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.
The Davises managed the $784 monthly payment, which stayed the same when Homecomings bought their mortgage in March 2000. The trouble began when Phillip left in April 2000. (Their divorce is being finalized.) The sudden loss of income made Linda, for ten years a teaching assistant of handicapped students in Broward County public schools, miss the September payment even though she had taken two part-time jobs: working as a recreation aide for an organization that helps the handicapped and cleaning office buildings at night.
Davis thought she might have to make a late fee for the missed payment. But Homecomings asked for much more. In a letter in mid-September, the company demanded $1800 to reinstate the mortgage and raised her monthly payment to $1087 for a year. Worse, if she were late again for any reason, Homecomings threatened foreclosure.
The company began proceedings in December 2000 after Davis, who says her paycheck arrives at almost the same time her mortgage payment is due, sent in her payment three days late. Homecomings refused to accept it and fired off a letter saying that she was in default and that it would take her house unless she coughed up $4000 immediately and made monthly payments of $1277 for a year.
A reputable mortgage company, when receiving a late payment, wouldn't react so swiftly and vengefully, ACORN's Swanson says. "They may send out a notice saying, "If we don't get your payment by whenever, then there's going to be a late fee.' They certainly don't say, "We're going to start foreclosure.'"
In April 2001, Homecomings requested even more money, this time threatening foreclosure if she didn't take out an insurance policy on the house that would hike her payment to $1325 per month, including the premium. Homecomings also demanded $1314 upfront for the insurance -- an amount she couldn't pay. The company didn't foreclose, but she did make the inflated payment until November.
Then she injured her back at work and had to depend on workers' compensation. "When I got my checks, it didn't add up to enough to cover the mortgage, much less pay for anything else," Davis says. "And the thing about it is, I had three more months to pay the $1325 a month." After that, her payment would have decreased to the original $784.
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So Homecomings started foreclosure proceedings again. "I know I've got to keep trying. So now they say I need over $6000 to bring me out of foreclosure."
Even if she somehow scrapes together the money, Davis still faces payments equaling two-thirds of her monthly income. That suggests Homecomings's practice is predatory, Swanson says. "The accepted standard by the federal government, and everywhere else, is that people shouldn't pay more than 30 percent for their housing."
Davis's husband was recently ordered to pay child support, and she went back to work January 3, so she might be able to manage the monthly payment if she can put together the reinstatement fees one more time, she says. She's reluctantly contemplating asking family and friends for help and considering bankruptcy. "Really, what I'm trying to do is just come up with this money, then refinance the house through another company," she says.
In case she can't raise the money, Davis has applied for shelter with the Broward County Housing Authority. But she knows its paperwork takes time. "I hope it just doesn't come too late," she sighs. "I was just thinking, I really hope this isn't my last Christmas in this house. I worked so hard to get it."