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Courts May Begin Enforcing Truth-in-Lending Act (TILA)

This story seemed to have slipped by without much comment from anywhere else. There are potentially major ramifications for the mortgage industry, as well as any Housing bailout, depending upon the outcome of this litigation:

"A lawsuit filed by a Wisconsin couple against their mortgage lender could have major implications for banks should a U.S. appeals court agree that borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law.

The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB (CCX) had hidden the true terms of what they believed was a good deal on a low-interest loan.

In their 2005 lawsuit, the couple said the loan's interest rate had more than doubled by their second monthly payment from the 1.95 percent rate they thought was locked in for five years. The interest rate rose well above the 5.75 percent fixed-rate loan they had refinanced to pay their children's college tuition.

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial Corp (CFC) mortgages originated under "unfair or deceptive practices."

This one is well worth watching . . .

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Source:
Mortgage ruling could shock U.S. banking industry
Gina Keating
Reuters, Mon Jun 30, 2008 3:14pm EDT
http://www.reuters.com/article/ousiv/idUSN2634924420080630

Monday, July 07, 2008 | 09:15 AM | Permalink | Comments (17) | TrackBack (0)
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Comments

What does it mean that the bank rescinds the loan? Does the full amount become due immediately? It's not like many of these folks are going to be able to refinance, is it?

Posted by: bobn | Jul 7, 2008 9:56:47 AM