Real human casualties of the mortgage massacre
By Carolyn Baker & Melissa Taylor
Online Journal Contributing Writer & Guest Writer
Jun 18, 2008, 00:11
SONOMA COUNTY, Calif. -- Nearly three years ago, the Taylor
Family found a home they thought was perfect, a four-bedroom, single-story home
with a hot tub in the backyard in a middle-class neighbor located between two
parks. It was a safe neighborhood and a place that seemed to meet their needs
as a family.
The price was a major stretch at $747,500. But as a couple,
they had owned two other homes. One they had sold after they bought their last
home. They tried to be landlords and found the experience frustrating. They
rented their first home, but it was in a neighborhood where keeping tenants was
extremely challenging. They sold the home for a small gain, but the cost of
maintaining the rental was becoming a burden.
So it was that the Taylors moved from a gang-infested area
in hopes of getting into an area where there was less violence and a better
school district for the children. They moved into a nicer home knowing that
while it was not perfect, they might eventually move into another someday.
Over the course of 12 years, they had adopted three children
who were siblings and in the need of a home. In fact the children were all
related to their family, and the decision was made that the children needed a
stable family where they could be loved and cared for. The Taylors then
refinanced their home to help cover large adoption expenses and other household
repairs. The home became too small for their growing family, and they began to
look at the possibility of adding on or moving to a larger home
For two years they worked with several real estate people
looking for a new home that was single-level and a bit larger to accommodate
their family. However, when they did find a home, they were often out-bid, and
usually the home was worth what a buyer was willing to pay. The homes seemed
out of their reach; it was a seller's market for sure. Eventually, they gave up
and decided that when the children finished grammar school and the youngest was
about to enter kindergarten, they would look in a state less expensive than
California for a home they wanted and could afford.
Not long after, their loan officer called and informed them
that the home next door to her was for sale and had fallen out of escrow twice.
This was presented as a once-in-a-lifetime opportunity. The loan officer was
sure that if they jumped on it right away, they would have a chance to purchase
it. Based on what was explained to them, they believed they could do it, and
the loan officer would set up the loan. The Taylors were perfect for the loan,
the home was amazing, and they would be able to invest in their children's
Together, the Taylor family convened a meeting with their
two older children around the kitchen table to hash out the differences between
the two homes. The girls wanted to have their own room, and although they were
siblings, both had very different experiences of being adopted. Having their
own space appeared important and necessary. The baby had turned two and was
ready to move into his own bedroom. The Taylors wanted to be homeowners again,
and to rent the home they lived in to ensure they would not be bypassed due to
having a contingency sale. They thought it was worth the risk to move even if
it meant changing some things in their budget and assuming the additional
expenses of the new home. However, the loan officer presented a new program in
which the cost of both homes was going to be basically the same.
The Taylors agreed to pay $100,000 dollars down on the new
home and financed $647,500, and after refinancing their other home they owed
$488,000. The loan officer and the real estate company said they could easily
rent the old home for what the new payment would be. The Taylors asked a lot of
questions about the new loan product since they had always gone with a 30-year
fixed rate loan. The rates were quite low, but the loan officer assured them
that this was the best move and a financially sound one. The decision appeared
to be a fine one with little risk. Former Fed Chairman Alan Greenspan and many
others encoyraged the American people to invest their money into the real
estate market, arguing that it was a sound investment. The biggest risk
appeared to be that the market might slow down, but since it was rising so
high, there seemed to be little danger.
The Taylors moved into their new home and began to settle
in. The first mortgage bill came in, and it suddenly appeared to be very
different from what they had understood it to be. What was this negative
amortization piece that exempted them from the first year? The family was told
they were exempt from paying for it, but there it was on the statement. The
family wanted to refinance the loan, but the loan officer said it was foolish
not to see that the home's value would far exceed any negative amortization the
Taylors were incurring. The loan officer told the family that they were
overreacting. Later, they learned that they would need to wait a year to
refinance the homes, but during that time the home's value fell so low that
refinancing was no longer an option. The Taylors agonized over this for months
and went to their loan officer several times as the market began to slip. They
now realized they should sell the home and cut their losses, but they were
simply laughed at. The loan officer became frustrated at one point, stating
that the Taylors were lucky to have gotten into that home -- and that the loan
officer who normally processed home loans had recommended against their buying
the home. It was then stated that the Taylors knew they paid too much for the
home and knew what the risks were. However, as the story unfolded the Taylors
realized when they found the original notes presented before they signed the
loan that they had been lied to. Furthermore, the loan officer had also chosen
an appraiser that would support the loan officer's price of the home. They were
shocked and disappointed because they considered their loan officer to be a
friend, and they had made a mistake that could possibly cost them their
financial security with little recourse but to educate themselves and wait.
They were told that they were young, inexperienced, and
failed to understand the fluctuations of markets. Hadn't the stock market made
a dive and come back? The clear message was: relax. The family tried to do so
as they watched one house lose the value of the $100,000 down and the equity in
both their homes evaporate. Soon they had lost all the equity.
They consulted another loan officer and spoke to banks and
other programs in hopes of correcting the loan problems they were in. All
stated that the family had great credit scores, good income and long-term
employment histories, andshould never have
been placed in the home loans they were given. They were told to wait because
the market would stop falling, and real estate was a long-term investment. It
was, wasn't it? Besides, they had to live some place, and they were doing
better financially compared to many others because of their jobs. They were
advised to borrow money wherever they could and hold on because this could not
last forever. So, repeatedly, they were told to wait, and then they watched
their neighbors, one after another, let their homes go into foreclosure. Soon
many people were trying to short-sale their homes. A short-sale is when a lender
agrees to accept less than the balance due.
For example, says Melissa Taylor, "Our neighbors had
sold their old home, having put almost $200,000 down on their home, and as the
market fell, they lost all their equity, and the home was �upside down' to the
tune of $75,000." Upside down means that a borrower owes more on the home
than the home is worth.
Their neighbors had their home on the market for eight
months, and finally a couple put in an offer that the bank took three months to
accept. In the end, the family was asked to assume a $75,000 unsecured loan to cover
the deal. They counter-offered, but the bank refused to accept anything less
than was owed to them. The home has foreclosed, and the grass has since dried
up, but two neighbors share the duty of caring for the grass to maintain their
own home values. Recently, after a year, the bank called the family and asked
them to try to short-sale the home. It was too late, and the home was more than
$150,000 upside down. The family took the hit on their credit and moved on. So
it appears that despite all the news that short-sales or loan modifications are
available, they are hard to navigate and only a small portion actually become
The Taylor family and their neighbors all had the same
exotic adjustable rate mortgage (ARM) loans and were trying to get out of them.
The exotic loan that they were told was "hard to get" was suddenly
all over the daily news. We now know that the loans were sold in the hedge fund
markets around the world, and the borrowers' losses affected the economy
globally while brokers were given large bonuses to promote these loansand
made huge profits off of exotic loans versus conventional loans. The Taylors
realized they were in trouble, lots of trouble.
They were like many people who jumped into the rising
housing market in recent years, except that they had a decent down payment,
long-term employment, excellent credit, and what appeared to be enough money to
cover both homes monthly if they lost their rental tenant. They had no debt
except a student loan. They chose a loan that would hold their monthly payments
down for the first year, then "reset" at a rate of 7 percent per
year, but there was never an intention to keep the loan longer than one year.
Their mortgage loan officer assured them that they would be able to refinance
in a year to keep their payments affordable. Again they were told that they
just needed to enjoy their new home and stop worrying.
They were caught up in the "American dream" along
with millions of other families around the country. They were experienced homeowners.
They earned over $ 70,000 a year each and had equity in their home.
Basically, the Taylors had a disaster on their hands. They
had good jobs, health insurance and had relatively good health. However, over
the course of five years, both partners at different times had major surgeries.
The youngest child was finishing up pre-school, and the two eldest were going
to be entering middle school. The Taylors were hoping to be able to cut down on
some after-school care, but when returning to work, one of the parents was put
into a job without any flexibility, followed by a course of consequences for
inconveniencing the employer by being allowed to claim disability. That partner
was a union member, but the union's advice was that although the treatment was
unfair most people who have been disabled suffered the same treatment. Their
advice was simple: Lay low and appear content, and hopefully the administration
would shift their focus elsewhere. The employer stated that there was always
the choice of moving on (that is, leaving one's job) if it wasn't working, as
some others had chosen to do in the past.
The medical doctors were concerned that their recommendation
for the employee returning to their regular job duties was being ignored, and
as a result, modifications were necessary. The primary doctor, stated, "It
just takes one person to alter the course of events." Although, frustrated
and concerned, the medical doctor signed a release for the employee to return
to work because the company continued to be unresponsive to the
recommendations. However, given the current housing trend one could see that
there was little room to change jobs, especially one that paid well and had
medical benefits. Since this financial mess could not be easily remedied, the
employee (one of the Taylor parents) decided to keep the paycheck coming in and
lay low as instructed by the union. While there is always the option of using
the union to grieve the employer's treatment, there are complicated
consequences for this unless one is able to take years to fight in out in
court. Historically, a few had been successful, but the cost emotionally and
financially was huge. To make matters more challenging, the insurance provider
for the employer often did not approve claims for up to two months. The Taylors
simply had run out of options, money, and credit.
After a long series of calls to the banks asking for a
refinance, loan modification, or any other help available, requests were
refused despite the fact that the Taylors qualified based on all of the reasons
for loan modification. Nevertheless, the banks would not respond until the loan
was in default. The media kept promising federal help, but there was none. The
housing market kept slipping, the bills kept growing, and the household bills
have increased substantially. Every time a plan to hang on was put in place,
something else would happen. The energy bill would double, gas would rise above
$4 dollars a gallon, the value of the dollar fell, and working overtime was not
cutting it. Neither was reducing household costs, and the budget continues to
be forever changing.
The Taylors met with bankruptcy attorneys, loan officers and
many, many real estate people. Everyone had a different opinion. Media stories
are filled with one failure after another, yet the conventional opinion is,
"Just hang on; things will get better."
Although they have not fallen behind on payments the Taylors
will in the next few months. The injury mentioned above involved a hip
replacement and work time which forced the Taylors to use credit cards to pay
off household, childcare, and medical bills. The Taylors have tried everything
possible to avoid foreclosure and bankruptcy, but every step has been met with
resistance by financial institutions. In fact, the process of exploring other
options has become a full-time job for the family.
The family stress is off the scale. There are many difficult
decisions to make. Do the Taylors walk away or try and hold on? When they
called their real estate officer just yesterday, she said that banks are giving
lower rate loans, but the neighborhood has so many foreclosures that
short-selling the home will be very difficult, if not impossible. They were
also told to check into tax penalties for foreclosure. Once again, the family
mustered the courage to move forward and again were told no.
The Taylors are downsizing everything, clearing things out,
and selling whatever is not needed. Now the family is left trying to sort
through their belongings, unsure if they will keep one home or live in a rental
-- something they are told might be hard to come by. They are trying to acquire
the things they need such as a home, good schools for their kids, food, and
healthcare. All of this as they try to explain to their kids why this home is
no longer theirs and that the children are in no way responsible for the
economic meltdown because it has now become global. Curiously, they seem to be
able to accept it better than the adults around them.
The family once thought they were living the American dream
by owning a home. Now the American dream has shifted to be nothing more than a
place where the Taylors can at least raise the kids and buy food and gasoline.
What the Taylors have come to understand through much pain and suffering is
that the American dream never existed; it is now no more than a nightmare.
The Taylors are not alone. Just last month hundreds of
families in Sonoma County found themselves either in, or near foreclosure.
Sixty-five percent of the homes in the San Francisco Bay area purchased since
2005 are upside down. It seems that subprime borrowers were scapegoated, but
what is America going to say when the exotic ARM home loan bloodbath surpasses
the number of foreclosures? Who will they blame then?
This article was
originally published onSpeaking
Truth to Power.Carolyn
Baker, Ph.D., is the author of Coming
out of Fundamentalist Christianity
and U.S. U.S.
History Uncensored: What Your High School Textbook Didn't Tell You
website is www.carolynbaker.org
where she may be contacted.
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