"Improvident Borrower"

How a Memphis home loan staggered Wall Street and the global economy.



Julia Greer doesn't know George Will and doesn't watch the Sunday-morning news talk shows. But Will, the bow-tied conservative television pundit, author, and columnist, had some harsh words for people like Mrs. Greer last week.

Greer, 67, is one of millions of Americans who took out a home loan they can't repay. The former grill cook at Baptist Hospital for 35 years lives on Social Security payments of $814 a month. In April, she took out a $50,000 loan to fix up a house in Whitehaven where she plans to care for a cousin who is handicapped from a stroke.

Greer can't make the monthly payments on the loan, which carries an interest rate of 15 percent and is due in full in September, six months after the loan was made. That's called a balloon note in the trade.

As Will wrote in a column published in The Commercial Appeal and other newspapers last week, "Every improvident loan requires an improvident borrower to seek and accept it. Furthermore, when there is no penalty for folly ... folly proliferates." By his lights, Julia Greer is the source of her own problem. She borrowed more than she could repay. The stock market took a nasty tumble, and investors from China to Memphis felt the pain because of the improvidence of people like Julia Greer.

But improvidence sometimes has a little help.

Fixing up the house was Greer's daughter Linda's idea. A cousin owned the house for several years, and it was paid for but in need of repairs. It is 54 years old and appraised at $96,200. The Greers say the plan was that the cousin would deed the house to Julia Greer so she could get it fixed up, move in, and share living expenses.

Greer tried to get a home-improvement loan from the Teachers Credit Union, First Citizens, and Sun Trust Bank but was turned down for insufficient credit history. A friend recommended she try Home Realty Company and Home Financial in Memphis.

In April, Julia Greer and the cousin met with a closing attorney. The closing costs were $13,000, including a 5 percent "loan origination fee" and another 5 percent "loan discount fee." On top of that, documents show that Greer was obligated to pay another $2,000 to Home Financial in six months even if she made the balloon payment. The fee would be "waived" if she took out a new loan. Home Realty would keep the balance of the loan, $37,000, in escrow and reimburse Greer for improvements after they were made, if she provided receipts.

When Linda Greer read the closing papers, she thought her mother had been taken advantage of, and she tried to cancel the loan.

"They told me in order to rescind it, I would have to pay the closing amount of $13,000 within 24 hours," Linda Greer said.

Charles E. Moore of Home Realty said the loan was proper. The closing costs, he said, included payment of back taxes that were due on the property. He was under the impression that Mrs. Greer was going to resell the house after fixing it up and never intended to live in it. The workers she hired, he said, "didn't have her best interests at heart" so he hired his own workmen to take over.

Moore and the Greers disagree about how much she was supposed to pay each month, but they agree that Julia Greer faced foreclosure unless she got a new loan.

"You can't stay if you don't pay," Moore said.

As it now stands, roughly $19,000 worth of work has been done, and the house is unoccupied. Julia Greer lives in an apartment downtown. Linda said her mother is "scared to death" of losing the house.

Home Realty tried to get Julia Greer to sign for a new loan for $63,000 to pay off the old one. The documents include an apparently forged signature of Julia Greer and list her monthly income as $2,800 a month from a nonexistent drapery business. Linda Greer says her mother "can't even sew a button."

Moore said he doesn't know how that information got in the loan documents.

The Greers contacted Memphis Legal Services and attorney Webb Brewer, who plans to file a lawsuit against Home Realty. Brewer helped write Tennessee's 2006 Anti-Predatory Lending legislation after seeing scores of working poor people hoodwinked by salesmen peddling subprime loans, debt consolidation loans, and fix-up loans.

"Subprime lending is like a petri dish for predatory lending," Brewer said.

Or for folly and improvidence. Take your pick.

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