NEW YORK -- A federal judge in Wisconsin ordered Chevy Chase Bank to rescind loans made to some borrowers who took out so-called option adjustable-rate mortgages, The Wall Street Journal reported yesterday.
The ruling was in a case against the Maryland-based bank brought by Susan and Bryan Andrews, who took out an option ARM in the belief that a 1.95 percent introductory rate was fixed for five years. Two months later, they received a statement showing the rate had risen to 4.375 percent, the newspaper said.
U.S. District Judge Lynn Adelman ruled that the disclosure statement about the loan terms was confusing. The words "five-year fixed" in the statement referred to minimum payments but not to the interest rate, the Journal reported.
Borrowers affected by the decision will get back any payments to the bank, including closing costs and lawyers' fees, the newspaper said, citing Kevin Demet, the attorney who filed the case.
Chevy Chase's general counsel, Thomas McCormick, told the Journal that the Bethesda-based bank will appeal the judge's ruling.
Calls to McCormick and the bank's investor relations department by Bloomberg News before business hours yesterday weren't immediately returned.
Option ARMs usually carry a low introductory interest rate and give borrowers a range of payment options. In recent years, they've proved attractive for borrowers who want to buy properties they couldn't otherwise afford, the Journal added.