One More Unbelievable Story About the Subrime Mess

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!

13 thoughts on “One More Unbelievable Story About the Subrime Mess”

  1. You are coreect in these two points:
    1. People were way too niave in trusting others.

    2. Some mortgage brokers were nothing but criminals.

  2. hmmm…

    1. Doesn’t seem like the banks took much control over the requirements for someone to broker a loan.

    2. Seems like someone didn’t do their own math about what they could afford. First, if you’re making $6k a month as a family… you CAN NOT afford the $3,600 mortgage payment they told the broker.

  3. Sad story, but these people are the perfect example of why there should not be a rate freeze or government assistance for the sub-prime mess. These people couldn’t afford that house no matter how low the interest rate (even 0%).

    What happened to personal responsibility?

  4. That’s one of the tragic parts of the subprime mortgage crisis. People with less financial experience and education (I expect certain immigrant groups would be particularly vulnerable, since they’re still getting used to all the hoops of being in the US) are vulnerable to those who appear to have their best interests at heart but are actually scamming them. I wish there was some way to help…I don’t think the bailout will do it.

  5. The real crime here is that not only were immigrant criminals preying on their own, but this couple did not consult someone in their community or church to help them understand what they were doing or what they should do. They relied on these so-called professionals to walk them through the process.

    Rule-of-thumb for anybody getting involved in something they have no experience in, consult someone they trust that has no interest in what they are doing for an opinion.

  6. How many red flags can people ignore?

    Her FICO was 585 and it was higher than his?

    I suppose the realtor’s commission would easily cover it, but I have to wonder if there was some additional kickback that made the realtor willing to make personal loans to the buyers (who she had to know would never be able to pay her back). Maybe there was $20,000 back at closing, it just didn’t make it to the buyers?

    There are so many things wrong on so many levels. I’m not sure whether to feel bad for them, since they were obviously conned; or to think they deserve it, since they were so OBVIOUSLY conned.

  7. I live on less than $500 a month after paying rent. Surely if I made $6K a month I’d be able to afford a $3,600 house payment.

    p.s. why doesn’t PASTE work here???

  8. Minimum Wage said:

    “p.s. why doesn’t PASTE work here???”

    I wasn’t aware that there was a problem.

    Has anyone else had a problem pasting stuff into comments?

  9. It certainly seems like they shouldn’t have qualified for a mortgage, but it’s only obvious if you already know that 585 is a low score. If you don’t understand how things work then it’s personal responsibility is a meaningless concept.

    People get obviously conned all the time because they are out of their depth and in this case, they were relying on people they know through church to treat them properly.

  10. Normally, I use Firefox, but Firefox causes WordPress to choke (“Error: This file cannot be used on its own”) so I end up using my crummy $9.85 AOL browser to post here, and normally the cut-and-paste works but here only the cut works and I can’t paste.

    p.s. my FICO is probably lower than 585 (two of my CRA scores are lower, one is higher) and there is little I can do to improve it.

  11. Really ?

    They are all trapped in the same boat.
    I am a Brazilian. And I did not fall for that,
    I chose not to.

    Then they go around saying “you havent gotten anywhere since you got in America”, “you havent bought anything”, you just spent all your money in taxes … It took some time, but look at this mess now …

    Whos the looser ?

    As for me, I’ll spending my money
    in real American issues…These people are giving me and others, a bad name …

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