Were Mortgage Borrowers Tricked?

John Pacenti

Denise Bennett, like many Americans during the boom times of the housing market, decided to refinance her home.

She wanted to go from an adjustable rate mortgage to a 30-year fixed loan to pull some equity out of the West Park, Fla., home she inherited from her parents so she could pay off credit card debt.

A few months ago, she was advising a friend how to refinance without getting ripped off. That’s when the fine print caught her eye: She wasn’t in a 7.6 percent fixed-rate mortgage at all. Instead, her monthly mortgage was scheduled to adjust in November from $1,400 to $1,700.

“I was trying to show her the pros and cons, and I ended up being a conned,” Bennett said. “I really felt the fool then.”

Confined to a wheelchair, she already is struggling to make her monthly payments. So instead of waiting for the sword of Damocles to fall in the form of foreclosure, Bennett is fighting back.

She sued her lender, Countrywide Home Loans, on June 26 alleging fraud in a case assigned to U.S. District Judge William Zloch in Fort Lauderdale.

Bennett is a plaintiff in one of several suits filed against the troubled lender by the Affirmative Defense Group in Margate, Fla. Her attorney, Frank Ingrassia, said he has filed about 70 such suits against a variety of lenders.

“It’s an industrywide problem,” Ingrassia said. “Some of the clients tried to do workouts and weren’t able to do that, and when you are faced with foreclosure it’s an issue of striking first or not.”

He said the litigation is a “new approach for dealing with unprecedented levels of foreclosures.”

Nearly all of the lawsuits involve adjustable rate subprime mortgages to high-risk customers. Ingrassia said some of his clients were offered “teaser rates” as low as 1.5 percent that adjusted up within 30 days.

The lawsuits also allege Calabasas, Calif.-based Countrywide and the other lenders falsified paperwork that exaggerated the income of the customers to qualify for the loan.

The Center for Responsible Lending in Durham, N.C., said on its Web site that Countrywide’s aggressive subprime lending has made it “synonymous with the mortgage meltdown as its customers face rising defaults and foreclosures, in large part because of the company’s lending practices.”

Countrywide was purchased by Charlotte, N.C.-based Bank of America last week in a $4 billion stock deal. Spokeswoman Shirley Norton said the bank had no comment on pending litigation against Countrywide.

Martin Eakes, CEO of the nonprofit Center for Responsible Lending, has said Bank of America might be the cure for Countrywide’s systemic illness. “Bank of America has the resources and the will to begin cleaning up the subprime mess that Countrywide has played such a large role in creating,” Eakes said.

Ingrassia’s lawsuits seek rescission of his client’s mortgages plus damages including the reimbursement of all mortgage payments, finance charges, interest, attorney fees and costs.

The litigation alleges the lender violated Florida’s Deceptive and Unfair Trade Practices Act and the federal Truth in Lending and Real Estate Settlement Procedures acts.

The lawsuits were filed as state regulators ganged up on Countrywide. Florida Attorney General Bill McCollum sued the mortgage lender in Broward County last week for alleged predatory lending practices. California and Illinois also have filed lawsuits.

“It’s nice to know governmental authorities are thinking along the same lines,” Ingrassia said.

McCollum’s complaint alleges many of the same things cited in Bennett’s suit: Countrywide told customers interest rates were fixed when they were adjustable, misrepresented the length of teaser rates and long-term higher rates.

“It is unthinkable that a company would try to take advantage of someone’s dream of homeownership,” McCollum said in a statement. “Florida homeowners who are trying to protect their homes from foreclosures shouldn’t have to worry about their mortgage brokers or lenders unfairly profiting at their expense.”

Bennett said she called Countrywide to complain she didn’t receive a fixed-rate mortgage, and the loan officer told her she should be happy she “got two out of three,” referring to a lower rate and cash back.

“They just wanted to make their bonus and do whatever it takes to get it,” Bennett said. “I could have easily shopped around and got a 30-year fixed mortgage. They didn’t give me all the information.”

Ingrassia said many mortgage applicants didn’t notice they were being sold an ARM until they were hit with a sheaf of paperwork at the closing.

Some noticed but were faced with losing the deal if they didn’t sign on the spot.

“Most people have movers lined up and are ready to make a move. It’s psychological coercion,” Ingrassia said. “They tell them, ‘Don’t worry about it. You will refinance when the property goes up in value.’ But keep in mind many of these mortgages had pre-payment penalties.”

And, of course, the appreciation stopped and values plummeted.

Ingrassia said some of the problems could have been avoided if customers hired a lawyer for their closings.

Bennett, like many others these days, just worries about paying her bills in a down economy.

“I’m behind on many of my bills,” she said. “I’ve been neglecting them trying to make my mortgage.”

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