Online Calculator | Do You Have a Predatory Mortgage?

Do You Have a Predatory Mortgage?

Several factors propped up the real estate bubble that just recently disintegrated leaving many desperately seeking foreclosure help.  Two of the biggest factors include ridiculously low interest rates and the constant shifting of the risk lenders assumed when lending to buyers.  There were a lot of ways this was done, but the primary mechanism was “bundled mortgages.”

“Bundled mortgages” came into being when lenders pooled the IOUs of many mortgages into one bond to sell in the bond markets.  These bonds had some value based on what all the mortgage borrowers were supposed to pay back over the life of the loan.  These financial instruments were then sold to other banks, investment brokers, Fannie Mae, and Freddie Mac.

Everyone in the mortgage lending business made a lot of money during the boom.  The refinance segment of the business also boomed, with historically low interest rates driving this market.

The ability to “share the risk,” in other words, sell a mortgage that would normally have a higher risk of default, to other banks and to the public at large, drove lending standards into oblivion.  The mere existence of “ninja” loans, i.e. loans made with No-Income-No-Job-no-Asset verification should have been a HUGE red flag to everyone.  The rationalization at the height of the housing price bubble was that anyone could sell any house at any time and make an easy profit.  In fact, market conditions briefly supported the notion that anyone could sell any house at any time.

Lenders got more and more “creative” with payment options and types of loans to qualify more and more people…  Some of the common names of loans they conjured up include the previously noted NINJA, as well as a stated income loan.

There never seemed to be any actual “risk” to mortgage lending. Believe it or not, banks and mortgage brokers actually broke existing laws as they squeezed more and more money out of “the market” during this frenzy.  

They offered loans with ridiculous penalties and terms.  They offered 5 year ARMs to people who could afford the initial payments determined by the initial interest rate, but had no hope at all of being able to afford the mortgage after the rate invariably went up.  They lent to people with too much outstanding debt.  They wrote “negative amortization” loans that ensured the loan balance would be greater than the price of the house in three years. They changed terms at at closings.

These practices gave rise to the term “predatory lending.”  These predatory practices are and always have been illegal.  Predatory loans cause sudden financial crises for borrowers through penalty fees and increased payments, often causing families to lose their houses, or be forced into insolvency.

If you got a “predatory loan,” you could actually have a good case in United States Federal Court to get

* Your loan modified by the Court to have lower interest rates,
* Penalty payments refunded,
* Legal fees for the lawsuit paid by the bank that violated the law,
* Any marks made against your credit rating by the bank removed, and
* Possible punitive damages payments.

Again, this is only if you are a victim of “predatory lending practices,” which requires that your lender actually broke laws that applied to you at the time you closed on your loan.  How can you tell if you got a predatory loan, and what can you do about it?

First, statutes of limitation limit your options if you closed on your mortgage or refinanced before January 2005.  If you closed on your mortgage since then and you have all your evidence like copies of emails and letters to and from your mortgage broker and bank, you may have a strong case with a high probability of winning.  You can find thorough pre-qualifying questionnaires around the web, and a good one at the page linked earlier in this article, to help you determine your status.  If you appear to have a predatory loan like a balloon mortgage, or you didn’t get translated copies of all the paperwork, there’s a good chance you do have a predatory lender.

You can contact an attorney who knows about this kind of case, or you can contact a company to conduct a forensic audit that would be used as evidence in your lawsuit against a predatory lender.  

Ensure that any forensic audit company is very clear about the cost of their services.  The preliminary review of your paperwork should be free, and you should get an objective assessment of the quality of your case.  They should be very clear about their rates.

Any attorney you retain should already be familiar with this kind of case, because it would be very expensive for him or her to learn how to prepare a new kind of case while billing you for his or her time.  When you speak to an attorney about suing a predatory lender, that attorney should become yours, working for you, not a real estate company, and be very clear about payments of retainers and fees.  If they really know about this kind of case, they should take your case on a contingency basis, only requiring an initial payment to cover the costs of the initial court filings.  Virtually all settlements have required the predatory lender to pay all of the borrower’s legal fees.

An attorney well-versed with lending laws would know that he should file an injunction against the bank as one of the first items of business.  This freezes your loan until the matter is settled or goes to court.  So, even if your situation looks hopeless because you can no longer afford your predatory mortgage payments, you could quickly get relief.

Good luck with your case!

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