Is homeownership, despite three presidents’ best efforts, out of reach for the sinking middle-class? Good riddance, says one former homeowner.
Images via ForeclosureDeals.com
When I was only a few months old, a fortune-teller warned my mother of my financial recklessness. Recorded on a cassette tape that my mother used to listen to when I was a child, he predicted, among other things, that I would one day buy a house that I would have to resell at a loss.
“So don’t buy a big house,” my mother would say, laughing.
The fortune-teller was wrong. It wasn’t a house, but a condo. And I couldn’t sell it at a loss. I lost it to a foreclosure.
This isn’t a total shock. Yes, it’s sad, frustrating, and depressing. But in a twisted way, it makes sense. Because in the five years since signing that stack of home loan papers and paying the minimum mortgage payment every month, my husband and I never felt like we were supposed be homeowners.
Matt and I bought our first home together, a condo in Oakland, California at the height of the real estate bubble in May 2007. My parents had given us the down payment as a wedding present, with the hope that after a few years of living in a starter condo, we could build enough equity to buy a single-family house to raise their grandchildren.
Within months, the bubble burst, and over the next few years, we watched our property’s value eat away not only our down payment, but also half its purchase worth.
After getting turned down for loan modifications, I realized I was not afraid of the possibility of our bank or creditors calling us, demanding their money. I was scared of my mother.
“I don’t understand,” I imagined her saying, her voice heavy with doubt, disappointment, accusation. “What did you do wrong?”
My mother, despite the newspaper headlines of the last five years, is still a believer in the real estate dream of America. And not even I, her dreamy, impractical daughter, could screw up a sure thing.
As she likes to remind me and my brother, my mother is a refugee. Her idea of home changed when her government fell and she had to flee Vietnam. Tasked with making a new home for herself, she also worked to help her mother and siblings come to America. She and my father made sacrifices and endured multiple jobs, so that their own children could attend private schools and live in a safe, suburban home, setting us up for cushy upwardly middle class living in America.
But the deal hinged on choices that were out of their control, mainly what my brother Andrew and I would choose to do for a living. While Andrew fulfilled the agreement by becoming a doctor, I had the audacity to become a fiction writer. And then I married a poet. And then we chose to live in one of the most expensive housing markets in the country: the San Francisco Bay Area, where one cannot own a home without a six-figure salary or, in our case, overgenerous parents.
My mother was not without hope. Not even my foolish life choices would derail her plan for her daughter to have a stable nest egg. She couldn’t stand the idea of her daughter as a common renter, her eldest child not owning her own home.
“Your cousin bought a new four bedroom house, three thousand square feet in San Jose,” she told me over the phone, after learning I was moving into yet another rental, my seventh in six years.
“Good for him,” I replied.
“You don’t have to be rich,” my mother reminded me yet again. “Just smart.”
For my mother, homeownership was not a privilege of the rich, but an opportunity for people savvy enough to take it. When my parents first moved to California in 1975 after the end of the Vietnam War, they arrived at the ideal time to buy. They didn’t know it, but southern California home values were poised to rise, and for many, many years. After several fortuitous home purchases with skyrocketing equity values, they finally settled into their home for the last thirty years, a two-storey, three-bedroom house in Irvine, one of the first planned communities in southern California. Originally purchased for $30 thousand in 1980, my parents’ home’s current value, even with this economic downturn is $800 thousand.
With this track record, could I really blame my mother for loving real estate? For many immigrants, it was the best way to move up in America, the most reliable investment anyone with a chunk of money could make.
The government encouraged this American capitalist fantasy. In 1995, President Bill Clinton initiated the National Homeownership Strategy: Partners in the American Dream to create 8 million new homeowners out of working class families, with a special focus on minorities, who historically had been priced out of homeownership.
“You want to reinforce family values in America, encourage two-parent households, get people to stay home?” President Clinton said in 1995. “Make it easy for people to own their own homes and enjoy the rewards of family life and see their work rewarded. This is a big deal. This is about more than money and sticks and boards and windows. This is about the way we live as a people and what kind of society we’re going to have.”
The government alliance with public and private housing industry organizations opened the door for subprime lenders to prey on inexperienced, but eager, first-time homebuyers. The qualifications needed to acquire a home loan sank to incredulous levels. No down payment? Not a problem. No financial documents? That’s fine. Just sign here. Under Clinton’s policy, the national homeownership rate grew to 67 percent.
During the housing boom, two of my aunts became real estate agents. My mother even toyed with the idea of entering the market as a broker, since she believed, as many others did, they had the system figured out to make them all fast millionaires.
When my mother learned that I had a job offer in California, which would bring me closer to them, she and my father presented us this opportunity. We realized the strings attached. Homeownership signified putting down roots. A renter’s commitment to a town required only a year or even less, but a homeowner had a responsibility to their property. After watching me flit from Iowa to Nevada to Oregon to Washington and Idaho, my mother wanted us to stay in California.
Since college, Matt and I had been bouncing from one rental to another, living in apartments or houses no longer than a year due to increased rents or job relocations. We were weary of packing up our belongings in the same misshapen boxes and abusing our friends’ tired arms and backs to help us move. We wanted to paint walls, tend a garden, and enjoy all the other bourgeois perks that came with owning one’s home. The Bay Area was teeming with adorable bungalows and modern loft apartments. The choices for our new home seemed limitless.
Until we actually arrived in California and began our search. Even with my parents’ generous down payment offer, the prices on even one-bedroom apartments in the Bay Area were staggering. Our expectations sunk. But my mother remained undeterred: spend a few years in one of these small apartments and build equity. That’s how she and my father did it. That’s how we could too. It was the practical first step in the real estate game.
We finally placed an offer on a two-bedroom, 811-square-foot apartment near downtown Oakland for $385 thousand, with a cash down payment of $100 thousand. The previous homeowners were interior designers and the condo showed impressively. Despite the cramped size, the space felt cheerful and bright. We’d be close to work, farmers’ markets, trendy restaurants and beautiful, scenic Lake Merritt.
Our realtor and credit union loan officer convinced us to sign a five-year, interest-only ARM loan, since we intended to own the property for less than that time. They made it sound so easy, so simple, to make money on this secure, sound investment. We were plunging into the most sensible financial venture, like every responsible American should.
Yet, every conversation Matt and I had regarding the condo felt mixed and uncertain. We wondered if it was because it just felt new and unfamiliar. Perhaps because it hadn’t been our own money, we felt like impostors, with an opportunity we felt we hadn’t earned. We should have realized the aggressive pitch the realtor and loan officer was pushing on us was one that was being pressured on millions of other first-time homebuyers.
One of the few policies President George W. Bush extended from the previous administration was expanding the homeownership market through his Ownership Society initiative. Like Clinton, Bush also argued that homeownership helped eliminate racial disparities.
“All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners,” President Bush said at the White House Conference on Increasing Minority Homeownership in 2002. “Owning something is freedom, as far as I’m concerned. It’s part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it’s safe or not. It brings pride to people, it’s a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It’s a part of—it’s of being a—it’s a part of—an important part of America.”
Bush’s administration created the $412 million American Dream Downpayment Initiative for first-time homebuyers and committed additional funds to housing counseling. In giddy response, mortgage lenders accelerated their subprime loan offers to even more previously excluded homebuyers. Countrywide Financial led the charge, generating nearly $100 billion in subprime loans between 2005 and 2007, more than any other lending company in the country.
When our realtor happily called to congratulate us on closing escrow, I didn’t feel elation. I felt sick. Buyer’s remorse, explained the experienced homeowners around us. Everyone goes through it. This was the first significant purchase we’d ever made as adults. The responsibility of such a huge loan note can feel overwhelming. But the burden would lessen with time, they assured us. Just wait.
The first bill we received for our mortgage payment informed us that the credit union that arranged our home loan had resold our mortgage to Countrywide Financial. We would now be making payments directly to Countrywide. A month later, we received a cheery postcard from our realtor announcing to her clients that she had decided to leave the real estate business for other career opportunities. She never explained what those were.
Ignoring these glaring warning signs, we tried to enjoy our first home honeymoon. We watched the real estate shows on HGTV to try to bolster our excitement. We debated bold, bright colors we’d like on the walls. We bought books on how to best utilize small spaces. We convinced ourselves that the limited square footage would inspire us to live ecologically with a minimal carbon footprint.
Instead, the next few years brought us the economic crisis and dreaded visits to the Zillow website to confirm the loss of our down payment. Countrywide Financial went bust, and Bank of America promptly acquired their portfolio of underwater mortgages, including ours. We called our original loan officer at the credit union to see if there was any way we could refinance. He confessed it was too late, and that he too was suffering with an upside-down mortgage on his one-bedroom condo in Long Beach, California.
Our condo, so pretty and perky on our first viewing, began to reveal its flaws: the first rainy season exposed a leak from our balcony into the bedroom wall and carpeting, one that required biannual visits from the building’s contractors who tried everything they could to seal the intrusion. They never found a solution. The balcony leaks eventually spread to our living room and kitchen walls and ceilings. We lived in constant dread of any rain. With mildew growing in every corner, our condo was trying to force us out.
Hiding our mortgage troubles from those who loved us was frustrating. We watched our friends and younger siblings purchase houses larger than we could ever afford in the Bay Area, and tried hard not to be envious. We realized families around us in the Bay Area were doing it all the time. A couple down the hall had three young daughters in a condo the same size as ours. For a long time before that, they fit into a studio apartment.
Every family holiday visit to our parents’ and siblings’ suburban dream homes reminded us of what we couldn’t give Amelie. My parents’ house was within walking distance of four pristine toddler parks and a myriad of lush walking paths. Matt’s parents’ ranch home in Ohio boasted a sprawling lawn and was bordered by an idyllic wooded park reserve.
HGTV became our enemy. Matt’s parents’ favorite evening programming was Property Virgins, House Hunters and My First Home. Matt could barely sit in the room as the host and guests of the show gleefully calculated their profits. We read in the paper about new homebuyers taking advantage of the sagging market to scoop up homes and condos at half the prices we were looking at in 2007.
Answering to his election platform to repair the housing crisis, President Barack Obama announced his $75 billion Home Affordable Modification Program (HAMP).
“Our housing crisis was born of eroding home values, but it was also an erosion of our common values, and in some case, common sense,” President Obama said in 2009. “It was brought about by big banks that traded in risky mortgages in return for profits that were literally too good to be true; by lenders who knowingly took advantage of homebuyers; by homebuyers who knowingly borrowed too much from lenders; by speculators who gambled on ever-rising prices; and by leaders in our nation’s capital who failed to act amidst a deepening crisis.”
As the primary federal policy to assist distressed homeowners, [Obama]’s efforts have largely failed. Out of 11 million underwater mortgages nationwide, lenders have approved permanent reductions for only 1 million.
After receiving numerous mailings touting the benefits of HAMP, we visited the local HUD agency armed with the required pile of paperwork: copies of our last three years of income tax returns, paystubs, bank statements and utility bills, cautiously optimistic at the possibility of financial relief. After looking at the condo’s devaluation and our monthly expenses, the HUD officer seemed confident that we could lower our principal balance, and negotiate a more reasonable monthly rate. We would no longer have to worry about our ticking time bomb adjustable mortgage rate.
Instead, Bank of America rejected our remodification request, since we were current on our payments. Due to our combined incomes, they believed we could technically continue to make our monthly payments—and even afford to pay more. Of course they didn’t consider our deflated home value or the fact that we had another dependent, and had to eat.
As the primary federal policy to assist distressed homeowners, the HAMP’s efforts have largely failed. Out of 11 million underwater mortgages nationwide, lenders have approved permanent reductions for only 1 million homeowners, well below the program’s intended goal.
More and more stories emerge every day about several generations of families being evicted from their homes due to irresponsible subprime refinancing loans and forced to move in with relatives or squeezed into much smaller apartments, or returning veterans defaulting on their loans because they couldn’t find steady work to satisfy their ballooning mortgage rate payments. These vacated houses and condos typically remain unoccupied, often gutted and vandalized, blighting neighborhoods that once held so much promise of community and prosperity.
As our parents reminded us, at least we had jobs and the support of our families. We had not been evicted. We were not suffering. We did have some modicum of control over our real estate woes. So after five years of throwing good money at our leaky condo, we finally decided, in our real estate lawyer’s words, to end the hemorrhage.
When Sharon tried to sit on our sofa, Amelie pointed out that it was her sofa. Our daughter had never before looked at anyone with such contempt. [She] glared at Sharon, gripped her tiny hands on the sofa, and declared to all three of us: “This is MY HOME.”
We tried to short sale. A realtor named Sharon came by the condo to see the property and talk about our options. Normally a friendly and exuberant child, our two-year-old daughter Amelie was immediately suspicious of Sharon, who was actually quite kind and warm, and so naively optimistic about our short sale chances that we should have realized it wouldn’t work. When Sharon tried to sit on our sofa, Amelie pointed out that it was her sofa. Our daughter had never before looked at anyone with such contempt. We asked Amelie to be nice to our guest. Matt suggested that he and Amelie take a walk to leave me time alone to talk to Sharon and show her the condo. Instead, our daughter glared at Sharon, gripped her tiny hands on the sofa, and declared to all three of us: “This is MY HOME.”
It never occurred to us how losing our condo could affect Amelie. We thought she was too young to understand, but clearly we were wrong. At two years old, she didn’t think our condo was too small, or in a bad neighborhood for public schools, or possessed water damage beyond repair. It was her first home, the only home she knew, close to her favorite parks, walking paths, her beloved Fairyland toddler park. But we also knew for her sake, we had to do better than stay trapped in a mortgage that was crippling our family’s future.
Before deciding to default, our credit scores were immaculate, with nary a late payment on a credit card or college loan.
Bank of America refused our request for short sale for the same reasons they denied our remodification request: they still thought we made too much money. Our only option now was foreclosure. Though it was probably the best decision, it still felt painful, and required months of deliberation and discussion. Before deciding to strategically default, our credit scores were immaculate, with nary a late payment on a credit card or college loan. A foreclosure would cause long-term damage to our credit scores, blacklisting us from future loans for a car or any other significant purchase. We would have no credit cushion should a family or medical emergency arise. Most of all, we would be refused the opportunity to apply for another home loan for at least seven years.
That last one worries us least. For so long, we assumed, as many other Americans do, that homeownership was the ultimate nest egg to achieve, what would secure us financially for the rest of our lives. Homeownership was supposed to anchor us flighty writers and transform us into dependable stalwarts of the community. Instead, it became our albatross, a source of arguments, worry, and sleepless nights. We never felt more unstable, more helpless, than when we owned that condo.
Throughout this ordeal, my mother was surprisingly understanding and sympathetic. Despite all that has happened, my mother still believes in the redemptive possibilities of real estate. It had saved her at the crucial moment in her life when she felt she had lost everything, and it could still save me, even if my first attempt failed so miserably. She still hopes for Amelie to have a house to grow up in, and is already squirreling money away for another future down payment, if we ever do want to try again.
I’m not sure we will. Though I am happy that this foreclosure process is nearly over, our outrage over the unfairness of the situation feels fresh. It reemerges when I see an advertisement about foreclosure bus tours in the Bay Area, or read about another bank benefiting from a government bailout, or hear the conflicting predictions that the real estate market is improving, or worsening, or improving again. To sign our names on another home loan would essentially mean we were accepting the terms that had so royally screwed us before. It would validate the punishment the bank was inflicting upon us now.
In late 2011, Bank of America consented to pay $335 million to settle government claims that its Countrywide division charged black and Hispanic applicants higher mortgage interest rates and fees than white applicants with comparable credit scores.
California is considered ground zero in the foreclosure crisis of America. Since 2008, over 1.2 million homeowners in California have defaulted and lost their homes. According to realty tracking predictions, another 1 million foreclosures are expected for 2012. Many of these defaulted homeowners include the minorities Clinton and Bush’s policies vowed to help through government-assisted homeownership. Nearly 25 percent of American homeowners are currently underwater in their mortgage, and the national homeownership rate continues to sink.
In late 2011, Bank of America consented to pay $335 million to settle government claims that its Countrywide division charged black and Hispanic applicants higher mortgage interest rates and fees than to white applicants with comparable credit scores during the real estate boom. These discriminatory practices also included steering over 10 thousand minority applicants to subprime loans, while offering regular loans to white applicants. In February, forty-nine state attorneys agreed to a national mortgage settlement with five of the country’s largest lenders, including Bank of America, for $25 billion over foreclosure abuses, the largest financial concession since the Tobacco Settlement in 1998. To date, none of the executives involved in the national subprime mortgage scam has been indicted on any charges of wrongdoing.
Of course, it’s easy to blame someone else, especially if they are anonymous: the banks and lenders of Wall Street who encouraged these millions of impossible subprime mortgages that had to inevitably fall. It was our poor timing to come in just before they did, just as it was serendipity for my parents to enter when the market began to blossom. It is not fair. It is not even cosmic bad luck, as the fortune-teller predicted. It’s just reality.
After we received our notice of default, with a warning that a trustee sale could actually happen as early as Christmastime, Matt and I decided to move. We were lucky enough to find a house rental in Berkeley that had more space for our growing family (baby number two is due in April) and a shared yard. Although Amelie likes stomping around her new garden and reading in her playroom, she still asks when we are going to move back to our old house.
Our condo was sold at a trustee auction on January 6th for $113 thousand, less than a third of what we paid back in 2007. Matt has fantasies about meeting the buyer and congratulating him or her for capitalizing on our misfortune. But I am simply relieved it is over. They can have it.
Like millions of homeowners facing foreclosure, we are starting over—like my parents did. But we don’t have a war to get over or a new language or customs to learn. We just have to adjust with what our country has done to itself, and determine how we can let go and find another dream.