I just finished reading “Truth-in-Lending Disclosure Failure Leads to Mortgage becoming “UnSecured”” at The Big Picture. This article sent chills down my spine. The main reason being that if borrowers are successful in detaching the collateral from their mortgages then we are indeed headed for some really bad economic times.
The premise of the post is that many of the Truth in Lending Disclosure for 2/28 ARM Loans (sub-prime) did not adequately document the actual interest rate, payment and cost of the mortgage over the loan term. This is a direct violation of many state and federal lending laws. In the authors own words:
Let me put on my lawyer hat for a moment: The Truth-in-Lending Act requires “clear and conspicuous” disclosure to borrowers of the key provisions of their mortgages. This includes such details as the eventually reset interest rate, specific loan terms, and the total dollar amount the mortgage will cost over time:
And lawyers for borrowers losing their homes are very aware of this noncompliance of existing laws:
This seems to be where many of the subprime 2/28 ARMs ran afoul: They failed to meet the disclosure laws regarding actual interest amounts and payments.
Who has gotten tagged with these cases so far? Subprime lender NovaStar Financial Inc. (NFI) in Kansas City settled a class action suit for $5.1 million. And, consumers in Wisconsin recently won a class-action TILA suit (its under appeal).
Go over to the article and read the whole thing. It makes you wonder what everyone was thinking, especially those buying and selling mortgages. Aren’t they supposed to be reading this stuff?