You Only Need Negative Amortization Disclosures on Negative Amortization Loans

from an email:

First let me say that I really learned a lot from your postings/articles/website; its awesome that a resource like yourself exists.



Now to the problem. I recently refinanced and the mortgage broker lied to me about many, many things. I was sold a negative amortization mortgage. The broker provided me a chart showing my payment schedule for 30 yrs; it showed my payment split between interest & principal. I was told that my rate was fixed for 5 yrs and that it would go up to as high as 9% after the 5 yr period. When the closing came and I inquired about the 9% highlights in the docs and the negative amortization disclosures he stated that they didn't apply to me or this loan. He pointed to the section of the doc that stated that my payments would be fixed for 5 years and that my interest rate would also be fixed for that 5 year period. After closing I received the docs from the lender which outlined the fact that I had 4 choices for payments and when I called for the explanation I almost died. The broker apparently didn't really understand the loan at all; he has now offered to refinance me without any fees...but I am supposedly stuck with the prepayment penalty. When the broker and I originally discussed the penalty he explained that I would probably want to refinance at the end of the 5 yr period anyways so I shouldn't worry about it. The broker also took my lead from a mortgage company he was working with when I originally inquired about the refinance. About 2 weeks into the process he told me that he had quit his job @ the mortgage company and was now out on his own as a broker (emphasis mine DM). Only now did I just realize that he really didn't have the ownership of my lead as his original employer paid for it & provided it to him during his employment. I'm sure that his original employer would be very disappointed to learn that he had taken the business with him when he resigned.



Now that the problems been explained my questions are as follows; Can I sue the broker to recover the refinance fees and the prepayment penalty?



Can the broker that lied to me and provided all the false info be sued or charged; can he lose his mortgage brokers license?



Any advice as to what I can do/what I should do at this point? Thanks in advance for any info you can provide. Please let me know if you respond directly to emails or if I need to go to a specific website to look for a reply.

There are several issues raised here. The largest major red flag is about the Negative Amortization Loan Disclosures. If it didn't apply to your loan, why did they present them to you? There isn't a good answer to that question. If something does not apply to your loan, you are within your rights to not sign. If they don't apply to your loan, then the lender doesn't need it. I don't have my clients sign negative amortization disclosures for thirty year fixed rate loans, or anything else to which they don't apply. Now there are any number of disclosures that legally have to be filled out for every loan and sometimes multiple disclosures for basically the same purpose. I had to do four "equal opportunity" disclosures for my most recent loan. But those are utterly harmless, simply informing you of your rights. A negative amortization disclosure isn't. With that, they can prove that you were told that your loan was negative amortization, and you must have been expecting it, because you signed it, didn't you? That's the lawyer's logic.



I am rapidly becoming more aware of a trend with unscrupulous mortgage lenders: Instead of putting bad stuff in the actual Note, they are adding it on as part of the all the disclosures people have to sign, hiding it in packs of supplemental stuff along with all of the standard stuff that everyone knows have to get signed. Sometimes, they are even coming back to people after funding and asking them to sign horrible things, prepayment penalties and negative amortization disclosures, among others, "for compliance." I want to see a standard booklet or checklist of forms that actually are required by law for every loan, so that innocent consumers who are trying to do the best they can know what is and isn't required by law.



If disclosures do not apply to your loan, do not sign them. They don't need it to fund your loan. There is no reason why someone who's getting an amortized, or even interest only loan, needs to sign a negative amortization disclosure. Just refuse to sign. If it doesn't apply to your loan, then they don't need it to fund your loan. If they then fund your loan and it is negative amortization, you have a good case, so they're not likely to fund it. Refusing to sign stuff that does not apply to your loan protects you.



Now, as to the broker not understanding that the loan was negative amortization: I suppose it's possible. There are people out there in my industry who are mind-numbingly stupid. But the odds are overwhelmingly in favor of the likelihood that they lied to you. There are required submission forms on every loan that most consumers will never see, but it's a requirement for the loan officer to fill them out. They are filled out and submitted with your loan package, and they quite clearly indicate all the relevant facts of your loan.



Now, as to your options going forward. There's nothing wrong with people quitting their employers and going into business for themselves, if they provide good loans at a good cost. Yes, his former employer may want to sue him for the commission he earned, and such might be one way of extracting vengeance, if such is your mindset, but it's not going to help you at all. Nor should you care about who "owned" the lead. You as a consumer are not obligated to anyone except the provider who delivered the best loan at the lowest real cost. And of course the broker who did your loan wants to get paid again with a new loan. Since they are claiming to be stupid enough to drop your state's average IQ by twenty points, you may have to give him directions as to exactly which tall building or cliff you want him to jump off of. They have proven that they are not worthy of your business or anyone else's. Please do make a formal written complaint to your state department that regulates mortgages. In most states it's the department of real estate, but if it's not, they will know who to direct you to. They should lose their license and be barred from the industry for life over this. Unfortunately, your complaint alone probably won't do it, but people who get multiple complaints do lose their licenses, and sometimes, one is enough, if it's egregious enough.



The next issue is what can he sue for? I'm not a lawyer, but every adult in the United States should know the answer to that question is "anything at all," or even "nothing." The better question is where are you likely to recover money, and how much? Once again, I'm not a lawyer and you should talk to one, but I strongly doubt that you've got a good case for anything in civil court. He's got all of those documents you signed ("the weight of the evidence"), and even if you get some jury to agree that you are owed money, it's likely to be overturned upon appeal. This is why unscrupulous folks want you to sign all those documents.



What do you want to do? You indicate your interest rate is fixed, and it must have been low enough to be attractive. If this is the case, make your monthly payments on time, and make the fully amortized payment, usually the third payment option on Negative Amortization ("Pick A Pay") loans. However, I don't believe that is likely to really be the case. I have literally never seen one of these abominations where the real interest rate was fixed, or where the real interest rate was competitive with amortized loans. The attraction of these loans is low payment, and the real interest rate is usually at least 1.5% more than I could get the same person on a fully amortized 5/1 ARM, and right now thirty year fixed rate loans are about the same as the 5/1 ARM. People who don't know any better get the low payment, the bank gets your signature on a loan that's 1.5 percent higher than you could have gotten, and people who don't know any better will line up and fight for these loans! They are easier to sell than free beer to people who don't know any better! The hard thing is selling them something else when other providers are telling them about Option ARMs. So you're probably going to want to refinance, as over a three year period, 1.5 percent rate differential will save you a lot more than the pre-payment penalty.



I answer question emails directly. It may take me some time, but I do answer them, provided they don't get lost in the spam filter. If it's an issue I haven't covered before, or only tangentially, I do like to use questions as the basis for new articles, but I answer questions asked via email by return email. If there are already good answers on my site, I'll send you the link, because it was obviously too hard to find it. If there aren't, you'll get your question answered before any article appears.



Please ask if this does not answer all of your questions!



Caveat Emptor