Court Rejects Class Action on Option ARM Loans

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SEPTEMBER 25, 2008

Court Rejects Class Action on Option ARM Loans
By RUTH SIMON


In the first major lawsuit involving complex loans known as option adjustable-rate mortgages, a federal appeals-court panel ruled Wednesday against a group of borrowers who sought to get out of these loans because of violations of the federal Truth in Lending Act. The ruling, by the Seventh Circuit Court of Appeals, reversed an earlier ruling by a federal judge in Wisconsin. The lower court held that Chevy Chase Bank must rescind -- essentially cancel -- option ARM loans made to certain borrowers because of Truth in Lending Act violations.

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=23556

In the 2-to-1 decision, the panel called option ARMs "complex, with a potential trap for the unwary." But it held that rescissions under the Truth in Lending Act were intended to be "a purely individual remedy that may not be pursued" on a class-action basis. The ruling came in a case brought by Susan and Bryan Andrews, a Wisconsin couple.

Option ARMs typically carry a low introductory interest rate and give borrowers multiple payment options, including a minimum payment that may not even cover the interest due. Delinquencies on option ARMs have skyrocketed in the past year and many borrowers now say they didn't understand how these loans worked. Nearly $750 billion in option ARMs were originated in 2004-2007, according to Inside Mortgage Finance.

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http://online.wsj.com/article/SB122230520554673801.html?mod=todays_us_page_one (subscription)