So in 2003, the couple sold their three-bedroom in Roeland Park and took out a ticking time bomb: an adjustable-rate mortgage.
The Butchers borrowed $158,400 from NovaStar, a Kansas City company that specializes in making home loans to people with shaky credit. At the time, companies like NovaStar were making a killing selling those kinds of loans — so-called affordability loans that allowed people with little savings, spotty work histories and low credit scores to borrow money. Subprime loans were a $600 billion industry in 2006, up from $120 billion in 2001.
Kansas City had emerged as a nerve center of this industry.
In 2002, nearly half of H&R Block's income came from its subprime mortgage business, Option One. NovaStar traded for $70 a share in March 2004. Now, as foreclosures empty homes across the country, these two Kansas City companies, which once were among the top 20 subprime lenders in the United States, face the consequences of their promiscuous lending.
Simply put, companies such as NovaStar and Option One gave too much money to too many borrowers who lacked the means or sophistication to meet their obligations. Rising home prices kept the charade going for a while — borrowers could refinance their sucker loans before the higher interest rates kicked in. Then the market cooled, and homeowners began to default. The United States recorded 320,000 home foreclosures in the last three months of 2006.
As defaults and delinquencies mounted, Wall Street ran for the hills. One subprime high-flier, the Irvine, California-based New Century, went into bankruptcy after its stock price fell by 90 percent. H&R Block put a for-sale sign on Option One last November and sold the subsidiary at a discount in April.
NovaStar lost $1 billion in market value in the downturn, which NovaStar CEO Scott Hartman delicately termed "a difficult phase."
A tumbling stock price isn't the company's only concern, however. Last month, NovaStar paid millions to resolve the claims of borrowers in Washington state; the month before, a nonprofit in Washington, D.C., filed a federal lawsuit accusing the company of discriminating against minorities and disabled people.
NovaStar has managed to remain solvent in the face of adversity. Some subprime borrowers haven't been so lucky.
Walter Cook mounts a video camera on a miniature tripod and waits for 3 p.m. so he can start the auction.
The afternoon sun bakes the north steps of the Jackson County Courthouse in downtown Kansas City. Cook leans against the building's limestone façade, paperwork under his arm. He is wearing a striped Oxford shirt and black slacks. He is alone except for the handful of county employees taking smoke breaks.
Cook works for Millsap & Singer, a St. Louis law firm that represents banks and mortgage lenders. The Sony Handycam at his feet is poised to document the sale of about a dozen houses whose owners defaulted on their home loans.
Cook auctions a lot of property. On this afternoon, he has already visited the courthouses in Independence and in Cass, Platte and Clay counties. "I just drive all day long," he says.
The first house for sale is located at 75th Street and Main. Cook gives the legal description of the property in a patter more city clerk than barnyard auctioneer.
"Opening bid is $120,069.46. Do I hear any other bids?"
Pause.
"No other bids. Property's going once, twice, three times. Property is sold."
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You obviously didn't read the article! We did live within our means, but the mortgage company kept raising the payment every six months. I guess you shouldn't judge others until you have been in their shoes. We were just trying to help others avoid a heartbreak like this.
You obviously didn't read the article! We did live within our means, but the mortgage company kept raising the payment every six months. I guess you shouldn't judge others until you have been in their shoes. We were just trying to help others avoid a heartbreak like this.
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