Do You Have a Sub Prime Loan?

Several factors contributed to the real estate bubble that just recently helped expose the weak links in our economy leaving many desperately seeking foreclosure help.  Two of the biggest factors include historically low mortgage rates and the constant spreading of the risk mortgage companies assumed when lending to buyers.  There were several ways this was done, but the primary culprit was “bundled mortgages.”

“Bundled mortgages” came into being when mortgage underwriters pooled the promissory notes of many loans into one bond to sell in the bond markets.  These bonds had some value based on the money 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 was making a lot of money during the boom.  The refinance segment of the business also boomed, with historically low interest rates fueling the phenomenon.

The ability to “share the risk,” that is, sell a mortgage that would normally be considered high risk, to other banks and to the public at large, drove underwriting standards into oblivion.  The mere existence of “ninja” loans, that is 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 market was that anyone could “flip” any house at any time and make an easy profit.  In fact, the housing 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 products they conjured up include the aforementioned NINJA, as well as a balloon mortgage.

There never seemed to be any actual “risk” to writing mortgages. 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 low introductory payments under 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 credit card debt.  They wrote “negative amortization” loans that ensured the amount due would be greater than the home’s value in three years. They levied penalties at at closings.

These practices gave rise to the term “predatory lending.”  These practices are and always have been illegal.  Predatory loans cause sudden financial crises for homeowners through penalties and higher 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 repaid to you,
* Legal fees for the lawsuit paid by the bank that broke the law,
* Any negative entries 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 any of this applies to you, and what can you do about it?

First, because of statutes of limitation, your options are limited if you closed on your mortgage or refinanced before January 2005.  If you closed on your note since Jan. 2005 and you have supporting 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 prevailing.  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 do forensic audit that would be used as evidence in your lawsuit against a predatory lender.  

Make sure that any forensic audit company is very clear about the cost of their services.  The preliminary review of your loan documents should be free, and they should give you an objective assessment of the quality of your case.  They should be very clear about what their  services will cost.

Any attorney you contact should already be familiar with this kind of case, because it would be very expensive for him or her to do the research on a new kind of case while billing you for his or her time.  When you speak to a lawyer about suing a predatory lender, that attorney should become yours, representing only you, not a real estate company, and be very clear about payments of retainers and fees.  If they have been properly prepared for this kind of case, they should take your case on a contingency basis, only requiring an initial retainer to cover the expenses of the initial court filings.  Virtually all settlements have required the predatory lender to pay all of the borrower’s legal fees.

An attorney familiar 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 dire because you can no longer afford your predatory mortgage payments, you could quickly get relief.

Good luck with your case!