Mortgage Lending: 1.3.2.3 The Federal Housing Administration
Although HOLC was popular and generally successful, it was only intended to be an emergency measure and did not finance purchases.
Although HOLC was popular and generally successful, it was only intended to be an emergency measure and did not finance purchases.
The secondary market for mortgage loans87 as it exists today is almost entirely the product of federal laws and regulation. The National Housing Act, in addition to boosting the construction industry,88 was also designed to encourage liquidity in the mortgage market. Lack of liquidity was a major reason for the high foreclosure rate during the Depression. When banks refused to refinance homeowners’ short-term loans, widespread foreclosures were inevitable.
Through the last decades of the twentieth century and the first few years of the twenty-first, Freddie Mac and Fannie Mae purchased and securitized billions of dollars’ worth of conventional, conforming mortgages,124 as well as guarantying billions worth of mortgage-backed securities.125 The two GSEs benefited greatly from the often denied, but widely held, belief that all mortgage-backed securities they issued or guaranteed were, in turn, guaranteed by the full faith and credit of the United St
The years leading up to the recent foreclosure crisis136 saw an avalanche of predatory mortgage lending.
The surge in mortgage delinquencies that began in mid-2007 soon grew into a foreclosure crisis and severely weakened the economic security of the United States and millions of its residents.149 As more and more homes went into foreclosure, this disaster also triggered a broader financial crisis, both in the United States and abroad.150
At the community level, increased numbers of vacant properties, due to imminent and completed foreclosures, led to increased crime and blight.179 Local governments were hit hard due to the increased costs of policing and securing vacant homes and the reduction in tax revenue that followed the inevitable decline in property values.180 Between mid-2007 and the end of 2009 alone, state and local governments lost $917 million in property taxes.181 Thes
Troubled government-insured mortgage loans not yet in foreclosure were sold in increasing numbers and at significant discounts to private equity and hedge funds that, in turn, may be too quick to push homes into foreclosure or may be unhelpful in negotiating loan modifications.
Origination abuses were not the only cause of widespread foreclosures. Distressed homeowners were encouraged to ask their loan servicer for help negotiating a workout that would avoid foreclosure or resolve a default. But the servicers were unprepared and overwhelmed. They often failed, refused, or felt they were unable to modify the terms of the mortgage due to various constraints—real and perceived. When loans had been securitized, servicers seemed particularly unsure as to their authority and often gave consumers inaccurate information.
The digital version of the treatise includes sample pleadings, discovery, trial documents, primary sources, and practice tools that can easily be downloaded or copied and pasted into documents. These companion materials are all searchable with keywords and also with search filters.
Unfair and Deceptive Acts and Practices is available in both a print and digital version. Print revisions are released every few years and the digital version is updated more frequently, with all changes integrated into the text.
UDAP statutes apply to most consumer transactions and provide a flexible and practical consumer remedy for many abuses. These statutes are particularly important because, while the Federal Trade Commission Act is often viewed as sharply limiting the doctrine of caveat emptor,4 the Act provides only FTC enforcement and not state or private enforcement.
This treatise encourages attorneys dealing with a consumer’s complaint or a consumer facing a collection action to evaluate the applicability and practicality of a UDAP claim. This treatise has been cited in over eighty law review and journal articles, and in many reported decisions.8
This treatise cites unreported decisions and other materials which are available at www.nclc.org/unreported. All such decisions and materials are provided in Adobe Acrobat (PDF) format in alphabetical order and are directly linked in the digital version. Readers are encouraged to submit similar materials to NCLC at [email protected] for consideration for inclusion on that site.
NCLC’s Federal Deception Law is a companion volume to this treatise. Unfair and Deceptive Acts and Practices focuses on state UDAP claims. Federal Deception Law concentrates on federal and state statutes and regulations that, while often related to UDAP litigation, establish distinct requirements and remedies. It is strongly recommended that readers subscribe to both treatises.
NCLC offers a number of other treatises that focus in more detail on specific unfair or deceptive practices or on litigation issues common to many types of consumer cases:
There are a number of steps attorneys can take, before the client appears, to prepare themselves to press UDAP claims successfully. To stay abreast of the law, in addition to referring to this treatise, the attorney should keep a file of the most current version of the state’s UDAP statute(s)23 and previous versions for the past five or so years, indicating when versions were superseded.
Whenever a client comes to an attorney with a consumer problem, the attorney should consider whether there is a UDAP “angle”—there usually is.
Whatever type of problem the consumer client first discusses, the attorney should explore potential UDAP violations in all aspects of the transaction—advertising, sales presentations, the consummation of the sale, the credit terms, the seller’s performance, and subsequent debt collection practices. For example, if a client complains of debt collection harassment, examine not only the collection practices, but also the underlying sales transaction and the credit terms. If the client’s concern involves sales misrepresentations, also investigate the credit terms and collection tactics.
UDAP liability may exist if the consumer was in any way misled in the transaction, taking into account the consumer’s level of sophistication.77 Intent, scienter, bad faith, and even actual reliance often need not be shown.78 Even if nothing stated was deceptive, the seller may be liable if something important was not stated, that is, if there was a material nondisclosure.79 Such an omission is just as deceptive as a misrepresentation.
Where a legal issue is a matter of first impression, how compelling the facts are may have an important impact on the development of UDAP law in the state. Similarly, the opposing attorney, the defendant, and the court deciding the case may all have an important impact on the case’s outcome and thus the creation of UDAP precedent.
While a practitioner’s first instinct should always be to look for a UDAP approach to a case, do not neglect alternative claims. Such claims may provide superior remedies or federal court jurisdiction. In other cases, when a UDAP statute’s scope, statute of limitations, or other limitation may prevent a UDAP claim, alternative claims are a necessity.
Car dealers may misrepresent low-mileage vehicles as demonstrators, executive cars, or program cars to justify the fact that the car is for sale at a dealership when such a car would ordinarily have a retail owner. In fact, the car may have a very different history—for example, use as a rental car, as a lemon, as a repossession, or as part of a fleet lease.
Car dealers may misrepresent the number of prior owners. The prototypical representation is that the car was traded in to the dealer by someone who took excellent care of the vehicle ever since purchasing it new. In fact, the car may have had a number of consumer owners, and was also passed between a number of dealers, wholesalers, and auctions.
A car sold to a consumer can have a defective title for any number of reasons. One is that the car is stolen or the vehicle identification number is fictitious. Another is that preexisting liens are not satisfied or the title was never transferred to the consumer. Sale of a car with defective title presents the consumer with a number of special legal claims.
Gray market vehicles are ones that were not manufactured for sale in this country but are sold in the United States. Sale of a gray market vehicle may raise a number of claims.