In the years leading up to the recent mortgage crisis, the behavior and activities of mortgage lenders changed dramatically. Lenders offered more and more loans to higher-risk borrowers, including undocumented immigrants. Sub-prime mortgages amounted to thirty-five billion dollars ($35,000,000,000) (5% of total originations) in 1994 and increased dramatically to six-hundred billion dollars ($600,000,000,000) (20%) in 2006.

In addition to considering higher-risk borrowers, lenders offered increasingly risky loan options and borrowing incentives, such as “yield spread premiums.” The American Dream of home-ownership could not have been easier to obtain. However, with an ever-growing “cash-cow” providing limitless income to mortgage brokers and lenders, greed inevitably took over.

Mortgage qualification guidelines began to drastically morph. At first, the “stated income, verified assets” loans were introduced. Proof of income was no longer needed, borrowers just needed to “state” income and show that they had money in the bank (which in many circumstances, the brokers would transfer their own or company funds into the borrowers account to ensure approval). Then, the “no income, verified assets” loans were introduced. The lender no longer required proof of employment. Borrowers just needed to show proof of money in their bank accounts. The qualification guidelines kept getting looser in order to produce more mortgages and more securities. This led to the creation of “No Income, No Assets” (“NINA”) loans. Basically, NINA loans are official loan products and let you borrow money without having to prove or even state any owned assets. All that was required for a mortgage was a credit score. This program solely based the funding on the value of the collateral (the home), which often led to over-inflated appraisals to ensure approval.

Due to the risky nature of these types of loans, they frequently held extremely predatory features that were in no way of any benefit to the borrower. One example of a predatory mortgage sold during this time was the interest-only adjustable-rate mortgage (ARM), which allows the homeowner to pay just the interest (not principal) during an initial period. Nearly one (1) in ten (10) mortgage borrowers in 2005 and 2006 were sold these “option ARM” loans, unbeknownst to some, including Plaintiffs.

As a result of the enormous amounts of profit made on sub-prime mortgages, lenders began paying extreme commissions and “kickbacks” outside of closing to ensure that mortgage brokers sold borrowers the most profitable option.

These incentives led to the financial interest of the borrower being thrown to the wind as the commissions and bonuses paid to mortgage brokers were substantially larger when they would place a “prime” borrower into a “sub-prime” mortgage. Mortgage brokers, who owe a common law and statutory fiduciary duty to borrowers, would fail to mention that; 1) the loan is considered “sub-prime,” and 2) the borrower could qualify for a traditional “prime” mortgages holding a fixed interest rate and payment that would fully amortize.

This lending scheme, coupled with the ever falling home values due to inflated appraisals, is the reason for the State of California’s economy being crippled as it resulted in the millions of foreclosures of these “designed-to-fail” mortgages. Borrowers are being faced with adjusted payments that are substantially larger than the original payment amount resulting in default.

If you’ve experienced first-hand the hardship of these adjusting payments and want to learn more about your remedies visit  the wrongful foreclosure attorney Ted A. Greene can help you. You can email Ted at tgreene@tedgreenelaw.com or call (916) 442-6400 and your information will remain private and confidential.