Edward Jordan should be sitting on a goldmine. Thirty years ago, when others saw poverty and crime in the Bedford Stuyvesant section of Brooklyn, N.Y., he saw opportunity. He bought a four-story brownstone at auction for $30,000; since then, he says, property rates have gone "through the roof."
Jordan should be set for life, with his investment now appraised at $750,000. Instead, he's holding a financial time bomb that threatens his golden years and his only economic asset.
"It means everything; it's a lifetime invested here," Jordan said. "And of course, if I go down, it's a nightmare. Where do you go from here? I'm a 79-year-old man."
Earlier this year, Jordan refinanced his mortgage, looking to pay off some credit card debt. With excellent credit, he thought he might improve on his fixed rate loan. A broker offered him a subprime mortgage with a very low starter rate — and you know what they say about things that sound too good to be true.
"Things I was told wasn't true," Jordan said. "I was told it would be 1 percent for five years, and it ballooned after about six weeks. It went to 8.75 percent, so that 1 percent was just, it was too good to be true, and it wasn't true, and I was caught, and it was too late."
It's known as a teaser rate. Jordan calls it a swindle. In the collapsing credit market, Jordan's mortgage misstep is a textbook case of what's gone wrong.
'Fast Track to Foreclosure'
That 1 percent teaser rate lasted only 45 days. Before Jordan even made his first payment, the rate had skyrocketed to 8.75 percent. And the loan came with monthly payment options, but the only payment he could afford didn't even cover the interest, so his principal balance increased every month.
Jordan's lawyer, Meghan Faux, said even though she's been looking at loans for years, it took her a full day to figure out Jordan's mortgage.
"It keeps growing. Within the matter of a couple of months, it increased several thousand dollars," Faux said. "When his principal reaches 110 percent of his original principal balance, he no longer has the option to make the minimum payments, and his payments will increase to well over $3,000 a month, which exceeds his whole household income. He is on the fast track to foreclosure."
When Jordan originally bought the house, he was a postal worker seeking the American dream. He's retired now, living on a government pension of about $1,000 a month. Jordan said his broker inflated his income in order to qualify him for the loan.
One page of the document lists Jordan as retired, but elsewhere, it says he was earning $8,900 a month.
"I wasn't making that when I was working," said Jordan. "It was a lie. Shouldn't have been there. There was no way I could have showed them I had $8,900 a month in income. That was put on there without my knowledge."
Jordan got his loan through Apex Home Mortgage, a firm that specialized in loans that require little documentation. But within weeks, his loan had been sold to Countrywide, the largest lender in the nation. And while Countrywide says it didn't participate in any facet of the loan's actual origination, Jordan's lawyer says the company created a demand for loans like this.
"They were aggressively marketing this loan product," said Faux. "They were offering incentives that would pay brokers and their own employees more money to close on these loans, and they didn't do any due diligence on whether it was an appropriate loan for these borrowers."
The Wild West
But aren't homeowners like Jordan responsible for reading all the paperwork and knowing what they're signing up for?
"They give these stacks of papers to a homeowner, in a closing that lasts about 45 minutes, and what they do is they sit there and say, 'This is what this page says, sign here,'" Faux said.
After receiving a call from "Nightline" about the case, Countrywide offered to renegotiate Jordan's loan. The company said it took responsibility, and is offering a lower fixed rate. Jordan and his attorney want Countrywide to forgive the tens of thousands of dollars added to his principal balance under the initial terms.
Under increasing pressure to lower its default rate, Countrywide launched a program this fall to restructure the loans of 82,000 customers who signed on to mortgages they could not afford.
But Cynthia Lau, a former Countrywide loan officer, said it should be no surprise what years of loose lending have wrought.
"It was the Wild, Wild West," she said. "You've got people who were able to get homes without any money down, without having to prove their income, as long as you had good credit and as long as the market, you know, substantiated [it] at that time."
For seven years, Lau said she was one of Countrywide's biggest sellers, and that the atmosphere in the office was "very competitive."
"There was pressure and market demand," she said. "At one point, people were on hold for two to three hours, just waiting to talk to someone to get a loan, because rates had dipped so much."
Lau said she was in the top 5 percent of Countrywide's sales force until she was fired in August of this year while she was pregnant. The next month, with its stock price plunging, the company laid off 12,000 employees — 20 percent of its work force.
"The loan programs did get a little too lenient, in my perspective," she said. "At one point, it was easier to get mortgage than it was for a car loan."
When we told her about Jordan's situation, Lau said, "I have seen that scenario pop up many times."
And the more exotic the loan, the less the customers understood them.
When asked how many of the people given these mortgages really knew what they were signing up for. Lau said, "less than half."
She also said there were incentives — trips to Hawaii or Palm Springs, for example — for the employee who sold the most loans. But as Countrywide suffers large losses, its employees are suffering too.
"We all had faith in the company stock, and it's now worth about a quarter of what it was a year ago," Lau said.
And employees aren't the only ones feeling the pain. North Carolina treasurer Richard Moore is taking aim at Countrywide CEO Angelo Mozilo, who is now being informally investigated by the SEC for selling a half million shares of company stock while its value plummeted.
"What gets me is at what point when things are going badly, and you know they are going badly, is there shared pain?" Moore asked. "I want to be fair here. This guy built the business from nothing; he deserves to be a multimillionaire. But he has taken out between $300 million and $400 million out of this company over the last few years, while they are writing up hundreds of millions of dollars of losses."
Taking the Long View
Moore, who oversees the state pension assets, said the fund has gone from $100 million invested in Countrywide to less than $10 million, through stock sales and losses in share value.
"You could make a very strong case on appearances — and this is why we've asked the SEC to investigate this — that he knew what was coming and used information that other people wouldn't have had to accelerate the selling so he could get the highest price, so he could yank out all the money from the company as quickly as he possibly could."
Appearing on CNBC in August, Mozilo defended his stock sales, saying they were legal by the terms of his compensation package, and that his decisions were not based on inside information.
"The thing that is very frustrating about Countrywide is, if you're running a business [and] you care about long-term profit, you can offer products that you know people can survive on," said Moore.
He believes that if you're overly concerned with short-term profits, "then you're going to drive that company right off a cliff."
The company, the shareholders, and buyers like Jordan, who hopes he'll be able to save his home and pass it down to his children and grandchildren, along with "a lot of fond memories … hopefully, they will carry some of them for the rest of their lives."