Analytical State of the Mortgage Industry
The real estate meltdown began when the greed driven mortgage industry operated a fraudulent and systemic lending scheme that allowed unwarranted speculation in home prices. This speculation created “phantom equity,” where the perceived value of the home, fueled by unsustainable mortgages, far outpaced the home’s intrinsic value. When the fraudulent practices of the mortgage industry were exposed, the phantom equity instantly evaporated, leaving homebuyers with homes worth less than what they owed. This negative equity increased the mortgage payments substantially and forced the homeowner into foreclosure.
The subprime financial market was created to assist those with less than stellar credit to qualify for a home loan. However, the subprime market became an arena for lenders and their agents to generate large pay-offs through exorbitant fees and interest rates. Having an incentive to make obscene amounts of money, lenders pushed subprime loans to the elderly, the poor and minorities even though they would have qualified for a regular prime loan. Fannie Mae estimates that approximately 50% of subprime, refinanced loans could have been prime loans and saved the homeowners thousands in interest and fees.
When a majority of foreclosures exposes predatory lending practices, the first line of defense is substantiating violations of the Truth In Lending Act, codified in 12 CFR Part 226 (Regulation Z). Of particular relevance, § 226.34 Prohibited acts or practices in connection with credit subject to §226.32 sub-paragraph (ii) et seq. Verification of repayment ability, and § 226.35 Prohibited acts or practices in connection with higher-priced mortgage loans. In general, predatory lending practices include, but are not limited to: a) Steering and Coercing borrowers to high interest, high fee subprime loans; b) Excessive Fees of 5% or greater of the total loan amount when under normal circumstances, fees do not exceed 1% of the total loan amount; and c) Insurance and Other Unnecessary Products.
If predatory loan practices can be substantiated the loan contract may be rescinded or voided and all funds received by the lender including interest and penalties must be returned to the borrower.
Identifying the Party Entitled To Enforce; using statutory requirements of law on Mortgages Loan Instruments.
In cases in which the notes fulfill the technical requirements of negotiability, Article 3 of the Uniform Commercial Code herein known referred to as the (UCC) or the states equivalence of provides rules governing the obligations of parties on the notes and the enforcement of those obligations. §3-104.