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Facing Foreclosure: Brooklyn Retiree on Verge of Losing Home as Subprime Lenders Target Cash-Poor Black Seniors
There was a time when Simeon Ferguson grew tomatoes and callaloo leaves in the garden behind his three-story brownstone in Crown Heights, Brooklyn, the home he has owned since 1975. He would give out the excess harvest to friends and neighbors, according to his daughter, and cook up the rest. Ferguson, 86, is now retired, after working for more than 20 years as a chef at Long Island College Hospital. But his remaining years of rest and relaxation are facing a major obstacle — his home is at risk of foreclosure.
In early 2006, Michael Bocelli, a mortgage broker with the Long Island-based Global Financial Inc., sold Ferguson a new $450,000 option adjustable rate mortgage (ARM ) that was fairly guaranteed to put his house in foreclosure, according to Ferguson’s attorney. His fixed-rate 30-year mortgage at 5.95 percent interest was refinanced into a complex subprime mortgage that offered him a teaser interest rate of 1 percent — which lasted all of six weeks before jumping to 7 percent, and eventually, higher.
“Option” ARM mortgages, such as the one sold to Ferguson, have been called “time bombs for all but the most financially sophisticated.” BusinessWeek magazine calls them “the riskiest and most complicated home loan product ever created.”
Mr. Ferguson, a retiree on a fixed income, had no attorney or family members present during the closing, but was apparently quite happy with the deal. He later told his daughter Karlene that he had negotiated a new, more affordable fixed-rate mortgage. In fact the monthly payment of $1,480 on even the “teaser” rate was greater than his entire monthly income of $1,100.
Bocelli, the broker, did well by the transaction. On top of his $6,675 broker’s fee he was paid an additional $14,420 by IndyMac, the California-based bank that gave Ferguson the loan. This fee was contingent on signing Ferguson up to a “No Income No Asset Loan,” which carries a higher interest rate, according to documents obtained by South Brooklyn Legal Services. In its own paperwork, IndyMac explicitly instructs the broker that, “The file must not contain any documents that reference income or assets.” In fact, Ferguson has only a few sources of easily documented income — social security and a pension.
Depending on when you speak with Ferguson though, he may or may not remember the details. That’s because he has dementia, a condition he was diagnosed with in 2005.
Ferguson, a squat bespectacled man whose Jamaican lilt plays up his gentlemanly manner of speaking, regularly forgets things, important as well as trivial. He often forgets that he visited his daughter Ruth in Jamaica shortly before she died of cancer two summers ago. He may not remember his move to Brooklyn more than 30 years ago by way of London and Jamaica. He could easily forget the amount of his mortgage payment, for example, or his interest rate.
These days Ferguson’s financial and legal affairs are managed by his daughter Karlene Grant, a cost accountant at a large Manhattan property management firm. Grant was forced to confront her father’s baffling new mortgage in 2006 after he fell behind on his bills during a five-month stay in the hospital for a serious bone infection.
“It’s not that my father went out to buy a home he couldn’t afford, that’s not what happened here,” says Grant. “Somebody solicited him and made him think he was getting a better deal. Then they made some money and ran.”
THE COLOR LINE
Ferguson’s story is no anomaly.
Many black seniors in New York and around the country are at risk of losing decades-worth of equity in their homes. Some are facing homelessness. People of color are more than three times more likely to hold subprime loans, according to
federal data. And in New York City, subprime loans made up 27 percent of all refinances last year, compared with the national average of 17 percent. That means if the housing market falls precipitously here as it has across much of the nation, a cascade of foreclosures is likely to follow. An alarming number of those losing their homes will likely be black seniors.
In New York, the subprime crisis has also brought the racial disparity into stark relief. By the fall of 2007, one in four homeowners with subprime mortgages in the historically black neighborhoods of Crown Heights and Bedford-Stuyvesant were in foreclosure, according to the Federal Reserve Bank of New York. These northern Brooklyn communities have a subprime mortgage foreclosure rate almost four times the national average.
But in Brooklyn neighborhoods, like Bensonhurst and Borough Park, which have income levels similar to Crown Heights and Bed-Stuy, only 5 percent of mortgages are subprime. The main difference is race. Bed-Stuy and Crown Heights are about 70 percent African American; Bensonhurst and Borough Park are only 1 percent black.
Like many cities across the country, the neighborhoods with the highest rates of subprime mortgages in New York are overwhelmingly African American or Latino.
The subprime lending debacle has caused the greatest loss of wealth to people of color in modern U.S. history, according to a recent study by United for a Fair Economy, stripping African-American homeowners in communities such as Crown Heights of as much as $92 billion over the past eight years. As Ferguson’s story illustrates, one of the traditional avenues for building and holding on to family wealth in the black community is being obliterated, one home at a time.
“If you were a profiteer looking to make money, you’re going to go into these communities with instruments that make refinancing or ownership look much more attractive,” says Dr. Julianne Malveaux, economist and president of Bennett College for Women in North Carolina. “And you’re going to do that by taking advantage of a historic antipathy between the black community and banks.”
Many critics say the subprime mortgage industry is guilty of “predatory lending” by deliberately exploiting such vulnerable communities. Like other homeowners in peril, Simeon Ferguson appears to be a textbook victim of predatory lending, as defined by the U.S. Department of Housing and Urban Development.
HUD states on its website that predatory lending is any transaction in which a lender or a broker “encourages borrowers to lie about their income, expenses, or cash available for down-payments in order to get a loan;” “charges high interest rates to borrowers based on their race or national origin and not on their credit history;” “pressures borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties,” or “strips homeowners’ equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.”
‘SITTING DUCKS’
Housing advocates and attorneys use hunting terms such as “perfect targets,” “sitting ducks” or “easy marks” to describe the ways seniors were targeted by subprime lenders and brokers. In the subprime feeding frenzy of the last few years, black seniors with decades of equity in their homes were the lowest hanging fruit.
“They were the first wave,” says Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, a Manhattan policy institute. “In fact it was only because so much equity was stripped from seniors that they started going after first-time homebuyers.”
Before the subprime bubble burst in 2007 and the issue became front-page news, brokers and lenders perfected the art of “push marketing” to people like Ferguson — retirees who are often cash-poor but rich in home equity. By some accounts the targeting of seniors hasn’t slowed much. Just ask the men and women who regularly assemble at the Tompkins Park Senior Citizens Center in Bed-Stuy.
“I’m on the ‘Do Not Call List,’ but they still keep calling,” says Marjorie Robinson, 57. “They talk to you in that really soft voice and then they say MONEY real loud!”
During their weekly group meeting these retirees talk about calls in the morning, calls in the afternoon, calls at night. They talk about fliers clogging their mailbox, and some complain about all of the mortgage-and-financing-related messages clogging up their email inboxes.
“They tell you you’re pre-approved, offer cash for your property,” adds Alvin McPherson, 78. “I think they buy your name from some kind of list of retirees.”
Homeowners 65 and over are three times more likely to hold a subprime mortgage loan than those 35 and under, according to AARP, a nonprofit seniors’ advocacy organization. AARP and other groups are still scrambling to get the most accurate numbers on how many of those now facing foreclosure are seniors, but it’s not easy. While the federal government requires
lenders to list race on the mortgage loans they sell, it does not require them to list the age of the borrower.
To date only one major U.S. news organization, The Seattle Times, has published a thorough investigation of the ways in which seniors as a group have been affected by the subprime fallout. Reporters Susan Kelleher and Justin Mayo found that older, cash-strapped homeowners were the typical subprime borrowers in Seattle — not first-time homebuyers, as many
industry defenders often claim. A separate study by the Center for Responsible Lending found that subprime mortgages made between 1998 and 2006 will lead to a net loss of homeownership for almost one million families in the United States.
“All my clients tell the same story; it’s almost like a script,” says Donna Dougherty, a staff attorney with Queens Legal Services for the Elderly, and co-counsel on the Ferguson case. Typically, a homeowner falls behind on his taxes, a credit card bill or is hit with an unexpected medical bill. As a result he ends up on a credit agency list of homeowners in debt or with a less than perfect credit score, but substantial home equity. That’s when the phone calls begin.
“When somebody calls out of the blue and says ‘We’ll help you so you don’t lose your home,’ it’s almost like a white knight showing up,” says Dougherty. “Seniors are absolutely one of the key targeted groups. They’re vulnerable to sales pitches, to persuasion.”
OFF THE HOOK
On the other end of the receiver, South Brooklyn Legal Services had to shut down its housing hotline when the number of calls ballooned from around 10 per day to more than 10 per hour. One of the first things Jessica Attie noticed in the spring of 2007, when the barrage of desperate calls began, was the high number of older people with extremely complicated loans. South Brooklyn has filed suit against IndyMac and Global Financial Inc. on behalf of Simeon Ferguson, for violations of the Truth in Lending Act.
“For most of our clients, their financial security is in their homes,” says Attie, co-director of the Foreclosure Prevention Program at South Brooklyn Legal Services and an attorney on Ferguson’s case. “They often don’t have 401Ks or other sources of savings they can live off if they lose their house.”
Attie describes the mortgage documents she sees as so complex that most people depended on the broker or loan officer to “explain” the rate structure. The result being that the vast majority of her clients didn’t understand they were signing an adjustable rate mortgage.
A spokesman for IndyMac, which sold Ferguson his loan, makes it clear the company leaves it to the broker to work out the best arrangement with their clients.
“Some of the new products that were created in the last few years had a lot of moving parts,” says Evan Wagner of IndyMac. “These were good for very specific borrowers, people who are self-employed or who expect their income to jump in the next year or so. But for people who got these loans that weren’t really intended for them, it’s kind of like taking a medication that isn’t intended for what it’s meant to do, and sometimes there are bad side effects.”
Artee McKoy of Jamaica, Queens, is one of those reeling from bad side effects. At age 93, and a homeowner for almost 50 of those years, he is still confused about how somebody could take his home out from under him without his knowledge or consent and saddle it with a new $315,000 mortgage from Fremont Investment & Loan, until recently one of the country’s biggest subprime lenders. McKoy is also confused why the three-bedroom duplex where he used to make his own ice cream for his three children is currently in foreclosure. Like Simeon Ferguson, he suffers from dementia, a symptom of Alzheimer’s disease, which he was diagnosed with in 2005.
McKoy’s story is particularly egregious since he was also the victim of deed theft, a common real estate crime often involving senior citizens or low-income homeowners. In this case the perpetrators were recently indicted by the Queens district attorney on charges of grand larceny for fraudulently refinancing his property. This has not slowed the foreclosure action being pursued by HSBC, the current holder of the loan on McKoy’s home. An attorney for HSBC declined to comment on the particulars of the case, as it is currently under litigation.
But if the student-led “McKoy Team” at the St. John’s University Law School Elder Law Clinic in Queens can make its case, McKoy will not lose his home. They fault the perpetrators of the deed theft — but they also cite Fremont Investment & Loan (the originator of the mortgage) and HSBC for aiding and abetting the fraud.
“It’s a huge warning sign when a 93-year-old man with no attorney present can take out a $300,000 mortgage,” says Professor Ann Goldweber, director of the Elder Law Clinic. “They should have used more due diligence.”
After moving his family to New York from North Carolina in the 1950s, McKoy worked two jobs for decades: as a barber by day and airport security at John F. Kennedy International Airport by night. McKoy bought his Jamaica property in 1959, and except for payments on a small home-improvement loan, it was all paid off — and he is proud of the fact.
Now McKoy’s financial stresses are tumbling down the generational ladder and mostly landing on his daughter’s shoulders. Mary Thompson, 66, recently took an unpaid leave from her job at a New Jersey hospital to take care of her father and to shepherd him through the legal system as they fight to keep his home.
“I know how hard my father worked,” says Thompson. “For him to not be able to sit down and enjoy a little peace of mind at his age, it’s awful.”
New York City is attempting to stem the bloodletting by launching the Center for NYC Neighborhoods. With $5.5 million from the mayor’s office, the Department of Housing Preservation and Development and the Open Society Institute, the Center’s purpose is to improve loan-counseling services across the city and help borrowers renegotiate loans or refinance troubled properties.
The city’s initiative is similar to proposals currently under debate in Washington that would provide $100 million to expand foreclosure counseling services nationwide. Some observers criticize it as a tepid solution when 8,000 homeowners are
tumbling into foreclosure on a daily basis, according to some economists.
Counseling offers little immediate hope to Karlene Grant as she spends hours of her spare time every week consulting with the attorneys on her father’s case, and renovating his house so they can bring in a tenant or two to help pay the ever-expanding mortgage payments. And Grant considers herself one of the fortunate ones, since her father has pro bono legal representation.
“I think that Daddy doesn’t really understand what happened because he just goes on about his business,” says Grant. “But he’d understand if he lost his home.”
As for Simeon Ferguson, he hopes to enjoy his garden now that it’s spring. “I love anything to do with the land,” Ferguson says. “I used to grow tomatoes in the garden out back; sometimes I’d harvest two pounds! If the weather permits I’ll grow
them again.”
Photos by Sophie Forbes: Crown Heights resident Simeon Ferguson, 86, is on the verge of losing the three-story brownstone he has owned for more than 30 years due to a complex subprime loan he acquired in 2006. Below: Simeon Ferguson’s daugher, Karlene Grant, is working with lawyers to try and save her father’s Crown Heights home.
For more information on foreclosure patterns and what is being done about it click here.
Comments
My situtation is almost the same, I was pushed into a subprime loan with little knowledge. I trusted my broker, and he was stabbing my husband and I in the back. I was on disabltiy for mental depression. he didn,t ask what kind of disability. We asked for a FHA, he said I'll take care of it you are going to get your home. He said it would be a no income vertification loan.
Didn't explain what prepaid penalty was, said we could finance in a year. Indymac was the morgage company. Can't sometime be done with them for hurting so many unknowlegale people. The realty company moved right after settlement. I don't no now if he was even licenced.
Port St Lucie, Fl we can't find a attorney in Fl because you can't trust anyone. We were in our 60"s when this all happen,
I found this article fascinating but also lacking a lot of information. There are some things that do not make any sense. For example, let's look at Mr. Ferguson's original loan at 5.9%. He must have owed less than $50k equaling a payment of about $300 per month. That is of course if he was able to afford his original loan. Let's assume he was doing fine and could afford his original loan. When he took out the $450k loan, he would have received over $380k cash after the original loan was paid off. If that is the case, where did all of that cash go? If he still has it, why doesn't he use it to pay down the principal of his existing loan and keep his house? Did he spend the money elsewhere? If he did not receive any cash at close, he must have owed over $400k on his original loan. At 5.9% his original payment would have been over $2300 per month. Ferguson was only earning $1100 per month income, how was he able to make payments on his original 30 year fixed loan? It seems to me like he was going to foreclosure anyways or he cashed out a ton of money and doesn't want to pay it back. This article does not add up.
Joe is exactly right, if he bought his home in 1975 and refinanced in 2006, he had to walk away from that closing with at least 300k maybe more. With that kind of cash, you could A. pay down the principal & refinance or B. make the payments for a long, long time no matter how high they adjusted. There is a ton of cash missing in this deal. I'm not saying what the broker & Indy Mac did was right but there is more to this story than we are getting which is typical of the press these days.
I wanted to respond to Mr. Sayl’s note with a few facts, and impressions.
Mr. Ferguson didn't receive 380k in cash because his previous mortgage was in the 300s. The more important point of this story, and other similar cases, is that many subprime loans stripped equity out of borrowers' homes and placed them at greater risk of foreclosure. Mr. Ferguson paid 10s of thousands of dollars in closing costs alone, and received a higher interest rate. It's hard to think of what benefit he obtained from this loan, which was more expensive, drained more money out of his house, and therefore placed him at greater risk of foreclosure. His particular loan also included a prepayment penalty, which means it would have cost him a significant amount of money to refinance out of the loan in the first three years of the loan. Mr. Ferguson had other, certainly better, options that could have kept him in the house or allowed him to sell the house and recover the equity--but the loan he was sold, under dubious circumstances, was obviously not an option for keeping the house.
I'm not understanding what makes the loan Mr. Ferguson received subprime. Subprime loans that are causing most of the problems are 2/28 or 3/27 loans - fixed for the first 2 or 3 years, then adjusted up and were for borrowers with FICO scores under 620. Option arms, which it sounds like Mr. Ferguson received, were not subprime loans.
It sounds like the problem here is Mr. Ferguson either not understanding or not able to understand the kind of loan he was receiving. Has anyone seen the disclosures Mr. Ferguson signed? Were the disclosures signed by him, or someone else? The loans offered by IndyMac contained pages of disclosures carefuly explaining the kind of loan and the way the loan works. Whose responsibility is it to read and understand the paperwork?
I don't fault the broker or IndyMac here. These same loans have been offered since the early 1980's to borrowers. The broker who gave Mr. Ferguson this loan, under federal RESPA law, had to provide a document showing exactly how much money he was making on the loan. This is the time Mr. Ferguson should have been asking why the broker was pocketing $14,000 from IndyMac. Do doubt, Mr. Ferguson received a loan that was not in his best interest and in the best interest of the broker - however, there were many opportunities for Mr. Ferguson to have someone else look at the paperwork to verify the type of loan he was receiving.
It's good to see that the representatives of the subprime lending industry are out in force on this site. Or maybe they're good people who are just confused. Either way, it just goes to show much of a real problem it is,
I'd take issue with "Josh Smith's" definition of what makes a loan subprime, or predatory. Here's how ACORN describes what makes a predatory loan:
"Predatory Lending is the making of unethical and abusive mortgage loans that include excessive and often disguised fees, inflated rates, and practices such as making loans the borrower cannot repay. Predatory lending has grown significantly over the past 10 years; accordingly, these abusive practices cost New York City’s homeowners tens of millions of dollars in unnecessary and unethical fees. "
Also, Mr. Ferguson was obviously the victim of equity stripping in this case, in which brokers make a fortune off the closing costs associated with unneccessary home refinancing.
Chris -
Not a representative of any subprime industry. Again, I ask you, did Mr. Ferguson receive a good faith estimate (GFE)? Did he not sign loan documents with every detail about the loan he was receiving in detail?
Is any loan a borrower cannot repay a subprime loan? Are all option ARMS subprime loans? If so, we will need to shut down the lending operations of some of the largest Banks in the US who today, are still making option arm loans, like the one Mr. Ferguson received. I'd like to know how the fees on this loan were disguised? Do you know for a fact, that the fees were not disclosed? It's easy to throw the baby out with the bathwater - there are some circumstances where borrowers did not receive GFE's and the loan documents were forged. Did Mr. Ferguson really believe that he was getting a 1% fixed rate loan for 30 years?
If you would like to see the financing for this particular property you can take a look on the ACRIS system instead of guessing. For those of you who dont know ACRIS stands for Automated City Register Information System, and has all recorded documents from New York City (all boroughs except Richmond County).
The truth is that Mr. Ferguson refinanced the property in 2003 and then again in 2004. The 2004 refinance was with Option One, a primarily sub prime lender. Moreover, each time the subject property was refinanced, Mr. Ferguson pulled equity out of the property. So my question to you is, what did he do with the money? Don't get me wrong, I am not saying that some form of predatory lending did not take place. In my opinion, a pay option arm is not the right loan for most people. What I am saying is, the facts are important, and are "slightly" misleading in this article.
One more thing, loans are not subprime, borrowers are or are not. Subprime refers to the creditworthiness of a particular individual and not a particular product.
John,
Why does it matter what he did with the money?
Erin, allow me to explain why "what he did with the money" is important. Mr. Ferguson never could afford this house. He took out a loan in order to cash equity out of the house. However, he spent the money on something other than the payments and now the Bank rightfully wants the payments he owes but did not make. However, instead of him paying back any of the money he borrowed, he and his family (and the writer of this article) somehow twisted this into a elderly, race based issue, which it clearly is not. Banks lose money on these deals. Foreclosures are not in anyones best interest. The Bank just wants it's money as agreed. How are they taking advantage of anyone? It's more like the person who borrowed the money and spent is elsewhere is taking advantage. The solution is simple, pay back the money that was borrowed or sell the house you could not afford in the first place.
A lot of the above back and forth about "Good Faith Estimates" and whether "Option" Arm mortgages are universally dangerous or not is conveniently sidestepping a central element of this story-- that the other parties to the agreement (broker / lender / attorney to the lender) apparently had no qualms about negotiating with an 80+ retiree, living alone, on medication to combat dementia, who had no family or legal representation present during the process, or at the closing. If even his daughter Karlene, who is an accountant by training, had been involved, it's fair to say this loan never would have gone anywhere. An "Option" Arm mortgage might be great for some people--but it is disastrous for a person like Simeon Ferguson.
As to previous refinances, there is a good chance that the terms were just as onerous, and contributed just as much to stripping equity from the house. The scope of this article was on the most recent loan (which, as per the article, was replacing the previous 30-year fixed rate mortgage loan), and which came with all manner of other onerous features not mentioned in the article ("negative amortization", a pre-payment penalty of 3 yrs, to name a few).
By the way we didn't come up with the definition of predatory lending by ourselves, we just applied the definition that the federal government gave us
(from http://www.hud.gov/offices/hsg/sfh/buying/loanfraud.cfm):
"What is Predatory Lending?
In communities across America, people are losing their homes and their investments because of predatory lenders, appraisers, mortgage brokers and home improvement contractors who:
# Encourage borrowers to lie about their income, expenses, or cash available for downpayments in order to get a loan.
# Knowingly lend more money than a borrower can afford to repay.
# Charge high interest rates to borrowers based on their race or national origin and not on their credit history.
# Charge fees for unnecessary or nonexistent products and services.
# Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
# Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
# "Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
# Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.
Hey Joseph Huff-Hannon, are you inferring that we should discriminate against the elderly? or just when it's convenient to prove our point? You can't have it both ways, if credit opportunities are to be give to a wide swath of consumers without any discriminatory impact or effect, you can't turn around now and cry foul.
"As to previous refinances, there is a good chance that the terms were just as onerous, and contributed just as much to stripping equity from the house." In response to the following, you can check the recorded mortgage for any riders that may make the instrument onerous. Your comment is just as bad as the "misleading" reporting. The point I am making is that the facts are important. Here the author seems to be taking liberties with what appears to be a sympathetic case when in reality the facts may or may not support the conclusion.
By my way of thinking, option arms are generally not good products for the majority of the borrowing population. But to claim somehow they are predatory because the individual borrower should have had more guidance misses the point.
It’s inherently obvious that Mr. Huff-Hannon and anyone who has been quoted in the article have little or no experience in finance, nor have they done enough research to write such an article. Here’s why: As unfortunate of a story this is, it has nothing to do with race, religion, sex or any other discrimination. It is a simply a casualty of many unfortunate events. This story as with many others is twisted in such a way to make it look as if the broker and the brokerage were at fault and robbed the client of his home or "stripped" him of his equity as stated in the article. It is done solely with the intent of trying to make the general public feel bad for the borrower. Let’s look at what is believed to be the facts here: You mentioned that the borrower was taken out of his 5.95% fixed rate, which "sounds great", and put into a higher interest rate that he couldn't afford. What you fail to mention is that a loan in the 300's if that was even the case, lets say even just $300k @ 5.95% would yield a FIXED payment of $1,789 with out taxes, insurance or any other liabilities, not including food and utilities. Does that sound like a payment that a retiree with a "fixed income" as you stated of $1,100 per month would be able to afford??? How come the two other brokers, who placed this client in the two prior loans when he refinanced twice in the two years prior, aren't mentioned in the article? Once they had refinanced this borrower, with a fixed income of $1,100 per month, and entered him into a loan with any balance higher than $150k, it was at that point that they had gone past his affordability and there was no turning back. So who's really the bad guy here? But even they aren't at fault, due to the fact that they gave him a good rate that he willingly accepted and he is the one who placed himself in a situation where there was no turning back, even prior to his so called dementia. Sounds to me like a sad attempt to bash brokers and jump on the band wagon of people who in a badly depressed market are all pointing the fingers at the banks and the brokers, when they should be pointing them at the borrowers who agree to accept the terms of these loans.
What could Mr. Ferguson have done at this point? He didn’t wake up one day and find himself in a 300 or 400 thousand dollar loan, did he?? Nope, it appears that he was trying to correct his issue of shortage of income by refinancing his home over and over to cash-out equity and utilize it to meet his monthly liabilities. Something that 90% of the people in this country do and have done on a regular basis since financing began. With his income, he should have never been placed, or more importantly, placed himself, in any loan higher than $150k to begin with, but by the time he got into the 300's it was far too late for him already and foreclosure would have been inevitable. So what options did he have at that point, let’s take a look at them:
He could have tried a reverse mortgage, if he would have qualified, given his circumstances and how much equity was left in his house at that time. This would have solved his issue of having to make his monthly mortgage payments but also would have leveraged (or stripped as you say) him of what ever equity was left in his home.
Well how about another low fixed rate as you mentioned, well lets see is 5% low enough to use for an example? Given his circumstances: income, equity, and credit, would he have been able to qualify for a rate of 5%? Absolutely not, but just for argument sake I would like to use it in this example. He wouldn't have been able to get a rate that low even when rates were at their lowest point, being that he had to do a NO income/NO asset loan to qualify for a mortgage and he had a Jumbo loan. As you stated, which is one of the few pieces of truth in your article, this type of loan yields a higher interest rate given the documentation type. Let’s take a look: a $450k 30 yr. fixed rate loan @ 5% would have given this borrower a new astronomical payment of $2,416 without taxes and insurance and other liabilities!! It still would have cost him the same amount in closing fee's and removed an equal amount of equity from his home. Would that have helped Mr. Ferguson? Obviously not!
The loan that the client was given would have been a short term solution, the only viable solution unfortunately (aside from selling his home) and this loan is what has given Mr. Ferguson 2 or 3 more years to enjoy his home that he worked hard for. With a payment of $1,447 per month, it would have been the closest he would ever be able to get again, to an affordable payment that would have given him the ability to remain in his home a little while longer. If he had not done this type of loan and remained in his original loan in the 300's at 5.95% he would have been foreclosed upon years earlier, another important fact, which you or your "so called" experts failed to mention. It’s clear to see that he was making desperate attempts to remain in a home which he no longer could afford. Not to mention the fact that I am going to assume he received additional cash-out which should have been used and most likely was intended to help him to meet his monthly liabilities and enjoy (as much as possible) his home and retirement. Let me ask you something else, if Mr. Ferguson would have taken his cash-out and walked into a BMW dealership with it and said he would like to purchase a $100k car (that he clearly could not afford) would you then write a similar article on how the car salesman was wrong for selling an expensive car to him that he wanted but knowingly couldn't afford? Even if the salesman could obtain financing for him given his credit? Would you state that the salesman was wrong and cost him his home by giving him such an expensive car payment? Would you also blame the car salesman and say that he intentionally took advantage of an 86 yr old retiree with dementia? Would he be wrong for selling Mr. Ferguson the car that he requested and qualified for? Is he wrong for selling it to him and receiving a commission for his services rendered?? Absolutely, not...
To go on... you further state that there was no attorney present at the closing, have you ever purchased or refinanced your home? By New York State law, there is an attorney present at every closing and although they represent the bank, they are paid by the borrower to ensure that the client understands and is satisfied with what they are getting. They have to go over all of the terms and conditions which is probably the 4th or 5th time that these disclosures are provided to the borrower which by law explain every detail of the loan they are entering into.
It is in my opinion that this article has been written with a single intent, to bash brokers. It is a completely bias article missing crucial facts, and its sole purpose is to spotlight this particular broker and further tarnish all brokers’ reputations. This situation is happening to millions of people every day unfortunately, that I admit, but in the majority of cases it’s the economy and the borrowers who are at fault and don't want to accept responsibility for their own actions. It is very hard to believe that a man who was diagnosed with "dementia" in 2005 was still living on his own and making financial decisions without family members or his attorney being aware of his actions. Are you telling me that his daughter, who is an accountant of some sort and shares such a close relationship with her father, had no idea that this transaction was taking place?? I don't believe it for one second. A mortgage transaction on average takes anywhere from 4-6 weeks to complete and in all that time, the daughter had no idea? I find this very hard to believe especially for a man in his condition. I also find it very hard to believe that she had no idea that he was going to a closing the day of, and wasn't present given his condition. The broker in this case I believe did the best job he could, in advising this client accordingly. He certainly has done a much better job in his profession in advising this client than you have in yours by posting such an article to the public. It is irrelevant as to how much his company (not him personally) was compensated for their services. Whether it was $1 or 1 million dollars, it was the only viable option that the borrower had left if he wanted to try and stay in his home and not sell or foreclose in 2006. I wonder how much you get paid for doing your job Mr. Hannon and writing articles like these. It is because of good brokers and banks that 98% percent of the people in this country even own a home to begin with, including yourself, Mr. Hannon, if you own one. The Ferguson’s and your self are the ones to blame for trying to pull the wool over the public’s eye by writing articles such as these, allowing them to believe that brokers and banks are maliciously trying to rip them off and being paid graciously for doing so.
After reading this article, i did a little research of my own and found that this appears to have been looked into already by the NYS Banking Dept. It was stated in another article that based on the NYS Banking Dept. findings, their was no wrong doing on behalf of the broker or brokerage. Next time you write an article, you should get your facts straight and know that there are two sides to every coin or maybe you should stick to writing articles in your field of expertise, whatever that may be. If you are a man of truly free media, in my opinion you should write a new article apologizing to the named broker and brokerage in this article and admit to the fact that you were inexperienced in this topic and horribly incorrect. The people who were harmed here the most are the broker, brokerage and banks reputations' for doing their job.
Wow. Thats an incredibly long response from a mortgage broker justifying entirely racist, classist predatory lending practices. Nice job.
"It is a simply a casualty of many unfortunate events."
Right. So is this.
http://www.indypendent.org/2008/04/25/foreclosure-patterns/
All mortgage brokers aren't scumbags. But some of them are. And you, my friend, are a fucking scumbag.
All Indy readers should read the previous comment carefully. Its a prime exhibit on how capitalism -- its self-justificatory practices and its denial of structural consequences in favor of "individualist" explanations-- replicates itself on a daily basis.
WOW! That was such a short response from a man who has so many strong feelings toward what was said. Its just another person jumping on the band wagon of hating all brokers because of the bad apples. Every industry has bad apples, but that doesn't mean that they spoil the whole bunch!
Chris, you obviously need to take your own advice and go back and re-read the response more carefully as you obviously misunderstood or forgot a few key points mentioned. Yours is such a short reponse to a long an intelligent one. It is very sad what has happened in this case and to millions of other people across the country no matter what race,age, income level or gender, but this article depicts it in such a way that it was this one broker in particular who wronged this client. It is a casualty of unfortnate events, meaning that many homeowners are living outside their means which has become our human nature. Its mostly credited to the fact of rising cost of living and high taxes here in NY, but none the less it is causing people to not be able to meet their monthly liabilities. This in turn causes them to supplement their lack of income by either increasing credit card debt or tapping into their equity in their homes, which was inflated to begin with, or both. In this case you can clearly see the cycle of unfortunate events that have put this particular borrower in this situation. He continued to refinance to supplement his income and he leveraged the equity in his home to do so. I feel bad for him but just as there are brokers who do the wrong thing (or scumbags as you put it) who dont want to take responsibilty for the actions, there are also many homeowners who know what they are getting into or that they can't afford the home and then when things go bad they play dumb and say it was the broker who forced them into it. I mean having a mortgage is the biggest responsibility that anyone will ever undertake, are you telling me that some brokers are good enough salesman to convince someone to do something that they know will hurt their families in the end. Its not like they put guns to borrowers heads and make them take the loans as you make it sound. Don't get me wrong many brokers have lied and cheated and literally stole from all kinds of people and certainly have taken advantage of elderly people in getting them to sign their homes over and selling it from under them or stealing their equity. Those brokers are the fucking scumbags and i hate them too, but i can assure you that i am looking at it from the other end of the spectrum here and i can provide you with lists of hundreds of clients who will speak very highly of my practices.
My reponse covers many common misconceptions on many levels. Many people believe that this mortgage crisis is ONLY due to adjustable rate mortgages and subrime loans. Well let me explain something to you, although much of it is, there are many other factors that take part in it as well. Let me start by saying, this client was already facing foreclosure or the sale of his home if he hadn't refinanced. Would you agree that based on the facts, either way it would mean losing his home. He would have lost it even though he was on a fixed rate so the type of loan really doesn't matter. Also this loan (MTA) loan, allows a borrower to have 4 payment options where they can make a minimum (negatively amortizing or leveraging more equity) payment, interest only, principal and interest payment and a 15 yr fixed payment. No matter how you look at it, even if the 1,400 per month was a minimum payment the borrower was leveraging the equity in his home to survive. Every time he refinanced he was negatively amortizing his home. To add to that even though the bank may be a subprime (for borrowers who's creditials are below average) bank , this surely was not a subprime loan my friend. As a matter of fact this is not an easy type of loan to qualify for, you needed a minimum credit score requirement (usually in the high 600's or 700's) and for No income/no assets you would also need a decent amount of equity in your home as well as a clean mortgage history for at least 2 years.
Although you added in that interesting little link, i see what your saying as far as certain communities that appear to be targets and may very well be by scumbag brokers who give us all a bad name, but this doesn't seem like one of those cases. I dont believe that this had anything to do with race. It was just bad decision making for years that led to this client not being able to afford their home. I ask you, If he had charged up his credit cards instead at 25% interest rates to the point where he couldnt afford them and had to go bankrupt, would that be due to predatory lending practices on behalf of the creditors? Would that be a better situation? Once he was placed in that high of a loan amount (200-300's) it was then that the broker should have been questioned or the daughter should have stepped in and not allowed him to take out a loan that size, knowing that he couldn't afford it. that has anything to do with race. Subprime loans were created to help people whose credit, income or equity may have been lacking, within reason so to not discriminate against them. Oh and by the way, its not the brokers who create the loans and the guidelines, its the banks, we just serve as a third party liason between the banks and borrowers.
Im curious to know, how come in your response you didnt mention anything about the previous brokers or the daughter not being aware of what was happening or all the other questions about the car salesman? None of that made sense to you? You see Chris, unfortunately, although my response may sound harsh, its meant to be informative and is based on facts, not a bias opinion. People are in business to make money, its what makes the world go around, just as i'm sure that youget paid for whatever you do, thats why you can't wrong the car salesman, the credit card companies or in this case the broker, unless they are doing something intentional to hurt someone to make money. Just as you mentioned that i am "justifying racist, classist, predatory lending practices" which i am not, i am simply making the public aware of many un stated facts from that article. It would be discrimination in the example of the car salesman, if he wouldn't sell him the car based on race or due to the fact of how old he is. Just as the car salesman or credit card companies would have no way of knowing that this client suffered from dementia, how could the broker have known?? Should he have consulted with the clients physician prior to having him sign the documents with no knowledge that he was ill? If you are going to respond, at least be fair and not one sided and make sense of what you are saying.
Dear Mortgage Broker,
Keep talking.
Thats a brilliant response. As you can see other people shot wholes and saw how this story was biased long before i did. I just backed them up and provided additional facts, some of which were already mentioned. John Sayls, Josh Smith and another John all shot holes through this story immediately. Looks like you know that there is nothing more to say and you have no facts to back you up. Have a great day Chris!
I am a victim of deed fraud my home is going into foreclosure. I haveno were to go. Presently I'm in court. Are their any groups out their that can help. I have gone to Council Women Mealy. I want to go to the District Attorney Office but I have no representation.
Chris, you're not really responding to Mortgage Broker. Be fair, he has some points.
Also, Mr. Ferguson seems to be a serial refinancer. His first mortgage on this property was 92k (in 8/1998), then 180k (in 11/2001), then 264k (in 10/2003), then 360k (in 5/2004) and finally 445k (in 2/2006). This data comes from the NYC deed recording system.
Mr. Ferguson has refinanced this property from a 92k mortgage in 1998 to a 445k mortgage in 2006 - so 353k in cashout less closing fees. It is hard to believe he was forced to do this five times over a decade while having dementia.
Indymac, his last lender, has a terrible track record, and seems to be guilty as sin on many financings. But the borrower also chose to finance the property 5 times - never for the same amount, always for more. Indymac is going to get what it deserves - there are mutiple lawsuits across the United States against it and its share price has fallen from $45 to below $1.
Like one of your previous respondents, I also don't get the math in this article. If Mr. Ferguson had a previous 360k mortgage at 5.95% (and it was indeed a 30-year fixed loan) the payment would have been $2,147. If it was interest-only, it still would have been $1,785.
If one assumes, as a quick and dirty calculation, that Mr. Ferguson should spend no more than 50% of his income on the mortgage (for extreme simplicity's sake only) and further assumes that an average rate he could have gotten over the last 5 years is 6.5%, then the maximum loan amount that he should have based on this criterion is around 90k - which means the 360k, the 264k and the 180k mortgage were already unaffordable to him.
I'd have to jump on that wagon too, most brokers are not honest people and I don't care who the broker is, if there's money to be made off some poor unknowing person the broker will jump to serve himself a piece of that pie no matter who loses their home and then when the time comes that they are losing their home there goes the broker sending one of his buddies over to try to remedy the homeowners situation. I think it's sad that broker's make a living off other peoples problems and that they steal when a home has equity. I think broker's should evaluate themselves and see if they can live with their conscious by being inmorally wrong just to be financially well off stealing other peoples hard earned money. I don't tell me I don't know what I'm talking about I took the real estate course and became a licensed agent however after all the schemes I saw in the office and outside the way they tell you to lure homeowners into giving away their homes, I was disgusted and turned my education towards Phlebotomy and became a Licensed Phlebotomist. I trust me if I had followed the lessons taught at that real estate office which is very WELL KNOWN and states to be GREAT in Real Estate deals I would of belong to the RAT RACE of CROOKED BROKERS, thank God I opened my eyes early enough to not become one of those REAL ESTATE PREDATORS!!!.
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