They bought their home in 1979 for $14,000 raised a family in it and have lived in it ever since. Last year an appraiser told them that it is worth $330,000.00
They had refinanced a few years ago and took some cash out for repairs and for a furnace. They also used the cash to pay off some credit card debt.
They responded to a lender who called them sometime in 2005. He told them they could lower their monthly payments. They signed the papers and got the loan.
They got an adjustable rate mortgage. The last time they made a mortgage payment was in September of 2006. They owe $288,000 on their home, after the ARM adjusted they could no longer make the payments. He said that he understands what an adjustable rate mortgage is and that he did not want one. They don’t understand how it happened.
Their income comes from a combination of social Security, a military benefits and disability. They have a modest life style and their home is in need of repairs. In it’s current condition it is worth about $260,000.
He asked me what equity is. She remembers getting a letter in April, something to do with a sheriffs sale. As I leave their home I see a flyer that has been stuck in the fence advertising loans for people who want to lower their monthly payments. As I look up and down the street I see for sale signs. There are several vac
ant properties, and homes that are being sold by banks in the area.
The couple I talked to who appear to be in their late 60′s or early 70′s don’t understand where the money went and are not sure why they owe so much on their home.
They have secured senior housing and will be moving in the next month, and have gotten help through ACORN.
The home is dated and needs a lot of repairs. The carpeting is worn, and the kitchen appliances are ancient. It had two furnaces but they removed one of them and never go around to replacing it so there is no heat on the second level.
Phone calls from people facing foreclosure keep coming in. They have more in common than being behind on their mortgage payments. They wait until it is too late to save the home or work with the bank. Most don’t talk to the their lender at all.
Also see foreclosure prevention, The home ownership center.
Follow up: After some phone calls I found out that the home in question was sold via sheriffs sale in June.
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Moody’s is forecasting 2.5M foreclosures for this year. I realize that some of these are spec properties and so on, but there are still millions of families put out on the street. Where will they go? What will they do?
While it’s shocking how unprepared we were for this, we’re even more unprepared to deal with the people left in its wake.
This is the kind of thing we are dealing with in Cleveland too. Makes you want to pull your hair out…or someone else’s like the guy who showed up on their door.
First, makes me want to cry. Second, I want to hunt down the predators and take THEM for everything they’re worth.
I hear way too many stories like these of seniors being preyed upon.
To quote Stephen Barrow, CIO of Ironbridge Capitol Management, in this week’s “Barron’s:” “Wealth is not created by financial engineering. Financial engineering tends to be a transfer of wealth.”
And, somehow, financial engineers always seem to gravitate towards figuring ways to transfer wealth up the income ladder, rather sideways or (God forbid!) down. Path of least resistance, I suppose. It is disturbing how justified Karl Marx would feel by these developments.
Someone in this country needs to sit down and think real hard about how to prove him wrong on this. And soon.
Unfortunately, this story is playing out every day in living rooms across the country. My broker had a meeting two weeks ago with a lady in a similar situation – only rather than inflating the home’s value they inflated her income (she’s on fixed so pretty easy to figure out) and now she’s standing at the gates of foreclosure. We are working to find some way to help her …
A local business columnist for the Delaware Gazette made a great comment yesterday, “when we ignore risk, we ignore the market and the future.”
Anyone with basic understanding of economics could have predicted this situation arising from the mortgage practices of the past. And now we have to pay a lot of attention to the market and pray for the future because we ignored the risk.
Thankfully it will play out “relatively” okay for your people Teresa. We can only hope for a similar landing for others.
Unfortunately, this story is playing out every day in living rooms across the country. My broker had a meeting two weeks ago with a lady in a similar situation – only rather than inflating the home’s value they inflated her income (she’s on fixed so pretty easy to figure out) and now she’s standing at the gates of foreclosure. We are working to find some way to help her …
A local business columnist for the Delaware Gazette made a great comment yesterday, “when we ignore risk, we ignore the market and the future.”
Anyone with basic understanding of economics could have predicted this situation arising from the mortgage practices of the past. And now we have to pay a lot of attention to the market and pray for the future because we ignored the risk.
Thankfully it will play out “relatively” okay for your people Teresa. We can only hope for a similar landing for others.
What did they do with the 250K+ they pulled out of their home, did they think someone was just giving them money?
So many people have the mindset that real estate only goes UP. Well sometimes it doesn’t. Using your homes equity like an ATM is a mistake. A major mistake.
Your tale is so sad.
kk
KK – this does make me sad. Part of it is a lack of sophistication when it comes to finances and the other part is the work of some fast talking lenders. Bad combination
T ~ I’m not sure I agree that all lenders talk fast. Sometimes they are just trying to fit a product to a consumer. The consumers need to take some time to educate themselves. Buying a home is a BIG decision.
In Colorado we have found the first time buyers that take the “home buyer’s class” for Bond money are doing much better with choosing their loans. They are not defaulting at the rate of buyers who have not taken the course. In fact their default rate is nil.
With that said I believe we have a solution. Maybe all consumers need to attend a course before they can take out a loan!
I don’t think I would ever make the statement that “all” lenders are fast talkers. I xan see where educational programs would help with the default rate. We have a first time home buyers program that is required for persons getting city of St. Paul home loans. One of the reasons is so they understand the mortgage. There is a need for edication.
T & kk,
I agree with you both completely. Education is key. I believe a lot of the people that got wrapped up into these situations went into them blindly. I do not think they understood their risks with these type of loans nor did they understand the risk of the market.
And while I too would never say that ALL lenders talk fast, unfortunately there are many that do. And those are the ones that tend to be the most aggressive in seeking out hungry borrowers.
I hope that those in trouble do contact their lenders. How can they know their options if they never ask?
Thank goodness for the people in the lending industry with integrity that are out here educating the consumers. May their voices be loud and strong.
Nickie – you hit the nail on the head with: I hope that those in trouble do contact their lenders. How can they know their options if they never ask?
well…its certainly interesting to watch the national trends of the mortgage meltdown affect the ‘stable’ midwest markets. We’re seeing similar adjustments down in Saint Louis MO as you have noted above in this post.
Guess the speculators and bad habits of the coasts have spilled over – hopefully not too badly into the midwest.