You wouldn’t dive into the water if you saw a shark fins. But a lot of low-income and older Mainers take the plunge into a sea of debt, at the mercy of unscrupulous mortgage brokers.
Typically, these people no longer qualify for a straight-ahead loan at their local bank so they turn to less accountable sources, such as a lender advertising on the Internet.
Many moneylenders are responsible. But for people who may be desperate for some cash, there are brokers ready to take them for a ride. A new report shows they are out for blood, costing Mainers some $23 million per year in personal losses. What’s at stake is no less than the roof over your head.
Among mortgages arranged by mostly non-bank lenders in 1999, one in five ended up a foreclosure, giving Maine the highest foreclosure rate in New England.
A comprehensive report by a nonprofit community development agency, Coastal Enterprises Inc. (CEI) in Wiscasset, found that Maine does little to regulate predatory lending practices, and the study recommends legislative action to fix the problem. The CEI study was a joint project with North Carolina’s Center for Responsible Lending.
Relief may come in the form of a bi-partisan bill being drafted by House Majority Leader Glenn Cummings (D-Portland). CEI officials say a 2003 Maine law to curb abusive lending practices did not go far enough and failed to protect citizens seeking affordable mortgages or borrowing against their homes. Often these borrowers are mired in credit card debt.
Carla Dickstein, CEI senior vice president for policy and research, pointed out Maine Attorney General Steve Rowe has been working to resolve a legal dispute with aggressive national lender Ameriquest, which does $233 million worth of business in Maine. An earlier class action suit involved another big player, Beneficial and Household Finance, which lends $50 million to Mainers. But outside of Rowe, who supported the CEI report, there are few advocates for gullible people borrowing from greedy lenders.
In 1999, looking for business financing, one Maine borrower from a town near Bangor was referred to a broker who made loans for WMC Mortgage in California. He got an adjustable rate mortgage for $59,000 with a two-year fixed rate of 9 percent, about 1.5 percent more than the initial rate quoted. The lender put a lien on the entire property, although the borrower had asked for a lien only on the one-acre that included the house. When he noticed the problem two years later, WMC wouldn’t change the deed. So in 2001 the owner refinanced with Beneficial to sort out the lien problem. Beneficial offered an initial interest rate of 7.5 percent over the telephone, but the final rate at loan closing turned out to be 11.9 percent. The initially offered $1,000 in broker fees increased to over $6,000 by closing, or 7.2 percent of the loan amount. At closing, Beneficial presented the borrower with two loans, including a second loan with a 19 percent interest rate. The first loan included a mandatory arbitration clause that he didn’t know about until after the closing.
In spite of the 2003 Maine anti-predatory law, all the terms and conditions of these loans were legal. The borrower is now in foreclosure and expects to lose his house. He and his family lost $100,000 in equity and only received $800 from the Beneficial settlement in 2003.
Dickstein said the big mortgage brokers stay just inside the law, yet they manage to charge outrageous fees for points, penalties for early payment and interest rates. She said CEI is in the business of affordable housing, and predatory lending “was undermining all our work. People don’t always understand it. The real problem is education, but we need regulatory laws because it’s such an un-level playing field out there. You definitely need a strong regulatory environment and we don’t have that here.”
The report says some 1,000 Maine families are affected each year by these practices. “Our findings are not about the Maine banks and credit unions that serve our communities,” said Ron Phillips, president of CEI. “Rather, it’s about the aggressive and exploitative practices of a segment of the fast-changing mortgage industry that’s causing the problem.”
The study takes a hard-nosed look at predatory lending practices in Maine, including an examination of court records in Lincoln County, Portland and several other places. Overcharging homeowners in various ways may be nothing new, but in Maine the problem seems to be severe.