More on Nonviable Refinancing Options
By Kent Anderson, Oregon Bankruptcy Attorney on Sep 29, 2007 in Credit, Bankruptcy, and Society
Spokesmen for the loan industry claim that there is no need for Congress to alter provisions of the bankruptcy code to prevent foreclosures. They could not be more wrong. Witness a recent loan offer on the web: “180,000 Mortgage for Under $999 a month!” This intriguing offer from www.lowermybills.com popped up in connection with an AP internet news release on the continued decline in the American housing market.
The fine print in this loan provides in substance for a monthly payment of $956.25 based on the borrower making an interest-only payment on a $180,000 fixed rate 30-year mortgage with an interest rate of 6.375% and with 1.75 points ($3,150) due to the lender at closing. The loan converts to full amortization after 10 years, with payments increasing to $1,328.82. These loan terms assume you pay all closing costs [unspecified, but including the points] out of pocket. Property must be a primary residence, with a combined loan to value ratio of 80% (i.e., value of property must be at least 225,000); you must have a debt to income ratio less than 45% and a credit score over 700.
Our office is currently handling a case where a client ended up being charged more than $11,000 in points, broker fees, and other closing costs on a $165,000 loan. The magnitude of the fees only became apparent when the loan documents were presented during a rushed closing, late at night, in the client’s home. We have also encountered a case in which significant fees charged outside of closing and not included in TILA disclosures were deducted from the loan amount in escrow, leaving the borrower with significantly less cash than the broker had led him to expect.
Spokesmen for the loan industry claim that there is no need for Congress to alter provisions of the bankruptcy code to prevent foreclosures, because private lenders can and will negotiate affordable repayment plans, at least they say they will. After an admittedly non-exhaustive survey, it looks as if the majority of these plans are either fundamentally unaffordable in the long run or (as in the present instance) not an option for most of the people who are seeking relief.
This offer had enough information in the fine print for me to evaluate it without signing up for any services, so I took the opportunity to do so. The problem with the offer was not so much concealed booby traps as the fact that no-one who needed to refinance his house would be likely to meet the stipulated conditions. In other words, this is almost certainly a bait and switch.
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