A Day in the Life: Four Homeowners

It was the worst of times… it was the worst of times.

Okay, so go ahead… tell me your story…

Homeowners #1 – The Smiths

We bought our home in 2002 for $700,000.  By 2005 it appraised for $1.1 million.  We knew it wouldn’t go up that way forever.  We’re not stupid.  We knew real estate was cyclical and would have some ups and downs.  But not like stocks.  The stock market could be really volatile.  You could lose everything in the stock market.  We had learned that back in 2000 when the dot com bubble popped and we lost a ton.

We weren’t trying to be greedy or anything, it’s just that everyone was putting money into technology and our advisor said we should, and it seemed like the right thing to do.  And it was going up and up, and you read all these stories about people making so much, and you don’t want to be the only ones that didn’t make the money… you know.  So, then it all went down and everybody lost a lot and we swore we weren’t going to do that again.

Anyway, that’s one of the reasons we bought the house.  You know, interest rates were down, and the bank said we could get the loan, no problem.  We were making good money, and it just seemed like the right thing to do… for our future, you know… invest our money in our home instead of anywhere else.  Like it seemed like the safe, responsible thing to do.  We’d be buying a little more house, investing our money in something safer, and 20 years down the road it would be worth quite a bit more for sure.  And along the way we’d be enjoying our home… a lot more than we’d ever enjoy owning a stock, I can tell you that.

So, when it appraised in 2005, for $1.1 million we thought we’d take some equity out and invest that money right back into the house.  That seemed like the responsible thing to do.  Invest in your home because it would go up in twenty years or so for sure.  I don’t know how much.  Like I said, we knew real estate wouldn’t just keep going up forever in a straight line like it had the last few years.  But over the next twenty years it seemed like houses would cost something more than they did in 2005… for sure.  And no matter what, in twenty years you’d have paid down the mortgage, so no matter what, you’d have this asset that you could sell, or borrow against, or whatever, and it would be a pretty good part of your retirement.

It was the responsible thing to do for your future, I don’t know… a lot of people just thought that way, that’s all.  It seems so stupid now… ‘cause you know, now we’ve lost nearly everything.  And if we don’t get the mortgage modification thing approved by the bank, we could lose the house.  And then I just don’t know what we’d do.

I don’t even want to think about that, at the moment.  Anyway…

So, we refinanced late in 2005 and took $200,000 out of the equity.  And we put all of it, well… maybe almost all of it anyway… no, I’m serious… we put almost all of it back into the house.  We remodeled the kitchen, we put in the deck and the pool, and, we changed the front quite a bit, with all new landscaping.  Our Realtor had told us that’s one of the most important things when you go to sell your home… she called it curbside appeal… how it looks in the front, so anyway…

We took out the $200,000, it was no problem getting the loan, we used a mortgage broker, he made it so easy, and then we put the money straight into an account, like a savings account.  We were really careful.  It’s not like we were going to take the money and go to Vegas or anything like that.  Well, actually, it’s funny… we did go to Vegas, actually… but that wasn’t because of the money we took out of the house, we had been planning that… anyway…

So, then we owed like $900,000… but our payment wasn’t really any higher than before we took the money out, not really.  Maybe $50 or $100… that’s it.  It was one of the 5-Year ARMS… it started low for the first five years and then it could adjust up, higher… you know, but we figured five years later, if it started to go higher, we could always just refinance to a fixed rate.

Okay, so since then everything has come down, you know?  A lot.  Our house went from $1.1 million to like $600,000… or maybe not that low… maybe $650,000, $675,000… anyway…

So, when everything started going crazy, and our payment was going to go up, and started going up quite a bit… we called our mortgage guy, he was really good, and he tried everything, but we couldn’t do it.  We could not refinance to a fixed rate.  They said we would have to come up with $100,000, or even it was… $130,000, $240,000…  I can’t remember, but something like that.  Like if we had $130,000, we wouldn’t need to refinance, you know… anyway…

So, now… our payment has gone up from $3800 to almost eight thousand dollars a month.  Yes it has, $8,000 a month.  And for a while we were paying it, I don’t know how, but we were getting by, we used what was in our retirement accounts, we cashed in a life insurance policy… but then business started getting worse and our income dropped by like 20%, and then went even lower.  And there was just no way.

And I really thought Obama would do something for the homeowners.  Tell you the truth, that’s a big part of the reason we voted for him… he would fix what was happening to the housing market.  But he didn’t… not yet anyway.

Now we hired a law firm to help us get a modification.  We tried doing it ourselves for a couple months, but I knew that wasn’t ever going to work.  Plus, it would be a fulltime job, I waited on hold for like two hours everytime I’d call, anyway… they said we had to be late on our mortgage to qualify, so we did that.  Actually, we would have started missing payments about that time anyway, so when they said we had to be behind, we thought… well, that’s good because we were just about to be anyway.

Actually, first we hired this company called Rescue My House Modification and they did nothing.  We were so pissed.  We probably won’t ever see that money from them… you know… there are so many scams out there… you read about it every day in the paper.  I saw this one guy on one of the news programs that’s on at night.  He scammed like 200 people, they said… I don’t remember exactly…

So, now we’ve hired a law firm to work on it… it’s been like six months… If we don’t get it, we could lose this house… I don’t know what we’d do… I can’t sleep… I think the law firm will do it though… they said they’re successful like 90% of the time… so anyway… we should get it.

Please don’t tell anyone any of this.  It’s embarrassing, you know.  We didn’t think we were doing anything wrong.  But you hear people all the time… at work… on television… they think it’s all the homeowner’s fault… which I can see in some cases… people that bought homes they could not afford… we didn’t do that.

We thought we were doing the right thing… for our future, you know.  Now we’re screwed.  Totally.  We’ve lost everything.  We just don’t want to lose this house because it’s all we have and we’ve put so much into it… and Real Estate will come back someday… it always has in the past.  We love our home.  And we owe like $950,000 and it appraised three months ago for like $600,000, and they said they take another 10-15% off because prices are still going down, I guess.

I don’t know why… I mean I know some of it, but I don’t fully understand why our government isn’t fixing this.  People are really hurting… it’s getting bad.  Why doesn’t Obama fix it?  The banks get all the money and we get nothing.

Homeowner #2 – The Jones

They say timing is everything and boy, isn’t that the truth.  We bought our house in 2006.  I don’t think we could have bought at a worse time.  We paid $450,000… and now… now it’s worth $225,000… maybe.  We didn’t take out a second mortgage or anything like that… we put 10% down.

We just paid way too much for the house, and now, because we can’t switch to a fixed rate loan, our payments keep rising.  They started at $1800 a month, and as of last month, they’re $3650… doubled.

So, we’re stuck.  We’ve been making the payments so far.  But it’s killing us.  We have no spending money, no money for vacations… nothing.  And I don’t know how long we can keep this up.

The only reason we took out the adjustable rate loan was because we thought we could use the extra cash to fix it up, buy furniture, appliances… it was our first house, you know.  We figured that in a few years, we’d just be able to switch to a fixed rate loan.  We knew real estate had its ups and downs, we just didn’t think the downs would be this far down… this fast.  I mean, our home dropped more than a hundred grand in a year.

Plus, as our payment was going up, we were late on a couple of car payments, you know.  So, our credit score went down, and then our bank sent us a letter and it said they lowered our credit card limit from $5,000 to $2,500.  So, that didn’t help.

So, now we don’t really know what we’re going to do.  We called our bank to see if we could get a loan modification, but they said we were current so there was nothing they could do.  It’s like we’re trapped.  If the payment adjusts again, it’ll be like impossible.  The stress is bad… I’m worried all the time.  I mean, we’ve got two kids.  And we love this house.  If we lose it, where would we go?  We couldn’t buy another one.  I just can’t believe this happened.  We saved and we bought a house… that’s what we were supposed to do, right?

And we can’t even tell anyone… we haven’t even told our best friends because we know what they’ll say.  They’ll say we shouldn’t have taken out the adjustable rate loan.  And I know they’re probably right, but we just didn’t think we wouldn’t be able to change to a fixed rate loan in a few years.  I know we only put 10% down, but we just didn’t think our house would be worth half of what we paid for it just a few years ago.  If we had thought that, we wouldn’t have bought it in the first place.

We hear lots of ads for companies saying they can help get you a loan modification, but then you hear that they’re all scams, you know.  Some are probably okay, but how do you know which ones are good and which ones aren’t?

I guess soon we’ll just have to take a chance and hire someone to help us.  I just don’t know who to ask… but we have to try something.  We can’t just lose our home… we just can’t.

Homeowner #3 – The Browns

We should not be in the situation we’re in.  I just can’t believe it.  We’ve been in our home for 36 years and the thought of losing it after all that time… and at our age… well, it just kills me to think about it.  And the government programs are a joke.  I tried getting help from the government program and from our mortgage company for 10 months and got nowhere.

I guess it’s our fault, even though I really don’t feel that way.  We did refinance a few years ago in order to pay off some bills and we also took some money to buy a rental.  We had this real estate agent advising us, and she suggested that we look at buying a triplex that we could rent out and we thought it sounded like a good idea at the time.  We’re in our sixties and we knew we’d be slowing down in some number of years, so we thought it would be a good idea to invest in a rental property and it would pay off over the next 15 years and then we could either sell it or rent it, or whatever.

Well, since then everything has gone wrong.  The apartments had always been rented, but then a lot of people started getting laid off, and we had people late on their rent, and then vacant apartments that we couldn’t rent for a few months.  Then my hours got cut and our income dropped and we got behind.  It’s amazing how fast everything can change.

We’ve never been late on anything in our lives.  We’re not irresponsible people.  But now look at us.  We might lose our home because of all this.  And I don’t understand why the government isn’t doing something about this.  I mean, Barack Obama was supposed to help regular people, but all he’s done is give money to the banks.  What about the taxpayers?  What about the people who have paid their taxes and lived by the rules?  We raised three children, sent them to college.  Now we’re the bad guys?  Our savings has been almost wiped out.  And we’re almost in our seventies.  What are we supposed to do now?

We heard all the stories of scammers offering to modify mortgages for people, and we didn’t want to get caught up in all of that, but we finally got desperate and hired a law firm and they at least were able to get us  a short sale on the apartments, so that’s taken care of.  But our credit score… you don’t even want to know.  And now we’re waiting to see what they say about our mortgage.  There’s no way we can make the payments where they are now.

I don’t know what we’re going to do.  I don’t want to ask our kids… we haven’t even told them about what’s happening.  I’m just feeling like our whole lives have been lost and all because of those stupid apartments.

What are we supposed to do now?

Homeowner #4 – The Greens

Look, it’s sad to see people losing their homes, but hey… they got themselves into their mess.  No one forced them to do what they did.  No one made them sign the papers.  They were using their home like a cash machine.  So, why should we bail them out now?  Where’s our bail out?  We didn’t over-extend ourselves.  Why should they get bailed out for being irresponsible and we get nothing for being careful and conservative.

If they bit off more than they could chew, then that’s just tough.  I was raised to avoid debt.  We don’t even use our credit cards.  If we don’t have enough money in the bank to buy something, then we do without.  I’ve been driving the same car for 14 years.  And it’s fine.  I could have gone out and bought some fancy BMW or whatever, but I didn’t.  I’ve learned to live within my means.  Maybe if more people knew how to do that, we wouldn’t be in the economic situation we’re in.

In 2004 and 2005, we used to drive around and see all the new houses going up… big, fancy… had to cost a million bucks, most of them.  And you’d see a Mercedes in the driveway, and an SUV, and a motorhome parked on the side, and jet skis… people’s garages looked like they had bought every toy at the store.  And I used to think, how the heck do people make so much money these days?  We’d drive by in our 12 year-old Chrysler and wonder how they could possibly pay for all that stuff.

Now we know… they just bought it all on credit.  And now they’re crying, help us, help us.  Might be the best thing that could ever happen to them, losing a home.  Maybe they’ll learn that you gotta’ pay the piper at some point.  You can’t just borrow, borrow, borrow and then when things change and the money runs out cry, oh help me, I need help from the government.  I feel sorry for people who lose their homes, but it is what it is.

And you know what… the faster it happens, the faster we’re going to get over it, and the faster the economy can get back to normal.  Stop delaying the inevitable.  Most of these people aren’t ever going to be able to afford the payments on the houses they bought… no matter what.  They modify the loans and six months later over half of them are right back in default.

I say let it drop further if it needs to.  I don’t care if my house goes down another 20%… heck 50%.  I’m not moving.  What do I care… it’ll come back… it always does.

So, there you have it…

It was the worst of times… it was the worst of times.

Four couples… three out of the four are in trouble, about to lose their homes.  Only one out of four isn’t.

It’s an incredible tragedy that’s going on here in California and all over the country.  People’s lives are being torn apart.  It’s heartbreaking… and then you realize that it could so easily be you.

It’s truly amazing how small a difference there is between success and failure… between being a respectable homeowner to being an irresponsible spendthrift… between feeling as though you understand your world to feeling lost at sea.  In the blink of an eye, everything can change.

And you don’t know how to look those you love in the eye.  You feel like it’s your fault that you’re where you are.  You should have known better.  You got greedy.  No one made you do what you did.

It’s all crap, however, do you know that?  C – R – A – P… it wasn’t your fault.  The United States Treasury didn’t see any of this coming, so why should you have known better?  This isn’t some ordinary recession.  I’ve been through the last three or four serious recessions and I can’t remember a single one where the only mortgage lender in the country was the Federal Government.  I don’t remember all of Wall Street going under during any other recession.

You didn’t do anything wrong… the banks did the wrong here.  The banks and investment banks are who should be standing front and center.  They fraudulently packaged shoddy loans with others, put a ribbon around it, and called it a AAA mortgage backed security when they knew it wasn’t AAA.  How did they know, because they made it.  They knew.

And then they all lowered the amount they hold in reserves for losses, so they could pay themselves billions of dollars in bonuses.  Billions and billions, as the late Carl Sagan used to say about the stars in the sky.

They broke the financial markets… they broke the bond market.  They created leverage and securitization schemes that, when they went bad, almost took out the world.  They robbed their own banks and threw the entire world into the Great Depression Part 2.

You, on the other hand, wanted a house.  And you thought you were doing an okay thing… who knew we’d be where we are today?

We’ve given the banks so many TRILLIONS of dollars it’s just stunning.  And we’re going to fix health care now?  I don’t think you even deserve a chance to fix health care if you can’t fix housing?

And about the scammers… Bank of America and Wells Fargo have each accepted billions of dollars in government aid… and they’re going to need more in the future if they’re to stay afloat.  Both banks took that money from the gvernment and signed agreements with the government to modify loans under certain circumstances…

and they haven’t done what they contracted to do.  In fact, they’ve done terrible things to homeowners.  They’ve foreclosed on people before they should have.  They’ve denied people loan modifications when they qualified perfectly.  They’ve charged upfront fees for a loan modification even though they’re prohibited from doing so and funded by the government.

They’ve lied about their numbers… and they’ve ruined plenty of lives.

Who are the scammers here?  I see the Attorney General puffing out his chest as he rides about the countryside, sleighing scammers for the good of society.  Perfect… then go arrest someone at one of the mortgage servicers that have abused the HAMP program and their share of homeowners.

Why isn’t the AG saying anything about that little factello?  The banks and servicers have scammed us in such worse ways, isn’t it time that we get honest and educated about what’s really going on here?

We can fix this together, but not divided, trying to sneak a peek in someone’s garage to count the jet skis.

The Loan Mod Blues… Sing it with me… You know how the blues sounds, right?

I’ve got the loan mod blues…

Verse 1

I can’t pay my mortgage

I can’t pay my bills

I can’t pay attention

To sleep I pop pills

Verse 2

My payment it doubled

I’m feeling the weight

I hope my bank gives me

A real low fixed rate

Chorus

I’ve got the loan modification blues

Yes they’re the loan modification blues.

I called my bank, I called my Mama,

I once believed in Barack Obama…

The loan modification blues… the loan modification blues.

Verse 3

I call everyday

To see where we are

Will I keep my house

Or soon live in my car

Verse 4

I finally hired

A firm that would help

And if they don’t do it

To the Bar or AG I will yelp!

Chorus

I’ve got the loan modification blues

Yes they’re the loan modification blues.

I called my bank, I called my Mama,

I once believed in Barack Obama…

Now I’ve got the loan modification blues… yes they’re the loan modification blues.

Comments

  1. hooligan says

    Ouch, well at least the ratios you put out here of 3 problems to one "I told you so" don't bear any resemblance to the state of 80% of the market. I think only 20% of the country's housing stock is tied up in problem loans, but maybe I am being optimistic. There is a common theme that is running through each of the problems that is captured by the "I told you so". That is of course, the multiple that the house was worth compared to income earned (or rental required). The price of the house you buy can only be at a level equal to around 3 times joint income. So if you earn $75,000, then you should not try and service a loan of bigger than $225,000. If you find your house is valued at more, then borrow to that limit, not to the value of the house. As for the guy who bought a triplex, not sure what breakdown in market risk/return dynamics he was expecting. The problem we all face is that with Bernankes interest rate regime, it costs $100,000 to get just $100 a week, if you are lucky enough to get 5%, net of tax. I dont know about you, but if you need half of that $75,000 above to live on in retirement, that means you have to save a lump sum of $750,000. So if your house goes up in value, by way more than the previous $225,000 at any time, you should sell it and move to somewhere cheaper, or simply not trade your house whicjh brings me back to my opening statement that this is precisely what 80% of the country did. Stay put.

  2. momo777 says

    I am writing this in support of all of the homeowners getting absolutely no help from their lenders or our government. Unfortunately while the few receive BILLIONS from our Government, the every day homeowner is getting little to nothing from the banks that President Obama is PAYING with BILLIONS in INCENTIVES to help save our homes. We complain that they are not responding, they are losing paperwork, they are ignoring the Government! It’s time that we use our sheer numbers and make a difference…

    Here's a thought, let's start a movement to have every American CLOSE their accounts with the scamming companies, of course I am referring to the Big Bail Out Banks!

    BAIL OUT BANKS - Bank of America, Wells Fargo, Chase and Citi

    These four large banks service the majority of homeowners in California.

    If one in five homeowners are underwater and/or everyone in the modification process pulled together to follow this movement, we could create some serious CHANGE!

    Close your personal and business bank accounts and tell your friends and family to do the same, only then would we send a clear message to the BAIL OUT BANKS, we've had ENOUGH!

    It’s obvious, the only way to get CHANGE is to hit them in their wallets, let's spread this movement by using the same technology that helped elect OBAMA, let's blog, email, twitter, facebook, etc... Urge everyone to tell their fellow friends and family to close their accounts with the BAIL OUT BANKS and open an account with their community bank that cares!

    We all complain, complain, complain, and complain about the BAIL OUT BANKS but in the end we do nothing. The only reason they are in business is because we keep them in business, we get paid through our employers that bank with them, we cash our checks with them, we use their ATM's, enough is enough!

    I am from California and I can tell you that practically everyone that I know has a friend or family member they knows someone that's either in foreclosure or in some form of modification process. The government isn't going to help us; we need to take matters into our own hands!

    It starts with one person telling another, then another, then another.

    Let's start this movement NOW! Send this message to everyone you know!

  3. TNT says

    As Mandelmann has been saying all along: the banks have no interest in anything OTHER than their bottom line. Hence all of this inefficiency. If they can postpone and delay and lose paperwork rather than modify your loan, they look better to the 'big' boys in the background who have junk investments in the third tier marketplace. If those institutional investors with interests in the portfolios of sup prime loans lose too much, this economy is in even bigger trouble. So, the President puts a Bandaid on a gushing artery in hopes that it will all go away. This, at the expense of the average American who 'thought' that the housing bubble was nothing like the dotcom bubble that burst in '99. Shame on us all for not paying attention. History and economics made it clear that something was amiss. Our Hollywood based perception that excess is possible for all led us to believe that we, too, could live lives of luxury beyond our means with no consequences. Blame it on the Boomers who spoiled their kids rotten. Blame it on the media. Blame it on big business. Blame it on the dumbing down of the education system which created hoards of individuals who didn't know any better than to question the merit of lending practices allowing teachers and civil servants on a relatively 'fixed' income to purchase homes of nearly a million dollars. But know that the blame game is getting us nowhere. Neither is the president's poorly designed & hyper propagandized bail out program. The banks have tightened their belts, denied credit, kept loan mods as difficult as possible to attain and laughed their way out of trouble for the disaster they actively and knowingly participated in.

    How is this American?

  4. Uppitybanker says

    There are currently 2,700,000 eligible for the Making Homes Affordable Loan Program known as HAMP. The Banks offered 400,000 of those 2.7 Million a three month loan trial. Only 8.7% or 235,000 took them up on their offer. Why such a low number? Because the majority of those loan modification offers are for HIGHER not LOWER payments!

    Only 20-25% of the Loan Modifications offer are for LOWER payments. The Boston Federal Reserve had a report on Reducing Foreclosures http://www.bos.frb.org/economic/ppdp/2009/ppdp0902.htm*

    The Following is from the a BOSTON FEDERAL RESERVE REPORT on Reducing Foreclosures.

    * Pg 28..."The authors find that until the fourth quarter of 2008, modifications involving payment increases were more common than those involving payment decreases. In addition, they find that the average and median magnitudes of payment decreases have recently increased from approximately 10–14 percent in the period between 2007:Q1 and 2008:Q2, to approximately 20 percent in the final two quarters of 2008."

    * Pg 29..."The figure shows that modifications involving a decrease in the monthly payment are far more successful than those involving an increase in the payment. For example, after one year, the probability that a modified loan involving a payment increase becomes 90 days delinquent is approximately 69 percent. In contrast, a modified loan involving a payment decrease has a probability of becoming 90 days delinquent of approximately 52 percent."

    If the Banks are Foreclosing on 2 to 3 Million homeowners a year then 235,000 Loan Modifications is surely NOT enough to truly help the people.

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