And Now the Rest of the Story About the Poster Child for Eminent Domaining Mortgages
Earlier this week I blogged about a biased New York Times article on the use of eminent domain to seize loans from mortgage-holders and gift them to the underwater and/or delinquent residents of the homes in question. That article ended with a sympathetic portrait of the kind of victim/family that would be "saved" by eminent domain:
Many of the communities considering eminent domain were targeted by lenders who steered minority families eligible for conventional mortgages into loans with higher interest rates and ballooning payments. Robert and Patricia Castillo bought a three-bedroom, one-bathroom home in Richmond because their son, who is severely autistic, would anger landlords with his destructive impulses. They paid $420,000 for a home that is now worth $125,000, Mr. Castillo, a mechanic, said.
But over at smartertimes.com, Reason.com columnist Ira Stoll manages to obtain what looks like convincing details of Castillo's mortgage from a banker claiming inside knowledge:
The story fails to mention that the Castillos went delinquent back in July 2009 and within 4 months they received a principal and interest rate modification plus the loan was turned into an Interest Only. Their existing 1st lien mortgage, which is sitting in LXS 2006-GP4 and is serviced by GMAC Mortgage, had their interest rate reduced from 5% to 2% with $40,000 of principal deferred. This combined with turning the loan into an IO, drastically reduced their payment from $2064.81 to $638, which is a 69% reduction. This new payment was effective in November 2009 and the Castillos have been current ever since.
Why would the Castillos walk away from a $636 monthly payment?? This payment is equivalent to a $150,000, 30 year loan at 3%.
The story also fails to mention that when the Castillos "purchased" their home in April 2005, they put NO MONEY DOWN. Their original 1st lien was for $336,000 and their original 2nd lien was for $84,000. This totals to $420,000, which is their purchase price. By May 2006, they refinanced into a Greenpoint Option ARM 1st lien of $381,300 combined with a revolving credit line of $55,200. […]
Investors are owned $422,805.43 on this loan.
Whole thing, plus Stoll commentary, here.