Lender Liability

The subject of lender liability is not new, good laws have been in place for many years. However, rarely were they enfored mainly because almost no one knew about them. It has taken a crisis of epic proportions as millions of Americans are losing their homes. Some are elderly people who owned their home free and clear, others were young first time buyers who were talked into borrowing more then they could afford, some were people who just needed to borrow some money for home improvements or college or a wedding. The range of circumstances varies as much as the financial positions. From the poorest of us to the affluent business person. When I visit a lenders web site and look up the REO properties they have foreclosed on, I see million dollar properties and broken down shacks. Only a select few resisted the lure of adjustable arm mortgages and the even more dangerous option arm mortgages. The mortgage companies sold these mortgages because Wall street paid more for them. The federal reserve waited until over half the country had taken out adjustable rate mortgages and then began raising interest rates 17 sessions in a row. A recipe for disaster. During the heyday of the real estate market, if you were in a mortgage you couldn't afford you would refinance and borrow more or sell your house and take a profit and start over. Now millions are stuck. The market is not appreciating, but our homes are depriciating.

So where do lenders figure into this sad story. They fueled this fire with no regard to a borrowers best interest. They weren't happy just to bend a few rules. They through the rules out the window. Anyone who was breathing was fair prey. They devised very sophisticated sales pitches and created sham companies to get kickbacks. They devised incentive plans like the YSP to get brokers to slam borrowers into higher rates. Lenders operate capitive reinsurance companies, title abstract companies, vendor management companies, and make affliated business arrangements. Lenders incorporate in different states. Lenders operate under multiple names, sometimes as much as 35 different aliases. To most of us that wouldn't mean much. Until you discover the reasons they do it. 

1.When the lender or builder or sometimes even real estate agent, steers you to use their settlement service providers, it's because they are getting a portion of the  money you pay for the services. Captive Title insurance is undergoing intense scrutiny right now.

2. When a lender puts a prepayment into your mortgage they get paid more from the investor.

3. When a lender incorporates his company he can choose the laws of the state of incorporation or the laws of the state the mortgage is sold in.

4. When a lender uses mulitiple companies they can hide kickbacks, who they really are if they've been in trouble before, or make it all the more confusing for a borrower to pursue claims against them. 

5. Finally my biggest pet peeve, when a lender gives a broker a commission for charging you a higher interest rate. In my book that's outrageous and can cost you plenty over the life of the loan.

2005 Survey Lists Top Ten Ways Mortgage Lenders Overcharge Homeowners
Publish Date : 5/17/2005 11:47:00 PM Source : eCommerce News Onlypunjab.com

A recently completed survey by the Justice & Integrity Project's National Mortgage Complaint Center reveals the top ten mortgage fee abuses in 2005. With interest rates at or near historic low levels, once again the refinancing boom and home sale bonanza is on. The problem: in increasing numbers, mortgage lenders and mortgage brokers are overcharging the average U.S. homeowner. While state and federal agencies proclaim there is consumer protection, there is little to no evidence to support their claim.

The Justice & Integrity Project's National Mortgage Complaint Center discovered the
top ten mortgage fee abuses in 2005:

1. Yield Spread Premiums: Yield Spread Premiums were designed to slightly increase the borrower's interest rate so that the lender/mortgage broker can compensate themselves for origination fees and other normal mortgage fees with little or no out of pocket cost to the borrower. However, many lenders/brokers often charge borrowers normal fees, along with a poorly disclosed "yield spread fee." The net result is the borrower ends up paying for his/her mortgage origination fees twice (without ever knowing it). While mortgage brokers are required to disclose the yield spread premium to the borrower, for some reason banks and or mortgage bankers have no such requirement (even though they get yield spreads too). Lender liability for poor disclosure of the yield spread premium may lead to millions of individual lawsuits because few homeowners understand what they are or how they impact their monthly interest rate.

2. The Good Faith Estimate: Over 70% of all borrowers do not receive their Good Faith Estimate and or Truth in Lending Statement within three business days after making application to the mortgage lender/broker. Without a Good Faith Estimate or Truth In Lending Statement, the borrower has no real way of knowing what his/her interest rate will be and no way of knowing what the mortgage fees will be.

3. Prepayment Penalties: Prepayment penalties for homeowners are a huge problem as they are rarely disclosed to the homeowner in an understandable way. Prepayment penalties are supposed to be disclosed on the Truth in Lending Statement. Unfortunately most homeowners never receive a Truth in Lending Statement until closing, and at that point it may be too late. Prepayment penalties need to be disclosed to the borrower in a clear form that is understandable to the consumer.

4. Document Preparation Fee: What exactly is a document preparation fee? When it comes to a mortgage transaction, it is an overcharge or a fee associated with doing something that should be covered by the loan origination fee.

5. Administration Fee: Again, like document preparation, an administration fee should be covered by the origination fee.

6. Credit Report Fee: Credit reports for most lenders cost between $6.00 and $18.00. Yet many credit reports are being charged as high as $65.00. It is illegal for a mortgage lender to up-charge third party costs such as appraisals or credit reports.

7. Courier Fee: Courier fees range from $40 to $100 on most mortgage transactions. Courier fees are the overnight express costs of shipping the closing documents from the actual lender to the escrow company. However, according to the U.S. Postal Service rates, a standard closing package overnight express cost to anywhere in the United States should only be $22.

8. Application Fees: "Application Fees" are on roughly half of the mortgage transactions inspected each year. Application fees could be called a "junk mortgage" fee. An application fee should be more than covered by the mortgage origination fee.

9. Mortgage Referral Services: Mortgage referral services sell leads to mortgage companies. The problem is that some of the leads will be sent to the most expensive mortgage lenders in the nation. The net result is that the homeowner gets a much higher interest rate than deserved, higher monthly mortgage payments and higher mortgage fees.

10. Title Insurance Fees: Next to the mortgage industry's "Yield Spread Premium" scheme, the biggest overcharge in the mortgage process is "Title Insurance." Title insurance costs run as high as $6000 (or more) for a home purchase, for what really amounts to about five minutes of time for a title clerk to check a property title for tax lien, mechanics lien or pending lawsuits. However, basic title insurance costs should be about $300 to $400 regardless of a home's value, as the process is no different for any homeowner. It is basically the same as doing an appraisal, or processing a loan application for a typical homeowner. Much of this news is grim for the mortgage industry and title insurance industry. Banks, mortgage bankers and brokers may now have enormous liability because of these overcharges. As featured in the May 2005 edition of Money Magazine, the Justice & Integrity Project inspects the mortgage documents of individuals about to finance or refinance their home for a nominal fee. The company's goal is to try to prevent homeowners or potential homeowners from being overcharged. If a client has already refinanced or financed their home, the company will inspect their documents for signs of possible over charging.

For more information, visit the Web site by typing "Americaswatchdog" into a search engine,
or call 866-714-6466 (toll free).