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Deadbeat Dad Falls Short In Home Loan Crisis, Too

News Channel 8

David William Earley being interviewed by News Channel 8's Mark Douglas.

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By MARK  DOUGLAS | News Channel 8

Published: February 11, 2009

CLEARWATER - Untangling the meltdown of the home loan industry could take years, but a clue lies in the way banks handed money to people like David William Earley.

Earley owes more than $377,000 in child support and claimed poverty in court. His ex-wife has been trying to collect for 19 years on behalf of the couple's four children. His current wife said he hasn't worked in years.

But none of that got in the way of a $125,000 home loan Earley and his wife Christina obtained in November 2006, or the $189,000 refinancing they secured in June 2007.

Christina Earley said lenders gave the couple loans that didn't require good credit, proof of income or any evidence they could repay.

"We had to show nothing," Christina Earley said.

They never would have qualified for a conventional loan, she said.

"With our credit scores we weren't going to get anything."

Like thousands of home loan recipients who are in trouble across the nation, the Earleys soon found themselves drowning in debt.

"We weren't planning on getting over our heads but that's what happened," Christina Earley said.

The Earleys' story helps explain the bank industry meltdown, said University of Tampa Economics professor John Stinespring.

"Part of me is still shocked at the audacity of the person and certainly the negligence on the part of the bank," Stinespring said.

When the banking industry changed the way it loaned money a couple years ago, banks left the door wide open for risky borrowers.

"They were incentivized to engage in these kids of practices," Stinespring said.

Banks moved from an economic model where they originated home loans and held onto them to one where they bundled loans and sold the risks and rewards to other lending institutions.

Stinespring says the so-called "shadow banking industry," where investment organizations don't fall under banking regulations, have compounded the problem by taking on thousands of bad risks like David Earley.

They had little incentive to determine whether a customer could afford to take on debt because they collected commissions either way, passing on the debt to other investors. Those investors inherited the problem when borrowers stopped paying.

"Perhaps half of the credit created in the last two years -- meaning half of the loans, half of the mortgages -- came out of these, came out of the shadow banking sector," Stinespring said.

In August, David and Christina Earley's most recent lender filed notice of foreclosure on their New Port Richey homestead.

Meanwhile, David Earley faces an even more pressing problem: He's in the Pinellas County jail, held without bond for violating his probation and failing to pay child support during the past 19 years.

Earley could end going to prison before the couple faces eviction from the home they bought two years ago -- with no money down, no credit checks and no questions asked.

Reporter Mark Douglas can be reached at Mdouglas@wfla.com

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