Predatory Lending Practices
Loan “flipping” – frequent refinancings that result in little or no economic benefit to the borrower and are undertaken with the primary or sole objective of generating additional loan fees, prepayment penalties, and fees from the financing of credit-related products;
Kickbacks;
Refinancings of special subsidized mortgages that result in the loss of beneficial loan terms;
“Packing” of excessive and sometimes “hidden” fees in the amount financed;
Using loan terms or structures – such as negative amortization – to make it more difficult or impossible for borrowers to reduce or repay their indebtedness;
Using balloon payments to conceal the true burden of the financing and to force borrowers into costly refinancing transactions or foreclosures;
Targeting inappropriate or excessively expensive credit products to older borrowers, to persons who are not financially sophisticated or who may be otherwise vulnerable to abusive practices, and to persons who could qualify for mainstream credit products and terms;
Inadequate disclosure of the true costs, risks and, where necessary, appropriateness to the borrower of loan transactions;
The offering of single premium credit life insurance; and
The use of mandatory arbitration clauses.
Common law fraudulent loan schemes:
Bait and switch
Forged signatures and documents
appraisal fraud
Loan to own ("you can't possibly repay the loan I'm about to make you; I'll own it by foreclosing on you")
What to look at
The five most crucial documents in the analysis of any loan fraud file are: (1) the HUD-1 (or HUD-1A); (2) the loan application (1003); (3) the loan submission form (1008); (4) the escrow instructions; and (5) the preliminary title report. These few documents often serve as a blueprint of the fraud, showing the trail of money and the identity of the people who stood to gain. (by C. Robert Simpson, Esq.)
Properly analyzing and highlighting these documents will assist your attorney in more effectively representing you, and in developing a plan of attack. The effectiveness of your attorney increases exponentially if he or she can litigate your case, i.e., examine witnesses, conduct depositions, etc., having a complete knowledge of the motivations and involvement of each of the parties.
Do not pay for a stop foreclosure or loan modification that does not include these analyses. Make sure you are given a Truth in Lending (TILA) RESPA (Real Estate Settlement Procedures Act), and HOEPA (Homeowners Equity Protection Act) analysis
Deceptive and Unfair Mortgages
By L. Jed Berliner, Massachusetts Foreclosure Defense Attorney on Dec 9, 2008
Mortgages are “presumptively” deceptive and unfair if they have these four characteristics, says the Massachusetts Supreme Judicial Court.
First, the mortgage must be adjustable, with the first adjustment taking place within the first three years. (Well, okay, this is two requirements which the court combined into one.)
Second, the introductory interest rate is at least 3% lower than the fully indexed rate (the base index rate plus the adjustment factor). The rest of us call this a “teaser” rate, since it teases the borrower into thinking that the early affordable payments will always be affordable. It also teases the borrower into thinking that the loan can be refinanced if the payments became too expensive, since home prices would always go up - right?
Third, the borrower’s debt-to-income ratio is at least 50% if the fully indexed rate is used, and not the teaser rate. This means that, half the borrower’s income or more would go to mortgage payments if there is no change to the interest rate calculation factors and there were no teaser rate.
Last, 100% of the home’s value is being borrowed.
In this case, “presumptively unfair” means that the Massachusetts Attorney General must be notified before any foreclosure can take place by the lender, Fremont, allowing time for a court to stop the foreclosure unless the lender can show it took reasonable steps to work with the borrower to avoid foreclosure.
The court rejected Fremont’s argument that its earlier loans should not be held to current standards of unfairness, noting that many government agencies warned against these loans as far back as the late 1990s. Fremont knew, or should have known, that loans with these characteristics would guarantee default by the borrower unless home prices rose indefinitely, which was an unreasonable assumption. But a default would not hurt Fremont, since it sold most of its mortgage loans.
The Attorney General filed the case to stop unfair foreclosures, but it did not seek damages. This issue is left open for another suit by a private borrower, but the decision throws open the door to recovery.
Commonwealth v. Fremont Investment & Loan, and another, 2008 WL:5122699 (Mass.).
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