Lawmakers weigh mortgage reforms

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Willie Ricks fell behind three months on his mortgage payments while on strike last fall at the Goodyear Tire & Rubber Co.

He and his wife ended up owing their bank $8,001, including late fees and other charges. When the Fayetteville couple mailed payments to stave off foreclosure, their bank routed the money to a “suspense” account instead of applying it to their balance.




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“All of a sudden, bam! I guess they heard the plant was on strike and this is the time to take someone’s house away from them,” Ricks said after a foreclosure hearing in December.

As foreclosures skyrocket across the state, lawmakers are considering new regulations meant to help families like the Ricks avoid losing their homes.

The details of one bill — the first in North Carolina to comprehensively address what are called servicing fees — are being hashed out this week.

Consumer advocates say new breeds of fees by lenders and servicing companies make it difficult to catch up on delinquent mortgages, contributing to the onslaught of foreclosures. The legislation, introduced as Senate Bill 1264, clarifies the types of fees that would be allowed and requires lenders to apply payments immediately.

Ricks eventually crossed the picket line and pulled from his savings to save his home off Hoke Loop Road. Yet many other families aren’t so lucky.

A Fayetteville Observer investigation found as many as 1,100 homes in Cumberland County fell into foreclosure and were sold at courthouse auctions in recent years.

Nearly half of the failed mortgages were on homes bought or refinanced less than four years earlier. As many as a third were within three years, strongly suggesting that buyers either got loans they couldn’t afford or stumbled on adjustable interest rates.

Overall, nearly 5,000 homes in Cumberland County sold at auctions from 2001 through 2005, the analysis found. Such turnover has eroded neighborhood property values, ruined family finances and spawned a frenzy of risky investing that sometimes leads to more homes lost.

Another bill pending in the General Assembly could help track unscrupulous brokers by requiring all deeds of trust — documents for mortgage loans filed at courthouses — to list the broker’s name and license number.

And mortgage fraud would become a felony under another proposed statute, supported by the state attorney general.

Yet other reforms haven’t made it so far, including added defenses for homeowners when a lender sues to foreclose. Also, the bills don’t tackle questions of how lenders determine if borrowers are capable of paying on loans.
Bill’s prospects

Lawmakers and interest groups are privately debating compromises on the bill regarding servicing fees. As many as 10 groups representing mortgage and banking interests oppose certain provisions, which an industry spokesman described as a “dramatic departure from existing laws in the state.” The lending industry is well-financed and influential in North Carolina.

Al Ripley, of the N.C. Justice Center, is lobbying for the legislation on behalf of the consumer-advocacy group.

“It’s in a state of flux right now,” he said Wednesday. “...The most discussion is focusing on the servicing standards, and what those servicing standards should say.”

Lenders are increasingly using servicing companies to manage their loans. Those companies make money by charging for everything from late payments to “drive-bys” — sending someone to a mortgaged property to ensure that it is kept up.

Sponsors of a House version of the bill include Reps. Rick Glazier and Margaret Dickson, both Democrats from Fayetteville.

“Homeownership is a very good thing — it’s the greatest asset most people will have,” Dickson said. “You don’t want people to lose it. You want them to be responsible about borrowing, but you always want the people lending to be responsible lenders.”

The nationwide crash in the subprime market is giving some traction to the legislation. Critics of subprime loans — typically to borrowers with poor credit — blame them in part for the increase in foreclosures in North Carolina. Foreclosure cases in this state have risen 174 percent since 1998, up to 45,512 by last year.

“I think in every legislative district, there are people losing their homes,” said Chris Kunkle, a lobbyist with the Center for Responsible Lending in Durham.

Cumberland County is a bit of an anomaly. The 1,571 new foreclosure cases filed in 2006 were about 5 percent fewer than in 2005, but overall numbers have held steady since the 1990s. The cases are the first step in foreclosure and don’t always result in an auction.
Multiplying fees

Senate Bill 1264 addresses two recent N.C. Supreme Court decisions that made it difficult to sue over illegal lending. The legislation would unfurl a two-year statute of limitations for suits over certain questionable loans. It would also put out-of-state lenders under the jurisdiction of North Carolina courts.

Glazier said that portion of the bill will likely go through.

What’s less certain are more contentious proposals aimed at fees, which Ripley has supported. He and the lending-industry groups are making progress toward a consensus, he said. They expect to present a revised version of the bill to lawmakers for their consideration next week.

“I think one thing it will do is stop or greatly reduce the abusive servicing we’re seeing on the marketplace right now,” Ripley said of the legislation. “That will better protect homeowners already in loans that are too costly or unaffordable.”

As written, the bill requires lenders and servicers to:

Itemize all the fees they bill to defaulted homeowners, instead of current practices of mailing a notice with a total amount due. Fees include past-due tax, late fees, service fees and “reasonable” attorney costs.
Assess the fees within 30 days of whatever triggered them. In other words, if a homeowner isn’t billed a late fee within 30 days of the late payment, the lender can’t decide later to try to collect the fee.
Better inform homeowners of their options and rights. Notices to delinquent borrowers would explain that they can ask a Superior Court judge to intervene; that skipping out on a foreclosure hearing puts the home at risk of sale; and that they can contest the case.

Hank Cunningham of the Mortgage Bankers Association of the Carolinas said the bill’s original wording would have ended up costing consumers more money. A better idea, he said, would be to clarify disclosures so people better understand the loans before they sign them.

He is the chairman of the association’s legislative committee.

“I think that any change to foreclosure is going to require lenders, consumer groups, etc., to sit down and make a reasonable approach to solving a problem,” Cunningham said. “I think this bill would make it very difficult — if passed just as it’s proposed — and very expensive to service loans in this state.”
Soldier’s home

After Sandra Kilby’s bank declared her mortgage in default, fees and other costs swelled to $6,000, including back payments. Kilby’s home in Hope Mills began its slide to foreclosure in November while her husband was deployed to Iraq. A problem with electronic transfers of his paycheck, and payments to their bank, made the loan delinquent, she said.

Kilby mailed payments, but her bank also failed to apply the money to her balance, she said. A representative at the bank refused to speak with Kilby by phone when she said her husband was away.

“They don’t want to work with us, so we can get the head start,” said Kilby, whose husband had to call the bank from the war zone. “No, they want to be stubborn.”

Under Senate Bill 1264, lenders must immediately apply payments toward principal and interest. Lenders wouldn’t be able to pile on more charges if a homeowner makes a full payment, even if the amount doesn’t cover overdue fees.

In January, the Kilbys cleared up their account and avoided losing their home three days before a scheduled auction.
Adjustable interest

An estimated one in five subprime loans issued in 2005 and 2006 will end in foreclosure, according to a study by the Center for Responsible Lending. The reason: many of these loans have adjustable interest rates, said Kunkle, the center’s lobbyist.

Hundreds of billions of dollars in adjustable mortgages in the U.S. will kick in with higher rates in the next couple of years.

North Carolina led the nation in 1999 with a law cracking down on predatory refinancing, in which homeowners “flipped” their mortgages at the expense of tremendous fees.

“(Adjustable interest) is the new wave of flipping,” Kunkle said. “This is the second generation of flipping, putting people in loans that they know two years down the line are going to be unaffordable.”

The center and other advocacy organizations want to require lenders to consider a borrower’s “suitability.” Banks sometimes approve borrowers based on a loan’s initial payments — with low “teaser” interest — instead of the amount when interest fully adjusts in two or three years.

Suitability requirements for underwriting loans are not included in the pending bills.

Ripley, of the Justice Center, said curbing service fees would be a significant step for consumers. Servicing abuses, he said, show up in nearly every loan he discusses with lawyers who take on foreclosure cases for low-income families.

“It’s really just shining sunlight on these fees being charged, and giving borrowers some way to defend themselves.”
Staff writer Matt Leclercq can be reached at leclercq@fayobserver.com or 486-3551.

Teen charged with taking credit card from locker room

A Rhinelander teen has been charged with stealing a credit card from the locker room area at the YMCA of the Northwoods.Aaron Richardson, 17, made an initial appearance in Oneida County Circuit Court Friday where he was charged with fraudulent use of a credit card (a misdemeanor punishable by nine months in jail) and felony bail jumping.




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According to a police report attached to the complaint, Richardson was with two other young people at the YMCA when one of them allegedly took the credit card from a locker.The group took the credit card to Wal-Mart and Shopko where they successfully bought clothes and an IPod before one of the stores denied the card.It is unclear if the two people with Richardson are awaiting charges or if they have already been charged in juvenile court.Richardson was charged with bail jumping because he was free on bond in an Iron County case involving burglary and other charges.He is scheduled to be back in Oneida County Circuit Court May 7 for a preliminary hearing.YMCA of the Northwoods Executive Director Steve Courts says the Y advises its members to lock all of their belongings either in their car or in a locker. Locks are available for the lockers, he added, noting that the Y also has mandatory sign-in for all persons in the building.Courts said people tend to think that the YMCA is different from other places and that things like stealing won't happen there, but unfortunately that is not the case.&#8220We tend to have flare-ups a couple of times a year,” Courts said, adding that one theft is too many for his taste.

Deal for mortgage raises questions

Herbert A. Freeman said when he bought his double-wide manufactured home in 2001, the seller asked a favor.

For $5,000, the seller — Dennis D. Williams — wanted to use Freeman’s name and credit to also buy himself a home.

Freeman, a school custodian, agreed. He signed a $420,750 mortgage in his own name for Williams’ house.

The transaction is one of dozens of questionable deals tied to the troubled neighborhood of Windy Pines South.

At the time, Williams was president of Fintech Homes, a company that sold land-home packages in the subdivision south of Hope Mills. Freeman came to Williams about buying one of the double-wides.

Williams wanted to purchase a luxury home in the Buckhead neighborhood, off Raeford Road, Freeman said. He offered Freeman the $5,000 if he would buy it for him, with an agreement that Williams would make all the payments and pay the taxes, Freeman said.

Deeds show the transaction took place October 2001. Freeman obtained the loan to buy the house at 604 Humboldt Place. Freeman’s name is also on the sales deed as the purchaser.

The closing attorney, Andre Barrett, has since been sentenced to prison for unrelated real estate fraud. Barrett did many of the other closings in Windy Pines South, where homeowners found problems with their mortgages and ended up in foreclosure.

A week after the transaction, deeds show, Freeman got his own home in Windy Pines South with a mortgage of $89,200. Barrett closed that deal, too.

Although loan applications are supposed to list a borrower’s financial obligations, Freeman’s application for his own home makes no mention of the $420,750 loan, which would have carried monthly payments of $3,770, according to paperwork. Freeman said he earned no more than $2,800 per month as head custodian at Gray’s Creek Elementary School and with other part-time jobs.

Williams declined to answer questions about the deal.

But real estate records indicate Williams probably had credit problems. Deeds show a bank had begun foreclosure proceedings against Williams and his wife on a $345,000 home in the Kingsford subdivision that they bought in August 1999. Their mortgage — with adjustable interest that started at 12.75 percent and would go up after three years — was the same type of costly loan that sunk many homeowners in Windy Pines South.

The Williamses’ loan also carried a prepayment penalty, which meant the bank could charge fees if they sold the home before the interest rate went up.

Freeman, 54, said he had good credit. The Buckhead mortgage — in Freeman’s name — appeared to have good terms: no adjustable interest, no penalties.

Freeman liked Williams. When Freeman fell behind with his own payments in Windy Pines South — the $600 mortgage kept going up, like everyone else’s in the neighborhood — Williams gave him $6,000 to catch up, Freeman said.

“I went to Dennis, and he gave me the money to get current,” Freeman said. “I’m thinking everything is OK.”

In June 2003, deeds show Freeman extended to Williams an option to buy the Buckhead home. Freeman gave Williams power of attorney to deal with Equibanc Mortgage regarding payments and balances.

In December 2005, a deed shows, Freeman sold the property to Williams for $500,000. Freeman said no money changed hands. The home, with a swimming pool, remains in the Williamses’ name.

Freeman wasn’t so lucky. He fell behind again. The bank eventually foreclosed. He lost his home when the bank auctioned it in August 2004.

He was devastated.

“To me, it was the most embarrassing thing I ever had to do,” Freeman said. “I stayed over there a while and I got to know the people and stuff, and then when my foreclosure came, I had to move out.”

More than two years later, he’s still paying off bankruptcy debts. He rents an apartment near Bonnie Doone, off Bragg Boulevard.

“It was a waste of my time, and a dream of a home went down the tubes,” Freeman said.
Staff writer Matt Leclercq can be reached at leclercq@fayobserver.com or 486-3551.