the Ocean County Prosecutor's office, warned that such real estate players will be prosecuted if they are out of line. The Prosecutor's Office has been working with the Sheriff's Department and other county offices to alert foreclosure victims about predatory lending practices.

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According to the Contra Costa Times, minorities with high-cost predatory loans outnumber whites at a rate of five to one, according to a study comparing 130 American cities. The data for the study came from a report called "The Impending Rate Shock 2006," which refers to the wave of sub-prime mortgage loans issued in the past year that have a two-year fixed rate before changing to an adjustable rate, which means the interest can increase by 5 or 6 percentage points. The study's authors believe the "shock" will affect minority borrowers most severely.

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According to the San Diego Business Journal, a recent study completed for the San Diego City-County Reinvestment Task Force found that nearly three out of four predatory loans were made to borrowers with middle and upper incomes. The study also referred to the rising use of interest-only mortgages, which may be predatory if they include high fees and points, balloon payments, and late or pre-payment penalties.

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According to Business Week, borrowers who jumped into option adjustable rate mortgage (ARM) loans are in danger of their payments skyrocketing. The ARM is possibly the riskiest and most complicated home loan product yet. The ARM has attractive low minimum payments, which has brought a new group of home-buyers into the market, thus extending the housing boom.

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At a Senate Banking Committee hearing on "exotic mortgages", U.S. banking regulators promised that stricter lender guidance would be released in a few weeks, according to Market Watch. The term "exotic" is used to refer to mortgage loans that allow interest-only payments or eat into the equity in a home. Such exotic mortgages have increased in the past three years from less than two percent in 2000 to more than thirty percent in 2006. Moreover, in 2005, about half of such mortgages originated in California.

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According to USA Today, the Mortgage Bankers Association said that more homeowners with less than perfect credit are falling behind on their mortgage payments. This phenomenon is especially true in Ohio, Alabama, Tennessee, Michigan and West Virginia, where job losses have affected the local economies.

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According to the Wall Street Journal, homeowners have embraced adjustable-rate mortgages in recent years, and other variations such as option ARMs, interest-only mortgages and "piggyback" loans, which, allow borrowers to make a minimum monthly payment, pay interest and no principal in the loan's early years, or finance 100% of the purchase price, respectively. The growing popularity of these products has helped fuel consumer spending, as well as home value gains and rising homeownership rates. However, the downside of this lending boom is that interest rates are taking a toll on family budgets as home prices stabilize or fall in some areas.

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More than 4,200 Twin Cities-area homeowners have lost their homes to foreclosure so far this year. Compared to other cities, this is a low figure. However, for the Twin Cities-area, this a very high figure, near double last year's figure. With the help of foreclosure.com, a national data service, the St. Paul Pioneer Press has attempted to show that the concentrations of foreclosures over the last year and a half are threatening communities such as North Minneapolis, St. Paul's East Side, Brooklyn Park, Cottage Grove and Apple Valley, according to foreclosure.com, a national data service.

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