When foreclosure looms

Thousands in Md. who bought homes with subprime loans are delinquent in payments

March 24, 2007|By Eric Siegel | Eric Siegel,Sun reporter

Charles McCloud had never owned a home, but as he entered his late 50s he thought it was time to have the security and stability that would come from having a place of his own.

So two years ago, he bought a detached two-story house on a quiet corner in the Howard Park section of West Baltimore for $225,000, borrowing the money for the closing costs and taking out two loans, one of which had an interest rate of more than 10 percent.

A self-employed gospel pianist who had never made more than $35,000 a year, McCloud had just gone on disability for a variety of ailments, including congestive heart failure that often requires him to use oxygen. But he figured he could meet mortgage payments that were 2 1/2 times his disability check by taking in friends and relatives as boarders, and no one disabused him of the notion.

When his original four boarders shrank to two, McCloud found himself in trouble.

McCloud is one of thousands of Marylanders with subprime loans - higher-cost mortgages given to those considered credit risks or with irregular or limited incomes - who are facing, fearing or fending off foreclosure. A recent report by the Mortgage Bankers Association said that at the end of last year, one out of eight of the nearly 130,000 subprime loans in the state were delinquent.

In November, McCloud was sued for foreclosure stemming from a delinquent property tax bill. Should he manage to extricate himself from that predicament, there is still the matter of his latest monthly mortgage payment of nearly $1,500, which as of last week he had not paid.

In any case, he worries that his days as a homeowner may be numbered.

"I can't remain here," says McCloud, who is now 58. "I need to make plans to go somewhere else. I've got to keep it real."

While the situation has taken a toll on the lenders and spurred fears of harming the broader housing market and possibly the overall economy, those at greatest risk are the homeowners whose dreams are getting a rude awakening.

Like McCloud, many are black and first-time buyers, who now readily acknowledge that they did not fully understand the deals they were getting into. Some got into trouble with their original loans, others by responding to solicitations for refinancing.

An increasing number are beginning to show up at the doors of neighborhood organizations, asking for help.

"A lot of people are into a deal they shouldn't be in," says Frank Fischer, a longtime counselor at the St. Ambrose Housing Aid Center, who is working with McCloud. "The slightest thing makes them fall off the margin."

Roy Miller, homeownership coordinator with Belair-Edison Neighborhoods Inc., says 18 homeowners have scheduled appointments in the two weeks since the Northeast Baltimore community organization sent a letter to homeowners, asking them to contact the group if they thought they were running into problems with their mortgages.

"A lot of these [subprime mortgage] products have adjustable rates," he says. "People are realizing they got into a bad situation."

Some subprime borrowers are attempting to fight back.

In January, Baltimore-based Civil Justice Inc. filed suit against All State Home Mortgage Inc. on behalf of Joyce Delph, a retired Charles County woman. The suit, in Montgomery County Circuit Court, charges that Delph was deceptively induced to refinance her 4.83 percent home mortgage and improperly charged fees of nearly $12,000 - charges the Ohio-based company denies in court papers.

The suit seeks reimbursement of the fees plus the increased interest Delph will have to pay over the life of loan. The loan has provisions that allow the interest rate to go to nearly 10 percent, according to Phillip Robinson, Civil Justice's executive director.

"It's prime and subprime borrowers who are being put into subprime loans for the sole purpose of having lenders and brokers make huge profits," Robinson says.

Another suit, filed in September in U.S. District Court in Greenbelt, was dismissed Wednesday.

That suit charged several subprime lenders with fraud and misrepresentation in inducing a half-dozen African-American homeowners to enter into agreements knowing they "would never be able to make expected monthly payments." In dismissing the action, U.S. District Judge Alexander Williams Jr. said the complaint was "completely devoid of any coherent allegations of fact and contains mere conclusory allegations of breach of contract, unjust enrichment and statutory violations."

Williams threw out the complaints of all but the lead plaintiffs, denying a motion to stay pending foreclosure actions against them but giving them 10 days to file a new complaint.

Efforts to reach the lawyer for the plaintiffs, Walter L. Blair, and the attorney for California-based lender IndyMac Bank about the decision were unsuccessful.

But plaintiff Tanya Jones says she intends to refile, declaring, "I'm going to take this as far as the court system will allow me to."

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