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New Bank ownership - Loan index changed

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L

lesl

Guest
my mother lives in rural missouri and has had a long-time relationship with a local bank. in 1998, she took out a loan on her farm with this bank. the loan had very good "details" one of which was that the "index" was based on the local bank's "cost of funds index"(not the standard 11th district cofi, but the local bank's cofi). this "icsb" cofi is actually named in the original loan contract. she was happy with the loan until last year when the bank was purchased by another bank.

without any consultation with my mother, the new bank changed the "index" from the original "icsb cofi" index to a standard 1-year treasury bill index(I realize this is a standard index for real estate loans) keeping all other terms of the original loan contract. they wanted her to sign new loan papers authorizing the change, but she refused since it appeared that they were unilaterally changing the original loan agreement w/o her consent. she contacted me because I am currently paying this loan for her since she has subsequently retired(since the 1998 loan was initiated).

i did a historical comparison of the "index" rates for the original vs new and discovered that the new "index" averaged significantly higher than the original "index". after discussing this with my mother, she contacted her long-time lawyer who tried to communicate my mother's concerns to the bank(he admitted he was not a financial lawyer). The bank responded with a proposal to use another "index"(i.e., the 11th district cofi). after another comparison of this "index" history with the "icsb index" history, I came to the same conclusion. the new "index" rates average ~2% higher(between the years of 1981-present) than the original index(during those same years).

i wrote a letter to the bank(in my mother's name - which she read/signed/sent) summarizing my findings. i suggested that the use of either "index" was acceptable as long as the "margin"(since this is an 1-year adjustable rate loan) is adjusted to account for the average historical "index" rate difference shown in the letter. their response was a terse "this matter has drawn out far too long. sign the new loan documents". since this time, the bank has not contacted my mother and payments have been made according to the new loan document(never signed by my mother pending resolution of the "index" concerns).

the change in "index" appears to amount to an extra $500 per year assuming a ~2% "index" increase as the result of the "index" change. there is still ~12 years left on the loan term. in 3 months, the adjustable loan rate feature will become active again and the "index" concern still hasn't been resolved.

it appears to me that the bank "has breached the original loan contract agreement" by not providing the originally named "icsb index" loan. however, my mother want the original loan terms(it was a good loan). i stated this in my letter, but also ackowledged that the original loan "icsb index" may not be available and would consider an "index" change if accompanied by a "margin" rate change yielding a roughly equivalent final loan rate.

please advise concering a course of action. perhaps you could recommend a good financial lawyer in the farmington, missouri region.

thank you,

lesl
 



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