Comments on: Sonoma County’s Real Estate Foreclosure Epidemic http://www.realestateplanningattorney.com/2009/06/sonoma-county%e2%80%99s-real-estate-foreclosure-epidemic/ Sebastopol, Santa Rosa, Sonoma County and Surrounding Counties Sun, 08 Aug 2010 16:06:17 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: gradentapley http://www.realestateplanningattorney.com/2009/06/sonoma-county%e2%80%99s-real-estate-foreclosure-epidemic/comment-page-1/#comment-35 gradentapley Thu, 09 Jul 2009 16:41:19 +0000 http://www.realestateplanningattorney.com/blog/?p=48#comment-35 I agree. And get this. Under the California Financial Code (Div. 1.6) a mortgage broker is not allowed to arrange a loan to a consumer secured by the consumer's home unless the broker reasonably believes that the consumer can service the loan based on a "consideration of the [consumer's] income, obligations, employment status, and other financial resources." But, this duty prohibition does not apply unless the percentage rate on the loan will exceed by more than 8% the yeild on treasury bonds having a comparable term. You calculate the loan rate at the time the loan is taken out- not when it "explodes" to a higher interest rate after 5 years. A 30 year treasury bond is at least 2.5% so adding 8% to that means that unless the mortgage was 10.5% the broker has no duty to consider the consumer's finances when arranging a loan, at least not under California statutes. I have yet to see a loan that was 10.5% when it was taken out. In fact, I have yet to see a consumer situation where the consumer was able to benefit from the Truth In Lending Act. The bottom line is that the borrower is only able to rescind a loan if the borrower can pay the loan amount back to the lender. Only when this happens does the lender have a duty to let the borrower out of the loan and pay the borrower back all the interest and fees. The borrower can only do this by refinancing with another loan. The problem is that the property values have all decreased. No bank is going to loan money on a property that is worth less than the original loan. I agree. And get this. Under the California Financial Code (Div. 1.6) a mortgage broker is not allowed to arrange a loan to a consumer secured by the consumer’s home unless the broker reasonably believes that the consumer can service the loan based on a “consideration of the [consumer's] income, obligations, employment status, and other financial resources.”

But, this duty prohibition does not apply unless the percentage rate on the loan will exceed by more than 8% the yeild on treasury bonds having a comparable term. You calculate the loan rate at the time the loan is taken out- not when it “explodes” to a higher interest rate after 5 years. A 30 year treasury bond is at least 2.5% so adding 8% to that means that unless the mortgage was 10.5% the broker has no duty to consider the consumer’s finances when arranging a loan, at least not under California statutes.

I have yet to see a loan that was 10.5% when it was taken out. In fact, I have yet to see a consumer situation where the consumer was able to benefit from the Truth In Lending Act. The bottom line is that the borrower is only able to rescind a loan if the borrower can pay the loan amount back to the lender. Only when this happens does the lender have a duty to let the borrower out of the loan and pay the borrower back all the interest and fees. The borrower can only do this by refinancing with another loan. The problem is that the property values have all decreased. No bank is going to loan money on a property that is worth less than the original loan.

]]> By: Darrin Roseborksy http://www.realestateplanningattorney.com/2009/06/sonoma-county%e2%80%99s-real-estate-foreclosure-epidemic/comment-page-1/#comment-34 Darrin Roseborksy Wed, 08 Jul 2009 20:40:03 +0000 http://www.realestateplanningattorney.com/blog/?p=48#comment-34 Thought I'd comment on this article. In Ontario (Canada), we did have some similar products but the specifics were typically for self employed people who were writing their income down to save on income tax. But the problem here can't be be put squarely on the shoulders of the mortgage broker. Yes, there are some highly aggressive mortgage brokers, but let's not forget that these products were established by the lender to attract a certain clientele. If the client that is sitting in the broker's office fits the guidelines provided, then as long as the risk to benefit ratio is explained to the client, then the loan can be processed with the proper documentation....just may 2 cents worth. Thought I’d comment on this article. In Ontario (Canada), we did have some similar products but the specifics were typically for self employed people who were writing their income down to save on income tax. But the problem here can’t be be put squarely on the shoulders of the mortgage broker. Yes, there are some highly aggressive mortgage brokers, but let’s not forget that these products were established by the lender to attract a certain clientele. If the client that is sitting in the broker’s office fits the guidelines provided, then as long as the risk to benefit ratio is explained to the client, then the loan can be processed with the proper documentation….just may 2 cents worth.

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