ARMs race: The fallout of the mortgage mess

Lost in the rush
Jeanna and Vernon Marshall were renting a home for themselves and their seven children when the owner decided to sell and gave them 30 days to move. So in January last year, they hurriedly signed what they thought was a $365,000 30-year fixed mortgage on a four-bedroom home in Henderson, Nev.

After the closing — during which “so many documents” passed through their hands — they realized they had signed onto a two-year interest-only adjusted rate mortgage that they could barely afford, with a payment of $2,923 a month.

Jeanna Marshall, 36 and disabled, receives $1,500 in Social Security payments a month, while her husband Vernon, 41, is a driver for UPS netting about $3,000 a month. Last year, however, Vernon’s work slowed down and they fell behind on their payments. They tried renegotiating, but the mortgage companies only wanted more every month. No other company would refinance the loan because it carried a $20,000 early payment penalty.

The house went into foreclosure in May, and the Marshalls are looking for a place to rent. With their oldest now 17, Jeanna is worried about college.

“We’re hoping and praying on scholarships,” she said.

‘Exploding ARM's’
Sharon Reuss of the Center for Responsible Lending, a nonprofit organization that works to eliminate abusive practices in home mortgages, says loans that give borrowers a fixed payment for the first two or three years before the monthly obligations adjust sharply upward — dubbed “exploding ARMs” — have been particularly troublesome.

“What has happened in the market has been very reckless — the kind of loans that in no way take account of people’s ability to repay them,” she said.

That’s what happened to the Fanfan family.

The three-bedroom bungalow that Milca and Josy Fanfan bought in 2002 in Brockton, Mass., a blue-collar suburb of Boston, wasn’t their dream house. But at $215,000 it was what they could afford for themselves and their 3-year-old son Nathaniel.

With subpar credit scores, the Fanfans were able to secure a loan from Ameriquest Mortgage Co. with a hefty fixed interest rate of 9.5 percent. The problems began when their mortgage broker called at the last minute to say they needed to come up with an extra $8,000 in fees. At the closing, they were told the loan would be adjustable-rate, not fixed.

Then Josy, a self-employed remodeling contractor, lost a finger in an on-the-job accident and was out of work for months. That put the couple behind in payments.

Milca asked that the loan be reworked, to no avail. Meanwhile, monthly payments on the adjustable-rate mortgage have ballooned from $1,700 to $3,000.

Milca called her lender almost daily without response and piled up attorneys’ bills and late fees. She had problems sleeping from all the anxiety, and her hair started falling out.

“Every month it was like, ’Is this nightmare going to be over?”’ she said.

Ameriquest spokesman Chris Orlando said the loan was made through an independent broker and that his company had worked with the Fanfans to keep them in their home.

After foreclosure proceedings began in February, Milca was referred by her state bank commissioner’s office to a state-funded agency that fights unscrupulous mortgage lenders and brokers.

Through the agency, the Fanfans negotiated a rate of 9.5 percent and the right to refinance in two years. The monthly battle to make payments isn’t over, but Milca is working several jobs to make sure it is won.

“I want people to know they can fight,” she said. “Don’t be ashamed to cry out for help.”

Don't miss this on MSNBC.com Pass it on: Sons of infertile men may be next The eight biggest Olympic marketing debacles Reality show judges range from wise to wacko Cosmic Log: Is this your jetpack? Forget your inhibitions: World's sexiest islands

MORE FROM REAL ESTATE

Real estate Section Front

NYC tops the list of America’s costliest cities Citigroup to suspend foreclosures for 30 days Mortgage rates remain below 5 percent Construction of new homes rebounds Homebuilder outlook dips despite tax credit Detroit artists use city’s blight as canvas Real estate firm Fairfield files for bankruptcy Mortgage relief slow in coming to many Foreclosure activity falls for fourth month Few helped by Obama’s mortgage relief plan Real estate Section Front   Add Real estate headlines to your news reader: