Housing sales slowing down - house-poor Californians - mortgage fraud rampant
Recently I got a junk fax advertising 1% payment mortgages. I called and talked to Mike Clark with “The Mortgage Standard” - apparently an unlicensed outfit running the loans through infamous junk faxer Bridge Capital.
This fax violates just about EVERY California and federal mortgage advertising regulation.
When I asked for more information about the loan program, Mike sent me several pages about this “MTA” mortgage. Unfortunately, it contained no rate, no margin, no adjustment periods, no historical values for the index and not even the CURRENT index.
I called again on Wednesday and I asked Mike Clark numerous times what the current rate for the advertised mortgage is.
Repeatedly he told me that the rate is 1% for three years.
I asked whether there isn’t a margin and negative amortization. I used to be a mortgage broker, I know how loans work. He finally told me that there are TWO rates.
How can a lender charge 2 rates on the same loan at the same time?
It’s simply not possible. Mike Clark was doing his best to hide that the REAL interest rate is much higher than 1%. He finally told me to go to the WaMu website to find the terms for this loan!
He did NOT disclose that the loan comes with a 3 year prepayment penalty until I specifically asked about a prepay.
Thursday I called again and I requested to speak with the broker. I got to talk with Dan, who claimed to be an underwriter. He went through that same spiel “1% for 3 years” and he wanted my personal info (so they could run my credit and lower my credit scores and effectively trap me) before providing me with the loan terms.
I told him about creditsuit.org and that I was researching the loan that was advertised on their fax. I mentioned the many desperate homeowners who write to me about their foreclosures and that obviously many of the people who make these 1% *PAYMENTS* will be unable to sell or refi in 3 years when the loan goes to the fully amortized payment. Apparently there is NO payment increase cap.
Dan ran some numbers for me. According to Dan, and based on the current index (which will most likely go up), a $400K loan will end up with $10K in negative amortization per year. Assuming that’s fairly accurate, the borrowers who make only the minimum payment will owe probably about 10% MORE in 3 years because the index is likely to go up.
This loan program will put many borrowers in foreclosure:
1) 3 year prepayment penalty
2) Balance increased by 10% and maybe even more
3) Monthly payments will increase substantially in 3 years
4) Housing prices may well be LOWER, making it impossible to sell or refi
Inability to refi or sell = foreclosure
Dan was NOT happy about my assessment and especially my complaints about the fax advertisement. This program is actually NOT for people with bad credit, bk, foreclosure, etc. as advertised. When I asked whether the California Department of Real Estate approved the ad and whether they are licensed he became quite angry and eventually hung up on me. I called back a couple of times to get his last name, unsuccessfully. Their # is 888-469-7826 - maybe you can do better.
Dan told me how popular this loan is and I believe it. Even I couldn’t get the terms after numerous requests, many people probably think that the rate is 1% and even if they actually read the disclosures or closing papers, it’s often too late to cancel.
I used to recommend to some clients the negative amortization ARMs tied to the COFI index with a 7.5% annual payment increase cap for the first 5 years and no prepayment penalty. Rates were heading down rather than up. This 1% payment loan is nothing but a foreclosure trap. If borrowers UNDERSTAND how this loan works it might be ok for a very select FEW.
Over the last year I have watched the rates advertised on the junk faxes drop from 1.99% to 1.5% to 1.25% and now 1% “payments.”
There are THOUSANDS of scummy mortgage brokers like Mike Clark and Dan at Bridge Capital. Can you really blame them for taking this opportunity to get rich quick?
How can they get away with their lies and deception?
The governments - both federal and California and probably all states - WANT people to get these loans.
Our rulers will do ANYTHING including PRE-EMPT all laws (without a vote) to get people to refi one more time, to take some more cash out, to buy another overpriced house.
The California Department of Real Estate closed its investigations of my complaints last year about these illegal faxes without taking ANY action. That also includes Experian’s LowerMyBills.com and their illegal ads.
Some articles on the latest housing market news:
WRAPUP 1-U.S. housing sector shows signs of slowing ahead
The NYT: Be Warned: Mr. Bubble’s Worried Again
Signs of the Times with some great pictures of what’s REALLY going on and very interesting statistics:
San Diego
“Inventory of all existing homes for sale in San Diego County reached a 10-year ebb of 2,916 units on March 29, 2004, said Dennis Smith, an Encinitas-based Realtor who has been tracking prices and inventory since 1995. As of Aug. 10, that inventory had risen to 13,204 homes. That rise took place in nearly 18 months.”
Palm Springs
“‘… unsold resale inventory is currently at around 3,452 properties, according to Greg Berkemer, executive vice president of the California Desert Association of Realtors. That figure is up 63 percent from a year ago and is more than twice the 1,400 seen in April 2004.’”
Sacramento:
‘Jim Eggleston, owner of Sacramento’s biggest residential “For Sale” sign installer, predicts this will be his busiest week in 21 years in business. He’s had to hire an extra worker and buy a new delivery truck since his crew planted a one-day record of 225 signs on Monday.’
“… This doesn’t mean the boom is over. But it might be a clue that the housing market is slowing down. ...”
The market hasn’t collapsed yet because the regulators encourage all types of ILLEGAL mortgage advertising.
I *suspect* that the California DRE acts on instructions by Governor Arnold Schwarzenegger.
The ONLY way to slow down the collapse of the housing market is to IGNORE my complaints about the illegal junk faxes and the NUMEROUS and SERIOUS violations of California mortgage advertising laws.
The people who are complaining about lenders’ high appraisals ought to take issue with this concept of serious negative amortization.
It is VERY likely that if someone gets this loan with a high LTV and makes only the minimum payment, they will be UNABLE to sell or refinance in 3 years UNLESS they have the CASH to pay down the mortgage balance.
Between the high cost of fuel, record consumer debt, record bankruptcies, and most jobs requiring mental retardation, [such as at Chase, where employees address consumers as “Dear Palestinian Bomber"]—you can see where things are going.
Thousands apply at first Oakland Wal-Mart
“… Stephen Levy, an economist for the Center for Continuing Study of the California Economy, said the mad rush for Wal-Mart jobs reflects the Bay Area’s slow recovery from the dot-com crash.
“There’s still a lot of people who were put out of work in the last four years who still don’t have a job,” Levy said. “If the rest of the labor market was strong, you wouldn’t have 11, 000 people applying for 400 jobs” at Wal-Mart.
The company, which employs 66,000 people at 150 Wal-Marts in California, offers an average hourly wage in the Bay Area of $10.82. ...”
That’s NOT a living wage.
20% of recent home buyers spend half of pay on mortgages
“August 18, 2005
More Californians are stretching their finances to afford the state’s ever-more-expensive homes, with 20 percent of recent home buyers plowing more than half their monthly income into their mortgages.
These “house-poor” Californians have been a significant contributor to the state’s housing boom, according to a study by the Public Policy Institute of California, a Bay Area nonprofit think tank. ...
... Experts worry that some of these these debt-laden home buyers may be vulnerable if the housing market cools. Already, signs of a slowing market are on the horizon. San Diego’s median home price in June of $496,000 was up just 5.1 percent from a year earlier – the county’s lowest level of appreciation in eight years.
In addition to taking on more debt, some recent buyers have tapped creative mortgages such as interest-only loans to get into a house. In San Diego, 62 percent of home buyers opted for interest-only loans in 2004, according to First American/Loan Performance, a San Francisco mortgage research firm. ...”
Don’t believe the C-21 agents and don’t believe me, do just a LITTLE research and think for yourself before you become the last sucker to buy at current prices in an overpriced market.
Posted by Christine on 08/26/2005 at 02:35 AM
Credit - Collection - Economic News • (2) Comments • Permalink
we had the same concerns, this is how we took it. if you actually go this way not only will you be heard those unscrupolous lenders and originators all scramble with their tails tucked it. pardon my innermost feelings but now we are known. you are more than welcome to join. do so before the next victim suffers. god speed.
This was really nice of you to be faithful & honest in your work. Thank you for stepping out the ordinary & becoming a hero.
