Home Affordable Mortgage Program A Bust - Where do we go from here?

[Juliet Thompson]

I'd like to tip my hat to the excellent discussion led by Ethan D'Onofrio on the Economics of Scarcity. I read through the discussion, and really wanted to contribute with my current insights and collection of information about the government's programs to help people rework or refinance their mortgages. Ethan's discussion appeared to be coming to an end, and I also realized that I hope to center this discussion around the program mentioned above, and around what our housing is costing us in terms of our labor, productivity and the idea of local economies. I am already feeling the "Economics of Scarcity" and I think the collective wisdom and honesty of many people could help to make for an interesting, and perhaps solution-oriented discussion.

The cost of real estate and how it was changing was a major topic of conversation for a couple of years - and most everyone I knew was involved in it to some extent.

Now, here we are after the financial crash, many of us "underwater" (paying more for our home than it is worth), or if we made home improvements, or depended on the equity in our home to meet basic needs because of life changes, have increased our housing costs beyond what we can sustain.

In our household, our income went down by 50% from 2007 to 2008. Employed in areas related to either the luxury or boom economy, it has been challenging to transition to a new personal economy. I started a company that plants trees and removes noxious weeds, and my husband went to work at the Food Coop. A huge change in our household economy that is satisfying in terms of the connections to land and community, but now our housing costs are not in line with our incomes.

So get a loan modification, you may suggest. Are the government programs working? I've included a link to a NY times article published on January 2nd, which is the heart of what I want to discuss.
http://www.nytimes.com/2010/01/02/business/economy/02modify.html?re...

Ready to be "eased out" of your house? The other big message is that the federal programs are not working, because the mortgage servicing companies won't allow them to work. In general they have set up road block after road block to helping people. This has been my experience. If others are interested in discussing this online, or perhaps getting together to figure out some other options besides being "eased out" I am interested in bringing a variety of people together to talk about different options. I am also wondering how many others are experiencing this, who have actually entered or who are applying for a modification and what they have experienced.

The social customs that keep us from talking honestly and openly about financial problems keeps us from understanding that we might be at the forefront of an opportunity, or even a movement. I am encouraging myself and others to be open in this area, deal with the feelings, and keep coming up with creative solutions - definitely outside the box.

Then there are the larger questions....When you hear reports of the potential numbers of foreclosures rising this year and next, primarily because the assistance is not working, what does this mean for our communities? How do we pro-actively make the best decisions for ourselves and how do we transition into a new economy? So what I see is, from my point of view, Transition is happening here and now - not at some point in the future as suggested by Ethan. We also know it is happening in other parts of the world now that are more affected by climate change. How do we move towards our collective vision gracefully and intentionally?

[Rob Olason]

Juliet, thanks for bringing this issue to Transition Whatcom. You describe a dilemma many face in this county and in our country. I read the NY Times article you cited, and the anecdotal details show the typical story of a bureaucracy bungling the details and the result is pain for the recipient, while the bureaucracy walks free.

Ultimately, I think the problem lies in the interface between the individual and the nameless/faceless corporation. It is a "David vs. Goliath" match-up, and for the majority of us who choose to play that game, our role is definitely not that of Goliath.

In today's news there is a story about an economist who is urging people to pull their money out of those banks that are "too big to fail," and open up accounts in community banks. I would go a step further and say forget the banks--find a credit union to handle your financial transactions.

I firmly believe that unless you are a Fortune 500 company yourself, you should avoid Fortune 500 companies like the plague. We non-Fortune 500 companies mean nothing to these "Titans of Capitalism" and in terms of self-preservation, we should return the favor and allow them to mean nothing to us.

As awful as it may sound to you, your family might be better off to swim away from your "under water" mortgage. You could continue to negotiate and hope for a better outcome, but as the article you cite states, many of these underwater mortgages will not be salvageable.

We are all in the aftermath of a real estate bubble that the Obama administration would like to make as painless as possible. But painlessness is a hoped for outcome, and is not guaranteed by the steps taken by our government.

Many of the Peak Oil theorists write about how our power down transition will involve many wonderful opportunities to engage in community building and new skills acquisition. The ugly underside to that positive spin is that there will be much suffering during this transition. As we continue to discover the impacts of cheap energy in our current economic state, we will find that all of us have much to gain in terms of self-discovery and self-resilience--but we also have much to lose as the things we currently value--our jobs, our homes, our possessions--get re-evaluated downward.

I look forward to hearing the responses of other TW members as they consider the questions you have posed. Can we collectively offer you a solution to your difficult challenge?

I wish I could offer you some positive spin on your mortgage dilemma, Juliet, but I fear that you are describing a phenomena that all of us will soon face.

[Juliet Thompson]

Thanks for your response, Rob. Swimming away is what I want to explore...I think it's possible that many people would be better off if they decide to quit paying a mortgage that is no longer relevant to the existing economy. There are people in town who are teaching others how to foreclose and still come out of it with some choices. If anyone is interested in finding out more, but is not sure they want to enter the discussion, feel free to send me a message.

We purchased 1/3 of an acre in town as a way to grow as much food as possible, and hope to go more fully into that realm as a next step.

[Angela MacLeod]

Hi Juliet,
I really appreciate you starting this discussion. As a life long renter about to consider buying (going into debt) a home/land, your topic is a good one for David and I to have in our awareness. I don't know what you are going through since I'm not in your position but I am part of our culture that doesn't talk openly about financial problems. I'm wanting to change that.
I like your words:

"The social customs that keep us from talking honestly and openly about financial problems keeps us from understanding that we might be at the forefront of an opportunity, or even a movement. I am encouraging myself and others to be open in this area, deal with the feelings, and keep coming up with creative solutions - definitely outside the box."

I mainly want to say that I hear you and I want to be supportive of people talking more openly about these difficult issues....sharing openly with others can be where unexpected solutions arises or at least solace flows.

(Bravo to what Rob wrote. Wish I could write like that!)

[Susan Templeton]

The facts are clear that people who can demonstrate their ability to live within their means may translate to a successful loan modification. Be highly suspect of the what passes for 'news' about this topic. Banks don't want you to think you will win! Banks control the publications and the very Federal Reserve that controls the information! Modification is a crude tool which acts like a bandaid to buy time and help people reassess their financial addictions and real needs.

I recently posted an article on a real estate industry site that drew a lot of comments. The range of comments demonstrates that much misinformation abounds on this topic. I work with a licensed colleague who is getting results. We don't advertise and we don't make unfounded promses. It's time consuming and arduous work. Makes one rethink their needs in a very real way. I've seen the change on faces of people who were forced to look at their financial commitments anew.

Feel free to comment. http://activerain.com/blogsview/1404610/why-are-loan-modifications-...

Look to your right of this post (up near the top) and ask yourself why a site like this tolerates Ads by Google promoting online mortgage companies. These are the very tools that started the problem! Dealing with faceless people who did not have a feel for you or your personal circumstances who 'supersized' you into houses and loans they told you 'you could afford'. Reality starts at home.

Rob, I also support: http://www.moveyourmoney.info

However, it's important to research your local Bank, Savings & Loan or Credit Union and read their financial statements online. Particularly notice those who have invested in Mortgage Backed Securities! Savings and Loans and Credit Unions are flatly refusing to modify loans in most cases because they are not taking Stimulus Funds.

http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx

[Juliet Thompson]

Thanks, Angela. I agree with you too, Rob is a great writer.

Rob, I appreciate what you say about skill acquisition and resilience building. It's our experience on our relatively tiny 1/3 of an acre growing so much food that gives us confidence to move forward with optimism --and to broaden our experience in working with the land in a way that includes more people, and participates in life with others more closely.

[Juliet Thompson]

I appreciate the work you are doing, Susan, to help people get their mortgages modified, and believe me, the issues you mention in your article are familiar to me. I also appreciate that you are pointing out the flaws in the system. For example the extremely small number of permanent modifications -- the loan servicing companies (LSCs) don't have a true incentive to make the modifications permanent, nor do they really care if people foreclose, contrary to what we are told. This is because the LSCs' financial losses aren't significant when large number of foreclosures are moving through the courts simultaneously.

In the meantime, people are jumping through hoop after hoop just trying to meet the terms and qualifications for a temporary modification. The people I have talked to who have obtained temporary modifications are reading the fine print and finding out that they will be INCREASING their principle loan amount in order to get the modification, in which they have invested so much time and effort to obtain. The deferred interest they would be paying during the 5 year temporary interest reduction period is added BACK ONTO their principle. This is outrageous! It seems to be the heart of the problem, since the current deflation is tearing away at the market value of their homes.

If the government had initially tried to reduce principle on houses bought during 2006 to 2008 this might actually have helped homeowners. The loan servicing companies do not consider this option, even though it is one that is available to them.

[Susan Templeton]

Juliette,

The Fed is now recommending that banks start reducing principal on homes more than 25% underwater. Good luck on that. Reducing the amount they loaned you is one thing they absolutely are resisting to the death. Giving up interest is hard enough to explain to their investors (those mutual fund holders including some of us, for example) but writing off a percentage of money they forked over to help you buy a home (however over priced) is really hard. Where do we start? Do we approach the seller and ask for money back? Do we get refunds from realtors and loan originators? Fat chance.

It does stand to reason that since the Treasury has been giving away our tax dollars, endangering the future of generations to come, to the Big Box Banks they might help us? Over $111 Billion to date has been given to the Humongous Banks to keep their own doors open, with an 'unlimited cap' above $400 Billion now on the table in Congress. You would THINK a little help back our way is overdue.

The only way a bank can justify increasing your principle is if you have unpaid arrears that must be cured. That is usally added back to the loan and extended over a longer time frame. A savvy negotiator will work hard to have any associated fees (penalties, legal costs) forgiven. Not easy. Adding overdue payments actually makes sense to the business that is owed the money. After all, you signed a hundred pages including a promissory note that explained how you would indeed pay it back on time, in full, or else.

In our experience, the loan servicing companies and banks are NOT being policed on how they handle modifications and they are NOT budging. I had a borrower in this morning who is filing a claim with the State Attorney General. Their watertight loan modification was in a 3 month trial for 5 months when they got a denial letter. Demanding a huge sum or foreclosure would proceed. The reason? Their own mistake; admitted by a supervisor to their loan modfication agent. This homeowner is complaining to the State Attorney General while her agent refiles yet another full claim (now in month 12 of the process) asking them to honor their own agreement. This person's credit dropped 60 points in one year. The reason? The trial modification (lower payment) was REPORTED as in ARREARS by their bank on her credit report. Before the trial work out period they had not missed a single payment. This homeowner was set up by US Bank for failure. I hear far too much of this lately. It's an outrage.

Maybe time to brush up your picketing skills? By the way, local Banks, Credit Unions and Savings and Loans who own their loans are even harder to work with. If they own the loan chances are they consider a brief forebearance period, but they won't give up on the original terms. It's their money. They are, in fact, being responsible to their investors, i.e., those of us who have placed our funds in their care. The best option if you have a local loan and you can no longer afford to make your payments is to look seriously at moving on, taking in renters, creating another income stream or accepting that you over-committed financially.

The real maddening part of this process is that loan servicers actually make MORE money by stringing things out. They get paid to handle your mitigation file and they stop getting paid when the matter is resolved. Tell THAT to your congress bods: http://www.congress.org

[Juliet Thompson]

Susan Templeton said:

Tell THAT to your congress bods: http://www.congress.org

Do you think I haven't? Do you think there's been a response?
I would appreciate it if you have any statistics about foreclosures, for example, 1 in every x number of homes in Whatcom County, or Bellingham, is in foreclosure. When you say brush up on your picketing skills, I refer you to Rob's comment - there's no way out of this, but to take control of one's own money locally, and if you're not dealing locally, there's really no one to talk to.

[Juliet Thompson]

http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?bl

This is another fascinating article about why people are making the difficult decision to leave their mortgages.

I found statistics from Realty Trac citing 1 in every 177 mortgages in Whatcom County are in foreclosure, the 10th highest county (out of 39 counties) in the state. So if the number of foreclosures does not go up significantly in 2010, we will not be seeing a large number of foreclosed homes in each neighborhood, merely a few.

A friend who moved to Boulder County recently sent information about a program started there to help people in a unified, community-based effort.

The Boulder County Housing Counseling Program .... important contributor includes homeowners in crisis seeking earlier intervention and increased utilization of housing counseling services.

The demand for counseling services in Boulder County has increased dramatically:

2007 - 2008 2008 - 2009
Demand for individual housing counseling services 36% increase 70% increase
Financial fitness class attendance 600% increase
It is estimated that the Boulder County Housing Counseling Program helped approximately 560 clients avoid foreclosure during the 2009 calendar year. 98% percent of the troubled homeowners counseled by Boulder County, who are not currently still receiving counseling, were able to avoid foreclosure and/or have their mortgage payments lowered significantly.

Loan modifications received by Boulder County Housing Counseling Program clients resulted in significantly lower mortgage payments than would have been received without the help of the program. Lower monthly payments help reduce the likelihood of a subsequent recurrence of borrower mortgage problems.

"At this point, it appears very unlikely that the number of completed foreclosures will reach the totals set in 2007 and 2008," said Ryan McMaken, a spokesperson with the Colorado Division of Housing, in a prepared statement. "November was a relatively light month for foreclosures, but with new foreclosure filings still up compared to last year, foreclosures will continue to be a challenge."

For the entire state, year-to-date foreclosure sales have declined 13 percent from 17,160 in 2008 to 14,975. Foreclosure filings through November total a 12 percent increase from 32,744 in 2008 to 36,628 this year.

While completed foreclosure sales have not increased in Boulder County between 2008 and 2009, homeowners continue to be negatively affected by the economic crisis and high unemployment rates. We encourage homeowners facing missed mortgage payments to contact a HUD- approved housing counseling agency to review foreclosure prevention options, as early intervention is key. All services are free. For more information on the Boulder County Housing Counseling Program please visit http://insidebc/sites/hhs/residentservices/Pages/HousingCounseling.aspx

I think it would be great to see a similar effort led by an organization like the Opportunity Council to start up in Whatcom County. If there is any interest among others on working on an effort like this, please contact me.

[Susan Templeton]

Actually, I have received responses from both Cantwell and Murray. The 'canned' kind. But that does tell you someone is registering your yea or nay. People are getting angrier and I think they feel that when they see the emails pile up. Somebody reads and encapsulates the prevalent mood.

The news of Bankruptcies tracks closely with foreclosures. And bankruptcies are dramatically up in Whatcom County. Many folks who are filing for Chapter 13 or Chapter 7 are doing so to avoid foreclosure and stay their auctions in order to attempt loan modification. If they don't have sufficient income and that is the number one reason for bankruptcies --then the chances of getting a loan modification is kicking the can further down the road and just buying time. If they do succeed in loan modification it could also be a matter of time for other factors to help folks make a decision to move on.

You've heard of 'stragtegic defaults'? Big drawback: Foreclosures stay on your credit report for ten years so if you can sell your home as a 'short sale' then it's usually much better than an outright foreclosure. If you intend to buy witihin three to five years, that is. You just won't believe the cost (fees) to finance a home loan if you have ever suffered foreclosure.

"In 2009 there were 796 bankruptcy filings, a 37.5 percent increase from 2008" read more...

http://www.bellinghamherald.com/602/story/1235761.html

[Tris Shirley]

Juliet – I’m truly sorry to hear of your difficulty but glad that you raised the issue in this forum. I think your idea that the transition has begun is entirely correct and very useful.

I’m sure that very few of our neighbors actually own their homes. So if the even greater economic chaos that some predict comes to pass any time soon, there will be lots of folks looking for ways to deal with housing issues. Recording the unfolding events of your situation and discussing possible solutions in this forum is certain to be useful to those facing the same problem in the future. And since one of the TW goals is to harness our collective creativity in dealing with future challenges, we might as well get started.

While I’ve been both jerked around by lenders and screwed over by borrowers in previous realty situations, I sure don’t consider myself competent to offer advice. What I have to offer is, at best, a few random thoughts that might stimulate your own thinking or that of others.

The first thought addresses what not to do. If anyone did not see the recent PBS Frontline program on “The Card Game”, you should go to www.video.PBS.org and watch it. There is a lot of revealing information. Among other things, the program tells of a guy who had what he thought was a temporary financial problem that put him behind on his mortgage payments. He used his credit card to get the mortgage lender off his back. He was then prey for the credit card company and ended up paying thousands in interest and penalty charges on his credit card debt. Need I say more....?

Second thought: Although I was born and raised in Michigan, I lived most of my adult years in California until I was finally able to escape. During that time, we had several huge housing price booms and busts. While it seems pretty gloomy when you are at the bottom of the bust, doing nothing is often the best action. The point is that while the Transition view of the economic future is not all that rosy, nobody really knows when that future will begin.

If it is possible for you to hang on rather than walk away, there are a couple of scenarios where you might come out much farther ahead. First, if the government creates rampant inflation as a result of recent recovery spending, you could end up paying back your debt with dollars that are worth a lot less than the ones you borrowed.

Inflation is the ultimate revenge on nasty lenders. It’s been so long since we had any real inflation, I suspect most people have forgotten what it is like. I once refinanced a house when the mortgage rate went down to ten percent! Inflation was probably about 8% at the time, and had been higher. This can happen again given the dysfunction in D.C.

Second, one reads predictions of millions of “climate refugees” heading north from the sun belt when their water dries up and they are beset by a host of other disasters. We (or at least I) don’t know if or when that is going to happen either, but if it is sooner rather than later, being a property owner in this area will be a lot more secure than competing with them for space to live.

So the question becomes, how does one hang on? If you have a 1/3 acre lot in Birchwood, you might want to check the zoning to see if it is zoned single or multi-family. If it were to be multi, then maybe you could put some of that land to use generating extra revenue for a few years.

It would take a careful check of the codes, but one does see places in town where people are living in travel trailers in yards. I suspect that most of these situations are illegal, but there may be circumstances where it could be legal. I mention the trailer angle on the assumption that modifying your house into a duplex would not be practical, but that is the other option.

There would be some expense to provide utilities, but the trailer prices can be pretty reasonable – although you do have to be careful not to end up with a piece of junk. You could live in either the house or the trailer and rent the other, depending on how much revenue you need to generate.

I should point out that my wife and I lived very comfortably in a 23’ travel trailer for a couple of years before we moved into our house here. It can be done, although we were in a mobile home park in Ferndale at the time. BTW, when we last visited the Southland with our trailer, I discovered that old trailers in private RV parks are the new “affordable housing” down there. I had never seen a school bus stop and let a dozen kids out at an RV park before. Perhaps the trend will come north.

I doubt that this helps, but I felt compelled to try. Good luck!