Too Little, Too Late
Predatory lending action is helping some, but the worst may still be ahead.
By DAN MCGRAW
Felipe Garcia Jr., shown here in 2005, died last year, and his brother thinks mortgage problems were a factor in his death.
Two years ago, in a story about the impending home foreclosure crisis caused by widespread predatory lending practices (“Wolves in Small Print,” Aug. 10, 2005), Fort Worth Weekly profiled Felipe Garcia Jr. The Edgecliff Village homeowner had refinanced his home to get money to fix his foundation. Instead, he wound up with a loan from Ameriquest that didn’t even give him enough money for the repair, but almost doubled his monthly payments over the next few years.
Garcia had sued Ameriquest for mortgage fraud. Since that story, Ameriquest has agreed pay out $325 million to borrowers across the country to settle class-action suits brought by attorneys general in 49 states and has gone out of business. Foreclosures are now happening at record rates across the country, and Tarrant County households have the highest rate in Texas. Many real estate experts expect those bad numbers to get even worse over the next few years.
And Felipe Garcia Jr. is dead. His brother thinks that the worry over his bad loan with Ameriquest and its extremely serious consequences was a factor in Felipe’s demise. Garcia died about a year ago from cirrhosis of the liver, caused in part by excessive drinking.
“He had quit drinking many years before, but the problems he had with that loan and his house caused him to stumble again,” said Edward Garcia from his home in Florida. “He was a mess in his last few months of his life. This whole problem with his house physically drained him. It dragged on and on.
“Before that mess all started, he was a homeowner who paid his mortgage, had a decent job, and was very happy,” he said of his brother. “Afterward, he had payments he could not afford, was under the threat of being homeless, lost his job as a healthcare worker, and started drinking again. I don’t think anyone can say this bad loan was not a factor.”
Felipe Garcia Jr.’s case against Ameriquest is still pending, though it is in limbo, according to Dallas lawyer Eric Calhoun, who is handling the case. Felipe left no will and had no assets besides the house. Edward Garcia said he couldn’t afford the legal bills for court hearings that would be required for him to be appointed executor of the estate, so at this point there is no one to keep the case going. The case has been postponed numerous times, and a hearing is scheduled in county court in December.
Ironically, the Tarrant Appraisal District still lists Felipe Garcia Jr. as the owner of the house, which the agency values at $90,300. And even though he has been dead for more than a year, he owes $2,914.46 in property taxes for 2006. Prior to last year, he had paid all of his taxes in full.
“I think this case illustrates the severity and seriousness of the foreclosure crisis here and across the country,” said David O’Brien, executive director of Housing Opportunities of Fort Worth, a private nonprofit that provides free counseling about mortgages and housing problems. “This is more than just people losing their houses at auction on the courthouse steps. Lives have been ruined, and we are going to see more of it.”
According to RealtyTrac, a California-based foreclosure tracking service, the Fort Worth-Arlington area ranks 13th among the country’s 100 largest metropolitan areas in foreclosures. According to the firm, one in 67 households in the area is dealing with foreclosure. Nearly 1,400 Tarrant home mortgages were foreclosed on last month.
The question that real estate experts are trying to answer is why Tarrant County has such a high rate. A number of factors are at play, but one dominates: the fast growth of new housing here — mostly in the less expensive range. Less expensive new homes attract more first-time buyers, who statistically rack up a higher percentage of foreclosures than do buyers of homes in older neighborhoods.
“What happened is that the home- builder and mortgage companies wanted this growth to keep on going and pushed loans on people who could not afford them,” said Tony Dauphinot, president of a real estate services company that has handled foreclosures. “Most got in for no money down but had adjustable-rate loans where the interest and payments went up over time. These folks couldn’t afford the house to begin with, but then after a few years they had payments that they couldn’t even come close to.”
Dauphinot said most local foreclosures are on new houses in the $100,000-to-$150,000 price range. Lenders often don’t include property taxes and insurance in these loans, he said, and borrowers find they have extra payments of a few hundred dollars every month. “Some have said that the bubble burst is now over, but I expect we will things get even worse over the next few years,” he said.
According to the Association of Community Organizations for Reform Now (ACORN), the record-setting foreclosure rates across the country and locally are a result of aggressive tactics among “subprime” lenders. Subprime loans often do not require big down payments or great credit ratings, but the interest rates are high and can go up. As federal and state banking regulatory agencies relaxed mortgage standards over the last decade, many people who would not have previously qualified for a home loan suddenly did. They could get into the housing game with little or no down payment, but the catch was adjustable interest rates, which pushed payments higher and higher over the course of the loan.
For many, including Felipe Garcia Jr., refinancing was the only option. Texas was among the last states to allow citizens to borrow against the equity in their homes. When that practice was finally legalized here, it created a huge market for companies like Ameriquest, which pounced on homeowners looking to use their home equity to pay off various other debts.
“What people don’t realize is that mortgage loans are public records, and these lending companies start treating them as a cold-call sales list,” said O’Brien. “The clients we have had with bad re-finance loans said they never intended to get one in the first place. They might see a flier on their car after they come out of church or get a call at home. Pretty soon, they are enticed into a deal they don’t know anything about and cannot afford.”
Andrew Hansz, a professor of real estate studies at the University of Texas-Arlington, said mortgage lenders are moving away from the easy-credit subprime loans — but don’t expect them to go back to the old standard of 30-year, fixed-rate loans either. “I think you will see less growth of these new starter homes in Tarrant County, because credit scores and down payments will have to be higher than before,” Hansz said. “But the different types of mortgages will still be there. Some will just be not as easy to get as before.”
Texas received $21 million of the $325 million Ameriquest settlement, and the attorney general’s office sent claim forms to about 21,000 Texans who signed loan papers with the company between 1999 and 2005. The AG’s office set a Sept. 10 deadline for returning the forms.
Dauphinot said the settlement is “a day late and a dollar short. Ameriquest and these other lenders caused so many problems, and we are all paying for it right now. The state needs to get control of the homebuilders and lenders who keep pushing this growth without any thought to the severity of the problems they are causing.”
During the last legislative session, Texas lawmakers did pass a mortgage fraud bill that toughened the requirements for lenders. The crime of mortgage fraud now includes illegally inflating property appraisals, concealing a second mortgage from a primary lender, and concealing or stealing a borrower’s identity. Last week, Texas Atty. Gen. Greg Abbott also appointed a mortgage fraud task force to further study the problem.
For Edward Garcia, all of this comes too late. He has been in Florida for three months now (he had trouble finding a job in Fort Worth), working for a mold removal company that repairs homes damaged by hurricanes. He has not seen any Ameriquest claim forms, since they would have been mailed to his brother’s house. Until a reporter told him, he did not know that the house was still in his brother’s name.“It has just been very hard for us to sort out all the estate stuff on this case,” Garcia said. “But I do know what happened to my brother [was caused] by this whole mess [with] that mortgage company. When he died, he was working two temp day jobs just to get by. He died penniless and angry at how just owning a home, which he had paid on every month for about 10 years, was causing him all these problems. In the end, he saw no way out.”