Subprime Loans: One Woman's Story

Enlarge Alan White/Community Legal Services

Jennie Halliburton, a 77-year-old widow, may lose her Philadelphia home.

Alan White/Community Legal Services

Jennie Halliburton, a 77-year-old widow, may lose her Philadelphia home.

Jennie Haliburton, a 77-year-old widow from Philadelphia, answered an ad offering to "consolidate her debt." She soon found herself with a subprime loan that she can't afford and may cost her the home she refinanced. Her lawyer, Alan White, says Halliburton should never have been granted the loan.

White, who works with the Community Legal Center in Philadelphia, is helping Haliburton. Both joined Renee Montagne to talk about her experience after she answered the ad.

HALIBURTON: They came to the house and I asked them what would it cost a month. And they said, 'Oh, don't worry. It'll be not very much.' Because I was a senior citizen, about $100 more.

So like $800 or something.

HALIBURTON: Yes and I, at the time to get out of debt, I accepted it.

At your income at that time, would $800 have been easy for you to pay off?

HALIBURTON: No, it wouldn't have been. But I had no choice.

So that was a stretch, anyway?

HALIBURTON: Yes, next thing I know when I had to pay the first payment it was $1100. I couldn't understand why they took so much.

Alan White, you're a lawyer. How representative is Jennie Haliburton? How many cases like this do you see?

WHITE: I think it's a very typical situation. This lender did not include an escrow for taxes and insurance. Her initial payment just for principal and interest was $922. If you add taxes and insurance it's really $1100 which is certainly more than half of her $1700 Social Security check, and that payment is scheduled to go up next year in 2008 to about $1300 - which is, of course, absurd.

Miss Haliburton, did you realize the loan was going to go up after two years?

HALIBURTON: No I did not.

Did they tell you though?

HALIBURTON: No they did not.

Was it written on the loan documents that you signed?

HALIBURTON: I did not see that.

WHITE: Renee, can I just add something? I think it's really unfair to say to a homeowner or consumer, you should be reading your documents and determining that you have a 2/28 adjustable rate loan without a tax and insurance escrow that creates the following risks. That's a very sophisticated analysis that's required to understand how you're being put in this situation of inevitable foreclosure.

I understand the loan documents are 20 pages long and small print and all that.

HALIBURTON: It was 31 pages.

Well it sounds like the loan, as you describe it and as Miss Haliburton describes it, it sounds like the loan was a recipe for foreclosure or failure.

WHITE: Absolutely. It was underwritten based on her real income. They knew what her income was and right on the application it shows that the payment at the fully indexed rate would consume close to 70 percent of her income.

But what would be in it for the lender?

WHITE: Origination fees and gain on sale income.

Origination fees, yes, but gain on sale?

WHITE: Well, one of the problems Renee, is we're not dealing with banks. These loans are originated by companies that sell them at a premium because of the interest rate. So Miss Halliburton was paying an initial interest rate of about 9 ½ percent. And the difference between her interest rate and the prime rate results in these loans being sold at a profit.

So where to from here?

WHITE: I've spoken to the lender and they have expressed a general interest in trying to resolve this. And we'll take their assurances at face value. We'll attempt to negotiate something. There aren't enough of us housing counselors and legal services lawyers to deal with the number of loans we're going to be faced with over the next year or two but we're not going to let Miss Haliburton lose her house.