Love, death and foreclosure

Medical needs force new loans
The happiness ended in 2000, when Ophelia was stricken with Parkinson’s, Alzheimer’s, brain tumors and a stroke that left her bedridden, unable to speak. She required expensive around-the-clock care, but Vargas was determined not to put her in a nursing home.

He spent the couple’s cash, closed out their retirement funds and tapped some credit cards. That left only the family home, which had been paid off for a dozen years.

After initially taking out a $50,000 loan with the family’s longtime bank, Vargas turned to a reverse mortgage in late 2003. Such loans, available to older homeowners, are attractive to retired, fixed-income borrowers because they require no monthly payments. Principal and interest are generally not repaid until the sale of the home, often after the borrower has died.

“I needed that money to pay my wife’s medical bills,” Vargas said. “I didn’t have to make any payments until I was deceased and then they would take their money out of my house and my sons would get the rest.”

Reverse mortgage maxed out
By the time Ophelia Vargas died on Jan. 4, 2005, the expenses for her care had maxed out the reverse mortgage. And Ray Vargas had become a target of services that cull through land records to provide sales leads to mortgage brokers. To anyone familiar with property values in Cerritos, the public information on Vargas’ loan might as well have been a banner saying, “Elderly homeowner with lots of equity to cash out.”

Vargas was inundated with offers to refinance, by phone, mail and in person. “There were so many mortgage brokers after me, it wasn’t even funny,” he said.

Vargas’ younger sister, Rebecca Deleon, said she often tried to shoo away loan officers during visits to Vargas’ home. “Every time I went over there, he had a new person that was trying to give him a loan,” Deleon told msnbc.com.

In need of additional funds for his own home care and a pair of car loans, Vargas finally agreed to a loan. He insists the salesman told him the deal would refinance his house with a new reverse mortgage requiring no monthly payments.

“They told me I didn’t have to send any money until I passed,” he says. “Then they started sending me all these bills.”

A refinancing merry-go-round
With that, he was trapped in a rapid cycle of refinancing that saw four lenders hold notes to his house in 2005 alone.

Vargas said he is still as sharp mentally as ever but admitted that he didn't read all the loan documents and was sometimes confused about the terms of the loans, partly because he had medical issues that for a time confined him to a wheelchair.

But he insisted that he never signed up for any loan he did not believe to be a reverse mortgage. And while he acknowledged that his signature appears on many documents, he claimed it was forged in connection with at least three loans. He also said he never went to any office to conduct loan business and never signed any papers before a public notary, although many of the documents bear notary seals.

“I never saw them,” Vargas said. “It was all telephonic. I never signed anything with them. I knew something was wrong.”

Although he made mortgage payments once he realized he owed them, he said he was constantly assured by those who sold him the loans that each new refinancing would eliminate them.

Mike Stuckey / msnbc.com Attorney Marcus Gomez

"He’s very straightforward and honest," said Vargas' attorney, Marcus Gomez. "He’s a little old World War II vet. He has no reason to lie. He thought he was getting money through another reverse mortgage and he needed it.”

An examination by msnbc.com of hundreds of pages of bank statements, escrow and loan documents provided by Vargas showed that over 21 months in 2005 and 2006, Vargas’ home was refinanced five times through a total of six loans.

Huge fees, penalties, interest
In that time, his debt grew from $213,555 to $745,000. To tap his $531,445 in equity, Vargas paid at least $123,237 in loan origination fees and prepayment penalties. He paid at least $60,000 in interest as he struggled to make minimum payments on the loans, giving the money right back to the lenders he had borrowed it from. Thousands more in unpaid interest was added to his debt.

Appraisals justified the loans. When they were made, the loans on Vargas’ house likely never totaled more than 90 percent of its value, which peaked close to $850,000 in 2006.

Foreclosure was the lenders' trump card and the equity cushion was their wager that they would not lose any money. Whether Vargas could make the payments was irrelevant.

Given the huge decline in California real estate prices, Vargas' house today is worth hundreds of thousands less than the $702,506 currently claimed in connection with the first loan and the $124,043 claimed on the second.

Signs of predatory lending
After the reverse mortgage, all of the loans to Vargas had one or more signs of predatory lending, practices that are not illegal unless they cross the line into fraud. However, federal officials have long warned of their harmful potential. "Predatory lending threatens to turn the American dream of homeownership into an American nightmare," then-assistant HUD Secretary William Apgar warned in congressional testimony in 2002.

Foremost, all of the loans were made with no regard for Vargas’ ability to pay them back. They were “option ARMS,” which gave him up to four choices each month of how much to pay. But  in every case, the lowest option, generally not enough to cover that month’s interest, was more than his $1,600 a month income from Social Security and a union pension.

In other predatory features, at least three of the loans had hefty prepayment penalties. And three earned the agents who sold them a total of $35,475 in “yield spread premiums,” commissions paid by the lender to steer Vargas into loans that would yield more profit.

The first four loans were made by Downey Savings and Loan, World Savings Bank, Washington Mutual and Countrywide Bank, respectively.

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