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Tale of Three Cities: Foreclosures Don’t Always Follow the Script

In the conventional narrative of the foreclosure crisis, rapacious lenders hooked up with irresponsible buyers. But a Seattle Times-ProPublica analysis of foreclosures from three areas hit hard by the housing crash tells a more complex story. Some sold their home for more than they paid. Predatory loans terms weren’t as pervasive as believed. And much-needed data tracking foreclosures is insufficient or hidden.

Jaymie Jones, photographed in her Kirkland home, lost her job as a manager at one of the nation's biggest banks. After waiting for more than 20 months for her servicer to decide on a loan modification for her home, Jones cancelled her request. She is hoping for a short sale before her 3,400 square-foot home in Kirkland is auctioned off. (John Lok/The Seattle Times)

This story was also published in The Seattle Times on Sunday.

As a symbol of the national foreclosure crisis, Jaymie Jones isn't what you might expect.

The 52-year-old Seattle-area woman worked her way up in the financial-services industry over three decades from bank teller to mortgage executive.

In spring 2007, she bought her dream home in Kirkland, signing a 30-year, fixed-rate mortgage.

Then, as Jones celebrated New Year's Eve on a beach in Mexico, the call came: Her division was shutting down. Jones tapped her savings over the next year and tried for a loan modification, but in the end, the bank filed to foreclose. The dream was over.

In the conventional narrative of the foreclosure crisis, rapacious lenders hooked up with irresponsible buyers in a tale of "Lending Gone Wild."

There was certainly much of that. But a Seattle Times-ProPublica analysis of foreclosures from three areas hit hard by the housing crash tempers that image -- and punctures some other popular notions about the mortgage meltdown.

Most of those in foreclosure were young people, right? Not true. Like Jones, half of them were over age 40.

Predatory lending caused foreclosures, correct? In fact, nearly three out of four loans did not have any of these three key predatory loan features -- balloon payments, prepayment penalties and high interest rates.

And as for the common assumption that most people in foreclosure lost their homes? Surprisingly, not so. More than half of them were able to keep their homes, with some selling them for more than they owed.

The Times-ProPublica analysis provides new insights into the foreclosure crisis and helps fill an acknowledged gap: Much of the data on home loans is insufficient, hidden or hard to obtain.

Although politicians and regulators have moved to gather more information about lending practices and foreclosures, consumer advocates say progress is too slow. And it's unclear how much will be made public.

"For those of us who want to understand how the foreclosure crisis has affected borrowers and communities, it is frustrating to not have access to publicly available data that can really help us to understand what happened and why," said Carolina Reid, a research manager for the Federal Reserve Bank of San Francisco.

Even a basic number -- borrowers in default or foreclosure -- is hard to pinpoint, said Guy Cecala, publisher of Inside Mortgage Finance, a leading trade publication. That's because those who track the data have no way to weed out homes that are counted multiple times because they've gone into and out of the foreclosure process more than once.

Cecala's best guess, based on industry surveys: 4.8 million homes are in serious delinquency or foreclosure.

But, "even the best foreclosure numbers don't give us the reason for the foreclosure," Cecala said. "It's hard to address a problem when you don't know all the causes of it."

Debate about root causes of the crisis has re-emerged in recent days with a partisan split on the Financial Crisis Inquiry Commission about whether failed government housing policies or private-sector lending abuses deserve the most blame.

To address the lack of information about foreclosures, The Seattle Times and ProPublica decided to create a database that could provide some answers. Reporters pulled a random sample of more than 1,200 foreclosure filings from 2005 through 2008. That entailed around 400 filings for each one of the central counties encompassing the Seattle, Phoenix and Baltimore areas.

Overall, the data underscore how the housing bubble and lower lending standards of the era reinforced each other, seducing many homeowners to get in over their heads. Comparing the three counties also reveals regional differences in the profiles of those who got into trouble.

In the Phoenix area, one of the biggest housing bubbles in the nation suddenly burst, unleashing an equally sudden wave of foreclosure filings.

In the Baltimore area, job losses in an aging city threatened home purchases and neighborhood revitalization.

And in the Seattle area, longtime homeowners responded to lenders' aggressive pitches by tapping into rising equity, taking on more debt, and refinancing into adjustable-rate mortgages.

Seattle: Waves of Refinancing

Natalie Simmons and her husband, Stephen, are recent participants in a federal home loan-modification program after refinancing their home four times. They're photographed in their Seward Park neighborhood home along with their daughters Elise, 8, far left, Alexis, 11, and Sunny, 6. (John Lok / The Seattle Times) Home values in King County, where Seattle is located, grew nearly three times faster than household income from 2000 to 2008, with barely a lull after the dot-com bust at the beginning of the decade.

About 40 percent of homeowners in the Seattle-area foreclosure data had owned their houses for more than five years. One out of five had owned for a decade or longer -- long enough to build up substantial equity.

That may help to explain one defining aspect of the Seattle area foreclosures: About half involved refinancing, the data show, a much higher rate than in the Phoenix or Baltimore areas.

The most common loan? A hybrid adjustable-rate mortgage that reset to higher payments after two years, a product that encouraged repeat refinancing.

Some homeowners cashed out their equity to pay debt, make home improvements or finance a business. Homeowners also lost equity as refinancing added hefty loan fees to their debt.

Stephen and Natalie Simmons, both community-college teachers, for example, bought their Seattle home in the mid-1990s with a high-interest fixed-rate mortgage. But, like other homeowners, they heard from mortgage lenders encouraging them to refinance to an adjustable mortgage. The pitch: Save money by rolling high-interest consumer debt into a lower-interest mortgage.

"There's so much we didn't understand in terms of this industry," said Natalie Simmons.

From 2003 to 2007, records show, the couple refinanced their home four times with hybrid ARMs. The last one in 2007, near the peak of Seattle's market, gave them a down payment on a larger home in the suburbs.

The couple said they planned to pay it off quickly by selling their Seattle home, but then property values fell.

Like other homeowners in foreclosure, they couldn't refinance their Seattle home again because it was worth less than the mortgage debt.

The bank foreclosed on their suburban house. They escaped a similar fate on their longtime Seattle home only through a federal loan-modification program.

Lili Sotelo, managing attorney at Northwest Justice Project, said she's seen thousands of homeowners who got caught up in the refinancing frenzy.

"[Borrowers] thought they had to get on the equity train," she said. "No one thought the train was going to crash."

Phoenix: A Bubble Bursts

Sarah Murphy is photographed in her home in Phoenix, Ariz. After losing her job, Murphy almost lost her home to auction, but in an 11th-hour reprieve, her lender approved an ajustment that added $30,000 in fees. (Laura Segall/ProPublica)Surrounded by vast tracts of desert, Phoenix and Maricopa County experienced an unrivaled housing boom in the past decade. From 2000 to 2009, no county added more housing units.

Sarah Murphy saw the new model home she purchased in 2006 as something she could sell once her children moved out, then get a smaller place.

"Never in my wildest dreams did I think the value would go down," said Murphy, 50. "I've owned six homes over the years and never lost money."

Murphy worked for US Airways and had sold her previous home for a profit. She put 20 percent down on the $391,000 house, which had the extra space she needed to accommodate her children and her mother.

But then home prices turned. "Within six months of moving in, neighbors started moving out," Murphy said. "They said it wasn't worth staying in the house -- to keep paying as the price goes down."

The data show that half the Phoenix foreclosures started quickly -- within a year of the loan being made. Nearly 60 percent were for mortgages issued in 2005 or later -- double the rate of Baltimore or Seattle.

She used the developer's mortgage company to avoid an extra fee. The adjustable loan had a low starter rate of 1.25 percent and a ceiling of 9.95 percent. "I wasn't worried because, with my job, I could afford it," she said.

Two years later, Murphy was laid off. To keep up with payments, she began "liquidating her life," selling her car, camera equipment and other belongings. But she soon became delinquent on her mortgage.

Murphy filed for bankruptcy in May 2008. Her home was set for auction that August, but in an 11th-hour reprieve, her lender approved an adjustment that added $30,000 in fees. She is now working two jobs and hoping to get a more affordable modification.

"I've got the tenacity to get through this," she said. "If I walk away, it's a lose-lose for everybody."

Baltimore: Fixed Rates No Guarantee

Julie Guy, outside of her dream home in the Union Square neighborhood of Baltimore, Md., in August. She and her husband bought the 140-year-old house, which they planned to restore. They soon discovered extensive water damage, and that, plus health problems, caused them to fall behind on their mortgage. (Melanie Burford/ProPublica)In 2001, Baltimore-area housing prices were still climbing and things looked hopeful for some of the city's dilapidated 19th century neighborhoods. Natives Julie and Ralph Guy dreamed of renovating an old row house to its original glory.

The Guys, like many other Baltimore borrowers who ended up in foreclosure, weren't looking for a refinance; they were buying a home.

Purchasing in Baltimore was doable for lower-income families like the Guys. Julie worked with developmentally disabled adults, and Ralph did carpentry. When they bought in 2001, the median price was about $58,000, about half that in Washington, D.C., an hour's drive away.

In their late-30s, the couple settled on an 1860s brick row house in the Union Square neighborhood, originally settled by Irish and British immigrants. They paid $35,000 and added $27,000 to the mortgage to pay for the restoration.

"We looked at 37 houses," Julie Guy said. "My husband is a research freak, and it still wasn't enough."

When the housing market took a turn, along with the economy, many borrowers faced job losses and were unable to keep up with their mortgage payments. In the Guys' case, a health-related issue contributed as well. For eight months in 2006, Julie Guy worked only part time while she was being treated for breast cancer, straining their finances even more.

Half the foreclosures in the city and county of Baltimore involved fixed-rate loans, and the Guys' mortgage, a 30-year-fixed note, carried 8.5 percent interest. Though relatively high, the rate didn't trigger the couple's problems -- a leaky basement did.

Three inspectors had declared the house sound, but after the Guys began tearing out plaster, they found water damage down to the foundation. Repairs quickly devoured what the Guys had borrowed to renovate. They used credit cards to pay other expenses and took out a consumer loan at 18 percent.

"Neither one of us is stupid," Julie Guy said. "During the boom, everybody presented themselves as expert. We just got bad advice all along the way."

After months of negotiations, the Guys obtained a loan modification. Their interest rate dropped to 5.37 percent, and their payment went down $200 a month. Like many other homeowners who entered foreclosure, the Guys kept their home. But the renovations are far from over.

"It's still my dream house," Julie Guy said. "I wouldn't trade it for anything."

Starting Over

Jones, the Seattle mortgage manager, was on the opposite end of the income spectrum from the Guys.

She directed a wholesale lending team for National City that supplied mortgage brokers and small banks with loans, including second mortgages.

"We only dealt with A, A+ borrowers," she said, not first-time homebuyers with poor credit histories.

Jones said she was pulling in $800,000 a year in 2007 when she put 20 percent down and bought a five-bedroom, Italian-style home for $1.6 million in Kirkland.

When National City laid her off on New Year's Eve in 2007, she owned four homes: two of her former residences that she was renting out; a vacation home on the Washington coast; and her new Kirkland home.

Jones drained her savings to keep paying the mortgages, refusing to declare bankruptcy. She eventually sold two of the homes, but it wasn't enough.

Her mortgage servicer filed to foreclose on her new place in August, wrecking her once-sterling credit score. After more than 20 months waiting for the servicer to decide on her loan-modification, Jones canceled her request and is hoping for a short sale.

She cashed out her retirement account and with a friend started VoVina, a bar on Kirkland's waterfront.

Jones said she figures selling alcohol during hard times is a sure bet.

Seattle Times reporter Justin Mayo and Seattle Times researcher David Turim contributed to this story as did ProPublica interns Srivinas Rao and Nick Kusnetz.

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Not sure I would agree with your three selections.  An individual who once earned $800,000.00 and owned four homes doesn’t seem to fit the norm. 

Keep in mind, that some foreclosures were the result of taking out the equity in the form of a second mortgage or home equity line of credit simply to pay off existing debt such as credit card debt.

Some loans that were interest sensitive actually saw smaller payments in 2008 and after if the rate was tied to LIBOR or the prime interest rate assuming the initial rate was not a very low teaser rate. 

And then the lenders encouraged refinancing with interest only and negative amortization loans.

Not sure I understand the Az. lady - she retained the boom-time nut *plus* added $30,000 in fees? Is she thinking the market there will roar into gear and prices will…triple? To make that make sense?
Perhaps I did not grasp the rationale here. It seems the bank will make what they first intended, plus more???
When does walking away make sense? I understand there is a hassle factor, but how bad would it be to move? Her FICO got trashed just for tangling with HAMP so that is a null issue.
Best to her, but…is there no time to cry uncle with these mtgs?

The foreclosures that are going on in eastern Oregon are due to three things:  job loss, investment property, and over inflated housing prices that wages could not keep up with.  Job losses are the biggest culprit.  Investment properties were culprit number 2.  As soon as a house came on the market, somebody wanted to flip it and make some money.  Many of the borrowers who were looking for investments ran up the cost of real estate, but when the recession hit, they could not rent or sell their properties out for the prices they were asking.  Renters had to move in with family.  Housing prices could not sustain the trajectory they were on with the average wages that people made in this area.  I always thought that people who made upwards of $800,000 a year could pay off a mortgage and live comfortably, but this recession revealed some frightening things about Americans.  We want to play now and pay later.  I don’t think it is right for investors to determine the market value of mortgages, it should be the community where the mortgages are located and the formula for appraisals should always consider median income.  Bend, Oregon is a good example of the rich destroying a local community and culture.

Martin Andelman

Dec. 18, 2010, 8:18 p.m.

Bravo!  I’m impressed and you are to be commended for the insight required to write this article.

There are two primary misconceptions why Americans are allowing the foreclosure crisis to continue:

1. People believe that the “banks” are foreclosing because it’s in their best financial interests. And it makes sense that they think this way, as that’s what “banks” have always done in the past.

2. Banks are foreclosing on homes bought by irresponsible and often low income people that should never been allowed to buy their homes in the first place and can’t possibly afford them. And virtually all of the imagery of the foreclosure crisis features poor minorities in run down homes with trash piled everywhere.

If either of these thoughts were true, then the people would be right to ignore the foreclosures as they would be the natural order of things.  Unpleasant to watch, but unavoidable, so wake me when its over.

So, it’s not illogical that most of the country seems to be uninterested in stopping the foreclosure crisis, even though they themselves are losing enormous amounts of accumulated wealth in their homes as a result of the crisis continuing.  If you believe points one and two above, then there’s nothing to be done… so wake me when it’s over.

BUT NEITHER POINT IS TRUE.

While low income minorities certainly have suffered as a result of the crisis, they are by no means the lion’s share of the affected population.  It’s just that the “The Anderson Family” rarely stops for a photo-op in front of their Volvo wagon before driving away from their home for the last time.

And “banks” are not the ones foreclosing… “servicers” are foreclosing.  And “servicers” ALWAYS make the most money by servicing a delinquent loan for as long as possible and then foreclosing. 

Servicers aren’t acting in the best interests of investors or borrowers, or even our society as a whole.  They are acting in their own best interests, which are to keep your loan delinquent for a while before foreclosing.

The unsolvable part of the crisis is that in many cases there are no fiduciaries to the loans… the investors are holders of “certificates” entitled to a share of the cash flows produced by a pool of loans, but they don’t consider themselves landlords, by any means.

And if not servicers, then who will be involved in negotiating loan modifications?  Servicers can’t be relied upon to do it, their incentives are not aligned with any others, and the government would have to take over the loans to modify them.

The country needs to come to understand that the cause of the crisis was not a housing bubble popping, it was not caused by irresponsible people buying homes they can’t afford. 

It should be obvious by now that none of us will be getting out of this unscathed. The water is rising and, while the crisis may only be causing flooding in 15% of homeowners with a mortgage, it is already at least lapping at the rest of America’s toes.

The only real question is whether the people will come to understand what’s happened and is being allowed to continue to happen before we all learn the truth of the matter the hard way.

Already 42 million Americans are receiving food stamps, up from 11 million in 2005.  Million dollar mortgages are defaulting at twice the national average.  More than half of all foreclosures are prime loans, and there are few states today unaffected by the foreclosure crisis.

Because foreclosures breed foreclosures… they lead to lower property values, which lessens consumer spending, which reduces corporate profits, resulting in higher unemployment, which ends in more foreclosures. 

It’s a feedback loop that won’t stop until it has wiped out America’s consumer economy and destroyed the accumulated wealth of America’s middle class.

Matthew Slaughter

Dec. 18, 2010, 8:42 p.m.

this is a fascinating story… it really gives an interesting picture. . . it makes me ponder at what point did house prices actually start to fall? how does that line up with what happened on wall street and at the hedge funds of the world?

my complaint is the interchangable use of ‘home value’ and ‘home price’. the price of these homes was far, far higher than any intrinsic value. this is particularly a sore spot for me as i have known many people who were ‘driven out’ of their home areas because of skyrocketing housing prices vs wages. the US internal migration (2000-2007) aspect seems to be undercovered in the reports i have seen on the crisis.

this story makes me ponder if the ‘second internal migration’ may have happened in 2008-2010 as many different types of homeowners were chucked out by the falling home prices.

the place of ‘home equity’ is particularly fascinating, its place in the economy was perhaps simply a ‘sham stimulus’ that we experienced from 2000-2007 as people withdrew money from their home prices, prices that were artificially inflated above intrinsic value to begin with, thus this home equity money was, in fact, fake.

anyways, thanks for another good story pro p.

Matthew Slaughter

Dec. 18, 2010, 8:50 p.m.

And a question: You list 3 ‘predatory features’.

I thought the predatory features were No-Doc, Low-Doc, ARM, interest-only ARM, and negative amortizing ARM?

Thanks.

Mr. Andelman-Thank you for your insight. I have followed your advice/thoughts on this matter for some time now…and yes I do subscribe to Mandelman Matters. Your humor has sometimes been the “spoonful of sugar that makes the medicine go down”. I have been seeking for almost 10 months now a mod through BoA…never been late or missed a payment. It has been interesting to see first hand the blatant lies and deception I am now facing…due to my request for a mod. My excellent credit rating is slowly but surely taking a beating (this without being accepted for a mod). Even though I have undisputable proof of their being wrong.
I am at this time looking into your recommendation of the REST report. Hopefully it might give the servicer the incentive to look into mod options instead of purposely delaying and purposely trying to destroy my credit.
Along with ProPublica and people like yourself…the innocent , hardworking, little guy, who was blindsided by this mess has a bit more of a fighting chance. I truly thank you!

acmodspecialists

Dec. 18, 2010, 11:02 p.m.

Mr. Andelman, I love your analysis except this is whats missing, What to do then? what is the solution? at the end of the day something has to be done right? otherwise “It’s a feedback loop that won’t stop until it has wiped out America’s consumer economy and destroyed the accumulated wealth of America’s middle class.”

acmodspecialists

Dec. 18, 2010, 11:19 p.m.

Mathew, you area correct too, The predatory features were No-Doc, Low-Doc, ARM, interest-only ARM, and negative amortizing ARM, I would just add that,
When banks got deregulated and they were told that now they can sell the mortgages to investors, they came up with stated assets loans and that created a demand so homes when up in price, then they came up with stated assets, stated income loans and more demand was created do to more people able to qualify and homes went up, then when banks saw that people could not pay because homes were to expensive they came up with interest only loans and that created a demand again and homes became more and more expensive, so they came up with NEGAM loans were you don’t even have to pay the interest of the loan with the difference going in to the principal, but it did not stop there, they came up with Liar Loans, Trap loans, etc and because they knew they were giving these loans and sooner or later people were going to default they went and bought insurance against those mortgages (AIG bailout) now they making billions FRAUDCLOSING in homes (Mers false affidavits etc)
Their bonuses are 144 Billion this year with less than half of that you could fix and save all of the mortgages that are underwater !

Parallel Foreclosure

Dec. 18, 2010, 11:43 p.m.

I came up with SEVENTEEN income streams for banks and mortgage servicers when they foreclose on a home.

So I disagree that banks are afraid of foreclosures or would prefer to “help” the homeowner.  And lets not forget that the banks sometimes own the mortgage servicing company or have a special relationship with them.

I had trouble following this article. I didn’t understand the Seattle example at all.  They were going to sell one home to finance the other, but then they were upside down on it???

acmodspecialists and us are on the same wavelength.  I wanted to do the calculations of all the banksters bonuses versus the the foreclosure actions to get a sense of the two, and apparently the banksters bonuses are more than helping every foreclosure victim?

and not much was said about credit card debt.  Where are the credit card debt reduction incentive programs?

I believe the rush to foreclose is related to trying to wash the books that relate to securitization bonds. If the banksters don’t want it revealed that they sold the same slices from the same house more than one hundred percent’s worth, what better way than to foreclose and take control of the house.

Martin Andelman

Dec. 19, 2010, 12:08 a.m.

For the record… home prices fell for different reasons at two different times.

1. The Bubble Begins to Deflate… By summer 2006, the Fed had raised rates 17 times in a row in its attempt to keep inflation in check.

As rates rose, fewer qualified for loans, homes stayed on the market longer… prices fell.  Those who had put no money down, had adjustable or teaser rate loans, or who had counted on low rates or higher values in the future so they could refinance… fell into foreclosure. 

But that’s what was supposed to happen…

Who knows what would have happened from there, had the housing bubble continued to lose air.  We never got to find out…

2. The Banks Break the Bond Market… On July 10th, 2007… something happened that never happened before.

Standard & Poors and Moody’s, announced they were downgrading ratings on 1,032 bond issues, fewer than 1% of all bonds backed by sub-prime loans, but it didn’t matter…

Investors panicked, many dumped holdings at fire sale prices.  Many had been sold to pension plans, whose bylaws prevented them from holding anything but triple A rated securities.

Investors worried that if S&P and Moody’s were wrong about these bonds, what about the trillions in bonds backed by Alt-A and other mortgages.

The bond market froze.  Within two weeks, banks wouldn’t loan money to each other, and the Fed had to reverse its position from two weeks prior, and started pumping cash into the system to keep liquidity from drying up.

All of a sudden no one trusted ratings on bonds, so no one would buy or hold bonds backed by mortgages. And the secondary market, which is where banks sell loans they’ve originated, was no longer buying mortgages, since they couldn’t sell bonds backed by such mortgages.

Lending stopped… banks started hoarding cash. Over a couple of weeks, we went from lending… to no loans.  You couldn’t get a first mortgage or a second.

With no loans available, housing prices started falling… fast. 

But this was no housing bubble slowly deflating, this was a free fall situation that would soon take down Wall Street, spawn a global financial crisis, and wipe out the accumulated wealth of America’s middle class.

Treasury Secretary Hank Paulson, and Fed Chair Ben Bernanke didn’t see what was happening until it was far too late.  In Paulson’s book, On the Brink,” he admits: “We were just wrong.”

Bear Stearns went first.  Then September 17th, 2008, Lehman Bros. announced that it was filing for bankruptcy, and AIG… well, that’s another story.

THE KEY PROBLEM…

Somewhere along the way, we started blaming “irresponsible sub-prime borrowers” who were said to have bought homes they couldn’t afford. 

Many people had seen new McMansions going up during the bubble, and had started to get just a little jealous or concerned that perhaps they were falling behind their peers… and now they said to themselves:

“Ah ha! I knew it wasn’t me… they were irresponsible borrowers… I knew it!”

No one saw the bond market break, but everyone heard of houses in foreclosure.  And I suppose that its easier to blame neighbors for being irresponsible than Goldman Sachs, or others on Wall Street whose greed and abuses of the system weren’t widely understood, or explained by the media.

Today, the only lender in this country is the federal government, through Fannie, Freddie or FHA.  There are no “securitizations” to speak of, which is the process through which mortgages are transformed into debt securities sold to investors.

Our banks were holding hundreds of billions in mortgage-backed securities and collateralized debt obligations (CDOs) on their balance sheets and in off-balance sheet SPVs (Special Purpose Vehicles). There was no longer a market, so marking them down to market value meant they were worthless… they were “toxic assets.”

Banks had also borrowed against their now worthless assets by up to 30:1,  and the entire U.S. banking system was about to implode.

Enter: TARP

Paulson said he’d need $700 billion to stop our ship from sinking, and we know what happened from there.  To-date we’ve pumped $12.2 trillion into our banking system, but only 1/1000th of that amount into stopping the foreclosure crisis.

Why?  Because there is no widespread political support for bailing out what too many still think of as “irresponsible sub-prime borrowers who bought homes they couldn’t afford, and who therefore should be punished by losing their homes.”

And so, housing prices remain in a free fall, unemployment is still rising, and homeowners have lost $9 trillion in equity since 2006.

The housing bubble’s demise might have caused the worst economic downturn since the Great Depression, but it didn’t… it never got the chance.

Those at risk of foreclosure today didn’t do anything wrong.  They just did whatever they did at the wrong time. 

It’s not the borrowers… it’s the banks.

Thank you once again Mr. Andelman! Sometimes I feel as if I am wearing a scarlet letter because I am requesting new terms for my mortgage (although at this point no reduction in principle). I worked the last year and a half with two tears in my shoulder (there’s not any one of these banksters who could have even wore my tool belt for 1 hour). I came to the table with 20% down payment and put 20k in upgrades. Now they want to just string me along, ruin my credit so no one will refinance my loan. They enjoy billion $ bonuses for doing the job they did….I would have been fired (and rightfully so). Now some of the Republicans are producing a report blaming homeowners. Why is our government forsaking us (middle-class and homeowners) at a time when we are in such dire need? It truly is not the right thing to do…but I am worried of horrible things to come. People can only “eat cake” for so long!

Martin Andelman

Dec. 19, 2010, 4:03 a.m.

To those who know me… How cool to come onto PorPublica, which I’ve never done before, and find so many friends.  Thank you to all who said such nice things…  you really do make everything so worth it… and feel free to write to me with any questions about the REST Report…

Now… acmodspecialists asked the question: What is the solution?

Fair enough… I’d like to answer that.  But first let me just say the following:

We will eventually all come to terms with what’s happened here and demand reforms that will restore balance to our system of government.

The only question is how much pain we will have to endure… how bad things will have to get… before we come together.

So… in brief and keeping it simple… and off the top of my head… stopping the foreclosures:

1. Modification: 2-% interest only, 5 years. Does it solve anything permanently… no.  But it would allow things to calm down and stabilize quite a bit.  And anyone that can’t make the payment at 2% interest only should not be in that house.

Anyone could qualify based on simple ratios, and not a costly program with rates so low.  Homeowners not at risk would receive a home improvement dollar for dollar tax credit, so fix up home or make energy efficient, or whatever.

2. Create a federal program that would be called a “Government Insured Silent Second”. 

Underwater homeowners could go to bank and say they want a silent second… bank would bring payment down to being based on current market value, take back a silent second that would be insured by the FHA for 10 years, so booked as asset on bank’s books.

Guarantee only good if homeowner stays five years, so gives incentive for bank to keep homeowner in home.

If homeowner makes payments on time each year, 10% of second gets written off by bank each year.  After ten years, homeowner owns home at market value.  But bank had performing loan for ten years, and since only to market value, bank breaks even with cost of foreclosure today.

And second stays on the property, so if homeowner wants to move, he or she can, but house would sell for less as a result of silent second, so wouldn’t allow for equity to be paid to homeowner until year 11.  Available to anyone.

It would be like getting a principal reduction today from your bank, but payment wise, but not being able to access it for 10 years.

3.  The Swap-Down… How about this… homeowners join exchange database and try to match up with people looking to move up, as they are looking to move down.  If match results in win-win, government buys down principal balance on both homes to no more than 125% of market value.

4. Or… the Investor Incentive… government announced incentive program for investors only, doesn’t apply to servicers.  Matches dollar for dollar principal reduction tax credit for each given by investor to prevent foreclosure.

5. Announce NO MORE BANK BAILOUTS as long as current senior management remains in place.  Every other country on the planet has replaced their top bankers since they blew up the world.  We need to do the same.  No more federal money for same C-Suite Execs.No more federal money for bankers paying out more than some limit on bonuses either.

6. One year payroll tax holiday on all new hires.  Hire a new employes and no payroll tax liability for one year.

7. Start Your Own Business Fund… Establish a fund to help people start their own businesses… even part-time businesses.  Not credit score dependent, but based on person’s history. etc. provides for credit waver.  Up to $10,000 interest only loan for small businesses start-ups, $25,000 if business exports outside U.S.

8. Buy a new car, pay less for gas.  Buyers of new cars will receive a government rebate check for 33% of gas purchased during first year.

AND MOST OF ALL…

We need to scare the heck out of those in the House of Representatives.  Form letter writing clubs… meet online and in person to plan letter writing campaigns.  Organize and target politicians that are blindly loyal to voting in line with financial service industry.Become a Letter Writing Army to take back our democracy.

Organize boycotts of banks that are abusive to homeowners… and follow through.  Build online communities, raise awareness.

STOP USING FREE TIME TO WATCH TV.

OR…  How about this one… Join me on March 1st… I’m going to Washington D.C. to have a few meetings with elected officials… but won’t be there until mid-April because I’m riding my bike and it’s a long way from Los Angeles.

I could go on and on, and often do… I don’t think I’m the smartest guy in the world, or anything like that.  But I do know this… what we’re doing now is NOT going to cut it.

So, let’s do something, even if it doesn’t work, maybe it will inspire someone to do something that does. 

We managed to have a revolution in the late 1700s, and no one had ever done that before either.

I fail to understand the difference between a low income person getting a ‘liars loan’ and a higher income person refinancing to cover discretionary purchases on credit cards.

That higher income person you are insinuating has more education and savvy, and that it is somehow not a fault on their part to accept unnacceptable amounts of risk.

You use this article to continue to make excuses for people who papered over their excessive spending with refinances, and then got caught in a bad market and fraud. If they had not been greedy and frivolous spenders in the first place they would nothave to cover their expenses with refinance then they would have had lower expenses to deal with in the case of job loss.

But of course that would have pissed off your readership, who doesn’t want to hear about personal accountability, and wants the government to save them from the big bad financial sector.

Every single one of your solutions leans heavily on the government for execution, the same incompetent government that regulated us into this mess.

How about let the cards fall where they may, take care of your neighbors in a rough time, and stop manipulating the government to cover over poor financial risk assessment at the personal level.

I don’t want to help people who chose to live a life above their means, or who got swindled.

There will be many in this particular conversation who will erupt and scream epithets about ‘banksters’ and other weird peurile pet names for unethical capitalists, and you will continue to pander to them with slanted, although very well written, articles that excuse any sort of personal accountability.

Parallel Foreclosure

Dec. 19, 2010, 1:19 p.m.

Logan, this article is not the kind of article one should be drawing any conclusion from.

I sincerely suggest you follow swarmthebanks and parallelforeclosure before jumping to such conclusions.

The banks have done so much wrong, to the point where their bonuses alone equal more than the damage they did.

Alternet article: “Are Right Wing Libertarian Internet Trolls Getting Paid To Dumb Down Online Conversations?” Logan I suggest YOU are a troll!!!!! I am sick and tired of people like yourself assuming that I (and people with similar experience) am IRRESPONSIBLE. Nothing could be further from the truth. I surmise you enjoy being a lap dog for these BANKSTERS. PLEASE spare me the lecture on accountability and save it for those who put us in this mess!

Martin Andelman

Dec. 19, 2010, 9:05 p.m.

Logan… Since you obviously didn’t take the time to read either of my comments that drew out the specific events related to the meltdown of our economy, let me just offer to paraphrase this quote from The Great American Stick-Up, a recently published and very well-written book that documents the events leading up to the crash…

Blaming the borrowers for the meltdown is like blaming the passengers killed when a discount airline’s plane crashed, and it was discovered that it was being flown by a monkey.  Didn’t they know they should have paid more for their ticket?

Your idea that the government has no role here would have been interesting before the government started bailing out Wall Street bankers with trillions in taxpayer dollars.  Our government, you should remember, has no money.  It only exists of the people, by the people and for the people, as the great man once said.

If I may recommend another book that is an excellent read on this subject: “All The Devils Are Here-The HIDDEN History Of The Financial Crisis” by Bethany McLean and Joe Nocera. Ms. McLean was the co-author of “The Smartest Guys In The Room”, which chronicled the Enron debacle. PLEASE read this book before you blame anyone…especially a homeowner. GOD bless all!

Martin Andelman

Dec. 20, 2010, 12:42 a.m.

Thank you…I do love getting book recommendations and I have read Bethany’s and Joe’s latest, I also read her Enron expose years ago when I was trying to make sense of what those clowns had done.

If you want my reading list, I posted it on my blog, but I don’t think I’m supposed to promote my blog on ProPublica, I’m not sure they’d want me to do that.  If you email me, I could send it to you, but I’m not sure I should do that either… okay, what the heck:

AfterShock, Robert Reich
All the Devils are Here
The Big Short, Michael Lewis
Crisis Economics, Roubini
The End of Wall Street, Lowenstein
The Forgotten Man, Amity Shlaes
FreeFall, Joe Stiglitz
The Great American Stick-Up, Robert Sheer
The Great Depression Diary, Benjamin Roth
The HellHound of Wall Street, Michael Perino
On the Brink, Henry J. Paulson
The Quants, Scott Patterson
The Return of Depression Economics, Paul Krugman
Too Big To Fail, Andrew Ross Sorkin
13 Bankers, Simon Johnson
Griftopia, Matt Tiabbi

And currently… The Monster, Michael Hudson… the publisher sent it to me free because they know I write book reviews… how cool is that!

Anyway… I’d recommend anyor all of the… and if I’m missing any you think I should check out, please let me know as I read all the time.

Unhappy Texan

Dec. 20, 2010, 4:51 a.m.

Logan, I am a professor who very often encounters many uninformed people, more so here in the USA.  However,  Matt Taibbi’s Griftopia (ISBN 978-0-385-52995-2,) listed at the bottom of Andelman’s recommendations will be of great help to you.  Above all, pay good attention at Chapter 2.  In spite of the occasional profanity, the writing is excellent.

Mr. Andelman, you are always correct in your analysis but your answers defy the situation. Only government can make it non-profitable for things to go on as they have just as government made it profititable to for banks to create this situation. As I write in every comment, “Its always about the money, and when they say that its not about the money, its really about the money”.  Goldman Sachs has been in charge of this economy for 20 years now. They made all the money paid their executives big, big dollars, others on Wall St. did the same. So long as government (us) lets these people run the economy, who loses?

Lotsa whining here…..
My late husband, born in the mid 1930s, grew up with parents who got through the Depression the hard way, as working stiffs who knew how to stretch a dollar til it squealed. My sweetheart taught me “never, never, never, ever mortgage the roof over your head.”
Our first house, which took a bit more than we had, $16,000, we paid off in less than two years. After that, we never had a mortgage and we didn’t move all that often.  As long as I can pay the property taxes and a bit of maintenance and heat it….it will stay mine. Shelter from the elements and a warm place to sleep.
Maybe this current debacle will teach more people not to get greedy and to live within their means.
Of course, we benefited from the shocking prices people were willing to pay for our houses, and when interest rates were high we had money to save, which gave us a good return. Trouble is, now that times are tough, (Thanks Ben Bernanke) there’s little reason to save money—which is losing buying power by the day…soooo….bubble bubble toil and trouble….. gotta figure this one out without the benefit of my sweetheart’s wisdom….always something, isn’t there…...

Need I say more? Just in case, EM, do not forget chapter two.

Based on Em Hooper, the older you get the stupiter you become. I guess that’s why there are laws to protect senior citizens. Auntie Em apparetly lives in Kansas where all people are good. Unfortunately, in this country we also have a Wall Street where people sit and scheme on how to rip Auntie Em’s money or equity from her hands. What Auntie Em hasn’t realized yet is what she had hoped to pay for real estate taxes and heat, just went up. The tragety is there are too many to count Auntie Em’s out there still paying Ma Bell for long distance telephone service believing that the further away you call, the more it costs. You have to love Auntie Em’s, Goldman Sachs sure does, and they can prove it and do so every single day…

So who’s at fault for a no doc loan if the information is materially inaccurate?  The mortgagor or the lender for not verifying the accuracy.  This assumes the lender was not responsible for filling in the blanks. 

While the banks advertised teaser loans with artificially low rates or negative amortizing loans, it seems some responsibilty lies with the borrower.  Remember the ads on how much you could save each monh? 

Anyone know the answer to this one. 

AIG received billions in TARP funds.
AIG paid out 100% on claims from Goldman Sachs and Deutsche Bank to name a few.  Deutsche is reported to have been paid over $10 billion ($11.8 billion by one report)
Deutsche Bank set up a number to individual trusts that purchased Mortgage Backed Securites and then sold them off as Credit Demand Obligations.
Were the payments from AIG for Credit Default Swaps to insure the collectibility of the assets in the Trusts?
If so, should there be any offsets or shoud AIG be entitled to the assets in the Trust?

So who’s at fault for a no doc loan if the information is materially inaccurate?  The mortgagor or the lender for not verifying the accuracy.  This assumes the lender was not responsible for filling in the blanks. 

While the banks advertised teaser loans with artificially low rates or negative amortizing loans, it seems some responsibility lies with the borrower.  Remember the ads on how much you could save each month? 

Anyone know the answer to this one?

AIG received billions in TARP funds.
AIG paid out 100% on claims from Goldman Sachs and Deutsche Bank to name a few.  Deutsche is reported to have been paid over $10 billion ($11.8 billion by one report)
Deutsche Bank set up a number to individual trusts that purchased Mortgage Backed Securities and then sold them off as Credit Demand Obligations.
Were the payments from AIG for Credit Default Swaps to insure the collectibility of the assets in the Trusts?
If so, should there be any offsets or should AIG be entitled to the assets in the Trust?

Nissim Sasson

Dec. 20, 2010, 8:11 p.m.

I have news for everybody here thus is what homeowners are expecting once the republicans take the house next year:
“We’re here to ‘serve the banks,’ incoming Financial Services Committee chairman declares
Alabama Republican Spencer Bachus
Good Luck America !

acmodspecialists

Dec. 20, 2010, 8:19 p.m.

MR Martin Andelmanon in regard to your comments Yesterday, at 4:03 a.m
Don’t you want to run for president ?  : )

Nissim Sasson

Dec. 20, 2010, 8:32 p.m.

Mr.Logan on your comment for Yesterday, 11:32 a.m I suggest you get well inform so I am going to recommend you a few sources of information on top of swarmthebanks and “parallelforeclosure”, go see the movie documentary “inside Job” go to website “4clouserfraud” and Foreclosure hamlet read the books 13 Bankers by Simon Johnson and All the Devils Are Here, by Bethany McLean and Joe Nocera and last but not least read all the documentaries and reports (old and new) that appear here on Propublica with statistics dates, accurate numbers etc. After you do all this please write again here I would like to read your comments again once you are well inform

I hope that none of the idiots that voted for the republicans or the tea party have a bone to pick with the banking community, because the congressmen and congresswomen who took large sums of money from banks are going to really hurt you. The banks and big business won’t be happy until america is living in mud huts.  Ironically, they’re going to start with the red states first. Pack your bags social conservatives, the train is coming and the truth will set you free.

I love reading all the well informed comments here!  I also appreciate the misinformed comments, you know the ones—“it’s your fault”.  This hard nosed pull-yourself-up-by-your-boot-straps attitude denies the reality; that this system is so big and increasingly corrupt that the little guy has little chance when something goes wrong.

My analysis of how a system is working is how well it responds to crisis.  Clearly this is BROKE!  Stripping families of homes, ruining peoples credit, decimating neighborhoods it NOT in the best interest of communities and the country as a whole.  And with so many folks losing or having lost their homes (myself included) the answer can’t be that ALL these folks were greedy and irresponsible!

And finally how can anyone justify what is clearly in many cases an illegal land grab?  And how can these same folks who blame the little guy, NOT find a problem with the bank bailout and the outrageous bonuses the Banksters got for themselves?

@ Truebee - Obama’s top funder was Goldman Sachs, which has enjoyed more bailout money than any other entity (via counterparty reimbursements @ par, sudden shift into commercial bank status for better lending terms, very low interest on unlimited Fed. funds, and the collapse of a key rival, Lehman.)
there are complex international cross-currents to these issues, way beyond GOP vs. Dem. debates.
you might read about GS on Matt Taiibi’s blogs, True/Slant or Rolling Stone.
Goldman is golden. and their guy in the WH has been extremely generous to them, and continues to be. Check it out.

So, how many of you still have checking, savings, or certificates of deposit with the Big Banks?  Vote with your feet and take whatever money you have left and move it to a local community bank or a credit union right NOW.

Nissim Sasson

Dec. 21, 2010, 6:12 p.m.

The USA is called Goldman Sachs of America there the ones controlling and moving the whole country as they pleased

acmodspecialists

Dec. 21, 2010, 6:20 p.m.

Sophie Today, 10:28 a.m I would add to your comment that affects the economy even more, Every home that is not modified or has no certainty (7 million or more 4 people per home totals 28 million people) is people that while they are in this uncertainty don’t consume or spend, they dont buy new furniture so the furniture store dont sell, they don buy appliances so the appliance dont sell they dont fix their garden so the gardener does not make money they dont buy anew tv they dont fix the home the cancel cable etc and on and on and the economy does not improve
Thank you Banksters!

Why do so many insist on blaming one side, or the other, like it was “all the banks fault” or “all the fault of irresponsible borrowers?” 

In my opinion, there’s lots of blame to be spread around, we were all dancing to the tune of the Big Consumer Culture when times were good, so I guess that would include me, too. 

@Truebee, I found your reply to Em unnecessarily caustic and condescending. There is something to be said for the statement that living within ones means gives a fair bit of freedom.

acmodspecialists

Dec. 21, 2010, 10:32 p.m.

Miss, I believe you one of those persons that got it all backwards read the column from Martin Andelman Dec. 20, 12:42 a.m read all those bocks he is recommending and go see the movie documentary Inside Job and get inform in the following websites, swarmthebanks, parallelforeclosure”, 4closurefraud,
Whatch Dylan Ratigan show
Once you do that please write here in this column i would like to read your views

Em Hooper-You did make some valid points. It is a very different world we live in now. Many people feel entitled…the need to keep up with their neighbors and others or just flat out greedy. Your husband in my opinion was an extremely wise and prudent man (GOD bless his soul) who used sound judgement in dealing with what he had. You must understand that MANY people are hurting right now that have also done the right things…paid their bills on time, worked hard and honest at their given professions and loved their family and country. Many have been put in a situation that they will never recover from. Yes, there are alot of whiners (I admit to being the loudest of all). All I and many others ask for is an opportunity to keep our homes. To accomplish this at the present time we mainly need jobs (I’ll gladly take one even if it is shoveling s..t, done it before living on a farm growing up…filled many a manure spreader). Secondly, for banks to give a fair shake to those who are deserving. Surely it is the least they can do…especially after having been bailed out themselves. It is a totally different world now…I long for the days when things were simpler…when your word and your handshake meant everything…cause sometimes it was all you had. You know as well as me…there is always 2 sides (at least) to everything. I hope you didn’t take any offense to some of the things that might have been said by some in this forum. Most all are really good folks…just hurting…looking for answers. I wish you the best…know you are hurting to for your loss. May GOD bless you and yours!

nissim sasson

Dec. 22, 2010, 1:59 a.m.

Em Hooper, just so you know the banks are known for also foreclosing in people that already paid there mortgages or have no mortgage, they have been more than a few cases like that, Like Roy said is a totally different world now…with these Bnaksters nobody is safe

To Miss and Auntie Em- The republican party, the tea party and the Banksters are counting on you guys and many more uninformed “depression oriented” individuals like you to allow them their continued money grab by whichever way they find easiest. Instead of spending your hours writing on behalf of the white collar criminals in our government and big business, you should seek a second, third or fourth job so that you can contribute to Sarah Palin’s or Mitt Romney’s 2012 0r 2016 presidential campaign or on second thought, leave Kansas, start reading, educate yourself and tell your friends with the same mentailty that you once possesed, they are being “had” daily.

Parallel Foreclosure

Dec. 22, 2010, 2:58 p.m.

I pretty much agree with Truebee.  My sayiing is…Republican politicians never met a bankster they did not like.

Parallel Foreclosure

Dec. 22, 2010, 3:01 p.m.

May I add that Hillary Clinton was the most qualified of the final three candidates from 2008, McCain, Obama, and Clinton to handle the foreclosure mess.

Unfortunately, the same home foreclosure advocates that derailed Hillary Clinton’s candidacy by doing unethical acts in the democratic caucus contests so that Barack Obama would “win”, are now on capitol hill getting their five minutes of “foreclosure victimization pain” fame.

acmodspecialists

Dec. 23, 2010, 2:32 a.m.

I’ll Just end this with a nice note:
A BANKER IS A FELLOW WHO LENDS YOU HIS UMBRELLA WHEN THE SUN IS SHINING BUT WANTS IT BACK THE MINUTE IT BEGINS TO RAIN !
Mark Twain

Isn’t is amazing how things said over a 100 years ago are still true today. The difference today is the Bansters are on meth and they have discovered that greed is still alive and well everywhere they look. The bad part for the normal person is that due to technology and with the help of the Roberts/Allieto court, paying people in government to influence their conscience is now completely legal. Thank you George W. Bush for bringing us those two idiologues. George, what would your father have done?

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