How Did I Get Sucked into the Mortgage Crisis?

When I first began to hear about the mortgage crisis (as opposed to the financial crisis brought on in part by inflated home values), what I heard was that people bought home way above their means and then got sideways with their mortgages. Another scenario was that people got into risky interest only loans or ARMS looking for lower rates and then when the rate adjusted up they couldn't possibly make the payments.

There were whispers or predatory lending, especially given the precipitous rise in home values (a sure sign financial institutions are betting on the come, as we say, that price will continue to go up), As someone with a strong background in economics, I understood the volatility and so I waited an extra year to buy my home, until prices were coming down. The home I bought had initially listed for $599,900, then dropped to $579,900 and when I had my realtor do a little researcch on it and we found out the owners were probably newbie flippers, who bought in late 2003 and had been making improvements while living in the house. They owed quite a bit on it and as the market came down we figured they'd want to sell sooner rather than later. When they reduced the price to $559,900, we made an offer. It was a spacious four bedroom with a brand new high end kitchen, lot sof stone flooring and recently updated bathrooms. It wasn't done class A - not a lot of stianless steel and granite - but caesar stone and very attractive tile - and addition of an oversized tub. The payout of the house was perfect for entertaining. They countered our offer up to their asking price and we walked away. A month later we came back with the same offer and they accepted it and reluctantly paid the closing costs. I knew they owed $399,000, on a zero down loan had put about $15,000, $20,000 tops, into the home and were hoping to walk away with $150,000. To me this seemed a ridiculous amount of profit to expect to make, especially sicne he was a computer consultant by trade and she taught singing lessons. That they probably walked away with almost $100,000 for what was a part time effort that some of their neighbors had helped out with for free thinking they were nesting, not flipping, seemed like an unbeliavably lucky stroke fo rthem.

When we were signing papers the couple selling the house stuck to their story that they were selling because their daughter was now in college and they would be moving out of state. That she was going to school locally and that they moved into a home four miles away and constantly ran into us at the grocery store for more than a year after the sale revealed the truth. About six months ago this couple sold the home they'd been living in since this time - managing to get a profit by waiting a bit, and they now live six miles away in hte other direction. I put in all this detail because there are still people out there speculating. Most of us want to buy a home to live in, to raise our families and grow old in - but for many in this country the process of buying and selling, looking for the next good deal and not even being honest about the reality that you're only in this for the money is now a way of life. These home owners worked closely with a local realtor who also handled other flips and the realtor worked exclusively with a single mortgage company.

Which brings me to how I ever came in contact with subprime lending. I wnet out and found out how much of a mortgage I qould qualify for with money down and what rate I could expect. I realized that since I save money rather than operate on credit, my credit score was only fair. In this country a lot of our value is based upon how much credit we have access to, but how much we earn, how much we save or what we own. I earn about $200,000 a year. I save the maximum amount allowed in a 401k and also, after selling my previous home, put as much money into money markets as I could. I owned two late model vehicles ouright, purchasing them with my annual bonus money in cash to save thousands of dollars. I had no outstanding debt and paid all my utlity and other bills on time. I had to take out a credit card and use it every month and pay it every month to jack my score up into the low end of the 'good' range, at least on two of the scoring scales. That my score was different across the three credit reporting agencies mystified me. But, whatever. I qualified for a reasonable rate on a 30 year loan up to $555,000. I decided I didn't want to borrow more than 450-475,000. I looked at home in the mid five hundreds down to the mid fours. Until I finally called my ex husband to act as my realtor, every realtor I contacted always pushed me to look at house at the highest end of my range or up to $50,000 out of it. But, my ex husband knows a good deal versus a bad deal and he is a shrewd negotiator. I have no idea how many homes and commercial properties he owns (realty is not his primary profession), but it's in the John McCain range.

So, we;d found the home, negotiated the price, had to deal with the sellers not following through on some of the terms and then the day I went to sign the papers the loan rate was .5% higher than we'd agreed to. In fact it was a full percentage point higher than the loan my ex husband had obtained for me through his loan broker that the seller's realtor told us her mortgage company could beat. First we were told the market was softening a little and we might have to settle for half a percentage point higher in order to get the 30 year fixed. This was 7.5% when many people were getting 6.5%. But, the payment amount was still in my comfort zone. I was told it included impound for taxes but not my insurance so I paid the first year's premium at signing. As I went through the papers I noted this was a 5/30. not a stright 30, which meant it would adjust up after 5 years. I was told I could refinance after one year of timely payments at the same rate or a quarter percent lower on a 30 year loan, no problem. I made a call to the mortgage company to verify this, over the protests of the mortgage broker and the seller's realtor. They wanted to record today and it was getting close to 3 p.m. Hey, I wanted to close too. I was living in a rental home infested with black mold and was spending most nights in a nearby hotel due to respiratory distress. The owner of hte home I lived in was in the middle east for a year and couldn't come make repairs. After being swtiched around a lot I talked to someone at the lender and was assured they would refinance in 12 months at my request at 7.25%. Whew.

After we moved in I contacted the mortgage company to set up automatic payments. I spent 45 minutes on hte phone with someone in India who pretended to be in Brooklyn. We set up the auto payments. On the day the first payment was due to clear no transaction went through my bank. I called the lender. and they said somehow the order hadn't gone through but they would have someone call me to set it up again, so I overnighted a check tot hem to make sure my payment arrived on time. For days no one called and finally I called again. I was transferred to their call center and again spent time giving all this information to someone to swet up the auto-debit. I called on the 29th of the month to verify the debit would go through on the first and was assured it would. It did not and again I overnighted a payment. Five days later I got a letter in hte mail that the loan had actually been sold the previous months and all future payments needed to go to a new lender. I contactd that lender to make sure they had received payments and to get account information to set up an auto debit. I was told someone would call me to set that up. No one did. I just started paying the mortgage during the last week of the month to ensure it always arrived on time. A few months later I called the lender to lock in my current rate for 30 years, as housing prices were continuing to fall and by then foreclosures were happening right and left. My new lender said they were jsut a mortgage servinig company and they could not change rates or lock rates in or anything like that.

I did some research and found that this lender was indeed a lender and not just a servicer and that it was a subsidiary of Merrill Lynch. I called someone I knew at the Office of Thrift Management (a coincidence that a former legal colleague had recently gone into public service after years of representing financial institutions). He advised the lender could and should lock the rate and convert the loan to a 30 year. He said they night ask for additional documentation and told me what I should provide.

Well, long story short, this lender put up a hoop every time. It wasn't until I contacted the Attorney General (of my state) and filed a formal complaint that I even got a response to my letters and phone calls. TO be honest, I still dont' know for sure how honestly my loan is being handled. Two different times they added insruance premiums to my payment even though I held my own insurance. When I would call them and send them a copy of my insruance information, they'd delete the charge, but not credit me back for other charges they'd assessed. Six separate times they credited a payment as much as ten days later than it had cleared my bank! I documented everything. Then they tried to adjust my rate up a percentage and a half! They said I had a two year ARM. I advised not only did I not have that, but I'd already locked in my rate for 30 years with them. Then they asked for all the paperwork again.

It's a tight credit market. I would lvoe to just go get a new loan with someone else - but I know my rate will be affected by the status of my current loan, so I need the status to be correct and accurate. This is my third home. I did have one mortgage sold about ten years ago that went to a less than reputable ocmpany that frequently posted payments late, but I dealt with it. Other than that, if I took out a mortgage, made my payments, etc. -never a problem.

Something still seems very much amiss to me with how recently purchased or recently re-financed homee mortgage are being handled. With a 'good' credit rating I shouldn't have had to get a subprime loan. My mortgage payment is exactly one third of my take home pay. My mortgage value is a little over two times my annual income. My ratios were all good. But, credit scores determine what rate you get and my credit score was lower than that of s specific person I know who struggles to pay her bills on itme every month, who has about ten thousand dollars in existing credit card debt and who has an eviction and a repossessed vehicle just a few years back on her credit report. She keeps getting access to credit and so her score goes up. I try to save, pay only a mortgage and one credit card, and my score languishes at the bottom of the good range - never moving.

I spent about an hour this morning on the phone with a deputy attorney general, trying to figure out my rights and the lender's rights. I also sent off a letter to my lender asking for everything in writing again so I can close out my complaint with the AG's office. I want to sleep well at night. I have a kid in college whose tuitition doesn't pay itself. I have another kid who requires regular medical treatment that also doesn't pay for itself. I've worked for twenty-five years, survived divorce and cancer and financial set backs. I built everything back up and I should have my home, reduced value and all, to show for it. I shouldn't have to worry that someone is playing games with numbers on paper that could affect me and my family forever. Unlike many homeowners out there, I owe less on my home than it is worth., and I know it is not most homeowners' fault that their home values plummeted below the value of their mortgages. Yes, I wish banks and speculators and other people trying to pad their own bank acounts hadn't hit at the heart of middle class Amerian prosperity - the value of the homes in which we live, but they did. We can't tap into our homes for college tuition or other things we might have planned on and most of us will have to wait years for our homes to really become balance sheet assets again.

But, I didn't buy my home as an investment, I bought it to live in and so ti would truly be ours. I don't intend to move up in a couple of years or move on. This is it. Had I not gotten divorced and not struggled through five years of cancer and treatment, I could have stayed in my last home, but at the time I thought down-sizing would be prudent to make sure I could support my family. I own less home based on my income than many of my colleagues, but I am cautious in that way. And I guess at this juncture in my life I am not perplexed, but angry that the money grubbing, ethic-challenged ways other people handle their business in time of constraint impacts me in such a personal way. The one thing I should be breathing easy about is my home. Regardless of where values go, I can afford it and it is ours. But my mmortgage company plays games and so I have ot be vigilant and treat them like one of the market abusing companies I used to investigate back when I was a regulator. They know the rules nad I know the rules. I have chosen wo work and live within them, not push the limits. I've done that because it's the right thing to do and because it's the prudent thing to do. My future, my family's future depend upon my acting responsibily. And really this country's economic future relies not only on individuals like me but on businesses acting responsibly too.

I wonder how many other homeowners there are out there like me, maybe embarrassed to find themselves not in hte place they thought they would be. If oyu're one of them I'd encourage you to speak up, learn your rights and contact law enforcement or regulatory agencies to ensure lending laws are enforced. None of us got bail outs. We shouldn't be taken advantage of now to help someone else's corporate balance sheet. . .

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