Lawyers Eyeing Option ARM Suits?

Class-action lawyers are ready to pounce on payment-option adjustable-rate mortgage lenders once resets and delinquencies start to pile up in the second quarter of next year, according to an industry litigation attorney."This is going to be an absolute nightmare for the industry," attorney Andrew Sandler told a Consumer Bankers Association fair-lending conference. The partner at Skadden Arps reported that the class-action bar is counting on property value declines and rate resets that will triple monthly payments for homeowners who have relied on the minimum-payment option. The class-action attorneys will contend that lenders did not properly warn homebuyers about the risks associated with negative amortization and the potential for payment shock, Mr. Sandler said. And they will point to recent underwriting guidance issued by federal banking regulators to show that lenders placed their clients in unsuitable loans.