Pipeline

Foreclosure Moratorium or Bust

An Ohio man facing eviction from his foreclosed home has gone to extreme lengths to call attention to his plight and that of other homeowners in distress.

On Sunday afternoon, Keith Sadler and five activist friends locked themselves inside his Toledo-area home and are refusing to leave until a moratorium on foreclosures is declared in Wood County, Ohio.

"We tried working all these avenues, and we feel like the system is geared toward the banks and not the people, so we felt we needed to take matters into our own hands," Sadler told American Banker. "The only other option for them is to come in and drag us out."

Sadler's two-bedroom, one-bath home in Stony Ridge, which is just outside Toledo, was sold to the owner of the mortgage, State Bank and Trust Co., in a January sheriff's sale for $33,333.34, according to the Wood County sheriff's office.

Sheriff Mark Wasylyshyn said he has a court order to hand the house over to the bank, a subsidiary of $653 million-asset Rurban Financial Corp. of Defiance, Ohio. Wasylyshyn said he plans to execute the order but would not say when.

Wasylyshyn said he gave Sadler plenty of time to move out and that he had agreed to leave the property by midnight Sunday.

"I'm just disappointed in him that he gave me his word that he was going to move out and he didn't," the sheriff said.

If Sadler leaves the property without incident, he will not be arrested. However, if he refuses to leave, he will face arrest, the sheriff said.

Sadler, a co-founder of the Toledo Foreclosure Defense League, said he and the others in the house are prepared to stay for as long as is necessary.

"We made preparations to bring in enough water, food, to last us so we can wait them out," he said.

Sadler said he received his first foreclosure notice in January 2009 after falling about four months behind on payments.

He had been out of work from his job at Dana Holding Corp., an auto parts maker, due to arthritis surgery on his hand. When he received the foreclosure notice, he was preparing for a second surgery.

Sadler requested a loan modification, but he was told his debt-to-income ratio was too high, and it was denied.

Mark Klein, the president and chief executive officer of State Bank and Trust, said the bank considered "all possible avenues" to keep Sadler in his home but that, in the end, an agreeable solution could not be reached.

"We honor and attempt to bring all opportunities available to keep people in their homes," Klein said. "But when there's virtually no source of income to pay a loan, it becomes incumbent upon the bank to protect the assets of the bank and its shareholders."

Sadler, who has been communicating with the media through a two-inch hole in the front of the house, said he is encouraged, and even a little surprised, by all the attention he has received. Media inquiries have come from as far away as England, he said.

Sadler has also been uploading videos documenting his struggle onto websites like YouTube.

"This action is really not about my house," he said. "We need people to take their communities back, away from the banks and the corporations … because they don't serve the people."

Backstopping Mom and Dad

It used to be common for children to piggyback on their parents' credit to buy a car. Now, according to an auto leasing company, the opposite is happening.

In California and Florida, whose unemployment and foreclosure rates are among the highest, parents are increasingly using their grown children's higher credit scores to lease cars, said Sergio Stiberman, the founder and CEO of LeaseTrader.com Inc. in Aventura, Fla.

Nationwide, the company has tracked a 29% increase from two years ago in the number of middle-aged parents asking their children to co-sign for them on a car lease, he said.

Many of these adult borrowers can afford to take over a lease payment "but have issues qualifying for credit," Stiberman said, which is why they "have been turning to their children for help."

More often than not, it is the "child," aged 21 to 28 years old, who calls the leasing company on the parents' behalf and asks to co-sign the lease, he said.

Borrowers who have children as co-signers take over a lease payment of $399 a month, on average, with less than 18 months left on the contract and no down payment, he said.

(Shot) Gun Control

One of Fannie Mae's new quality-control requirements is designed to prevent a type of mortgage fraud called "shotgunning," but the guidelines could occasionally send lenders on wild goose chases.

Beginning June 1, lenders originating mortgages headed to Fannie will have to pull a second credit report just before the loan closes.

This way, a lender can find out whether other creditors have recently requested information about the mortgage applicant — a red flag indicating someone might be trying to obtain several loans (from multiple, unwitting lenders) on the same property. Typically, a shotgun fraudster skips town with the proceeds of all his loans. Most of the lenders do not recoup a cent because their mortgages are subordinate to the first one recorded and the home will not fetch enough in a sale to cover the junior liens.

Will Dillard, a vice president of operations at SettlementOne Credit Corp., a San Diego reseller of credit data, said that pulling a second credit report would help stop such frauds but that lenders might also waste time checking out false alarms.

"If they see another inquiry, Fannie would like to see lenders query those creditors," Dillard said. "If you're at the funding table ready to fund and you see a new inquiry popping up, the question is, do you send your underwriter out … to track down Honda Motor if the borrower is also trying to buy a new car?"

And some fraud could still get through because often creditors do not report inquiries to the credit bureaus in a timely way, he said.

Dillard and others in the industry also said that some legitimate applicants could be disqualified, or their loans would have to be reunderwritten, if their debt-to-income ratios had grown between the first and second credit reports. (Think of a couple who bought furniture on credit for that home they were already stretching to buy.)

One thing is for sure. "Gone are the days when a lender can fund a loan on a credit report that is 60 to 90 days old," Dillard said.

Other changes Fannie will require include more frequent reviews before and after funding loans with certain high-risk characteristics.

The "loan-quality initiative," announced in February, is designed to reduce loan repurchase requests. If lenders do a better job on the front end of making sure the loans they deliver meet the government-sponsored enterprise's guidelines, Fannie has said, it would not have to make lenders buy back so many defective mortgages after the fact.

Quotable …

"It's hard for me to get terribly sympathetic when a bank makes a dumb credit bet. … If I have to care who is on the other side of the trade, I shouldn't be insuring bonds."