By Michael E. Miller
By Allie Conti
By Keegan Hamilton and Francisco Alvarado
By Jake Rossen
By Allie Conti
By Kyle Swenson
By Chris Joseph
By Michael E. Miller
Linda Davis is trying to hang on to the Christmas spirit. A week after the holiday has come and gone, the tree is still up in her home at the end of a quiet cul-de-sac in Pompano Beach. As Davis sits in her neat but sparsely furnished living room, two of her three daughters, still pajama-clad, pad through to raid the fridge for holiday leftovers.
The reason Davis doesn't want Yuletide cheer to end is contained in a sheaf of papers she clutches in an old manila folder. Those documents warn of an impending visit from a corporate Grinch, and there's no Seuss-like happy ending in sight. If Davis doesn't come up with more than $6000 by January 14, she and her children may be out on the street. Even if she raises that sum, in the months that follow, she will have to scrounge even more to make monthly house payments that have almost doubled in the past 15 months, from $784 to $1325 -- which far exceeds what she can afford. At that rate, she worries that her daughters, 17-year-old Amanda, 13-year-old Tressie, and 10-year-old Iman, will have to skimp on necessities so she can keep a roof over their heads. "I can't even rest at night... I keep worrying, are they going to come and throw my things out of the house?" the 38-year-old says, shaking her ponytail.
Davis's mortgage is held by Homecomings Financial, a Dallas-based lending company owned by GMAC Residential Funding Corp., one of the nation's largest home lenders. "You won't trust a financial matter as big as a house to just anyone," reads a welcome message on Homecomings's Website. "The company you choose has to be stable. It has to have a track record. And above all, the people there had better know your name, not just your loan number."
Homecomings is one of many companies that consumer advocates say preys on minorities and the elderly by charging interest rates far above the current standard, penalties for paying off early, exorbitant processing fees, and balloon payments that force homebuyers to refinance on ever-worsening terms. About half of the victims are African-American like Davis, according to both government and private studies.
Among those protesting such predatory lending is the Association of Community Organizations for Reform Now (ACORN), an activist group with a Fort Lauderdale office. "The general problem is that these lenders are not loaning based on the borrower's ability to repay," says ACORN's national communications director, David Swanson. "They're loaning based on the desire for stripping the equity someone has."
The people who fall prey to these practices generally don't understand all the terms of their loans, says Mary Ann Clark, a Florida assistant attorney general in the civil rights division. Balloon payments, which Davis will have to make if she manages to keep the house, are among the nastiest tactics: charging a lower interest rate to start in exchange for a single, massive payment years later.
Messages left at Homecomings for Davis's account representative, Tammy Rucker, were not returned. Jodi Ehlers Swanson, parent company GMAC-RFC's media representative, says it's Homecomings's policy not to comment on predatory lending issues.
The federal Department of Housing and Urban Development has been investigating predatory lending trends since 1999. In December 2000, the Federal Reserve Board proposed stiffening guidelines for lending practices. In the past year, Palm Beach County's Commission on Affordable Housing has practically eliminated new predatory mortgages in the area it oversees by setting standards, says Remar Harvin, county Housing and Community Development Department director. Several recent cases in Miami-Dade County in which lenders tried to turn out homeowners garnered widespread attention, sparking County Commissioner Barbara Carey-Shuler to assemble a task force to fight predatory practices. That group should begin work at the end of January.
Less has been done in Broward County. The state attorney general's office sued one lender, First Alliance, in June 2000 alleging predatory lending practices in Broward County. That case, in federal court in the northern district of California, is set for trial this spring. Allison Bethel, Florida assistant attorney general in the civil rights division, says her office is investigating numerous other mortgage companies for violations of the federal Unfair and Deceptive Trade Practices Act and other federal regulations. (Homecomings is one of the firms being probed.)
But for now, people like Linda Davis will have to keep struggling. She and her husband, Phillip, bought their three-bedroom house in October 1999. To pay for it, they put down $10,300 and took out a $72,200 mortgage from EquiBanc at 12.375 percent interest, about 3 percent above prevailing interest rates at the time. (A friend had given them EquiBanc's number.) The Davises' credit wasn't spotless -- there had been problems with a few old bills -- but the lending agent never indicated that their credit would force them to accept such a bad deal. In fact, Linda Davis says, the agent led her to believe that they would pay less than 10 percent interest. "When they tell you that, you say, "No problem,'" she says.
It wasn't until months later that she looked over the paperwork and discovered what she was really shelling out. "Honest to God, I didn't know I was paying that amount." At 12.375 percent, they would have to pay $205,336.94 for their $82,500 house. "I could buy two houses for that," Davis remarks.