From BusinessWeek:
The “Foreclosure Factories” Vise
Randy and Jennifer Rimstad of Minnetonka, Minn., refinanced their mortgage in 2004 to replace a 50-year-old furnace and pay for their youngest daughter’s wedding. In May, their interest rate jumped to 8.55% from 5.55%, pushing their monthly payment from $1,654.81 to $2,295.68, and the Rimstads buckled under an adjustable rate mortgage they say they didn’t understand and could ill afford. Then came the collection nightmare that tacked on another $700 or so in monthly payments.
On Dec. 5, Option One Mortgage Corp., a Kansas City (Mo.)-based unit of H&R Block Inc. (HRB ), foreclosed because the Rimstads owed more than $18,000 in late charges and attorney’s fees, on top of their past-due payments. After 24 years under the same roof, the Rimstads face an uncertain future. “I don’t know what will happen to us,” says Randy, 57. “We don’t have any place to go.” Option One says it can’t comment on the specific amount owed, but that it has been working with the Rimstads and will continue to “explore options toward a solution.”
Millions of other families in the U.S. could soon find themselves in the same dire straits. Some $1.2 billion in adjustable mortgages will shift to higher rates in 2006 and 2007, more than half of which are to borrowers with less-than-perfect credit, or subprime borrowers, like the Rimstads. These loans already are defaulting at unprecedented rates. Lenders are in large part responsible because they sold risky and unsuitable mortgages to unsophisticated borrowers. In some cases, of course, careless borrowers shoulder some of the blame. But some say there’s another force at work: aggressive servicing tactics. “Predatory servicing has attracted little attention, yet in many respects it is more vicious and the adverse consequences are more far-ranging,” says Jack M. Guttentag, professor of finance emeritus at the the University of Pennsylvania’s Wharton School.
Mortgage servicers collect and record monthly payments as well as manage insurance and tax payments on some $10 trillion in mortgage debt outstanding. They also manage defaults and collections when loans go bad. Critics of the industry, such as Rawle Andrews Jr., a bankruptcy attorney with Andrews & Bowe in Washington, call them “foreclosure factories.”
Servicer abuse is not new. Still, regulators had hoped the industry would have cleaned up its act since 2003 when the Federal Trade Commission and the Housing & Urban Development Dept. slapped a record $40 million fine on Fairbanks Capital Corp. in one of the worst cases of predatory servicing, which involved many of its 500,000 customers. Says Kurt Eggert, a professor at Chapman University School of Law in Orange, Calif: “The FTC hoped by nailing Fairbanks it would send a message to the whole industry. It hasn’t yet.”
From the Boston Herald:
Ho, ho, homeless: Homeowners fooled by alleged scammers may be out on the street
There’s little holiday joy this year for dozens of victims of an alleged Hub mortgage scam, some of whom now face an even greater blow: losing their homes.
“I don’t know what we’re going to do,” said Stanford Cole, whose bank has reclaimed title to his Hyde Park home and is offering him $1,000 if he leaves quietly by Saturday. “We don’t have anywhere to go.”
Three months after state officials sued mortgage broker Zeus Funding and real estate firm Champagne & Associates for allegedly running a loan scam, reputed victims are still losing their homes.
…
Zeus and Champagne deny any wrongdoing, but admit teaming up in 2005 to offer first-time home-buyer seminars in Dorchester.
Authorities allege the firms steered attendees – often minorities with credit problems – into high-fee, high-interest mortgages and homes sometimes needing major repairs.
Buyers report signing blank loan forms that officials say Zeus later secretly puffed up with fake assets, inflated salaries and nonexistent part-time jobs. That way, authorities say, banks would OK loans – and pay Zeus big commissions.
Officials also allege Champagne discouraged clients from hiring lawyers to review papers many claim they didn’t understand.
“The defendants (used) unfair and deceptive tactics to target and deceive low-income consumers into purchasing homes and committing to mortgages they could not qualify for or afford,” Attorney General Tom Reilly wrote in court papers.
Here’s a sad foreclosure story:
http://housingbubblecasualty.com/forum/index.php?topic=674
After two years in the house bought with a 30-year fixed, the idiot took out two adjustable-rate HELOCS to buy trucks and cars, the ARMs adjusted upward, couldn’t make payments, the bank just foreclosed this week.
They all deserve what they got. No free money anywhere in the world.
grim – have you come across any data about rental vacancy in NJ? I’m noticing that more empty houses are for sale and rent at the same time, and the rents are high – $2500 to $3000. The rentals are sitting for a long time with little to no price decreases. Ben’s blog has an article on this today.
Thanks for this site, you saved me a lot of heartache last year – my husband and I were thisclose to taking out a suicide mortgage and then I started reading your blog!!!
Re: Post #1
This is a very sad story and an even sadder commentary on today’s society.
These predatory lenders should go to prison and have their assets sold at auction to help pay the mortgage for the people they screwed.
The homeowners were sold a “too good to be true” bill of goods. They should have known better.
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