“I THOUGHT I WAS THE ONLY ONE”

Meet the faces of the foreclosure crisis

By CARA BAYLES

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The Lehman Brothers secretaries went slack-jawed when two dozen protesters filled their offices. Members of the Association of Community Organizations for Reform Now (ACORN), and the family and friends of Deborah Redrick chanted and carried signs reading "Keep Loan Sharks Out of Our Neighborhoods." Redrick was facing foreclosure on her home, because she'd fallen behind on payments for a subprime loan issued by GreenPoint (a prominent subprime lender that was owned, and recently shuttered, by Capital One). Lehman Brothers Investment Bank had purchased Redrick's mortgage from the lender, and refused a loan modification.

The Lehman employees hid in their offices until the police arrived and evicted most of the protesters. They marched outside the building for two hours, until Redrick emerged, announcing that she'd faxed a letter to Lehman's CEO.

The Boston Herald's coverage of the protest prompted this breed of comment on their website: "No one held a gun to the heads of those people now crying the blues ... They loved the no documentation requirement to receive a mortgage. They should have paid attention better in high school. They signed on the line and it is no ones [sic] fault but their own."

While shrill finger-pointing can be common when discussing the mortgage crisis that's currently roiling the economy, it fails to capture the scale of the crisis.

The protest coincided with the release of an ACORN report finding that African-Americans are three times more likely than whites to get a high-cost loan, and that such loans made up a quarter of all mortgages in the Boston area.

Deborah Redrick's story is represented in those statistics. As a baggage handler for American Airlines, she had earned a salary of $38,000 a year, which was supplemented by rent from her tenant. She was diagnosed with cancer, and chemotherapy left her too weak to lift bags, so she quit her job. The 67-year-old grandmother used her Social Security and her tenant's rent to meet mortgage payments for the next year. Then her rates began to rise.

When Redrick refinanced her mortgage with GreenPoint a year earlier, her broker told her the new note was similar to the original: a 30-year, fixed-rate mortgage. She thought she'd pay the same amount each month. Instead, she had unwittingly signed on to an adjustable rate mortgage (ARM), which meant the monthly rate periodically changed, according to the index set by the Federal Reserve.

"They told me it was the same as my old loan," Redrick said. "I usually read everything I sign, but the broker told me he had to catch a plane, and asked could I please just sign it now. I trusted him. And there isn't a day that goes by that I don't think about it and regret it."

Redrick's loan was a 'no-doc' loan; it stated her income, but didn't provide any proof of it. Her broker, like many in the subprime market, took advantage of the no-doc format and falsified Redrick's income.

"Every three months, the rate goes up 3.86 percent," said her daughter, Latisha. "And it's been impossible to refinance, because everyone says it's not a real mortgage. The note said that she earns $100,000 a year, and she owns a Cadillac. Well, she's on Social Security. She lives in Dorchester and she owns a Chevrolet."

The loan was bought by Lehman Brothers in a bulk purchase, a common practice among banks worldwide, which has caused the US foreclosure crisis to seep into the international market.

Prabal Chakrabarti, of the Federal Reserve Bank of Boston, said that banks weren't aware of how unsound their investments were when they joined in the mortgage frenzy of recent years. "Investors were probably looking at historical figures for default rates, and the default rates for subprime loans have not always been this high," he said. "The loans they purchased were riskier than they thought, riskier than the rating agencies originally thought." Chakabarti couldn't speculate why the loans have become riskier, but cautioned against demonizing the "subprime" label, which simply means the potential homeowner has a less-than-stellar credit rating.

Fraudulent loans like Redrick's were bought and sold with the belief they were sound investments that stood up to the standards of the Federal National Mortgage Association. There are standards for mortgage brokers, but little oversight. Brokers only make commission off the initial transaction, so they don't have much incentive to see their customers succeed. In fact, the commission system gives some lenders financial incentive to stick borrowers with more expensive loans. Many homeowners and their tenants have been swept up by the subsequent crunch.

"I thought I was the only one," said Rafael Matos, a cook at a Quincy restaurant. "Then I started seeing it in the paper."

Matos has lived in his third floor apartment in Dorchester for almost five years, through a succession of different landlords and rent hikes. When his fellow tenants moved out in May, he assumed they could no longer afford the rent.

Then he noticed a sign on his door, and brought it to his landlord.

"I said, 'What's with this paper? What's happening here?' He said, 'Don't worry about it.' And he took it and ripped it up," Matos said. "When I got a second notice, he said, 'I'm sorry. We're losing the house.'"

Now, Deutsche Bank owns the apartments.

"I don't know for sure what happened," Matos said. "But I think my landlord made no profit and got behind on payments because people moved out. But he didn't say nothing about foreclosure. I didn't know that word until I went to court."

Matos is losing his home in a no-fault eviction. He has always paid his rent on time, but now that the bank owns his apartment, they want him out, so they can sell the house and make back the money they're owed.

"We've always felt that there's more in common among homeowners and their tenants," said Steve Meacham, of City Life/Vida Urbana, the housing advocacy group advising Matos in his court case. "Homeowners always say 'Hey, I'm just the tenant of a bank.'"

Matos won't leave his house unless he loses the case. As he awaits a decision, he attends all of City Life's rallies and protests. The organization has focused on eviction advocacy in recent years.

"There's a variant of redlining going on here," Meacham said. "It used to be that banks were discriminatory in who they'd give loans to. Now they're all too willing to give loans to communities of color, but they're the wrong loans. Mortgage lenders get kickbacks for giving people worse loans than they deserve. That's why there's a high foreclosure rate among communities of color."

In the greater Boston area, Dorchester, Roxbury, Hyde Park, and Mattapan have been hit the hardest. And once a house is foreclosed upon, property values on the whole street plummet.

"The great paradox of urban real estate is, those who work to improve their communities face eviction as a result," Meacham said. "Residents who work to build a new park or reduce crime are afraid they won't be able to afford their rent. These neighborhoods face both gentrification and decreased property value."

Deborah Williams, a Roxbury resident facing eviction, feels her community is under attack. "We've come so far," she said, "and now we're all falling backwards."

In 2002, Williams thought she signed up for a fixed-rate mortgage. She was working three jobs, and didn't have time to read her note, to translate complicated mortgagespeak into English.

"I'm gonna be honest," she said. "I paid an attorney to do these things for me, but later found out she was actually working for the mortgage company. I didn't know anything about an adjustable mortgage, until after the fact, when it started climbing. It went from $1,400 to $3,800 in less than 26 months."

Even when her rates skyrocketed, Williams tried diligently to meet the costs and hold on to the home for her and her son. She fell behind in her payments two months and was advised to file for bankruptcy. Williams filed for Chapter 13. She surrendered her car. Later, she was advised by a different attorney to file for Chapter 7. She didn't refinance her mortgage, for fear that her credit score would get even worse. Her mortgage poisoned her financial stability.

"It's been hard to retain a job because of my credit report," Williams said. "I guess when you go for a job, they do a credit check and a CORI check. Having filed for bankruptcy, I'm considered a financial risk to most companies. And once they see that I've lost my home, it's impossible."

Her loan has been transferred to AMC Mortgage. She is fighting eviction in Boston Housing Court.

Williams is an avid City Life activist. Meacham described her blockading another woman's house to fend off foreclosure. She has met with Congressman Barney Frank, Chairman of the House Financial Services Committee, and a proponent of federal oversight for brokers. Frank recently proposed changing bankruptcy laws and starting a new affordable housing fund. His newest bill would ban financial incentives for brokers who convince buyers to sign onto worse interest rates than they're eligible for, eliminate no-doc loans, and create mandatory licensure for brokers.

The Federal Reserve keeps lowering the index, hoping to bail out banks and make adjustable-rate mortgages affordable to homeowners, but this is only a temporary solution; eventually, they'll have to raise the index if inflation increases.

In Massachusetts, a joint legislative committee may soon expedite bills that would set up a foreclosure database at the Division of Banks, and bar certain predatory procedures and deceptive advertising practices. Governor Deval Patrick proposed a bill criminalizing mortgage fraud. Attorney General Martha Coakley deemed the sale of unaffordable loans "predatory lending," which became a criminal offense in Massachusetts in July. The attorney general's office has trained 150 attorneys for pro bono defense of those facing foreclosure, and instituted new Consumer Protection Act regulations.

But Williams is hardly optimistic.

"I hear a whole lot of talking," she said, "and I don't hear any solutions. I haven't once heard a victory story from anybody in Roxbury, Mattapan, Hyde Park, or Dorchester."

So here's a victory story. Sort of.

After a month of negotiations, Lehman Brothers agreed to refinance Deborah Redrick's loan at a rate that she can afford.

A Lehman Brothers spokesman offered this statement: "Although Lehman Brothers neither originated nor serviced the loan in question, we are pleased that the parties involved have reached an agreement, one which we support." But he was unwilling to answer questions about what precautions Lehman uses to prevent buying predatory loans.

Last month, ACORN held a press conference at Redrick's home in Dorchester, to announce a new study. ACORN estimates 441 Boston homeowners will lose their homes to foreclosure by 2009, meaning $44.4 million in losses for lending banks, and $32 million lost by those evicted.

The Herald attended the press conference, and snapped pictures of Redrick and her grandson at the rally. After everyone left that night, Redrick called her daughter, Latisha.

"She was staggering her words," Latisha Redrick said. "She told me she had no feeling in her left side. I called the ambulance, and they took her to Brigham and Women's. When I got down to the hospital, they told me she had a stroke due to stress. And the only thing I can remember her stressing out about is she didn't want them to foreclose on the house."