Mortgage Industry Trends

Well, it was inevitable. There is no time in American history when a crisis takes places and lawyers don't immediately circle the wagons like vultures seeking new prey. Those lenders and brokers who had breathed a sigh of relief as they escaped the dark anguish-filled days wondering whether their names would be added to the victims gleefully posted on mortgageimplode.com, are now facing new obstacles to recovery in the clever ways lawyers are finding to sue on behalf of borrowers.

One interesting spectacle is the NAACP filing a class action lawsuit against Countrywide, Washington Mutual and others over the predatory practice of offering loans to borrowers who could not afford them, but were divined by Congress and the Fed to get them anyway. Ten years ago the same special interests that now claim banks forced loans on marginal borrowers unfairly, were calling for investigations and government action to ensure the very same lenders changed their lending criteria so that marginal borrowers could qualify for the American dream of homeownership.

Smart defense lawyers should call Congressional leaders to the stand and quiz them on their sudden conversion; the one that transformed sub-prime loans from an equal opportunity vehicle into a curse word in less than a decade.

On the local front I am seeing the most amazing lawsuits filed against lenders that one could imagine. In a notable state court action, a borrower is claiming that when they commited loan fraud and lied about their income they "had no idea what they were doing" and now that they are in default want their loan canceled. In another, borrowers who signed a commitment and other disclosures, clearly spelling out a prepayment penalty, now claim their loan officer told them "not to worry about it," leaving them damaged when they were forced to pay a hefty fee to refinance their ARM loan with its adjusted, higher rate. However my favorite is the borrower who admits in court papers that he was paid to act as a straw buyer in not one, but two deals, and now that he has failed to earn the fruits of his fraud due to his partners duplicity, has sued the mortgage lender. The bank, he claims, "should have known of the fraud and prevented the loan from closing."

Unfortunately for lenders, there is a dirth of judges, and even lawyers, who know enough about the way the mortgage industry operates. Those involved in these cases have a perception of lenders and brokers that has been skewed by the negative publicity of the subprime meltdown. The screetching rhetoric of politicians in a presidential election year has merely made the gap between truth and fiction, as it applies to the perpetratrors and victims in the housing crisis, much wider and difficult to cross.

Hold onto your hats (and wallets), folks. The dag-bern lawyers are coming, and the future for those brokers and lenders still left standing doesn't look pretty.

Copyright 2008, Andrew Liput, President, The Liput Group.
www.liputgroup.com and www.repurchasespecialists.com