Paying for mistakesWritten by Maggie Thurber | Toledo Free Press Writer | firstname.lastname@example.org
On Sept. 17 , A Blade story detailed foreclosure assistance to a local couple, Timothy and Michelle Moll.
According to the article, with help they were able to reduce their mortgage loan from $55,000 to $10,000, obtain financing for the $10,000 amount and then get a $5,000 grant from Lucas County’s foreclosure prevention program.
Sounds good, right?
But then come the details. Their monthly mortgage payments went from $1,275 down to $245.
At first I was shocked that their monthly payment was almost as much as mine for a mortgage that was roughly three times less. I couldn’t imagine how they could have such a high monthly amount.
I went to the Lucas County Auditor Web site to check the valuation of the property. What I found led me to more questions. According to AREIS, they purchased the home in 2001 for $21,000. The current 100 percent value of the land and buildings is $28,000.
How did they have a mortgage for $55,000, nearly twice the value of the home? Research in the Lucas County Recorder’s office gave me some of the answers.
In 2001, they had a land contract for $21,000. In 2002, they financed the purchase of the home for $16,000 on the first note with a seller carryback of $6,215. Still an affordable obligation, especially with average interest rates at that time of around 6.6 percent.
But then in May of 2003, the Molls refinanced their house for $43,700 with an adjustable rate mortgage (ARM) from Aegis Funding. Their initial interest rate was 11.45 percent, but on the first day of June 2005 — and every six months thereafter — the interest rate would change. The new rate would be 10.20 percent plus the Current Index figure (LIBOR). In June 2005, that rate was 3.7 percent, making the total rate for their first change 13.8 percent.
Their loan did have some caps on it. The interest rate would never be less than 11.45 percent or more than 17.45 percent. However, a fixed-rate 30-year mortgage at that time averaged around 5.6 percent. In fact, from the time the Molls got their ARM until this year, the average fixed-rate mortgage never got higher than 6.8 percent.
Usually, an adjustable rate is lower than the fixed rate. So I asked several real estate agents, and they suggested several things that could account for the high interest rate and the financial difficulty.
The first thought was that the Molls’ credit rating was not sufficient to qualify for a lower rate. The second was that the lender, Aegis Funding, was known for subprime loans. The third was that the property should never have qualified as collateral for a $43,700 mortgage, so perhaps the higher rate was because of the over-valuation.
One agent questioned whether the appraiser and lender could be investigated for such an agreement that is so inconsistent with comparable home values, even in a good market. Another asked if perhaps an addition or renovation had been done to the home, resulting in the higher valuation, but no permits were pulled and no new construction was listed on the auditor’s Web site.
A family gets a loan for almost twice what their house is worth, agrees to pay an adjustable rate that is higher than a fixed rate, loses a job and ends up in trouble. There are details in this example that are not known. Extenuating circumstances could change the perspective, but that’s part of the problem with such stories: facts present more questions than they answer.
Was this family the victim of an unscrupulous lender? Or did they take advantage of what they thought was easy money, counting on increasing home values to sustain them? Is it a good thing that the government helped them avoid the loss of their home? How did they spend all the extra money? Did they make bad financial decisions that forced them to seek help in the form of a bailout? Should taxpayers, struggling to pay their own mortgages, have to subsidize others?
I don’t know all the answers to these questions, but I do know that, no matter what the answers are, you and I are not responsible.
I also know that people usually stop making ill-advised decisions only when they are forced to face the consequences of those decisions — not when government comes to their rescue and makes the taxpayers pay for decisions that the taxpayers had nothing to do with.
Former Lucas County Commissioner Maggie Thurber is the host of WSPD’s “Eye on Toledo.” She blogs at http://thurbersthoughts.blogspot.com.