No Money Down! A Lifetime to Pay!

Welcome, friend, to the booming field of "subprime" mortgages. Think you can't afford a house? You're probably right, but that won't stop us from putting you in one!

The new mortgage was through Centex, a subprime company. The appraisal Centex ordered valued the Marolts' house at $134,000. They ended up with a mortgage of $123,000, including thousands of dollars in fees. Worse, neither John nor Rosalie realized that their monthly payment of $1,098 didn't include nearly $150 a month in property taxes.

They had been falling behind on the taxes for a year and a half when another telemarketer, this one working for Ameriquest, the nation's largest subprime lender, called and again promised that refinancing would save them money. This time, they never even met the broker who took their application over the phone, or received any explanation for the sheaf of documents delivered by FedEx, only instructions to sign and return them.

When they got everything back at the end, the Marolts were shocked to learn that they had borrowed $158,000. On top of paying off their last mortgage, the documents revealed that Ameriquest loaned the Marolts an additional $35,000: Nearly $10,000 went to pay off John's car, something the couple says they didn't ask for and didn't want to do; $2,400 went to back taxes; $6,000 was to cover a prepayment penalty (a rarity outside of the subprime market) on their old loan. The final paperwork arrived with a check for $6,000. When Rosalie asked what it was for, she was told she could use it to pay credit cards or other loans, or take a vacation. She paid the credit cards.

Worse, more than $9,000 went right back to Ameriquest, $5,000 of it listed as a "discount" fee charged for a lower interest rate. At a time when people with solid credit were paying little more than 5 percent, the Marolts' "points" got them an adjustable rate mortgage with a starting interest rate of 9.75 percent. The rate would begin to go up in two years and, according to the final paperwork, could then go up every six months until it topped 15 percent.

The Marolts made the $1,500 payment a few times before concluding they were in over their heads and would be better off selling the house. They called Ameriquest and asked for a copy of the appraisal that had been done when the loan was made. John says he got the runaround for more than five months. When he finally got a copy of the appraisal, he could see why.

The little white house had been valued at a laughable $186,000. The appraisal wrongly stated that the house had a new roof, new siding, new kitchen and bath, central air, a finished basement, blacktop driveway--all kinds of nonexistent improvements. The Marolts called a couple of real estate agents who said they'd be lucky to get $130,000. (It's currently for sale for $139,000.) They made a couple more payments but then, early last summer, Rosalie had gastric bypass surgery. She couldn't work, costing them more than $900 a month in lost wages; when she went back to her job, her hours had been cut. John wasn't getting the overtime he was used to. (Much later, the Marolts realized in reviewing their loan papers that Ameriquest had qualified them for such a large loan by using pay stubs from a month in which John earned more than $700 in overtime, they contend.)

They missed the June mortgage payment, and then July. Rosalie cashed in her 401k and wired the balance, $3,300 after paying a $600 penalty, to Ameriquest. As soon as she handed the money to Western Union, Rosalie says she realized they had made still another mistake: The money covered the June and July payments, but it was crystal clear they weren't going to be able to make August, or September, or for that matter any more mortgage payments at all. When Ameriquest reported the missed payments to the credit bureaus, the Marolts started getting notices that everything from their credit card rate to their car insurance was going up. The Marolts eventually complained to Minnesota Attorney General Mike Hatch, whose office is part of a multi-state effort to intervene with Ameriquest on behalf of disgruntled consumers.

"The whole process has been so stressful, so emotional," says Rosalie. "We never told the kids a whole lot about it. They just assumed we weren't making the payments and they said, 'If you want that house so bad, why didn't you make the payments?' Your kids are supposed to look up to you and when you have this happen, they don't. Besides losing respect for yourself, you lose the respect of your family."

When the Marolts finally found a landlord willing to rent to them, a local woman who thought their honesty counted for something, they abandoned the little white house. Their rent was almost $400 lower than their mortgage payment, so they could start catching up on their other bills. When the Sherburne County sheriff finally foreclosed, on November 11, 2004, it was a relief. Collectors stopped calling them at home and on the job. They were finally, officially, a bad risk.


Marquette vs. First Omaha wasn't the end of the tension between the federal government and the states over regulation of the financial services industries. Indeed, as the rules on banks have steadily loosened, consumer train wrecks such as the Marolts' prompted periodic action by state and local governments. Ameriquest, for instance, is currently the target of predatory lending investigations by the attorney general's office in more than two dozen states, including Minnesota. Connecticut may simply ban the lender from doing business there.

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