Could you be the victim of predatory lending and not know it? Believe it or not most homeowners do not know they are victims of predatory lending. If you are in pre foreclosure a thorough review of your loan documents may be the tool to help you obtain a loan modification or stave off a foreclosure action by your lender. You may find that your loan has illegal violations of the Truth In Lending Act (TILA). This law is the most overlooked and abused laws by lenders and it is one that certainly can stop them in their tracks if a foreclosure is imminent or they are stalling on a loan modification request by the homeowner.
The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs.
"The purpose of TILA is to promote the informed use of consumer credit by requiring disclosures about its terms, cost to standardize the manner in which costs associated with borrowing are calculated and disclosed. TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires uniform or standardized disclosure of costs and charges so that consumers can shop. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and certain higher-cost mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling."
Did you know that there are TILA violations on over 70% of homeowner loans? Which means that 7 out of 10 home owners can use these violations as a defense against foreclosure and the ridiculous and exorbitant payment plans that lenders force upon homeowners who have their backs against the wall and believe they have no other option? Financial Relief Solutions recommends a review of all loan documents (Mortgage Audit) and will perform a thorough investigation for miscalculations and to determine if the loan terms are accurate, truthful, and meet the requirements of the applicable federal statutes and to determine if there were violations of federal law (TILA).
If any of the following applies to you, then you are most likely a victim of predatory lending practices.
* Were you charged high closing costs (points and fees) on the mortgage?
* Did the terms of the mortgage change to your detriment at the last minute before the closing?
* Does your loan contain a prepayment penalty?
* Did you receive a "notice of right to cancel" that was not completely filled out?
* Did you receive your copy of the loan documents at the closing (as opposed to being sent to you later)?
* Did the closing occur by mail, or at your home, or in another city
Did you have to prove your income?
If you did not have to prove your income the loan was approved based on your "Stated Income", more than likely an inflated income figure - based on the income the (loan agent) knew was needed to qualify for the loan.
Failure To Disclose Loan Terms
Creditors are required to disclose the terms of the loan to borrowers, and when those terms are not disclosed or are inaccurately disclosed laws provide severe monetary penalties against these creditors.
Equity Theft
Also called equity skimming, refers to the situation whereby the same creditor refinances the same property with the same borrower multiple times and uses the equity in the borrower's property to cover the costs of the loan in such a way that it seems like the new loans had lower payments and did not cost the borrower a dime.
Though, the reality is that the property's equity was being drained with each refinance.
Racially Motivated Lending Practices
Both federal and state law prohibit the mortgage industry from providing different loan terms to people based on race, sex, ethnicity, or other protected class. While this practice is often not apparent at first glance, you can see how it arises when loan documents are written in English yet signed by borrowers who do not speak English. Such a transaction may be subject to a cause of action under the Civil Rights Act or other laws.
Loans That May Be Considered Predatory:
5/1 Traditional ARM
If you borrow $180,000, the monthly payment stays at $1,126 for 5 years but then changes with the interest rate. In the example, the monthly payment would be $1,344 if interest rates rose 2% in year 6. A 5/1 ARM is an ARM in which the rate is fixed for the first 5 years and then may adjust every year during the remainder of the loan term.
Fixed-Rate 5-Year Interest-Only Mortgage
If you borrow $180,000, the monthly payment stays at $1,035 for the first 5 years and then increases to $1,261 in year 6 as you begin to pay down the principal.
5/1 Interest-Only ARM
If you borrow $180,000, the monthly payment stays at $960 for 5 years but increases to $1,204 in year 6. The payment rises because interest rates are rising and because you did not pay down the principal during the first 5 years. If interest rates rose 2%, the monthly payment in year 6 would be $1,437.
Payment-Option ARM with Minimum Monthly Payment
If you borrow $180,000, the minimum monthly payment starts at $630, but this amount does not cover all of the interest ($957). The payment rises 7.5% each year (payments are $677 in year 2, $728 in year 3, $783 in year 4, and $842 in year 5). The loan is recast at the beginning of year 6. If interest rates stay the same, the monthly payment would be $1,308. If interest rates go up 2%, the monthly payment would be $1,562.
2-28 or 3-27 Loan (A Predatory Loan)
Predatory loans make up 70% of the subprime market. The loan has a very low teaser interest rate for the first two year and then jumps exponentially, often 30-50% more, also called an exploding ARM.
High Risk Home Loan Act - This statute was passed to attack the problem of predatory lending.
Some Of Its Provisions:
Sec. 15 Ability to repay: Lender must believe borrower can repay (presumed affordable if debt-to-income ratio below 50%).
Sec. 20 Verification of ability to repay loan: Lender must document ability to repay.
Sec. 30 Prepayment penalty: PPP limited to 3% of the total loan amount in the first year, 2% in the second, 1% in the third, 0% thereafter.
Sec. 55 Financing of points and fees: No financed points and fees in excess of 6% of the total loan amount.
Sec. 95 Disclosure prior to making a high risk home loan: Advance cautionary notice of high-risk status of loan.
Sec. 100 Counseling prior to perfecting foreclosure proceedings: Required notice of counseling opportunity if loan in default more than 30 days.
Sec. 110 Mortgage Awareness Program: Required notice of (waivable) opportunity for borrower to attend OBRE/DFI-sponsored counseling program before executing high risk home loan.
Violation of any of the above renders term unenforceable and gives private right of action (with actual, punitive, and equitable relief).
If violations are found then the homeowner can be eligible for complete relief of the predatory loan or a favorable loan modification. Complete relief of the predatory loan is called a loan rescission. The lender would have to take bake the predatory loan and credit the homeowner interest payments, origination fees, attorney's fees, lender fees and penalties. Arming you with just enough to pressure a lender to move quickly and consider more favorable terms for your potential loan modification that you have petitioned for and of course in your favor. Or just Stop the Foreclosure dead in its tracks.
