Subprime mortgages have been linked to a meltdown in housing and questionable Wall Street practices, and they may have been the original domino that set off America's current economic crisis.
But the loans -- typically made to people with poor credit -- have long been hailed for one reason: They were thought to be a powerful way to increase homeownership rates among minorities, and to provide a mechanism to undo the "redlining" policies of past decades, in which some banks refused to extend loans in predominantly minority neighborhoods, even to applicants with good credit.
Intersecting lines of new sociological evidence, however, suggest that this silver lining may have actually been a part of the cloud: There is growing evidence that the subprime mortgage industry may have both benefited from and contributed to racial segregation in the United States.
The financial industry has strenuously argued that subprime loans were given to people with low incomes and poor credit -- regardless of race.
George Washington University sociologist Gregory D. Squires, however, has been looking at rates of subprime loans issued in about 350 U.S. metropolitan areas. Squires's preliminary findings show that subprime loans were indeed more likely to be issued to people with poor credit and those with limited incomes -- no surprise there. But when Squires holds income and credit factors constant in his analysis, he finds that subprime loans were more likely to be concentrated in areas with higher levels of racial segregation.
"We see these loans heavily concentrated in poor neighborhoods and targeted to minority neighborhoods," he said. "There is some evidence that these neighborhoods were actually targeted -- that lenders have gone after people whom they think are less sophisticated borrowers, including single women and the elderly."
"Credit rating and income would and does explain some of the patterns," Squires added. "But when you control for those, segregation is also a factor. . . . In those metro areas where segregation is highest, the share of loans that are subprime goes up."
The city of Baltimore recently decided to sue a bank over subprime lending practices and race issues. In a lawsuit filed in U.S. District Court, the city argued that it was facing an "unprecedented crisis of residential mortgage foreclosures" and argued that Wells Fargo, a prominent mortgage lender, ought to bear some responsibility for the growing numbers of defaults.
"In contrast to 'redlining,' which involves denying prime credit to specific geographic areas because of the racial or ethnic composition of the area, reverse redlining involves the targeting of an area for the marketing of deceptive, predatory or otherwise unfair lending practices because of the race or ethnicity of the area's residents" the city charged in its complaint.
In 2005 and 2006, according to the complaint and Brad Blower, a lawyer at the firm Relman & Dane that is representing the city, two-thirds of Wells Fargo's foreclosures in Baltimore were in areas that were more than 60 percent African American, whereas only 15.6 percent of the foreclosures were in areas that were less than 20 percent African American.
Wells Fargo rejects the charges and has said racial factors played no role in its lending. If larger numbers of subprime loans were issued in some neighborhoods, in other words, it was only because those neighborhoods tended to have poorer people with weak credit. Individual issues -- not racial patterns -- explains why some people defaulted while others did not, the company argued.
Disparities in lending by race, however, have been striking in many parts of the country: In New York City, for example, an analysis by the Furman Center for Real Estate and Urban Policy found that around 40 percent of subprime loans issued between 2004 and 2006 were made to blacks, and an additional third of such loans were given to Hispanics. Whites, by contrast, received around 10 percent of such loans, as did Asians.
In a rigorous national analysis based on data collected in the 1990s, researchers Carolyn Bond and Richard Williams found the same phenomenon nationwide. But in addition to demonstrating large racial disparities in who got such loans, Bond and Williams also found the loans -- far from reversing racial segregation -- may have actually contributed to increased levels of segregation in the United States.
"By 1999 the proportion of black borrowers receiving loans from subprime lenders was six times what it was in 1992," the researchers wrote in a paper they published in the journal Social Forces.
While the cheap loans did increase black homeownership rates, especially in predominantly minority neighborhoods, they simultaneously increased the risk that homeowners would default on their loans, send houses into foreclosure and drive down the value of entire neighborhoods, making them less attractive for people from other social classes and racial groups who might have once considered moving in.
"Many subprime borrowers are losing their homes, and the deteriorating and destabilized neighborhoods that result are unlikely to foster integration," Bond and Williams concluded. "In the absence of effective action, the findings suggest that persistent or even increasing levels of segregation may be one of the most important long-term consequences of the current home lending crisis." (By Shankar Vedantam, Washington Post)
Showing posts with label Subrpime Lending. Show all posts
Showing posts with label Subrpime Lending. Show all posts
Monday, June 30, 2008
Monday, November 26, 2007
Ripple effect is feared from foreclosures
Neighboring houses likely to lose billions
Foreclosures on subprime home loans made to borrowers toward the end of the housing bubble will erase billions of dollars in value from neighboring properties, according to a report released yesterday by a nonprofit group.
The Center for Responsible Lending used its findings to call for Congress to enact stronger protections for borrowers facing foreclosure - such as giving bankruptcy courts the authority to allow borrowers to continue making payments - and to take steps to prevent predatory lending practices.
The center's report estimates about a third of homes nationwide - or 44.5 million homes - will see property values drop by an average $5,000 two to three years after the foreclosures of loans originated in 2005 or 2006. It estimates the total loss at $223 billion, with the greatest impact in neighborhoods with high concentrations of minority residents, who tended to be steered into subprime loans in greater numbers.
The study ranked Maryland sixth worst in the nation, with some 1.43 million properties - more than half the state's total - expected to lose $8 billion in value. California was ranked No. 1.
The estimate for Maryland was much higher than that issued last month by the Joint Economic Committee of Congress.
The committee estimated the total loss of state property values at $2.7 billion, of which about $1.1 billion was the ripple effect on nearby homes. That report forecast subprime foreclosures from the middle of this year through the end of 2009.
The Center for Responsible Lending's study projects more than 329,000 homes will lose value because of their neighbors' subprime woes in an area that includes mostly Baltimore City, with some spillover of properties in Baltimore and Anne Arundel counties. In the metropolitan area's five surrounding counties, nearly 483,000 homes will lose value, the study said.
Maryland homes will lose an average $5,597 in value, it said, ranging from an average of $9,366 in Prince George's County to an average of just under $1,000 in Allegany.
"Subprime foreclosures continue to spread throughout the country like a disease epidemic, and the losses are affecting more and more families who've lost their homes, and these losses extend to the neighbors," said Martin Eakes, the center's chief executive officer during a conference call yesterday.
Eakes blamed lenders who pushed borrowers into subprime loans, generally given to people with weak credit who then pay higher fees or interest.
Joanna Smith-Ramani, co-chair of the Baltimore Homeownership Preservation Coalition, said the number of homes the center predicts will be negatively affected is "frightening." She fears that rising foreclosures might "paralyze" revitalization efforts in the city.
Jay Brinkman, a financial economist with the Mortgage Bankers Association, which represents prime and subprime lenders, said he found flaws in the report. Price declines typically lead to more foreclosures, not the other way around, he said.
"The idea of associating price declines with foreclosures is not a valid argument, the way they have done it here," said Jay Brinkman, a financial economist with bankers association. "The way they attempted to reach out and apply it over 44 million homes is not valid."
Richard P. Clinch, director of economic research at the University of Baltimore's Jacob France Institute, said rising foreclosures and falling property values both are consequences of the popping of the housing bubble, not cause and effect.
"As the bubble bursts, property values fall," Clinch said.
Thomas E. Perez, co-chair of the Maryland Homeownership Preservation Task Force, said he can't comment on the center's figures but agrees with the premise that the effects of foreclosure reach far beyond the people losing their homes.
"The impacts are so wide-ranging," said Perez, the state's secretary of labor, licensing and regulation. "The ripple's really what we talk about. That is why it's so critical to get a handle on it."
Phillip Robinson, executive director of Civil Justice Inc., which has a network of attorneys who help clients with foreclosures, said the study may be a wake-up call for homeowners who've never had a subprime loan and expect their homes will always rise in value. (By Lorraine Mirabella and Jamie Smith Hopkins | Baltimore Sun)
Foreclosures on subprime home loans made to borrowers toward the end of the housing bubble will erase billions of dollars in value from neighboring properties, according to a report released yesterday by a nonprofit group.
The Center for Responsible Lending used its findings to call for Congress to enact stronger protections for borrowers facing foreclosure - such as giving bankruptcy courts the authority to allow borrowers to continue making payments - and to take steps to prevent predatory lending practices.
The center's report estimates about a third of homes nationwide - or 44.5 million homes - will see property values drop by an average $5,000 two to three years after the foreclosures of loans originated in 2005 or 2006. It estimates the total loss at $223 billion, with the greatest impact in neighborhoods with high concentrations of minority residents, who tended to be steered into subprime loans in greater numbers.
The study ranked Maryland sixth worst in the nation, with some 1.43 million properties - more than half the state's total - expected to lose $8 billion in value. California was ranked No. 1.
The estimate for Maryland was much higher than that issued last month by the Joint Economic Committee of Congress.
The committee estimated the total loss of state property values at $2.7 billion, of which about $1.1 billion was the ripple effect on nearby homes. That report forecast subprime foreclosures from the middle of this year through the end of 2009.
The Center for Responsible Lending's study projects more than 329,000 homes will lose value because of their neighbors' subprime woes in an area that includes mostly Baltimore City, with some spillover of properties in Baltimore and Anne Arundel counties. In the metropolitan area's five surrounding counties, nearly 483,000 homes will lose value, the study said.
Maryland homes will lose an average $5,597 in value, it said, ranging from an average of $9,366 in Prince George's County to an average of just under $1,000 in Allegany.
"Subprime foreclosures continue to spread throughout the country like a disease epidemic, and the losses are affecting more and more families who've lost their homes, and these losses extend to the neighbors," said Martin Eakes, the center's chief executive officer during a conference call yesterday.
Eakes blamed lenders who pushed borrowers into subprime loans, generally given to people with weak credit who then pay higher fees or interest.
Joanna Smith-Ramani, co-chair of the Baltimore Homeownership Preservation Coalition, said the number of homes the center predicts will be negatively affected is "frightening." She fears that rising foreclosures might "paralyze" revitalization efforts in the city.
Jay Brinkman, a financial economist with the Mortgage Bankers Association, which represents prime and subprime lenders, said he found flaws in the report. Price declines typically lead to more foreclosures, not the other way around, he said.
"The idea of associating price declines with foreclosures is not a valid argument, the way they have done it here," said Jay Brinkman, a financial economist with bankers association. "The way they attempted to reach out and apply it over 44 million homes is not valid."
Richard P. Clinch, director of economic research at the University of Baltimore's Jacob France Institute, said rising foreclosures and falling property values both are consequences of the popping of the housing bubble, not cause and effect.
"As the bubble bursts, property values fall," Clinch said.
Thomas E. Perez, co-chair of the Maryland Homeownership Preservation Task Force, said he can't comment on the center's figures but agrees with the premise that the effects of foreclosure reach far beyond the people losing their homes.
"The impacts are so wide-ranging," said Perez, the state's secretary of labor, licensing and regulation. "The ripple's really what we talk about. That is why it's so critical to get a handle on it."
Phillip Robinson, executive director of Civil Justice Inc., which has a network of attorneys who help clients with foreclosures, said the study may be a wake-up call for homeowners who've never had a subprime loan and expect their homes will always rise in value. (By Lorraine Mirabella and Jamie Smith Hopkins | Baltimore Sun)
Tuesday, August 21, 2007
Behind on your mortgage? Ask for help right away
Don't wait until you become delinquent on your mortgage payments or are facing foreclosure before seeking help.
That's the key advice from housing counselors in the Baltimore area, who are trying to get struggling homeowners out from under ballooning mortgage payments.
"The moment they're falling behind, or think they're falling behind, call us immediately," said Ashidda Khalil, director of the Baltimore office of the Neighborhood Assistance Corp. of America, a nonprofit housing advocacy group. "Because for some reason they became afraid, and don't talk to the lender, it gets out of control."
There are several options for Marylanders, especially subprime borrowers, who housing counselors say have seen their monthly payments double in some cases as interest-only or adjustable-rate mortgages (ARMs) reset.
During the housing boom, many buyers stretched to buy a home before prices rose higher. They sought subprime mortgages because they meant lower payments in the first few years.
In addition, lenders made more subprime loans, typically at higher interest rates, to people with spotty credit records.
During 2004 and 2005, subprime loans nearly tripled, according to the Federal Reserve.
But now, as home values flatten or even decline and higher interest rates kick in, many homeowners can't keep up. Those with little or no equity are finding it tough to find new, fixed-rate loans or even sell the house for what they owe.
The state and some nonprofit organizations offer refinancing options for homeowners in dire situations. Many have eligibility requirements, such as income limits.
$1 billion in refinancing
Neighborhood Assistance, for instance, recently announced a commitment of $1 billion to refinance loans of people at risk of losing their homes.
To qualify, homeowners have to have subprime mortgages with interest rates of 10 percent or higher, Khalil said. They can refinance into a 30-year loan with a fixed rate that is 1 percent below market. So far, Khalil said the group has helped several Baltimore homeowners refinance and prevent foreclosure.
Neighborhood Housing Services of Baltimore Inc., a nonprofit group whose mission includes providing affordable housing, offered $1 million to refinance loans between January and May but then ran out of money because of the high demand.
The organization expects to have financing again in October.
Neighborhood Housing also offers emergency loans of up to $5,000 to help homeowners through tough months. The foreclosure process is quick in Maryland and the loans help people buy time, the group said.
"The idea is to forestall things for a limited amount of time and give homeowners time to fix the problem," said Felix Torres, the group's executive director.
"The customer that we were able to refinance basically had subprime loans they couldn't afford," Torres said. "In some cases they could barely afford it, and they were facing interest rates that were just going to push them over the edge."
Funding exhausted
The Community Assistance Network in Dundalk, too, recently exhausted its limited funding to help homeowners avoid delinquency and foreclosures, said Jon Brown, the group's sole housing counselor. The maximum grant is $450, and homeowners would have to provide the difference to bring payments current.
Marylanders also may qualify for the state's new Lifeline Refinance Mortgage program.
The loans, which have income limits, currently carry an interest rate of 6.5 percent.
Lifeline has about a dozen loans in the pipeline and has had about 600 inquiries since June. Officials expect to see an even bigger wave next year when more adjustable-rate mortgages reset, said Russell Thomas, a spokesman for the Department of Housing and Community Development, which administers the program.
Aside from financial help, nonprofit groups provide free counseling. Housing counselors can work with lenders to review options, such as lowering the interest rate.
"We're calling lenders and asking them to modify the loan so this person can continue to live in their home and raise their family," said Khalil of the Neighborhood Assistance. "We're pleading with lenders."
The St. Ambrose Housing Aid Center Inc. is on track this year to see nearly triple the amount of people it normally helps, from 700 to over 2,000 clients. The center said many homeowners had adjustable-rate loans and are now being squeezed. Others got into houses they couldn't afford. Many are coming in too late.
St. Ambrose will contact a homeowner's lender to see if better financing terms can be worked out. The center can also refer people to refinancing programs. It helps to sell the properties if it's too late to save them.
"Many of the families are already behind on their mortgage payments and the options become fewer and fewer," said Lisa Evans, deputy director of St. Ambrose. "People need to come in before their ARMs adjust and before their interest rates increase."
Where to seek help
Here are some places where homeowners struggling to make mortgage payments can turn to for help or further referrals:
• Lifeline Refinance Mortgage Program
A state program that provides refinancing. http://www.dhcd.state.md.us/Lifeline/ 877-462-7555
• St. Ambrose Housing Aid Center Inc.
Offers free counseling and referrals http://www.stambros.org/ 410-366-8550
• Neighborhood Housing Services of Baltimore
Provides emergency loans. It expects to have new funding available for refinancings in October. 410-327-1200
• Neighborhood Assistance Corp. of America
Offers a refinancing program and homeownership counseling. https://www.naca.com/index_main.jsp 410-783-0465
• Maryland attorney general's office
List of foreclosure counseling services http://www.oag.state.md.us/Consumer/foreclose.htm
• Homeownership Preservation Foundation
Hotline for homeowners in danger of facing foreclosure to connect with a U.S. government-approved counselor. Call 888-995-HOPE (4673). (baltimoresun.com)
That's the key advice from housing counselors in the Baltimore area, who are trying to get struggling homeowners out from under ballooning mortgage payments.
"The moment they're falling behind, or think they're falling behind, call us immediately," said Ashidda Khalil, director of the Baltimore office of the Neighborhood Assistance Corp. of America, a nonprofit housing advocacy group. "Because for some reason they became afraid, and don't talk to the lender, it gets out of control."
There are several options for Marylanders, especially subprime borrowers, who housing counselors say have seen their monthly payments double in some cases as interest-only or adjustable-rate mortgages (ARMs) reset.
During the housing boom, many buyers stretched to buy a home before prices rose higher. They sought subprime mortgages because they meant lower payments in the first few years.
In addition, lenders made more subprime loans, typically at higher interest rates, to people with spotty credit records.
During 2004 and 2005, subprime loans nearly tripled, according to the Federal Reserve.
But now, as home values flatten or even decline and higher interest rates kick in, many homeowners can't keep up. Those with little or no equity are finding it tough to find new, fixed-rate loans or even sell the house for what they owe.
The state and some nonprofit organizations offer refinancing options for homeowners in dire situations. Many have eligibility requirements, such as income limits.
$1 billion in refinancing
Neighborhood Assistance, for instance, recently announced a commitment of $1 billion to refinance loans of people at risk of losing their homes.
To qualify, homeowners have to have subprime mortgages with interest rates of 10 percent or higher, Khalil said. They can refinance into a 30-year loan with a fixed rate that is 1 percent below market. So far, Khalil said the group has helped several Baltimore homeowners refinance and prevent foreclosure.
Neighborhood Housing Services of Baltimore Inc., a nonprofit group whose mission includes providing affordable housing, offered $1 million to refinance loans between January and May but then ran out of money because of the high demand.
The organization expects to have financing again in October.
Neighborhood Housing also offers emergency loans of up to $5,000 to help homeowners through tough months. The foreclosure process is quick in Maryland and the loans help people buy time, the group said.
"The idea is to forestall things for a limited amount of time and give homeowners time to fix the problem," said Felix Torres, the group's executive director.
"The customer that we were able to refinance basically had subprime loans they couldn't afford," Torres said. "In some cases they could barely afford it, and they were facing interest rates that were just going to push them over the edge."
Funding exhausted
The Community Assistance Network in Dundalk, too, recently exhausted its limited funding to help homeowners avoid delinquency and foreclosures, said Jon Brown, the group's sole housing counselor. The maximum grant is $450, and homeowners would have to provide the difference to bring payments current.
Marylanders also may qualify for the state's new Lifeline Refinance Mortgage program.
The loans, which have income limits, currently carry an interest rate of 6.5 percent.
Lifeline has about a dozen loans in the pipeline and has had about 600 inquiries since June. Officials expect to see an even bigger wave next year when more adjustable-rate mortgages reset, said Russell Thomas, a spokesman for the Department of Housing and Community Development, which administers the program.
Aside from financial help, nonprofit groups provide free counseling. Housing counselors can work with lenders to review options, such as lowering the interest rate.
"We're calling lenders and asking them to modify the loan so this person can continue to live in their home and raise their family," said Khalil of the Neighborhood Assistance. "We're pleading with lenders."
The St. Ambrose Housing Aid Center Inc. is on track this year to see nearly triple the amount of people it normally helps, from 700 to over 2,000 clients. The center said many homeowners had adjustable-rate loans and are now being squeezed. Others got into houses they couldn't afford. Many are coming in too late.
St. Ambrose will contact a homeowner's lender to see if better financing terms can be worked out. The center can also refer people to refinancing programs. It helps to sell the properties if it's too late to save them.
"Many of the families are already behind on their mortgage payments and the options become fewer and fewer," said Lisa Evans, deputy director of St. Ambrose. "People need to come in before their ARMs adjust and before their interest rates increase."
Where to seek help
Here are some places where homeowners struggling to make mortgage payments can turn to for help or further referrals:
• Lifeline Refinance Mortgage Program
A state program that provides refinancing. http://www.dhcd.state.md.us/Lifeline/ 877-462-7555
• St. Ambrose Housing Aid Center Inc.
Offers free counseling and referrals http://www.stambros.org/ 410-366-8550
• Neighborhood Housing Services of Baltimore
Provides emergency loans. It expects to have new funding available for refinancings in October. 410-327-1200
• Neighborhood Assistance Corp. of America
Offers a refinancing program and homeownership counseling. https://www.naca.com/index_main.jsp 410-783-0465
• Maryland attorney general's office
List of foreclosure counseling services http://www.oag.state.md.us/Consumer/foreclose.htm
• Homeownership Preservation Foundation
Hotline for homeowners in danger of facing foreclosure to connect with a U.S. government-approved counselor. Call 888-995-HOPE (4673). (baltimoresun.com)
Tuesday, August 14, 2007
Reversal of fortune
As European banks scrambled last week to curtail the widening repercussions of the U.S. subprime mortgage mess and deal with a threatened liquidity crunch, discussion turned to whether the Federal Reserve Board would bail out investors caught up in the crisis. The boomerang effect of Americans' reliance on subprime mortgages can't be underestimated, but efforts to manage the fallout should not lose sight of those in danger of losing their homes.
Until last week, the subprime crisis was marked by a cascade of failing lenders, delinquent loans and foreclosures. And then a French bank stopped withdrawals from three investment funds ensnared by the subprime crisis. That triggered Europe's central bank and the Federal Reserve to pump billions into the banking systems to keep credit available as U.S. stocks plummeted.
Whether the actions by the central banks quell concerns or exacerbate the situation will become clear soon enough.
But even if the liquidity crunch eases and the financial markets correct themselves, the collapse of the subprime market will continue to be felt across the country as jobs are lost, loans are tougher to get and homeowners struggle to keep their houses. Experts predict that autumn will bring another wave of delinquencies and foreclosures as the next level of subprime mortgages resets. The effort, at least locally, must remain on attempts to shore up the housing market.
In Maryland alone last week, American Home Mortgage Investment Corp. laid off hundreds of employees in the state while seeking bankruptcy protection; Fieldstone Investment Corp. of Columbia, a subprime lender, quit taking loan applications; and state Licensing Secretary Thomas E. Perez announced the first prosecution of a "foreclosure rescue scam," evidence that criminals are exploiting homeowners' woes.
To keep homeownership available for low-income buyers, regulators must ensure that lending practices are reasonable and realistic. New guidelines issued by the Federal Reserve say loans should be made based on a borrower's ability to pay the entire cost of the loan, not a lower-priced introductory rate - but they are only guidelines.
The increasing rate of home foreclosures is leaving cities such as Baltimore, Cleveland and Riverside, Calif., with a growing vacancy problem. Urban Institute scholar Edward M. Gramlich offers this remedy: State and local governments should invest in the newly vacated homes to address a shortage of rental and affordable housing. That's one way to reap some benefit from a housing bubble gone bust. (baltimoresun.com)
Until last week, the subprime crisis was marked by a cascade of failing lenders, delinquent loans and foreclosures. And then a French bank stopped withdrawals from three investment funds ensnared by the subprime crisis. That triggered Europe's central bank and the Federal Reserve to pump billions into the banking systems to keep credit available as U.S. stocks plummeted.
Whether the actions by the central banks quell concerns or exacerbate the situation will become clear soon enough.
But even if the liquidity crunch eases and the financial markets correct themselves, the collapse of the subprime market will continue to be felt across the country as jobs are lost, loans are tougher to get and homeowners struggle to keep their houses. Experts predict that autumn will bring another wave of delinquencies and foreclosures as the next level of subprime mortgages resets. The effort, at least locally, must remain on attempts to shore up the housing market.
In Maryland alone last week, American Home Mortgage Investment Corp. laid off hundreds of employees in the state while seeking bankruptcy protection; Fieldstone Investment Corp. of Columbia, a subprime lender, quit taking loan applications; and state Licensing Secretary Thomas E. Perez announced the first prosecution of a "foreclosure rescue scam," evidence that criminals are exploiting homeowners' woes.
To keep homeownership available for low-income buyers, regulators must ensure that lending practices are reasonable and realistic. New guidelines issued by the Federal Reserve say loans should be made based on a borrower's ability to pay the entire cost of the loan, not a lower-priced introductory rate - but they are only guidelines.
The increasing rate of home foreclosures is leaving cities such as Baltimore, Cleveland and Riverside, Calif., with a growing vacancy problem. Urban Institute scholar Edward M. Gramlich offers this remedy: State and local governments should invest in the newly vacated homes to address a shortage of rental and affordable housing. That's one way to reap some benefit from a housing bubble gone bust. (baltimoresun.com)
Tuesday, July 17, 2007
Md. notifies borrowers in Ameriquest settlement
12,340 customers in state are eligible for restitution of several hundred dollars
Marylanders who got home loans from Ameriquest Mortgage Co. can begin to claim their share of a $325 million settlement reached with the subprime lender that was accused of preying upon borrowers nationwide with deceptive practices.
Douglas F. Gansler, Maryland's attorney general, announced yesterday that his agency and the Maryland commissioner of financial regulation sent letters and claim forms this week to 12,340 Ameriquest customers in Maryland who are eligible for $7.8 million in restitution.
Depending on how they were harmed, borrowers could receive hundreds, and in some cases thousands, of dollars.
Ameriquest, a subsidiary of ACC Capital Holdings in Orange, Calif., agreed in January 2006 to settle the case brought by 49 states, including Maryland, after a two-year investigation. Under the agreement, the company has been paying into a settlement fund in installments.
"It's a very, very large amount of money, so we allowed them to pay quarterly, rather than come up with the entire amount all at once," said V. Scott Bailey, a Maryland assistant attorney general. "That would have put them out of business, and in that case it would have been questionable how much we could have collected for consumers."
Regulators said the lender, which consented to changing its lending practices but didn't admit any wrongdoing, misrepresented the terms of home loans, such as whether it carried a fixed or an adjustable rate.
The lender and its affiliates also charged excessive loan origination fees and prepayment penalties; refinanced borrowers into inappropriate loans, and inflated appraisals used to qualify borrowers for loans, regulators said. Ameriquest has been retrenching along with the subprime industry, which has been roiled by losses from rising foreclosures. Subprime loans are made to borrowers with bad credit histories or heavy debt.
The mortgages often charge higher interest rates to compensate for the greater risk of default.
Dozens of subprime mortgage companies have declared bankruptcy, shuttered operations or been sold in recent months. Ameriquest, which was one of the largest, closed more than 200 branch offices last year and consolidated operations into four call centers.This year the company moved those operations into one call center in Orange, spokesman Chris Orlando said.
The National Association for the Advancement of Colored People sued Ameriquest and other lenders this week. The civil rights group alleges that the lenders discriminated against black borrowers by steering them into higher-interest subprime loans while giving more favorable loan terms to whites.
As for the multistate settlement, Orlando called the restitution "an important final step." The settlement covers customers of Ameriquest, Town and Country Credit Corp., and AMC Mortgage Services, formerly known as Bedford Home Loans, from January 1999 through December 2005.
Consumers owed restitution will be paid out under two tiers depending on how they were allegedly deceived. One will pay out an average of $756; the other an average of $569.
The forms mailed to eligible borrowers indicate a minimum payment they can expect to receive, though that figure could grow if fewer borrowers decide to take part in the settlement.
Consumers who do opt for the settlement give up their right to sue Ameriquest over the loans that are covered; they would not be giving up any claim they could otherwise raise if their homes go into foreclosure.
Gansler's office encouraged consumers to consult a private attorney or seek subsidized legal services. They must mail competed and signed forms to the settlement administrator by Sept. 10. (baltimoresun.com)
Marylanders who got home loans from Ameriquest Mortgage Co. can begin to claim their share of a $325 million settlement reached with the subprime lender that was accused of preying upon borrowers nationwide with deceptive practices.
Douglas F. Gansler, Maryland's attorney general, announced yesterday that his agency and the Maryland commissioner of financial regulation sent letters and claim forms this week to 12,340 Ameriquest customers in Maryland who are eligible for $7.8 million in restitution.
Depending on how they were harmed, borrowers could receive hundreds, and in some cases thousands, of dollars.
Ameriquest, a subsidiary of ACC Capital Holdings in Orange, Calif., agreed in January 2006 to settle the case brought by 49 states, including Maryland, after a two-year investigation. Under the agreement, the company has been paying into a settlement fund in installments.
"It's a very, very large amount of money, so we allowed them to pay quarterly, rather than come up with the entire amount all at once," said V. Scott Bailey, a Maryland assistant attorney general. "That would have put them out of business, and in that case it would have been questionable how much we could have collected for consumers."
Regulators said the lender, which consented to changing its lending practices but didn't admit any wrongdoing, misrepresented the terms of home loans, such as whether it carried a fixed or an adjustable rate.
The lender and its affiliates also charged excessive loan origination fees and prepayment penalties; refinanced borrowers into inappropriate loans, and inflated appraisals used to qualify borrowers for loans, regulators said. Ameriquest has been retrenching along with the subprime industry, which has been roiled by losses from rising foreclosures. Subprime loans are made to borrowers with bad credit histories or heavy debt.
The mortgages often charge higher interest rates to compensate for the greater risk of default.
Dozens of subprime mortgage companies have declared bankruptcy, shuttered operations or been sold in recent months. Ameriquest, which was one of the largest, closed more than 200 branch offices last year and consolidated operations into four call centers.This year the company moved those operations into one call center in Orange, spokesman Chris Orlando said.
The National Association for the Advancement of Colored People sued Ameriquest and other lenders this week. The civil rights group alleges that the lenders discriminated against black borrowers by steering them into higher-interest subprime loans while giving more favorable loan terms to whites.
As for the multistate settlement, Orlando called the restitution "an important final step." The settlement covers customers of Ameriquest, Town and Country Credit Corp., and AMC Mortgage Services, formerly known as Bedford Home Loans, from January 1999 through December 2005.
Consumers owed restitution will be paid out under two tiers depending on how they were allegedly deceived. One will pay out an average of $756; the other an average of $569.
The forms mailed to eligible borrowers indicate a minimum payment they can expect to receive, though that figure could grow if fewer borrowers decide to take part in the settlement.
Consumers who do opt for the settlement give up their right to sue Ameriquest over the loans that are covered; they would not be giving up any claim they could otherwise raise if their homes go into foreclosure.
Gansler's office encouraged consumers to consult a private attorney or seek subsidized legal services. They must mail competed and signed forms to the settlement administrator by Sept. 10. (baltimoresun.com)
Monday, July 16, 2007
For sale by lender
Foreclosed properties make up 10%-15% of local property listings
Thanks to a sharp rise in foreclosures, homebuyers are increasingly likely to encounter bank-owned properties in the housing market - listed for sale, offered at auction or even touted as a "good deal" on lenders' Web sites. But getting a bargain on a foreclosed home is hardly a sure bet.
Amid a housing slump that has pushed home listings to record numbers, lenders, too, are competing to sell homes, often through the multiple-listing service. Borrowers, in many cases, have been hurt in the slowdown by a loss of equity that could have helped them avoid foreclosure.
The increase in bank-owned properties comes as more homeowners, many in the suburbs, find themselves unable to keep up with payments on loans made during the housing boom, a time when low mortgage rates, relaxed lending standards and fast-rising home prices fueled a frenzied market.
Though it's difficult to track how many foreclosed properties are listed for sale, agents who sell homes for lenders estimate they represent 10 percent to 15 percent of active listings in the Baltimore area.
In June, nearly 20,000 homes were on the market in Baltimore and the five surrounding counties, according to statistics from Metropolitan Regional Information Systems Inc.
The number of lender-owned properties is expected to grow as billions of dollars in mortgages reset in coming months, triggering higher payments for homeowners.
Loans in the foreclosure process in Maryland soared nearly 30 percent in the first quarter compared with the first three months of 2006, and the number of borrowers at least 60 days behind on payments rose 20 percent, according to the most recent report by the Mortgage Bankers Association.
While Maryland is faring better than the nation as a whole, that still means about 5,700 Maryland homeowners were in danger of losing their homes in the first quarter.
Rising foreclosures could squeeze home values even more and prolong the slump, economists say.
"Eventually, foreclosures will be returned to the marketplace," said Celia Chen, director of housing economics for Moody's Economy.com. "Lenders have to take them back and sell them and try to sell them as fast as they can. ... It will keep price appreciation weak."
Local home listings, already at a record high, will climb even more, partly because of mounting foreclosures, said economist Anirban Basu, chief executive officer of Sage Policy Group Inc. of Baltimore.
"Inventory has been rising sharply, and it will continue to rise, with the impact of ARMs [adjustable-rate mortgages] resetting and foreclosure activity," Basu said. "I don't think we've begun to see that impact in a major way."
Real estate agents and brokers, too, worry that putting more inventory into an already sluggish market will bring down prices and cause houses to sit longer.
Jennifer Marshall, an agent with Maryland REO real estate brokerage, said she is seeing the number of foreclosure properties soaring in suburban areas.
"With more inventory, it's a buyer's market now," Marshall said. "People aren't going to offer what the house is listed for. ... It's more challenging for agents, and you have to think about different ways to get your properties out there and get them sold."
Banks are increasingly buying foreclosed properties back at auction as other bids fall short of the amount owed. That scenario has become more common as the number of owners with little or no equity - or even negative equity - has grown, particularly in cases of pricier homes with more recent mortgages.
"Because we're seeing more expensive homes, higher-end homes going to foreclosure, logic indicates that less of those are being sold to third parties," or buyers other than the lender," said Donald Miller, national sales director for Express Auctions, of Baltimore. Miller said about 30 percent of the homes sold through his company's foreclosure auctions go back to the lenders, but banks tend to buy back an even greater percentage at foreclosure auctions in general.
"As a general rule, the newer loans have less equity, so there's going to be a higher percentage of buy-ins" by the bank, said Daniel M. Billig, a partner in A.J. Billig and Co., the Baltimore auction house.
Lenders' bigger stakes mean they aren't likely to discount properties they buy back and subsequently list, agents said. And lenders can invest thousands more to repair properties.
As a result, like other sellers, they're looking to get top dollar, said David McIlvaine, an associate broker with Keller Williams in Ellicott City who sells foreclosure properties for lenders.
McIlvaine said when he began listing homes for lenders eight years ago, most of the homes were lower-end properties, typically city rowhouses.
"That's not the case anymore," McIlvaine said. "We're seeing a more representative group of inventory crossing all lines."
That's because borrowers who stretched to qualify for more flexible loans - including adjustable rates, no down payments and interest-only payments - have been added to the categories of borrowers who had lost their homes to foreclosure due to job loss, illness or divorce, experts said.
"You're seeing nicer homes, higher-priced homes," agreed Jeff Rogers, an associate broker with Coldwell Banker who lists homes for lenders, who said some of the borrowers have owned their homes for two years or less. "You sort of saw that coming. [Borrowers] were being set up for failure with some of these mortgages."
Miller, at Express Auctions, one of a handful of auction houses that handles the majority of foreclosure auction sales in the state, said investors continue to buy most auctioned properties that aren't bought back by lenders.
But individual homebuyers are starting to get into the mix, as investor Ed Kowalski has noticed.
"On a few occasions I have been outbid by owner-occupants," said Kowalski, who buys, renovates and resells homes in Baltimore and Baltimore County. "Generally, they'll pay more than I'll pay as an investment."
One homebuyer who came to an Express Auction in May beat out an investor on a three-year-old house in Hampstead, with a winning bid of $567,500. Before the auction, the owners had listed it for sale at $1 million, Miller said.
The buyer of the property got a sprawling five-bedroom house with a master bedroom, sitting room with coffee bar, workout room, library and a three-car garage, in a neighborhood where houses have sold for more than $700,000.
Buying at foreclosure auction is not without hurdles.
Successful bidders often must pay a cash deposit, typically 10 percent of the outstanding loan amount. The new owner must pay off any liens or second mortgages. And properties are sold as is. And an owner or tenant living in the house may or may not be cooperative about moving out.
Sihin Shiferaw, an investor who buys and rehabs homes in Baltimore City and Howard County, mostly at auction, recently took a chance on a bank-owned home listed for sale. After signing a sales contract, she discovered water in the home's basement and backed out of the deal, losing a $2,000 deposit.
Evelyn Ray, a real estate agent with Long and Foster in Bel Air, is hoping the increase in foreclosures might help some of her clients who are struggling to buy a house in the aftermath of a soaring market. Ray said she has begun looking for foreclosure properties to show her clients.
"Now, people just cannot afford the houses that are out there," said Ray. "I have about 30 buyers who are just waiting. They either can't afford the houses they want or are just scared or waiting for prices to come down, or they can't sell."
Cathy Holmes, a single mother of three who works as a biological lab technician at Aberdeen Proving Ground, hopes to find a deal on a foreclosed home as a last resort to finally be able to move from a rental apartment in Whiteford. Ray, her agent, has taken her to see several homes. But so far she hasn't been able to come up with the deposit that would qualify her to bid.
"I've been renting the same apartment for 11 years, it's just impossible to get out," said Holmes, who is looking for a single-family house with some land. "I just want to have a house where I don't have to hear the neighbors' telephones ringing and their conversations. I look and I look and I look. I just can't find anything that I can afford." (baltimoresun.com)
Thanks to a sharp rise in foreclosures, homebuyers are increasingly likely to encounter bank-owned properties in the housing market - listed for sale, offered at auction or even touted as a "good deal" on lenders' Web sites. But getting a bargain on a foreclosed home is hardly a sure bet.
Amid a housing slump that has pushed home listings to record numbers, lenders, too, are competing to sell homes, often through the multiple-listing service. Borrowers, in many cases, have been hurt in the slowdown by a loss of equity that could have helped them avoid foreclosure.
The increase in bank-owned properties comes as more homeowners, many in the suburbs, find themselves unable to keep up with payments on loans made during the housing boom, a time when low mortgage rates, relaxed lending standards and fast-rising home prices fueled a frenzied market.
Though it's difficult to track how many foreclosed properties are listed for sale, agents who sell homes for lenders estimate they represent 10 percent to 15 percent of active listings in the Baltimore area.
In June, nearly 20,000 homes were on the market in Baltimore and the five surrounding counties, according to statistics from Metropolitan Regional Information Systems Inc.
The number of lender-owned properties is expected to grow as billions of dollars in mortgages reset in coming months, triggering higher payments for homeowners.
Loans in the foreclosure process in Maryland soared nearly 30 percent in the first quarter compared with the first three months of 2006, and the number of borrowers at least 60 days behind on payments rose 20 percent, according to the most recent report by the Mortgage Bankers Association.
While Maryland is faring better than the nation as a whole, that still means about 5,700 Maryland homeowners were in danger of losing their homes in the first quarter.
Rising foreclosures could squeeze home values even more and prolong the slump, economists say.
"Eventually, foreclosures will be returned to the marketplace," said Celia Chen, director of housing economics for Moody's Economy.com. "Lenders have to take them back and sell them and try to sell them as fast as they can. ... It will keep price appreciation weak."
Local home listings, already at a record high, will climb even more, partly because of mounting foreclosures, said economist Anirban Basu, chief executive officer of Sage Policy Group Inc. of Baltimore.
"Inventory has been rising sharply, and it will continue to rise, with the impact of ARMs [adjustable-rate mortgages] resetting and foreclosure activity," Basu said. "I don't think we've begun to see that impact in a major way."
Real estate agents and brokers, too, worry that putting more inventory into an already sluggish market will bring down prices and cause houses to sit longer.
Jennifer Marshall, an agent with Maryland REO real estate brokerage, said she is seeing the number of foreclosure properties soaring in suburban areas.
"With more inventory, it's a buyer's market now," Marshall said. "People aren't going to offer what the house is listed for. ... It's more challenging for agents, and you have to think about different ways to get your properties out there and get them sold."
Banks are increasingly buying foreclosed properties back at auction as other bids fall short of the amount owed. That scenario has become more common as the number of owners with little or no equity - or even negative equity - has grown, particularly in cases of pricier homes with more recent mortgages.
"Because we're seeing more expensive homes, higher-end homes going to foreclosure, logic indicates that less of those are being sold to third parties," or buyers other than the lender," said Donald Miller, national sales director for Express Auctions, of Baltimore. Miller said about 30 percent of the homes sold through his company's foreclosure auctions go back to the lenders, but banks tend to buy back an even greater percentage at foreclosure auctions in general.
"As a general rule, the newer loans have less equity, so there's going to be a higher percentage of buy-ins" by the bank, said Daniel M. Billig, a partner in A.J. Billig and Co., the Baltimore auction house.
Lenders' bigger stakes mean they aren't likely to discount properties they buy back and subsequently list, agents said. And lenders can invest thousands more to repair properties.
As a result, like other sellers, they're looking to get top dollar, said David McIlvaine, an associate broker with Keller Williams in Ellicott City who sells foreclosure properties for lenders.
McIlvaine said when he began listing homes for lenders eight years ago, most of the homes were lower-end properties, typically city rowhouses.
"That's not the case anymore," McIlvaine said. "We're seeing a more representative group of inventory crossing all lines."
That's because borrowers who stretched to qualify for more flexible loans - including adjustable rates, no down payments and interest-only payments - have been added to the categories of borrowers who had lost their homes to foreclosure due to job loss, illness or divorce, experts said.
"You're seeing nicer homes, higher-priced homes," agreed Jeff Rogers, an associate broker with Coldwell Banker who lists homes for lenders, who said some of the borrowers have owned their homes for two years or less. "You sort of saw that coming. [Borrowers] were being set up for failure with some of these mortgages."
Miller, at Express Auctions, one of a handful of auction houses that handles the majority of foreclosure auction sales in the state, said investors continue to buy most auctioned properties that aren't bought back by lenders.
But individual homebuyers are starting to get into the mix, as investor Ed Kowalski has noticed.
"On a few occasions I have been outbid by owner-occupants," said Kowalski, who buys, renovates and resells homes in Baltimore and Baltimore County. "Generally, they'll pay more than I'll pay as an investment."
One homebuyer who came to an Express Auction in May beat out an investor on a three-year-old house in Hampstead, with a winning bid of $567,500. Before the auction, the owners had listed it for sale at $1 million, Miller said.
The buyer of the property got a sprawling five-bedroom house with a master bedroom, sitting room with coffee bar, workout room, library and a three-car garage, in a neighborhood where houses have sold for more than $700,000.
Buying at foreclosure auction is not without hurdles.
Successful bidders often must pay a cash deposit, typically 10 percent of the outstanding loan amount. The new owner must pay off any liens or second mortgages. And properties are sold as is. And an owner or tenant living in the house may or may not be cooperative about moving out.
Sihin Shiferaw, an investor who buys and rehabs homes in Baltimore City and Howard County, mostly at auction, recently took a chance on a bank-owned home listed for sale. After signing a sales contract, she discovered water in the home's basement and backed out of the deal, losing a $2,000 deposit.
Evelyn Ray, a real estate agent with Long and Foster in Bel Air, is hoping the increase in foreclosures might help some of her clients who are struggling to buy a house in the aftermath of a soaring market. Ray said she has begun looking for foreclosure properties to show her clients.
"Now, people just cannot afford the houses that are out there," said Ray. "I have about 30 buyers who are just waiting. They either can't afford the houses they want or are just scared or waiting for prices to come down, or they can't sell."
Cathy Holmes, a single mother of three who works as a biological lab technician at Aberdeen Proving Ground, hopes to find a deal on a foreclosed home as a last resort to finally be able to move from a rental apartment in Whiteford. Ray, her agent, has taken her to see several homes. But so far she hasn't been able to come up with the deposit that would qualify her to bid.
"I've been renting the same apartment for 11 years, it's just impossible to get out," said Holmes, who is looking for a single-family house with some land. "I just want to have a house where I don't have to hear the neighbors' telephones ringing and their conversations. I look and I look and I look. I just can't find anything that I can afford." (baltimoresun.com)
Monday, May 21, 2007
Foreclosure Fiasco
For years, you’ve been told owning your own home was the “American Dream.” But ABC2 News Investigator Tisha Thompson discovered, some one can literally “steal” your home. Meet Dana Pryor, a mother in North Baltimore who thought she had done everything right. The right education, the right job, she even got what she thought was the right loan. Only to find out how very wrong it can all become.
"How do you not know where your uniform is or your books?” Like single mothers everywhere --
"Could you just find...where is your...ugh." Dana Pryor’s morning ritual can be a bit of a struggle. "Come on and get in the car."
Yet, despite the seeming chaos --
"Everybody in!"
Pryor has managed to do everything right for years. "Come on, come one, come on. Where's your brother?" She went to college.
"I'm about to leave this kid and let him walk to school." Got a master’s degree.
"Ok, we're ready to go."
And a very good job.
"I am a six-figure, degree-having mom who feels very much like I have failed miserably."
Because Pryor’s dream house --
"It was $180,000, six bedrooms, three bathrooms."
Became the money pit --
"Probably $35,000."
That swallowed her 401-K.
"I'm either going to feed my kids or I'm going to pay the person I owe,” Pryor says. “Oftentimes you're robbing Peter to pay Paul and Peter has to wait until later."
Peter being her $1,300 mortgage payment, which escalated to more than $28,000 even after she paid back a few missing installments. Now her home will be sold on the courthouse steps because, despite making more than $100,000 a year, Pryor’s gone into foreclosure.
"The tsunami is coming,” says Allen Fishbein of the Center for Responsible Lending. “It has already engulfed some but unfortunately it appears its going to engulf many more."
The Center for Responsible Lending predicts as many as 22% of Maryland’s subprime loans will go into foreclosure next year.
Maryland has the fastest foreclosure process in the nation. If you miss a payment, your lender can sell your home in just 15 days.
"Maryland's 'Rocket Docket' of going into foreclosure sale in 15 days doesn't have to be,” says Phillip Robinson for the legal-aid group Civil Justice Network. “Most states have a much slower process."
To make matters worse, Robinson says the banks don’t even have to tell you they’re selling your house. "It’s the only legal proceeding in Maryland that doesn't require notice, which to me is mind-boggling,” he says. “If you want to sue me for $20 in District Court, the judge can't sign the order until you can prove through an affidavit that I got served. But if you want to sue me and take away my home and foreclose on my home, you don't have to prove to the judge that I got notice of the lawsuit."
"This is everyone's problem and we need to get them to get outraged," says Congressman Elijah Cummings (D-MD). He says he’s going to fix the problem, but needs you to write him a letter complaining about Maryland mortgage meltdown first. "I need people to be fiery about it.”
But foreclosure is embarrassing for many people.
"Pride is the biggest stumbling block," says Pryor. "The biggest mistake I made, the one everyone makes, is putting your head in the sand. It’s very hard to admit you need help with your mortgage."
Pryor says she hasn’t told anyone she’s about to move out and only agreed to go on camera because she doesn’t want what happened to her to ever happen to you.
"You can't buy a home in 15 days, but you amazingly enough you can lose one in 15 days.” (abc2news.com)
"How do you not know where your uniform is or your books?” Like single mothers everywhere --
"Could you just find...where is your...ugh." Dana Pryor’s morning ritual can be a bit of a struggle. "Come on and get in the car."
Yet, despite the seeming chaos --
"Everybody in!"
Pryor has managed to do everything right for years. "Come on, come one, come on. Where's your brother?" She went to college.
"I'm about to leave this kid and let him walk to school." Got a master’s degree.
"Ok, we're ready to go."
And a very good job.
"I am a six-figure, degree-having mom who feels very much like I have failed miserably."
Because Pryor’s dream house --
"It was $180,000, six bedrooms, three bathrooms."
Became the money pit --
"Probably $35,000."
That swallowed her 401-K.
"I'm either going to feed my kids or I'm going to pay the person I owe,” Pryor says. “Oftentimes you're robbing Peter to pay Paul and Peter has to wait until later."
Peter being her $1,300 mortgage payment, which escalated to more than $28,000 even after she paid back a few missing installments. Now her home will be sold on the courthouse steps because, despite making more than $100,000 a year, Pryor’s gone into foreclosure.
"The tsunami is coming,” says Allen Fishbein of the Center for Responsible Lending. “It has already engulfed some but unfortunately it appears its going to engulf many more."
The Center for Responsible Lending predicts as many as 22% of Maryland’s subprime loans will go into foreclosure next year.
Maryland has the fastest foreclosure process in the nation. If you miss a payment, your lender can sell your home in just 15 days.
"Maryland's 'Rocket Docket' of going into foreclosure sale in 15 days doesn't have to be,” says Phillip Robinson for the legal-aid group Civil Justice Network. “Most states have a much slower process."
To make matters worse, Robinson says the banks don’t even have to tell you they’re selling your house. "It’s the only legal proceeding in Maryland that doesn't require notice, which to me is mind-boggling,” he says. “If you want to sue me for $20 in District Court, the judge can't sign the order until you can prove through an affidavit that I got served. But if you want to sue me and take away my home and foreclose on my home, you don't have to prove to the judge that I got notice of the lawsuit."
"This is everyone's problem and we need to get them to get outraged," says Congressman Elijah Cummings (D-MD). He says he’s going to fix the problem, but needs you to write him a letter complaining about Maryland mortgage meltdown first. "I need people to be fiery about it.”
But foreclosure is embarrassing for many people.
"Pride is the biggest stumbling block," says Pryor. "The biggest mistake I made, the one everyone makes, is putting your head in the sand. It’s very hard to admit you need help with your mortgage."
Pryor says she hasn’t told anyone she’s about to move out and only agreed to go on camera because she doesn’t want what happened to her to ever happen to you.
"You can't buy a home in 15 days, but you amazingly enough you can lose one in 15 days.” (abc2news.com)
Thursday, May 17, 2007
Subprime bailouts: How they work
There's some state-sponsored help on the way for subprime borrowers.
"They got themselves into this mess and I don't want my tax dollars used to get them out of it." That's the attitude of many when it comes to bailing out subprime borrowers from bad loans.
Still, many programs to help those facing foreclosure are being launched, with the aim of moving borrowers out of high-interest, variable-rate loans and into lower-rate, fixed ones.
Say you're a homeowner with a 2/28 hybrid ARM due to reset next month from the initial two-year 5.25 percent "teaser rate" to 8.25 percent. It will reset again every six months up to as much as 12 percent.
The difference in monthly payments between the initial rate on your $200,000 mortgage and the first reset is nearly $400 ($1,502 versus $1,104). That's bad enough but after another year or two, your mortgage payment could come to $2,057. You can't afford it.
You can go to one of the approved lenders on the Web site of Maryland's Department of Housing and Community Development and ask to refinance into a fixed rate loan with a permanent low rate. Your payments will not only be lower than the reset rates, they will stay the same the entire length of the loan.
Without Lifeline, many borrowers would not have been able to secure a new loan, at least not with attractive terms. In many cases their credit scores would not qualify them for the rates the state-backed program offers.
In addition, their old lenders may have insisted on enforcing the onerous terms of their original agreements, such as prepayment penalties. The state has more leverage with lenders to compel them to co-operate with the program.
After the approved private lender puts together the new loan, it bundles it with others and sells them to the agency, which uses cash from a bond issue to buy the bundled loans.
The goal is that state coffers would not be used - the state hopes to pay off those bonds with the interest it collects from borrowers. But if too many borrowers default on their loans, it could be hard for the state to break even on the program.
Even if there aren't a lot of defaults, raising money to fund the program isn't free because it diverts resources from other projects, such as construction of bridges or highways. "There's always an opportunity cost for the taxpayer," said Joseph Gyourko, an economics professor with the Samuel Zell and Robert H. Lurie Real Estate Center at The Wharton School.
Not every Maryland borrower is eligible for the program. You can't have household income of more than $126,420 and you can't borrow more than $525,000. These limits vary from county to county, with high-cost areas near Washington, D.C. having the highest maximums.
The loans have interest rates of 6.25 percent for a 40-year fixed and 6.5 percent for a 30-year. There are also interest-only loans available that carry a rate of 6.5 percent. Borrowers pay 2 points at closing for any of these products, which may be folded into the loan.
Maryland also requires that the home be a primary residence and that the loan not exceed 85 percent of the value of the property.
So far, just a handful of borrowers have signed up for the program, fewer than 10 but many more are expected as numerous hybrid ARMs taken out in 2005 and 2006 start to hit their first resets.
To avoid future crises, Maryland is also trying to discourage irresponsible or unscrupulous lending, according to Thomas Perez, secretary for the Maryland Department of Labor, Licensing and Regulation.
"I want to track loan originators who have disproportionate numbers of loans that go into foreclosure," said Perez. Too many dings on a mortgage broker's record, for example, could bring suspension or revocation of the broker's license.
Price forecasts for 100 biggest markets
Ohio, which is suffering from a great many job layoffs as manufacturing plants shut down, has a similar program it calls Opportunity Loan.
Mark Wiseman, who runs a foreclosure prevention program for Cuyahoga County (which includes Cleveland), said the state had the highest foreclosure rate in the nation by the end of 2006. There are 1,200 foreclosures a month in his area and forecasts are for 75,000 statewide this year.
On April 2, Ohio announced it would sell $100 million worth of bonds, which could go to $500 million eventually, to fund Opportunity Loan. Rita Parisi, of the Ohio Housing Finance Agency, emphasizes that no taxpayer money is involved in the bailout. "We're selling taxable bonds to make new mortgage loans to homeowners," she says.
As in Maryland's Lifeline program, the bonds are paid off using interest paid by the borrowers.
The subprime mess will be no easy fix
Parisi says her agency works with Fannie Mae to obtain underwriting waivers, approvals for homeowners who are unable to refinance under traditional products, but who qualify for the Opportunity Loans.
Homeowners can go to the agency's Web site for a roster of approved lenders and start the process.
Other states, including Rhode Island, Massachusetts and Virginia, have started or are planning similar programs, according to the National Council of State Housing Agencies. More states are mulling over these and other options, such as interest rate buy down plans and rescue funds.
Nationally, relief for troubled subprime borrowers is coming from Freddie Mac. It has earmarked $20 billion to buy refinanced loans targeting holders of exotic mortgages.
But it will not bailout every borrower. Borrowers must meet tightened credit standards and must be judged to be able to afford the new loan at its highest reset rate. Freddie Mac will limit use of low documented loans, so-called "liar loans," in which borrowers do not have to prove assets or income.
Lenders also must take into account (as they also must do in the state bailout programs) property taxes and insurance in judging the qualifications of an applicant and the agency recommends that taxes be collected in an escrow account.
The program is due to launch mid-summer. Information will come available on the Freddie Mac's Website. (CNNMoney.com)
"They got themselves into this mess and I don't want my tax dollars used to get them out of it." That's the attitude of many when it comes to bailing out subprime borrowers from bad loans.
Still, many programs to help those facing foreclosure are being launched, with the aim of moving borrowers out of high-interest, variable-rate loans and into lower-rate, fixed ones.
Say you're a homeowner with a 2/28 hybrid ARM due to reset next month from the initial two-year 5.25 percent "teaser rate" to 8.25 percent. It will reset again every six months up to as much as 12 percent.
The difference in monthly payments between the initial rate on your $200,000 mortgage and the first reset is nearly $400 ($1,502 versus $1,104). That's bad enough but after another year or two, your mortgage payment could come to $2,057. You can't afford it.
You can go to one of the approved lenders on the Web site of Maryland's Department of Housing and Community Development and ask to refinance into a fixed rate loan with a permanent low rate. Your payments will not only be lower than the reset rates, they will stay the same the entire length of the loan.
Without Lifeline, many borrowers would not have been able to secure a new loan, at least not with attractive terms. In many cases their credit scores would not qualify them for the rates the state-backed program offers.
In addition, their old lenders may have insisted on enforcing the onerous terms of their original agreements, such as prepayment penalties. The state has more leverage with lenders to compel them to co-operate with the program.
After the approved private lender puts together the new loan, it bundles it with others and sells them to the agency, which uses cash from a bond issue to buy the bundled loans.
The goal is that state coffers would not be used - the state hopes to pay off those bonds with the interest it collects from borrowers. But if too many borrowers default on their loans, it could be hard for the state to break even on the program.
Even if there aren't a lot of defaults, raising money to fund the program isn't free because it diverts resources from other projects, such as construction of bridges or highways. "There's always an opportunity cost for the taxpayer," said Joseph Gyourko, an economics professor with the Samuel Zell and Robert H. Lurie Real Estate Center at The Wharton School.
Not every Maryland borrower is eligible for the program. You can't have household income of more than $126,420 and you can't borrow more than $525,000. These limits vary from county to county, with high-cost areas near Washington, D.C. having the highest maximums.
The loans have interest rates of 6.25 percent for a 40-year fixed and 6.5 percent for a 30-year. There are also interest-only loans available that carry a rate of 6.5 percent. Borrowers pay 2 points at closing for any of these products, which may be folded into the loan.
Maryland also requires that the home be a primary residence and that the loan not exceed 85 percent of the value of the property.
So far, just a handful of borrowers have signed up for the program, fewer than 10 but many more are expected as numerous hybrid ARMs taken out in 2005 and 2006 start to hit their first resets.
To avoid future crises, Maryland is also trying to discourage irresponsible or unscrupulous lending, according to Thomas Perez, secretary for the Maryland Department of Labor, Licensing and Regulation.
"I want to track loan originators who have disproportionate numbers of loans that go into foreclosure," said Perez. Too many dings on a mortgage broker's record, for example, could bring suspension or revocation of the broker's license.
Price forecasts for 100 biggest markets
Ohio, which is suffering from a great many job layoffs as manufacturing plants shut down, has a similar program it calls Opportunity Loan.
Mark Wiseman, who runs a foreclosure prevention program for Cuyahoga County (which includes Cleveland), said the state had the highest foreclosure rate in the nation by the end of 2006. There are 1,200 foreclosures a month in his area and forecasts are for 75,000 statewide this year.
On April 2, Ohio announced it would sell $100 million worth of bonds, which could go to $500 million eventually, to fund Opportunity Loan. Rita Parisi, of the Ohio Housing Finance Agency, emphasizes that no taxpayer money is involved in the bailout. "We're selling taxable bonds to make new mortgage loans to homeowners," she says.
As in Maryland's Lifeline program, the bonds are paid off using interest paid by the borrowers.
The subprime mess will be no easy fix
Parisi says her agency works with Fannie Mae to obtain underwriting waivers, approvals for homeowners who are unable to refinance under traditional products, but who qualify for the Opportunity Loans.
Homeowners can go to the agency's Web site for a roster of approved lenders and start the process.
Other states, including Rhode Island, Massachusetts and Virginia, have started or are planning similar programs, according to the National Council of State Housing Agencies. More states are mulling over these and other options, such as interest rate buy down plans and rescue funds.
Nationally, relief for troubled subprime borrowers is coming from Freddie Mac. It has earmarked $20 billion to buy refinanced loans targeting holders of exotic mortgages.
But it will not bailout every borrower. Borrowers must meet tightened credit standards and must be judged to be able to afford the new loan at its highest reset rate. Freddie Mac will limit use of low documented loans, so-called "liar loans," in which borrowers do not have to prove assets or income.
Lenders also must take into account (as they also must do in the state bailout programs) property taxes and insurance in judging the qualifications of an applicant and the agency recommends that taxes be collected in an escrow account.
The program is due to launch mid-summer. Information will come available on the Freddie Mac's Website. (CNNMoney.com)
The Color Of Credit
Just a few years ago, there were only two ways to get a home loan: a fixed rate or a basic adjustable rate mortgage. Now consumer groups estimate there are more than 200 different types of loans out there and ABC2 News Investigator Tisha Thompson discovered too many people in Maryland may end up with high-risk loans not because of how much money they make, but because of what they look like.
For Chenea Carter, foreclosure was something she never thought would happen to her. “Utter panic,” she says went through her when she received her foreclosure notice. “Utter, utter panic.”
It started when Carter refinanced the mortgage on the home her family had owned for 50 years. “The furnace went up,” she says. “The heater went up, things that just required attention and money.”
But, a few years into her new loan, the interest rate on her mortgage exploded. “I didn’t know that after the first three years it would happen like that,” Carter says. She didn’t know it when she signed her paperwork, but Carter’s broker signed her up for what’s called a “subprime loan.” It’s a loan that’s more than 3% higher than the typical loan. It’s supposed to help people with a low credit score to buy a house. The problem is we’ve found that too many people in Maryland got a subprime loan not because of how much money they make, but because of what they look like.
Our ABC2 News investigation found that one out of six Maryland homes used a subprime loan in the last few years. "A lot of them qualify for conventional loans,” Congressman Elijah Cummings (D-MD) says. “That's the part that eats away at my heart."
Phillip Robinson of Civil Justice Network says brokers push people into these loans because that’s how they make their money.
“Subprime loans are not necessarily predatory loans,” he says. “What makes it predatory are the extra fees that are charged.” He explains that the bigger the loan, the bigger the commission. So, to get people qualified, Robinson says some brokers combine subprime loans with high-risk options like 100% financing, an adjustable rate, paying only the interest or paying just a minimum payment similar to a credit card, and all of the debt that comes with it.
"Few of these borrowers can afford to make monthly payments that in year three skyrocket 30 to 50 percent higher than the first two years," says Allen Fishbein, Director of Housing and Credit Policy at the Consumer Federation of America.
Some consumer groups say some brokers decide if they’re going to push you into a subprime loan based on what you look like.
When we went through the more than 1.7 million loans made in Maryland in 2004 and 2005, the ABC2 News Investigators found minorities ended up with a subprime loan two to three times more often than their white non-Hispanic neighbors, even if they made the same amount of money. The hardest hit? The elderly, Latinos and African-Americans, including those who had a family income of more than $100,000.
"I find it offensive that 'oh, upper income African-Americans must have credit problems,’” says Secretary Thomas Perez, the head of the Maryland Department of Labor, Licensing and Regulation. “That's an offensive notion to me."
Perez is in charge of regulating Maryland’s mortgage industry. “One of the things we can't currently do that I would like to see changed,” he says, “is to be able to develop the capacity to identify mortgage brokers who have a disproportionate number of loans that go into foreclosure.”
"I said you couldn't have bought my home!"
Carter says she barely managed to pay off her ballooning mortgage, but her mortgage company still sold her house at a foreclosure auction anyway. She sued the company in court.
"The judge said, I rule in your favor, the foreclosure is cancelled, the selling of the home is canceled,” Carter says. “I won."
(abc2 news.com)
For Chenea Carter, foreclosure was something she never thought would happen to her. “Utter panic,” she says went through her when she received her foreclosure notice. “Utter, utter panic.”
It started when Carter refinanced the mortgage on the home her family had owned for 50 years. “The furnace went up,” she says. “The heater went up, things that just required attention and money.”
But, a few years into her new loan, the interest rate on her mortgage exploded. “I didn’t know that after the first three years it would happen like that,” Carter says. She didn’t know it when she signed her paperwork, but Carter’s broker signed her up for what’s called a “subprime loan.” It’s a loan that’s more than 3% higher than the typical loan. It’s supposed to help people with a low credit score to buy a house. The problem is we’ve found that too many people in Maryland got a subprime loan not because of how much money they make, but because of what they look like.
Our ABC2 News investigation found that one out of six Maryland homes used a subprime loan in the last few years. "A lot of them qualify for conventional loans,” Congressman Elijah Cummings (D-MD) says. “That's the part that eats away at my heart."
Phillip Robinson of Civil Justice Network says brokers push people into these loans because that’s how they make their money.
“Subprime loans are not necessarily predatory loans,” he says. “What makes it predatory are the extra fees that are charged.” He explains that the bigger the loan, the bigger the commission. So, to get people qualified, Robinson says some brokers combine subprime loans with high-risk options like 100% financing, an adjustable rate, paying only the interest or paying just a minimum payment similar to a credit card, and all of the debt that comes with it.
"Few of these borrowers can afford to make monthly payments that in year three skyrocket 30 to 50 percent higher than the first two years," says Allen Fishbein, Director of Housing and Credit Policy at the Consumer Federation of America.
Some consumer groups say some brokers decide if they’re going to push you into a subprime loan based on what you look like.
When we went through the more than 1.7 million loans made in Maryland in 2004 and 2005, the ABC2 News Investigators found minorities ended up with a subprime loan two to three times more often than their white non-Hispanic neighbors, even if they made the same amount of money. The hardest hit? The elderly, Latinos and African-Americans, including those who had a family income of more than $100,000.
"I find it offensive that 'oh, upper income African-Americans must have credit problems,’” says Secretary Thomas Perez, the head of the Maryland Department of Labor, Licensing and Regulation. “That's an offensive notion to me."
Perez is in charge of regulating Maryland’s mortgage industry. “One of the things we can't currently do that I would like to see changed,” he says, “is to be able to develop the capacity to identify mortgage brokers who have a disproportionate number of loans that go into foreclosure.”
"I said you couldn't have bought my home!"
Carter says she barely managed to pay off her ballooning mortgage, but her mortgage company still sold her house at a foreclosure auction anyway. She sued the company in court.
"The judge said, I rule in your favor, the foreclosure is cancelled, the selling of the home is canceled,” Carter says. “I won."
(abc2 news.com)
Subscribe to:
Posts (Atom)
