Posted on 10/01/2007 10:21:59 AM PDT by 2banana
Mortgages set up to fail Hub crisis fueled by scams, unprepared buyers By Scott Van Voorhis Monday, October 1, 2007 - Updated 12h ago
Many Boston homeowners now facing foreclosure bought their properties less than a year ago, a Herald review found, raising questions as to the legitimacy of many of those sales.
About 1,770 Boston residents were handed foreclosure notices by their lender over the past year, a wave of distress that has slammed heavily into the city’s poorer neighborhoods.
More than a third of those homeowners received notices just months after buying their homes, statistics compiled by local housing researcher John Anderson show.
The rapid default rate points to the likelihood that many of those deals were simply sham transactions that enabled developers and brokers to cash in on phony sales.
“One of the complaints that is increasingly prevalent is that so-called straw buyers engage in fraudulent transactions designed, in one form or another, to strip equity from a property,” said Amie Breton, a spokeswoman for Attorney General Martha Coakley.
In such deals, the buyers, if they exist, are simply stand-ins, enabling builders to unload units at handsome prices and brokers to pocket hefty sales commissions.
Anderson, who does appraisals for banks looking to auction off foreclosed homes in Dorchester, Roxbury and other neighborhoods, reports frequently finding units in converted triple-deckers or other newly opened condo projects that appear never to have been lived in.
“These mortgages were bad even before the ink dried on the mortgage application,” Anderson said.
Coakley’s office has begun to take aim at straw buyers.
Coakley recently filed charges against a scheme that used straw buyers to obtain inflated mortgages through phony sales of homes in Boston, Brockton and other cities. The perpetrators were able to walk away with the equity created, sometimes hundreds of thousands of dollars.
Meanwhile, scammers targeted some homeowners after they fell into foreclosure, convincing them to turn over the title to their homes.
“We have received numerous complaints in recent months from an array of sources, including attorneys, housing and legal advocacy organizations and local officials and police departments, seeking to highlight suspicious lending activity they have seen in their areas,” said Breton of the AG’s office in a statement.
Of the 1,770 Boston homeowners who were handed foreclosure notices in the year ending Aug. 16, 627 had mortgages that were less than a year old, according to Anderson.
City Hall, which tracks foreclosures, offers a similar number.
Many of those transactions may have simply involved financially naive buyers who were lured into hefty mortgages, say housing activists and foreclosure counselors.
Jennifer Stone is one of those buyers, claiming she was duped into taking out an expensive, high-interest mortgage she couldn’t afford to pay. She is now facing foreclosure after buying a $480,000 two-family home last spring in Dorchester.
A hospital worker with three children, she decided to drop out of the Section 8 rental subsidy program and become a homeowner after attending a seminar at a Dorchester church.
But Stone’s dream turned bitter the day of the closing, when she was told the $2,500-a-month payment she and her partner were promised, turned out instead to be close to $4,000.
“It’s kind of like feeling you have lost everything,” Stone said.
Stone, who is now racing to sell her Dorchester two-family before it is foreclosed on, qualified for a $480,000 mortgage.
On one of her two loan applications for a smaller, second loan, her income, and that of her partner, Sarina, is listed at well over $100,000.
Yet the two women’s income, combined, comes out to just over $66,000 a year, not nearly enough to support such a mortgage, experts say.
Pat Canavan, housing advisor to Mayor Thomas M. Menino, says “Unfortunately, there are 40 percent of people we see that never should have bought and can’t sustain homeownership.”
“They should rent,” Canavan said.
Subprime mortgage companies, which during the recent real estate boom offered easy-to-get loans requiring no hard proof of a buyer’s actual income, have helped fuel the foreclosure crisis, housing experts say.
In Boston, foreclosures are heavily concentrated in Roxbury, Dorchester, Mattapan and Hyde Park - all hotbeds of activity for high-interest rate, subprime lenders who target homebuyers with bad credit.
Foreclosure filings, by contrast, are still few and far between in upscale neighborhoods like the Back Bay, downtown or the South End, where subprime mortgages are far less common.
But also behind the foreclosures hitting Boston neighborhoods are a legion of builders and mortgage brokers specializing in renovating triple-deckers and multifamily buildings and selling them - sometimes at big markups - to first-time buyers of modest means.
Many of these homeowners were lured into supersized mortgages they could not afford, activists and city officials say.
But Stone’s dream turned bitter the day of the closing, when she was told the $2,500-a-month payment she and her partner were promised, turned out instead to be close to $4,000.
“It’s kind of like feeling you have lost everything,” Stone said.
That must have been one heck of a seminar. Seriously - this sums of what is wrong with America and the housing industry in a nutshell...
And - Will she be able to get her Section 8 housing back? I feel so sorry for her...
You got to be kidding section 8 buying a $480K house....if that doesn't have Mortgage FRAUD in big red letters written all over it. Jennifer was looking for MORE FREE MONEY,section 8 wasn't enough, so i wonder if she bought new clothes or has a new car, Plasma tv, Computer, or was she really that clueless when she signed the papers? Will anyone investigate this?
while I don’t think every homeowner who falls into forclosure should be called a moron, but what made them think they could afford $2500/mo, much less $4000?
how do you go from rent subdidized, to buying a half a million dollar house, and for that matter, why is a “couple” making 66k getting susidies anyway? why should the govt pay for these lesbians to raise three kids? (did she switch to women after getting knocked up the 3rd time?
Here’s a good one for you: According to a recent survey by Bankrate.com, 34-percent of respondents DID NOT KNOW what kind of a mortgage they had.
No joke.
How is this possible? Stupidity? Chicanery?
Stupid is as stupid does.
No.
and if not why not?
The government hadn't given them one.
And like what, she lost the down payment? Not.
And what with her new Mommy Mommy partner, can not one of them get a second job? That would be another $20K/yr plus, plus they have a rental unit, so there is another 15K for a total gross sum of $100K/yr....and you want to pick up her tab?
The fact is, a lot of our economy is dependent on people being stupid.
Uh...I think if I sat down to sign a contract for a $2,500/month payment and, at the closing, the payment was almost $4,000, I'd probably not sign. This isn't even the level of the people who got adjustable-rate mortgages and somehow didn't think about the fact they could adjust. This sounds like they knew when they signed the papers that it would be impossible for them to make the payments, and they signed them anyway. Of course...
On one of her two loan applications for a smaller, second loan, her income, and that of her partner, Sarina, is listed at well over $100,000.
Yet the two women’s income, combined, comes out to just over $66,000 a year, not nearly enough to support such a mortgage, experts say.
...Considering that they committed fraud just to get the mortgage, it's not surprising that they were willing to sign a contract they knew they couldn't uphold. I also like how the article uses the passive: "is listed at well over $100,000." As though the forms filled themselves out with false information.
This current shake up in the mortgage industry will be good for everyone in the long run. And right now, assuming you have good credit and can actually afford to buy a house which should have been required all along, is a buyer's market.
If the buyer doesn’t have the full amount to purchase a house then they have to apply for a mortgage loan to be able to buy the house. What credible lending institution is going to give an unwed mother of 3, who probably cleans restrooms at a hospital a MORTGAGE FOR $480,000 ???
These people never owned a home...the bank owned a home.
The fact is, a lot of our economy is dependent on people being stupid.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
http://www.youtube.com/watch?v=l4Mjnzqi5gs
According to Jackie Mason the future of Starbucks depends entirely on stupidity.
Golly gee, whatever shall we do? Perhaps Hitlery will suggest that the government fund every mortgage!
It’s tight, but $66,000 a year is enough to cover a $2500 a month payment. That leaves $36,000 for expenses, if you assume that they will end up not paying any taxes (likely with 3 kids — also, unless they got “married” (this is boston, right?) they are probably both below the line to pay, and might even be getting tax credits back.
Apparently she didn’t know that if they get the monthly payment wrong, you can walk out of the deal.
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