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Predatory Lending: Are Federal Agencies Protecting Older Americans from Financial Heartbreak?

After hearing the homeowners' stories and testimony from one of the brokers, the jury in Cooper found First Government's conduct to be "outrageous," and in "willful disregard of the plaintiffs' rights," and the defendant was found to be in violation of the DC consumer protection laws, as well as TILA and HOEPA. Approximately $300,000 in compensatory damages was awarded to these victims. This federal court jury also awarded $4,125,000 in punitive damages. While First Government's bankruptcy makes collection of the majority of these damages virtually impossible, the homeowners are seeking to collect on bonds which the District of Columbia required First Government to purchase as a condition of doing business.

A second case has been recently filed which involves a mentally impaired, West Virginia couple, and highlights the issue of federal preemption – which is making it increasingly difficult for victimized homeowners to obtain redress when they are deceived by predatory mortgage lenders. In Phillips v. Coast to Coast Mortgage, et al, the Phillipses, who subsist on a limited income of Social Security benefits, were threatened and tricked into mortgaging their debt-free home by an unlicensed mortgage broker. The broker asserted that they would lose their home if they failed to pay off car loans. A grossly inflated appraisal enabled the broker to make a $28,800 loan that was 240 percent of the home's appraised value. The borrowers were charged more than 10 percent in fees for an adjustable rate mortgage. The mortgage had an initial teaser rate of 12.5 percent which could increase to 18.5 percent, but not decrease. The overvaluation of their home, combined with a significant prepayment penalty, have made refinancing impossible. These features, combined with the steep rise of their monthly mortgage payments, will inevitably lead to default and foreclosure for these homeowners.

The loan was made by the lending division of Superior Bank, a failed, federally-chartered savings bank. The bank was using a mortgage securitization scheme, creative accounting, and an elaborate corporate structure to strip home equity from homeowners nationwide, including hundreds of West Virginia homeowners. The Federal Deposit Insurance Corporation (FDIC) has reported on the misuse and demise of Superior Bank by Coast-to-Coast, Superior's parent company, through a securitization scheme that stripped millions of dollars, most of which were derived from the securitization of risky subprime mortgage loans. As master lender, and prime mover in the scheme, Coast-to-Coast controlled the structure and cost of the mortgage loans and enjoyed enormous profits. When Superior eventually collapsed, it triggered losses to the Savings Association Insurance Fund estimated at between $424-$525 million.

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