Homeland insecurity
The wild ride of refinancing may cost one woman her home
Amid Beverly Fletcher’s bouts of depression and psychosis, her home on Spence Avenue was her source of solace — until the phone rang two years ago with a call from Parsons Mortgage Group.
Fletcher had moved to her house in 1971, leaving Atlanta’s westside for Decatur. With her three young children in tow, she hoped to escape the grief of previous years. She had never made it past 10th grade. She had been sent to Central State mental hospital three times as a teenager. At age 25, her husband of two years was shot to death, leaving her to care for her children alone.
The young widow bought the brand new three-bedroom house in Decatur’s East Lake for about $16,700, a price that included the cost of escape. “It was the one I was looking for,” she says of her home.
To support the children and maintain the tidy brick and yellow bungalow, Fletcher held a job for 11 years, working in the hospital kitchen at Georgia Mental Health. She paid her first mortgage, and several subsequent ones, diligently, according to her attorney. It was the most recent loan that would hurt her.
Now, at age 57, her children grown and her home blissfully quiet, Fletcher is fighting foreclosure, her payments having climbed so high it may be impossible for her to stay.
The path that led to Fletcher’s financial distress differs, depending on who’s describing it. Mortgage broker Tom Parsons, head of Parsons Mortgage Group in Woodstock, says that when his firm called Fletcher she was already in trouble financially. Mortgage lender New Freedom, who financed the new loan, is suing Fletcher for falling too far behind in her payments, claiming that she breached her contract. “Ms. Fletcher has been stubbornly litigious, and has caused New Freedom unnecessary trouble and expense,” according to the lawsuit, filed this month in DeKalb County Superior Court.
Others allege Fletcher is a victim of fraud. And they say she’s one of perhaps thousands of homeowners nationwide — most of them poor blacks living in gentrifying neighborhoods — whose equity in their homes made them a target for unscrupulous profiteers.
The particular abuse Fletcher may have suffered has become more and more common in recent years, cropping up across the country. In mortgage lingo, the abuse is called “lending without ability to pay,” and it’s one of several practices that have been collectively coined as predatory lending.
The scheme works like this: A mortgage broker solicits borrowers and tells them his firm wants to help refinance their homes. The broker, who survives on the fees he can accumulate for each loan signed, is out to generate as many loans as possible. So to make sure a borrower is approved, the broker sometimes jacks up the borrower’s income — knowing that the borrower would never get the loan otherwise.
That’s what Bill Brennan, a predatory lending expert and attorney at the Atlanta Legal Aid Society, says might have happened in Fletcher’s case, which he’s investigating.
When a Parsons representative called Fletcher’s home in winter of 2000, she thought they were trying to help her, she recalls.
“They were telling me they could lower my payments from what they were,” Fletcher says. “I’m wondering why they were double when I was done.”
Even without taking medication to stabilize her mental disability — medication that “interferes with her judgment, concentration and fine motor skills” — Fletcher has trouble reading and comprehending, according to a letter from her doctor, D.S. Siddappa at the DeKalb Community Service, to Brennan.
“In our judgment, she is unable to make financial decisions of this magnitude without assistance,” according to the letter, which describes Fletcher as suffering major depression.
Fletcher says the language of her new loan confused her — and that she couldn’t have read what she was signing even if she wanted to. “There are some things I can spell — addresses, my kids’ names, small words.”
She says no one told her the payments would wind up higher than her actual income.
Before the Parsons call, Fletcher had been flipped through a number of high-cost, abusive loans, according to Brennan. By the time Parsons got to her, her mortgage had been hiked to $85,000. Her monthly payments were $670.
Then it got worse. After Parsons reconfigured her loan, tacking on fees and $19,000 in cash that Fletcher claims she didn’t ask for, the new balance topped $118,000.
And the payments, at $1,270, nearly doubled what she had been paying before — and exceeded her income by over $100.
Fletcher says she had trusted Parsons and had given the firm copies of her prior mortgage, as well as checks that proved her income, so that Parsons could help her. At closing, she initialed all the necessary pages of the mortgage contract — including the ones that listed an incorrect income and impossible payments.
“He was telling me to sign right here, and there was so much paper,” Fletcher says. “They made it seem easy. You know what I’m saying?”
A copy of Fletcher’s initial application, filed with Parsons and later obtained by Brennan, correctly lists her monthly income at around $1,160. Fletcher gets $500 in Social Security disability for her mental illness, $280 in retirement from the hospital where she worked, and $400 from the U.S. Office of Personnel Management, because her husband had served in the Army.
Yet the application on file at New Freedom, the agency that would actually finance the loan, lists Fletcher’s income as $3,300 per month — almost triple her actual income.
Thomas Barton, an attorney representing New Freedom, says that when the firm got the application, the numbers looked good.
“We didn’t have any knowledge that her income level was any less than that,” Barton says. “Whether it was Ms. Fletcher or the broker or someone in between who either inaccurately or fraudulently represented her income as a different income, we don’t really know.”
He says New Freedom does not have an obligation to verify the income — the application is proof enough.
When asked to explain the discrepancy between the income listed on Fletcher’s initial application and the higher income on the application on file at New Freedom, Parsons answered, “Why should I give you this information?”
He also says it was New Freedom’s obligation to verify Fletcher’s income.
“Would you loan out that kind of money without checking it out?” he says. “I wouldn’t. All I am is the in-between guy.”
Brennan says he began seeing an increase in clients with falsified incomes on their loan applications over a year ago. “They started coming in one after another,” he says. “I started asking every person right off the bat, ‘What was your income at the time of the loan?’”
Brennan’s office is currently working on about a half-dozen cases in which he suspects borrowers received loans they couldn’t afford because a broker — or someone else up the line — falsified the borrower’s income.
Falsified incomes can qualify borrowers for a high-dollar mortgage — one, unfortunately, whose payments the borrower can seldom afford. The borrower then struggles to make payments. Often, they can’t.
Fletcher’s first foreclosure letter arrived in March, a year and two months after her first payment on the new loan. She spent much of the loan’s $19,000 cash advance to make her mortgage payments, she says. But that money got used up.
Brennan has since worked to postpone the foreclosure, alleging the loan never should have been made, that it may violate Georgia law and that Fletcher was not mentally equipped to enter into it.
The apparent abuse against Fletcher is especially loathsome because of the amount by which her income was overstated — coupled with her mental disability, says state Sen. Vincent Fort, D-Atlanta, who pushed through the Georgia General Assembly one of the nation’s strongest anti-predatory lending laws.
“This is just about as bad a case, and as egregious a case, as you’re going to get,” Fort says. “For them to play hardball with this kind of person just borders on inhumane.”
The new law includes a provision that makes lending without ability to pay illegal in some cases. It goes into effect Oct. 1 — too late for Fletcher.
Yet there are protections pre-dating the new law, written into past legislation, that could punish brokers and lenders who help make loans to people who can’t pay them — as well as brokers and lenders who falsify loan applications.
But it’s impossible to tell whether the state Department of Banking and Finance enforces the law; all records of the department’s investigations are confidential.
Brennan says he intends to rely on the current law, which prohibits lenders and brokers from making loans “with the intent to foreclose.”
He also claims both Parsons and New Freedom profited at Fletcher’s expense, with Parsons earning more than $6,000 in fees tacked to her loan.
“Every financial services entity participating in the process benefits financially,” Brennan wrote in a letter to both firms. “Only one person loses — Ms. Fletcher. She loses her home of 30-plus years and the equity she had in it.”
Last week, a deputy came to Fletcher’s door to serve her with the New Freedom lawsuit pushing for her home’s foreclosure. A hearing is scheduled Sept. 18 in DeKalb County Superior Court to determine whether Fletcher is mentally capable of making her own financial decisions.
Fletcher and Brennan remain confident that Fletcher’s house — recently appraised at $156,500, nearly 10 times what she paid for it — can be saved. Yet Fletcher does say that, due to her experience in trying to refinance her home, she’s wary. She claims the firm that first seemed her ally turned out to be quite the opposite.
“When it was all over,” she recalls of her closing with Parsons, “they said, ‘Good luck.’”