When foreclosure looms
Thousands in Md. who bought homes with subprime loans are delinquent in payments
By Eric Siegel
Sun reporter
Originally published March 24, 2007
Charles McCloud had never owned a home, but as he entered his late 50s he thought it was time to have the security and stability that would come from having a place of his own.
So two years ago, he bought a detached two-story house on a quiet corner in the Howard Park section of West Baltimore for $225,000, borrowing the money for the closing costs and taking out two loans, one of which had an interest rate of more than 10 percent.
A self-employed gospel pianist who had never made more than $35,000 a year, McCloud had just gone on disability for a variety of ailments, including congestive heart failure that often requires him to use oxygen. But he figured he could meet mortgage payments that were 2 1/2 times his disability check by taking in friends and relatives as boarders, and no one disabused him of the notion.
When his original four boarders shrank to two, McCloud found himself in trouble.
McCloud is one of thousands of Marylanders with subprime loans - higher-cost mortgages given to those considered credit risks or with irregular or limited incomes - who are facing, fearing or fending off foreclosure. A recent report by the Mortgage Bankers Association said that at the end of last year, one out of eight of the nearly 130,000 subprime loans in the state were delinquent.
In November, McCloud was sued for foreclosure stemming from a delinquent property tax bill. Should he manage to extricate himself from that predicament, there is still the matter of his latest monthly mortgage payment of nearly $1,500, which as of last week he had not paid.
In any case, he worries that his days as a homeowner may be numbered.
"I can't remain here," says McCloud, who is now 58. "I need to make plans to go somewhere else. I've got to keep it real."
While the situation has taken a toll on the lenders and spurred fears of harming the broader housing market and possibly the overall economy, those at greatest risk are the homeowners whose dreams are getting a rude awakening.
Like McCloud, many are black and first-time buyers, who now readily acknowledge that they did not fully understand the deals they were getting into. Some got into trouble with their original loans, others by responding to solicitations for refinancing.
An increasing number are beginning to show up at the doors of neighborhood organizations, asking for help.
"A lot of people are into a deal they shouldn't be in," says Frank Fischer, a longtime counselor at the St. Ambrose Housing Aid Center, who is working with McCloud. "The slightest thing makes them fall off the margin."
Roy Miller, homeownership coordinator with Belair-Edison Neighborhoods Inc., says 18 homeowners have scheduled appointments in the two weeks since the Northeast Baltimore community organization sent a letter to homeowners, asking them to contact the group if they thought they were running into problems with their mortgages.
"A lot of these [subprime mortgage] products have adjustable rates," he says. "People are realizing they got into a bad situation."
Some subprime borrowers are attempting to fight back.
In January, Baltimore-based Civil Justice Inc. filed suit against All State Home Mortgage Inc. on behalf of Joyce Delph, a retired Charles County woman. The suit, in Montgomery County Circuit Court, charges that Delph was deceptively induced to refinance her 4.83 percent home mortgage and improperly charged fees of nearly $12,000 - charges the Ohio-based company denies in court papers.
The suit seeks reimbursement of the fees plus the increased interest Delph will have to pay over the life of loan. The loan has provisions that allow the interest rate to go to nearly 10 percent, according to Phillip Robinson, Civil Justice's executive director.
"It's prime and subprime borrowers who are being put into subprime loans for the sole purpose of having lenders and brokers make huge profits," Robinson says.
Another suit, filed in September in U.S. District Court in Greenbelt, was dismissed Wednesday.
That suit charged several subprime lenders with fraud and misrepresentation in inducing a half-dozen African-American homeowners to enter into agreements knowing they "would never be able to make expected monthly payments." In dismissing the action, U.S. District Judge Alexander Williams Jr. said the complaint was "completely devoid of any coherent allegations of fact and contains mere conclusory allegations of breach of contract, unjust enrichment and statutory violations."
Williams threw out the complaints of all but the lead plaintiffs, denying a motion to stay pending foreclosure actions against them but giving them 10 days to file a new complaint.
Efforts to reach the lawyer for the plaintiffs, Walter L. Blair, and the attorney for California-based lender IndyMac Bank about the decision were unsuccessful.
But plaintiff Tanya Jones says she intends to refile, declaring, "I'm going to take this as far as the court system will allow me to."
Jones and her sister Donna Jones are both postal workers who originally filed the suit on their own. They took out a $520,000 loan from IndyMac in the fall of 2005 on a home in Brandywine in southern Prince George's County. The loan had an initial interest rate of 1 percent and an initial monthy payment of $1,673 - but an adjustable rate provision allowed the rate to rise almost immediately, with a limit of just under 10 percent.
Tanya Jones says she didn't realize at first that her monthly payments would more than double within a couple of years.
"I make $4,000 a month before taxes," says Jones, 48. "I can't afford $4,000 a month [in mortgage payments] and still survive."
Tanya Jones says she and her sister are about $20,000 behind in their payments. "If I lose this house, I don't know what I'll do," she said. "I'm trying every way I can not to lose it."
For Giacomina Maerten, the way out of losing her home to foreclosure came through friends of her parents, who lent her more than $8,000 to make delinquent payments and penalties, allowing for the dismissal this month of a foreclosure action filed in February on behalf of California-based Countrywide Home Loans.
Maerten, a 24-year-old mother of three children - ages 6, 1 1/2 and 2 months - bought a rowhouse in the Idlewood section of Northeast Baltimore in the summer of 2005 for $150,000.
Like McCloud, Maerten got a so-called "80/20 loan." In her case, the loan included a first mortgage covering 80 percent of the purchase price at a little over 7 1/2 percent interest, but with an adjustable-rate rider that could push the interest to nearly twice that amount, and a second mortgage for the remaining 20 percent at nearly 13 percent interest.
She said she didn't know that her payments would be nearly $1,300 a month until she sat down to sign the loan documents. And though they were $300 higher than she had anticipated, she says, "I didn't know if I had the right to get up and walk out."
Still, she hoped to be able to make the payments. But when her husband's work as a freelance videographer fell off, and she had to cut back her hours as a waitress while pregnant with her third child, they fell more than $4,000 behind on their first mortgage payments.
"We were naive," she says. "We went into it not knowing what everything meant."
Wary of having history repeat itself, Maerten is putting her house up for sale. If she gets her list price of $179,000, she'll have enough to pay off her initial $11,000 closing costs, the loan from her parents' friends and other expenses.
But the effects linger.
"Our credit is shot," she says. "It stinks that we had to go through this."
Another Northeast Baltimore woman, Dawn Tucker, is also looking to sell her house - not because of her original mortgage but because of her decision to refinance.
A single mother of two, Tucker bought a detached, two-story house in Gardenville six years ago for $89,000. Hoping to pay off some debts, she refinanced in 2005 - not fully grasping that loan fees would shrink the amount of money she would receive while the higher interest rate and greater principal would raise her monthly payments by more than $300.
"I thought it would be a little higher and I would only have one bill," she says. "I just dug myself in a hole."
Compounding her problem was that she was promoted in an administrative position that didn't work out, then left her steady job to start a cleaning business.
As of last week, she had not made her March mortgage payment. "It's always going to be a struggle," she says. "I really want to sell."
Tucker figures she needs to get about $150,000 for her house to break even. Houses in the neighborhood have recently sold for well above that, she says, but she's cautious about her prospects.
"Because it's a buyer's market, who knows what I'm going to get?" she says. "I'll probably take what I can get so I don't have to face foreclosure."
Earlier this month, Derek Jones refinanced the rowhouse he bought in Belair-Edison two years ago, to settle bills that included the balance on his 2002 Ford Explorer and unpaid income taxes. The 36-year-old truck driver says he hesitated when he found out at settlement that the interest rate on his loan would be more than 9 percent, with adjustable-rate provisions that could take the loan as high as 15 percent. But he signed the documents and didn't act quickly enough to cancel the loan.
On May 1, he has to make his first payment on the new loan of $953 - an amount that is nearly half his monthly pay. He says he'll be able to pay that bill but says, "After that, I don't know."
"I'm hoping to refinance again," he says. "I can see in the long run, this is not going to be beneficial."
Across town, McCloud is less optimistic about the future.
A self-described "saver" who uses food stamps and Meals on Wheels, McCloud says, "In the evenings, I take all the change in my pocket and put it in a jar."
He also plays an occasional gospel gig to make extra money, but it's not enough. He is hoping to borrow money from a niece to meet this month's mortgage payment. But then there is the next month, and the month after that. Not to mention the broken front steps that need to be fixed, and the shingles that were blown off the roof by a recent wind.
He now acknowledges that buying the house was a mistake - "I blame myself for that" - but says, "Somebody should have explained things to me in detail."
Instead, he says, he was advised by his brokers to pay his taxes and insurance himself rather than put the money into escrow to keep his payments down. That helped lead to his delinquent tax bill, since paid, and the purchase of the tax sale certificate and current foreclosure.
At one point, McCloud hoped to have two sisters who live in Virginia and had never seen his house come up this summer for a barbecue. Now, he worries that the dream, like his dream of homeownership, may evaporate.
"I'm gonna try and work out a plan to sell the house and pay off my debts," he says. "The stress right now is doing more damage than anything."
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Options for help
For homeowners facing foreclosure, struggling to make mortgage payments or having questions about their loans, here are some places to call for help:
The Homeownership Preservation Foundation, a Minneapolis-based nonprofit, maintains a 24-hour hotline at 888-995-4673. Baltimore residents can access the hotline by dialing 311.
The Maryland Department of Labor, Licensing and Regulation has two numbers to take complaints about loans: 1-888-784-0136 and 410-230-6100.
Several neighborhood organizations offer counseling services. Among them are Neighborhood Housing Services, which serves Baltimore and Baltimore County, 410-327-1200; St. Ambrose Housing Aid Center, 410-366-8550; and Belair-Edison Neighborhoods Inc., 410-485-8422.
(runs for 4 days starting today) so I'll probably just let the calls go to my viocemail. I honestly am curious to see if anyone actually calls about it.Anyway you are right, I just need to be patient. Like I said earlier, we have the money to float this as long as we need to, I just dont want to be one of those guys that lost all his profit to holding costs. So I started thinking of ways to unload without losing money or profit. I panicked. Hopefully you're right and I get an offer here in the next month.
You should take this show on the road Mike!!!
You should take this show on the road Mike!!!
I enjoyed it as well.
(runs for 4 days starting today) so I'll probably just let the calls go to my viocemail. I honestly am curious to see if anyone actually calls about it.Anyway you are right, I just need to be patient. Like I said earlier, we have the money to float this as long as we need to, I just dont want to be one of those guys that lost all his profit to holding costs. So I started thinking of ways to unload without losing money or profit. I panicked. Hopefully you're right and I get an offer here in the next month.
(runs for 4 days starting today) so I'll probably just let the calls go to my viocemail. I honestly am curious to see if anyone actually calls about it.Anyway you are right, I just need to be patient. Like I said earlier, we have the money to float this as long as we need to, I just dont want to be one of those guys that lost all his profit to holding costs. So I started thinking of ways to unload without losing money or profit. I panicked. Hopefully you're right and I get an offer here in the next month.
I would move up to 5% down.
Told him I'd get one and give him a call so he could fill it out.
Ok, well have a nice day. During the showing she kept telling me about the people what lost the house to HUD, they were friends. Guess that kind of stuff is to be expected.
