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by Antoinette Martin
Four years ago, Alfred and Elizabeth Metta of Brick were forced to file for personal bankruptcy to avoid foreclosure on the four-bedroom home they had bought for $147,000 in 1994.
For Five years they had fought vainly to keep up with their bills after Mr. Metta, a paramedic, was seriously injured on the job and needed rehab, and Mrs. Metta, a nurse, took maternity leave. They filed for Chapter 13 bankruptcy protection, which structured their debt into one big monthly payment, although it did not dissolve it.
"We kept the house," Mrs. Metta said. "That was key to everything as it turns out."
While the Mettas struggled to keep to the court-ordered schedule of payments on their debt, something wonderful and unexpected happened: the value of their home began rising. In a pattern familiar to most people owning homes in New Jersey since the turn of the millennium, an ailing national economy brought the balm of lower interest rates, which helped to fuel home-buying frenzies in numerous communities. Because the demand for homes outstripped the number for sale, the value of virtually all houses rose sharply.
When the Mettas had their home reappraised in 2001, they found it’s value had nearly doubled, and the most recent appraisal, in April, put the house’s current value at $300,000.
"Real estate has really created new-found equity for people – even the bankrupt," observed Brian Riccione, the founder of the First Hallmark Mortgage Corporation of Somerville, Mr. Riccioni’s mortgage company is one of several dozen in the region that provide "sub-prime" mortgage loans for people in positions like that of the Metta’s.
But First Hallmark is unusual in that 50 percent of its business involves such loans, and the company considers them its primary product. The Golden Mortgage Corportation of Bridgewater, by contrast, does about 10 percent of its business in sub-prime loans, said the Chief Executive, Ted Ark. "They are extremely time-consuming, " he noted, because of the complex paperwork."
Several mortgage companies mentioned that tough "predatory lending" statutes in New Jersey make it more difficult to operate in the states sub-prime market. Since lenders face relatively high risk in offering sub-prime loans, they charge borrowers higher interest rates and fees.
The national chain of H & R Block makes sub-prime loans here, and Champion Mortgage a division of Key Bank, U.S.A. is a major player. Champion does not disclose what percentage of its business is made up of such loans, a spokesman said.
Mr. Riccioni set up First Hallmark five years ago while still in his 20’s with the support of his father, who owned Sterling Mortgage of Somerville, a conventional mortgage company that has since dissolved.
"We set up a streamlined process specifically designed for people who have been in bankruptcy for a year, and who have shown they can make the payments on time," he said.
"We can lend as much as 85 and sometimes 90 percent of the value an owner’s home in an effort to reorganize their debt, typically at 2 percent above the going conventional rate," Mr. Riccioni said. "We have been using an adjustable rate loan option while rates have stayed low, in hopes of re-establishing credit so that if the new mortgage is paid on time, the borrower can come back to us after another year and we see if we can further improve the situation."
The Mettas had begun efforts to refinance with tow other companies before being contacted by First Hallmark, and in each case, Mrs. Metta said, paid for an appraisal and spent a great deal of time gathering paperwork before the companies abruptly stopped answering their calls.
First Hallmark actively solicits the business of homeowners who have managed a year of timely payment under Chapter 13, said the company’s president, Bruno Viscariello. "In addition, we created a financial strategy for the borrower to plan for the future, " he said.
For the Mettas, this was a productive approach. Last year, their brokers at First Hallmark – which makes a profit by bundling a number of such loans and retailing them as investments – refinanced their debts through an adjustable rate mortgage, with an interest rate fixed at 8.55 percent for the first two years. That cut the Mettas’ payment under Chapter 13 by $1,000 a month.
The brokers told them that if interest rates stayed low, home values kept rising and they kept making payment on time, their credit rating would repair itself and at some point they could refinance again at a conventional rate, the Mettas said.
Last month, they did so, obtaining a 6.25 percent interest rate and borrowing enough additional mony to add on a longed-for family room.
Another borrower in Chapter 13 protection, Len Irvine of Belvedere, tells a similar story. His wife became disabled with multiple sclerosis as he was trying to open a business. Mr. Irvine created Infotel Communications to provide telecommunications systems to large companies, but then received only half what he had expected in Small Business Administration start-up funds. He quickly found himself facing the loss of his home, not to mention the business.
After receiving a flier in the mail, he decided to use Furst Hallmark to refinanced his debt. Mrl Irvine closed in mid-May on a $200,000 mortgage on his house – built in 1983 for $110,000 and currently appraised at $300,000 – with a 6.95 interest rate, providing him the operating capital he needed to double his business.
There were 41,730 Chapter 13 personal bankruptcies in New Jersey last year, according to John Tylutki, the chief operating officer at First Hallmark and 40,940 the year before. He said his firm closes 110 to 120 refinancing loans a month for homeowners in Chapter 13, and he expects business to grow.
"The sub-prime business is a growing business," agreed Melissa Cohn of the Manhattan Mortgage Company, which has an office in Freehold, "because for one thing, ‘A’ lenders are now using more restrictive credit guidelines. No-money-down mortgages are still available, but you must have good credit, be able to verify income and meet the bank’s liquidity requirement," thereby showing that assets are available in an emergency.
That has increased the flow of borrowers who do not fit the creditworthy profile but have nonetheless benefited from the strong appreciation of their homes and want the benefit of interest rates that, while rising slightly, are still near record lows, Ms. Cohn said.
"Frankly, I just don’t understand all that stuff," Mrs. Metta confessed, but she added, "What I get is that we are in a way, way better situation than we were three, two and even one year ago."
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