Open Letter to My Mortgage Companies
Dear Aurora Loan Services (a unit of Lehmann Brothers) and Citibank Mortgage (who took the TARP money):
Between the two of you, you hold my fate in your hands. In July 2005, approaching 65 years of age and having been an entrepreneur for forty years, I bought a home in Half Moon Bay, about three miles from one of my daughters. I put 10% down and got a 5-year interest-only mortgage for about $576,000 and a HELOC at prime +2 for the remainder, about $154,000.
I was really happy to live close to my daughter, and the two of us encouraged my other daughter to move home from the Netherlands to join us. For three years, everything seemed fine. I made friends, I continued to run my business in Arizona, invest in my start up companies, and assume I'd be in Half Moon Bay full time one day. Prescient about Arizona real estate, I sold my house there and rented.
And then two people on my block in Half Moon Bay had to use short sales to get themselves out of their obligations, and the value of my home suddenly dropped. All of a sudden, the home I paid $769,000 for, and then spent $45,000 modernizing, thinking I'd live in it for at least ten years, became worth $699,000.
I'm no dope; I've been in business all my life. I saw everybody starting to turn in their keys. I knew it was a bad financial decision to keep paying on the mortgage, but I was loving the house, spending quite a bit of time in Half Moon Bay as my daughter was now pregnant, and determined to make it through this momentary drop.
And then November came, and the value of my house dropped to about $659,000. More important, my business began to go away. And I mean go away. Suddenly, four deals I was in, all of them capable of making me financially secure, either fell out of escrow or went on "hold."
However, Obama got elected, and I kept on paying. I did make a call to you at Aurora in December, asking if I could get some help, and you advised me that you couldn't help me because I wasn't behind. Of course I wasn't: I was struggling to preserve my excellent credit.
Well now it's February. I am scrambling for small projects. My deals recede in the background under the weight of our crumbling economy. Congress argues over the stimulus bill. And I have taken a deep breath and realized I am going to fall behind on this mortgage.
Like Rome, I am burning while Congress fiddles. And I'm not getting any younger. I'm an optimistic person, a healthy person, and a person willing and anxious to work. No, I don't want to move in with my daughters. I want to ask you to re-finance my mortgage at the current value of my house at a 4.2% rate, like everyone in Congress is suggesting.
Otherwise, I have to let you foreclose. And this will not benefit you or me. Me, it will ruin my credit. You, it will give you yet another foreclosed property to sell at even less than if I could keep it for a few years and then sell it for you. And it will further erode the property values in my little subdivision, full of other families.
Do I want to bare my soul to you, or to the online world? Of course not. But my highest and best use right now is to offer myself as an example, a data point. I'm articulate. I'm not a person who should never have been given a mortgage. Not an uneducated victim of a greedy mortgage broker. And not a speculator. Just a person caught in something much bigger than all of us.
I'd like to take a moment to thank my parents and all my teachers, who gave me the gift of writing, so I can at least convey my feelings to the world. Namaste.
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I'm sorry to hear about your demise, Francine. The problem here is that the banks - and only the banks - prospered from the bailout. The homeowners are going to struggle until this is resolved, plain and simple. One problem with the bank bailout was the lack of a system of checks & balances. The other problem was that nobody seemed too concerned with the rapidly declining economy and the fact that the homeowners could no longer afford their homes because of it. I'm not suggesting that the government has to give a bailout, per say, but something should be done with the banks in order to slow down this destruction.
Alternate to your letter: sing to "I've got spurs that go jingle, gingle..."
I would like to thank everyone who commented for opening my eyes about the enormous gap between people whose lives have already been turned upside down by the economy and people whose lives have not. It has made me think twice about the social contract, and whether we do, indeed, want to be responsible for one another. I wonder, seeing the comments both here and on my own blog, whether we are will a nation.
I wrote a post telling my truth to see if I could get an answer from my mortgage company, not a handout. I've been a mother, a foster mom to 3, and I have sent an African youth through college in Uganda. I mentor people all day long. I'm not some broad in an $800k home, I'm a widow in a "starter" home in an expensive part of California. I work every day for ten hours at least, much of it pro bono.
I'm not sure who you all thought I was and what I was asking for, but when I wrote the post I thought I was going to speak for many people in my situation who are contributing to a free fall in home prices that seems to have paralyzed the economy.
Of course I can "walk" and take my lumps. Frankly, that's easier than what I'm trying to do now!
But what good does that do the neighborhood, the bank, or me?
Francine: As one 60+ businesswoman to another, I have to ask: didn't your Mother or Grandmother, who went through the Depression, teach you anything? Remember "Don't put all your eggs in one basket." and "A penny saved is a penny earned." More importantly, as a real estate investor, which I am, why don't you believe in the maxim "Dont get greedy or needy."
You made your bed, knowing you were headed into the final quarter of your existence, now lie in it. You are treading air while I am living in my nearly paid off home and collecting rent from my nearly paid off apartment units which are performing nicely and taking up the slack in my (now) 201K.
You do make a good point, however, in that lenders need to work with qualified borrowers during trying times. I just don't think you are a qualified borrower.
As a taxpayer and a renter I don't care about your personal drama and I don't believe that my taxes should be used to help keep you in a house that you can no longer afford. You keep saying that you aren't looking for a handout when in fact you are. Suck it up and foreclose. If the government bails out people like you who are in over their heads it will artificially inflate real estate prices and perpetuate the bubble. Foreclosure is the fastest way for the market to stabilize and for prices to once again reflect reality. If I recounted a long sob story similar to yours about my business, family, and neighbors, would it convince you to support a policy whereby the government helps pay my rent? Didn't think so. There are a lot of problems in the world today. Trying to keep you in an expensive house in Half Moon Bay isn't one of them.
we shouldn't be begging them to let us re-finance
the numbers for complete reform of the mortgage system are in the favor of the buyers. there are far too many homes built, and there are no buyers for these "foreclosure" homes. like they say on the ACORN site, Stay in your home. Don't leave when foreclosed. Demand that compound interest on mrtgages become illegal.
After the foreclosures, house prices will plummet, when house prices plummet, we'll finally be able to afford houses without signing our lives away to greedy banks.
Greedy people who think they can buy a second $800,000 home with an interest only mortgage and then get bailed out when they don't turn a profit are the problem here. Foreclose these homes and they'll be purchased by responsible people at reasonable prices.
Don't make contracts which are agreed on by both parties illegal.
Are you kidding? A drop in value from $800k+ to $659k is not bad. My new home's value went from $650k to $350k in just two years! It doesn't matter that I'd put 20% cash down payment. I've never taken a line of credit nor a second mortgage. Yet I am still upside down hundreds of thousands in just two years. And oh yes, both my husband and I have lost our jobs. On top of that, our house has multiple builder defects! But it is what it is and we manage to pay the mortgage. I do feel bad for anyone who can no longer afford their debts because of hardships, particularly the roof over their head. It's time the government stimulus efforts went directly to those Americans who did the right thing but are suffering now.
So you made a bunch of money selling a house to some poor sucker in Phoenix at the top of the bubble, then you bought a vacation home elsewhere (you said you were still renting in Phoenix) and now you want the mortgage company to absorb your loses on your new house, but you want to keep your profits from Phoenix? Do you have any idea how bad that sounds? Here's an alternative. Sell your new house and suck up the loss, just like everyone else who makes a bad investment.
I suggest you buy a Suzy Ormon book and study it.
Wow, Bob, you make some interesting assumptions. I rent in Phoenix because I was unable to develop enough business in California, and I have to return to Phoenix, where I am known and respected, to work. I didn't buy myself a vacation home, I bought a home close to my children because I know I am aging. What profits from my Phoenix house?
And I'd be glad to sell the house and suck up the loss, but it isn't salable for what I owe, and I don't have any money to make up the difference as my retirements funds have also vanished.
Be a little more humane before you assume the worst about everybody:-)
You are an excellent writer. I don't know how to feel about the situation. One one hand, I feel sorry for the millions of people who have mortgages that are more than the value of the home.
On the other hand, home prices are far too high. I've been renting an apartment for years saving up for a large down payment so that high interest rates wouldn't hurt me. So, in a way, it's very frustrating that the government and banks are working so hard to keep prices high. You say that you're not a speculator - but that's exactly what you became when you took that mortgage, even if your intentions were well.
While the author does have my empathy over her unfortunate situation, I feel compelled to ask what kind of lifestyle required a single woman in her later years to need an $800,000 residence.
Trying to get within a few miles of my children. There were no homes less expensive in that community.
Why didn't you use the profits from the house you sold in Arizona to pay down the mortgage on the new property? Where did that money go?
Why should the mortgage company reduce the loan value? You borrowed the money and so what if your home value has dropped. As long as you plan to live there, the loss is on paper and not a real loss. I know - I experienced the same thing in the 1980's when the value of my $70,000 condo in San Antonio Tx dropped to $35,000. It took me 8 years to recover enough value to sell the condo for enough to cover the mortgage. During this time I also was laid off (luckily with severance pay) and took a 40% pay cut to start a new job after being out of work for 6 months. I paid on the condo the whole time.
I do think it would be fair and also an economic stimilus if the mortgage companies and banks lowered all mortgage interest rates to the current going rate. This would reduce the cost to the homeowner and would give us more spending money to put back into the economy. If this prevents foreclosures on properties then great. But it would be a reasonably cheap way to put money in the taxpayers' pockets. And it would reward those of us who read the fine print and elected to purchase a property with we could afford with a mortgage that reduced the principle and did not increase at the whim of the interest rates.
Well, I did intend to live there when I bought it, but unfortunately my business is in Arizona now, and I can't develop any in California as I thought I could. In addition, I don't think I can afford to hold it. I hope I can. But the loss isn't just on paper, because it's also the loss of my ability to pay at that rate.
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