Kathy Moseley thought she got a bargain. Low on cash after a long illness, she had been searching for a way to cut monthly payments on the Essex row house where she and her two children live.
Moseley found what she was looking for in June 2006 when she refinanced her fixed-rate mortgage with a loan that would give her some cash to pay bills but would keep her $726 mortgage payment the same. Now she?s afraid she?ll lose the home.
The mortgage company, she says, never told her about escrow payments excluded from her loan, and she?s three months behind on the mortgage and owes $1,000 in real estate taxes.
That?s before her 8 percent rate is expected to climb to 13 percent and increase her monthly payments by several hundred dollars.
Moseley discovered after the paperwork was signed she had simply traded her fixed-rate loan for an adjustable mortgage on the home she purchased in 2001, and the only way to keep her loan affordable was to discontinue escrow payments that set aside money for taxes and insurance. “I?m worried,” she said. “The rate is going to rise.”
From inner-city Baltimore to the suburbs of the surrounding counties and beyond, the number of foreclosures has soared in Maryland. Easy credit and what seemed like irresistible interest rates have backfired, ballooning and overburdening many with unpayable debt.
“This is certainly one time when the situation can be accurately labeled as a crisis ? not only because of the severity of it, but because it affects what has been the primary source of wealth building in this country: people?s homes,” said economic consultant Anirban Basu, chairman and CEO of Sage Policy Group. “And in the end, people may end up out on the street. It?s very, very bad.”
Statewide statistics show an alarming trend
Nearly 43,000 mortgage loans had become delinquent ? at least 90 days past due ? in the second quarter of 2007, up from 33,000 for the same period the year before, the Maryland Department of Community and Housing Development reported. Since then, experts say, the delinquency rates have grown.
Foreclosuresare up as well, having nearly quadrupled in counties like Prince George?s since the same time last year and doubled statewide to 4.1 percent of all mortgages.
It hit home hard for Kue McIntyre. But she says she has faith the Belair-Edison brick row house now owned by the bank will one day be hers again. The single mother of three children bought the house in 2006 for $125,000. She made no down payment because she got a loan tailored for borrowers with shaky credit.
“I really wanted a place for my children,” McIntyre said. “I was an anxious renter.”
But what seemed like a break turned into an onerous burden a year later, as high monthly payments from the two separate loans ? more than $1,000, not including taxes and insurance, ate up most of her income from two jobs.
And when she lost one of her jobs, as assistant manager at a Sheraton Hotel, she wondered how she?d pay the bills.
“I was struggling,” she said. “If it weren?t for the support of my church, I might have killed myself.”
It took just 14 days from the time she received notice of foreclosure for the house to go on the auction block. It has yet to sell. “I?m trying every day; I want to buy it back,” McIntyre said.
?I?m looking for places to put my things in storage?
Yvonne Walley knows how bad the crisis has gotten. The Clinton resident is preparing for the Jan. 25 auction of her three-bedroom home.
“I?m looking for places to put my things in storage,” she said, sitting in the Prince George?s County office of Acorn, a community activist group that helps distressed homeowners throughout the state.
Walley?s problems started after she refinanced her home to help take care of her three young sons when her husband left her in 1997. Since then, a series of refinancing by the 52-year-old schoolteacher left her with an adjustable-rate mortgage and $2,430 monthly payments.
“The mortgage payment eats up two-thirds of my income,” she said. “I can?t make the payments.”
Living in Prince George?s, one the hardest-hit counties in the state, she has been unable to sell the house that she said was worth $250,000 but may have fallen in value since the crisis hit.
State legislators and Gov. Martin O?Malley say they plan to help homeowners by lengthening the time period a bank must wait before going to foreclosure from the current 15 days.
But Acorn head organizer Stuart Katzenberg said his organization would push more drastic reform during the Maryland General Assembly?s 2008 session, including a package of bills that would require lenders to provide more disclosure on fees and charges, prevent “steering” people into higher-priced loans, and allow consumers to renegotiate loans if they can prove they have been scammed.
“We knew this bubble was going to burst for a long time,” Katzenberg said. “Many of the predatory lending practices that have gone on for years, combined with the overpriced real estate market, have led to disastrous consequence for many homeowners. It?s an industry that is poorly regulated, and I think we see the results.”
Legislative response
Acorn?s legislative package includes putting more of the onus on the lender for making sure the customer is not overextended. One bill, for example, would allow a borrower to amend the loan if the debt-to-equity ratio on a mortgage reached more than 50 percent.
“Mortgage lenders have no real obligations to the consumer,” Katzenberg said, “and they use it to screw people.”
A recent report by Acorn that examined 20 census tracts in the Baltimore metropolitan area estimated the crisis would cost the area $300 million in lost real estate taxes and diminished home values through 2008.
The creativity of mortgage lenders and the lack of legal requirements for disclosure have lead to many financial woes for homeowners, particularly in Baltimore County.
“The county is actually worse in many respects,” said Joe Cox, an organizer for Acorn who works with Baltimore County homeowners in foreclosure. “We have people whose house in worth less than their loan. It?s really tragic.”
Lawsuit targets ?reverse redline?
Baltimore City has filed a lawsuit claiming Wells Fargo Bank engaged in “reverse redlining” ? targeting minority neighborhoods with high-priced loans.
The practice led to a foreclosure rate four times higher in predominantly black neighborhoods than in white ones, the lawsuit charges.
“Reverse redlining has been destroying the progress we?ve been making in his city to build stronger communities,” Mayor Sheila Dixon said. “We?ve lost millions of dollars.”
In a response e-mailed to The Examiner, Wells Fargo spokesman Kevin Waete said: “Race is not a factor in our pricing. We do not tolerate illegal discrimination against or unfair treatment of any consumer. Our loan pricing is based on credit risk. We are committed to serving all customers fairly.”
