Jonas Jacobson

Probably less so these days, but certainly a feature of mortgages past was the Adjustable Rate Mortgage, or the "ARM." An adjustable rate mortgage has a rate that changes with interest rates - theoretically.

When you purchase the loan, the mortgage broker, or the bank, smilingly tells you that the rate "can go up or down." As a consumer, excited about the details of your new home, you don't think too hard about the fine print. The fine print, however, explains that you rate adjusts not "every 5 years, before which time you'll have refinanced anyways" as your mortgage broker tells you - but every six months. That rate increase, you find, more than doubles the initial mortgage you took. Even worse, the rate seems to adjust every upwards.

While these days, the Massachusetts Attorney General has passed some pretty stringent regulations that should prevent this practice in future (or entitle the attorneys of those stupid enough to ignore the regulations to some hefty fees) that doesn't necessarily help people who were taken in prior to the enaction of the regulations.

What does help?

Maybe, the truth in lending laws. At issue, is what is called the "statute of limitations" associated with this law, as well as possible disclosures provided by the loan's originator. (Typically, there is only a year to bring suit on truth in lending claims, though that period may be extended by failed disclosure).

However, in Massachusetts, which has a strong consumer protection law, even an outdated violation of the Truth in Lending Act may be seen as evidence of a violation of the consumer protection laws. The varying interest rate, if sold as a "Five year Adjustable Rate Mortgage" may also be seen as the kind of general misrepresentation giving rise to statutory liability if it can be shown that the mortgage adjusted not every five years, but every six months.

In all, the purchasers of an Option ARM may have a remedy available against their Servicer or Note Holder of their ARMS.While the nature of the recovery is highly speculative, it may be worth having your loan documents reviewed by an Attorney.