By Chris Lane
By Jeff Balke
By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
As a research specialist for Houston-based Litton Loan Servicing, a mortgage payment collection agency, Murray was in charge of combing through troubled loans to see what went wrong where. Every month, more than 300,000 borrowers throughout the country are obligated to send monthly payments to Litton, totaling a portfolio of $43 billion.
With that many payments, mistakes are unavoidable. And in the world of subprime loans, a simple error such as a misapplied payment can snowball into a force that knocks a customer out into the street. If the simple error isn't caught in time, the customer can be royally, if not legally, screwed.
It was Murray's job to catch these mistakes, notify the proper departments and stop the foreclosure machine.
Murray says there were more than enough mistakes to keep her busy. She wrote letters to borrowers explaining discrepancies and detailing their loan status, and Litton graded her punctuation and grammar monthly. With a red pen, Murray's department supervisor would scold the researchers for misplaced commas and dangling participles, ignoring the fact that they might have saved a borrower's home from foreclosure.
Like many of the people whose loans she investigated, Murray was a first-time homeowner with a subprime loan. In 2004, three years after she started at Litton, Murray, her husband and their three adult sons moved into a four-bedroom home in a quiet subdivision in southwest Houston. She entered into the kind of adjustable rate mortgage behind the surge of 1.2 million foreclosures for 2006; the kind with a sweet two-year teaser rate that would mushroom in month 25 and reset every six months beyond. In Murray's case, that meant a jump from a 7.3 percent interest rate in March 2004 to about 11.3 percent by February 2007.
But Murray's troubles started well before month 25.
Like every other subprime borrower, Murray has no control over which company services her loan. That decision is made by investors who might never meet the borrowers but who know their profile: Their credit is spotty, their paychecks are modest and there's a good chance their skin is of a darker hue. And despite the fact that Murray is incorrectly listed as “white” on her loan application, she fits that profile.
Murray's loan wound up in a $900 million pool of mortgages and other receivables that back bonds sold by Lehman Brothers. That pool was originally serviced by Ocwen Financial but was ultimately switched to Litton. Besides servicing subprime loans, Litton also invests in about 80 percent of its portfolio through parent company C-BASS.
As soon as Murray found her loan had been switched to Litton, she wanted it transferred. She believed that Litton made too many mistakes, and she didn't want to wind up like one of the borrowers in her thick stacks of troubled loans. She says she talked with superiors who said the loan could not be transferred.
A sinking feeling became outright panic, Murray says, when her husband and two of her sons lost their jobs and she defaulted on her loan well before her teaser rate expired. (One of her sons had worked at a law firm that files foreclosures for Litton).
“I know they're going to fire me that's the first thing you think in your head,” she recalls months later. “They don't want this.”
She was right. After falling four months ($4,000) behind, Murray was fired, and Litton began the process of repossessing her home. She's now one of the Litton borrowers seeking class certification in a lawsuit filed in a California federal court. They accuse Litton of forcing them into foreclosure by assigning predatory fees. And those who talk to Murray often walk away with one question: If that's how Litton treats its employees, how does it treat debtors it doesn't even know?
Texas reported 156,876 foreclosures in 2006, more than any other state, according to foreclosure marketplace tracker RealtyTrac. That's one out of every 51 homes, giving Texas the fourth-highest foreclosure rate in the country.
Depending on whom you ask, the subprime loans behind many of these foreclosures are predatory packages destined for failure, a saving grace for people who've been turned away from conventional loans or a conspiracy among the shadow-cloaked cabal comprising the investor-lender-broker-underwriter complex.
If the foreclosure boom associated with the subprime market were the work of one master power like the Illuminati, things might be easier. Instead, the market is a constellation of dubious lenders, brokers, servicers and investment trusts, each of which has just enough involvement to make a bundle and just little enough to plead plausible deniability when the whole structure collapses.
However, there are those who say that not all subprime lenders are predatory, and that these loans can work well for responsible people with realistic expectations.
Denetta Williams, the broker who helped close Murray's loan, says that while there are genuine victims of subprime lending, Murray wasn't one of them. She says Murray would've qualified for a conventional loan on a smaller house, but was dead set on a four-bedroom, $127,000 home. Moreover, the loan's 7.3 percent introductory interest rate was more than fair, Williams says.