Easy-to-get Loans Cause Thousands To Lose Homes

[messychopper]

http://www.palmbeachpost.com/pbccentral/co...NDING_0528.html

Easy-to-get loans cause thousands to lose homes

By Pat Beall

Palm Beach Post Staff Writer

Sunday, May 28, 2006

Easy money has led to hard times.

The millionaire businessman living in a $5 million Palm Beach Gardens home; a couple's county-subsidized 3-bedroom, 2-bath slice of suburbia; a Fort Pierce widow struggling to keep her hurricane-damaged house: pre-foreclosure notices have landed on all their doorsteps.

More than $106 million in home loans collapsed in Palm Beach, Martin and St. Lucie counties in the first quarter of this year alone, according to a Palm Beach Post analysis of data collected by RealeSTAT.com, a local commercial firm that gathers foreclosure and default records. A little more than $68 million in mortgages defaulted in the first quarter of 2005.

In terms of real people, that translates to about 2,100 families in danger of losing their homes.

Experts say the worst is yet to come.

"We know the whale is coming, we just don't know how big the whale is," said Mike Flagg, a spokesman for the Center for Responsible Lending, a Washington nonprofit that tracks lending practices.

What is known is that, rich and poor alike, South Florida homeowners are on a collision course with the fast-money mortgages and loose state regulation that injected extra risk into a region ripe for exploitation.

As the state's red-hot real estate market grew hotter, thousands of new brokers and brokerages obtained licenses to operate in Florida. That coincided with the availability of new types of loans, which gave far too many middle-income buyers who couldn't afford it a shot at living in a half million-dollar home.

"Feeding frenzy," sums up Fred Glick, managing member of U.S. Loans Mortgage LLC, a Chicago-based mortgage broker doing business in Florida and other states.

Yet, some of the loans offered were never intended for the middle class.

"I think the reason we are going to see so many foreclosures, so many more than we have ever had in the past, is because a broker or loan originator has gotten people into these crazy kinds of loans," said Steven Schneider, president of the Florida Association of Mortgage Brokers.

These "exotic" loans, as they've come to be known, include newer adjustable-rate mortgages, also known as option ARMs, which start a borrower at one rate and can adjust upward with time. Interest-only loans allow borrowers to lower their monthly bills by paying only interest in the early years of the loan. In both cases, the terms of the loans change. That can spell disaster, particularly in a market facing both declining real estate values and rising interest rates.

The analysis of RealeSTAT.com data showed that roughly half of the defaulted loans had some form of adjustable rate feature. More than $65 million in defaulted home loans carried interest rates of at least 10 percent.

Typically, a sub-prime loan is made to a high-risk market of borrowers that includes those with lower credit ratings. But not all of these borrowers had poor credit. National research by mortgage giant Freddie Mac found that approximately three of every 10 people with a sub-prime home loan had good enough credit to qualify for a less pricey mortgage, raising concerns that even people with good credit are being steered into unnecessarily costly deals.

The Florida Attorney General's Office issued a consumer alert in February warning people about unscrupulous lenders. It noted another national comparison: In the early 1990s, only one of 20 mortgage loans was a high-interest sub-prime loan. By 2004, one out of five was in that category.

A wolf in sheep's clothing

Far from the rock-bottom interest rates of recent years, many local loans started off with hefty double-digit rates, which are now creeping upward.

One couple in Greenacres did not realize until they were before a judge that they might have gotten a better deal. They were able to work out an agreement with the lender while they caught up on back payments.

"When we went to the foreclosure hearing, the lawyer asked us if this was our first house," recalled the 30-something homeowner, who asked not to be identified because she is embarrassed.

"We said yes, and he just said, 'You should never have been put into that mortgage.' " The couple had taken out a $212,000 adjustable-rate mortgage that starts at 7.8 percent, and goes up from there. They had taken a second mortgage, known as a "piggyback loan" because it is on top of another loan, to make the down payment.

There's evidence thousands of wide-eyed borrowers fell prey to the lure of easy money:

• A St. Andrews Country Club home fell into foreclosure only 60 days after its owner took out a $1.9 million loan.

• A Boynton Beach man was in his $248,000 villa just four months before the $1,845.74 monthly payment proved too much for him.

• A Lake Worth couple slipped into default one month after refinancing at an 11.99 percent interest rate.

Thousands of new brokers have made thousands of new home loans.

"In 2000, there were about 28,000 licensed brokers," said Schneider, noting that the number had more than doubled in five years, and now, "an average of 4,000 people a month were taking the exam."

Kevin Clancy's American Funding Group has been in Martin County since 1991. But in the past five years, he's gotten plenty of new neighbors. Of 76 licensed brokerages in Martin County, only 16 set up shop before 2000.

In Palm Beach County, only 143 of 702 mortgage broker businesses, lenders and branches were here before 2000. In St. Lucie County, just three predate 2001.

How long will they stay? "Five or six years ago, there was a raft of new companies offering 125-percent financing, and I would say to my colleagues, these companies are not going to be around in a couple of years," says Clancy, whose company does not sell mortgages. "And basically, they went south."

Brokers go unchecked

The wave of brokers also has strained the state's system for licensing and overseeing mortgage operations. There were just 11 state workers handling licensing for brokers and brokerages in 2001. Today, there are 15. That's a 36 percent increase — but license applications grew 297 percent in the same period.

And there are fewer state workers handling examinations of brokerages than in 2001, even though consumer complaints over mortgage lending, which can trigger examinations, have risen for four straight years.

"I won't tell you there are no dishonest brokers," said Schneider. But no one wants rules tightened more than the industry, he adds. "There just doesn't seem to be enough manpower" at the state level to monitor continuing education, which can help teach brokers to match the right person to the right loan.

As it stands now, too many brokers have been too helpful, says Jackie Free, a former South Florida mortgage broker convicted of felony charges after tweaking home-loan rules in favor of buyers. "I spoke at the Mortgage Bankers Association, and one gentleman said to me, 'You are so focused as a loan officer to help a customer out, or get them into a new home, and what you are not thinking about is what happens when the loan goes bad.' "

If there is a bright spot among the mortgage defaults, it is that the market is still strong enough for some to sell their homes and pay off their debt — before a formal court judgment takes the roof from over their heads.

That's what one borrower did after losing his home of 14 years to a 13 percent interest refinancing. But it's been scant comfort. "Yes, I got a few thousand from it, but how long can that last?" asked the West Palm Beach man, now living in an apartment. "They may as well have turned me out on the street."

[Casual Observer]

http://www.palmbeachpost.com/pbccentral/co...NDING_0528.html

Easy-to-get loans cause thousands to lose homes

By Pat Beall

Palm Beach Post Staff Writer

Sunday, May 28, 2006

Easy money has led to hard times.

The millionaire businessman living in a $5 million Palm Beach Gardens home; a couple's county-subsidized 3-bedroom, 2-bath slice of suburbia; a Fort Pierce widow struggling to keep her hurricane-damaged house: pre-foreclosure notices have landed on all their doorsteps.

More than $106 million in home loans collapsed in Palm Beach, Martin and St. Lucie counties in the first quarter of this year alone, according to a Palm Beach Post analysis of data collected by RealeSTAT.com, a local commercial firm that gathers foreclosure and default records. A little more than $68 million in mortgages defaulted in the first quarter of 2005.

In terms of real people, that translates to about 2,100 families in danger of losing their homes.

Experts say the worst is yet to come.

"We know the whale is coming, we just don't know how big the whale is," said Mike Flagg, a spokesman for the Center for Responsible Lending, a Washington nonprofit that tracks lending practices.

What is known is that, rich and poor alike, South Florida homeowners are on a collision course with the fast-money mortgages and loose state regulation that injected extra risk into a region ripe for exploitation.

As the state's red-hot real estate market grew hotter, thousands of new brokers and brokerages obtained licenses to operate in Florida. That coincided with the availability of new types of loans, which gave far too many middle-income buyers who couldn't afford it a shot at living in a half million-dollar home.

"Feeding frenzy," sums up Fred Glick, managing member of U.S. Loans Mortgage LLC, a Chicago-based mortgage broker doing business in Florida and other states.

Yet, some of the loans offered were never intended for the middle class.

"I think the reason we are going to see so many foreclosures, so many more than we have ever had in the past, is because a broker or loan originator has gotten people into these crazy kinds of loans," said Steven Schneider, president of the Florida Association of Mortgage Brokers.

These "exotic" loans, as they've come to be known, include newer adjustable-rate mortgages, also known as option ARMs, which start a borrower at one rate and can adjust upward with time. Interest-only loans allow borrowers to lower their monthly bills by paying only interest in the early years of the loan. In both cases, the terms of the loans change. That can spell disaster, particularly in a market facing both declining real estate values and rising interest rates.

The analysis of RealeSTAT.com data showed that roughly half of the defaulted loans had some form of adjustable rate feature. More than $65 million in defaulted home loans carried interest rates of at least 10 percent.

Typically, a sub-prime loan is made to a high-risk market of borrowers that includes those with lower credit ratings. But not all of these borrowers had poor credit. National research by mortgage giant Freddie Mac found that approximately three of every 10 people with a sub-prime home loan had good enough credit to qualify for a less pricey mortgage, raising concerns that even people with good credit are being steered into unnecessarily costly deals.

The Florida Attorney General's Office issued a consumer alert in February warning people about unscrupulous lenders. It noted another national comparison: In the early 1990s, only one of 20 mortgage loans was a high-interest sub-prime loan. By 2004, one out of five was in that category.

A wolf in sheep's clothing

Far from the rock-bottom interest rates of recent years, many local loans started off with hefty double-digit rates, which are now creeping upward.

One couple in Greenacres did not realize until they were before a judge that they might have gotten a better deal. They were able to work out an agreement with the lender while they caught up on back payments.

"When we went to the foreclosure hearing, the lawyer asked us if this was our first house," recalled the 30-something homeowner, who asked not to be identified because she is embarrassed.

"We said yes, and he just said, 'You should never have been put into that mortgage.' " The couple had taken out a $212,000 adjustable-rate mortgage that starts at 7.8 percent, and goes up from there. They had taken a second mortgage, known as a "piggyback loan" because it is on top of another loan, to make the down payment.

There's evidence thousands of wide-eyed borrowers fell prey to the lure of easy money:

• A St. Andrews Country Club home fell into foreclosure only 60 days after its owner took out a $1.9 million loan.

• A Boynton Beach man was in his $248,000 villa just four months before the $1,845.74 monthly payment proved too much for him.

• A Lake Worth couple slipped into default one month after refinancing at an 11.99 percent interest rate.

Thousands of new brokers have made thousands of new home loans.

"In 2000, there were about 28,000 licensed brokers," said Schneider, noting that the number had more than doubled in five years, and now, "an average of 4,000 people a month were taking the exam."

Kevin Clancy's American Funding Group has been in Martin County since 1991. But in the past five years, he's gotten plenty of new neighbors. Of 76 licensed brokerages in Martin County, only 16 set up shop before 2000.

In Palm Beach County, only 143 of 702 mortgage broker businesses, lenders and branches were here before 2000. In St. Lucie County, just three predate 2001.

How long will they stay? "Five or six years ago, there was a raft of new companies offering 125-percent financing, and I would say to my colleagues, these companies are not going to be around in a couple of years," says Clancy, whose company does not sell mortgages. "And basically, they went south."

Brokers go unchecked

The wave of brokers also has strained the state's system for licensing and overseeing mortgage operations. There were just 11 state workers handling licensing for brokers and brokerages in 2001. Today, there are 15. That's a 36 percent increase — but license applications grew 297 percent in the same period.

And there are fewer state workers handling examinations of brokerages than in 2001, even though consumer complaints over mortgage lending, which can trigger examinations, have risen for four straight years.

"I won't tell you there are no dishonest brokers," said Schneider. But no one wants rules tightened more than the industry, he adds. "There just doesn't seem to be enough manpower" at the state level to monitor continuing education, which can help teach brokers to match the right person to the right loan.

As it stands now, too many brokers have been too helpful, says Jackie Free, a former South Florida mortgage broker convicted of felony charges after tweaking home-loan rules in favor of buyers. "I spoke at the Mortgage Bankers Association, and one gentleman said to me, 'You are so focused as a loan officer to help a customer out, or get them into a new home, and what you are not thinking about is what happens when the loan goes bad.' "

If there is a bright spot among the mortgage defaults, it is that the market is still strong enough for some to sell their homes and pay off their debt — before a formal court judgment takes the roof from over their heads.

That's what one borrower did after losing his home of 14 years to a 13 percent interest refinancing. But it's been scant comfort. "Yes, I got a few thousand from it, but how long can that last?" asked the West Palm Beach man, now living in an apartment. "They may as well have turned me out on the street."

How close are we to that scenario? Not far off, IMO.

[BandWagon]

How close are we to that scenario? Not far off, IMO.

It won't be long before people are talking about a recession in the States.

The bunch of jokers over here will catch on a little later I reckon.

[messychopper]

It won't be long before people are talking about a recession in the States.

The bunch of jokers over here will catch on a little later I reckon.

I have to say that the economy here is doing pretty well, IMO jobs are easier and wages are on the up.