July 29, 2007

Trapped by a house
Predatory lending ravages a family

By MICHAEL NOVINSON
of The Chronicle

     Editor’s Note: To preserve confidentiality, the names of the subject and her husband have been changed to Cindy and Bob Stewart

     “We’re at the low end of middle income and we’re living worse than if we were on welfare.”

     This story will end in one of two ways. In one situation, Cindy Stewart keeps her house, saves her marriage, and preserves the dream of owning her own home. In another, the mortgage company forecloses on Cindy’s home and she must find somewhere else to shelter and support her disabled husband and three children.
     This story began in June 2006. Two years out of bankruptcy, Cindy could finally buy a house with zero down payment. She knew she had to act.
“[Prices of] properties were rising so quickly that we were afraid that we would never be able to afford [our own home] if we didn’t go in right now,” she said.
     She visited a local mortgage company. But with a combined gross income of $28,000 and a credit score between 650-680, she didn’t qualify for a loan above $89,000.
     “I know that I can’t find a property in this area for $89,000,” Cindy said.
So her husband Bob went online to Lending Tree and received 40 loan offers. After he spent 10 days going through all the offers, they selected First Omni Mortgage Lending.
     “[The salesperson Tim] seemed like he was going to work the hardest for us, get us the best deal we could get,” Cindy said.
     First Omni prequalified Cindy at $255,000, more than enough to cover the $126,000 three-bedroom, two-bathroom house she planned to purchase. Tim promised the monthly payment would be no more than $900 — expensive, but only $200 more than what Cindy already paid to rent a home.
     She spoke to family and friends, including Bob’s dad, who worked in real estate 30 years ago. Unfortunately, he wasn’t up to date and nobody else offered advice.
     “They just didn’t want to burst our bubble,” Cindy said.
Looking back, Cindy realizes that everything was too good to be true.
     “[Tim] would answer your questions in an evasive sort of way where you felt that you were getting your questions answered, but they were really just ... smoothing things over,” she said. “We didn’t know any better.”

     Trouble first arose with the good faith estimate, a document that outlines all the charges and fees due at closing.
     Cindy had to ask First Omni for the good faith estimate several times. When she finally received it, the information was based on her prequalification amount of $255,000, not the actual loan of $126,000. Therefore, Cindy did not know the actual costs for her loan.
     “All of the information for the good faith estimate which they told me I had to sign was inaccurate, but without signing it, they couldn’t help me any further,” she said.
     Tim told her not to worry.
     “He was saying, ’Well, all this is is that we’re disclosing this information and this is what we have to do, but it’s okay that the information is not correct because we’re not going to use that. It’s not a valid contract.’”
     As the signing day neared, the interest rate continued to rise.
In the 24 hours prior to signing in July 2006, the interest rate jumped 1.5 percent, increasing monthly payments by $150, while the adjustable rate period (the time during which interests rate can change) increased from two to three years, both without any explanation.
     Tim did not mention either of these changes during a 15-minute phone conversation on the signing day. Cindy and Bob caught the changes while Ameritile, the title insurer, was going over the paperwork.
     “By that point, we were in the signing, had started signing paperwork, and it was just like, ’Oh, okay, I guess we’re going to have to learn how to deal with it,’” Cindy said.
     By February 2007, the interest rate was 11.5 percent and the monthly payment was $1,189.
     “Yes, we could have backed out, but we weren’t sure exactly what we were getting ourselves into,” she said. “We thought we were sure, but we weren’t.”

     The surprises continued after the signing. Cindy learned that taxes and insurance were not included in the mortgage payment.
     “It was one of those issues that was skimmed over,” she said.
     Then, within 30 days of the signing, First Omni sold her mortgage.
“That was a shock,” Cindy said. “At that point, who do I run to? Where’s my guy? My guy’s not there.”
     The mortgage was sold another time or two before ending up with HSBC.
     “HSBC, I must admit, has worked really hard to help us out,” she said.
     However, when Cindy asked HSBC about a prepayment penalty (a charge imposed by the lender if Cindy was to pay off the loan early, refinance, or sell the property), they told her it would cost $13,000. At the time of the signing, First Omni said the prepayment penalty would be 1-2 percent of the total loan — or about $1,890.

     Christmas 2006 brought sorrow, not joy, for Cindy.
     “I am a huge giver,” she said. “I love to give to people.”
     However, all she could afford were gifts for her three kids: an adult son, a preteen daughter, and a 2-year-old son. Cindy’s parents only received an e-mail card.
     “Christmas this year was the saddest Christmas I’ve ever had in my life,” she said.
     In February, Cindy and Bob separated because of the stress from buying the home and not having any money. Bob moved in with his parents. For the first time, Cindy couldn’t make the mortgage payment.
     “We had had it,” Cindy said. “We couldn’t stand each other, didn’t want to talk to each other, couldn’t talk nice to each other, couldn’t respect each other. Nothing.”
     However, a toddler doesn’t understand not having his father at home. “[He] was going, ’Where’s daddy? Why isn’t daddy here?’”
     The preteen started bouncing between the two houses, then the toddler, and later, her adult son stopped by. Cindy needed his help.
     “The kid makes minimum wage and it’s pretty humiliating to ask him, ’Can I borrow $100 so I don’t get bounce check fees?’”
     McDonalds became a luxury. Cindy couldn’t afford it for months, and when she could take the kids, they could only order from the dollar menu. Cindy’s daughter couldn’t understand why they didn’t have money anymore.
     “Why can’t we go to McDonalds?” she’d ask her mother. “It’s a cheap place to eat, Mom. Why can’t we have the Happy Meal? Why do we have to have the hamburger?”
     Entertainment was Grandma’s house and the library when it was cool and the park when it was warm.
     “You try to hide it, you try not to show it, you try to make everything good, but the house was full of tension and stress,” Cindy said.

     Cindy contacted HSBC in February, which now held her mortgage. She realized she couldn’t afford the $13,000 prepayment penalty needed to refinance the loan.
     HSBC offered to put Cindy on a 6-month program which would give her an opportunity to sell the property. However, it required one more monthly payment, which Cindy couldn’t make.
     In order to get $1,189 for that payment, Cindy took out payday loans (small, short-term loans intended to cover urgent expenses). She received two online payday loans and another payday loan from a local office, totaling $1,200.
     “I needed milk for my son and food for my kids,” she said.
     Cindy was too embarrassed to ask family members or friends for help.
“I know that my parents are both disabled and on social security and they’re elderly and they didn’t have it,” she said. “I wasn’t about to go to coworkers or friends. That was just too humiliating.”
     When Cindy received her payday loans, she had to pay $300-$400 in interest every two weeks on her payday. On her fourth payday, Cindy would pay back the entire amount of the loan.
     Cindy finally rid herself of all three payday loans on July 15. In five months, she paid back $2,560 for $1,200 in loans.
      Putting food on the table became a challenge.
     “No matter how bad I didn’t want to ask for help before, I’ve been forced to ask for help now,” Cindy said.
     Cindy fed herself and her kids with meals from the food bank, food from friends, and dinners with relatives. Her friends chipped in a little cash.
     Since Cindy works outside the home and Bob is disabled, they used to send their 2-year-old to day care. Not anymore. Cindy’s 70-year-old in-laws now watch her son during the day.
     Cindy discarded her cell phone and did without TV for six weeks until a neighbor offered to pay the dish network bill.
     On one occasion, Cindy had a major utility turned off. Luckily, that same day, she recieved a check from a family member that just covered the bill.
In early May, Cindy was forced to take a stand.
     “You make a choice after a while that your kids deserve to have food in the house. They don’t have to have steak once a week, they don’t have to have steak once a month, but they do deserve to have their basic nutritional needs met,” she said. “I don’t care if we were living on the streets, if they took my car back; my kids were going to eat.”
     Cindy took her new bills and stuffed them into a drawer, knowing she’d pay them once she could. The situation was so absurd that it became humorous.
     “It’s gotten to the point that it has turned comical,” Cindy said.
     She found it better to laugh than to cry.
     “With your kids in the house, you have to make it okay for them,” she said. “Your two-year-old wants to play with you. He doesn’t care that you can’t pay your bills.”
     Cindy admits that, at times, her kids have been the only thing that have kept her going.
     “There are days that I don’t want to get out of bed, but my kids won’t let me stay in bed.”
      In late May, Cindy and Bob got back together. Neither wanted high bills or a bad decision to destroy 15 years of marriage.
     Bob moved back with the family. He still spends three nights a week with his parents, but their 2-year-old is over there for day care anyway, so he helps his parents watch the child.
     “We still have issues,” Cindy said. “Every marriage has issues and we had issues before all of this.”
     Cindy contacted the local Housing and Urban Development (HUD) office in early June, who referred her to John Hutchison at the Mid-Columbia Housing Resource Center.
     “They’re about the only people that really didn’t just shut the door in our faces,” Cindy said.
     John told her to look into the United States Department of Agriculture’s (USDA) rural housing programs.
     “He said, ’Contact them. I don’t know if they can help you but they may have more ideas than I have.’”
     Cindy said that the USDA is working outside its normal role to help her and can tell her “no” at any time during the process.
     “I really have no expectations,” Cindy said. “I’m hopeful, but I’ve pretty much ... resigned myself to the fact that I’m going to lose my house and everything.”
The USDA prequalified Cindy for a $170,000 loan at 4% interest, which would bring her monthly payment down to $780.
     Cindy’s First Omni loan was for $126,000. Insurance and the prepayment penalty would bring the payoff quote to $133,000. Improvements needed to bring the house up to USDA code would probably cost $30,000-$40,000.
     Cindy submitted her application for the USDA loan June 25. She is still waiting for a response.
     If the USDA accepts the application, her battle still isn’t over. The USDA must then determine whether the prospective appraisal value for the upgraded home would support a loan to cover both the mortgage and needed improvements. The house must also pass USDA inspection after remodeling.
If the USDA rejects her application, the outcome is simple.
     “They will foreclose on the house [and] we’ll lose the house.”
      Cindy said the past year has been the worst of her life.
     “We’re at the low end of middle income and we’re living worse than if we were on welfare,” she said. “I was on welfare 21 years ago for about a year when I had my first kid: single mom, on my own, 18, and I lived better then.”
     She’s angry at First Omni, but she understands that their employees have mortgages to pay as well.
     “[Although] I kind of blame him [Tim], I don’t hold it against him because he was doing his job and trying to make a living to feed his family too,” Cindy said. “I just wish there were better laws out there to safeguard the average person.”
Ultimately, Cindy takes responsibility for the situation.
     “We’re middle aged, we should have known better...should have been smarter, should have gotten more educated.”
     She stresses that one can never know too much when entering the housing market.
     “With me thinking that I had educated myself and done all of this research and looked into things and talked to people, I didn’t have a clue,” she said.      “When it actually came down to it, I didn’t have a clue.”