Travis Bumpers of Knightdale, N.C., wishes he had never opened the flier in the mail that fall day in 1999, proclaiming he had been "pre-approved" for a loan of $42,950 "or more." But he wanted to consolidate his monthly debts into one payment, so he took out a second mortgage, borrowing $28,450 at 16.99 percent interest for 15 years from the Community Bank of Northern Virginia.
He was charged closing costs of $4,852 -- about 17 percent of the loan amount. That's well above the 2 percent fee considered normal in the mortgage refinancing business and the 8 percent that is supposed to trigger special disclosures for individuals with less-than-pristine credit ratings.
In March, federal regulators closed Guaranty National Bank in Tallahassee, which, with the Community Bank of Northern Virginia, was accused in lawsuits of predatory lending.(Takumi Harada - Tallahassee Democrat)
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Bumpers said last week that he was still making $437.65 monthly payments on the loan, much to his regret. "It was my first time [getting a home equity loan], and I didn't really know what I was doing," he recalled in an interview. "I ended up spending more money to consolidate my bills than I would have if I had just paid them off. Now I can't refinance, I'm underwater in my house. It ended up being a disaster, financially, and I feel cheated out of my money."
Bumpers stumbled into the complex world of high-risk loans, one that has raised the ire of consumer advocates and some regulators but continues to flourish because of the enormous fees it has produced for brokers and banks.
He is one of several borrowers who have filed suits in state and federal court over the past few years against the Virginia bank, a Florida bank that offered similar loans and a financing arm of General Motors Corp. that bought many of the loans. The suits accused the banks of predatory, or abusive, lending by using deceptive and high-pressure tactics to market high-price loans to people without regard for their ability to repay.
The main class-action case was settled out of court late last year, with $33 million set aside for borrowers, who would receive a few hundred to several hundred dollars each, according to the settlement papers. No payments have been made yet because some homeowners have filed appeals, protesting the terms as inadequate.
The Florida bank, Guaranty National Bank of Tallahassee, was closed this March by bank regulators who cited violations of consumer laws in its home equity loan program. That operation used consulting companies in Virginia run by David B. Shumway and Randy A. Bapst to originate 28,000 loans between 2000 and early 2002. Two years earlier, the two men ran a similar operation for Bumpers's lender, the Community Bank of Northern Virginia.
Records indicate that Shumway and Bapst made $20 million each between 1998 and 2001. Their companies were named as defendants in at least one suit, but not in the class-action case that was settled.
A successor company to the early Shumway-Bapst companies, Calusa Investments LLC, operates from the same Chantilly office and already markets loans in 30 states, but not in Virginia. It has attracted criticism from E.J. Face Jr., commissioner of the Virginia Bureau of Financial Institutions. He has twice rejected a mortgage lender license for Calusa, writing June 30 that its principals have "an attitude of utter disdain" for compliance with lending rules and regulations. The company has appealed and the State Corporation Commission has set a hearing for July 20.
In prefiled testimony, Shumway said that Bapst left Calusa in mid-2002 and that his brother DeVan Shumway became president. David Shumway told state regulators that Calusa was "entirely different" from earlier companies he had run. He wrote last year, for example, that Calusa had discontinued its brokerage business and acted exclusively as a direct lender.
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