Ryan Downey first wrote to HuffPost in December 2009 in response to a request for readers to share stories about the fight with their bank over an underwater mortgage. A year later, he was interviewed for our story "Learning To Walk," which looked at the experiences of roughly fifty people who had considered walking away from their mortgage. Today, the chapter closes, and Downey writes it himself.
I made my last mortgage payment on November 1, 2009.
Bank Of America changed the locks on my house on September 29, 2011.
I realize that my results may not be typical and that every situation is unique. But I'd like to provide people in a similar spot with something that wasn't readily available to me when I realized I had to walk away from my house: answers.
What happens when you walk away? Are you arrested? Are you shunned? Do your kids decide they hate you?
When I signed a mountain of loan documents to purchase my first home in 2006 I had the same attitude as most people. "Do whatever you can to pay your mortgage: run up credit cards, work out payment plans with the IRS, eat Ramen noodles. But pay your mortgage, every month, always. Because when you miss a few payments, a sheriff shows up with a cardboard box and throws you and your family onto the sidewalk. Or maybe if he's friendly he'll give you a lift to a shelter."
Nobody told me that some folks miss as many as two years worth of payments before they have to move out of their home. Or that the bank may even hand you a few thousand dollars to quietly evacuate without dumping plant killer all over your upgraded landscaping, ripping out the microwave or spray painting "the mortgage crisis sucks!" on the garage.
It certainly wasn't clear that my house would eventually be worth less than half what I owed on it; that my small business would suffer from a bad economy; that half the houses on my suburban double cul de sac would fall into foreclosure; or that many of the people who made money rigging the system on the way up would find ways to do so on the way down while folks like me sat around waiting for the banks, for Dubya and for "hope and change" to do something to help us.
This is what happened when I decided to walk away. And it's not nearly as nightmarish as you might think.
I purchased a brand new home in Riverside County, California in April, 2006 for $422,000. As I write this more than five years later, Zillow.com estimates the home's value at $253,000. I had an interest only, nothing down loan with an adjustable rate mortgage through a lender called First Franklin. (Yeah, I'm one of those guys you've been reading about). I had a 711 FICO score when I bought my house but the woman who worked out the mortgage assured me that because I'm self-employed, I would never get anything better than an interest only, nothing down adjustable rate mortgage.
When the housing bubble burst I had some friends who purchased new houses -- which they told their banks were "investment properties" -- only to move into them while letting the first "underwater" house slip voluntary into foreclosure. At first I thought this was bananas. I figured I could call my lender, explain to them that my small business was suffering from the economy, that my mortgage was due to reset, and that I wouldn't be able to afford to pay them double the home's value. I was even willing to pay them more than the house was worth. I just couldn't make those huge payments.
I spent eight months trying to get a loan modification. I faxed close to a hundred pages of documents to them. I was very honest with them every time I called in, which was about twice per week. I never spoke to the same person twice. It would take them a week each time to even confirm receipt of a fax. They would regularly "lose" pages. At one point my bank statements became out of date because they had sat on my paperwork for so long. Eventually a negotiator assigned to my account (who would never answer nor return my calls himself) communicated to me that I would "probably" get a loan modification. Then a few days later the bank told me in no uncertain terms that they were denying my request because, well, I hadn't ever missed a mortgage payment and therefore I wasn't viewed as an "imminent risk of foreclosure."
That's right. They wouldn't help me because I was paying them every month and on time. They also told me they wouldn't help me because I had income, because I had a small bit of savings. Never mind that I was telling them, "Yes, I'm making the payments now, but I'm running up credit cards to do so, and soon I won't be able to make them at all."
The same month I made my last mortgage payment I read an article about an Arizona law professor who was advising people to do exactly what I had decided I must do. Two months after that, I read about how investors in the largest residential real estate deal in U.S. history had walked away from 11,232 properties at once.
The banks call it "writing off a bad investment." But when a private citizen does it, we're scum? Please.
The Phone Calls? I Say Ignore Them.
The bank started calling me relentlessly in December, 2009. One mistake I made early in the process was that I had this need to tell my story to every representative who contacted me. I wanted them to know I didn't buy my house to get rich. I never "pulled out equity" to purchase a boat, an RV or more houses, either. I just wanted to own a decent home and when I bought the house in 2006 I paid more than a decent house should cost thanks to speculators, big banks and so on.
Eventually I realized that some of them would just scold me ("you knew what the payments were when you bought the house"), others might sympathize ("yeah, this situation sucks"), some would even get political ("yeah Bush really screwed us"; "man Obama messed things up") but most were cold and indifferent.
What they all had in common was a complete lack of power to do anything to help me.
These people couldn't even tell me who actually owned my loan at this point. They "couldn't" give me that information. They would explain that they were my "loan servicer," as if I should know the difference. My understanding now is that the loan servicer most likely gets paid a fee each month whether you are paying your mortgage or not. But who knows...?
Once I stopped paying them, First Franklin / Home Loan Services were happy to offer me a second chance at a load mod. I went through the lengthy paperwork and followup phone calls process all over again. I kept detailed notes. Nothing.
Next they ran me through the government's "Making Homes Affordable" program guidelines. I wasn't approved for that, either. They just couldn't budge on a house so far underwater. I was baffled. I mean, I was under the impression that underwater mortgages are a big part of the housing crisis and that HAMP was setup to help troubled homeowners, right?
Follow Ryan J. Downey on Twitter: www.twitter.com/SuperheroHQ
http://www.youtube.com/watch?v=7gZtaV8Swas
http://viableopposition.blogspot.com/2011/09/post-foreclosure-experience-in-america.html
Most post-foreclosure households move to higher density neighbourhoods with lower overall home ownership rates. These neighbourhoods tend to have a higher fraction of lower income households headed by females living in smaller homes.
This would have done two things: (1) it would have declared to everyone, legally, that this mortgage would never be worth anything to anybody; and (2) it would have made every one of your creditors simultaneously interested in your plight. Because all of them would now stand to lose, well, everything.
And that's the point. First, you gotta get their attention. Then, you gotta bust their bubble, at least insofar as it concerns you.
Depending on the technical skills of your attorney, you could have moved for "specific relief," which is basically saying what is true: that you would not be insolvent except for one particular, million-pound elephant debt. The bankruptcy court =can= do what no creditor ever will do voluntarily.
When Franklin "charged off" your mortgage, it sold it. It sold it as a thing of value, although a discounted value ... when the truth is and always was that the loan had become worthless. A declaration of bankruptcy in a situation like this is simply a declaration of truth, compelling all interested parties to confront that truth.
They would have been much better off if they had walked from the house, the bank had no interest in working with them because they had some money in the house.
The article owner took on a bad debt and it ended badly. He went back to renting, which is not very different for him. The only difference is he now is paying someone else's mortgage through his rent. The landlord was smart enough to take on a good debt.
Why is it that people think housing "appreciates"? Houses depreciate ALWAYS. It's never an investment as a primary residence.
You'll never recover financially if you stay and make grossly inflated payments on a rapidly depreciating house.
If the house is now "worth" half what it was, how was it EVER "worth" double? Even if it's worth half, why is that different from so many other investments? If he held it for 20 years, even for 10, what would it be "worth"? How much does HE "deserve" to "make" on this investment?
Phooey. Both his lender AND Mr. Downey deserve to sit out the next several years without credit or borrowing power.
The one piece of the puzzle that completely eludes me, however, is that if a mortgage is "guaranteed" by the government up front, why aren't the interest rates regulated to reflect that low risk? Why can the bank EVER charge 10% or more?
Why can't all of these "guaranteed" mortgages simply get capped at 4% or 5%? Or, better, why not impose an exise tax on all guaranteed mortgages of 110% of everything over that 5% cap?
I particularly love the part where he put no money down, an interest only option ARM, and apparently had no savings (car loans, 2 home loans etc).
Then he goes on to try and tell the bank that he shouldn't have to pay them what he borrowed since the house is worth less? Puhlease.
While these people can legally do this, they should be banned from every getting an FHA or conforming mortgage again.
Moral Hazard doesn't matter anymore.
Hank Paulson made that clear when he agreed to bail out his buddies on Wall Street.
This is all Clinton era regulation, you know, the stuff GWB tried to regulate repeatedly only to be shut down by Barney Frank?
Run, Ryan, Run!
Interest-only? Nothing down? $422,000 house?
You sound like someone who, at best, bought way more house than you could afford. At worst? Shouldn't have bought a house at all.
Still, if you truly COULDN'T make the payments, I have some sympathy. Those who Can pay, but simply choose to walk, are immoral.
lend you a trillion or two at ZERO percent interest.