A One Percent Florida Mortgage?

The official-looking notice appeared in his mailbox last year, and the promise of a Florida mortgage rate as low as 1 percent was too good to ignore.

To Denith Harrigan, disabled, and on a fixed income of $2,100 a month, it meant he could finally pay off credit card debts and fix his leaky pool.

What a deal. Or so he thought.

Now, according to the St. Petersburg Times, a few months into his new mortgage, Harrigan is in serious risk of losing his house.

In less than three years’ time, his Florida mortgage payments could grow so high as to equal his total income.

“I got into something I had no intention of getting involved in,” said Harrigan, 36, who lives alone in a ranch-style house.

“I believe this should be against the law.”

Harrigan is among a growing number of home buyers who, knowingly or not, have taken out adjustable-rate mortgages known as ARMs, often lured by introductory offers that they didn’t fully understand.

Industry insiders say both sides share the blame: the consumers who want to believe the sales pitch and the Florida mortgage brokers and lenders who snare uninformed customers in search of bigger commissions.

On Tuesday, Gov. Charlie Crist signed into law a bill requiring Florida mortgage broker and lender disclosure of the risks of such loans.

“Ninety percent of mortgage brokers are hard-working, committed people. But sadly, there are a few that have sold mortgages to families who are totally unaware of the consequences of an adjustable rate mortgage,” said Sen. Mike Fasano, R-New Port Richey. “I’ve heard some horror stories.”

The popularity of ARMs, experts say, is contributing to the surge of Florida mortgage foreclosures and similar problems and other states.

In May, Florida led the US. with nearly 30,000 properties entering foreclosure. While 35 states saw a decline in new foreclosures last month, Florida’s rose 22 percent.

“Foreclosures are only going to increase when you have more of these loans resetting to their higher rates,” said Ira Rheingold, director of the National Association of Consumer Advocates.

Option ARMs, like Harrigan’s, give Florida housing market buyers a choice each month of paying interest and principal, interest only or an amount less than the actual interest.

But if the home buyer picks the minimum payment - as many, if not most, elect to do - their Florida home loan debt grows.

For Harrigan, a lower interest rate initially decreased his home mortgage payment from $1,495 to $1,005. But if he covers only the minimum payment, his principal will grow by about $1,000 a month, and in less than three years his payment will equal his total income.

“There are so many people underwater right now,” Rheingold said. “How are people going to [Florida refinance] or sell when their mortgage is worth more than the house itself?”

Complaints from buyers like Harrigan, who say they were misled about their Florida home loans, have grabbed the attention of government.

In September, regulators told banks to improve explanations of “exotic” home mortgages and assess a borrower’s ability to pay the fully adjusted payment - not just the teaser rate.

Consumer advocates say disclosure requirements, like those Crist signed into law Tuesday, are good but won’t do nearly enough to rein in abuse.

After all, can’t a Florida mortgage lender easily bury the facts in an avalanche of paper or whitewash them in their sales pitches?

“People don’t stand a chance,” Rheingold said.

“When I refinanced, I didn’t understand it all and I know this stuff… Yes, some consumers may have understood the loan, but the majority of people are getting screwed royally. It’s a myth to say consumers are choosing mortgages.”

Both Florida mortgage brokers and lenders are quick to point out that option ARMs fill a need. For investors, borrowers with fluctuating incomes or people with a lot of equity and an immediate need for cash, the mortgages work.

“It’s a pay now or later situation, and ultimately it’s the customer’s decision which is best for them,” said Patrice Yamato, president of the Florida Association of Mortgage Brokers.

Yamato acknowledged that people have misused option ARMs and some brokers and lenders have outright lied that the low Florida mortgage rates were fixed.

“As with everything, there are tendencies to have abuse with these,” she said. “I also think that some consumers are being misled by people who may not understand the product themselves.”

As for Harrigan, he was probably better informed than most: He earned a Florida real estate license in 2003 and has studied accounting.

Yet, looking over his house, he knows he may lose it.

“I was under the assumption everyone was as honest as I am,” he said. “I’m not a fool. If I had known … I would have said, ‘Thank you, but no thank you!’”

After closing, Harrigan said he had second thoughts and tried to back out during a three-day grace period. But the mortgage broker at Premier Mortgage sold him on taking advantage of the low rate for a couple of years, then refinancing.

Continue reading in the St. Petersburg Times …