This development was entirely predictable. It'll eventually be a standard operating procedure when things like this go down. A few years ago a whole bunch of people were so excited about making money in residential real estate that they couldn't stand still. Then when the market turned sour, they froze on their feet, with lower jaw hanging to the floor in disbelief. After recovering sufficiently from that otherworldly development, they scurried to the phone and began with sweaty fingers dialing attorneys. And that signaled that the third act is on.
So far at least in one case, a couple has won a judgment against a lender that was accused of misleading them over the mortgage loan's terms. The loan was ordered to be cancelled and the judge added further insult to injury by certifying the lawsuit as class action. The borrowers thought they had signed up for a fixed 1.95% mortgage for five years and what they actually got was an option ARM with the first month at 1.95% and upward monthly rate adjustments from there on out. There is a big difference between the two.
During the go-go years the mortgage business attracted plenty of green originators dreaming about all the money they could now make. Even if they wanted to explain the loan details to the borrowers, they just didn't know enough to do so in a thorough manner. It was inexcusable inexperience. Then there were those who were on the ball but where engulfed in the boom atmosphere and would downplay potential hazards, like option ARMs resetting, because prices were rising steadily and the mortgages could be easily refinanced. So, there was very little to worry about. And the consumers readily bought these types of arguments.
Now, of course, some outright scammers were out there, too, hustling home loans and committing all sorts of underhanded deeds to make things happen. These are the individuals who are likely to get their lenders in hot water. And keep hoards of lawyers happily employed.
What about some of the borrowers who blatantly exaggerated their incomes on stated loan applications? They would put a well-researched figure down so they could comfortably qualify for their dream house. Could the lenders take them to court when they default?
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Provided by:
Esko Kiuru
Mortgage, real estate and apartment industry analyst
www.BluefoxToday.com - syndicated mortgage, housing and property management blog
eskokiuru@gmail.com
My cell: 702-499-1006
If the borrowers could prove that they were defrauded then the court is an appropriate place to seek redress. I would be concerned that some judges might find the temptation to enact public policy regarding these mortgage types.
Most interesting is the last bit of your post -- I had never thought of lenders suing borrowers like that. Of course, if they still hold the note and have proof of fraud they could call the loan even before a foreclosure. Suing people who didn't pay their own mortgage does not sound very profitable to me.
Jefferson,
It's a murky situation. Let's see how bad it gets.
I agree: "Suing people who didn't pay their own mortgage does not sound very profitable"... and I may add doesn't reflect well on the industry. Mortgages are not created in bubble takes multiple hands... where we stop by pointing fingers?
Arina,
You can call the loan.
Bill & Barbara,
Thanks for coming by.