Forclosure

   There is a vampire loose in the suburbs of America, sneaking up on hardworking families while their children and pets play in their yards. This vampire often attacks the family where they feel the safest; relaxing at home, at a PTA meeting or even during children's sporting events.

At first, the family is enjoying the good life, normal and content. A new car parked in the driveway, a new deck graces the house or maybe a pool has just been installed in the backyard. Dad and Mom know they work hard and deserve these extras. The vampire told them so. The friendly vampire painted an alluring picture of everything they wanted but felt unable to afford. The vampire explained their home is laden with untapped gold, in the form of equity that is theirs to be used.

This vampire is no stranger knocking at the door. He or she is usually an innocuous friendly neighbor, a Little League coach, or some golf buddy. The vampire hangs out, plays with the kids and might even go shopping with Mom. First this bloodsucker gains their trust, spending a great deal of time chatting about their perceived financial problems. This creature actually slyly sizes them up, encourages spending more time enjoying the good life. The family may be told they deserve to have more fun while they are still young enough to enjoy it. This clever vampire even implies life is passing them by while they work themselves to death.

In the family's defense, there is nothing is quite as persuasive as a trusted friend who says what you would love to believe. This particular breed of vampire is quite often skilled at helping his victim family solve all their problems with loving concern.

Have you been the victim of a vampire? Do you know of others? 

Here is a tell-tale sign ~ the vampire will call himself or herself an investor, works in real estate, or might be a loan "counselor."

This cunning predator plays on their weaknesses, while the family is certain the vampire is their good friend who cares so much about their happiness and well being. Does their home need repairs or remodeling? Has the family been dreaming of starting their own business? Has Mom been secretly yearning for a tummy tuck? Will that snazzy new car get Dad more clients? Do they like to gamble? Sometimes the vampire may actually go out with them to increase their spending. The vampire will first suggest, then convince the family that a loan is the perfect way to tap into the gold mine of their equity.

No one wants to insult a good friend by having a 3rd party check the loan documents the vampire presents to the family as their means to the good things they deserve. After all, this friend only has their best interest at heart, right? The vampire's loan will probably be unexpectedly delayed a few times, after the family has already started spending the anticipated and "guaranteed" money.

Several weeks into the transaction the unfortunate family is all too often told "Sorry, we had to resubmit your loan to a new lender. Your earlier loan somehow fell through or collapsed due to some kind of error." The next step will come when the family is informed the loan rate has gone up and terms are not as favorable. "Never mind! Don't be too concerned," the vampire will reassure the family to take an adjustable loan for the time being. He promises them, "We'll be able to refi within a year with no problem!"

He also claims he will help them get their FICO scores back up. By now the unfortunate victims probably spend more time talking to the vampire and worrying about their loan than working at their jobs. The vampire cheers them up. He keeps reassuring that the loan will be refinanced long before it climbs. Often final loan documents are signed near the end of the day, without being closely looked over, because "After all, they need to be recorded now before the weekend" so that urgently needed check arrives on Monday. 

The artificially induced financial pressure and desperation were cleverly created as part of the loan vampire's gameplan.

The sad facts are that here in one of the world's wealthiest countries profoundly disturbing tales of woe and greed are now revealed to occur at an alarming rate. 

No matter how horrendously the agent and his broker have violated their fiduciary duty to consumers, banks and lenders involved cannot simply forgive these ill-advised adjustable loans without risking the very stability of their institutions.

Some homeowners will have to pay off this debt for decades, others will be forced into bankruptcy. Many millions of families (yes, millions) will actually face imminent loss of their homes. No matter from what prospective we look at this situation, the outcome is grim. In this writer's opinion, the devastating fate of these families is only a symptom of a profound social problem. The root disease lies in a society that endorses self-serving greed and reckless disregard for the well being of others as enlightened self-interest. 

Research shows that the vast majority of sub prime loans are for refinances, rather than purchases and a significant number of predatory practices are linked to refinances. Sub prime loans are usually not the traditional refinance in which homeowners seek to lower their interest rate or lock-in at a fixed rate. Sub prime refinances are most often promoted in order to provide money for home improvements or other household or personal needs.

There are circumstances where refinancing to use some of the equity in one's home makes sense for the borrower, but cash-out refinances are rife with potential for abuse by predatory lenders, and too often homeowners with significant amounts of equity are convinced to refinance under conditions that are not in their best interest. In some cases, homeowners are sold refinance loans which produce just a few thousand dollars in cash-out, but which refinance their existing mortgages at higher rates and with high fees. In other cases, homeowners roll debt that is not secured by their house, such as credit cards or car loans, into a mortgage which is secured by their house. This may provide the homeowner with a short-term reduction in total monthly obligations, although often it does not even accomplish this because of the high interest rates and fees. In addition, cash-out refinances increase the amount of debt tied to the borrower's house, as well as frequently extending the length of the loan and the total amount of payments. And now if a family is unable to make the payment they will lose their house.

Predatory lenders use refinancing as an opportunity to strip homeowners of their equity by financing thousands of dollars in unnecessary fees and costly credit insurance in the loan. They then add insult to injury by including harmful prepayment penalties in these high-interest refinance loans. More than two-thirds of sub prime loans have prepayment penalties, compared to less than 2% of conventional prime loans. It is not uncommon for sub prime lenders to make loans at 12%-14% interest rates with prepayment penalties lasting from three to five years that require the borrower to pay six months interest on the loan as a penalty for refinancing with another lender to get a lower interest rate. On a $100,000 loan at 11% interest, such a penalty would cost a borrower over $5,000.

Approximately 2.2 million homeowners borrowed against their homes between 1998 and 2006 and most have a sub prime mortgage.

Many of these borrowers now face the loss of their homes to foreclosure. Earlier this year, 80% of sub prime home loans, which had fixed rates initially, became adjustable. That is the interest rates jumped higher on either the 25th month or the 37th month. This jump in the monthly payment caused "payment shock" for the affected homeowners. Many times the loan payments increased by as much as 40%. Unable to make these new higher payments, these unfortunate homeowners soon faced foreclosure.

By Catherine Bryan Ibarra

communiversity magazine