The menu of subprime mortgages that helped lead thousands of Marylanders into foreclosure is infamous. There were the loans with attractive introductory rates that left homeowners to put off until tomorrow the bigger payments that would eventually overwhelm them, and the no-money-down mortgages with the "too good to be true" veneer. The 800 Maryland lawyers who have volunteered to help homeowners as part of the state's foreclosure prevention project have seen the impact of those loans firsthand. But now they are bracing for the fallout from the most toxic loan ever conceived: the payment option arm loan.
This allows borrowers to pick their payment each month from three options. These include:
* a minimum teaser payment that represents just a small portion of the accruing interest each month, with the remaining interest added to the principal loan balance;
* the above market, interest-only payment; * a fully amortizing payment of interest and principal.
The "bait" used by mortgage originators for the POA loans was that homeowners were qualified for the loans based on the teaser payment and were unfairly led to believe that the loan was suitable for their short- or long-term situations. The POA loans are so toxic that two of the largest national mortgage lenders selling and marketing these loans are now out of business - IndyMac Bank and World Savings.
Through new state laws and federal regulation, these POA loans are now mostly illegal and, one hopes, will never reappear in the marketplace. But thousands of Marylanders who were unfairly and deceptively sold these loans are stuck in the conundrum of staying current on their mortgages, which now exceed the value of their homes, or ruining their credit by just walking away from hopeless situations and letting their homes go into foreclosure.
Consider for a moment the story of my Charles County client who was illegally tricked into accepting one of these loans as she entered retirement after 30 years working for the federal government. The company that arranged the mortgage promised that her payment would be fixed at a low interest rate and payment for just a few years - and even left a recording on her voice mail verifying this. She believed that this payment would allow her to build up her home equity for the five years of the teaser term and keep her payments low as she adjusted to a fixed retirement income.
