OLYMPIA, Wash. (12/19/07)--The Washington Department of Financial Institutions (DFI) has alleged that Linden Loans LLC, of Kirkland, used bait and switch tactics in its advertising for mortgage loans. A DFI investigation indicated that although Linden’s advertising promised consumers residential mortgage loans at 1% interest without points or fees, no borrower actually received those terms in 2006. DFI is looking to see if borrowers in 2007 received the promised terms. The statement of charges gave notice that the DFI may issue an order requiring Linden to cease deceptive advertising, suspend its mortgage broker license and suspend the loan originator licenses held by two respondents. The DFI also may fine Linden $150,000, with an additional $2,500 for investigation fees. Linden and its owners, Christopher Opdyke and Mark Sullivan, can request a hearing on the charges. DFI says Linden’s practices violated the Mortgage Broker Practices Act by misrepresenting loan terms, omitting required disclosures, and engaging in an unfair and deceptive practice. “The 1% rate touted by Linden lasts only a matter of months, and requires borrowers to accept predatory loan terms that would greatly increase costs to borrowers,” said Deb Bortner, director of the department’s division of consumer services. “In this case, we allege that Linden’s offer was illusory. “Consumers who responded to the bait were switched to a higher rate and higher cost mortgages. The borrowers who did get the 1% rate--only 44 of 333 borrowers--paid fees that, in some cases, grossly exceeded traditional broker feeds,” she added. Linden’s advertised mortgage loan was a payment-option adjustable-rate mortgage (ARM) that allows borrowers to choose among several payment options. Depending on the payment option, the loan may be a negatively amortizing loan, said DFI. Monthly payments could increase each year by up to 7.5% for five years, after which the interest rate is reset to amortize any unpaid interest. The cap on monthly payment increases does not apply to the reset. Linden also imposes a three-year prepayment penalty on borrowers who get the payment-option ARM. “We intend to closely monitor mortgage advertising in 2008, and expect similar enforcement actions will be forthcoming,” Bortner said. Many credit unions are offering low-cost alternatives to predatory lending practices, including several in Washington.