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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

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.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to Forbes.com, federal regulators directed banks to properly explain the risks posed to borrowers from interest-only and other nontraditional mortgages on September 29, 2006. Such guidance is aimed at addressing the fear that consumers do not understand the risk associates with such mortgages, such as rising interest rates, which could significantly affect their monthly payments.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

In 2005, 53 percent of African-Americans who received new mortgages in Philadelphia and its adjacent Pennsylvania counties got high-cost loans, according to recent research by the Association of Community Organizations for Reform Now ("ACORN"), as reported by the Sun Herald. Furthermore, the figure was 35.5 percent for Latino borrowers, followed by 13 percent for whites.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

Upon taking out a mortgage loan, predatory lenders take advantage of the borrower and aggressively sell the borrower unrelated products. Specifically, predatory lenders often add unnecessary insurance products to a mortgage loan, otherwise known as "packing", which increase loan costs to borrowers. Such unnecessary products mainly include different types of insurance such as regular mortgage insurance, fire and hazard, credit life, accident, health and involuntary unemployment insurance. Predatory lenders usually manipulate the borrower into buying such extraneous insurance products. Thus, the premium for such unnecessary insurance products is often added to the loan amount, and where the cost is not explicitly apparent to the borrower. Predatory lenders intimidate and manipulate borrowers into buying such products because the lenders make large commissions on the insurance premiums, especially when the premiums are paid in advance.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

Colorado has had the highest foreclosure rate of any state since March, 2006, according to RealtyTrac, a California company that tracks foreclosure listings. According to the Denver Post, some experts think that option ARM loans will trigger a future wave of foreclosures if home values remain the same or decline.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to Market Watch, the U.S. Comptroller of the Currency John Dugan, said that all banks and mortgages originators should use caution when offering exotic loans such as payment-deferral products to home buyers, not just federally regulated ones.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to The State, South Carolina homeowners are losing their homes at a higher rate than homeowners in other states. From 2002 to 2006, the percentage of foreclosures and late loan payments in South Carolina has been much higher than other states, according to Mike Fratantoni, an economist for the Mortgage Bankers Association, which is a Washington D.C. organization that represents more than 3,000 U.S. lenders.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to the Buffalo News, consumer advocates from around the state of New York urged state lawmakers to crack down on financial abuses targeting the poor, instead of merely relying on only financial education to protect low-income New Yorkers.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to Chron.com, the Chicago Tribune reported that a California mortgage company began to offer 50-year mortgage loans in March 2006. Critics dismiss the loans as a market gimmick, but some industry people say that 50-year mortgage loan may become common, such as for people who need to keep their payments lower. So far, most of these loans are marketed in California, where home prices have climbed dramatically, although some lenders market them nationwide to sub-prime borrowers.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to the San Mateo Daily Journal, California Governor Arnold Schwarzenegger signed Senate Bill 1609 to protect the elderly from predatory lending into law. The bill puts tighter restrictions on reverse mortgages, and seeks to protect the elderly who have gotten tricked into risky reverse mortgages due to having valuable housing, but little cash.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to the Boston Globe, the population of the city of Boston is overwhelmingly white, and only Pittsburgh and Minneapolis have a lower proportion of non-white residence, out of all U.S. metropolitan regions. The Harvard Civil Rights project has documented that this trend is being maintained, and even as more people of color leave the city, the vast majority of the Boston suburbs remain white.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

There is a comprehensive report prepared by the National Council of La Raza that examines the problems faced by many Hispanic borrowers looking for a home loan. One observation in the report is that many Hispanic borrowers take out subprime loans, yet a large percentage would have qualified for prime loans. One reason given is that prime lenders lack a significant presence in the Hispanic community, while subprime lenders have been visible and active in the Hispanic community for years.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

According to the Washington Post, Philadelphia, its suburbs and much of Pennsylvania have experienced a foreclosure epidemic as low-income homeowners take on mortgage debt they cannot afford. In 2000, the Philadelphia sheriff auctioned 300 to 400 foreclosed homes per month, and in 2005 the sheriff was handling more than 1,000 a month. The foreclosures fall particularly hard on Latino and black families in the area. In the Thayer Street neighborhood in northeast Philadelphia, foreclosures have gone up dramatically in the past few years. Some of the residents say that mortgage companies convinced them to refinance and each time their bills went up, resulting in their falling behind in their payments and losing their homes to foreclosure.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

Mortgage loan flipping occurs when a predatory lender encourages a borrower to get additional cash by repeatedly refinancing their mortgage loans. This tactic significantly increases the borrower's debt because exorbitant fees are tacked on to each loan transaction, and the borrower usually pays a higher interest rate than with the original loan. As a result, the borrower's payments and debt increase, resulting in the risk of losing the home.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

Forbes.com has as simple but effective slide show highlighting some common mortgage lending and servicing scams. You can link to it here.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

The Federal Reserve Board has a useful booklet for consumers which explains adjustable rate mortgages (ARMs). It can be found here under the "Mortgages" section.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

Foreclosure.com reports that the foreclosure rate for the period January-June 2006 increased almost 12% over the comparable period in 2005. It was also reported that foreclosure rates in California have increased and the state now ranks 44th in active foreclosures, up from 50th last year.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

The Federal Trade Commission has a useful booklet designed to help consumers shop for the "best" mortgage. The booklet includes a useful glossary of common mortgage terms and a worksheet of important items to consider in shopping for a mortgage.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

The California Department of Real Estate's website lists several signs of predatory lending that borrowers should be aware of, including:

1. Exceedingly high interest rates and inflated fees in comparison with other lenders.

2. Bait and switch tactics where a mortgage broker or lender knowingly offers one set of terms which are more appealing but are not readily available and then pressures the borrower into signing a contract with more expensive terms and hidden fees.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

Interest-only loans are self-defined. A borrower basically pays only interest for a specified period of time, such as five or ten years. The payments typically go toward interest on the mortgage loan only, not principal. Accordingly, the original loan amount remains unchanged during the specified interest-only period and home equity does not start accumulating until the interest-only period ends. Interest-only loans, just like other types of mortgage loans, can have a fixed or variable interest rate. Predatory lenders take advantage of interest-only options to manipulate borrowers into buying more house than they can afford, resulting in a higher likelihood of default and foreclosure.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to WREG-TV of Memphis, Tennessee Governor Bredesen was scheduled to sign a new bill to curb predatory lending into law. Senator Roy Herron sponsored the bill and gave some credit to Frank Glanker, an attorney who raised money to save the home of a Memphis woman dealing with foreclosure due to predatory lending. Because Glanker's firm had represented banks at one point, he was aware that low-income homeowners are vulnerable to predatory lending. Glanker and his partner, Jim Gilliland, joined the Memphis-Shelby County Anti-Predatory Lending Coalition, and other groups representing banks, mortgage lenders and real estate firms. The leader of the coalition, Webb Brewer, said that Glankler had access to people in government that his group did not have.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to the Providence Journal, on June 15, 2006, the Providence, Rhode Island Senate passed a pair of bills that are supposed to defend low-income borrowers and the elderly from predatory lending practices and unfair loss of their homes through tax sales. Supporters say the purpose of the bills is to offset legal and financial systems that exploit the poor.

One of the bills, sponsored by Senator Juan M. Pichardo, a Providence Democrat, will oppose predatory lending practices such as charging poor people excessive interest rates and fees, and offering disadvantageous loan terms. The bill will limit fees, ban flipping, and place some limitation on the conditions that can be attached to higher-interest loans to sub-prime or higher-risk borrowers.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to insidebayarea.com, in recent years, an increasing number of people have turned to interest-only and sub-prime mortgage loans to become homeowners. However, some borrowers have had financial difficulties with such loans because they did not initially understand the loan terms. A sub-prime borrower with an adjustable-rate loan for example, may be shocked by an increase in payments of hundreds of dollars at the end of the introductory term, which is usually two years, which results in borrowers not being able to afford their mortgages.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to Lendinguniverse.com, the National Association of Mortgage Brokers ("NAMB"), an industry trade group with more than 27,000 members, is encouraging the start of financial literacy programs in middle schools and above, as a way of addressing the predatory lending problem. At a hearing before the Federal Reserve Board, NAMB President Jim Nabors stated that the only way to truly eliminate predatory lending is to give consumers knowledge starting at a young age, in addition to new regulation and legislation at the state and federal level.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to Realtytimes.com, the Federal Housing Administration ("FHA") issued regulations on property flips which will take effect on July 7, 2006. Property flipping involves re-sales of homes and other real estate shortly after purchase at substantial mark-ups. The FHA realized that many property flip transactions that used its insured mortgage program involved fraud such as exaggerated appraisals and flippers never taking title before selling the property. The FHA also found that the end purchasers were often not qualified and had used fraudulent income, employment and asset information to obtain an FHA loan. Then the end purchaser would immediately default and cost the FHA insurance losses and a house not worth its appraisal value. Meanwhile, the flipper would profit.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

On June 2, 2006, the Detroit News website pointed out that even though the U.S. Department of Housing and Urban Development ("HUD") has tried hard to stop predatory lending, it has not succeeded in completely wiping it out. Although there is more access to mortgage capital and a large effort to help Americans become homeowners, a lot of homeowners are suffering because of predatory lending, which takes away home equity and threaten homeowners with foreclosure. Such predatory practices, according to the Detroit News, make it hard for some communities to enjoy the nation's economic success. The HUD has been trying to stop predatory lending practices for seven years, and offers research and reports on the predatory lending problem.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to the Orlando Sentinel, a sub-prime loan is a high-priced loan made to borrowers who have high risk factors such as low credit scores, histories of late payments, or bankruptcies. Thus, sub-prime lenders provide a needed service, but make a profit by charging higher interest rates, as foreclosure risks are higher for borrowers with poor credit histories.

Lenders usually get their investment back when a house goes through foreclosure, but they can also lose money in the process.

Lenders cannot start foreclosure proceedings until payments are three months overdue, and it usually takes several months before the lender can take over the house. By the time the lender takes over, it has already lost months of payments and interest on the original loan. Thus, lenders justify their high sub-prime interest rates in terms of risks associated with lending to borrowers with unfavorable credit histories.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

According to buffalonews.com, the Buffalo Renewal Agency, which awards grants on new homes sold to borrowers at or below 80 percent of the area's median income level, is expected to consider adopting an anti-predatory lending policy, which will specify maximum interest rates and acceptable loan terms for homes built with city subsidies. Loans that do not meet the criteria will not be eligible for financial support from the city for builders. The goal of the new policy is to protect low-income borrowers from loans with excessive fees and rates, and high pre-payment penalties that prevent refinancing, which results in loans that they cannot afford. Predatory lending wipes out borrower cash and equity, leaving the borrower unable to pay the loan back, and inevitably ending in foreclosure.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

On May 23, 2006, representatives of the Association of Community Organizations for Reform Now went into a New Century Mortgage Corporation office in Woburn, Massachusetts, shouting "predatory lenders, criminal offenders," according to the Boston Herald. The demonstrators were protesting unfair lending practices. Through a written statement, California-based New Century said its lending practices comply with state law.

According to the article, April 2006 foreclosure filings in Massachusetts increased by over 44 percent from last year. Further, in April 2006, 1277 homes went into foreclosure throughout the state, which is the highest number since 2003. March was the worst month, with 1400 homes falling into foreclosure.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

On June 1, 2006, the New York Times reported that black and Hispanic borrowers tend to pay higher interest rates for sub-prime mortgage loans than their white counterparts with similar credit, as found by the Center for Responsible Lending.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

On Wednesday, May 24, 2006, Ohio's House and Senate approved a strict lending regulations bill, according to the Akron Beacon Journal. The bill passed the House 84-7 and the Senate 30-3. The bill regulates sub-prime loans, banning practices such last minute loan term switching and falsely inflating home values, which have had large roles in Ohio's high foreclosure rates. The bill will allow borrowers to sue lenders, who are not covered by federal regulations, through the Ohio consumer protection law. In addition, the attorney general can sue lenders to stop fraudulent practices. Currently, extra restrictions apply to loans carrying 8 percent or more in points and fees above the interest rates, but the new bill will lower it to 5 percent for loans over $25,000.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

One result of the recent housing boom is that more people than ever are taking out mortgage loans. Many of these are first time home buyers who have never taken out home loans before. Others are current homeowners taking out exotic mortgage loans that did not exist until recently. One characteristic common to virtually all homeowners today is that very few have even a passing understanding of the loans they are committing to. People spend countless hours researching the fuel consumption of the latest cars, or pore over websites like Expedia and Orbitz to save a few hundred dollars on their next vacation. Yet these same people spend hardly any time understanding what, to most, is the biggest financial commitment they will make in their lifetime--the mortgage loan.

| Posted By David Campbell Smith In Mortgage Lending , Mortgage Servicing
0 Comments | Permalink

The Nashville City Paper reported that the Tennessee state senate recently passed a bill designed to fight anti-predatory mortgage lending. The bill affords more protection for consumers and more restrictions on lenders.

| Posted By Azita Moradmand In Mortgage Lending
0 Comments | Permalink

The Los Angeles Times reported recently that Ameriquest Mortgage Company's business for the first quarter of 2006 plunged 46%. The article quotes one analyst who suggests the drop may be attributable to the changes mandated as part of Ameriquest's recent $325 million settlement following government investigation of its predatory lending practices.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

On April 26, 2006, the California Department of Corporations ("DOC"), California's investment and financing authority, identified mortgage fraud as one of the top 10 scams for 2006 that consumers should be aware of. The DOC press release described mortgage fraud as predatory mortgage lending involving abusive practices, usually taking place in the sub-prime market, and targeting borrowers with weak credit histories.

| Posted By David Campbell Smith In Mortgage Lending , Mortgage Servicing
0 Comments | Permalink

A February 23, 2006 study by the North Carolina based Center for Responsible Lending, suggests that state anti-predatory lending laws are working. This report supports the argument that a nationwide federal standard, such as the law proposed by HR 1295, the "Responsible Lending Act," is unnecessary.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

The New York Times reported yesterday that foreclosure rates are rising faster for minority borrowers. One reason may be that minorities are "twice as likely as whites" to have taken out subprime mortgages.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

No hearings have been scheduled on the competing predatory lending bills (HR 1295 and HR 1182.) The Center for Responsible Lending has a useful side-by-side comparison of the two bills.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

A detailed report came out today on predatory lending in Maine. It examines the effect of predatory lending in the subprime mortgage market in a state with relatively few consumer protection laws.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

Ameriquest Mortgage Co. recently settled a lengthy investigation by several states into its mortgage lending practices. Ameriquest is also one of the country's largest subprime servicers, and Ameriquest's servicing practices are not subject to the settlement. The settlement, which is subject to court approval, can be viewed here.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

The subprime business is huge. In California, it is dominated by Ameriquest Mortgage Co., an Orange County, California based institution that has been under investigation for some time for its lending practices. Second place goes to Fremont Investment & Loan, a Tustin (Orange County) California based company and a recent entrant into the subprime mortgage business. The subprime business in California alone is estimated to have jumped from $18 billion in 1998 to $62 billion in 2002.

A lot has been written about "subprime" mortgages, but what exactly are they? To come up with a working definition, it may be useful to look first at the characteristics of a "typical" subprime borrower and then at some features of a "typical" subprime mortgage.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

Fair Isaac Corporation is the pioneer of the FICO credit score, which most lenders use to determine if you qualify for a mortgage and, if so, what the terms of the mortgage will be (how much you can borrow, the interest rate, etc.)

The mortgage lending business has become increasingly competitive, and new products such as "interest only mortgages" and "payment option mortgages" are being offered to entice more and more people to buy homes or refinance existing mortgages. Perhaps in response to this competitiveness, Fair Isaac in July 2004 created a new credit score, the FICO Expansion Score, to serve the estimated 50 million consumers (including recent immigrants and "ethnic groups that typically don't use credit") who do not have enough of a credit history to generate a "traditional" FICO credit score. This score allows this traditionally underserved market easier access to mortgage loans. I am not aware of any reports showing that borrowers qualifying for mortgage loans through this new credit score are more likely to be victims of mortgage abuse, but it would not be surprising if that is in fact the case.

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink

Two competing predatory lending bills, the "Responsible Lending Act" (HR 1295) and the "Prohibit Predatory Lending Act" (HR 1182) are currently under consideration by the House of Representatives Committee for Financial Services, Subcommittee on Housing and Community Opportunity. (You can track the progress of these bills through the Library of Congress' "Thomas" website.)

| Posted By David Campbell Smith In Mortgage Lending
0 Comments | Permalink