The 10 Cities With The Most Crazy Expensive Loans

The Chicago Reporter took a look at some recently released mortgage data with an eye to how many successful refinances there were last year. In addition to concluding that people who most needed a refinance (those with crazy expensive loans) were also the least likely to get one, the Reporter also found that Chicago lead the nation in the total amount of high-cost loans for the fourth year in a row. High-cost loans are loans that are at least 3% above the U.S. Treasury standard.

The Reporter gives the following example of a family that is unable to refinance their high-cost loans (they have two):

The Brighton Park family has a documented income of $1,400 each month and pays $1,800 monthly on their $225,000 house.

Their situation, like so many others in their shoes, is hopeless, said Jeanne Sherman, the coalition’s homeownership coordinator. Each week, Sherman gets 55 calls from people who want to refinance because they are on the verge of foreclosure.

Here are the 10 metropolitan areas with the most high-cost loans:

10. St. Louis, MO

9. Miami, FL

8. Washington D.C.

7. New York, NY

6. Houston, TX

5. Atlanta, GA

4. Riverside/San Bernardino, CA

3. Phoenix, AZ

2. Los Angeles, CA

1. Chicago, IL

Refinance Blues [Chicago Reporter]
(Photo: stirwise )

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  1. blackmage439 says:

    Chicago: Simultaneous homes of the most outrageous loans and gas prices in the nation.

    Next Olympic haven? Keep dreaming, Daley. Maybe you should be concentrating on other concerns first, like the clustfuck that is the CTA.

  2. SkokieGuy says:

    But the photo says ‘low rates’. And the woman is smiling and holdings wads of cash. It MUST be a good deal!

    • DjDynasty says:

      @SkokieGuy: She’s also hispanic, which means it’s a targetted ad. Those wads of cash may be the cash that she works for and has hidden in a matress because no U.S. Bank will give a non-citizen a checking account, and she’s smiling because she has a chance at home ownership, something that is rather difficult to do in Mexico given the very high home prices in relation to the low wages. I know someone who works on a GM Assembley line who makes roughly $200USD a week. My grand father worked for GM in the 60′s and made $600 a week THEN.

  3. K J says:

    Okay, so what are the factors here? Are there legit reasons or just jacking up the price?

    • K J says:

      @K J: After reading the article (which I should have done first), I’m not sure I have any better answer. Are they saying it’s discrimination? I’m still confused. Is this because they had more bad loans to start with?

    • mzs says:

      @K J: For Chicago it is because of gentrification. Usually a handful of people own a few blocks and rent them out. But then they sell the land en-masse to developers who promptly raze the buildings and then sell the homes to young urban professionals. Well actually that is what was happening into the late ’90s, but then two other groups started buying these redevelopments. The people that used to live in the area and that could no longer realistically afford it, the brokers were scum for doing this as it was the last step to try and stem a fall in prices. And those that bought the places with devices like no down 80+10+10 in the hopes of making a buck, and now they are in trouble as the prices are falling or remaining stagnant and buyers are unable to secure loans.

  4. thebluepill says:

    The Fact that you have More going OUT than Coming IN when you signed the Mortgage papers should have been a clue that you would have some trouble down the road..

    • Corydon says:

      @thebluepill: Seriously…I love how the paper tries to turn this into a racial thing when no serious lender could or should touch you with a bargepole when your mortgage payment is $400 a month more than your income!

      But yeah…it’s because they’re Latino…

      • ARP says:

        @Corydon: The problem is that the right wing is saying that this whole mess is brown people’s fault, when it’s simply a matter of money. Banks could afford (or so they thought) to lend to anyone with a pulse because interest rates were so low. It has NOTHING to do with being forced to lend to lend. It has everything to do with the fact that they could extract high interest rates and at the time, the cost of money was unbelievably low. It just so happens that more poor people are brown.

        • johnva says:

          @ARP: It has nothing to do with being poor, either, except that being poor makes it more unlikely you can actually afford to buy a house. I’ve been poor while in grad school, and I didn’t run out to buy a house. It’s just irresponsibility and lack of financial education on the part of the borrowers, combined with idiocy and greed on the part of the people making the loans. Yes, the lenders were screwing people. But the borrowers shouldn’t complain now that their own stupidity got them into this mess. I’ve got no sympathy for either side in these foreclosures if the foreclosures were the result of buying more house than they could afford on an ARM. Toss the greedy homeowners on the street and toss the greedy bankers out beside them.

        • bunt says:

          @ARP: um i thinkg corydon was being droll.

          @spaceman bill leah: they should have realized what an ARM was and that they will pay more later. what, burying your head under sand doesn’t make the problem disappear?

    • @thebluepill: ARM loans anyone? They weren’t originally paying more than they made probably.

      • Tankueray says:

        @Spaceman Bill Leah has the Crazy Eyes: How do you sign a loan for a $200,000+ house when you only bring home $1,400 a month? Without interest over 30 yrs it’s >$550/mo. Add utilities, insurance, maintenance and you’re probably closer to $1000/mo. How do you sign a loan knowing that you’ll have $400/mo left for food, clothing, gas, etc.? I pay $400/mo in gas! Too many people were fooling themselves here.

  5. redandjonny says:

    You’d think the first red flag would have been it was going to take then over 100 years to pay off there house.

  6. sir_eccles says:

    I’m assuming that this alleged family wasn’t always paying out $400 per month than they earned?

    I’m assuming they had an ARM that originally had payments less than their monthly income.

    I’m assuming someone told them that after a set period the payments go up to a value more than their monthly income.

    I’m assuming they looked through all the paperwork and understood that.

    Am I assuming too much?

    • KyleOrton says:

      @sir_eccles: Yes. Well, for assumptions 3 and 4.

    • ARP says:

      @sir_eccles: Yes, but they were also probably told, “Don’t worry, when your payments go up, you can just refinance again with the increased value of your home.” They believe that person because everyone was doing precisely that.

      • narf says:

        @ARP: That is most likely what happened. I did IT work for a realtor and a couple mortgage companies, and such is exactly what some of them were selling the low-start rate and neg-am loans on.

        I overheard one guy that came in who had refinanced earlier in the year already, and (stupidly) blew the cash-out on fancy electronics and a big luxo-SUV. “Not a problem – the equity in your house has gone up nearly 20% already, so we can tap that. Different lender, same stated income, stated asset program. You’re still employed at _____, right? Because they’ll have to verify that.”

        To go one step further, there were even NINJA loans … No Income, No Job/Assets to verify at all. Geez … and now, all these banks and lenders are foreclosing? What a shock.

  7. Acd says:

    Why would someone who only makes $1400/mo. even begin to think they can afford a $225,000 house? There’s no loan package in the world that can help this person. She either needs more income or less house.

    • noscamsplease says:

      @Acd:

      because they government now owns their loan. the loan will be written off as bad debt. they will get their house for free, and john and jane taxpayer will pick up the tab.

  8. FishingCrue says:

    $16,800 a year and they think they can own a home? Why are we trying to save these people’s home? Don’t buy things you can’t afford until you can afford them.

  9. ARP says:

    My view is that there are two explanation for the list of cities:

    1) Some of these markets have big rises and then cratered. People who borrowed assuming they could easily refinance with the increased value of their home, lost their bet.

    2) The second part has more to do with the number of poor people. The right wing charges that its all the brown poeople’s fault, when I think race is more of a secondary thing. I think some of these cities have a larger than normal percentage of poor. When banks dangled the carrot of interest-only rates, ARM’s, etc., many poor people who could not otherwise afford a home jumped at the chance to finally own a house and be a part of the only thriving part of our economy. It had nothing to do with race and no banks were forced to lend. It was that interest rates were so low, that banks thought they could afford these highly profitable loans, even if a few failed. Race was secondary. Meaning, that statistically speaking, minorities tend to be poorer. Also by definition, poor people tend to be less educated and may not have understood what they were really getting into. I’m not excusing them, because they should be able to comprhend the basic tenant that they’ll need more money in a few years if they want to stay in their house. But it might explain why these markets were impacted.

    • ClickClickThud says:

      @ARP: “It had nothing to do with race and no banks were forced to lend.”

      You’ve heard of the Community Reinvestment Act? Banks were, in fact, forced to offer loans to high-risk borrowers or be accused of redlining – using economic pretexts to deny loans based on race.

      • @ClickClickThud: While CRA and HMDA come close to forcing lenders into loans to those in ‘hoods that are not as well off, there is no way you would ever get dinged on an audit for turning down a loan that shouldn’t be made as long as your showed you work to back it up.

        Disclosure: No lender I ever worked for showed their work…

      • ARP says:

        @ClickClickThud: Yes, I’m very aware of that act. If they could objectively show why they refused a person (and not simply based on race or where they lived), they would be fine. The problem is that they didn’t want to go through the effort to do that and simply gave out loans. Which is part of my larger point- banks were giving out loans to anybody who asked, not because they were forced to. So all this talk about being forced to make loans to brown people is crap. Money was so cheap, they didn’t care who asked for it. NINJA loans were not simply for these communities, they happened everywhere.

  10. u1itn0w2day says:

    These people seem to be able to read the foreclosure notices and yet didn’t read the APR reset section of their mortgage paperwork?

    If a realtor or broker told them,”oh,you’ll qualify and should have no problem making payments” then there’s a problem.In that case you forgive the debt but evict the alledged home buyer because they should’ve never been in that house in the first place.

    If THE MARKET drops housing prices to like 45K then someone like this can buy.

    • perruptor says:

      @u1itn0w2day: To be fair, foreclosure notices are printed in big type. Bad news in the mortgage paperwork – not so much.

    • FatLynn says:

      @u1itn0w2day: The realtors and brokers were telling them things like “don’t worry, when your ARM is about to reset, you just re-fi with a new ARM at a low rate”.

      • johnva says:

        @FatLynn: Then they were idiots to believe that that would always be possible. I’m pretty liberal, but seriously, people should have some responsibility for investment risks that they took and then lost on. I don’t feel bad for these people.

        I don’t imagine we would see people clamoring to compensate people who sold homes before the bubble for much less than they sold for later. If people think they deserve the profits made when their home value goes up, then they should also believe they deserve to lose their home when values go down and they can’t refinance.

  11. Either the example family signed on to an ARM they had no business signing, or they got onto a balloon loan which blew up in their faces. Either way, this mistake should have been plainly obvious to them from the start–unless the money earner lost his job due to hospitalization or something.

  12. perruptor says:

    If anyone reading this thread has actually sat down and read every word of their mortgage paperwork, I salute you.

    Me, I hired a lawyer to do it for me.

    • Ubert says:

      @perruptor:

      Agreed. That was the one bit of advice my parents gave me when I got married. Hiring a lawyer to do that bit of dirty work saved my parents a lot of grief.

    • opticnrv says:

      @perruptor: I read every word of the mortgage papers I was asked to sign. And I made sure I had all my questions answered at closing regarding what I was signing. This is the biggest financial and legal step most people take in their whole lives. I wouldn’t be able to sleep nights not knowing personally what I had agreed to. Are you people crazy? You trust lawyers? What happens when they’re wrong or when they’ve overlooked some detail that matters to you? You think you have a leg to stand on?

      • perruptor says:

        @opticnrv: My lawyer is both my oldest friend and the smartest person I have ever met. You bet I trust him. I’m not saying I signed without asking any questions, but he answered them to my satisfaction, and the result is satisfactory.

  13. noscamsplease says:

    these people are not going to lose their homes. they are all fraudsters and scam artists. they probably lied on their paperwork to be able to qualify for their mortgage. that’s if their lender was even paying attention and the income section of the application was even filled in. fraud in mortgages is RAMPANT. there are countless stories now of people purposely not paying their mortgages and playing hardball with their lenders to modify them at 25-30% down. they see this as nothing more than an easy way to save $100k. oh, i’ll pretend i can’t pay my mortgage for a few months and the lender will have no choice but to modify the amount i owe (based on falling property values). i’ll get the same house at much less than i paid. this is happening all over the place. the people who took out these huge mortgages are the biggest scamsters. they all knew exactly what they were doing, but were taking gambles hoping to get rich quick over night. for many of them it worked. who’s left holding the bad, the moronic middle class who actually work on the books and pay taxes. small business owners are the biggest thieves too.

    • ARP says:

      @noscamsplease: So what you’re saying is that the Mortgage companies begged and pleaded with these people to disclose their full income (and even refused applications when they didn’t provide this information), performed diligent credit and employment checks, and are simply the hapless victim of these fruadsters?

      Or is it that money was so cheap and real estate was booming, so they didn’t care what these people put down because they were making huge profits on the high risk loans. If things went south, they’d force them to refinance with the new equity in their house (since some areas were increasing at 25% per year).

      There is fault on both sides. Borrowers gambled on the future value of their home or their income and lost. Lenders gabled that they could give money to anyone with a pulse, thinking the huge margins would outweigh the few defaults and lost.

      • noscamsplease says:

        @ARP:
        that’s not what i’m saying at all, and i fully agree that there is blame to be laid at the feet of lenders too. if you notice i wrote above “that’s if their lender was even paying attention and the income section of the application was even filled in.” clearly, the lenders were NOT paying attention. however, since when should a lender “beg and plead” for people who are asking for money to be honest about their income. isn’t that a given? where has honesty and morality gone? why is it ok for these people to basically steal from banks? and not only did they steal once, many of them are trying to play the system and steal again.

  14. tsume says:

    I can say Riverside/San Bernardino area is definitely going to have huge rates now.

    Why? All these people who couldn’t afford a house in the city where they work (Los Angeles, San Diego) saw these cheaper homes inland in new developments and jumped on them because they could (barely) afford them. Back around 2000. They would drive 2-3 hours to work and back and it didn’t bother them…

    THEN GAS PRICES SKYROCKETED. Now they realize that they can’t afford to go to their job in the city and make mortgage payments, and can’t get a job closer to where they live.

    And since they have one of the highest foreclosure rates in the nation, the banks can’t risk losing any more money. Thus higher interest rates to recoup the losses.

  15. Vicky says:

    I’m confused. Are these the 10 cities with the largest number of high cost loans, the highest percentage of high cost loans, or the highest average cost of loan? Is this a discussion of actual loan rates or advertised rates? In the former case, over what period of time were the loans originated and what percentage of the high cost loans are actually resets following teaser periods?

  16. FishingCrue says:

    Don’t blame the brown people, blame the liberals outright — [query.nytimes.com]

    • howie_in_az says:

      @FishingCrue: I don’t understand why people think it’s a right to own a home. If you can’t afford it, you can’t afford it — why such a push for homeownership? To collect on property taxes?

      Why can’t I go to some lender and say that it’s my right to own a Ferrari even though I clearly cannot afford one?

    • noscamsplease says:

      the pr@FishingCrue:

      the problem with this country is now it is acceptable and applauded when an individual trusts another to do the right thing and they get kicked in the face when the trustee does not. it’s like walking down the street and seeing someone trip and fall. when you lean over to give them a helping hand up, they use your help, get on their feet, kick you in balls, and explode in laughter at how stupid you were to try to help them. then they steal your wallet and run away hoping to cash in on the next “idiot.” morality is pretty much dead in America.

  17. HarlanIshame says:

    There is more to this than the news article says (which isn’t much). The fact is that some Chicago area banks were leaned on by ACORN to finance these people’s home (minorities mostly) or be called racist and lose access to govt money.

    I heard about this on some CNN show a few days ago…pretty good read about how some of this mortgage mess started.

    Here’s some blog that backs up claims with articles and such:

    http://iperceive.net/how-bill-clinton-acorn-barack-obama-fueled-the-mortgage-crisis/

    NYT Article from 1999 praising this move to get low income minorities into houses they can’t afford with these programs:
    http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&&scp=1&sq

  18. emilymarion333 says:

    Not to sound rude – but why on earth would a family with $1400 documented income a month even qualify for a loan??

    $1800 is a pretty high house payment to begin with – I know the only way I could afford and keep up with the payment if I had 2 other roommates living with me. You still have to think about property taxes, car payments, bills, insurance and all that other bills that you have to pay as well.

  19. tmed says:

    Of course, the banks pull these people in with promises of home-ownership. “Don’t worry about the ARM, we’ll re-fi when your payment goes up.”

    The cost of living beyond the house went up, and the wages did not, because that happened everywhere.

    The value of the house stagnated or fell, so they couldn’t even sell to get out from under it.

    The job market dried up, so that mo employer was hiring anyone looking for a second job, because so many people were looking for a primary job.

    So, now we are going to bail-out the bank, so that it can continue to charge these people more money (more real money, the dollar will be worth less – maybe that should be one word – but the mortgage payment will stay the same.

    Their, each side has its own part of the blame, one side gets a bail-out.

  20. pecan 3.14159265 says:

    I’m guessing a lot of these people lack common sense. To me, even not knowing very much about home ownership or mortgages, paying more than you’re making is just bad!

    • Erwos says:

      @IHaveAFreezeRay: Bingo. An illustrative story: I was in Target just today, and needed a carbon monoxide detector. I asked a nearby employee where the smoke detectors were. She _didn’t know what a smoke detector was_. I asked a second employee. _Same thing._ I asked a third employee. Same thing – except he at least knew where the fire extinguishers were.

      Perhaps this is simply more illustrative of the caliber of Target’s employees, but it is absolutely terrifying to me how ill-informed and badly-educated the below-average person is.

      Someone needs to write a book called “Basic Life Skills 101″ and then distribute it for free to all 300 million people in this country.

  21. floraposte says:

    It was weird how hard they were pushing the ARMs–I was refinancing, planning to stay in the house for the long term, and eligible for a really good rate, and I still got some attempted steering toward an ARM that I could then refinance. Even with the low closing costs around here and a guaranteed low interest rate later (which of course I didn’t have) it would have cost me more than just getting the fixed-rate deal I was pursuing, so it would have been foolish for me to take it. Didn’t stop them from offering it to me, though.

    • johnva says:

      @floraposte: I think the idea was to get people to take larger loans than they needed by pushing down the monthly payments via these teaser rates and such. That would, in turn, increase their (short-term) profits and the agents’ commissions.

  22. Anonymous says:

    Honestly, how many of you come from the lower classes? Not many I bet. I grew up working class and it’s really hard to get yourself educated on anything, but especially money. So you listen to people who are supposed to know what works and you trust them (i.e. banks). People like to prey on the ignorant (and it’s actually really hard to educate yourself on things when you have no idea how society runs and are likely working a couple of jobs and have kids).

    There’s a lot at fault here… not only the predatory loan companies but the fact that information is harder to get the poorer you are. You really need to have a fire under your butt to figure out the ins and outs of everything if you grew up with little support, more so than everyone else.

  23. Meathamper says:

    Why do people get loans these days? I have a lease, and that means no paying Mr. Landlord crazy loans!