I do question how much "predatory lending" was was actually "predatory"- too often buyers turned a willing blind eye to the problems a mortgage presented. I have spoken with older borrowers though, who were taken advantage of, as the WSJ has reported: [Thanks L!]
In 2006, Carol Couts, a 66-year-old widow in Yuba City, Calif., was living in her home, payment-free, when a mortgage broker persuaded her to refinance her no-cost mortgage for one that exceeded her monthly income by more than $400.
She can’t afford the payments, and unless her lender modifies the loan to make it affordable, she’ll lose her home of 25 years. She’s given away most of her furniture and her cat, and packed her belongings in cardboard boxes. "We’ve got nowhere to go," she says, referring to herself and her dachshund, Ollie.
As the government presses lenders to modify mortgages, a large subset of distressed borrowers is being left out: older homeowners on low fixed incomes. Many of them are now facing foreclosure, say legal-aid advocates and AARP attorneys, because they were sold loans they could never afford, often fraudulently.
Many of these homeowners had lived for decades in their home and had built up substantial equity, but had low incomes. This made them tempting targets for brokers who persuaded them to refinance their mortgages, telling them they could lower their monthly payments. Instead, many of these loans were loaded with fees and exploding interest rates and quickly became unaffordable.
These borrowers’ incomes are often so low — many are living solely on Social Security — that few qualify for mortgage-relief programs. Even if lenders agree to reduce the interest rate and stretch out the repayment period, strategies at the heart of the Obama administration’s antiforeclosure guidelines, "they won’t get payments low enough," says Tara Twomey, an attorney with the National Consumer Law Center.
I personally know one older woman who was victimized by a mortgage broker. The broker told her there was a "special 3% loan available for seniors", but she couldn’t get her into that program just yet. In order to qualify the woman was told, she would have to take out a more expensive loan for a year. The woman knew she couldn’t make the higher payments long term, but thought that dipping into savings for a year would be worth it to qualify for this special loan.
The woman called the broker eight months later to ask when she should begin the process of applying for the special loan. When she called the broker, instead of the answer being "XYZ Mortgage", it was a man’s voice saying. "What do you want her for?" The broker did not return her calls. That was her first clue there was something wrong.
She was shocked to find out there was no "special program", and that there was a big prepayment penalty if she tried to refi her mortgage after a year. She was underwater, could no longer stay in the home and couldn’t do a short sale. She ended up walking away.
The woman was embarassed. She had an MBA and was a former VP for a Fortune 500 company. She was not as sharp as she once was though, and was on serious pain medication due to an accident. Clearly the mortgage broker had seen her coming.
Fortunately this woman had a place to go to, but not all seniors are as fortunate. This is going to be a growing problem.
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And yet again we see that the real driver of the bubble was fraud, plain and simple. The brokers should be being prosecuted, and if Obama’s people aren’t doing that, it’s because they’re on the receiving end of a quid pro quo – there’s always a reason to distract people with hooey rather than attack your campaign contributors, and that reason is the next campaign.
Of course, I’m also curious to know if your poor little old lady signed documents overstating her income to get a loan whose payments exceeded her monthly net.
Jim-
I couldn’t tell you that. She was self-employed and described her payments as “expensive, but doable short-term”.
It just kills me that they do stories on foreclosures night after night and never mention that any of these people wildly overstated their incomes on their loan documents. Every once in a great while you’ll see it in a newspaper story, but this is 1 out of 20 times when they’re talking about foreclosure ‘victims.’
There was a story on last night about a little old lady in Oakland who had purchased using a pay option loan, and when she was no longer able to make the minimum not-fully-amortizing payment, defaulted. The news called the bank and they signed the loanowner up to a new, 10 year interest only loan with payments that start off nice and low but over the next 10 years work their way up to even more than what caused the borrower to default this time. Do we really think she will be able to afford this when that time comes? Of course not, she could never have afforded it, and they never even asked her how she qualified for a loan she could never in a million years pay for in the first place.
Indeed Igor, I’m enraged.
Jim-
Sometimes they had their incomes overstated for them.
I remember when my great uncle got older- he drove my great aunt crazy. He had always been a careful and frugal man, but he started buying anything someone would call on the phone and sell him. He had never been like that before.
They couldn’t afford his purchases, so my g-aunt would hide the credit card- he’d be furious. While he wasn’t completely senile, he wasn’t all together there, either. His vision was poor as well.
He passed away before the housing boom, but were he around today in that state, he could easily have been taken advantage of.
I agree that the majority of the “victims” did it to themselves, but that doesn’t excuse the creeps that take advantage of those who aren’t as sharp as they once were.