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Federal Document Clearing House
Congressional Testimony
January 8, 2002 Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 1450 words
COMMITTEE:
SENATE BANKING HOUSING AND URBAN AFFAIRS
HEADLINE: PREDATORY LENDING PRACTICES
TESTIMONY-BY: MS. BEATRICE HIERS, A PRIVATE CITIZEN
FROM
AFFILIATION: MARYLAND
BODY: Hearing on "Predatory Mortgage Lending
Practices: Abusive Uses of Yield Spread Premiums."
Prepared Statement of
Ms. Beatrice Hiers A Private Citizen from Maryland
Tuesday,
January 8, 2002
Thank you for inviting me to testify today.
I am
43 years old and live in Fort Washington, Maryland. I have two children, Ebony,
22; and Zachary, 11. In addition, prior to their recent deaths, my elderly
parents lived with me. I have worked hard and overcome many obstacles to
purchase my own home. I grew up in Prince George's County, Maryland. My family
lived in a neighborhood that was not racially mixed. In fact, we were the first
blacks on the street. In 1974, I received a general equivalency degree and went
to work for Prince George's County Department of Social Services. In 1979, I
began working for the federal government as a clerk/typist. Over the past 20
years I have worked my way up to my current position as a Supply Management
Representative for the Department of General Services.
Prior to
purchasing my own home in August 1997, I struggled financially. I was a single
parent and also helped support my parents. I began to think about moving and
buying a home because the neighborhood in which I lived had become a "drug
haven." I felt that it was important for my children and parents to get into a
new environment that offered safety and security.
In June 1997, after
house hunting for close to a year, I finally found a house that I wanted. I
signed a contract to purchase the house for $159,750, but was told by my real
estate agent that I needed to obtain my own financing. Because I was
inexperienced with real estate transactions, I engaged the services of
Homebuyers Mortgage Company, a mortgage broker located in Prince George's
County, and asked them to find me a 7 % or better fixed rate FHA mortgage loan,
a rate equal to what another lender - Countrywide Home Loans - was willing to
offer me.
The closing on the home was scheduled for August 29, 1997. As
the settlement approached, I become increasingly nervous because Homebuyers
would not confirm that it had located a mortgage loan for me. As late as just
two days before the closing, Homebuyers told me that a firm commitment on
financing was not yet available. Even though mortgage rates were low and
favorable in August 1997, on the day of closing, Homebuyers finally told me that
it had arranged a 7% adjustable rate FHA insured mortgage loan through Inland
Mortgage Company, which is now Irwin Mortgage Company. Homebuyers also told me
that Inland was providing me with the best rate and most favorable financing
terms that they could secure. Reluctantly, and believing that I had no other
options, I entered into the mortgage loan transaction.
Homebuyers
charged me extraordinary fees and points. My HUD_1Settlement Statement reveals
that Homebuyers charged me the FHA maximum 1% origination point __ $1,544.00 __
plus loan discount points of 3% __ $4,736.00. On top of these fees, Homebuyers
also collected a Yield Spread Premium from Inland of nearly 3% __ an astonishing
$4,538.87. In other words, I paid 3 discount points to reduce my interest rate
and the broker was paid 3% by Inland to increase my interest rate.
Almost a year after I entered into the mortgage loan transaction, I
learned that Homebuyers had not obtained for me the most favorable financing
terms. In fact, I learned that Homebuyers was paid the $4,538.87 Yield Spread
Premium by Inland Mortgage solely because Homebuyers was able to deliver my
mortgage well above par __ that is, Inland would have been willing to underwrite
my mortgage loan at a lower interest rate. Moreover, I learned that Homebuyers'
Yield Spread Premium was increased because Homebuyers delivered the mortgage
loan with a short lock in period. Irwin's rate sheet, in fact, shows that I
qualified for the same loan at about a 5 1/2% interest rate with no Yield Spread
Premium to the broker.
What truly amazes me is that for the small amount
of work performed for me, Homebuyers collected more than $10,800, including the
Yield Spread Premium. Moreover, had I known that Homebuyers had secured for me a
mortgage with an above par interest rate, I would have secured other financing.
Eventually, because the payments under Inland's adjustable rate mortgage
were becoming prohibitive, I engaged the services of another mortgage broker,
Allied Mortgage, to assist me in the refinancing of my loan. I have since
learned that this transaction also included the payment of a Yield Spread
Premium, and resulted in my receiving another loan at a higher interest rate
than I qualified for.
After completing these two mortgage transactions,
I learned what Yield Spread Premiums are and how they affected my mortgage loan
and increased my monthly mortgage payments. As a result, I recently refinanced
my home a second time, but this time directly with a lender. Because of my
experiences with mortgage brokers and Yield Spread Premiums, I will never go to
a mortgage broker again.
Thank you again for inviting me and for your
attention to these important issues.
LOAD-DATE:
January 9, 2002