Option ARM Truth-in-Lending (TIL) Litigation

For sample TIL disclosure, click here

The sample TIL disclosure above is quite familiar to us at Forster Realty Advisors. We have seen quite a few of its kind, some generated by America’s top wholesale lenders.

The TIL shows an Option ARM loan that apparently is not due for a reset for 12 years. In reality, horrified homebuyers discovered that the loan documents allowed for an interest-rate reset after 2-4 years. How? the lenders continued to use TIL forms which allowed 125% of negative amortization to be added to the loan balance, while the loan documents showed an allowable maximum of 110-115%.

No More Stated Income Loans

The Federal Reserve Board, in new guidelines to all mortgage lenders, is expected to require the elimination of “stated income” loan programs. It is not premature to imagine the effect of this rule on the housing market and on the mortgage industry.

It is safe to say that in my neck of the woods, Southern California, those “liars’ loans” play an immeasurable role in keeping the housing market from total collapse, as hardly anyone here can qualify to buy the home they live in.

Truth in Lending: The Lawyers’ 2008 Full Employment Act?

The American Bar Association bookstore is now selling it members a DVD presentation dealing with all aspects of the Truth in Lending mortgage disclosure, how to recognize a bad TIL disclosure and how to turn it into a profitable lawsuit against the lender. The reason: many lenders have been careless in disclosing pertinent information about their Option ARM loans; in particular, when the interest rate was projected to reset. In a typical TIL disclosure, the lender would show the reset as happening many years into the loan, perhaps the 8th or the 9th year, when in reality the fuse was quite a bit shorter, sometimes 4-5 years ealier than projected.

The courts have taken a dim view of such disclosures, and in California we have seen dozens of TIL lawsuits being filed daily.

Eric Forster