Bad Credit Minnesota Mortgage Borrower: I Got Burned

Al Ynigues found out the hard way about the dangers that lurk in exotic high-risk home loans.
A mortgage broker he trusted exaggerated his income nearly three-fold and steered him into a variable rate mortgage with rapidly escalating payments he can no longer afford, nor escape without hefty penalties.

The 65-year-old music teacher knew the home loan rates could “go up a little.” But he never thought his first home in Apple Valley would gobble up his entire monthly income.

“I got burned,” he said. “It’s outright fraud.”

Housing activists say Ynigues’ case is a classic example of the downside of subprime mortgages, one of the biggest trouble spots in the ailing Minnesota housing market, and one that is just starting to get the attention of Congress.

On Wednesday, Rep. Keith Ellison and three other Minnesota Democrats, Betty McCollum, Jim Oberstar and Tim Walz, introduced a predatory lending bill based on a state law that goes into effect Aug. 1. It would largely ban “stated-income” loans that require no documentation, requiring that lenders ensure borrowers can afford the loans they take out.

“Many of my constituents have seen their hopes and dreams stolen away from them,” said Ellison, who is making predatory mortgage practices a centerpiece of his work on the House Financial Services Committee.

It remains to be seen whether Congress will embrace reforms to the subprime lending market as readily as did the Minnesota Legislature, which passed similar legislation this spring with overwhelming bipartisan majorities.

Ellison’s supporters are betting that the momentum for change is building as foreclosures infect the lenders that originate or buy the bad debt, including the now-bankrupt national subprime giant New Century Financial, Ynigues’ lender.

Bad credit mortgage loans, aimed at borrowers with imperfect credit histories, are now about 25 percent of the national market, according to Minnesota Attorney General Lori Swanson, who helped push through the changes that are the basis of the new federal legislation.

“It’s the way many middle- and low-income Americans pursue the American Dream of homeownership,” she told reporters at a Capitol Hill briefing with Ellison on Wednesday. “The states have shown leadership, but we need the federal government’s help.”

As a first-time home buyer in 2004, Ynigues sought a conventional fixed-rate mortgage but was told he didn’t qualify. He was steered into an adjustable-rate mortgage on a $270,000 loan starting at 6.9 percent, costing him $1,660 a month. That came on top of a second fixed-rate mortgage to cover the down payment and closing costs. It has a 9.3 percent interest rate, for a monthly payment of $430.

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