September 25, 2007

This NYTimes story about Mexican homeowners getting screwed on enormous, shady mortages is pretty nuts. For several reasons.

Ok, one, they are getting screwed by shady mortgage lenders ripping them off. Even before the implosion of the loan industry, I would think that anyone who has taken out any sort of loan, but especially a mortgage, would see very clearly that they are all crooks looking to rob you blind, looking to make you mess up, and looking to ruin your life. At least, that is how it looked to me. But I don't trust anyone (save you, kind reader).

Unwisely, none of the patsies in this scam had lawyers at closing. Now, lawyers are, I think we can all agree, scumbag, thieving, manipulative little m'fers. But you definitely want one of these greedy bastards on your team when you are refinancing. Or, when you are doing anything at all. That way, you will keep the mortgage lender (or similar rip off artist) at bay and/or catch him trying to cornhole you.

Two, I have to say that I am bewildered by people's borrowing habits. I am functionally innumerate, of course, but I do know that taking out a loan that costs more each month than you earn is inadvisable. I know that "interest only loans" always sounded like a profoundly stupid idea on the face of them. I am really shocked that these blue collar workers are all taking out loans for close to a million dollars--loans that go up every month too as the payments don't even cover the interest!

No wonder our whole damn economy is a giant shit sandwich.

And then there is this really weird part of the loan structures that have these double-secret loans to some third guy who didn't even know about it? It is all mightily complicated.

The nine families bringing the suit are all natives of Mexico; many have been living in California for decades. Most work in construction or as cashiers, janitors, painters and gardeners. Many had good credit scores and some had been homeowners before.

They borrowed $600,000 to $950,000. The amount was divided into three loans, and the loan documents provided to two of the lenders made no mention of the third debt to Mr. Curiel, according the lawyers representing the families. In many cases, the other lenders were Countrywide Home Loans and Washington Mutual. Both companies declined to comment.

The first and biggest loan was a pay-option adjustable rate mortgage. The loan allows borrowers to pay less than the interest due, adding the difference onto the balance so more is owed with each passing month. The interest rate on the loans from Mr. Curiel was 10 percent, with a 15 percent upfront fee added to the principal balance. That loan called for borrowers to make interest-only payments and pay off the full amount in two years.

According to the lawsuit, borrowers were provided disclosures on the terms of the first two loans in English, as is required by federal law but in apparent violation of state law. No such disclosure was provided, in English or Spanish, on the third loan, the suit claims.

To assure that borrowers would qualify, the lawsuit claims that Ms. Tran and her associates exaggerated their incomes and assets using no-documentation loans.

Tomas and Martha Hernandez said Ms. Valdovinos had convinced them that they could afford a $745,000 home in San Jose, even though Mr. Hernandez earned about $4,000 a month and told them he could pay no more than $2,500 a month.

The couple balked after learning that their monthly payments would be $4,660. But Ms. Tran assured them that they would be able to refinance in a few months and reduce the payments to less than $2,900 a month, according to the lawsuit and Mr. Hernandez. They moved into the home two days before Christmas in 2005.

“They said not to worry, that we were in good hands,” Mr. Hernandez said of Ms. Tran and Ms. Valdovinos.

In April 2006, the family sought to refinance after exhausting their modest savings. They now have the following loans: a $596,000 pay-option loan with a prepayment penalty from Countrywide; a second loan for $74,450 from National City with a balloon payment of $57,000 due after 15 years.

The third loan for $108,125 from Mr. Curiel was revealed on the day they signed the loan documents, according to the lawsuit and Mr. Hernandez. The loans included more than $40,000 in fees.

I was really interested to learn that in California the law is to translate the loan documents into one of 5 languages. I can guess English and Spanish, but what else? Chinese? Japanese? Lookatthese?

As for my home loan situation you ask? I bought a cheap house in the ghetto seven years ago and got the old timey, out-of-my-way-I'm-late-for-the-sale 30 year fixed loan, the little engine that could. Everybody in the lending industry told me I was being too conservative, but I think I can now politely remind them to kiss me arse.

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