Posted May 09, 2007 01:25 am CDT
As Lelon DeWitt was undergoing quadruple bypass heart surgery in Elkhart, Indiana in 2004, a subprime mortgage broker caught up with his wife, in the hospital waiting room. It was now or never if the couple didn’t want to lose their loan, she remembers him saying. She left the hospital and signed. Her husband survived the surgery, but not the $143,000 loan, which later went into foreclosure.
The DeWitts’ experience, reported today in a 10-page article by Reuters, is par for the subprime lending course, the news agency writes. “Borrowers lied about their income, sometimes encouraged by unscrupulous subprime sellers. Property appraisals were faked to justify inflated loan values. Loans were closed at fast-food restaurants or across kitchen tables at midnight.” Meanwhile, lenders may have misled borrowers about the terms of their loans, advertising low teaser rates without making clear that loan costs would eventually go much higher, and worse.
“They basically put you in the closet, turned out the lights, and said, ‘Sign here,’” said Bill Purdy, a California lawyer who represents homeowners with predatory lending claims.
All of this alleged wrongdoing eventually spawned a storm of private litigation and government regulatory agency actions. Lenders didn’t intentionally make loans that they thought would not be repaid, some subprime industry representatives say. Nonetheless, a number of companies are now paying the price for loans claimed to be predatory. In January 2006, for instance, Ameriquest, without admitting wrongdoing, agreed to a $325 million settlement of investigations by states throughout the country. The company also agreed to reforms intended to clarify future loan terms.