Smart Borrower Blog

The Real Face Of Subprime?


Jul 5th, 2008 @ 6:03 PM by Alden Smith


I read with interest today about a woman living in Altoona, Pa. This woman, Vicki Miller, had bought her childhood home from her mother’s estate for $32K.  No matter how you look at it, $32K isn’t a whole lot of money these days.  Ms. Miller now is looking at her debt doubled; her once-significant equity has shrunk to zero. And she is now behind on payment.  She is being threatened by her lender for foreclosure as this is written.

You have to wonder why a woman with a modest income could not manage the payments on a $32K loan.  Although there are determining factors, such as needed repairs because her mother couldn’t keep up the house, the reality is that Ms. Miller was persuaded to refinance her mortgage twice into sub-prime loans she didn’t really understand.  To top it all off, she took out a second mortgage on the home to fix the roof.

Pundits will say Ms. Miller only got what she deserved, and that it is her responsibility to insure that her finances are in order.  Although I agree to a certain extent, I find that if one digs deeper they find that people such as Ms. Miller are taken advantage of by unethical lenders.  What she now faces reflects what experts say is the true face of the sub-prime mortgage debacle.

We always hear that it has been greed or over extension of finances that have put people in these positions of subprime foolery, yet experts agree – 90% of people who took out sub-prime loans from 1998 to 2006 were already homeowners.  People with good, solid conventional loans got themselves in deep when they refinanced and were taken advantage of by unscrupulous lenders that did not fully disclose to borrowers what they were really getting into.

Legislators are concerned about giving aid to greedy or careless home mortgage borrowers, yet the truth of the matter is this – lawyers for many of these people say few of them were trying to finance outrageous lifestyles.  And that makes the whole thing so troublesome.  After a loan provider hooks a person into a non-transparent loan that will put the borrower under when reset comes around, the loan is bundled and sold and investors take control.  You cannot sort out the good apples from the bad in a situation like that, so it makes the whole case scenario a difficult – almost impossible – situation to sort out.

There were two great culprits in Miller’s troubles – Ameriquest and Countrywide.  Miller believed that her new mortgage would be a fixed-rate mortgage at 7.5% interest. Records show it was an adjustable-rate mortgage with an 8.9% interest rate.
Whenever she received an invoice from Countrywide, who now held her loan, she was urged to refinance.  It was made so easy for her that she did so, with the results she faces today. Her monthly payments reached $700 – about half of her monthly income.  When heating bills reached levels of $3,000 last winter, she then fell behind on her mortgage payments.  Countrywide’s advice to Miller?  Refinance.  Raise the payment to $1,165. Call it a “loan modification.”

Miller, now in dire straits, is facing foreclosure.  When she receives an invoice she is told that refinancing is an option.  Yet calls to Countrywide go unanswered.  Another one bites the dust…

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