McClatchy
How one couple beat Goldman Sachs and saved their home
By Greg Gordon | McClatchy Newspapers
SAN JOSE, Calif. — When California wildfires ruined their jewelry business, Tony Becker and his wife fell months behind on their mortgage payments and experienced firsthand the perils of subprime mortgages.
The couple wound up in a desperate, six-year fight to keep their modest, 1,500-square-foot San Jose home, a struggle that pushed them into bankruptcy.
The lender with whom they sparred, however, wasn't the one that had written their loans. It was an obscure subsidiary of Wall Street colossus Goldman Sachs Group.
Goldman spent years buying hundreds of thousands of subprime mortgages, many of them from some of the more unsavory lenders in the business, and packaging them into high-yield bonds. Now that the bottom has fallen out of that market, Goldman finds itself in a different role: as the big banker that takes homes away from folks such as the Beckers.
The couple alleges that Goldman declined for three years to confirm their suspicions that it had bought their mortgages from a subprime lender, even after they wrote to Goldman's then-Chief Executive Henry Paulson — later U.S. Treasury secretary — in 2003.
Unable to identify a lender, the couple could neither capitalize on a mortgage hardship provision that would allow them to defer some payments, nor on a state law enabling them to offset their debt against separate, investment-related claims against Goldman.
In July, the Beckers won a David-and-Goliath struggle when Goldman subsidiary MTGLQ Investors dropped its bid to seize their house. By then, the college-educated couple had been reduced to shopping for canned goods at flea markets and selling used ceramic glass.
Theirs is an infrequent happy ending among the hundreds of cases in which subsidiaries of Goldman, better known for sending top officers such as Paulson to serve in top Washington posts, have sought to contain bondholder losses by foreclosing on properties and evicting delinquent borrowers.
Goldman spokesman Michael DuVally declined to comment on individual cases or on the firm's new role in bankruptcy courts.
Joining other Wall Street firms that bought millions of subprime mortgages, Goldman companies have gone to courts from California to Florida seeking approval to foreclose on the homes of middle- and lower-income Americans who couldn't keep up with their loans' soaring monthly payments.
Some borrowers were speculators or homebuyers who exaggerated their incomes on loan applications, thinking they'd always have an escape hatch because housing prices would keep rising. Others, however, were victims of fast-talking mortgage brokers who didn't explain that the loans' interest rates could rise to as high as 15 percent. Many borrowers who defaulted on their mortgages may never qualify for a home loan again.
In court encounters, Goldman and other Wall Street firms have faced the impact of their own wheeling and dealing. Many of the families being put on the street never would've gotten their big mortgages if investment banks hadn't provided a seemingly insatiable secondary market for millions of loans to marginally qualified buyers.
Subprime borrowers were supposed to provide a safe income stream for investors who bought mostly high-grade, triple-A-rated bonds from Goldman and bigger subprime players, such as now-defunct Lehman Brothers and Merrill Lynch.
Now, millions of these borrowers have defaulted on mortgage payments, contributing to a historic slump in home prices and depressing the bonds' value. Half the homes in some California neighborhoods have been subject to foreclosures or short sales, in which a home is sold for less than the mortgage balance, and either the seller or the lender takes a loss.
Earlier this year in Los Angeles, the Wall Street giant took possession of the home of Gladys Aguirre, a housecleaner who's married to a construction worker. Together, the couple listed monthly earnings of $7,480, including $3,480 from a job she'd held for two months.
Aguirre originally took a $444,000 subprime mortgage on Sept. 1, 2005, from Argent Mortgage Co., a subsidiary of big subprime lender Ameriquest Mortgage Co., which shut down in 2007. The adjustable interest rate sent her monthly payments zooming to $3,800 from $2,479, and Aguirre couldn't keep pace on that loan or a $119,000 second mortgage. She filed for bankruptcy protection.
Aguirre's Los Angeles lawyer, Eber Bayona, declined to discuss her case, but said that subprime loans amounted to "setting up the person for failure" because interest rate adjustments hit borrowers with "shock payments."
For example, he said, loan agents promised applicants that they could buy a $600,000 house for payments of $1,200 a month, and the buyers "never read the fine print ... (and) didn't know their interest would increase and that eventually they would lose their house and their money."
Full story HERE
The couple wound up in a desperate, six-year fight to keep their modest, 1,500-square-foot San Jose home, a struggle that pushed them into bankruptcy.
The lender with whom they sparred, however, wasn't the one that had written their loans. It was an obscure subsidiary of Wall Street colossus Goldman Sachs Group.
Goldman spent years buying hundreds of thousands of subprime mortgages, many of them from some of the more unsavory lenders in the business, and packaging them into high-yield bonds. Now that the bottom has fallen out of that market, Goldman finds itself in a different role: as the big banker that takes homes away from folks such as the Beckers.
The couple alleges that Goldman declined for three years to confirm their suspicions that it had bought their mortgages from a subprime lender, even after they wrote to Goldman's then-Chief Executive Henry Paulson — later U.S. Treasury secretary — in 2003.
Unable to identify a lender, the couple could neither capitalize on a mortgage hardship provision that would allow them to defer some payments, nor on a state law enabling them to offset their debt against separate, investment-related claims against Goldman.
In July, the Beckers won a David-and-Goliath struggle when Goldman subsidiary MTGLQ Investors dropped its bid to seize their house. By then, the college-educated couple had been reduced to shopping for canned goods at flea markets and selling used ceramic glass.
Theirs is an infrequent happy ending among the hundreds of cases in which subsidiaries of Goldman, better known for sending top officers such as Paulson to serve in top Washington posts, have sought to contain bondholder losses by foreclosing on properties and evicting delinquent borrowers.
Goldman spokesman Michael DuVally declined to comment on individual cases or on the firm's new role in bankruptcy courts.
Joining other Wall Street firms that bought millions of subprime mortgages, Goldman companies have gone to courts from California to Florida seeking approval to foreclose on the homes of middle- and lower-income Americans who couldn't keep up with their loans' soaring monthly payments.
Some borrowers were speculators or homebuyers who exaggerated their incomes on loan applications, thinking they'd always have an escape hatch because housing prices would keep rising. Others, however, were victims of fast-talking mortgage brokers who didn't explain that the loans' interest rates could rise to as high as 15 percent. Many borrowers who defaulted on their mortgages may never qualify for a home loan again.
In court encounters, Goldman and other Wall Street firms have faced the impact of their own wheeling and dealing. Many of the families being put on the street never would've gotten their big mortgages if investment banks hadn't provided a seemingly insatiable secondary market for millions of loans to marginally qualified buyers.
Subprime borrowers were supposed to provide a safe income stream for investors who bought mostly high-grade, triple-A-rated bonds from Goldman and bigger subprime players, such as now-defunct Lehman Brothers and Merrill Lynch.
Now, millions of these borrowers have defaulted on mortgage payments, contributing to a historic slump in home prices and depressing the bonds' value. Half the homes in some California neighborhoods have been subject to foreclosures or short sales, in which a home is sold for less than the mortgage balance, and either the seller or the lender takes a loss.
Earlier this year in Los Angeles, the Wall Street giant took possession of the home of Gladys Aguirre, a housecleaner who's married to a construction worker. Together, the couple listed monthly earnings of $7,480, including $3,480 from a job she'd held for two months.
Aguirre originally took a $444,000 subprime mortgage on Sept. 1, 2005, from Argent Mortgage Co., a subsidiary of big subprime lender Ameriquest Mortgage Co., which shut down in 2007. The adjustable interest rate sent her monthly payments zooming to $3,800 from $2,479, and Aguirre couldn't keep pace on that loan or a $119,000 second mortgage. She filed for bankruptcy protection.
Aguirre's Los Angeles lawyer, Eber Bayona, declined to discuss her case, but said that subprime loans amounted to "setting up the person for failure" because interest rate adjustments hit borrowers with "shock payments."
For example, he said, loan agents promised applicants that they could buy a $600,000 house for payments of $1,200 a month, and the buyers "never read the fine print ... (and) didn't know their interest would increase and that eventually they would lose their house and their money."
Full story HERE
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