| Mortgage High Risk Loans |
| By Credit Federal |
Published
06/30/2008
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Home Loan
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Mortgage High Risk Loan Troubles Continue
CountryWide mortgage faces a Florida lawsuit, meanwhile Wachovia announced it will stop offering a mortgage payment option that allows borrowers to pay less each month than the bank charges in interest.
Florida sued mortgage lender Countrywide Financial Corp for predatory lending practices, alleging the company granted subprime loans to high risk people who could not repay them. The lawsuit was filed by the Florida attorney general, and names Countrywide Chief Executive Angelo Mozilo as a defendant, in state court in Broward County, Florida.
Last Wednesday, officials in Illinois and the company's home state of California also sued Countrywide. On the same day, shareholders approved the company's takeover by Bank of America Corp. A spokesman for Bank of America, which is expected to complete its planned acquisition of Countrywide in July, declined to comment on the Florida lawsuit.
The state alleged the company gave subprime loans to borrowers who could not repay them, loaned money at higher bad credit rates to people who qualified for prime good credit rate loans, and engaged in other deceptive marketing and unfair trade practices, contrary to claims in its 10-K filings.
Florida claims: Countrywide made subprime adjustable rate loans "when they knew or should have known that the borrowers would not be able to repay the loan once the initial ARM period expired."
The complaint also alleged Countrywide told customers the interest rates were fixed when they were not, misrepresented to borrowers the amount of time the initial fixed interest rates would be in effect, and misrepresented how much payments would increase when the initial rate expired.
Meanwhile, Wachovia discontinued offering its "less-than-full interest payment option" (an option of one of Wachovia's controversial Pick-A-Payment mortgages), offered customers four payment options each month.
Critics claimed that paying less than the amount of interest charged could lead to negative amortization (the borrower could owe more than the value of the home), which contributes to high risk and subsequently increases the chance of foreclosure.
The move is a major pullback for the nation's fourth-largest bank, which started offering the loan after it purchased California-based mortgage specialist Golden West Financial in 2006. The portfolio of Pick-A-Payment loans is currently worth $120 billion.
Wachovia said it plans to continue offering a loan with three payment options for customers: one for the full amount of interest accrued, and payments of principal and interest on a 15- and 30-year repayment schedule.
Nevertheless, there are still good, legitimate mortgage refinance options for American consumers.
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