Predatory Lending withheld information

[hardcor80]

What is the name of your state? Minnesota

I am definitely the victim of some predatory lending from a broker. We had searched for a loan that was good for us for quite some time. We were looking for something that was around 1500 or less a month on payments. The lowest we found was around 1600/1650. Then this guy that was referred to us (broker), found us a 5% interest rate libor arm interest only fixed for 5 years. We asked what the catch was, how he got it so low (next closest interest rate was 5.75% or something), and other things. He said no catch, it's the payment we are looking for, it's fixed for 5 years so we don't have anything to worry about. It's just an interest only so we won't be making principal payments. That was fine with us, there was no prepayment penalties, I planned on making extra payments and just needed insurance for lower payments just in case a life changing event happened. I/we had everything planned out.

We signed the application, my friend is a mortgage officer, he looked it over, everything was good and said it was a 5% libor arm. We are 2 1/2 weeks from closing, and received the real paperwork from the lender Bear stearns. We find out that it's an option arm (negative armortization). The APR is 8%, with the option to only pay 5%. We cannot afford this extra % points. Our loan amount will rise significantly, and will cost us 10's of thousands unless we refinance in the first few months, which will cost around an extra 5K just for a new loan. We can try to find a new loan in the short amount of time we have, but it won't be a good deal, and it's not the monthly payments we were comfortable with. We have signed purchase agreements, and arbitration papers for the close in 2 1/2 weeks. We are out $1000 for the earnest money, and appraisal fees, which we never would have went through any of this had we known the truth. I repeatedly asked if there was more paperwork associated with the loan, and the application itself never mentioned anything of the 8% from my memory. We can't do this loan, we have cancelled our utilities, reserved moving trucks, basically flipped our lives upside down and now may have nowhere to live. We don't know if we are bound to the purchase of the home because we are approved at this higher rate. I am wondering what legal consequences there are for us if we don't buy the home and we are approved, and what legal/illegal steps this broker actually took. Thanks for your help.What is the name of your state?

[xylene]

are not predatory lending.

You may be buying more house than you can afford.

5.75 % is a very low rate...

[pojo2]

And when you called your loan officer he/she said?

[hardcor80]

Thanks for the reply. The broker stated that he told me over the phone that it was a negative amortization loan. I don't remember hearing anything about that, or the fact the apr was 8%. He just confirmed now that we would be paying the 8% sooner or later. On all the documentation however GFE's, loan applications, etc. never once was 8% stated or placed on them. I'm guessing no legal action is available, but this seems illegal to me... It's just a classic bait/switch. So he just said we knew about it all along cause he maybe told my wife over the phone (she doesn't know as much about this). The loan is all in my name.

2. The 5.75% is a good rate, if we are putting all our reserves plus gift money from parents into the down payment and leaving nothing in the bank. It may have been too much house, but that doesn't change the steps he took.

[xylene]

Originally Posted by hardcor80

Thanks for the reply. The broker stated that he told me over the phone that it was a negative amortization loan. I don't remember hearing anything about that, or the fact the apr was 8%. He just confirmed now that we would be paying the 8% sooner or later. On all the documentation however GFE's, loan applications, etc. never once was 8% stated or placed on them. I'm guessing no legal action is available, but this seems illegal to me... It's just a classic bait/switch. So he just said we knew about it all along cause he maybe told my wife over the phone (she doesn't know as much about this). The loan is all in my name.

It is an ADJUSTIBLE rate mortgage. I am sure that the wording is convoluted and verbose. What it can adjust to is no doubt a function of formulaic calcualtion based on the prime rate (or some other indexable rate).

Interest only mortgages are not predatory lending.

ARMs are not predatory lending.

Do I think its health for the the economy, and / or good for consumers? Personally NO. I do not. That is a political discussion. And the ramification is that you probably would NOT have been able to afford your house.

2. The 5.75% is a good rate, if we are putting all our reserves plus gift money from parents into the down payment and leaving nothing in the bank. It may have been too much house, but that doesn't change the steps he took.

What steps? The steps were you got into the house you wanted in a plan you could afford. Your mortgage broker does not controll interest rates. Do you read the newspaper, let alone the financial magazines an aspiring homeowner should be reading.

1) ARM / Interest only loan products are not for everyone. In fact they are good deal for a very narrow segment of homebuyers. Using such a 'creative finance' solution to get into a home without much financial wiggle room is a huge red flag. Unfortunately that is only unethical, and not illegal predatory lending.

2)Inflationary pressures are real. Central bankers have a mandate and a duty to respond. Interest rates therefore are rising. Do you know what Greenspan said about Interest Only Mortgages before his tenure ended?

[hardcor80]

Wow I was asking for some advice... Not a lecture... I know how to handle my money, which is why we are backing out of this expensive loan. I'm 24, have two years of my career under my belt, and went out looking for some options. What we found was a 5% interest only ARM. Not an 8% option ARM. Which was never stated. It may not have been predatory lending, but was withholding information on the real APR of the loan.

[xylene]

Originally Posted by hardcor80

Wow I was asking for some advice... Not a lecture... I know how to handle my money, which is why we are backing out of this expensive loan. I'm 24, have two years of my career under my belt, and went out looking for some options. What we found was a 5% interest only ARM. Not an 8% option ARM. Which was never stated. It may not have been predatory lending, but was withholding information on the real APR of the loan.

Look it's not a lecture. Interest only mortgages are a complex loan product. So are most ARMs. Put them togther and it is an awful lot to comprehend.

I have not read your loan documents. I was only presenting one scenario how you could be ending up with an 8% APR rate.

If you believe the loan you are getting is not the loan your signed up for then you need to hire a lawyer ASAP. I would strongly recommend that either way for your own peace of mind.

[pojo2]

Interest only loan products are not for everyone. In fact they are good deal for a very narrow segment of homebuyers.

Amen. In fact if it is the only way to get into a house then you are in real trouble already and it will only worsen in 3- whatever years!

[sunnyside]

Originally Posted by hardcor80

What is the name of your state? Minnesota

I am definitely the victim of some predatory lending from a broker. We had searched for a loan that was good for us for quite some time. We were looking for something that was around 1500 or less a month on payments. The lowest we found was around 1600/1650. Then this guy that was referred to us (broker), found us a 5% interest rate libor arm interest only fixed for 5 years. We asked what the catch was, how he got it so low (next closest interest rate was 5.75% or something), and other things. He said no catch, it's the payment we are looking for, it's fixed for 5 years so we don't have anything to worry about. It's just an interest only so we won't be making principal payments. That was fine with us, there was no prepayment penalties, I planned on making extra payments and just needed insurance for lower payments just in case a life changing event happened. I/we had everything planned out.

We signed the application, my friend is a mortgage officer, he looked it over, everything was good and said it was a 5% libor arm. We are 2 1/2 weeks from closing, and received the real paperwork from the lender Bear stearns. We find out that it's an option arm (negative armortization). The APR is 8%, with the option to only pay 5%. We cannot afford this extra % points. Our loan amount will rise significantly, and will cost us 10's of thousands unless we refinance in the first few months, which will cost around an extra 5K just for a new loan. We can try to find a new loan in the short amount of time we have, but it won't be a good deal, and it's not the monthly payments we were comfortable with. We have signed purchase agreements, and arbitration papers for the close in 2 1/2 weeks. We are out $1000 for the earnest money, and appraisal fees, which we never would have went through any of this had we known the truth. I repeatedly asked if there was more paperwork associated with the loan, and the application itself never mentioned anything of the 8% from my memory. We can't do this loan, we have cancelled our utilities, reserved moving trucks, basically flipped our lives upside down and now may have nowhere to live. We don't know if we are bound to the purchase of the home because we are approved at this higher rate. I am wondering what legal consequences there are for us if we don't buy the home and we are approved, and what legal/illegal steps this broker actually took. Thanks for your help.

Indeed, you were a victim of bait and switch tactic. This broker should have given you a GFE indicating the 5% interest, 5 yr. interest only payment document which you should have signed and given back to them. This could have locked you in to that rate until close of escrow. Then they're totally bound to honor that rate. But I reckon, you didn't sign no GFE so they can change their rates on you anytime they want.

In the meantime, is this lender requiring more documents from you like bank statements, retirement statements, salary statements? If you don't have sufficient cash on hand or sufficient assests and your your debt to income ratio is high, then you won't qualify and won't get the loan. If you don't get the loan, then you can get out of the deal legally. The sellers can't sue you for not getting a loan. I hope you haven't released the loan contingency clause. If you did and you didn't get the loan, then they can take your earnest deposit money. Losing your deposit is the worst thing that can happen.

[alent1234]

Originally Posted by hardcor80

Wow I was asking for some advice... Not a lecture... I know how to handle my money, which is why we are backing out of this expensive loan. I'm 24, have two years of my career under my belt, and went out looking for some options. What we found was a 5% interest only ARM. Not an 8% option ARM. Which was never stated. It may not have been predatory lending, but was withholding information on the real APR of the loan.

you should be able to get earnest back since you can't get financing. With rates the way they are now you can either use creative financing or don't buy. i don't think rates will be going down anytime soon. in fact we are still below the historical mean rates.

[Buk1000]

This isn't to lecture the OP but hopefully convince other readers who are just now considering getting into an IO loan or other type. I agree that if a person has to use such loans to get a house, they're often trying to buy something beyond their means. The best thing that could happen for the OP is to NOT get this loan, get your earnest money back and move on.

The problem is the lending industry isn't where buyers should place their trust regarding "how much can I afford." Even years ago lenders were willing to approve me for more than I was comfortable spending. It's much worse now. Down payment assistance charities have been called on the carpet by the IRS, there is a ton of news on mortgage fraud, etc. Not all types of predatory lending are illegal.

There are people upside down in their mortgages now, because they bought when prices were at their peak. Now their payments are going up but they have no equity, maybe even worse--house is not worth what they owe. if they have to sell suddenly for any reason they are in deep trouble. IMO this push for everyone to own a home has been overblown. There are reasons that owning isn't preferable sometimes. Being in a bad position to get a good loan is one of them.

[CJanssen]

Granted, I haven't read every reply...but it seems like most people are confusing loan terms. I'm a loan advisor for New Century (Home123 Mortgage) and the infamous "Option ARM" is definately big trouble. I've lost quite a few loans due to brokers telling people they have that magical 3% rate.

Fact is, MOST people ARE misinformed by the broker/lender. The typical "sale" involves telling the borrower what their rate/payment is for the next X amount of years, but not what the loan is actually doing.

The gigantic pitfall is when your 3%, 5%, etc. period is over and you then are forced into paying 6.5% or higher ALONG with a mortgage balance that just went up $20,000. Pretty shocking isn't it?

The Option ARM is also known as the "neg am" loan. As for the OP, I definately feel your pain and wish you the best out of your painful situation. You've been bit by one of the sleaziest loans out there for your situation.

-JIM

[pojo2]

Hey Jimmy getting closer and closer to an ad.

[CJanssen]

Originally Posted by pojo2

Hey Jimmy getting closer and closer to an ad.

Sorry, that wasn't my intention. I mentioned in my post about my postition within a mortgage company to use as credibility for my response...not to solicite.

[pojo2]

Originally Posted by CJanssen

Sorry, that wasn't my intention. I mentioned in my post about my postition within a mortgage company to use as credibility for my response...not to solicite.

Your credibility is not in your title nor for whom you work, your credibility is eventually known by your posts. I know so called lending professionals who do not even have the comprehension to find the front door when it comes time to leave for the day.

Your posts appear to be very sound and you will make an excellent addition to the site!