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Home > News > National News > Jul 2008

National News

Mortgage Rescission Could Be Class Action Nightmare for U.S. Banks

By Gina Keating July 7, 2008

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By Gina Keating July 7, 2008 E-mail Post Comment Print Article Reprints A lawsuit filed by

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A lawsuit filed by a Wisconsin couple against their mortgage lender could

have major implications for banks should a U.S. appeals court agree that

borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law.

The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews

of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB had

hidden the true terms of what they believed was a good deal on a low-interest

loan.

In their 2005 lawsuit, the couple said the loan's interest rate had more than

doubled by their second monthly payment from the 1.95 percent rate they thought was locked in for five years. The interest rate rose well above the 5.75 percent fixed-rate loan they had refinanced to pay their children's college tuition.

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial Corp mortgages originated under "unfair or deceptive practices."

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8/8/2010

'MASSIVE CLASS SUITS'

Mortgage Rescission Could Be Class A…

CLASS SUITS' Mortgage Rescission Could Be Class A… The mortgage banking industry already faces pressure from
CLASS SUITS' Mortgage Rescission Could Be Class A… The mortgage banking industry already faces pressure from

The mortgage banking industry already faces pressure from state and federal regulators, who have accused banks of lowering underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-interest investment vehicles.

The loans have caused serious instability in the financial sector, as mortgage interest rates adjusted upward and borrowers began defaulting at a significant rate starting in 2007, drawing lawsuits from investors and homeowners.

Federal appeals courts disagree over whether class-wide rescission under the Truth in Lending Act is available, said attorney Christine Scheuneman, whose firm represented Chevy Chase at the district court.

"If class treatment is found to be available for rescission

crisis not predicted in 2005, the result all over the country could be massive

class suits," said Scheuneman, a partner at Pillsbury Winthrop Shaw Pittman LLP.

, given the current

The Truth in Lending Act, a 1968 federal law designed to protect consumers against lending fraud by requiring clear disclosure of loan terms and costs, lets consumers seek rescission, or termination, of a loan and the return of all interest and fees when a lender is found in violation.

all interest and fees when a lender is found in violation. Insurance Industry Yellow Pages  

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Should the 7th U.S. Circuit Court of Appeals agree with Judge Adelman, banking industry associations predict "confusion and market disruption" as banks curtail lending further.

"Class certification of rescission claims would saddle the mortgage lending industry and secondary market with billions of dollars of class action exposure for supposed violations of TILA that do not give rise to any actual damages," the financial services associations wrote in an amicus brief.

But the Andrews' attorney, Kevin Demet, said lenders want to scare the judiciary into banning class action rescissions because they were unable to convince Congress to do so in the 1990s.

"If (banks) get relief (from the appeals court), it's activist judges trying to give them what they could not get legislatively," said Demet, of Demet & Demet of Milwaukee, Wisconsin.

Consumer advocates said the banks would have "no more or no less" liability for the tainted mortgages if the court found in favor of the Andrews plaintiffs.

But an adverse ruling for borrowers would cut off an important remedy. Borrowers would "lose the opportunity to use rescission to save their homes from foreclosure or to rescind their mortgages and refinance into affordable ones," the Center for Responsible Lending, the National Consumer Law Center, Public Citizen and AARP Foundation Litigation wrote in an amicus brief filed in the case.

Both sides said the case will likely be decided by the U.S. Supreme Court.

(Reporting by Gina Keating; Editing by Mary Milliken and Gerald E. McCormick)

Copyright 2010 Reuters. Click for Restrictions.

8/8/2010

Mortgage Rescission Could Be Class A…

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Comments? Click here to post a comment about this article

Subject

RE: how did this happen

how did this happen

RE: RE: RE: RE: RE: They don't need to rescind

RE: RE: RE: RE: They don't need to rescind

RE: The whole dang ship needs to go down

The whole dang ship needs to go down

Class Action?

RE: RE: RE: RE: They don't need to rescind

Wait a minute

RE: RE: I Agree with Dawn- that's the worst part.

RE: I Agree with Dawn

RE: RE: RE: They don't need to rescind

RE: RE: They don't need to rescind

RE: They don't need to rescind

Posted By

Gill Fin

MBB

David

Tina

Just a

thought

Terrie B

Johnny

Posted On

Jul 8, 2008, 11:43 pm

Jul 8, 2008, 12:33 pm

Jul 8, 2008, 12:26 pm

Jul 8, 2008, 9:23 am

Jul 8, 2008, 8:22 am

Jul 7, 2008, 9:28 pm

Jul 7, 2008, 4:07 pm

caveat emptor Jul 3:18 7, pm 2008,

Tom

Dawn

Disheartened

Dawn

caveat emptor

Dawn

Jul 7, 2008, 2:55 pm

Jul 7, 2008, 1:54 pm

Jul 7, 2008, 1:45 pm

Jul 7, 2008, 1:43 pm

Jul 7, 2008, 1:32 pm

Jul 7, 2008, 1:16 pm

J

l 7

2008

8/8/2010

Mortgage

RE: They don't need to rescind

They don't need to rescind

Mortgage Rescission Could Be Class A…

Sam

DDay

lastbat

,

12:56 pm

Jul 7, 2008, 11:53 am

Jul 7, 2008, 11:06 am

u

,

11:53 am J u l 7 , 2 0 0 8 , 11:06 am u ,

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