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Friday, January 05, 2007

Blood suckers

Posted by: Hammer / 8:20 AM

Hammer gave a low whistle. "That's some clause, that clause 8," he thought. "It might be the best there is." From Warren Reports:

Lately, I have seen several solicitations from friendly mortgage lenders offering homeowners the chance to pay off their mortgages early. Note that these are not new lenders offering a refinance -- rather these are the homeowners' own lenders offering an accelerated repayment schedule, with the promise of saving you tens of thousands of dollars in interest over time...Is this a smart deal for consumers?

... The one on my desk has a Clause 7 which includes, “.... I understand that you [the lender] will have interest-free use of the biweekly amounts from the date they are drafted until the date these amounts are used to make a mortgage payment. ...” And when does that happen? Clause 8 suggests that only after paying 26 of these bi-weekly payments (equaling one year). So, the money is doing nothing for you during this time – only further enriching your lender. (I’ll blog more extensively on the suspense account shenanigans at a later date.)

It gets worse. Clause 8 includes, “I understand that under the terms of my mortgage, my loan may be subject to a prepayment penalty to the extent allowed by law.” That’s right, your friendly lender is soliciting you to do something which they will later penalize you for doing. Prepayment penalties are endemic in the sub-prime lending market. (PDF) Depending on the fine print in your mortgage, that could cost you 4-5% of the original loan amount.

I think the language here is too strong. The lender is soliciting you to do something which they will later penalize you for -- but only to the extent permitted by law.

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