May 17, 2007
Mortgage brokers cashed in on U.S. housing bounty
LOS ANGELES (Reuters) - Money may not grow on trees but for a while it seemed to grow on houses, and Colleen Moorhead knew exactly where to turn when she needed to harvest some cash.
With a few phone calls, broker Joyce DeAngelo could put Moorhead and her husband into a new mortgage and cut them a check. They used more than $100,000 in cash they netted from the refinancing for living expenses and renovations.
Between 2001 and 2006, the Moorheads refinanced their three-bedroom San Diego home at least nine times, county records show.
But mortgage broker DeAngelo didn't work for free. Each new loan carried up to $13,000 in fees, along with prepayment penalties, and the Moorheads fell deeper in debt.
A marginal presence in the industry 20 years ago, mortgage brokers have become the face of the $10 trillion home-loan industry, the single point of contact between a sophisticated financial world and borrowers committing to spend hundreds of thousands of dollars to buy a home. Brokers often present themselves as disinterested parties, but the industry feeds on fees from lenders and bonuses when they complete a deal.
Moorhead and her husband now owe $603,000, up from $196,000 when they started, and more than $10,000 over what their house is worth, according to one online estimate. They're likely to lose it soon if they can't somehow make payments greater than their monthly income. Their broker, DeAngelo, said she tried to save them from financial disaster, but her client kept wanting to refinance.
"I told her every time that she can't keep doing this, she's going to lose her house," DeAngelo said, adding that she gave Moorhead tips on straightening up her finances that were mostly ignored. "She has no one else to blame."
As the real estate boom of the last half-decade turns to bust, homeowners like Moorhead say they feel betrayed by brokers who profited from bad advice and saddled them with loans they couldn't afford.
"It seemed like she was a gift from God or something," Moorhead said. "But she's a wolf in sheep's clothing."