One reason I find myself in the financial fix I am in is because I took took a gamble. The plan hatched with my mortgage broker was to temporarily pay a low, low mortgage--that did not lower my principal--to free up enough cashflow to pay down my credit-card debt. This would improve my credit score enough that, in a year or two, I could refinance one last time into a low, comfortable, fixed-interest rate.
Yes, people were talking at that time about the housing bubble possibly bursting, but it wasn't like my home's value could possibly drop lower than my new mortgage. Besides, as my broker said, it is better to keep the principal higher because should things turn south my bank would be more likely to foreclose on someone with a lot of equity than to eat all my mortgage debt.
Well, things haven't gone quite as planned, but I would not blame my broker. He isn't one of these shady subprime guys who foisted a loan product on me that I could not afford. Seems like I was lucky to avoid one of these hucksters in these parts, according to a troubling piece in Salon by Alyssa Katz, the author of a forthcoming book on the foreclosure crisis.
As Katz reports, some of the scummiest purveyors of subprime loans are concentrated right here in Orange County--and they have now reinvented themselves as "loan modification specialists" who are "heroically" fixing the mess they helped get us all in--for a profit.
The story opens at the Long Beach Hyatt, where some 40 mortgage brokers and real-estate agents are gathered for seminar conducted by a broker and real-estate attorney, who have identified loan modifications as a way to make money off of other people's debt. The idea is for these agents to renegotiate the terms of borrowers' mortgages, get them into lower monthly charges so they can keep their houses, and earn the brokers fees for arranging the new deals.
What isn't being explained up front to borrowers is that the remaining debt doesn't simply vanish, it must be reckoned with down the road, plus years of additional interest, reports Katz, who adds that this is also a dirty little secret of the Obama administration's housing rescue plan. With homeowners still on the hook--and possibly worse off in the end--the "biggest winners in the government's $275 billion homeowner bailout just might be the mortgage brokers who were largely responsible for creating the disaster in the first place," Katz writes.
Among them she identifies is Shawn Kolahi of the Irvine-based Loan Processing Center Inc. Just a couple of years ago, Kolahi was a broker for Dana Capital, which sold loans on behalf of Irvine subprime behemoths like Option One and New Century under its own brand name.
Dana Capital specialized in the most noxious of all mortgages -- "cash out" refinancing, in which homeowners with bad credit were urged, through a barrage of junk mail, faxes, telemarketing calls, late-night TV ads and Web phishing, to take out new loans based on the swelling value of their real estate. Dana's brokers often skirted the edges of the law, working without licenses to sell mortgages in the states where they peddled them. For selling loans without a license in New Jersey, Kolahi was named in a cease-and-desist order prohibiting Dana Capital from doing business in that state. By 2007, nine states had ordered Dana Capital to get out. Facing hefty fines from regulators, the company shut down.
"Why do you think so many loan mod companies are here in Orange County?" says Kolahi's account executive, Sam Carlson, later in the piece. "We've got cheap office space and out-of-work loan processors!"
As Katz reports, the state has also allowed another OC company, Mortgage Bailout Assistance (1-866-BAILOUT) to charge borrowers to repair their bad loans. It's a spinoff from lender Amtec Funding, which, like Dana Capital, specialized in aggressive marketing of subprime loans nationwide, a practice that won the company an FCC citation for violations of the Do Not Call registry. Amtec, which is still in business, was co-founded in 2005 by Samy Khoury, a former vice president of sales with First Alliance Mortgage, one of the most notorious of the first wave of subprime lenders in the 1990s.
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