Tuesday, June 3, 2008

Suckered into a subprime mortgage: Learing disabled Wis. man buys home he didn't want, and can't afford

Milwaukee, Wis. - Pedro Medellin, a young bank teller who lives with his mother, knows he isn't a typical homebuyer.

"With what I make," he asks, "how would I get approved for a mortgage?"

Yet somehow he did.

While earning $9.25 an hour, Medellin struggles to pay a $103,500 high-interest loan for an often-vandalized house on Milwaukee's north side. The city assessed the property at almost $40,000 less.

To cover the loan, Medellin sends a check each month to a local lender for $1,079 - more than his monthly take-home pay. He must dip into his small savings account or hit up his mother for cash to make up the difference.

The story of how a 24-year-old man with a negative net worth received a six-figure loan from a reputable lender shows how eager the financial community was to dole out subprime loans before the nation's mortgage meltdown.

As housing prices were rising year after year, lenders across the country had eased underwriting standards. As a result, many homebuyers were able to secure high-interest loans without disclosing such basic information as their employment, income or assets. The real estate boom stalled, and many subprime borrowers found themselves unable to refinance or sell their homes.

In Medellin's case, the deal wouldn't have been possible without the motley collection of individuals and firms eager to get a piece of the 8.75% loan and the fees that went with it.

For more on this article, go to The Milwaukee Journal-Sentinel

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