Negative Amortization

Amount of negative depreciation

This is the amount of negative amortization allowed on an ARM, usually stated as a percent of the initial credit amount (for example, 110%). Refer to Variable Rate Mortgage / How the Monthly Payment is Calculated on an ARM / Negative Amortization ARMs. Reference in the journal archives? significantly reduce the risk of negative depreciation and minimal payment.

US Florida Supreme Court rejects settlement options lawsuit against AmericanRM

In recent years, tens (if not hundreds) of collective actions have been brought to challenge certain mortgages known as " paying options ARM " mortgages. Component options ARM borrowings have variable interest rate and allow the borrower to make a minimal repayment that may be less than the interest earned in the first few years of a facility.

When the borrower decides on the minimal amount, interest is added to the capital and there is a negative amortization, i.e. the credit balances increases. In general, those who question these credits claim that the credits were granted without, inter alia, adequately revealing the potential for negative amortization. Taylor, et al. v. Homecomings Financial LLC, et al., No. 4:09-cv-292, Dkt. No. 40 (N. D. Fla. Aug. 20, 2010), Judge Robert Hinkle rejected the plaintiffs' appeal and found that the various documentation that the claimants had obtained in relation to their repayment options ARM lending duly revealed the conditions of the lending, to include the ability of a negative write-off.

Judges Hinkle began by finding that negative amortization was only possible under the conditions of the plaintiffs' loan. Hinkle dismissed the plaintiffs' arguments (which were also put forward in many other cases) that negative amortization would certainly happen and concluded that "the choice as to whether [payments should be made to pay interest] was for the plaintiff".

Judges Hinkle then noted that, given the nature of the loans, the creditor correctly revealed the potential and not the assurance of negative amortization and came to the conclusion that "a claim that negative amortization would surely happen would not have been correct. Finally, Judge Hinkle came to the conclusion that the plaintiffs' documentation obtained was "packed with disclosures" about how negative amortization worked so that no rational individual could have erred in understanding the credit terms:

Judges Hinkle noted that the county tribunals have made different rulings on whether similar ARM loan payout options provide an adequate description of the negative amortization. Check Carroll v. Homecomings Financial, no. 07-3775, Docket no. 93, Prop. (C. D. Cal. Mar. 23, 2009) (and note that the negative amortization disclosures were correct because "the claimants could have chosen another amortization elimination method") with Mincey v. World Sav.

Bank, FSB, 614 F. Supp. 2d 610, 635-38 (D. S.C. 2008) (the creditor infringed TILA by'disclosing negative write-downs was a way although they were actually safe').