$100 Million lawsuit filed against mortgage brokers and lenders

In New York plaintiffs filed a $100 million lawsuit against mortgage lenders and brokers alleging that brokers and lenders failed to properly examine the suitability of the loans originated and ignored the borrower’s ability to repay the loans.

The plaintiffs argue that the mortgage companies aided and abetted Dawson by failing to properly examine the suitability of the borrowers with regard to income, financial situation, and the ability to make mortgage payments. The plaintiffs also claim they never received proper disclosures or closing documents related to their loans. The plaintiffsâ?? seek to have their mortgages voided and to prevent further foreclosure proceedings or collection activities on their mortgages.

The defendants in the case are mortgage brokers and also some of the biggest names in lending: IndyMac Bank, Countrywide Home Loans, Washington Mutual and Homecomings Financial.

The case is built around the fraudulent activities of Dawson, a purported financial advisor who duped retirees in to refinancing and terminating life insurance policies to invest in "higher returning" investments. The interesting twist is that the case goes after the lenders and mortgage brokers for a "lack of due diligence" in proving the suitability of the mortgage.

The Lenders and Mortgage Brokers approved mortgage loans in amounts far beyond the Plaintiffsâ?? ability to repay based upon their income (or lack thereof) levels, and failed to conduct their own independent due diligence.

By approving loans to Plaintiffs who lacked sufficient income, the Lenders and Mortgage Brokers generated for Dawson large sources of additional monies and funds which he could convert.

73. For example, in June 2006, Harriet Agostinelli received a loan of $468,000. Her loan application fails to reflect any income to support the monthly mortgage payments of $3,455. Furthermore, to qualify for this loan, Homecomings and/or Oasis accepted a letter from Dawson which purports to confirm that the Agostinellis had $200,000 in assets with BMG Advisory and $171,000 in cash from surrendered Nationwide annuity policies. A copy of this letter is annexed hereto as Exhibit C.

However, Homecomings and/or Oasis failed to pursue any further diligence to verify that these funds existed, or were held in an account in the Agostinellisâ?? name.

This has the potential to be a precedent setting case.

The idea of "suitability" of a mortgage loan for a borrower could be a lynch pin in future lawsuits against the industry. If the court can be persuaded that (1) simply following lender underwriting guidelines is not enough in ensuring the "suitability" of a mortgage for a particular borrower and (2) that the "due diligence" that lenders conduct in terms of proving assets and income is negligent, we could see the floodgates of mortgage-related lawsuits opened across the country.

Here is a PDF version of the complaint.