Eunice Kroulik's house is a pretty nondescript affair, with faded beige siding and a porch piled high with snow shovels and boxes of dilapidated dolls and toys. It may not be in the greatest location, with a back yard fenced in by the I-35W barrier wall and a view of Home Depot across the highway. It's on a block where the homes--most in drab shades with peeling paint and broken shingles--could use some of that home improvement for sale just blocks away. But despite all that, it's a home--one that Kroulik is afraid she might lose.
Kroulik and her husband William bought the two-bedroom house, their first, in 1993. William died of cancer the following year, and since then Kroulik has lived by herself, making a modest mortgage payment of about $370 from the $800 social security check she gets each month--her only income. But this past spring, the 68-year-old widow got a phone call from Ameriquest Mortgage Company offering to refinance her home and consolidate her mortgage with her other debt. After the phone call, representatives from Ameriquest, which is based in California but has several branch offices in the Twin Cities, visited Kroulik's house. At that meeting, Kroulik recalls, the Ameriquest team said that her interest rate would be around seven percent, and that her monthly payments would not go up. They drew up the papers, Kroulik signed, and they left. "They came out and said they weren't going to have [the monthly payment] raised any," she remembers. "But when they left, it sure didn't stay the same."
Six months later, Kroulik is shelling out more than $500 each month for her loan payment. She sits in her dining room, so crammed with old vacuum cleaners, bags of fraying clothes, and dusty plastic knickknacks that it's hard to find a chair. Hattie the cat plays hide-and-seek in the mounds of items Kroulik says she's planning to take to the Salvation Army. The deep folds and creases in her face create a constant look of worry, as she rubs her hands together wondering how she'll continue to pay the mortgage and all her other bills. "Right now it's winter coming on, and it's going to be hard," she says. "I was picking up aluminum cans to buy food for myself, stripping copper wire and taking it down to sell it."
Kroulik's case is just one of many that sparked the interest of the Association of Community Organizations for Reform Now (ACORN). The grassroots group, which looks after the interests of the poor, has been studying Ameriquest and other "sub-prime" lenders who make high-interest, high-fee loans to low-income people who, usually because of poor credit profiles, are considered riskier customers. Minnesota ACORN, which has spent the past few months studying Ameriquest and talking to its customers, alleges that the mortgage company specifically targets low-income and minority neighborhoods, selling extremely costly loans.
Just before Thanksgiving, Minnesota ACORN protested Ameriquest, giving the company a symbolic "Turkey of the Year" award. On a windy, drizzly afternoon, a ragtag group of ACORN organizers stood outside the door of the Department of Commerce in St. Paul (they had been politely asked to exit the building by the department spokesman), holding a papier-mâché turkey painted gold. The group implored the commerce department to investigate the company's lending tactics and revoke its license to do business in the state. Those who are most often victims, said Marcia Erickson, Minnesota ACORN board chair, are low-income people who fall through the cracks of the regular banking system. "The people who can least afford it end up paying the most to get a loan," she declared.
ACORN has met with 18 people who've received loans from Ameriquest, and found that many have had experiences like Kroulik's. Ameriquest lures borrowers in with offers of low monthly payments, says Jeff Skrenes, a loan counselor at ACORN. But those rates rise dramatically with fees, taxes, and insurance, he adds, so that at closing the borrowers end up with payments that are $100 to $250 higher than the original estimates. "They usually do it later in the process, when it's harder to back out," he says.
Beyond that, Ameriquest offers interest rates that rise drastically over time. In Kroulik's case, says Stillwater attorney Anne Bergman, who is working with Kroulik, Ameriquest set up what's called a teaser loan, which is extremely complicated; even an attorney must carefully read the loan documents to understand it. "It's like a credit-card solicitation," Bergman explains. "The initial interest rates are artificially low." Kroulik's rate is set at 7.5 percent for the first 3 years, but after that it will vary; it's tied to an index called the London Inter-Bank Offered Rate (LIBOR), which Bergman calls "somewhat volatile." (Kroulik's rate is designed to be 6.55 points, or percentage points, above that index.) What this translates to is that after three years Kroulik's interest rate will rise from 7.5 percent to 10.5 percent. Six months after that, it will rise to 11.5 percent, then 12.5 percent (or even higher, if the index rises). That means, Bergman says, that Kroulik's monthly payments will go up substantially, to more than $700 including tax and insurance. That would constitute almost her entire monthly income from social security.
"I just don't understand what lenders are doing soliciting loans from these kinds of borrowers," Bergman says. "Elderly ones who cannot, unless they win the lottery, make the payments that are contemplated." Kroulik may have been an easy target: She doesn't have much of an education, since she was pulled out of school after only the second grade because of epileptic seizures. "Like a lot of women her age, she's very trusting and not very skeptical about what people are telling her," Bergman says.
Ameriquest released a statement in response to ACORN's allegations. "Ameriquest Mortgage Company provides loans to people who would otherwise be turned away by traditional lenders," the statement begins. "We specialize in offering a competitive product to historically under-served markets. We do not discriminate in our lending practices." The company also stated that over the past three years it has "invested significantly" in educating customers about sub-prime lending.
These types of loans are becoming more and more common, Bergman says, and "it's not a real regulated area. There's basically no limit on points or interest rates or anything like that." That's why ACORN lobbies for laws that would place heavier regulations on sub-prime lenders like Ameriquest. ACORN has invited local and state officials to a December 9 town meeting to discuss legislation that it would like to introduce during the next session. In addition, Department of Commerce spokesman Bruce Gordon says, he passed ACORN's information on to investigators but could not comment on whether they are looking into the accusations.
In the meantime Bergman continues to work on Kroulik's case, to see if she can win her client some damages from the company. "It's going to be tough for her to just plain get out of the loan," she admits. And for Kroulik, who's already worried that she won't have enough money to pay her gas bills this winter, the fear that she might eventually lose her home still looms. "I don't want to get kicked out," she says. "I'm just afraid I'm going to lose everything."
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