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Paul Kiesel
Paul Kiesel
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Another TILA Victim

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Below is an excerpt from a Seattle Post-Intelligencer article from earlier this morning that relates the story of another borrower who was taken advantage of via TILA documents.

Nancy was a retired widow who wanted to buy a small home in the Redmond area but everything seemed too expensive, even the modest homes that she desired. She met a nice lady in a senior singles group who worked as a mortgage broker who told her that she should not be put off by the price. Instead she should look at the amount of the monthly payments and she should gauge what she could buy by the amount she would have to pay each month. Prices increased quickly enough that she should view the payments as an investment because when she sold she would make a lot of money on the equity she built up.

This made sense to Nancy so she decided to at least have a real estate agent show her some houses. They found a modest house and the real estate agent assured her that it was an excellent investment; houses were going up in price so much that she could always sell the house without any trouble and after a year or so sell it at a profit. Nancy did not want to sell the house but this did give her comfort. She went back to her “friend” the mortgage broker who said that she was getting a great deal on the house and that if Nancy did not buy it she would.

When Nancy asked about financing she was told that the payments would be about $1,300 per month. This was a bit of a stretch but something that she could afford. The broker ran off some numbers and printed a page showing that her payments would come to $1,334.50 each month. She was told that by renting the basement (which could be used as a stand alone apartment) she could easily afford this. Nancy then signed a purchase agreement and went back to the broker who asked her to sign a loan application. She got a call a few days later from the mortgage broker who told her everything was ok and she would receive the loan. She then waived the financing contingency and was locked into buying the house.

Before the closing she went to the broker’s office again and was told that everything went smoothly, that she had to tinker with the application a little bit but it was no problem. A couple of days later went to the closing office at a title company to sign the papers. She overwhelmed by the stack of papers that awaited her there. The note that she had to sign was three single spaced pages and was utterly incomprehensible. The Truth in Lending sheet showed that the amount would increase over time but not over $1900. When she called her friend about this she was told that this would not occur for a number of years and that it would be covered by the rent of the improved basement out and anyway she could always sell the house for a profit.

That was two years ago and now she has monthly payments of $3,900, which she cannot afford to make. Foreclosure has been commenced and the house has been listed for six months without an offer. When the foreclosure is completed she will have lost her down payment of $100,000 and installment payments totaling about a third of that. The truth in Lending disclosures were false, but the subprime lender that made the loan is long gone and bankrupt.

Nancy’s story shows why a housing bill is needed immediately in order to help aid borrowers who are in similar situations, however, legislation needs to be passed that does not allow lenders to go unaccountable for improper lending practices. Also, more government oversight is needed in investment banking industry in the future and/or tighter regulations in order to prevent a crisis like the current one from occurring again.