Originally published April 20 2008
Mortgage Holders Cry Victim, Sue Lenders for Loaning Them Money
by David Gutierrez, staff writer
(NaturalNews) A bill has been introduced into the House of Representatives that would ban companies from giving out loans that the borrower never has a reasonable chance of repaying, and to allow such borrowers to sue for better deals.
Representative Barney Frank, chair of the House Financial Services Committee, introduced the bill to combat the increasingly common practice among lending companies of giving out loans with rates that start out low but jump sharply after an introductory period. More than two million people are estimated to have taken such loans in the past two years, and at least a quarter are expected to default on them and lose their homes.
"The people who package mortgages and sell them into the secondary market were a major cause of the single biggest world financial crisis since the Asian crisis [of 1997]," Frank said, "and it's unthinkable that we would leave that undisturbed."
The bill would require all mortgage lenders to conduct reviews of a borrower's income, credit history and current debt level to determine what kind of loan that person has a "reasonable ability to repay." It would prohibit giving any loan that does not meet this standard.
Loans considered "unreasonable" would include those in which the monthly payments equal or exceed half the borrower's income.
The bill would also prohibit offering incentives to brokers who encourage borrowers to take more expensive loans, and would prohibit certain practices designed to lock borrowers into loans.
If the bill becomes law, borrowers would be able to sue mortgage lenders for unreasonable loans. If able to prove that the lender either did not conduct the proper review of the borrower's financial status or that the lender issued an unreasonable loan anyway, the borrower would be able to force the mortgage lender to renegotiate a fairer loan.
Even those who won lawsuits against lenders would still be required to pay back their loans.
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