Were You Coaxed Into Mortgaging Your Home to Invest in Securities?
Home ownership often provides individuals with their single largest asset and financial safety net. All too often, however, stockbrokers and brokerage firms unwisely or greedily advise clients to take home equity mortgages and invest the proceeds in the stocks, options, and other securities. This can place the investor at risk of losing his or her home.
Did you take unwarranted risk by liquefying your home equity at the urging of a stockbroker to make investments that have gone bad? Contact Dimond Kaplan & Rothstein, P.A., to schedule a consultation with a securities fraud lawyer. Learn how this law firm may be able to help you recover damages through securities arbitration or securities litigation.
Market forces thwarted the plans of many homeowners to reap profits by liquefying home assets to buy stocks. After investors followed their brokers' advice and mortgaged their homes to invest in securities, real estate values plummeted when the real estate and securities markets crashed in the late 2000s.
Many Homeowner Investors Now Face Foreclosure
The end result was that homeowners who followed their brokers' advice to mortgage their homes often found themselves owing more money to the bank than their homes were worth. And due to the suffering job market and poor performance of their securities accounts, many of these homeowners have had income declines and have not been able to pay their mortgage payments. These homeowners now face bank foreclosure on their homes.
Did Your Broker Have a Conflict of Interest?
In addition to the fact that recommendations to liquefy home equity to buy securities may be unsuitable, brokers also often have a conflict of interest with such recommendations. First, they stand to earn commissions on the securities purchases. Second, if the brokerage firm or its affiliate is the lender for the home equity mortgage, the broker, brokerage firm or its affiliate will be compensated for originating and servicing the new home equity loan.
Did Your Brokerage Firm Perform a Suitability Analysis?
Concerned with the increasing number of investors who have used their home equity to buy securities, FINRA has reminded brokerage firms of their obligations to perform a careful suitability analysis before recommending such a strategy to an investor. FINRA has reminded brokerage firms that liquefying home equity to purchase securities may not be suitable for all investors, and that a careful analysis should be performed before making such recommendations.
What Factors Affect The Suitability of Liquefying Home Equity to Make Investments?
FINRA has recommended that brokers and brokerage firms consider:
- The amount of equity the investor has in his or her home
- The level of equity being liquefied for investments
- How the investor will meet his or her increased mortgage obligations
- Whether the new mortgage or home equity loan is at a fixed or variable rate
- The investor's risk tolerance with respect to the funds being invested
- The investor's overall debt burden
- The sustainability of the value of the investor's home
Contact a Collateralized Mortgage Obligations Lawyer
If you lost money after your broker recommended that you mortgage your home to buy stocks, bonds, options, or other securities, Dimond Kaplan & Rothstein, P.A., may be able to help you recover those investment losses. Contact the law firm to schedule a consultation with a New York City, Los Angeles and Miami CMOs attorney.