Fed Gutting Truth In Lending Laws: Homeowners Paying To Be Raped

12-02-2010 • washingtonsblog.com/

"At the depths of the worst foreclosure crisis since the Great Depression, we are surprised that the Fed has proposed rules that would eviscerate the primary protection homeowners currently have to escape abusive loans and avoid foreclosure: the extended right of rescission." [T]he public comment period on the Fed's proposal is still open until Dec. 23 .... *** Since 1968, the Truth in Lending Act has given homeowners the right to cancel, or rescind illegal loans for up to three years after the transaction was completed if the buyer wasn't provided with proper disclosures at the time of closing. Attorneys at AARP have used the rescission clause for decades to protect older homeowners stuck in predatory loans with costly terms. The provision is also helping struggling homeowners to fight a wave of foreclosure cases in which faulty and sometimes-fraudulent disclosures were used. The violations must be of a material nature to invalidate a loan under the extended-rescission clause. To do so, homeowners — usually those facing financial problems or foreclosure — hire an attorney to scour their mortgage documents for possible violations regarding the actual cost of the loan or payment terms. If problems are found, a notice of rescission is sent to the creditor, which can either admit to the alleged violation or contest it in court. Creditors that end up rescinding a loan are then required to cancel their "security interest," or lien, on the property. Once that occurs, the homeowner must then pay the outstanding loan balance back to the lender — minus the finance charges, fees and payments already made. Dropping the lien provides homeowners with a defense against foreclosure and allows them to refinance to pay the outstanding loan amount. Critics say the proposed change by the Fed would render the rescission clause useless. The Fed proposal would require homeowners who seek a loan rescission through the courts, to pay off the entire loan balance before the lender cancels the lien. "This, of course, would be almost impossible for most consumers to do because they can't come up with the money until they get out of the loan. And they can't get out of the loan until the lien is released,"