Exploding Mortgages

Michael Shail, 36, of Rhinebeck, N.Y., faces a stunning financial shock next month. On Nov. 1, the interest rate on his $35,000 home mortgage will jump from 8.5% to 15%, and the monthly payment will go from $270 to $437. A computer-programming manager with IBM, Shail says that he will not have to sell his house, but he frets that he will be forced to reduce the amount of money that he is putting away for the college education of his four children.

Shail is one of 50 homeowners in upstate New York whose mortgages are now being called in for renegotiation by the Ulster Savings Bank of Kingston. All of the people obtained their loans in 1976 at the then prevailing interest rate of 8.5%. The agreements contained an unusual clause saying, in effect, that the mortgage-rate level could be re-established after five years. Shail thought that the clause was unimportant because New York had a law imposing an 8.5% interest ceiling on mortgages. In 1980, however, Congress passed a bill ending all such state usury restrictions on home loans. The average rate in New York State is now about 18%.

Two weeks ago, the Buffalo Savings Bank tried to recall 50 similar old mortgages, but it backed down after a burst of public protest and bad publicity. Ulster Savings, though, intends to stand firm in its insistence on higher rates. Says Howard C. St. John, the bank's president: "We're not the hard, cruel creatures we're said to be. Morally and legally, we're in the clear."

This file is automatically generated by a robot program, so viewer discretion is required.