SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 883 words

COMMITTEE: SENATE BANKING, HOUSING & URBAN AFFAIRS

HEADLINE: PREDATORY MORTGAGE LENDING

TESTIMONY-BY: MS CAROL MACKEY, PRIVATE CITIZEN

AFFILIATION: ROCHESTER HILLS, MICHIGAN

BODY:
July 26, 2001

Hearing on "Predatory Mortgage Lending: The Problem, Impact and Responses."

First Hearing in a Series

Prepared Testimony of Ms Carol Mackey Private Citizen

Thank you Chairman Sarbanes, Ranking Member Gramm, and members of the Committee. My name is Carol Mackey from Rochester Hills, Michigan. I am a single senior with a moderate income, a stay-at- home Mom who is now "making it on her own", as they say. I appreciate the opportunity to share my experience as a victim of what I believe to be the predatory lending practices of American Equity Mortgage. I first heard about American Equity Mortgage in August of 2000 from an advertisement on WJR radio in Detroit. Ray Vincent, the President of American Equity Mortgage, was on every morning as I was getting ready for work. I had been considering a home equity loan so I called the Southfield office of American Equity Mortgage and spoke with a Loan Officer. I told him that I wanted to get a home equity loan to pay off my debts and make some minor improvements to my condo.

According to the loan officer of American Equity Mortgage, even though I wanted a home equity loan to pay off some bills and do some minor improvements to my home, it was in my best interest to do a "consolidation", which meant refinancing my old mortgage loan. The mortgage loan officer of American Equity Mortgage explained that it was best for me because I would only have to make one payment instead of two, it would all be tax deductible, and with my bills paid off I should be able to handle the new payment. In addition, he implied that I would have difficulty getting a second mortgage because of my credit history. Not being a "financial whiz", I relied on his expertise.

My old mortgage loan had a remaining balance of about $74,000, an interest rate of about 7.50%, and a monthly payment of about $510. Based on the State Equalized Value used for tax purposes, my home is worth about $151,000.

My new mortgage is for $100,750, has an interest rate of 12.85%, an APR of 13.929%, a monthly payment of $1,103, and a prepayment penalty of 1%.

The $100,750 new mortgage was comprised of the $74,000 payoff of the old mortgage, $18,645 in additional funds to pay off bills and perform the minor improvements to my home, and points and fees totaling $8,105.

I did not understand the full cost of the additional money I received until several weeks later when I finally discussed the situation with one of my sons. Based on my son's calculations, American Equity Mortgage and their loan officer thought it was in my best interest:

To pay $8,105 in points and fees to receive $18,645 in additional funds,

To pay an effective interest rate of 44% on the $18,645 in additional funds,

To pay an extra $593 a month for the $18,645 in additional funds, and

To pay an additional $201,608 in interest over the life of the loan for the $18,645 in additional funds.

After funds were disbursed to pay off some of my bills I ended up with just over $9,000 to spruce up my condo, but I had to pay off a credit card debt of $1,200 out of that, leaving me with $7,800. Since closing last September I have had to dip into the $7,800 to make the mortgage payments that American Equity Mortgage arranged for me.

When my son and I discussed the outrageous cost of my attempt to get a home equity loan, it was apparent to us both that I had been victimized by a predatory lender.

My son contacted American Equity Mortgage on my behalf, and was directed to the General Counsel of the company. He explained to the General Counsel that he believed that I had been a victim of predatory lending practices by American Equity Mortgage.

Through a series of conversations, he discussed the facts of the situation as I have outlined them here today, and requested that American Equity Mortgage cancel the new mortgage and replace it with a revised mortgage that reflected the interest rate of my original mortgage, blended with what a reasonable interest rate on a second mortgage would have been.

American Equity Mortgage refused, on the basis that the mortgage loan officer stated that I had wanted to refinance my original mortgage from the outset. That is absolutely false. Why would I want to lose a perfectly good 7.5% mortgage?

If I had been able to get a Home Equity Loan for $20,000, as I had sought, all of my debts would have been paid and I would still have the $10,000 that I wanted to spruce up my home. And, I most assuredly would not be paying more than double what my mortgage payment was before this all started. All I needed was $20,000.

I am sharing my bad experience because I believe that I have been victimized. That American Equity Mortgage has perpetrated a Fraud and that they should be held accountable for their actions. I hope that by sharing my experience other homeowners can recognize and avoid the predatory practices that I fell victim to. Moreover, I hope that appropriate laws can be put in place, at both the State and Federal level, to protect homeowners from being victimized and to punish lenders engaging in predatory practices.

Thank you for inviting my to testify before the committee today.



LOAD-DATE: July 30, 2001