Cape Cod Barrister

The Mortgage Bomb Keeps Ticking

Well; it seems as if the feds are just beginning to understand the meaning of predatory lending.

Today, the NY Times reports (nytimes.com/reckoning) on the investigation by the SanFran US Attorneys office into option ARM loans called "Pick A Pay" that were originated by World Savings bank. Interestingly, many of these time bomb loans were originated right here on our spit by a now defunct mortgage company known as Hyannis Mortgage. How do we know this? Because we have been contacted by victims of this bank and mortgage company.

Calling the loan the Typhoid Mary of the mortgage industry, the loan allowed borrowers t0 pick a loan payment that did not even cover their interest charges. That resulted in negative amortization, i.e the increase, not decrease of the principal. Add to the mix decreased housing values and you truly do have a ticking time bomb. Our office has actually worked with a specialist in mortgage loan audits and we still can't figure out all the ways that the mortgage would work in certain circumstances. It is, in many respects, incomprehensible. An attorney in California representing some elderly mortgage holders calls the loans" the most destructive financial weapon ever deployed against the American middle class."  In fact, on the Cape, the victims traverse the economic spectrum. To make matters worse, most of the loans contained a three year prepayment penalty, which prevented many borrowers from refinancing once they understood what in the world they had actually signed.

There are currently almost $1 trillion in Option Arms out there and Wells Fargo (which bought Wachovia, the company that wrote many of the loans) estimates losses of $36 billion on the loans. The time bomb keeps ticking!

Many readers will certainly be critical of borrowers that took out these loans and loans like it. However, one thing we have learned in the course of handling these cases is that the companies trained salespersons and brokers to sell these loans. As the Times reports,  professional hucksters were taught how to pitch the  loans and deceive even the most savvy consumer.

The subprime wreckage continues; despite the efforts of our legislators and regulators.