The New York Times published a long story last week on the sub-prime mortgage “crisis”. Can the Mortgage Crisis Swallow a Town? - New York Times. As I read through it, there were a few points that jumped out at me.
One of those loans belonged to Audrey Sweet, a Maple Heights resident and a first-time home buyer who borrowed $118,000 from Countrywide in late 2004 without putting any money down. Because of Mrs. Sweet’s poor credit history and lack of assets, the adjustable loan’s rate was 10.25 percent, but she says she was told that if the couple “just proved themselves,” they could quickly refinance at a lower rate.
Mrs. Sweet says Countrywide advised her that the monthly property tax bill would be $100, but it turned out to be $230 and the Sweets quickly fell behind. Countrywide stepped in and paid $3,493 in back taxes in March 2007, and the next month raised the Sweets’ monthly mortgage bill to $1,713 from $1,055.
That was far beyond the budget of the couple, so … working with a local lender, Third Federal Savings and Loan, the Sweets managed to refinance the loan at a fixed rate of 7.2 percent, and the original $1,055 monthly payment now covers the property taxes the Sweets couldn’t afford before.
Notice the main points of this little sob story. The Sweets did not put any money down on their house. In effect, they were on a rent-to-own plan with their house. Even if they had defaulted on the mortgage, they would not have lost any money — they never put any down in the first place. They were only making monthly payments, no different from paying monthly rent.
Note also that the couple had a poor credit history and no assets. Countrywide took a big risk in loaning money to them. For this, Countrywide is demonized throughout the article. (What a great way to encourage companies to take risks!)
It is also clear that the Sweets bear some responsibility for their predicament. “I do blame myself a little bit,” Mrs. Sweet acknowledges. “I feel dumb.” She explains that she was focused on the monthly payment when she borrowed from Countrywide, not the interest rate or taxes due. “Once we got the loan documents at the closing, I just came home and stuck them in a drawer.”
Wow. Just … wow. I just took out a mortgage recently. I know for a fact that you have to sign a stack of documents that state in very plain language exactly what your monthly payment covers and exactly what the terms of the loan are. The Sweets don’t just bear “some responsibility” for their predicament. They bear all of it. They signed the paperwork, the saw the terms, they chose to ignore the terms. End of story.
They had a lender give them a chance, even though previous evidence (and this story!) shows that Countrywide was taking a huge risk. They very nearly threw that chance away.
[Mr. Stefanski, CEO of Third Federal Savings and Loan] never offered no-money-down loans, piggyback mortgages, exploding adjustable-rate mortgages or the other financial exotica that ultimately tripped up the Sweets and millions like them.
[Mr. Stefanski] does not hide his feelings about just what went wrong in places like Maple Heights. “The whole system was based on raping the public,” he says, matter-of-factly. “Not everyone should own a home — just those who can afford it.”
Mr. Stefanski is just dead wrong. The system was not out to “rape the public”. Indeed, I find it hard to see how someone can “rape” another person by giving them free money and risking not getting any of it back. How, exactly, does the lender make out in that situation? If any “raping” is going on, it seems to be that the borrower is raping the lender.
Secondly, Mr. Stefanski’s attitude is 100% discriminatory. He only favors giving loans (and taking chances) on borrowers who are supremely well qualified and well-off. In other words, existing middle-class Americans. If everyone had the attitude he did, no one would ever move up from the low-income ranks to the middle-income ranks.
I’m grateful that lenders across the country chose to take risks on low-income, high-risk borrowers. Many people proved unable to handle those loans. Many other people were able to get ahead, thanks to those loans. I’d rather focus on the people that got ahead instead of shutting down lenders because of the people that didn’t. Wouldn’t you?
4 Comments
Joe Martin - I really wish that you would eductae yourself before reading a few columns in a newspaper and thinking that you have figured out the worlds problems. Countrywide forged my loan documents, they lied about the tax amount and my income to get the loan approved then gave me a different set to sign, they broke the law. That is why I was invited to testify before congress regarding my situation. The proof of what they did is in black and white. Because of my interest rate I had already paid back 27% of the amount I was loaned in a mere 30 months. I do understand that they had planned to make a ton of money off of me and my heart breaks when I realize they will not be able to foreclose on me and resell my house to the next unsuspecting victim. However, they had to take the loss - that is what criminals do when they are caught - they get out of it any way they can. Also, Mr. Stefanski does not only give loans to “supremely well qualified well-off Americans” I know this because I refinanced with Third Federal and was able to do that because of an educational program in his banking institution. I am saddened by your post because it illustrates to me what I believe is wrong with this country. You seem to only see your world and your circumstances. The world is bigger han you and they are plenty of things going on out here - OPEN YOUR EYES.
Mrs. Sweet,
I’m a little dubious as to the claim that Countrywide “forged” your loan documents. Even if they’d given you a paper that says your future children belong to them, that’s not forgery - that’s just something else you should’ve looked at before you signed.
I’d be interested in hearing about this “educational program” of Mr. Stefanski’s, though. What exactly did you learn from it that ostensibly makes you an acceptable credit risk to him?
Mr. Volle - As I stated above Countrywide broke the law in the way that they handled my loan. Countrywide has perfected this practice and that is why they are in the trouble they are in now. They are criminals and wether you doubt it or not does not change that fact. Do you work for Countrywide or do you have some odd infatuation for them or their business practices?
If you are truly interested in the educational program offered by Third Federal call them and inquire or google it. I find your tone (as well as Mr. Martins) demeaning and completely unnecessary. Why would you enter into a website accusing people you do not know of being liars or irresponsible?
I am just guessing - but you voted for “George dubya” didnt you?
Nope, didn’t vote for him.
Made $500 off him once (no kiddin’ - those election campaigns pay good dough), but never voted for him.
No Countrywide ties either, though I admit to having a slight infatuation with the free market and business practices in general; I find them interesting.
As far as the illegality of Countrywide’s practices are concerned, “illegal” does not necessarily “unfair”-make, which is why I’m still rather dubious.
Take “price-gouging”: if I own something (like a store full of goods), I should be able to sell them for anything I please, right? That’s freedom. But if I up the price when I know I can get more money for them, I get in trouble with the government.
In the same way, I’m wary of saying Countrywide actually did anything wrong here - shady and not-stand-up-ish, maybe, as Martin points out in the new article today - I’m certainly not dealing with them after hearing all this - but not totally wrong.
As far as why we’d write about someone lying (which we’re not saying you did - we’re just saying you were irresponsible), isn’t that what you did before the Senate - accused a whole bunch of people at Countrywide of being a bunch of crooks?
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