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| For the second time this year, Wachovia Corp. has been sued by borrowers who claim they didn’t fully understand the terms of their adjustable-rate mortgages with payment options. Both lawsuits seek class-action certification.
The Charlotte, N.C.-based company and two subsidiaries are being sued under the Truth in Lending Act for “failure to clearly and conspicuously disclose” in loan documents and disclosure statements that payments on ARMs with payment options “at the teaser payment or teaser interest rate will result in negative amortization, and that the principal balance will increase.” The suit, filed by a South Carolina borrower, names as defendants World Savings Bank, as the original lender, Golden West Financial Corp., as its parent company, and Wachovia Corp. as the parent of Golden West. Wachovia acquired Golden West in October 2006. While a disclosure given to borrower Bonnie Mincey, of Hanahan, S.C., at closing told her to “see the adjustable loan program disclosure statement previously supplied to you,” no previous disclosure had been provided, in violation of TILA, according to the lawsuit. The complaint further alleges that the TILA disclosure form “set forth one interest rate” while the mortgage note “set forth differing interest rates.” The loan was originated last May. “We are confident that World Savings has clear and accurate loan disclosures and procedures for all of its mortgage products,” Wachovia spokeswoman Christy Phillips-Brown told MortgageDaily.com. The borrower’s note for the Pick-a-Payment Loan, which is included as the complaint’s Exhibit A and which was signed by borrower Mincey, does not mention negative amortization by name but does state, “From time to time, my monthly payments may be insufficient to pay the total amount of monthly interest that is due” and this unpaid interest will be added to the principal. It also states that a new monthly payment will have to be paid should the unpaid principal balance exceed 125 percent of the original amount borrowed. Further, the note, in the first sentence of its opening paragraph, states, “This note contains provisions allowing for changes in my interest rate, my monthly payment and my unpaid principal balance.” The lawsuit, which was filed on Nov. 16 in U.S. District Court in Charleston, S.C., is “based on the marketing and sale ‘Option ARM’ mortgages” which “have been called ‘the riskiest and most complicated home loan product ever created.'” “When marketing Option ARM mortgages,” the suit alleges, “lenders routinely touted the minimum payment and downplayed or failed to disclose the resulting negative amortization.” In addition to the risk of negative amortization and resets to higher interest rates, “Option ARM loans usually include hefty pre-payment penalties as well, trapping borrowers in unfavorable loans that they cannot refinance,” according to the complaint. But the loan note included in the complaint has no prepayment penalties after the first year and, during the first 12 months, has no penalty if prepayments do not exceed $5,000 per month and a 2 percent penalty for any prepayment in excess of $5,000 in any month. In seeking class action status, the complaint alleges that the defendant institutions “engaged in a campaign of deceptive conduct and concealment aimed at maximizing the number of consumers who would accept this type of loan in order to maximize defendants’ profits.” The suit seeks unspecified actual damages and unspecified compensatory, consequential and statutory damages, plus interest and attorney fees, as well as rescission. The action is similar to a pending case in California filed in August. That case, filed on behalf of plaintiff Dolores Mandrigues, alleges the borrower was led to believe that the initial teaser rate was fixed for three to five years, after which she could refinance if the interest rate increased. But that rate was only offered for the first 30 days. Class action status had yet to be certified on that case as of September. Related: |
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