Matlock

BACKGROUND

We take the facts from the second amended complaint, which is operative, accepting them as true for present purposes. In August 2006, plaintiffs Lovell Matlock and Michaelle Young obtained a 40-year, adjustable rate mortgage loan in the amount of $524,000 from MetroCities Mortgage, LLC doing business as No Red Tape Mortgage (Metro). The loan bore an initial interest rate of 8.25 percent, adjustable monthly beginning in October 2006 based on an index of United States treasury securities, with a maximum rate of 9.950 percent. The loan had a negative amortization feature by which Metro agreed to accept any monthly payment that covered accrued interest at a rate of only 1.0 percent. The unpaid accrued interest would then be capitalized monthly onto the outstanding principal balance. However, this feature would exist only so long as the unpaid principal did not exceed 110 percent of the original principal. Once it did, the loan would become fully amortized, meaning each monthly payment would have to be in an amount sufficient to repay the unpaid principal in full by the maturity date in equal installments at the current interest rate. Pursuant to the negative amortization…