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As subprime crisis deepens, some fight back

3/16/2007
By Jason Szep
The home loan for Thomas Hilchey and fiancee Robin Crevier started with a "teaser" -- an attractive interest rate for two years with a monthly payment of $1,692 that was well within their budget.
The middle-class couple from Harwich, a village on Cape Cod in Massachusetts, were confident they could keep up with the adjustable-rate mortgage payments to refinance their home and signed papers with subprime lender Ameriquest Mortgage Co.
What happened next swept them into the property foreclosure wave spreading across the United States and sparked one of a growing number of legal fights against lenders such as Ameriquest that specialize in loans to higher-risk borrowers.
When U.S. interest rates rose in 2005, the couple's 5.75 percent mortgage rate swelled to 7.75 percent and monthly payments ballooned to $2,035.
The rate was set to jump to 9.75 percent on March 1, bumping payments up to about $2,750, a threshold that would have pushed them into foreclosure.
But Hilchey and Crevier fought back.
Accusing Ameriquest of deceit and negligent misrepresentation, among other charges, the couple sued the lender, saying its salesman failed to provide documents and disclosures on the loan required by state and federal law.
Across the nation, anger and litigation are growing against the tactics of subprime lenders, who offer easy credit for homes that are turning out to be too expensive for millions of Americans now that mortgage rates are going up.
"If you go in and apply for a mortgage and get approved at 5.75 percent, how many people two years later are going to qualify for the same loan at 9.75 percent? Probably no one, unless you are extremely wealthy," said Bruce Bierhans, an lawyer representing Hilchey and Crevier.
The couple won a first round this month when a Massachusetts judge ordered Ameriquest to halt a $715 monthly increase kicking in from their March payment and refrain from repossessing their property until the lawsuit is resolved.
"I would expect more lawsuits like this," said Boston University law professor Tamar Frankel.
"People are going to lose their homes. Are they going to fight? Yes. Are there going to be lawyers who will help them fight? Sure. The question is going to be: Where will the courts draw the line?"
FIGHTS HARD TO WIN
But such battles are notoriously hard to win, legal experts say, and the odds are stacked in the lenders' favor.
"What happens most of the time is that people are just lied to," said Jordan Ash, director of the Acorn Financial Justice Center advocacy group in St. Paul, Minnesota. "But if the documents are in order and their signature is on all the papers, there really aren't many ways to fight back."
Mary Beyer, a 52-year-old divorced mother of four from Jenison, Michigan, said she was misled while refinancing her home with a subprime loan she could not afford.
The loan salesman, she said, listed her as employed on the application even though she told him she was out of work and surviving on Social Security payments of just $643 a month.
Beyer, who suffers from chronic asthma and receives disability payments, admits she did not read all of the fine print but said she was desperate for the loan after running out of money to pay her electricity bill.
This month, she was told her home of 20 years would be repossessed.
"I was too trusting when they said I could do this loan," she said.
"Now, every time someone talks about foreclosure or selling it, I get asthma attacks and the lungs just start closing up. Everything I've ever done is between these four walls."
Local housing advocates plan to take her case to court.
As a housing slowdown puts millions of subprime borrowers at risk of default, debate is shifting to whether lenders should be required to ensure their loans are suitable for their customers, said Deborah Goldstein, executive vice president of the Center for Responsible Lending.
Some states such as Ohio have called on mortgage lenders and brokers to do more to make sure their loans are realistic.
Maine, California and Minnesota look likely to follow, Goldstein said, noting that federal banking regulators proposed guidelines this month for lenders who issue adjustable rate mortgages to subprime borrowers.
But that is little solace to those being foreclosed.
"There are lots of people who may be trying to fight back in terms of yelling at the company over the phone or writing letters, but people don't necessarily know what to do legally when they are being foreclosed," said Ash.

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Last modified: 8/26/2008