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Several factors propped up the real estate bubble that just recently deflated leaving many desperately seeking foreclosure help.  Two of the biggest factors include ridiculously low interest rates and the constant shifting of the risk lenders assumed when lending to buyers.  There were a lot of ways this was done, but the primary mechanism was “bundled mortgages.”

“Bundled mortgages” came into being when lenders pooled the IOUs of many loans together to sell in the bond markets.  These bonds had a theoretical value based on the money all the mortgage borrowers were supposed to pay back over time.  These financial instruments were then sold to other banks, investment brokers, Fannie Mae, and Freddie Mac.

Everyone in the mortgage-originating business was making a lot of money during the boom.  The refinance segment of the business also boomed, with historically low interest rates fueling the phenomenon.

The ability to “pass the buck,” in other words, sell a mortgage that would normally be considered high risk, to other banks and to the public at large, drove underwriting standards out the proverbial window.  The mere existence of “ninja” loans, i.e. loans made with No-Income-No-Job-no-Asset verification should have tipped off regulators.  The rationalization at the height of the housing price bubble was that anyone could “flip” any house in a short time frame and make an easy profit.  In fact, market conditions briefly supported the notion that anyone could sell any house at any time.

Everyone in the business got more and more “creative” with payment options and types of loans to lend to more and more people…  Some of the common products they invented include the previously noted NINJA, as well as interest-only mortgages.

There never seemed to be any actual “risk” to mortgage lending. As it turns out, banks and mortgage brokers actually broke lending laws as they squeezed more and more money out of everyone during this frenzy.  

They offered loans with ridiculous penalties and terms.  They offered adjustable mortgages to people who could afford the low introductory payments determined by the initial interest rate, but clearly could not afford the mortgage after the rate adjusted.  They lent to people with too much outstanding debt.  They wrote “negative amortization” loans that ensured the amount due would be greater than the home’s value in three years. They changed terms at at closings.

These practices gave rise to the term “predatory lending.”  These predatory practices are and always have been illegal.  Predatory loans bring about sudden financial crises for borrowers through penalties and increased payments, often causing families to lose their houses, or be forced into the expensive bankruptcy process.

If you got a “predatory loan,” you may actually have a strong case in United States Federal Court to get

* Your loan modified in a settlement to have lower interest rates,
* Penalty payments refunded,
* Legal fees for the lawsuit paid by the bank that broke the law,
* Any negative entries made against your credit rating by the bank removed, and
* Possible punitive damages payments.

Again, this is only if you fell victim to “predatory lending practices,” which requires that your lender actually broke laws that applied to you at the time you closed on your loan.  How can you tell if any of this applies to you, and what can you do about it?

First, because of statutes of limitation, your options are limited if you closed on your mortgage or refinanced before January 2005.  If you closed on your mortgage since January 2005 and you have all your proof like copies of emails and letters to and from your mortgage broker and bank, you may have a strong case with a high probability of prevailing.  You can find thorough pre-qualifying questionnaires around the web, and a good one at the page linked earlier in this article, to help you determine your status.  If you appear to have a predatory loan like a balloon mortgage, or you didn’t get translated copies of all the paperwork, there’s a good chance you do have a predatory lender.

You can contact an attorney who knows about these types of cases, or you can contact a company to conduct a forensic audit that would be used as evidence in your lawsuit against a predatory lender.  

Ensure that any forensic audit company is very clear about the cost of their services.  The initial review of your paperwork should be free, and you should get an objective assessment of the quality of your case.  They should be very clear about their rates.

Any attorney you contact should already be familiar with this kind of case, because it would be very expensive for him or her to learn how to prepare a new kind of case on your dime.  When you speak to a lawyer about a lawsuit against a predatory lender, that attorney should become yours, representing only you, not a real estate company, and be very clear about payments of retainers and fees.  If they have been properly prepared for this kind of case, they should take your case on a contingency basis, only requiring an initial payment to cover the costs of the initial court filings.  Most, if not all, settlements have required the predatory lender to pay all of the borrower’s legal fees.

An attorney familiar with mortgage laws would know that he should file an injunction against the bank as one of the first items of business.  This freezes the loan in question until the matter is settled or goes to court.  So, even if your situation looks dire because you can no longer afford your predatory mortgage payments, you could quickly get relief.

Good luck with your case!