Posted by aatatusko on 2/6/07 5:52am
Msg #174212

From today's Washington Post

http://www.washingtonpost.com/wp-dyn/content/article/2007/02/05/AR2007020501415.html?sub=AR

Reply by PJM/MI on 2/6/07 7:27am
Msg #174218

I've seen a couple of these articles. I ALWAYS tell the bo's the terms of the note, and I see so many of them just nod in agreement and sign their lives away. It's their business, and I'm sure the docs were explained to them. They DO have a copy of the docs & the 3 days RTC.
Suing because "they didn't know" sounds hincky to me.

Reply by MistarellaFL on 2/6/07 7:34am
Msg #174222

Question to NSAs

I'd blame the broker.
Just from the information available and previous experiences with the broker NOT explaining the terms of the loan to the brw's. Or at least the parts they are not expecting to see...

When you are signing an ARM, do you point out the part of the note showing when the first change to the interest rate or payment will occur?

Reply by PAW on 2/6/07 8:03am
Msg #174231

Re: Question to NSAs

I had one last month in which the borrower didn't fully understand the Option ARM program. Of course, I couldn't explain it (even though I know exactly how they work) other than show him the terms as specified on the note. He was smart enough to ask what happens to the interest that is due that isn't paid because the monthly payment is less? He called his broker, on speakerphone. I almost gagged many times during the conversation. Afterwards, I called the broker myself and told the broker that he apparently doesn't understand the program either. He didn't lie to the borrower, but certainly didn't tell him how the minimum payment part works, just the interest only option, which is not what shows on the note.


New Requirements as of January 1st, 2007

Interest Only and Payment Option ARM Programs will require the distribution of an additional disclosure. The Handbook can be downloaded and printed directly from the following link:

http://www.federalreserve.gov/pubs/mortgage_interestonly/default.htm

Additionally, Brokers may obtain the Handbook from their forms supply vendor. Effective for all applications taken on or after January 1, 2007, the Handbook must be given to all borrowers applying for or inquiring about an “interest-only” (ARM or fixed), “negatively amortizing” or “payment option ARM” product at the time of inquiry or within three (3) business days of receipt of application.

(Source: Fed's press release of 12/26/06 http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061226/default.htm)


I wonder how many brokers and lenders are actually doing this!!

Reply by MistarellaFL on 2/6/07 8:13am
Msg #174235

A must read for those not clear on these types of programs

Excellent reference links!
I myself doubt that few brokers and lenders are providing the CHARM booklet.

Reply by ReneeK_MI on 2/6/07 8:10am
Msg #174234

Re: Question to NSAs

I point out all the terms on every loan. Still, a lot of people put their faith in things that are said verbally by other people.

I had a hard time with the decision made by the court, in favor of the borrowers. Cripe, now there'll be one MORE disclosure added to the packages that people won't pay attention to.

With the economy so poor, and with the foreclosure rate so high, I anticipate the lending industry to take a lot of the heat that really is someone else's way of grand-standing.

I'm not saying the industry is free of crooks and thieves - no more/no less than any other industry. It's just easier to pick on, and can bring in a LOT of attention (read it however you wish to). Ha, listen to me - the historical hysteria towards the "P" word (Predatory Lending) has me almost AFRAID to publically 'defend' the lenders.

Reply by aatatusko on 2/6/07 8:40am
Msg #174237

Re: Question to NSAs

I've had two lenders include the charm 'booklet', sixteen more pages added to edocs x 2 of course. It doesn't need to be signed, and of course those borrowers who really should read it are the very ones who probably won't.

Reply by SueW/Tn on 2/6/07 8:43am
Msg #174238

Re: Question to NSAs

I'm with Renee on this one...

My opinion is that it's darn difficult to put the blame on anyone! I've had BO's with neg amm's and I point out all the details AND ask, YOU DO UNDERSTAND CORRECT? Then I add "here is the disclosure that explains everything you ever wanted to know but were too afraid to ask, may I suggest you read this start to finish during the next 72 hours". ALWAYS I find the BO's have a "love affair" going on with their LO, they have a trust factor that's unreal and I've always gotten the feeling that this person could sell the London Bridge if necessary.

So who's fault is it when someone has such an overall feeling of trust? Is the LO to be drawn and quartered because he/she sold a loan? It took me a very long time to put the blame where it, IMHO, where it belongs...BO's are too quick to sign their names and they are not taking their share of the responsibility. They pay more attention to a vacumn cleaner they purchase than on the loans of their homes! They'll vacumn the driveway in the 3 days they've got to make their final decision, load it up and do their neighbors homes...drop it off a 30 foot cliff even just to make sure it's "gonna work" before their cancellation time is up. But a house? Something they will pay for over 30 years? Nada....zip....zero.

Like Paul I have heard alot of double talk, half-truths. So who's fault is it when someone blindly believes? My particular favorite is "don't worry about the pre-payment penalty, we'll redo this in 2 years and wave the penalty". WHAT? I've always lived by the beer truck theory, WHAT IF that person that's verbally making a deal gets hit by a beer truck? Does the next one KNOW what was verbally promised? BO's believe exactly what they want to, common sense screams NO NO NO but at that particular moment they're shaking their heads yes! Bottom line, we can't save them....we especially cannot save those that are looking for a band-aid to stop a hemorrage.

Reply by hcampersFL on 2/6/07 9:19am
Msg #174242

Re: Question to NSAs

What about when it says on the note that the rate will adjust after 30 days but the LO convinces them that because the payment won't change that doesn't count. WTF???

But the BR's believe what is being told to them by someone they will never meet instead of what they are signing in black and white. I will never understand this.

Reply by Becca_FL on 2/6/07 8:46am
Msg #174239

Re: Question to NSAs

It sounds like the couple in the article took out an MTA and didn't understand that while they pay the lowest interest rate, the higher adjustable rate still accrues on the back end of the mortgage. The majority of the MTAs that I present are to investors that understand the concept. However, the average Joe Blow dose not always understand how the MTA works and that it is likely that there will be a negative amortization. When I present the note, I always point to the first change date and on the MTAs it is always the month after the first payment is due. If there are any questions at that point, it's time to get the fast talking LO/Broker on the phone to explain the product to the borrowers again.

Reply by MichiganAl on 2/6/07 1:05pm
Msg #174301

Sounds like an Option Arm

Some of those notes are written so that even a lawyer would get confused. Those loans can be a nightmare IF you don't understand what you're doing. I have a sample note for an option arm. I've read it 100 times at it still doesn't quite make sense. Your interest rate is 1%, your first payment is due April 1st, 2006, your interest can change as of April 1st, 2006 and every month thereafter (huh, that's the first payment date), your payment can change as of April 1st, 2007 (wait, my interest changes 04/06, but the payment changes 04/07?), your loan has a negative amortization (does the average person even understand that?) with a limit of 120%. No where does it actually say what your monthly payment is or what the payment options are.

It was only a matter of time before something like this occurred.

Reply by PAW on 2/6/07 4:27pm
Msg #174358

Re: Sounds like an Option Arm

Remember that interest is always paid in arrears. So the first payment is due 4/1, but the interest that is due on that day is based on the March interest rate (intro rate of 1%). The kicker is the first PAYMENT change date is often a year or two away. So as the interest rate climbs at an alarming rate, the payment, which doesn't change, isn't enough to cover the accrued interest. The unpaid interest is then added to the principal balance. This is called negative amortization because the balance is increasing instead of decreasing. The balance can only increase to 120% of the original loan amount.

Each month, the borrower would get a statement offering 4 payment options:

Minimum payment, based on some low percentage (index + margin)
Interest only, based on the exact amount of interest accrued
Principal + interest based on an adjustable plan
Principal + interest based on a fixed plan

I never recommend option ARMs to a homeowner. They are designed for investors or those who will be keeping the property for less than a year.

Reply by MichiganAl on 2/6/07 6:37pm
Msg #174384

Thanks Paul, I do understand how it works.

My point was that verbiage on the note can be extremely confusing and unclear for someone who doesn't know what they're doing. And since we couldn't possibly go into the kind of explanation needed, such as the one you've so clearly given, without severely crossing into UPL territory, sometimes we're left with crossing our fingers and hoping to God that the borrower understands what he's doing and that the l.o. isn't a snake oil salesman. But I agree, I think they're for investors or very short term properties only.

Reply by JanetK_CA on 2/7/07 1:11am
Msg #174460

Right!

I think lots of good points have been made here and ultimately some lenders and some borrowers need to share the blame. Lots of times it seems like these things are way over people's heads and they don't really want to make the effort to figure it out. They want someone else to bottom-line it for them. How many times have you sat there pointing out key elements that the borrowers need to be aware of and seen their eyes glaze over? I have more times than I care to think about! Even worse, as PAW talked about, is when they DO call their LO and are told something that you can't even recognize as being the same loan - either because they don't understand it either, or they ARE a snake oil salesman.

Conversely, why can't there be language in the TIL (somewhere where it stands out) that clearly states something to the effect that: "if you pay only... [whatever, depending on the loan], you may end up owing more than you did when you took out this loan." Or at least something that might lead the average person to recognize that fact. I think the TIL is a joke to many people taking out an ARM (depending on the specifics). Even when we point out the key elements - and that only the numbers shown for any fixed rate period are certain, it isn't really communicating to people what they need to know, i.e. the possibility of negative amortization, if applicable. With an ARM, it sometimes seems to me like a square widget squeezed into a round hole, in terms of real clarity to the borrower...

Having said all that, in my area there are lots of sophisticated borrowers who know what they are signing, and sometimes an ARM is the best loan for their circumstances, but those aren't the people we need to be concerned about.