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Some bankrupt home buyers are pointing fingers at lenders
By Alex Veiga
Associated Press
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LOS ANGELES - A divorce led Daniel Peart to refinance his four-bedroom home with a subprime loan. Like many borrowers with spotty credit, the self-employed handyman said he agreed to a relatively high interest rate in exchange for two years of low, fixed payments.

In less than a year, however, the payments jumped beyond his budget, forcing him to seek bankruptcy protection while trying to sell the home he bought 19 years ago, he said.

"I put the majority of the blame on the broker, for not being upfront, telling me what the charges were all going to be, and rapid-signing all the paperwork," said Peart, 53, whose home is located in the San Diego suburb of Poway.

Peart is not alone in his claims. Many bankrupt home buyers are now pointing the finger at subprime lenders, claiming they approved mortgages for people who couldn't afford them to keep loan volumes high as the housing market slowed.

Some analysts cite those tactics for the subprime meltdown that has seen several lenders seek bankruptcy protection amid rising default rates.

'Plenty of blame to go around'

"Both lenders and brokers had a string of incentives to keep their volumes up, even as market conditions tightened, and the way that they could do that is by lowering their qualification standards," said Paul Leonard, director of the California office of the Center for Responsible Lending.

"There's plenty of blame to go around," he said.

Doug Duncan, chief economist for the Mortgage Bankers Association in Washington, D.C., acknowledged that, in some cases, aggressive lenders obscured facts and made loans that borrowers couldn't afford.

"Most of those companies are closing their doors," Duncan said, adding that so far this year, 27 companies have gone out of business because they made bad loans.

Still, experts say borrowers could share some of the responsibility. Many jumped too quickly at the lure of low initial mortgage payments without fully considering the impact of higher interest rates and account balances in the years ahead.

It was their responsibility to fully understand the terms of their loans, said Nick Larson, an assistant vice president at the Mortgage Asset Research Institute.

"Borrowers need to protect themselves, need to read what they're signing," he said. "At the end of the day, bottom line, you can't stress this enough: The person who is signing the papers is committing themselves financially."

From thriving to busting

Subprime lenders thrived during the real estate boom, when appreciation rates soared and equity protected most home buyers from defaulting on their loans. Most could simply refinance or sell homes at a big enough profit to pay off mortgages and move on.

Investment banks also jumped in, eager to buy loans from sub-prime lenders then slice them up into bond products to sell on Wall Street.

Brokers and lenders promoted the loans as a way for would-be home buyers to get into the market with low initial payments.

The loans were also touted as a way for people who already owned homes to unlock equity. It wasn't unusual to see mailers offering refinancing deals at initial rates of 1 percent or less.

About 50 percent of the subprime mortgages were "stated income loans," with no verification of borrowers' incomes, Leonard said.

Such loans speed the approval process but carry risks of abuse.

Last year, the Mortgage Asset Research Institute sampled 100 such loan applications and reported that 90 percent listed significantly higher incomes for borrowers than they had reported on their tax returns.

About 5.1 percent of all homeowners hold subprime adjustable loans. Among those borrowers, 85 percent are making payments on a timely basis, Duncan said.

Still, with many borrowers now stretching to make payments, the Center for Responsible Lending predicts that one of every five subprime loans made in the past two years will end in foreclosure.

Antonio and Celina Lopez recently began the bankruptcy process. They fell behind on payments just eight months after buying a home in Escondido in San Diego County.

Income can be overstated

Celina Lopez, 49, a teacher's aide and thrift store owner, blamed her lender for overstating the couple's income by $5,000.

"We didn't even know it," she said.

Daisy Ramirez and Jose Mendoza, both 21, said they asked an agent to find their extended family a home but stressed that they couldn't afford a payment of more than $3,200 a month.

The agent found them a three-bedroom house for $570,000. After signing a blank loan application, the couple was approved for a piggyback mortgage - two loans requiring monthly payments of $3,200 and $1,200, Ramirez said.

She said they told the agent that was too expensive but closed escrow in January 2006 after being advised they could refinance in a year with enough equity to slash their monthly payment and even take a vacation.

The house is now in foreclosure.

"We were told the opposite of what was going to happen," Ramirez said.

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Reader comments on this story - 12 total

Note: All views and opinions expressed in reader comments are solely those of the individual submitting the comment, and not those of the Pantagraph or its staff.

Not as easy as it looks wrote on Mar 27, 2007 8:47 PM:

" Not all local banks are always upstanding in their dealings. I had a office person steal checks out of the back of my check book which I kept lcoked in a file draw. She found the key and helped herself to some checks out of the back. The bank cashed the checks. She forged my signature. The bank cashed the checks and over drew my account to pay the checks. When I went to them and showed them the signatures where no even close they said they where not liable and I had to sue them four years later we settled for half and all 17 thousand went to the lawyers. Later got a divorce. Banks put a lot of pressure on you to get the divorce settled or they will foreclose on you. Getting you to sign things you latter regret, but when you are knee deep in alligators it is easy for banks to take advantage of you. And then come the vultures. "

fine print wrote on Mar 27, 2007 8:18 PM:

" A man put 10,358 characters on a single grain of rice and then went back to his regular job. What was it you ask? Putting the fine print on the bottom of legal documents. "

Hmmm wrote on Mar 27, 2007 4:00 PM:

" Sounds like borrowers need to take these things seriously and read the fine print before they sign their lives away, I know I did. It stinks that they're in the position to lose their homes but they should have known better than to take out these loans in the first place. NEVER go off someone else's word alone when it comes to details that can make or break you like that. ALWAYS READ THE FINE PRINT! "

Runaround Sue wrote on Mar 27, 2007 9:19 AM:

" I blame it on this "buy now, pay later" mentality that's gripping America. Folks, if you don't have the money now - that means you can't afford whatever it is you want. Quit trying to keep up with the Joneses or living the dream life, come back to reality, figure out your ACTUAL budget, and live within it. Quit blaming lenders or credit card companies for fooling you when you're really fooling yourself. Their goal is to make money - always has been always will be. But it's not their "fault" when you sign on the dotted line for that expensive house or car "

heres an ideal wrote on Mar 27, 2007 8:42 AM:

" Lets not forget Blame the Appraiser 4 the value of your home the underwriter. the realtor ,the ex spouse that is divorcing U companies that wanted to sue you.lets also not forget the attorney and title company that closed your loan.yep! they were all in on it. WRONG. they explained everything . Heres a thought Mr Peart didnt get his loan what would have happened???? I guess he would still live there happy and free. The lady that signed on a 350k 2nd home and then could not affoard it.maby if we bought homes affoardable. you people need to blame your self for your own actions. Good grief.I get tired of listining to people beg and cry and blame every one but them self and now you have a politician questioning why your in debt with the bank.. where was this politician when they sided with credit card companies to raise rates. EXAMPLE my credit card started at 9.9% last week they raised it to 30% I was never late what did I do? I researched new companies and switched. On refinances you have a 3 day right of cancelation why didnt you do your homework. "

Land of the free,,wow wrote on Mar 27, 2007 8:21 AM:

" I am a Mortgage Broker,I cant believe what I am reading.Customers come to us daily begging us to get them out of debt, we help do our part legally,We have to send our loans to a processor, then it goes to an acct rep, then an underwriter,then it all goes to an attorney then to quality control to verify all info is correct. there are approx 7-10 diffrent people involved and they verify income,appraisals,signatures,etc. We tell customers we need to shop for the best rate and the majority of them are in such a hurry they dont care what they sign or what the rate is.I have seen more mom and pop Banks start foreclosures and this is why customers beg subprime lenders for help.now they are crying because they recieved a loan that they wont pay. here is a thought go to work pay your bills and except your own part that you (the customer) ruined your credit not us.NOW YOU CRY AND SCREAM FOUL PLAY..Dear God get real..Why isnt any one complaing the majority of debts are the credit card companies and hospitals, try yelling at the main reason you were put in this situation. WOW "

While I agree... wrote on Mar 27, 2007 8:08 AM:

" if you are dumb enough to sign a blank form you deserve what you get. You were ripe for the picking. On the other hand, people are always complaining about oil companies, as far as I'm concerned banks are every bit as corrupt as big oil. They are out to make big money and don't care who they sucker to do it. Look at how they solicit college kids who then end up graduating thousands in debt. "

Agreed wrote on Mar 27, 2007 7:05 AM:

" The previous comments are dead on.... people need to take responsibility for their own actions. "

Todd the Bod wrote on Mar 26, 2007 11:11 PM:

" Heaven forbid people be responsible for their own actions. Responsible for reading what they're signing or at least hiring someone who can interpret it. You have bad credit they're going to screw you every chance they get. No surprise there. Get a job like the rest of us. "

You signed a blank form? wrote on Mar 26, 2007 9:31 PM:

" I'm perfectly sure not all lenders are 100% honest, but you'd have to be out of your mind to sign a blank loan application - let alone any blank sheet of paper. That might be the best indication they weren't ready for a house. "

Home Owner wrote on Mar 26, 2007 4:52 PM:

" Imagine that, a salesman trying to sell you something you can't afford! I can't believe what I'm reading. People need to take responsibility for their own actions and decisions. Too many people just look for someone else to blame. "

homebuilder wrote on Mar 26, 2007 2:36 PM:

" For a Bank to do business in a state they should be required to offer every chance for low income people to get a standard home loan. Banks operations the past few years is to raise their qualification standards high enough that they never expose their shareholders to a chance of having to absorbing a loss. This has opened up the sub prime lender fiasco and our young people are paying big time because of wall street and near shady practices. I don't expect a return to Savings and Loan Companies I only believe that local Banks need to return to the ideas of before that they are in business to serve the local community. Todays bankers forgot their own history and the hows and whys that their bank was in business for such a long time. What ever happened with making a life time friend and customer. I live miles from the first bank that I had my first mortgage with and I still have an active direct deposit checking and savings account with them. "
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