Avery Salkey's four-bedroom house in Royal Palm Beach, Fla., is still so new that the appliances gleam as bright as the day she moved in four years ago. But she's not sure how much longer she'll live there. Salkey has been facing foreclosure for months now and is desperately looking for a way to save her home — so far, without success.
Her story is an extreme version of one that's happening to millions of people across the country.
It's a story that began full of hope — a single mom who, with the help of her family, had moved from the Bronx in New York to make a fresh start. She made a substantial down payment on the house in Florida and got a great fixed interest rate of 5.3 percent. She closed on the house in 2003 and moved in 2004.
Her monthly payments were affordable. The mortgage, along with tax and insurance, cost a little more than $1,500 a month.
"I thought that was pretty good," Salkey says.
But a series of bad decisions soon got her in trouble. Salkey bought the house while she was still in New York and had a good-paying job. After she closed on the home, she moved to Florida and says it took her longer than she expected to find work that would pay the bills. She made her mortgage payments, but they were often late and the bank threatened to foreclose.
Salkey sought the help of a mortgage broker and found a lender willing to refinance her home. It was a larger mortgage that gave her $20,000 in cash — money she used to pay off some debts. She says she didn't pay too much attention to the paperwork, and when it came time for closing, she was shocked at the terms.
The new loan was an adjustable-rate mortgage that started with an interest rate of 10 percent. Her monthly payments nearly doubled.
"When I finally saw the figures and what my payments would be, I said, 'This is too much, I can't afford this!'" Salkey says.
'Hard Money' Lenders
Her broker told her to try to make the payments on time for six months, and that she then might be able to find another lender who would give her better terms.
But unbeknownst to Salkey, there was a rub. Her lender, Yale Mortgage, is not a traditional mortgage company. It is a private company that is known in the trade as a "hard money" lender.
The company doesn't qualify borrowers by looking at their income or their ability to pay — Yale and other hard money lenders make their loans solely on equity.
And at that time, Salkey estimated she owed only about $160,000 on a $380,000 house.
She scraped to make her $2,800 monthly payments but soon found that it wasn't possible for her to refinance again with another lender, partly because of Yale's hefty pre-payment penalty. A pre-payment penalty means that a borrower owes extra for paying off a loan early.
Salkey calls Yale Mortgage a predatory lender whose only intention was to take her home.
She says that because of the equity in her home, it would be more profitable for the lender to take the house than work with her.
The owner of Yale Mortgage, Woody Kahn, says his company is an important part of the market — a lender of last resort for high-risk borrowers who have equity. But he acknowledges that half his clients are delinquent on their payments and that he plans to foreclose on many.
Salkey made her last payment to Yale in August. In November, her adjustable rate jumped to 12 percent.
Between the declining market, which has sapped the value of her home, and Yale's legal fees and penalties, she expects to be left with nothing after foreclosure and is now considering selling the house at a loss.
It's a situation that's left her bitter.
"It's rape." Salkey says. "It's raping me of everything, stripping me of everything. Providing me with a loan that I cannot afford? That means it was your intent in the first place to take my home away from me."
When home values were rising, even adjustable-rate mortgages with high interest rates looked good to millions of buyers. But now that the market has tanked, those same mortgages have become anchors — dragging homeowners into insolvency.
As desperate as she was, Salkey didn't talk to her family and friends about her financial problems out of embarrassment and that, she now says, was a mistake.
She's begun working with Acorn, a group of community-housing activists, to educate the public about dicey home loans and has traveled to Tallahassee to talk to state legislators.
But she says she still hadn't shared her problems with her family.
"I guess I am just waiting to see if maybe I can hopefully get it rectified," Salkey says. "We put a lot of money into the house, and my mom gave me a gift. So, it's kind of hard."
She says she doesn't know if there is a way for her to stay in her house.
A foreclosure notice was delivered in February, but she wasn't home to receive it; she was at a workshop listening to then-Housing and Urban Development Secretary Alphonso Jackson speak about how to avoid foreclosure.