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| Mortgage ruling could shock U.S. banking industry |
| 2008-07-07 |
| A lawsuit filed by a Wisconsin couple against their mortgage lender could have major implications for banks should a U.S. appeals court agree that borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law. The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB had hidden the true terms of what they believed was a good deal on a low-interest loan. In their 2005 lawsuit, the couple said the loan's interest rate had more than doubled by their second monthly payment from the 1.95 percent rate they thought was locked in for five years. The interest rate rose well above the 5.75 percent fixed-rate loan they had refinanced to pay their children's college tuition. The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs. The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day. Should the 7th U.S. Circuit Court of Appeals agree with Judge Adelman, banking industry associations predict 'confusion and market disruption' as banks curtail lending further. Both sides said the case will likely be decided by the U.S. Supreme Court. |
| Posted by:Nimble Spemble |
| #15 #11 Moose, the standard in banking is 200% collateral, ie value of the collateral is twice the value of the loan. Property loans are the main exception. Property lending was a train wreck waiting to happen and it's very far from over. Posted by phil_b 2008-07-07 18:22|| Front Page|| ||Comments Top I suspect the worst is yet to come as well. Lending institutions are not entirely to blame however. In Georgia, |
| Posted by: Besoeker 2008-07-07 21:49 |
| #14 What kind of a kink does an interest only loan throw into the whole ownership issue? I've always found these to be a curious lending tool, even before their disastrous effect. |
| Posted by: bigjim-ky 2008-07-07 21:39 |
| #13 Who do you bank with Phil? I'm a banker in Kansas and our terms are nowhere near that hard. |
| Posted by: whitecollar redneck 2008-07-07 20:53 |
| #12 Compare wid DRUDGEREPORT > FRIGHT OF THE FINANCIALS [espec FANNIE MAE, FREDDIE MAC]. Chalk up another one for 2008-2012. How can the USA stop PAN-ISLAMIST NUCLEARIZATION, etc = future ISLAMIST CENTRAL ASIA iff it can't afford to, correct??? |
| Posted by: JosephMendiola 2008-07-07 19:43 |
| #11 Moose, the standard in banking is 200% collateral, ie value of the collateral is twice the value of the loan. Property loans are the main exception. Property lending was a train wreck waiting to happen and it's very far from over. |
| Posted by: phil_b 2008-07-07 18:22 |
| #10 lotp and DoDo, correct me if I'm wrong, but that whole "ownership" issue is a real problem regarding some of these mortgages. Sure, it's easy to find out who does the servicing, but the mortgage itself may have been sliced and diced into heaven-only-knows how many tranches to satisfy different mortgage backed securities. Many cities have been having a devil of a time determining who really owns a certain foreclosed home because of these derivative securities when they wish to condemn properties that aren't been kept up after foreclosure. |
| Posted by: Swamp Blondie in the Cornfields 2008-07-07 17:59 |
| #9 M. Murcek: there is a good chance that old saying could return with a vengeance in the future. The concept is now being bandied about that a universal credit collapse could happen, for governments as well as individuals. In short this would mean an end to easy credit. Debit cards instead of credit cards, all around. 100% collateral for everybody. Not as radical as it sounds, because low cost and easy to obtain credit with little or no collateral is a recent phenomenon, and its excesses may have ended its use for everyone. Weirdly enough, a universal credit collapse may be managed to work somewhat like a currency devaluation. That is, just by knocking off the extra zeroes at the end, a lot if not all of the pain is avoided. Instead of 1000 Pesos, you have 1 New Peso, and it happens to everybody at the same time. In this case, both credit and debt are shrunk to a fraction of their size, and are placed under strict rules. People still get hurt, just not as much as they would have been. |
| Posted by: Anonymoose 2008-07-07 17:06 |
| #8 The lender OWNS that property until the principal is paid. The lender has a lien on the property. Ownership remains with the borrower. If the court were to rule that there is no obligation to repay the principal then they would also have to rule that the lien is unenforceable to make it effective. |
| Posted by: DoDo 2008-07-07 16:48 |
| #7 If cancelling a loan means not paying back the principal, then that seems to be a pretty harsh penalty. Nope - won't work that way. The lender OWNS that property until the principal is paid. What might be forced is a renegotiation of the terms of the loan, or the option for the bank to reposses the property and cancel the loan. In which case some people might want to think twice about pushing this issue. |
| Posted by: lotp 2008-07-07 14:39 |
| #6 Mike, Fannie May and Freddie Mac are on their way out(25%+ falls today), taking 80% of American Mortgages with them. This is the real START of the credit crunch. |
| Posted by: Bright Pebbles 2008-07-07 14:24 |
| #5 gone are the days when a handshake meant something. Or giving your word to do something meant just that. That's what I grew up with, how did we ever get to this point. Even with agreements in writing a person can get screwed, or companies be lied to. Part of this evolution in principles that I witnessed were while at a car dealership, the salesman leaving to let the buyers 'talk privately', all the while they had the listening devices on learning what their negotiating price would be. This done in America, not being a spy for protecting America but information used against our selves here to make that all important buck. This trend has really rotted America to it's core. Looking at money as the motivator instead of what's really important. Breaks my heart that some of America has stooped to this type of unscrupulous behavior. I hope we're able to weed out these unsavory characters and possibly get back some of our honor of negotiating among each other with honesty and integrity. Without spending an arm and a leg to lawyers to argue the obvious. |
| Posted by: Jan 2008-07-07 13:59 |
| #4 I ran across an article a few months ago that told about how some folks being repoed were holding the banks at bay by saying that the lenders they'd signed the contract with were no longer in existence (buyouts, mergers, etc.) and had not followed state laws in notifying the debtor and 'renegotiating' the contract. The lenders interviewed (tho not for attribution) said that if those cases were decided in favor of the debtors, you could kiss about 50% of ALL home mortages in the US goodbye. Mike |
| Posted by: Mike Kozlowski 2008-07-07 13:14 |
| #3 Remember when people used to complain "To get a loan, you have to prove you don't need a loan..." |
| Posted by: M. Murcek 2008-07-07 12:21 |
| #2 Well, if the banks violated a term of the contract, they contract is void. Rarely will violating one term negate an entire contract. Second, it appears that what we are looking at here is a violation of law, not of the contract itself. If cancelling a loan means not paying back the principal, then that seems to be a pretty harsh penalty. Broadly applied, and left to juries to decide, then a lot of banks will be going under and the entire economy will suffer, not just the banking industry. |
| Posted by: DoDo 2008-07-07 12:00 |
| #1 Well, if the banks violated a term of the contract, they contract is void. I think a lot of shady deals were cut during the boom and the bad lenders are scrambling to make up their losses. The mortgage industry is badly needing of oversight and consistent laws for going over state lines. There are several companies that have offices in states with lax lending laws and loan to other states. The point being, the state where the money goes is what laws are enforced. This is one time where federal regulation needs to be clamped down, since it is interstate commerce and funds cross state lines. |
| Posted by: DarthVader 2008-07-07 10:54 |