• October 25, 2011

From the distance of an outsider, a loan promoted as a “pick a payment” loan seems problematic from the inception.  Borrowers get to pick their payments?  Wouldn’t more than a few borrowers pick zero?

Borrowing money and not paying it back was not one of the options, of course, for an “option ARM,” (that is, an adjustable rate mortgage), which is another name for the “pick a payment” “loan product.”  But these risky, if creative, loans have had default rates in recent years that were beyond many lenders’ “worst case scenarios.”

They are one of the prime ignition sources of the conflagration that has torched the U.S. economy for several years now. Institutions like World Savings Bank (R.I.P.), and Wachovia Bank (R.I.P.) and Wells Fargo (that is, the still existing bank that has absorbed the previous two “W-banks”) are, with the help of the federal government, trying to salvage loans (and our banking system) from the rubble.

Emphasis on the “trying.”  Lenders promoted risky and complex loans to unsophisticated consumers, many thousands of whom defaulted.  Modifying these loans on this scale has proved as challenging in many cases as performing brain surgery with a shiv on a subway.

Last week, Wells Fargo lawyers removed the suit of Benedict Psick, represented by the Foreclosure Relief Law Project of the Housing Preservation Project, from Hennepin County District Court to U.S. federal court (District of Minnesota).

The case has been assigned to Chief Judge Michael J. Davis and the complaint sets out the labyrinthine loan modification process which, apparently, has fallen short for Psick and thousands of other American home-owners (or former home-owners?).

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