By <a href=”mailto:email@example.com”>Pat Beall</a><br />Palm Beach Post Staff Writer<br />Sunday, June 18, 2006<br /><br />By the time Winston Williams filed for bankruptcy, one of his two mortgage lenders had, too.<br />Then, by the time the Riviera Beach man was ordered to pay more than $126,000 to stave off foreclosure, his other lender had agreed to pay millions to settle claims of predatory lending.<br /><br /><a href=”http://www.palmbeachpost.com/business/content/news/special_reports/housing_squeeze/index.html”></a><br />In Florida, it can be illegal to put someone in a high-cost loan he can’t afford.<br /><br />Deliberately misleading buyers about mortgage terms can be a third-degree felony, according to state statutes. Refinancing too many high-cost mortgages can lead to fines up to $500,000.<br />None of this helped Williams. For eight years, Beneficial and the now-defunct Upland Mortgage bounced Williams’ home loans between them, and he took on increasingly expensive debt.<br />”Everyone kept telling me my payments would be lowered, but they never got lower,” Williams says.<br /><br />Beneficial defends its loans. “For the last five years, we have had a program in place under which a loan cannot be made unless it provides a clear and specific benefit to the customer,” says Kathleen Rizzo Young, senior vice president of public affairs for HSBC, the London-based firm which acquired Beneficial in 2003. HSBC’s lending policies, she says, are considered among the best.<br /><br />However, many of those policies were put in place only in 2002.<br /><br />But HSBC’s loans aren’t the only mortgage deals critics find troublesome. Problem and even predatory mortgages have flourished right along with the rest of South Florida’s residential real estate boom, as buyers, sellers and lenders alike stretched the notion of a “suitable” home loan. In many cases, residential real estate sales were driven by the availability of exotic mortgages.<br />It’s only now, as the rounds of pricey refinancings fade and mortgages — such as the popular “option ARM” or adjustable rate mortgages — begin to shed their 1 percent teaser rates, that it’s clear opportunities for home buyers created opportunities for trouble.<br /><br />American bad dream<br /><br />In 2005, more than $25 million in home loans in Palm Beach County collapsed in less than 90 days, according to a Palm Beach Post analysis of data provided by RealEstat.com, a locally based commercial provider of mortgage information.<br /><br />Last year, an analysis of federal home loan data by ACORN, the Association of Community Organizations for Reform Now, an organization of low to moderate-income people, pinpointed West Palm Beach as an area where whiter neighborhoods translated to cheaper mortgages. That is another indication of predatory lending, which targets minorities, women or the elderly. Thousands of homeowners own little or none of the house they live in, the result of little-understood, but popular, mortgages that increase the cost of the loan over time.<br />Not every high-interest rate or failed home loan is predatory. Even consumer groups fiercely opposed to predatory-lending practices acknowledge high-interest loans may be the only way some people can realize the American Dream of home ownership.<br /><br />But “it’s not just about getting in the house. It’s about staying in the house,” says Christie Hardcastle, Hispanic outreach director of the local office of Consumer Credit Counseling Service.<br />Although there is no one-size-fits-all definition of when a mortgage stops being helpful and starts being predatory, Hardcastle and others agree that such loans are more than just a bad deal. Predatory loans exploit borrowers’ circumstances, or inexperience, and can shoehorn them into loans they can’t handle.<br /><br />This happens a number of ways:<br />• Appraisals may be inflated.<br />• Fees may be explained poorly, if at all.<br />• Misleading ads tout rose-colored mortgage payments with breathless urgency.<br />• Those same ads leave out key details about the loan.<br /><br />Lawmakers in Tallahassee haven’t fully embraced the issue. A national survey recently found Florida ranked second only to Georgia in all types of mortgage fraud. Despite the threat of felony charges and six-figure fines, when it comes to protecting consumers, the Sunshine State’s 4-year-old anti-predatory lending law is “very weak,” sayss Joan Goldstein, executive vice president of the Washington, D.C.-based Center for Responsible Lending, a national consumer watchdog group.<br />’Sleazy’ loans<br /><br /><a href=”http://www.fredglick.com”>Mortgage broker Fred Glick</a> says he can hear a predatory loan coming, usually on the other end of the phone.<br />”The predatory lenders are just calling people up. Even if you have close to perfect credit, they will say, ‘Oh, but you were late one time in 1964 on your bill from Macy’s, but we’ve got a good program for people like you.'<br /><br />”Then they try to sleaze you into a loan.”<br /><br />One red flag signaling a potential predatory loan is the speed in which it sours. Borrowers who default 18 months into the life of a mortgage, the thinking goes, probably couldn’t afford the loan the day they got it.<br /><br />Many believe adjustable rate mortgages will push a tide of foreclosures both here and across the nation beginning later this year. But millions of dollars in local home loans collapsed within 90 days, sometimes within weeks — long before most would have had time to reset to new, and more expensive, monthly payments.<br /><br />That speed-to-default standard shows up in Palm Beach County Circuit Court filings, where about 119 mortgage defaults recorded in 2005 occurred in the first 90 days of the loan. The Delray Beach home loan with the highest interest rate — 13.75 percent — collapsed within 30 days of being finalized.<br /><br />In just the first quarter of this year, court records show roughly 73 home loans totaling $14 million collapsed within 90 days of being written. That’s more than half the number and dollar volume of fast defaulting loans racked up in all of 2005, and there are three more quarters to go.<br />It isn’t the monthly mortgage bill that tripped up buyers. The loan payments averaged $1,078 in 2005. It was the mortgage as a percentage of the borrower’s bank account. That’s why payments on a $545-a-month Greenacres home and a $5,171-a-month Boynton condo both stopped after just 30 days: Both of the new owners were in over their heads; they just happened to have widely different financial means.<br /><br />Exotic or abusive?<br /><br />Some of the most popular loans almost seem to invite abuse.<br /><br />Here’s how Glick describes so-called “option ARM” loans: “I will gladly pay you Tuesday for a hamburger today,” a takeoff on Wimpy, the character in the Popeye comic series.<br />The problem is that the hamburger’s price typically will go up on Tuesday. Option ARMs, or adjustable-rate mortgages, start a borrower at one rate and can adjust upward with time. Some give buyers four ways to make their monthly payments. The lowest of these, which pays nothing on the cost of the house and only some of the interest on the loan, can leave a homeowner with a mortgage that grows larger, not smaller.<br /><br />The upshot is that thousands of borrowers own little or nothing of the house they are buying. And when the loan begins adjusting to higher interest rates, borrowers may be facing monthly bills so large that they have to refinance, incurring another round of costs.<br /><br />Loans work for some<br />For the right person, the loans can work, says Daniel Poulos, a broker and owner of Elite Lending: People whose incomes fluctuate because they work on commission, for instance. For those individuals, money is more plentiful some months than others, enabling to pay more or less, as needed.<br /><br />Poulos says he should know about the viability of the loan, since he has one.<br /><br />”The biggest problem is that some originators are being trained to only sell this product,” Poulos says.<br /><br />It’s not entirely clear how many option ARMS have been written in South Florida. But consumer appetite for the low rate is inexhaustible, says Poulos. That’s partly because of the “teaser rate” of 1 or 1.25 percent. Those rates generally last just 30 days. It’s doubtful borrowers understand that piece of the fine print, Poulos says.<br /><br />”We get countless inquiries at our offices asking if we can beat a 1 percent interest rate. We always respond by asking ‘Did the last lender you spoke with leave you with the understanding that your rate would be 1 percent ?’ The answer is usually ‘yes.'<br /><br />”This blatant misrepresentation is running rampant.”<br /><br />Interest rates are not the only problem. Mortgage fees can hold a homeowner hostage, especially if they penalize people for paying off debt early.<br /><br />When Arnita Scott moved into her heavily treed, four-bedroom Fort Pierce home, she had an 8 percent interest rate and down-payment assistance from St. Lucie County.<br />Five years later, she has a hurricane-damaged roof, a foreclosure judgment and no way out.<br />”I’m just trying to keep things going here,” says the elderly woman, who cares for one son with sickle cell anemia and another who is quadriplegic.<br /><br />Scott is eligible for help in the form of a reverse mortgage. That allows people 62 and older to tap the equity in their homes. The federally insured loan does not usually have to be repaid during the homeowner’s lifetime. The deal structured for Scott would give her enough money to fix her roof and live without mortgage payments.<br /><br />Fees, though, “are blocking the door,” Scott says.<br /><br />The most common fee-related hurdle comes when borrowers hope to replace their high-interest mortgage with a better deal. Prepayment penalties, sometimes totaling six months’ worth of interest, can kick in.<br /><br />That’s enough to keep some homeowners locked into a pricey mortgage, even as their credit improves enough to warrant a lower rate.<br /><br />Scott’s mortgage does not require prepayment fees. But the original lender wants thousands in other fees before the mortgage is considered paid, a requirement before the reverse mortgage can be arranged.<br /><br />Unable to pay either the fees or her $1,500 a month mortgage, Scott has been taken out of the financing option that might save her house.