News - Ruling Faults Lender in Option ARM Suit
Wall Street Journal (01/18/07) P. D6; Simon, Ruth
Federal District Court Judge Lynn Adelman of the Eastern District of Wisconsin has ruled in favor of a Wisconsin couple who filed suit against Maryland-based Chevy Chase Bank for inadequately disclosing the terms of their option adjustable-rate mortgage. Because the disclosure statement read "5-year fixed," the couple believed the introductory interest rate of 1.95 percent was fixed and were surprised when the bank notified them two months later that the rate had risen to 4.375 percent. Ruling that the bank should have made it clear that the payment--not the interest rate--was fixed, the judge has ordered the bank to return payments, closings costs and attorneys' fees paid by borrowers who were given the same disclosures when refinancing with an option ARM. Attorneys anticipate similar lawsuits in the near future, with Charleston, W.Va.-based attorney Daniel Hedges calling option ARMs "amenable to abuse." A task force created by the Mortgage Bankers Association has developed a voluntary disclosure form to help lenders improve borrowers' understanding of loan terms.
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Federal District Court Judge Lynn Adelman of the Eastern District of Wisconsin has ruled in favor of a Wisconsin couple who filed suit against Maryland-based Chevy Chase Bank for inadequately disclosing the terms of their option adjustable-rate mortgage. Because the disclosure statement read "5-year fixed," the couple believed the introductory interest rate of 1.95 percent was fixed and were surprised when the bank notified them two months later that the rate had risen to 4.375 percent. Ruling that the bank should have made it clear that the payment--not the interest rate--was fixed, the judge has ordered the bank to return payments, closings costs and attorneys' fees paid by borrowers who were given the same disclosures when refinancing with an option ARM. Attorneys anticipate similar lawsuits in the near future, with Charleston, W.Va.-based attorney Daniel Hedges calling option ARMs "amenable to abuse." A task force created by the Mortgage Bankers Association has developed a voluntary disclosure form to help lenders improve borrowers' understanding of loan terms.
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