Mortgage loan modification tactics by homeowners questioned by firms

Mortgage loan modification questioned by firms

U.S. mortgage firms wants the mortgage loan modification options of American homeowners restricted. Among these are the owners exercising their right to invalidate home loans on the basis of faulty documents. Consumer advocates say that right must be retained because it aims to protect against unfair lending practices by some firms. The so-called right of "rescission" is invoked by homeowners during a foreclosure process and it results in a mortgage loan modification in many circumstances. It is usually a last resort for people to retain their homes. The measure was passed in 1968 under the Truth in Lending Act. Under that law, homeowners who can prove a crucial error in loan documents have three years to exercise rescission whereby the lender rescinds its lien on the property.  The crisis in the U.S. housing industry and the foreclosure documents debacle have increased the number of rescission cases during the past two years.

Mortgage firms are lobbying the U.S. Federal Reserve to act on their request to curtail rescission rights before its enforcement will be taken over in July by the Consumer Financial Protection Bureau, a new office created by Congress to better protect consumers. The creation of the new agency was partly because of the failure of the Fed to protect Americans from misleading and bogus mortgage loans. The Fed said that a change in the extent of the power of borrowers to invoke rescissions would "reduce undue compliance burden and litigation risk for creditors" and providing "clarity and usefulness of disclosures for the consumer's right to rescind." Kathleen Day of the Center for Responsible Lending in an interview with Bloomberg criticized the proposal of the Fed, describing it as an "industry-friendly move" and ultimately defeats the purpose of the government to cut foreclosures and morgtage loan modification cases.

Posted by James Fried on Monday December 20 2010, 1:16 AM EST. Ref: Bloomberg. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0