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Feb 9, 2008

Walls closing in on homeowners
Foreclosures show creative financing is coming back to haunt market
Last updated March 16, 2007 11:15 p.m. PT
Devaney White
Devaney White has lived in her Central District home since 1981. Repeated refinancings have boosted what she owes from $35,000 to $382,500, her lawyer says.

Walls closing in on homeowners
Foreclosures show creative financing is coming back to haunt market


Devaney White kept getting offers to lower her mortgage payment.

"They sent me letters," she recalled. "They showed up and came in. They called me on the phone."

And White kept buying it, refinancing her home or taking out a second mortgage on it 10 times between 1998 and 2005 -- boosting the amount she owed from $35,000 to $382,500, according to a complaint her lawyer filed as part of her bankruptcy proceedings.

White, a 78-year-old Boeing janitor who has owned her home since 1981, sat in her living room Wednesday below a portrait of one of her sons in a U.S. Marines uniform. Two of her other three sons were in the Army and her husband served in the Navy for more than two decades. White now supports two sons and a grandson, who all live in her modest house.

Her lawyer, Melissa Huelsman, said it took months to piece together loan documents -- and she still doesn't know everything.

According to White's complaint, some mortgages came months after previous loans and, in June 2002, she signed up for two mortgages in three days; the second was rescinded when an escrow agent noticed.

Some of the money went for a new roof and to pay off credit card debt, much of which stemmed from her husband's illness before he died in 1997. But tens of thousands of dollars went to fees and prepayment penalties, according to her complaint.

"My mortgage kept on going up," White said.A big problem
White is part of a growing trend, which may be bad news for the economy in general, buyers and homeowners.

Last year, there were 41 percent more foreclosures in King County and 42 percent more nationally than in 2005, and the number could get higher, according to RealtyTrac data.

The reason? Wall Street investors poured money into the booming housing market in recent years and lenders found increasingly creative ways to get it to borrowers -- mortgages with adjustable rates, or ARMs, mortgages with an artificially low "teaser" payment, loans made without verifying borrowers' incomes -- particularly using subprime mortgages, which are more expensive loans for those with poor credit, and in markets where prices rose faster than paychecks.

About 20 percent of Seattle mortgages had adjustable rates in 2004, according to the most recent U.S. Census Bureau numbers. A Monday report from the Center for American Progress, a left-leaning think tank in Washington, D.C., said subprime loans made up 17 to 18 percent of U.S. mortgages issued in 2006 and 13 percent of all outstanding U.S. mortgages.

"There are huge numbers of people in foreclosure because of being in ARMs or being put into loans that are completely inappropriate for them," said Huelsman, who specializes in foreclosures.

Although ARMs are the biggest problem in Seattle, she said, she expected more problems with interest-only loans, which became popular only in the past couple of years.

Those most vulnerable are people like White, who were talked into a series of ever-more-expensive loans, and others who could only barely afford their initial payments.

When home prices increased by double-digit percentages in the past few years, owners could refinance or at least sell for more than they owed. That's changing.

The non-partisan Center for Responsible Lending in Durham, N.C., projected in December that nearly one in five subprime mortgages issued in the past two years would end in foreclosure, up from one in 10 issued in 2002.

Part of the problem, said Erin Rearden, a mortgage default counselor with the Seattle non-profit Solid Ground, is that many borrowers don't understand their loans.

"A surprising number of people don't even know if they have an adjustable-rate mortgage or a fixed, or don't even know what their interest rate is," she said.

The number of foreclosures Rearden sees is relatively stable, but those in trouble seem to be in deeper, she said. "What we're seeing now is people who have permanent reduction in their income or no income. They're six, seven, eight months behind."

Just about everyone has refinanced to take equity out of their homes, she said.Hitting Wall Street

Foreclosures cost borrowers their homes and ruin their credit, but that's not why they're making news, Huelsman said. "You're seeing it because it's hitting Wall Street."

Investors were happy until recent months, when more and more loans started going bad. Now, some lenders are failing and others are scaling back subprime lending. Earlier this month, five federal financial regulatory agencies urged subprime lenders to better ensure borrowers were informed and could afford payments.

White got loans through some of the biggest names in mortgage lending and banking, including New Century, Ameriquest, Accredited Home Lenders, Washington Mutual, Chase and CitiFinancial, according to her complaint.

Most companies named in the complaint declined to comment or did not reply to requests for comment. A Citi spokesman said in a written reply that White's loan had a fixed rate that was not expensive and would have fallen under Citi guidelines, including verification of income and ability to pay.

Mike Fratantoni, senior director of single-family research and economics for the Mortgage Bankers Association, said in a January report that he expected "some modest increases" in delinquency and foreclosures nationally, but rising values would protect borrowers and the market.

The increase in foreclosures wouldn't be enough to soften Seattle's market, thanks in large part to area job growth, said Adam Stein, president of the Washington Association of Mortgage Brokers. He added that many Seattle homeowners still have significant equity.

But Huelsman expects things to get much worse.

"Wall Street is definitely downplaying how bad it's going to be," she said.

Wider fallout
Tuesday revealed the potential for bad loans to drag down the wider economy, when new data on surging home foreclosures helped send the Dow Jones industrials sliding 240 points.

If investors limit the money into the market, getting loans may get harder just as more foreclosures boost supply. And that could cause home prices to dip or at least not go up as fast.

Stein, whose firm is in Auburn, said he's seeing the market's impact on loans. Six months ago, he said, he could get 100 percent financing for someone with verified income and poor credit. Now, people with low credit scores need 10 percent or 20 percent down payments.

"I think you are going to see some reduction in the number of home buyers," he said. "It'll be a negligible difference."

But Stein worries about talk of restricting access to loans that could be risky, but also could be healthy when used properly. "What concerns me is they're lumping in everything that appears to be new and different."

The Center for American Progress says rising foreclosures could drag down property values and make mortgages harder to get in poor neighborhoods.

The cost of foreclosures to lenders -- which the center pegged at more than $50,000 each -- and Wall Street concerns may be behind increasing corporate efforts to stave them off. A Wednesday Standard & Poors report said prominent loan companies are starting to take action early by, for instance, checking in with borrowers well before interest rates adjust and opening more options to delinquent borrowers.

Back at home

White's family didn't know about her problem until they noticed her tax forms, Huelsman said.

As Huelsman dug through paperwork, she found what the complaint alleges to be inaccurate information lenders put on applications to make it look like White could pay.

For example, the complaint says an Ameriquest employee failed to include her income information when he took her application in 2002, but later a computer-generated version said she made more than $5,800 a month as a "service tech" at Boeing.

White said she actually gets about $3,750 monthly from her job, a pension and Social Security. For the moment, she's paying about $2,500 a month toward her mortgage.

Huelsman is seeking damages from the lenders, and also is talking with White and her family about selling and moving to an apartment. "She's going good right now. But she's not going to be able to work forever."

Meanwhile, White said she got a new mortgage offer in the mail Tuesday.

"They said, 'Don't worry about anything. We're going to take care of you.' "


When Shielding Money Clashes With the Free Will of the Elderly

Jim Wilson/The New York Times

Robert J. Pyle, 81, lost his home and his savings trying to help a single mother.
He sued, claiming he wasn’t liable for his errors in judgment because of his age.
Last Updatedecember 23. 2007 11:00PM
Published: December 24. 2007 4:05AM
Eight years ago, when Robert J. Pyle was 73 years old, he had about $500,000 in the bank and owned a house in Northern California worth about $650,000. He was looking forward to a comfortable retirement.

Today, at 81, he has lost everything. Mr. Pyle, a retired aerospace engineer, now lives in his stepdaughter’s tiny, mountainside home in a room not much larger than his bed.

By his own admission, Mr. Pyle willingly made every decision that led to his financial problems. He gave away large sums to people he thought were friends, and then, in need of money, sold his house at a deep discount to the first person who offered to buy it.

Even so, he claims in a lawsuit that he should be compensated for some of his losses for a simple reason: he is old, and should not bear the full responsibility for his choices.

“I still make pretty good decisions about most things,” said Mr. Pyle, who shows no signs of dementia. “But for others, I guess I’m not as sharp as I was before, and people take advantage of that.”

In the last few years, thousands of older Americans like Mr. Pyle have filed suits against companies and salespeople who have promoted dubious offers and schemes. These suits are unusual because the victims typically do not say they were intimidated or lied to, and they concede they freely made what turned out to be unwise decisions.

But because the plaintiffs are older, they argue, they should be less accountable for their mistakes.

These lawsuits raise controversial questions: In the eyes of the law, should the elderly be treated like adolescents, who are not entirely responsible for their poor decisions, but are also barred from making certain choices on their own? Or should they have autonomy, and therefore be accountable for their blunders?

Minors, for instance, can typically cancel a contract without penalty, unless it is co-signed by a parent. But the law also prohibits most teenagers from making major financial decisions.

“Figuring out how to protect senior citizens from victimization, even when it’s caused by their own mistakes, is one of the most important issues facing us right now,” said Sharon Merriman-Nai of the National Center on Elder Abuse. “If we don’t solve this, millions of older people will suddenly be reliant on their families or the government.”

“But we also have to figure out how to balance our desire to protect vulnerable seniors with their rights to autonomy,” Ms. Merriman-Nai said.

Although national figures are hard to collect, more than 760 civil lawsuits were filed last year in California alone contending elder abuse (most of them claim financial abuse, though some assert other kinds of abuse, including physical). That is an increase of 98 percent from five years earlier, according to a search of court filings. At least a dozen other states show similar trends.

Many of the legal theories at the core of these suits draw on recently passed laws that are often ambiguously worded.

California’s elder abuse statute, for instance, does not specify how sales agents should treat older customers. Instead, the law recognizes that the elderly are vulnerable to “abuse, neglect or abandonment,” and indicates that an older person has been financially abused when “it is obvious to a reasonable person” that fraud has occurred. These broad laws, argues Mr. Pyle’s lawyer, Kathryn A. Stebner, creates special protections for the elderly, even if they are not specifically spelled out.

For instance, Mr. Pyle’s suit contends that mortgage brokers and banks defrauded him by helping him take out loans they knew he could not afford, and that the person who bought his house deceived him by paying far less than its market value.

Such theories have yet to be fully tested in court. And because many cases settle before they go to trial, in part because companies often assume juries will side with older victims, there is little precedent for how the laws should be interpreted.

As growing numbers of elderly consumers begin citing such legislation to undo contracts or get refunds, some companies and executives are warning of possible repercussions.

“Either someone has the mental capacity to make a decision, and therefore live with the consequences, or they don’t, in which case they shouldn’t be managing their own finances,” said Terry J. Dyer, president of Jett Financial Services, a defendant in Mr. Pyle’s suit. Mr. Dyer said his company, which helped Mr. Pyle refinance his home, did nothing wrong.

“There is no business on earth that can function if its customers can say, ‘I’m tired of abiding by this contract, so I want out because I’m old,’” he added.

For his part, Mr. Pyle wants to have it both ways — protection when he makes mistakes, and the right to make all his own decisions.

“It would be complete overkill to take away my independence,” Mr. Pyle said. “So I made a few mistakes. Twenty-five-year-olds make mistakes all the time, but they don’t lose their right to make decisions. I helped build this country. I deserve more dignity that that.”

A Neighbor in Need

Mr. Pyle’s life began unraveling in 1999.

His wife of 28 years, LaReta, had died over a year earlier from a long illness. They had met square dancing, and after they married, he embraced her two older children and bought a modest home in a walnut orchard in Campbell, Calif. When he retired in 1989 from Lockheed Martin, they took road trips to dig up interesting rocks and crystals, which they polished in their garage.

But after LaReta died, Mr. Pyle began staying indoors, ignoring the phone and reading the thousands of paperbacks he had stored in two rooms. His stepchildren visited once or twice a month.

He was raking leaves one day when a woman from the block asked him about the nearby church. The woman, Wendy McDonald, was in her mid-40s and said she was raising a 2-year-old on her own, he recalled.

“I was kind of sorry for her since she was a single mother,” Mr. Pyle said. “She seemed like she needed a friend.”

She stopped by regularly after that, asking advice and telling funny stories. Mr. Pyle had spent years watching his wife die. It felt good to help someone. Slowly, he began emerging from a muffling depression.

“She was like a bright part of a dark day,” Mr. Pyle said. “She was friendly, outgoing.”

Within a year, with Mr. Pyle’s encouragement, Ms. McDonald began cleaning houses in a nearby town. The bus trips were long, so Mr. Pyle drove her to the job.

One day, Mr. Pyle heard a radio advertisement for a square dancing class. He showed up and discovered he had become a precious commodity: an unattached male with strong knees. He began attending a different class every night and hoedowns on most Saturdays.

“Things started getting a lot better then,” Mr. Pyle said. “I wasn’t quite so lonely anymore.”

Descending Into Debt

Ms. McDonald, however, was doing less well. She told him she could not afford her rent. At the time, Mr. Pyle owed only about $150,000 on his house, and could easily make the mortgage payments with his pension and Social Security. So he began giving Ms. McDonald small, regular loans.

A few months later, she called after she was arrested on shoplifting charges — the victim of a friend’s scheme, she said — and asked him to bail her out. He bailed out her boyfriend a few months later. Mr. Pyle said they never paid back the $40,000 he lent them for bail bonds. Over the next few years, he co-signed for two cars for Ms. McDonald and her family, according to financial records provided by his family.

As the loans to Ms. McDonald flowed out of Mr. Pyle’s accounts, he stopped balancing his checkbook. He had once overseen teams of engineers, but as his memory started fading, he indulged its wanderings when it came to his dwindling bank account.

“When you’re young, you spend a lot of time thinking about the future. But by the time you’re old, you don’t want to have to worry anymore,” Mr. Pyle said. “I didn’t expect to live this long. I guess I felt like I deserved a break.”

According to copies of bank records made available by his family, by the time Ms. McDonald disappeared last year, Mr. Pyle had written checks to her or her creditors for at least $209,000 over six years, and had given her hundreds of thousands of dollars more in cash. Mr. Pyle and his stepdaughter estimate that he gave away more than $650,000 in all. None of it was ever repaid.

“It was like I was hooked,” Mr. Pyle said. “The only way to get repaid was to keep giving her money so she could get a job. I felt sorry for her, and then I felt responsible, and by then it was a habit, and I didn’t know how to get out of it.”

Ms. McDonald, reached on her cellphone at a number found in records provided by Mr. Pyle’s family, acknowledged receiving large amounts of money, and said they were in a romantic relationship.

“I was his girlfriend, and he gave me anything I wanted,” Ms. McDonald said.

“He was lonely,” she said. “He would have done anything I told him.”

Mr. Pyle denies any romantic involvement with Ms. McDonald.

Eventually, his stepdaughter, Kandi Knapp, started asking her stepfather if he was having any financial problems. But she felt uneasy at the thought of interrogating him or forcing him to accept help.

“Mom and Dad were always very private, and we wanted to respect that,” Mrs. Knapp said. “He told us that everything was fine, that he had lent someone money, but he expected to get it back. He had been saving for so long, it never dawned on us that a problem like this was possible.”

Mr. Pyle, at the time, thought he could get out of the hole without telling his family.

“I was too embarrassed to tell them,” he said. “And I worried if my kids knew, they would take away my independence. You can’t just come out and say, ‘By the way, I’m spending money on this gal you’ve never met, and I don’t know how to stop.’ What would they think of me?”

In 2004, with his retirement accounts running dry, Mr. Pyle got a new loan on his home for $265,000. After paying fees and earlier debts, he was left with about $100,000. But by then, five years since meeting Ms. McDonald, some of her credit cards were linked to his bank accounts. He had co-signed for lines of credit at Macy’s, Nordstrom and a local furniture dealer. He was soon more than $40,000 in debt.

He tried to pare back, but her pleas became hard-edged.

“Sometimes I would tell her no, but then she would say, ‘Please help me, just this one time, otherwise my kids can’t eat,’” Mr. Pyle said. “I’ve tried to figure out why I let it go so far, and I really don’t know. I felt like a fool.”

In late 2005, Mr. Pyle was desperate for money when a mortgage broker from Jett Financial knocked on his door, according to his suit. Mr. Pyle welcomed him and his offer to refinance his home again. He paid more than $33,000 in fees for a $352,000 mortgage. After settling his earlier mortgages and credit card debts, Mr. Pyle was left with only $12,000, according to records.

Almost immediately, he discovered he could not pay the new loan’s $2,200 a month cost.

“It’s clear he was living beyond his means, and he might not be able to afford this loan,” said Mr. Dyer of Jett Financial. “But legally, we don’t have a responsibility to tell him this probably isn’t going to work out. It’s not our obligation to tell them how they should live their lives.”

When a lender began threatening foreclosure, Mr. Pyle refinanced a third time, taking on an even more expensive loan.

By then, Ms. McDonald had moved, though Mr. Pyle was still hopeful he would get his money back. When a man called one day and said he had a check for $93,000 to settle Ms. McDonald’s debts, that faith seemed justified. The man said if Mr. Pyle just paid $850 to cover a few fees, he would get his payoff. The man never showed up, and Mr. Pyle finally realized his money was gone.

He began asking elderly friends for loans himself.

“He borrowed $500 from me,” said Mike LoBue, a neighbor. “He said he would pay me back in a few days, but he never did. He lied to me.”

A Losing Proposition

Homeowners in debt, seniors prime targets of riskiest loans

Seattle Times staff reporters

Frances Taylor, who has Alzheimer's disease, shared a room in an adult-care home when she moved there in May. A privacy screen provided her personal space.


Frances Taylor was 93 when she took out a high-cost, high-interest mortgage against her home of more than four decades. Within months, her lender foreclosed, making her one of an estimated 2.2 million subprime borrowers expected to lose their homes by the end of next year.

If Taylor seems a far cry from the average subprime borrower — typically portrayed as a young, first-time homebuyer with bad credit — think again.

More than one in three borrowers in King County who got loans from the same lender that foreclosed on Taylor were 50 or older, and one in seven was 60 or older, according to a Seattle Times analysis of more than 4,000 loans by Ameriquest Mortgage. Not only that, nearly all of those borrowers already owned their houses.

As lawmakers consider remedies to ease the damage from risky home loans, mortgage-industry representatives are urging them to temper any increased regulation. After all, they say, such loans have given millions with poor credit an opportunity to buy into the American dream of homeownership.

But subprime lenders have done more than market to homebuyers; they have targeted homeowners. Some loans were more predatory than subprime, with features so onerous that borrowers refinanced their way out of the American dream, losing their houses — and substantial equity — to mortgages they never stood a chance of repaying.

Lenders persuaded one borrower, a 79-year-old janitor, to obtain 10 subprime refinances over nine years.

Taylor refinanced her home three times in just three years. Those loans stripped away more than $50,000 of her home equity in fees alone and eventually obligated her to mortgage payments that were nearly three times her monthly Social Security check of $761.

Her loans, like many subprime mortgages, came with hefty fees, prepayment penalties, and interest rates that adjusted upward.

Targeting homeowners for mortgages based solely on the financial stake they have in their homes is universally regarded as predatory lending and is illegal under state and federal laws. But experts say that hasn't stopped lenders from doing just that.

Penalties are rare, and suing in court is difficult, with complicated cases and low payoffs. In Seattle, just four private attorneys routinely handle predatory-lending cases, even though they say demand for their work is growing.

Attorney Melissa Huelsman is one of them. "You can't take away a house with a gun, but you can take it away with a piece of paper," she said. "We, as a society, should treat that as a serious crime."

Targeting seniors

Borrowers such as Taylor may have a lot of debt and poor credit, but they have something else too: assets.

"It makes sense that these folks are targets because they have so much equity in their homes," said Sharon Reuss, a spokeswoman for the nonprofit Center for Responsible Lending in Durham, N.C., which works to eliminate abusive financial practices.

Taylor appears to be the oldest person to receive an Ameriquest refinance in King County, but she was hardly the only older borrower. The Times' analysis showed that 40 percent of Ameriquest loans from 2002 through 2006 went to borrowers old enough for membership in AARP, a consumer group representing those 50 and older.

AARP has warned that seniors are particularly susceptible to the marketing pitches of subprime lenders, even if they could qualify for better loans. In June, the group warned there is "growing evidence that many borrowers are being sold products that strip, not build, equity and household wealth."

Not-for-profit housing watchdogs have accused subprime lenders of targeting groups of borrowers, but they have focused on minority groups, using federal mortgage data to prove their point.

These same watchdog organizations have mostly anecdotal information about older borrowers. That's because the federal government doesn't require lenders to report borrowers' ages.

The Times investigated five years of King County loans by Ameriquest, until recently the nation's largest subprime lender, and analyzed a variety of public records. The Times also reviewed national data, including reports Ameriquest filed with the federal government in 2004 and 2005.

Locally and nationally, nearly all of Ameriquest's loans went to people who already owned homes, The Times found.

In 2004, the year Taylor obtained her final subprime mortgage, only two Ameriquest mortgages helped people buy houses in King County — far less than 1 percent of the total. The remaining 1,286 loans that year were nearly all refinances for borrowers who already owned their homes.

Likewise, nationally, less than 1 percent of Ameriquest's loans that year helped people buy homes. The next year, less than 3 percent of Ameriquest loans nationally were for home purchases. Ameriquest declined to discuss The Times' findings, as did other industry representatives.

The company also sued to block state Attorney General Rob McKenna from releasing documents that would shed light on its operations. That court battle is continuing.

The Attorney General's Office obtained the internal Ameriquest records as part of a multistate investigation into predatory-lending allegations against the company. Last year, Ameriquest paid $325 million to 49 states to settle the allegations but admitted no wrongdoing.

Attorney Huelsman requested the documents earlier this year for suits she filed against Ameriquest. Among her clients: Devaney White, the janitor who filed for bankruptcy after taking out 10 mortgages in nine years after the death of her husband.

Ameriquest, Washington Mutual, Citifinancial, Chase Manhattan Mortgage and five others were among the lenders that provided loans to White. Those refinances swelled the debt on her South Seattle home from $32,000 in 1998 to $382,000 in 2005. White got some loans within months of each other, including two just days apart, according to a lawsuit Huelsman filed in bankruptcy court on White's behalf.

The companies denied wrongdoing.

Huelsman said the lenders preyed on White's confusion and her inability to discern that the people selling her the mortgages were not responsible for determining whether she could afford them.

White didn't have sufficient income to cover payments on the later mortgages even as she was signing them, the lawsuit states, all but guaranteeing that her home would be sold to satisfy the debt.

"Defendants certainly knew that they were fraudulently inducing an elderly woman into obtaining mortgage loans that were not in her best interest, and which would only result in a significant profit for them, while it was certain that Mrs. White would lose her home," the lawsuit states.

Target marketing

At the height of the subprime-lending boom, in 2003 and 2004, the market was rich with targets, and lenders scrambled to find them, said Luis Schupbach, national-accounts manager for Mass Marketing Solutions, a Scottsdale, Ariz., company that sells tailored lists of potential customers to lenders.

Selling even one subprime loan generates $10,000 or more in fees alone for the lender, Schupbach said. If a loan is sold on Wall Street as a mortgage-backed security — and millions have been — the seller makes even more.

Companies such as Mass Marketing Solutions help lenders find potential subprime customers by searching through financial information compiled by the nation's three largest credit-reporting agencies. They look for homeowners who have equity, low credit scores, large debts and recent subprime mortgages. They can pair that information with other consumer data to find people who might have college-age children, for example, Schupbach said.

Lenders can get private financial information about individuals, as long as they specify for whom they're searching — people with certain credit scores, for example — and then make a firm offer of credit to every person who fits that description.

Schupbach said his company could easily produce a list of subprime borrowers older than 50. But he said federal law prevented The Times from buying such a list because it wasn't selling financial products. Had The Times been a lender, it would have been able to buy a list for about 26 cents a name.

Armed with a financial picture of a potential borrower, along with names, addresses and phone numbers, the lender tries to grab the customer's attention. That's relatively easy to do when someone is up to his eyes in debt. Hence, official-looking letters appear to come from the IRS or the company holding the mortgage.

"They're desperate and scared and they don't understand the numbers, and you do," Schupbach said.

More than 60 percent of the homeowners who refinanced their mortgages with Ameriquest had monthly debts so high they were likely to be having trouble paying their bills even before they got their new mortgages, according to a prospectus describing 15,000 loans the company offered for sale to Wall Street investors as "mortgage-backed securities" in July 2004. Taylor's was among them.

Nearly all of the borrowers wanted the loans to consolidate their debts, the prospectus reported. Those with the heaviest debt burden got the worst interest rates, sometimes more than twice as high as other borrowers.

Most of the Ameriquest borrowers whose loans are described in the prospectus, including Taylor, had poor credit ratings that made them willing or resigned to paying higher interest rates. More than 70 percent of them also agreed to accept a "prepayment penalty" that would cost them thousands if they paid off the loan or refinanced generally within three years. The interest rates on the loans adjusted upward at two years.

As the mortgage crisis has unfolded, homeowners have tried to escape the inevitable jump in monthly payments by refinancing, selling or surrendering to foreclosure.

But households that refinance incur new fees and penalties. As those fees are folded into the new mortgage, the lender strips away more equity and leaves the borrower with even more debt.

The bottom began to fall out for dozens of lenders earlier this year when record numbers of foreclosures drove down home prices, and lenders were stuck with homes worth less than the loans on them. In August, Ameriquest began shutting down, and Citifinancial bought its loans.

Schupbach said he expected lenders to cut back once the mortgage crisis deepened. Instead, lenders began requesting lists of people who had even lower credit scores but "acceptable collateral," namely homes, but sometimes cars, too. Schupbach said he considers such requests potentially predatory, and his firm will not fill them without proof that the client complies with federal consumer-credit laws.

But the real growth market for aggressive lenders, he said, is homeowners with active Chapter 13 personal bankruptcies that had been filed between 13 and 24 months earlier. The time lapse meant their credit-card debts had been discharged or dismissed but the bankruptcy was likely not yet final. Lenders target those borrowers, promising to get them out of bankruptcy for a price, typically offering a new home loan with more fees and a higher interest rate.

"You don't even need credit if you have a certain amount of equity in your home," Schupbach said. "If you don't pay, they'll take the house."

Susan Kelleher: 206-464-2508 or and Justin Mayo: 206-464-3669.

Seattle Times intern Rachel Fields and researchers Gene Balk and David Turim contributed to this report.

Copyright © 2007 The Seattle Times Company

Dan Przewlocki was told he would have to miss payments to get help. "Essentially, I'll have to ruin my credit before they'll modify my loan." (Wayne E. Smith / The Detroit News)

The Freemans are barely making their $2,600-a-month mortgage payment. They purchased their four-bedroom, three-bath colonial with a two-car garage two years ago for $190,000 with a mortgage from American Home Mortgage, which has since entered bankruptcy.

Heather Freeman, who works as a customer service representative for DTE Energy, said she and her husband have been scrounging for overtime at work to make their house payment, which has more than doubled in less than two years under the terms of their ARM.

They tried contacting American Home Mortgage in December to modify the terms of their loan, but because the company is transitioning to new ownership, the Freemans were told they would have to look for help elsewhere.

Because the value of their home is only about $165,000, according to a recent assessment, they would need to pay thousands of dollars up front, money they don't have, for a more favorable mortgage.

"There's help being offered everywhere, it seems, but not for me in my situation," Heather Freeman said. "I have top tier credit, and I want to stay in my house. I shouldn't have to throw one away for the other."

Judy and Bill Freeland say they are still owed $185,000 by a man they trusted to invest their money but who is now being prosecuted by the state. (Stuart Johnson, Deseret Morning News)
LEHI — Bill Freeland's hand shakes as he pours Pepsi into a glass full of ice. His wife, Judy, is flipping through a small mountain of binders and folders piled on the kitchen table. She stops and runs her finger down a receipt.

The Freelands have until Nov. 19 until the bank starts the foreclosure process on their Lehi home. But they have no way to pay. They are being crushed by a $225,000 loan at 13 percent interest — a loan that should have been paid off from promised stock returns.

But their investments never even made it to Wall Street.

Instead, the Freelands believe their money was funneled away from stocks into the pocket of their "broker."

"It'd be better if he said, 'I lost your money, I'm sorry,'" Bill says, shaking his head and looking down at his glass of soda.

Bill, 59, used to be a big-game hunter, and his antlered trophies adorn the den where framed pictures of his trips hang.

When he gets up to answer the phone, he walks slowly, with a limp. But each visitor to the home is greeted with a handshake and offered a Pepsi.

Freeland was diagnosed in November 1997 with an inoperable brain tumor, after he collapsed one day after work and was unconscious for four days.

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That's when the financial stress set in. Judy, 54, knew she had to start looking for money elsewhere, knowing Bill couldn't be a general contractor much longer.

"(Doctors said) with a full dose of radiation in 1997 that would buy him 10 years," Judy said. "Last month was 10 years."

A friend had been investing in stocks and commodities and seemed to be doing well so Judy arranged a meeting with the broker, Newton A. Taylor.

Every Thursday the couple met with Taylor, who they saw as a kind, devoted-to-family man, listening intently as he shared tips, recommended books and taught them to read the stock market.

"I looked into the system to find anything negative on him," Judy said. "We couldn't find anything on him. It seemed a good thing to do."

So, the Freelands invested $8,000 in June 2003. And when everything was looking good, they took out a $225,000 loan against their paid-off, 12-acre parcel of prime Lehi land, paid off a few debts and invested another $205,000.

Monthly returns of $6,000 began flowing in June 2004. But a year later when the Freelands asked that Taylor cash out all their investment so they could pay off the high-interest loan and get something lower, "that's when it all went to pot," Judy said.

She said Taylor told them different stories each time she asked about their investments. First, their money was delayed because a bank was clearing the funds through the IRS. Or that Taylor's broker was transferring more money and had to verify it through other brokers — all less-than-believable stories, Judy said

"This guy is something ... " says Bill, shaking his head and trailing off. He stares down at his drink again. A biopsy on the tumor has affected his speech and short-term memory.

Judy said she e-mailed a complaint to the Utah Division of Securities in March 2006, which recommended prosecutors file criminal charges. The division also confirmed that Taylor never had a securities license.

In talking with several attorneys, Judy also learned that Taylor faced similar charges in 4th District Court and in 1996 pleaded no contest to communications fraud. Nineteen other communication fraud and theft by deception charges were dismissed.

Taylor was sentenced to one to 15 years in the Utah State Prison and ordered to pay more than $260,000 in restitution to the McGuire family, according to court records.

Taylor served a short time in prison and was released long before 15 years was up.

Taylor had promised Bernie McGuire, a quadriplegic from a traffic accident, monstrous returns through gold and silver mining operations but never delivered.

"Yes, I was stupid," Judy admits. "But I did whatever I could to find out on this guy."

But Bill interrupts her and says that no, she did her homework. She just didn't look everywhere.

"If people call us, hopefully we'll be able to find more skeletons than they can find on their own," said Wayne Klein, director of Utah Division of Securities.

His office prosecutes more than 100 people each year for securities fraud, and in 43 percent of those cases, one or more of the promoters had a prior conviction.

"Here's the problem that creates," Klein said. "How do I deter people for whom jail isn't a deterrent?"

Taylor faces 19 additional charges of communication fraud and one charge of theft in 4th District Court — all stemming from alleged actions with the Freelands and two other families who allege he defrauded them. An entry of plea is set for Dec. 14.

"At this point we're working toward a resolution, and we hope to have that happening shortly," said Taylor's attorney John Easton.

Despite several returns, Taylor still owes the couple $185,000 and several thousands to the two other victims.

"We really want to ... make the victims as whole as we can, and (we want to) protect the public," Deputy Utah County Attorney Chad Grunander said. "It's difficult to try and stop someone because when someone's out duping people, they could just do it again. You can't have someone watching them 24/7 to stop it."

Back in the kitchen, Judy closes her books and walks outside to look over the acreage they lost to the bank in May when they couldn't make the loan payments.

She smooths down her graying hair as she looks back at the house she and Bill built in 1982. It's where they raised their five children and where their children still come to ride horses.

Three of her children are rodeo champs; saddles adorn the entry way and belt buckles glitter in a curio cabinet.

"I didn't want to make a million or to change my lifestyle, it was to save ... income that I could foresee we (would) need," Judy said.

Now, she hopes to get a loan to pay six months of her mortgage and health insurance and buy a used dump truck to start working as a dump truck driver.

"I should be here teaching (my grandkids) how to ride a horse, not becoming a trucking grandma," she said.

But she'll do what she has to do.

"(Taylor) has said he would pay us back and make us whole," she said. "We'll never get back our stuff. We (just) want his name out so he can never hurt somebody else."

Too good to be true?

The Utah Division of Securities reminds potential investors to ask three questions before investing with anyone:

• Is the person licensed with the Division of Securities?

• Is the offering registered?

• Are they providing written disclosures about the investment and financial statements? Is there a record about his or her past performance with other customers?

If the answer to any of those questions is no, that's a big red flag.

Remember: Call the division to get answers to those questions: 1-801-530-6600.

Source: Wayne Klein, director of the Utah Division of Securities.


Judy and Bill Freeland say they are still owed $185,000 by a man they trusted to invest their money but who is now being prosecuted by the state.  (Stuart Johnson, Deseret Morning News)
Stuart Johnson, Deseret Morning News
Judy and Bill Freeland say they are still owed $185,000 by a man they trusted to invest their money but who is now being prosecuted by the state.
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Posted: Saturday February 9, 2008, 7:50 am
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Lillian B. (42)
Sunday February 24, 2008, 6:18 pm
Elderly man conned into signing over house
by Kathy Chaney
November 28, 2007

All that was needed on the home a West Side man owned for nearly 46 years was a refurbished back porch and two windows replaced. He set out to refinance his mortgage to get the work done.

Tellie Howard's quest landed him in court fighting to save his home. He was scammed into signing his property away, he said.

"I had no idea what they had done. A guy said he could help me refinance the house. I believed him and when I thought the deal was done, he told me that I would get a payment book in the mail so I could send in my mortgage payments. The book never came in the mail," the 87-year-old man told the Defender.

Howard said he was told to pay the man instead since the payment book hadn't arrived. He did. Weeks later, a woman greeted Howard at his door on West Wilcox instead of the payment book.

"A lady came to my house and told me that she now owned the building and they wanted me out. They already got the people who lived above me out. She told me she bought the building in October 2006," the former Cook County Sheriff's Deputy said. "I was told that I had a month to leave."

Howard was devastated and forced to put his 82-year-old wife into a nursing home until his "foreclosure nightmare" is resolved.

"She must have dialysis three days a week, plus other care. She will stay there until we get this house business straightened out," he said.

Desperate to save the home he spent almost half his life in, he began making phone calls to see what could be done.

After failed attempts to get representation from a few attorneys he was referred to, the Rainbow/PUSH Coalition and the South Austin Coalition was able to get the help Howard needed.

"All the lawyers said they couldn't take my case because I didn't have enough money to pay them. I have someone now who is helping me. We are supposed to go back to court late next month," Howard said.

He added, "Too many people are ashamed to tell of their troubles and that they need help. I'm not ashamed. I need help. If I hadn't told somebody, I would be on the street today."

"He is one of 131 residents in West Garfield that has this problem. There are 91 people in East Garfield with the same problem," Ald. Ed Smith (28th) said at news conference this week at City Hall.

Howard's story is one among many that PUSH officials are classifying as an "economic tsunami" that is ravaging the minority community.

The Rev. Jesse Jackson said Howard is a victim of robbery.

"These predators are targeting seniors and taking their last possessions. They are the most vulnerable. He will not stand alone," Jackson said.

In Chicago there are 30,000 homeowners in foreclosure. There are 85,000 that are currently late on their payments. Nationwide, 2 million homeowners are in foreclosure. Blacks are twice as likely as whites to be shoved into sub-prime mortgages, eventually leading to foreclosure, Jackson said, citing a study by the National Community Reinvestment Coalition.

"We must choose restructure over repossession. When a home is foreclosed, the neighbor's house is de-valued. The whole community suffers. No one escapes the impact of this economic tsunami," he said.

Jackson wants city council to step in and mount pressure on lenders. He's calling for council hearings to "strongly encourage" lenders to freeze Adjustable Rate Mortgages (ARM) and put a halt on foreclosures.

In the meantime, PUSH and other civic and community organizations will lead a march on LaSalle Street on Dec. 10 about the foreclosure crisis. Marches are also scheduled that day on Wall Street and in Los Angeles.

Lillian B. (42)
Tuesday March 4, 2008, 4:18 pm
Area residents seek answers to their home financial woes
By Cheryl Wade

SAGINAW -- Lee Burrage has a two-unit apartment house he'd like to get rid of, but if he can't do that, he'd like to refinance it.

Someone "messed me around," the 77-year-old Saginaw man said, and he ended up with an adjustable-rate mortgage he didn't want. Now his payments on the building are around $1,300 a month, and one of his tenants is slow in paying.

Burrage was one of hundreds of people who came to Wednesday's Avoid Foreclosure Forum at The Dow Event Center in hopes of getting help.

"I'm trying to ... get it cut down to, say, $800 a month," he said.

The forum, which followed one in Detroit Tuesday, was well organized. Lenders, counselors and representatives of Attorney General Mike Cox -- whose office sponsored the forum -- were available to people seeking help. Cox's staff members made certain people were in the right places; most people coming into the arena were escorted and greeted. Besides meeting with lenders and debt counselors, participants could choose seminars to help them with finances.

All that preparation was fine with Jerry Durham of Countrywide Home Loans, who came from Dallas to attend the forums. Durham said he talked with two borrowers who traveled two hours to get to the forum. He said he wanted to help people not to feel ashamed, embarrassed or singled out.

"We look forward to working with borrowers who may feel afraid to call" and speak to some unknown service person. "Maybe they've just come to the conclusion that their problems are too difficult to handle on their own, and they might not know the options that are available to keep them in their homes."

A 33-year-old Saginaw woman, who did not want her name used, said her family's adjustable-rate mortgage was OK five years ago, before her husband lost his job and found a new one that pays $20,000 to $30,000 less than he earned before. The mortgage rate kept rising, and now it's around 13 percent.

The job loss "threw us behind on everything," she said.

Her lender might be able to lower the interest rate and work out some easier payment options.

"It's going to change around," she said, a hopeful note in her voice.

Chris Deering of Executive Mortgage in Bay City said he believes falling home values spurred by the poor economy are one reason for sad stories. Adjustable-rate mortgages are not bad loans, in general, he said.

"They were given at a time when household values were going up," he said. "Lenders that extended them put borrowers in an OK position, thinking in two, three years they could refinance because their home values were going up."

The people who bought homes under these circumstances had good intentions of repaying their loans, and they're generally "good, hard-working people," Deering said. But their incomes didn't keep up with their expenses.

Deering didn't come to the forum to talk to borrowers but to get information about government programs to help his clients. He learned of one, FHA Secure, that can help homeowners refinance when they owe more than what their homes are worth.

Greg Fedler of EMC Mortgage in Dallas said his company can help 80 percent of borrowers. In some cases, EMC can lower the interest rate or, if someone has a temporary hardship, the amount in arrears can be put to the back of the loan in a deferred payment arrangement. If a person has become unemployed, the company can cut, say, a $1,000-a-month mortgage to $500 or $600 and spread the payments over a longer period.

William Adam of Saginaw, 59, said he was "a little late" on his taxes because his family's day care business slowed. He came mostly "to see where I was at, before I get behind." His lender will try to get him a mortgage rate that's reduces the $1,342 a month he now pays.

John Lopez of the Flint area came to see what he could do about $1,000 in back taxes his family owes. He lost his factory job 15 years ago and since then has gone from job to job, trying to do the best he can. Now he's doing photography work.

After meeting with a lender, he got an appointment to try to get his back tax payments postponed for a year.

"We're not going to lose our property," he said, referring to the family's 10.5 acres with a house on it. "My ma's owned that property for 50 years."

©Midland Daily News 2008

Lillian B. (42)
Sunday March 16, 2008, 2:46 am
Bayside senior bilked of $800K: DA
By Ivan Pereira
A Pittsburgh woman was indicted last week for allegedly taking advantage of a man with Alzheimer's disease and stealing hundreds of thousands of dollars from a fraudulent mortgage on a house he owned in Bayside, the Queens district attorney said.

Alexandra Gilmore, 36, of Pittsburgh, Pa., and Rebecca Tharpe, 30, of Brentwood, Long Island, allegedly tricked Artee McKoy, 93, of 146-04 116th Ave., to refinance his Bayside property and sell his Jamaica home, according to Queens District Attorney Richard Brown. The DA claimed Gilmore, the alleged mastermind who was indicted on several charges on Feb. 27, posed as McKoy's daughter and used that false identity to eventually foreclose the homeowner's properties.

"Crimes against the elderly - whether they involve physical or, in this case, financial harm - are despicable because the victims are often lonely and vulnerable," Brown said in a statement.

The alleged scheme began in June 2004 when Gilmore, who at the time lived in Massapequa, L.I., befriended McKoy, an old friend of her father. She refinanced his Bayside property, located at 209-47 45th Drive, for $150,000, but after realizing that she could get more equity for the property, Gilmore refinanced again for $420,000, the DA said.

Gilmore allegedly submitted a letter to New Century Mortgage falsely claiming she was McKoy's daughter and refinancing to make cash gifts to his children. In reality, according to Brown, she opened an account in a Massapequa bank, without McKoy's knowledge, and directed that all bank statements be sent to her house.

Suffering from Alzheimer's disease, McKoy did not know he was being used in the alleged plot, the DA said. His Bayside house was not the only property Gilmore allegedly had her sights on, according to Brown.

In 2005, Gilmore allegedly solicited Tharpe to act as a "straw buyer" and purchase McKoy's Jamaica residence. His signature was forged on a contract of sale that was then used with other false information to obtain a mortgage on the property, Brown said.

Gilmore allegedly took home more than $200,000 from the sale, including a $97,000 check that was made out to McKoy, and an additional $130,000 that she secured by setting up a real estate company and falsely claiming to have been owed money from a previous loan on the property, according to the DA.

Tharpe allegedly received $102,000 from the sale.

The DA said bank records indicated that few monthly mortgage payments were made on the Jamaica property before ceasing all together. The house went into foreclosure; the Bayside property has also gone into foreclosure proceedings.

Gilmore's alleged scheme was not only focused on the homeowner's property, according to Brown. She allegedly applied for two credit cards in McKoy's name that she used to make several purchases, including a hotel stay in Alabama.

Brown said the case came to his office's attention when McKoy's goddaughter became suspicious about the women's activity and alerted the authorities.

Gilmore and Tharpe, who was arraigned on Feb. 1, were charged with several crimes, including grand larceny, criminal possession of a forged instrument, identity theft and grand larceny as a hate crime.

"Under the provisions of the New York State Hate Crimes Act of 2000, enhanced charges can be filed when a defendant commits a larceny and selects his or her victim because of their age which is defined as being 60 years of age or older," Brown said in a statement.

Gilmore was ordered held on $100,000 bail while Tharpe was held on $25,000 bail, according to a spokeswoman for the DA's office. They were both expected back in court April 3. Each faces up to 25 years in prison if convicted.

Reach reporter Ivan Pereira by e-mail at or by phone at 718-229-0300, Ext. 146.

©Times Ledger 2008


Lillian B.
female, age 61, married, 4 children
Orlando, FL, USA
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