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Donald Shumaker II's home is in foreclosure. (Photo credit: Yvette May / Staff Photographer)
Mortgage foreclosures rising
By ARNOLD S. PLATOU email@example.com
Editor’s note: This is one in an occasional series of stories about the local housing market and what’s happening to residents as they grapple with rising interest rates, tightening credit, falling home prices and other economic issues.
When Donald Shumaker II refinanced his home in 2004, he knew the interest rate would stay the same for three years, after which it would become adjustable.
But he didn’t expect what happened.
“I was paying $910 a month,” he said, standing on the porch of his home east of Hagerstown.
In one month, the rate went from 7 1/4 percent to 10 1/4 percent, or $1,375 a month.
“Then, they sent me another letter, and my mortgage went up to $1,540,” Schumaker said.
It was much more than he could afford.
“I’d have to have three jobs and no time with my family,” he said.
Last Tuesday, less than 24 hours before his home was to be sold in a foreclosure auction on the steps of the Washington County Courthouse, Shumaker’s attorney filed on his behalf for bankruptcy protection.
“I guess it’s my only option,” Shumaker said. “I’m just going to have to go under, and that’s a sad thing to say.”
He isn’t alone, judging by the number of foreclosure notices carpeting the back pages of The Herald-Mail newspapers the past several months.
In the past 12 months, a total of 516 foreclosure notices have been filed at the courthouse. By comparison, 294 were filed during the same period in 2005 through 2006.
“I’m seeing a significant increase. I’ve never seen it this bad. I’ve been doing it over 30 years,” said William O’Brien, a Martinsburg, W.Va., attorney who handles such cases in West Virginia and Maryland. The number of resulting bankruptcies is “going completely crazy,” he said.
A major problem, several attorneys and a local mortgage broker agreed, is that, like Shumaker, many borrowers don’t know what is in the loan agreements they sign.
Those agreements are “18 to 20 pages long, typically ... but nobody reads that stuff,” said a local mortgage broker, who didn’t want to be identified.
On the dotted line
Shumaker, 35, bought the 634 Antietam Drive house on a half-acre lot in 2000 for $76,500.
A year or so later, tornado-like winds knocked trees down onto the roof. Insurance paid for the damage, and Shumaker, who does asphalt paving for a local contractor, decided to borrow more money to remodel the inside and to put in a driveway on either side of the house and a sidewalk.
He returned to the Hagerstown company that held the first mortgage and increased the loan to about $156,000, according to deed records at the courthouse. That, Shumaker recalls, increased his monthly payments from $714 to $910.
Over the next few years, records show, the loan was sold as an investment from one lender to another and another across the country.
Early in 2004, Shumaker called one of the lenders who had been filling his mailbox with refinancing offers. The California-based company sent a representative to the house.
Sitting in his living room last week, Shumaker said the man told him the interest rate would be fixed at 7.25 percent for three years, then would go to an adjustable rate.
“He said when that happened, it was tied to some index ... it would go about a quarter of a percent up or a quarter of a percent down,” he said.
Shumaker accepted the 19-page agreement.
The principal was $151,000.
For the next three years, Shumaker said, he sent off $910 every month. Late this past spring, he said, he received a letter from another lender, one that apparently had bought his loan.
Shumaker said the letter informed him that the next month, his interest rate would jump to 10.25 percent, increasing his monthly payment to $1,375.19.
Stunned, Shumaker said, he called the company, EMC Mortgage Corp., which is based in Texas, but failed to convince the company to lower the payment.
He made the first month’s payment, but he said he was late the next month and had to pay a total of $1,443.95, which included a late fee.
“I called them. I said, ‘I don’t want to lose my house,’” he said.
He said he asked that the payment be dropped back to $910 and that he pay over a longer period. The company’s representatives refused.
By then, he said, he was late paying again. He said EMC’s only offer was to give him a couple of weeks more to get the payments current, plus pay late fees. It was about $4,000 in all — impossible for him to raise so quickly, Shumaker said.
Asked this week about what happened, EMC had no immediate comment.
Debbie Krznarich, vice president of communications, said Tuesday she would check into Shumaker’s case and she or someone else would call a reporter back. No one did and she did not return other calls on Friday.
According to deed records at the courthouse, Shumaker should have known what he was getting himself into.
On Feb. 27, 2004, he signed or initialed all 19 pages of the document to refinance his mortgage with the California-based lender.
The document specifies that over the next 30 years, Shumaker would pay $912.29 a month the first three years and that, beginning April 1, 2007, the interest rate would become adjustable. It could change on that date and every six months after that.
Beginning in April 2007, the document says, the rate would be based on the London Interbank Offered Rate. The “LIBOR,” commonly used in adjustable rate mortgages, is an interest rate at which banks offer to loan money to each other.
The rate charged Shumaker would be the sum of that LIBOR plus 6.99 percent, the document says.
On April 1, it says, Shumaker’s interest rate “will not be greater than 10.250 % or less than 7.2500 %.”
It was increased to 10.25 percent.
Then, the document says, the interest rate can rise or fall as much as 1.5 percent every six months. “My interest rate will never be greater than 14.2500 % or less than 7.2500 %,” a page initialed by Shumaker says.
When Shumaker was shown a copy of the document last Thursday, he was almost disbelieving.
Then, he was hurt. And then, he got angry.
“They bring over a stack of papers,” he said. “It’s so hard for a person to take and read down through every single page. And I don’t read so well and I can’t comprehend what I read so fast ...
“The guy’s here in the house. And he wants you to sign or initial every page, and your hands are getting numb, the dinner’s getting cold and you just want to get him out of the house ...
“He didn’t tell me it could go up like that.”
A ‘crisis’ situation
According to Maryland’s consumer protection agency, it appears the lender did nothing wrong because the loan document is clear.
There is no violation “if it’s clearly disclosed that this is what the rate was going to be and he signed off on that,” said a spokeswoman for the state Attorney General’s Consumer Protection Division.
The loan’s terms are similar to others that have so many Marylanders and homebuyers across the country in financial trouble, officials said.
Since late 2005, many people have signed loans, giving them a two-year fixed rate followed by a 28-year adjustable rate, said Joe Rooney, deputy commissioner of the Division of Financial Regulation, which regulates lenders for the state Department of Labor, Licensing and Regulation.
For many, that adjustable rate is about to hit, Rooney said.
“This is a crisis now and it’s also a pending crisis,” he said.
That is why a state task force has recommended legislation that would attempt to improve the situation and head off further crisis, said Rooney, who was on the task force.
Its recommendations have not been made public yet.
But Rooney said they “attempt to close some of the issues that have caused borrowers to receive products they shouldn’t have received, increase disclosure to borrowers, step up education programs on these products and, at the same time, encourage lenders to step up to the plate ... and try to refinance (customers) ... out of these products into good products.”
Taking a step
Friday a week ago, it was becoming clear to Donald Shumaker what he would have to do.
He had tried to refinance with another lender, but was refused. He thought about trying to sell the house, but realized the market is so depressed, he couldn’t get near what he owed. He had stopped trying to make payments to EMC because the debt was snowballing. And now, he had two letters — one addressed to “occupant” — from lawyers saying that, unless he paid up, his house would be sold at auction.
Sale notices were published in the newspaper. The auction was to begin Wednesday, Oct. 24, at 11:48 a.m.
Still, at his home, Shumaker tried to keep things normal. He talked about how he still hoped someone would buy the loan, and let him keep paying the $910.
“I’d be happy,” he said.
By Monday, time was running out.
“More or less, they give me no choice,” Shumaker said before going to meet with Hagerstown attorney Alex Bognar, who specializes in bankruptcy proceedings.
Tuesday afternoon, Bognar filed papers with U.S. Bankruptcy Court in Greenbelt, Md., seeking bankruptcy protection for Shumaker.
The act of filing freezes the foreclosure action — there would be no auction of Shumaker’s house Wednesday — and it clears Shumaker of most debts, including the mortgage, Bognar said. A hearing will be held in which Shumaker’s assets will be totaled, so that some may be sold to help pay off creditors.
For perhaps a few months, while the lender petitions again to sell the house at a foreclosure sale, Shumaker can continue to live there, Bognar said.
But there are downsides.
Shumaker said he knows that the bankruptcy will give him a poor credit rating and that if he goes to buy another vehicle or needs a loan, the interest rate likely will be high.
He knows he’ll have to pack up soon and leave the neighbors who have become his friends.
But wherever he goes, he said, he’ll take with him a lesson.
“If I ever make a decision to try to buy a house again,” he said grimly, “I’m going to have a friend who knows what he’s reading, to look at the papers first. I’m going to be sure of what I’m signing.”