Refi, refi, refi -- Was 'push marketing' to blame?

For many homeowners in a bind, refinancing is both the problem and the solution. Too many people refinanced otherwise affordable mortgages, refinancing again and again until their mortgages became unaffordable. Now they're stuck because they can't refinance again. Solution? Congress would like to help them refinance.

The L.A. Times' Maura Reynolds explores the refi trap, focusing on the Miller family of Altoona, Pa. (pictured): "Vicki Miller bought her childhood home in Altoona, Pa., from her mother's estate for $32,000, using a nice, traditional mortgage from the local savings and loan. Seven years later, her debt has more than doubled, her once-significant equity has shrunk to zero and she's behind on her payments. The lender has begun to threaten foreclosure."

What went wrong? "Miller said she was persuaded to refinance her mortgage twice into sub-prime loans she didn't really understand, along with taking out a second mortgage. As such, she reflects what experts say is the true face of the sub-prime mortgage debacle."

Story quotes Elizabeth Renuart, a housing attorney with the National Consumers Law Center: "It was push marketing," Renuart said. "As the engine revved up from Wall Street to invest in these things, the pressure was on the brokers to make these loans."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: The Miller family, via L.A. Times.

Comments

[LA]

This sounds like many of the other, so-called "victim" stories we've seen. Not buyin' it.

BTW, prices are finally starting to come down in the South Bay, in a schizophrenic sort of way. Looks like lots of long-term owners (last sale in the 1970s) are looking to cash out at peak-plus prices. Also seeing more short-sale listings for up to 25% less than last sale (0-4 years). The pricing discrepancy between the two groups makes the former sellers look to be clueless or in serious denial. Will be interesting to see what unfolds over the next several months.

[Pat]

They got ripped off on the rates for their refis. However, they took money out and spent it. Where would they be without that money? If they had not done the refis, they would still be in trouble.

[Things that make you go]

There was an article in The Nation last week which focused on the disparate impact of the subprime crisis on the African-American community: http://www.thenation.com/doc/20080714/wright

This statistic was cited: "A United for a Fair Economy estimate in January put the wealth loss for people of color at between $164 billion and $213 billion, roughly half the nation's overall loss."

[Giacomo]

Yes, this is a factor that isn't discussed often enough: people who bought their houses well before the bubble but got into trouble by refinancing to cash out their "equity."

My last landlord SHOULD have been able to make a profit from my rent payments (he bought in 1997), but he had borrowed so much against the house - to buy a boat, and other toys - that the payments were bleeding him dry. Without any hope of selling at the price he needed to get clear, he gave it up to the bank.

[Theron]

Its been said a few times that perhaps some people aren't cut out to own a house. I would classify someone who has been "push marketed" into insolvency as such a person.

[Ace]

How can someone possibly keep taking out loans and spending money and NOT expect their payments to rise?

Sounds like paying off debt with more debt doesn't really work. Who would have thought?

[Arti]

What's outrageous is that these people willingly took the money's bank, spent it, told the bank whatever it wanted to hear, and now they don't want to pay the bank back! Where is the accountability? Why is absolutely no one helping these banks that got bilked BILLIONS from these rapacious home owners?

Oh I forgot, banks are supposed to be evil and we should always help the "little people", even then they are people who took a perfectly good house and took loans against it to finance their lifestyles, and now want the bank to hold the bag. Not buying it. I'm so sick of the biased coverage in the LA Times, they are just unable to see the perspective of the free market or of accountability, all they care about is making up a good human story by manufacturing sympathetic victims.

[RZ]

Everyone knows that businesses are out there to make a profit. And everyone knows that they're supposed to read the fine print before they sign. If they didn't understand something, why didn't they do the research to find out what it meant? Vicki Miller and these others really have themselves to blame for their bad mortgages since they didn't do their homework.

[Susan]

"push marketing"= marketing to greed

[TakeFive]

"The outstanding principal on her old mortgage had been $32,000. The new mortgage was for $60,000, which covered the cost of the new loan and allowed Miller to take out about $23,000..."

She sold her $32K property to the bank for $60K and made a tidy profit.

Why are people surprised that when they borrow more money, their payment needs to go up?

But I will allow that the lenders were relentless with this refi offers. It's almost a form of phishing, waiting for when people's economic situation compels them to take the bait.

[Chris]

When I refied I told a few people at work. It was interesting that younger people with luxury cars told me to pull as much money as I could out of the house. They are now struggling to make payments. Older people who seemed to be very well off told me they had never pulled any money out of their real estate holdings. So I followed the older guys advice. It was hard listening to AM radio ads about awesome loans with rock bottom rates. Now my 5.25% 30 year fixed seems pretty rock bottom!

[mike]

miller is an IDIOT and i do not feel bad about saying that. in the end of that article she said she was a trusting christian. she makes her faith seem like a bunch of gullible morons. imagine she admitted signing documents she didnt recgonize. IDIOT.

[TomServo]

I bought my house two years ago, and almost immediately I was receiving suggestions to refinance. Granted, I didn't, and I was obsessed with getting a single fixed rate and loan from the start... but there was definitely pressure.

[Todd in WeHo]

The key phrase in this article is "Miller said she was persuaded to refinance her mortgage..."

Had she been held at gunpoint to sign sub-prime loan papers she didn't understand would be criminal, but being "pursuaded" to refi is no excuse.

[anonymous]

I have to agree with LA.

No one forced them to spend the equity in their home. You don't spend money you don't have. You don't gamble with money you can't afford to lose.

[geomath]

Beer commercials run in every TV break, and there are billboards and magazines pushing booze everywhere we turn. Yet despite all this "push marketing" by the alcohol companies, most people are NOT alcoholics, and those who are would be so even if it weren't for the "push marketing."

The same applies here. When my husband and I bought a home (in the Philadelphia suburbs) in 2006, the loan officer tried his darndest to get us to agree to an option ARM that we could "just refi in a couple of years." But we did something really novel. We said NO. The more he pushed, the more vehement our NO's became. Finally, he realized that it was either sell us a fixed or sell us nothing, because we weren't going to agree to an option ARM.

Every one of these people could have done the SAME THING we did. They could have said NO.

[PotsNPans]

Uh--Show me the money please. I am seeing/hearing more and more of these stories. What'd you do with the money? What did you think was going to happen? You have not made a payment in how many months? What have you been doing with your money?

I do not see these so called victims as victims. SHOW ME THE MONEY!!!!!!

[mike]

another thing, we bought well before the bubble and when prices skyrocketed we took out tons of money and bought more houses in demand areas. now we have rental houses and i am not saying we are making money(that money is for the banks) but when i am too old to have fun we will have plenty of money to spend

[Uncle Billy Went to Washington]

Charlize Theron: Agreed.

The loan originators would call up the borrower as soon as the loan became eligible for refi and hit them again... another $50k to $100k cash out? Ready to go?

But then at a certain point the originators wouldn't even have to call. 3 months later the borrower was already conditioned to call, themselves. "Hey... I'm ready. Can we do it yet?" Churning. One fellow I knew boasted to me that he was doing 60-100 loans per month this way. For many many months. And this was at a "reputable" lender.

[Cal]

The Millers son, with that suit, appears to be a made mafioso so they should be ok unless he gets whacked.

Money was made freely available, the people took it and spent it, now that it is gone and the piper has to be paid they are saying they didn't know what they were doing. It strikes me as disingenuous.

[William E. Jones]

I don't understand how a person can be "forced" to borrow money. I receive credit card solicitations every so often, but no one has "forced" me to fill one out and send it in. How could someone be "forced" to refinance his/her home?

The example cited in Peter's write-up is puzzling because it uses the passive voice to describe the way this woman's debt increased. "Seven years later, her debt has more than doubled." Hmmm...all by itself?

This reminds me of when a child is all alone in a room with something fragile. There is a crashing/breaking sound, and a parent enters the room and asks, "What happened?" The child looks up and says, "It broke."

[Garrett]

"Vicki Miller bought her childhood home in Altoona, Pa., from her mother's estate for $32,000, using a nice, traditional mortgage from the local savings and loan. Seven years later, her debt has more than doubled, her once-significant equity has shrunk to zero and she's behind on her payments. The lender has begun to threaten foreclosure."

Okay, so she's got a house payment off of a now $64K home and she can't make it? Sheesh, what's she doing for a living, selling used pumpkins door-to-door at $1.50 an hour? Aint nobody crying for her out here in Cali.

[geomath]

-----Miller, a 52-year-old single mother, is typical of many who ended up with such loans. She was making about $26,000 a year working in the accounts payable office of a local lighting manufacturer.------

Believe it or not, that's good money out there. Altoona is the home of skiing/camping/fishing/outdoor activities and very little else. It's a nice place to vacation if you like outdoor activities, but you couldn't pay me to live out there.

------Miller moved into her mother's modest brick-and-siding house in 2001. It had become somewhat run-down in her mother's final years, and Miller quickly piled up debt on repairs. By 2004, she was burdened with about $15,000 in credit card and other debt.------

Here is where this woman made her mistake. It had NOTHING TO DO with "push marketing." She bought a house she could not afford. Sure, she could afford to pay the $32k price tag, but she did not factor in all of those repairs...and she should have.

I had the opportunity to buy my Great Aunt's home out of her estate. I would have loved to have bought that house, but I knew that I couldn't afford it. Not only was it a historic home in a very upscale neighborhood, it also needed extensive repairs. This is typical of estate homes; if the owner was very elderly, they could barely take care of themselves, let alone home repairs.

Instead of making a very serious financial decision with my heart, I made it with my head and sold the house to an investor. That's what this woman should have done. She could have then taken that money and put it down on a house she could actually afford.

This is 100% HER FAULT, not the lender's.

[Nancy]

Hmmm...The LA Times writer had to go all the way to Pennsylvania to find someone in this predicament to do a story on???

[Nancy]

You can rent a 1-bedroom apartment in Altoona for just $325 a month.