By Matt Fredmonsky
Record-Courier staff writer
Judy Wearden is struggling to pay her mortgage, but she is paying it.
Wearden is hopeful to avoid becoming a statistic, like the estimated 21 percent of homeowners nationwide whose adjustable rate mortgages are past due. In February, her monthly payment will "adjust," or jump, from $935 to more than $1,000.
A single mother, Wearden fell in love with a home on Kent's South Francis Street in February 2007. She wanted to stop renting and provide a home for her then 14 year-old son, who also loved the house, so she took on an adjustable rate mortgage with a starting rate of 9.875 for a house currently appraised at $95,000.
Wearden is not a victim of predatory lending practices so recently revealed as commonplace in the housing market. Instead, she did not qualify for a conventional loan with a lower rate. She saw the adjustable rate mortgage as her only shot to provide a home for her son.
"In terms of what's happening with the housing market and my age it was not a good time to do it," Wearden said. "It was a gamble, and so far it's a gamble that hasn't paid off. But I'm hoping that eventually it will."
Wearden had always planned to refinance out of the adjustable rate. Aware of the approaching adjustment, the 56 year-old attempted to refinance her mortgage. But she hit a snag.
Late last year the city of Kent had granted Wearden a $3,100 emergency-repair loan to replace her roof. Kent's home-loan policy dictated the city will not take a secondary repayment position on its loan to a refinancer if the amount of the city's loan plus the proposed new loan exceeds 90 percent of the property's appraised value. By doing so, if the property is foreclosed then the city is guaranteed to be paid back in full for its loan by not allowing another bank or financial entity to take the primary repayment spot.
In both instances, Wearden's proposed new loan combined with her emergency repair home loan from the city exceeded 90 percent of the property's appraised value. Banks would not refinance Wearden's mortgage without the city agreeing to give them first priority for repayment in case of a default.
Gary Locke, the city's community development department director, said Kent's policy was designed to protect the city's interests and ensure repayment in case of default or foreclosure.
"Any bank is going to want to be in a superior position because that's just the way they do business," Locke said. "The thing that was problematic about that, not only in her case but in some other people's cases, is that you had people out there who are trying to get out of these adjustable rate mortgages that the interest rates keep going up on. And they're trying to refinance into a lower rate because maybe they can't afford the payments, and our policy was essentially preventing them from doing that."
Wearden wrote an impassioned letter to Kent City Council asking for a change in the policy to allow subordination of a city-backed home loan for the purposes of refinancing.
Locke supported the policy change as a move on the city's behalf to continue encouraging home ownership.
"This is going to become a little more common with people trying to get out of these adjustable rate mortgages," Locke said. "So that's why we thought there was some justification in going to council to try to get the policy changed."
Council voted unanimously this week to change the policy and waive the 90 percent loan-to-value limitation only when the homeowner is attempting to refinance to a lower, fixed interest rate. The policy will impact the 132 housing loans the city currently has out with a total principle of about $2.5 million.
Wearden, an administrative secretary at Kent State University's School of Biomedical Sciences, is paid a salary of $29,250. The policy change is comforting to her because it will aid her when she makes another attempt to refinance a more affordable mortgage.
"What happened with Kent City Council was one step of many in my efforts to do that," Wearden said. "I hope there are other people who are helped by that."