Despite the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, predatory lending continues to plague borrowers. As a result of the Dodd-Frank Act, the Consumer Financial Protection Bureau is in the process of implementing wide-sweeping regulations, including regulations on compensation for “Residential Mortgage Originators” who must verify consumers “ability to repay” and regulations which prohibit a mortgage with excessive fees or abusive terms that may be raised by the borrower as a defense to a foreclosure. The Dodd-Frank Act establishes national underwriting standards for mortgage loans, defining “qualified mortgages” with safe-harbors to prevent a logjam in loan availability. A “high-cost mortgage” is defined and governed by Regulation Z, which also implements sections of the Truth in Lending Act. The Dodd-Frank Act changes loan servicing from simply an operational process to compliance oversight, regulates appraisals for higher-risk mortgages, and creates the Office of Housing Counseling within the Department of Housing and Urban Development.
This realm of complex new regulations is designed to help real people with predatory loans. Recently a local homeowner came to us with a demand from his lender for $66,000.00 to prevent a Trustee’s Sale on residential property for a $25,000.00 line of credit secured by a deed of trust, from which the homeowner only received approximately $8,300.00 and which was just a few months in arrears. The lender calculated late fees per day on unpaid late fees! In addition, the designated interest rate of 14% was more than 8% over that of Treasury Securities at the time of the loan (12 C.F.R §226.32(a)(1)); the total points and fees before loan closing exceeded 8% of the total loan amount (12 C.F.R §226.32(a)(2)); the loan had interest-only payments, when the law requires loans of less than five years to have a payment schedule that fully amortizes the outstanding principal balance (12 C.F.R §226.32(d)) and there were no Truth in Lending Act disclosures for the mid-term loan modification (15 U.S.C. 1601 et seq.).
Possible civil penalties included actual damages of twice the amount of any finance charge in connection with the transaction and/or statutory damages up to $4,000 per violation, plus costs and reasonable attorney’s fees (15 U.S.C. 1640). Had the lender not seen the light, we were prepared to file a Complaint against this predatory loan, along with a Temporary Restraining Order to prevent the Trustee’s Sale until we eliminated the predatory loan, the basis for the Trustee’s Sale. The Complaint would have included causes of action for fraud and consumer fraud, giving rise to claims for punitive damages.
While the Dodd-Frank Act specifically defines Residential Mortgage Originators to exclude licensed real estate brokers/associates, all parties involved in home loans should be generally familiar with the predatory lending regulations and be wary of mortgages with excessive fees and abusive terms.