Every spring and summer, you are sure to spot stories in the press about shark attacks off the cost of Florida, Alabama, and California. You rarely see a story, however, about the loan sharks attacking homeowners all across the United States.
Many people believe that the current mortgage meltdown has been caused primarily, if not exclusively, by homeowners whose appetite for credit far exceeds their ability to repay their debts. This is far from the truth. Mortgage originators acting more like street toughs than representatives of lending institutions have contributed far more to the current crisis. Instead of acting as professionals, they have led homeowners down dark alleys and essentially mugged them.
Here's a story I recently received via email from a single mom, Lisa Ashton, from Saunderstown, Rhode Island:
"I am a single mom of two kids -- one in college, one in high school. I have raised my kids alone in my home for all this time. I have owned my home for 21 years, actually built it with my ex husband. I hold down three jobs currently to try and make ends meet. I am a registered nurse in a school system.
"I refinanced my mortgage in April of 2006 with Aegis Lending Corporation. They did a 'no doc' loan and lied about how much I made to make a high mortgage amount work. I was trying to take out $25,000 to finance my daughter's college needs at the time. They said I made $185,000, to cover a $493,000 mortgage! In reality I earn only about $55,000. I now have house payments that eat up about 98 percent of my monthly income."
"They also hired an appraisal company (Macloud appraisers in Narragansett, RI ) who somehow agreed to appraise my home for $560,000 when the town only values my property at $320,000, and it would probably sell for about $400,000 on the market today."
"To bring my interest rate down to 6.5 percent, Aegis charged me $30,893 in discount points at closing. That would have meant that their standard interest rate was 14 percent! What sort of ARM starts out at 14 percent?"
"Now you may wonder why I would agree to such an arrangement. Well, Aegis advised me to stop paying my mortgage while they were refinancing me, because it would screw up the payoff amount they received. Admittedly, I was naïve in following their advice -- I stopped paying my mortgage. After all, they had already approved my loan.
"Aegis failed to provide me with a closing packet prior to the closing date to review. They didn't even tell me what to expect in terms of a monthly payment. I discovered all of this on closing day, when I was already two payments behind on my existing mortgage. I realized that if I refused to sign for the new mortgage, I would be in big trouble with my previous mortgage company, so I signed the papers.
"Aegis told me not to worry. Within six months, I could refinance with them again and lower my payment to $2918 per month. (I currently earn about $3600 take home.)
"Instead of refinancing my loan, Aegis sold it within a week after closing to GMAC mortgage company and then filed for Chapter 11 Bankruptcy. Now I was really stuck.
"I have gone through all of my retirement ($30,000) and all of my savings ($15,000) and maxed out every credit card to stay current with my mortgage for this past year or so. No one will refinance me, and now since I'm so maxed out on credit cards, I've watched my credit scores plummet well over 100 points in the past four months.
"GMAC has told me they will NOT work with me to help me out. I have called them for the past three months asking about some way to help me, so I don't end up in foreclosure. They have told me that they rather have my home.
"September 2007 was the first time in 21 years I've ever missed a payment on my home, and I'm just sick about it. I did receive something from the court stating I could file a claim against Aegis mortgage -- a "proof of claim" form, but who knows how long that will take to work through the system. By that time, my children and I will have been evicted from our home.
"So that's my story. I can't lose this home. I've worked so hard to keep it. It's my children's safety net. This is all they've known, and I can't take it away from them. I won't. But I don't know what to do."
This is just one story, but it is representative of what has been happening in every state in the Union -- lenders preying on homeowners who have been duped into trusting the system and the professionals who run it. It is the equivalent of going into a doctor's office and intentionally been diagnosed as having cancer. The "doctor" prescribes a host of expensive tests, medications, treatments, and therapies just to jack up your fees, and then flies out of the country when you're money runs out.
When you seek the advice of any professional -- a doctor, attorney, accountant, Realtor, or whoever -- you expect that the person is going to give you accurate information and reliable advice. You do not expect the person to flat out lie to you. We have to stop blaming homeowners for the current mortgage meltdown and start holding loan originators to the same standards we set for doctors and other professionals. We also need to start placing the blame where it belongs -- not with the homeowners but with the loan originators.