by Tanta on 6/05/2007 03:44:00 PM
Tuesday, June 05, 2007
From the Charlotte Observer:
Three Charlotte-area builders will forgive almost $2 million in mortgage loans they made as part of a scheme to sell homes that the buyers couldn't afford, state regulators announced Monday.
These were unusual mortgage loans, according to a complaint filed by regulators. They were set up without the knowledge of the borrowers. The amounts were small. And there was no attempt to collect monthly payments.
But in the strange world of mortgage lending, these loans ranging from $24,000 to $37,000 allowed the recipients to qualify for larger loans from other companies. With that money, they paid for homes.
The settlement with Dixie Homes LLC of Gastonia and MCE Properties Inc. and Evans-Davis Inc. of Kings Mountain resolves allegations that the companies violated state mortgage and consumer protection laws.
Dixie and its owners, Brian Bragg, Donna Bragg and Mark Penegar, will pay a civil penalty of $7,000, and MCE will pay a penalty of $18,000, according to the office of N.C. Attorney General Roy Cooper.
All three builders also will cooperate in the state's investigation of the company that arranged the large and small loans, Hall Financial Services of Matthews. . . .
Hall's customers mostly lacked the savings for a down payment, and could not qualify to borrow 100 percent of the sales price.
On paper, the builders made mortgage loans to the buyers that covered 20 percent of the sales price. Hall then arranged a loan for 80 percent of the sales price from a mortgage company, generally New Century Financial Corp. These 80 percent loans were easier to get because lenders are comfortable that the home can be sold to cover the loan.
But borrowers were generally unaware of the 20 percent loans until closing. Some were originally quoted a lower price, but at closing were given papers listing a price 20 percent higher, and offering a second loan.
The builder loans typically required interest payments each month, with the full amount due after three years. The loan also had to be paid if a buyer tried to sell the home or refinance the larger loan. Most buyers, lacking the savings for a down payment, had no hope of paying the loan when it came due.
Wonder if this will come up when NAHB defends subprime lending on Capitol Hill tomorrow . . .