By JLP | December 7, 2007
Here’s a rather long snippet from a WSJ piece titled How the Subprime Mess Hit Poor Immigrant Groups that was published yesterday. I normally try to keep direct quotes to a minimum. However, this story was too good to pass up. It starts in the middle of the article but you should be able to pick it up rather quickly. It shows two things:
1. People were way too niave in trusting others.
2. Some mortgage brokers were nothing but criminals.
In summer of 2005, Ms. Costa and her husband, Samir Abdelnur, agreed with Mr. Santos to start house hunting. The first thing he did was give Ms. Costa several blank forms to sign, she says.
Mr. Abdelnur, a taxi driver at the time, earned $4,000 a month, twice as much as his wife. But his credit was weaker, so he says that Mr. Santos advised them to buy a house in Ms. Costa’s name. Her FICO credit score at the time was 585, which placed her in the subprime range.
Mr. Santos introduced the couple to Suzel Serafim, a Brazilian real-estate agent. Ms. Costa says Ms. Serafim offered to add Ms. Costa’s name to her personal credit-card account to help boost the buyer’s credit score. When contacted for comment, Ms. Serafim confirmed that she had added Ms. Costa to her credit card. “I helped her,” she said. (A spokesman for the National Association of Realtors, a trade group, says that such a practice amounts to misrepresentation.)
Ms. Costa’s credit report from the time shows her as an authorized user of another person’s credit card.
The couple says they told the agent and loan officer that they could afford a monthly mortgage payment of $3,500. Ms. Serafim and Mr. Santos steered the couple to Contra Costa County, across the bay from San Francisco. Ms. Costa and her husband chose a remodeled single-story, three-bedroom house in the town of Hercules. Mr. Santos said they would get a cash incentive at closing to help pay for repairs and any appliances they needed. Ms. Costa recalls him telling her, “Everyone who buys gets $20,000 back. I did.”
But first, says Ms. Costa, the couple needed to find $5,000 to make a deposit on the house, listed at $688,000. Ms. Costa says she borrowed $3,000 from her father and another $2,000 from Ms. Serafim. Such assistance from a real-estate agent is improper, lawyers say, because it deceives the lender about the borrower’s ability to afford the house.
Ms. Costa says she tried to back out a week later, when Ms. Serafim said they would need to offer more than $700,000 to get the house. But the couple decided to go ahead, says Ms. Costa, because Ms. Serafim said they would lose the deposit.
Mr. Santos handled the mortgage application and never discussed financing options, Ms. Costa says. On the day she was to close escrow, Ms. Costa learned that she would be receiving far less than the $20,000 in cash that Mr. Santos had promised. Ms. Costa says she again wanted to walk away from the deal.
But after a telephone exchange with Mr. Santos, who wasn’t present at the title company’s office, she signed the loan documents. As part of the closing settlement, she was refunded most of her deposit, and she says she also received about $8,000 from the seller for repairs.
The latter payment would later become a contentious point in the lawsuit. In recent sworn testimony, Ms. Costa acknowledged that she had prepared a bogus receipt for repairs in order to get the cash back. She said that the brokers urged her to do so and that she now regrets making the receipt.
Ms. Costa also maintains that no one ever explained to her that she was actually signing on to two loans to cover 100% of the home price: a $570,400 primary mortgage and a $142,600 so-called piggyback loan for the remaining 20% of the house’s price. The primary adjustable-rate mortgage had an initial rate of 7.15% for two years, after which it could eventually rise to as high as 13.65%. Both loans were risky because they entailed huge final installments — so-called balloon payments — totaling nearly $500,000.
Ms. Costa says she didn’t understand the actual costs involved, although she admits she didn’t read all the loan documents. The couple moved into the house in October 2005. They say they ended up spending most of the $8,000 on electrical and plumbing repairs and new appliances such as a refrigerator.
Then the first set of mortgage bills arrived: one for about $3,600 and another for nearly $1,400. The total was almost the equivalent of the couple’s combined monthly income. A property-tax bill followed. “I panicked,” recalls Ms. Costa, who says repeated calls to Mr. Santos went unanswered. At Sunday church services, she says, he avoided the couple. They quit the congregation.
Source: How the Subprime Mess Hit Poor Immigrant Groups, WSJ 12/06/2007
I think the main points we should all take from this story:
1. Listen to that little voice inside your head that’s telling you “NO! DON’T DO IT!”
2. NEVER, sign BLANK documents. I think that should have been the first clue that Mr. Santos was a criminal!