Hat tip to KK for sending this along, from the Huffington Post – a story that follows people through the loan-mod maze, and highlights how the servicers are making the walk-away problem worse:
While walking away is a frightening and dangerous step into the unknown, millions have beaten the path in the past few years. To find out what it’s like to walk away, The Huffington Post asked readers who were considering making the move, or who had already done so, to write in and share their stories. That was in January 2010. A year later, we followed up with them to see how they reflected on the experience.
We initially heard from 58 people from all over the country who fit the criteria. Ten of them have become unreachable over the past year, but the remaining 48 were eager to share their stories. A year later, only eight of them are still paying their mortgage. Almost universally, the homeowners we spoke with took personal responsibility for their situations, declining to blame the banks or politicians. Yet nearly all of them faced similar struggles in their attempts to work with their banks: lost paperwork and little interest in finding a financial compromise.
The story is four pages, here are the best quotes:
1. “There should be support groups for people who have to deal with these banks,” said Richmond Burton, 50, a soon-to-be-former resident of Long Island’s East Hampton. “It can drive you crazy. I’m very good at dealing with pressure, and they made it feel like you’re at their mercy.”
2. “We get daily calls from creditors and banks that threaten this and that, and I just laugh knowing I am helping to bring down the system that has brought us all down and continues to reap giant profits at the expense of the little guy,” said one.
3. Burton went more than a year without paying his mortgage before persuading the bank to accept a short sale. “The mortgage company was not wiling to work with me. The businesses that we have created to serve us are enslaving us. They’re not listening to us, they don’t even pretend to care about us. Really, our only option is to do what I’m doing, which is to fire them all. I’m doing everything I can to remove them from my life,” he said.
4. Soto, a conservative Republican, said he has come to terms with his choice. “It was a tough decision. We thought about it and thought about it. I want to do the honorable thing, but wait a minute here — I didn’t get respect from the mortgage companies when I was asking for help. Now here we are, we bailed everybody out,” he said. “Am I just supposed to be the good Samaritan and just stay there? I asked the mortgage company, ‘What’s gonna keep me from giving you the keys?'”
5. In July 2009, on the informal advice of a bank representative, the Kluzes stopped paying their mortgage to encourage their bank to approve a short sale. The bank initially accepted a short sale offer, but the couple was told that investors had later rejected it. The bank suggested Shelley Kluz apply for a modification, apparently unaware she’d been trying for the past year. She did so anyway and was rejected. “We are in a weird limbo state of waiting. So, long story short, we are walking away. We are so fed up with this whole process,” she wrote at the time.
Six months later, she and her family moved out, a year after they stopped paying. For $1,550, she said, they now rent a three-bedroom, two-bath home with a yard in the front and back — a feature their first home, with a monthly mortgage payment of $2,250, did not have. The new home is twice the size of the old one with twice as many bathrooms. Their old home was foreclosed upon a month after they left and, Shelley Kluz said, is still on the market for $142,000 (they paid $325,000 in 2004 for the house in Vacaville, CA). They only moved five minutes away, and she still drives by it occasionally. Her 7-year-old has taken it the hardest, having known no other home, she said.
“It was the best thing we could have done. Since we walked away, our house has only dropped further and we had no hope of getting out from under it,” she said. Now, “We actually have available spending money to do fun things with our family, we pay less money for a completely finished house, my kids have a backyard with grass, and best of all, we can breathe.”
6. “I feel like we have a stigma on things like bankruptcy, but those people shouldn’t feel ashamed,” Phillips said. “Yes, some people abuse, like Teresa on ‘Real Housewives,’ but I’m hoping everyday people who are going through this can find some strength in what I’ve done and ask, ‘Why should I care about the bank if the bank doesn’t care about me?'” Despite his bankruptcy, he said, he has more offers for credit cards than he can handle.
7. Having worked as a loan assistant, Andrea told HuffPost she initially thought she’d be able to navigate the system. “I figured I would be well-equipped in my knowledge from my previous job about how to figure it out,” she said, “and I was shocked honestly at their level of disinterest — it was either disinterest on their part in working it out, or lack a of just being organized. But to me, them not being organized to work it out was a symptom of there not being a financial incentive for them to work it out.”
Terence Edwards, a Fannie executive, said in a June statement. Edwards said homeowners who strategically default or fail to work “in good faith” to avert foreclosure would be ineligible for new Fannie Mae-backed mortgages for seven years. Freddie Mac, Fannie’s government-owned counterpart, has adopted the same policy.
Fannie, in its statement, also warned it would pursue “deficiency judgments” in court that would allow it to recoup from borrowers the difference between the value of a home in foreclosure and the outstanding loan a bank still has on its books. After inflating the bubble until it burst, banks essentially now want to be insulated from their mistakes by dunning borrowers for every last penny. Deficiency judgments are allowed in 39 states and were a nagging concern to many of the homeowners we spoke to.
The IRS may also loom over homeowners who walk away. Under current law, thanks to a measure spearheaded by Rep. Brad Miller (D-N.C.) in 2007, the IRS cannot come after homeowners after they walk away. Before that law took effect, if a bank took, say, a $200,000 hit on a foreclosed home and “forgave” the debt, that forgiveness would be counted as taxable income for the former homeowner. A note to the fence-sitters: Miller’s law expires at the end of 2012.
I honestly don’t get all this at all.
The banks, as holders of the notes, have the right to waffle, not waffle, foreclose, not foreclose, get deadbeat borrowers to jump through hoops, ignore them, whatever. It’s their right as the legal holders of the notes signed by the homeowners. Why does everyone think that banks have a duty to “work with” homeowners who won’t pay their mortgage?
The argument “the banks got a stimulus, and that absolves me of my responsibility to pay the mortgage” is absurd.
Does anybody believe the Deadbeats “I’m the victim” case anymore. Most of these people are living for free in houses those with money would love to buy.
Foreclose on them all and let the market sort things out.
I have reviewed some of these Countrywide loans, and there is no question in my mind that many of them were predatory and designed to equity strip.
You can say that these people should have known better, but the reality is that most people do not have the financial sophistication of the average reader of this blog, and are guilty of misplacing trust.
It is not always so black and white.
This is one of the reasons why people love San Diego:
http://www.businessinsider.com/incredible-time-lapse-video-of-the-great-chicago-blizzard-2011-2
The “system” are like parents. Bad parents usually produce bad kids. Not always, but usually.
Our system for the last 3 or 4 decades has produced mostly bad, ineffective leadership. It allowed a gangster, criminal financial system to develop that was bound to fail and now wants to collect from millions who are bound to fail.
The proverbial snake eating its tail. Bad chasing worse.
Greenlander, in most cases banks are not the holders of the notes. In most cases, banks are acting as servicers for the holders, and most of the holders are: (1) Fannie; (2) Freddie; or (3) trusts holding pools of mortgages that were securitized.
Fannie and Freddie as holders can tell servicers what they must do, and since they are both now under control of the federal government, that means the feds can tell the servicers what they have to do on those loans.
Don’t get me wrong, I’m not in favor of the government trying to push modifications. In fact, I favor the opposite. I want govenment to mandate liquidation and foreclosure of all nonperforming mortgage loans over the next 12 months. But when the gov’t is the holder, they can dictate what they want done.
Kingside, I tend to agree. Although, in my mind the more appropriate remedy would be to simply refund any money the borrower put into the house in the form of downpayment and/or principal, then terminate the purchase contract and resell the house.
This resolves the situation in everyone’s interest. The lender gets a loan holder who can afford the home & payments, the original borrower gets their money back and doesn’t have a foreclosure on their record. The lender is going to take the financial hit either way, why drag the whole process out longer and wreck the finances of borrower who was taken advantage of?
This also has a side benefit of putting the original borrower back into a position where they can buy again, although the next time hopefully that will be within their means and with a non-predatory loan product.
Sadly, nothing has been done (still) to deal with the business philosophy that taking advantage of people who lack financial sophistication is perfectly legitimate.
Sadly, nothing has been done
They’ve stopped neg-am and subprime loans, which were the primary weapons of destruction.
If they insist on every loan being a 30-year fixed, that’ll make it easy for everyone.
The most predatory were not for the most part the purchase loans, it was the refis that rolled over large pre-payment penalties, excessive fees, high cost products, exploding reset/adustment provisions, and little benefit or cash out to the borrowers despite the initial promises.
It would probably be in the best interest of the overall economy if homes were liquidated at their clearing value. It might be painful for those looking at home equity to fund their retirement but at least we’d get to a stable environment where working people can afford homes and start moving forward. By artificially keeping home prices elevated all we’ve done is stall household formation and force people into inopportune living arrangements (i.e. 3 generations under 1 roof).
Multiple generations under one roof does have some advantages but it doesn’t get us anywhere closer to clearing a glut of vacant and unsold homes. An asset is nothing more than a store of future productivity and our demographics are dictating peak storage of future productivity in assets.
I thought I’d interject a small note saying not all the banks are bad on this. I had a home equity loan with Citibank. I was able to work with them to settle it for a very reasonable amount (from my perspective, anyway). Plus they were quite professional and even friendly during the whole process.
Henry
Makes you appreciate renting and not being in debt even more.
It’s so nice not to have a mortgage.
If the banks were not perfectly willing to take the house in exchange for the mortgage they should not have issued the mortgage in the first place. Period.