Friday, February 29, 2008

Subprime mortgages & subprime reporting

The Clarion-Ledger published on the front page today a big story on foreclosures in Mississippi by Chris Joyner. It was a worthy attempt at serious journalism but fell short on several points. The article begins with the mandatory mentioning of a true hard-luck story that tugs at your emotions.

Jackson resident Melody Weathersby was one day removed from a hospital stay for congestive heart failure when she got word her house was due to be sold at auction.

It was the latest and most severe in a series of problems with Weathersby's adjustable rate mortgage. "I tried to negotiate, but they wouldn't," she said. "They wouldn't help."..

However, some details about her mortgage emerge later in the story:

"Weathersby, 45, is medically disabled and her fixed income brings in about $1,200 a month. In 2004, she put down $1,000 on a modest, ranch-style house in south Jackson just south of McDowell Road. Her $55,000 mortgage came with an initial payment of $466 a month and was financed by Southstar Lending, a Florida-based firm that specialized in subprime loans.

Beginning in 2005, the interest rate on Weathersby's mortgage adjusted several times. By last spring, the monthly payment on her house had ballooned to $1,300, and she was thousands of dollars behind in payments.
"I didn't know it was going to keep going up when I got it," she said. "It seemed like an oversight because I really didn't know that's what I had. I thought I had a fixed interest rate."

Southstar, which filed for bankruptcy last year, sold the mortgage to Homecomings, a division of GMAC. Weathersby worked with the Neighborhood Assistance Corp. of America, a nonprofit advocate for homeowners, in an attempt to renegotiate her mortgage, to no avail...."

There are several questions in regards to this mortgage.

1. What is the interest rate on this mortgage? Why didn't Mr. Joyner report what her initial and current initial rates were? This is called basic fact-checking. Here is what the reporter SHOULD have obtained: the HUD-1 settlement statement, the Deed of Trust, and the ARM Disclosure which would have been in her closing package.

Even if he didn't have access to these documents, which he should have obtained if writing a story about her dilemma, he should have at least used an online mortgage calculator as I have done. At 7.00%, her payments would have been $359 a month based on a loan amount of $54,000 and a loan term of 30 years. Since she claimed her payment was $446 per month, the interest rate of 9.25% shows a payment of $443 per month. The story did not mention if taxes and insurance were included so it is not clear as to whether the payment included them. If it did, then the principal and interest payment was probably $150-200 less. However, since Mr. Joyner did not report such basic information in his story, I am forced to rely on guesswork in determining the terms of Ms. Weathersby's mortgage.

One CAN state with certainty Ms. Weathersby's payments are NOT $1300 per month based on a $54,000 principal as her interest rate would have to be 29% which is illegal and not done by any mortgage lender. Every ARM has a lifetime cap on how much the rate can increase and there are no ARM's that have 20 point lifetime caps. What is clear is that there are other reasons why Ms. Weathersby is facing a $1300 per month payment as Mr. Joyner neglected to mention any documents supporting this amount. Late payment and other fees may cause the payments to sharply increase but it is impossible payments for her original loan increased so much just because the interest rate alone changed. .

2. Did Ms. Weathersby read her ARM disclosures? Federal law (RESPA, TILA, Regulation Z, etc) requires the lender or mortgage company to have the borrower sign an ARM disclosure within three days after making loan application and another one at closing that states it is an ARM and what the terms are. This is not fine print in a contract buried on page 20 but a one page form with the terms clearly spelled out at the top of the page. The lender is also required to give the borrower an ARM booklet that discusses the pros and cons of using an ARM. As Mr. Joyner failed to report this basic feature of the mortgage industry (and any mortgage professional could have provided him with a copy) one must assume that she did sign an ARM disclosure as the loan could not have been closed without it.

Unfortunately, "Weathersby worked with the Neighborhood Assistance Corp. of America, a nonprofit advocate for homeowners, in an attempt to renegotiate her mortgage, to no avail. "Her house was unaffordable when she went into the loan ... based on her fixed income," said NACA representative Latyrish Gee...". 

So if the loan was unaffordable to begin with, why should Ms. Weathersby be given the house? In fact, the next question is how did she obtain the mortgage in the first place?

As for her income, it is important to note some lenders also "gross-up" retirement and disability income that is tax-free as 125% of its monthly payment as there are no taxes. Ms. Weathersby probably was given credit by the lender for having fixed income of $1,500 per month, not the actual $1,200 per month figure. This would have allowed her to buy a home on her fixed income when in reality, she probably could not afford it.

It is also important to remember that her mortgage, which is not specified by Mr. Joyner, was probably a subprime mortgage. Ms. Weathersby probably had a lower credit score when she bought the house. Once again, this must be assumed as Mr. Joyner failed to report any description of her credit history.

Mr. Joyer reports more information in another hard-luck story about a Mr. Osgood, whose home is being sold after he obtained a subprime ARM:

"This was Osgood's first attempt at home ownership. He got an adjustable rate mortgage 5 1/2 years ago from First Franklin Financial with a monthly note of $496.

Osgood said he knew the rate would adjust, but he never thought it would double.

"You know they aren't going to tell you that, because then you aren't going to buy," he said."

This is another case of a borrower not reading what he signs as the ARM disclosure spells out how much the rate can adjust during the life of the loan. I am willing to bet that there are two signed forms even though he didn't bother to read them.

It is not surprising that Mr. Joyner made so many errors and omissions in his story as he quoted from non profit groups, an economist, the president of the Mortgage Bankers Association, the Commissioner of the Department of Banking, but no one who could actually explain to him the regulations as he avoided getting the basic facts for this story. It is also no surprise that so many Jacksonians obtained subprime mortgages (and they would have gone to finance companies if subprime lending was not available) since the average credit score is 671, which is 20 points below the national average of 692.

What was also left out of the story was a fact published in this blog several weeks ago. Mississippi ranks 46th in the nation in terms of foreclosures. Despite the problems in Hinds County, Mississippi is still doing well during the crisis in the mortgage and financial markets compared to the rest of the country.

Make no mistake, I feel sorry for these borrowers and by all means we should help them as much as possible if they are willing to work through their problems but it is also important to get the facts straight and add some proper perspective to this story.

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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).

Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.

In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS