ISLIP, N.Y. -- Photographer Spencer Platt spotted the small white house with boarded-up windows and doors a couple months ago, when he was out here on Long Island covering a foreclosure-prevention event. He snapped a few shots and moved on.
Platt didn't think much of it then, but he had good timing. Those photos hit the newswires on Feb. 9, just as federal and state officials announced a long-awaited $25 billion deal with five large banks to resolve allegations of widespread mortgage and foreclosure fraud.
Since then, one of Platt's photos of the forlorn little house -- a close-up, framed against a bright blue sky -- has been featured with more than a dozen reports on the deal and its aftermath. Within a day, the New York Post used the photo to accompany a column about the deal headlined "The 'Deadbeat' Bailout." A month later, NPR's "Marketplace" published the photo on its website to accompany a story about the filing of the settlement in federal court. USA Today used it a few weeks ago for an analysis of the deal's winners and losers.
Most prominently, it appeared on the front page of The New York Times on March 13 to illustrate a story about an audit of document fraud associated with the practice of "robo-signing."
Some photos get published again and again because they capture a remarkable moment in history: the 1968 assassination of a Viet Cong soldier by Saigon's police chief, for example, or an American president with a bullhorn standing atop the pile of rubble that days earlier had been the World Trade Center.
In other cases, a strong photo rises to prominence because it is simply the most recent, best example of a newsworthy subject. The months since Feb. 9 have kept the housing crisis in the news, and Platt's shot practically screams foreclosure. "It's a sad slice of America there in Islip," he said in an email.
Still, it was taken as a photo for Getty Images, which sells stock and editorial photos. Neither Platt nor the organizations that published it had any idea whether the home truly reflected the effects of the foreclosure crisis that the settlement was supposed to help alleviate.
An investigation by The Huffington Post, which also published the photo (and used a slightly wider-angle version for a separate story), has found that Platt chose well. Property records and long-gone homeowners reveal that the home's history includes predatory lending, wildly overpriced real estate, securitization by the worst actors on Wall Street and a direct connection to the epicenter of the foreclosure crisis in central Florida.
The house also tells the story of this moment in the U.S. housing crisis: It has stood empty for more than two years in a devastated neighborhood. One of its former owners, Marjorie Mejia, now lives crammed into a tiny two-room rental apartment with her three children, wondering what she will do next. The other, Carmen Velez, Mejia's sister, filed for bankruptcy.
"There's been a lot of loss for me and my children," Mejia said. "All my life I've been working for them, trying to give them a good life. And we've lost everything."
ALL IN THE FAMILY
Even on an unseasonably warm spring day, with the tulips and dogwood trees in full bloom, 27 Hamilton Ave. appears cold and forbidding. The sealed windows and front door make it look like more of a coffin than a home. The detached garage is a burned-out shell barely noticeable in Platt's photo, a dark ashy smear jutting off to one side.
There are no yard signs, nothing that would direct a potential buyer to a seller. But here in New York's foreclosure capital, it probably wouldn't matter anyway. There are plenty of other homes sitting empty nearby, and no one wants them, either.
Islip now has the highest foreclosure rate in the state, with the hamlet of Brentwood, where 27 Hamilton Ave. is located, and neighboring Central Islip faring the worst. About 1 in every 365 homes in these communities received a foreclosure notice in March, a rate about five times that of the state as a whole.
Brentwood wasn't always so bleak.
Located on the north side of town, away from the ocean and near the Long Island Expressway, it has always been a little poorer than the rest of Islip. But until 2007, foreclosures were rare and unemployment was relatively low. Entenmann's, the large commercial baker of sugary pastries, provided steady work and good benefits to more than 1,100 people, many of whom lived nearby.
Public records show that the house at 27 Hamilton Ave. did pretty well, too. It changed ownership a few times in the early 1980s, but by 1984 it was in the hands of the Velez family, which would own it for the next 25 years.
The first to hold title, Maria Velez, an Ecuadorian immigrant, sold the house in 1989 to her two daughters. Carmen Velez and Marjorie Mejia borrowed $95,000 to make the purchase.
This was a family home. Mejia lived there for nearly 20 years, as did her four children and various relatives. The family also converted the garage into an illegal sublet. Public records show that more than 40 people claimed 27 Hamilton Ave. as a residence from 1989 to 2009.
The borrowing that would lead to foreclosure began in 2003, when the sisters took out a home equity loan of $100,000 from Fleet Financial, later acquired by Bank of America.
Had they stopped there, the sisters might own the house today. But on Dec. 7, 2006, they refinanced for $213,000 with a mortgage from People's Choice Home Loan, an Irvine, Calif.-based subprime lender.
Velez, who had moved to Florida more than a decade before, said she doesn't want to talk about the house or her financial situation with a reporter.
Mejia said her memory for financial details -- especially painful ones -- isn't very good. "I don't remember everything," she said during one of several recent interviews. "I prefer to block things out and keep living."
Interviews and public documents make this much clear, at least: It was a loan that Mejia and her sister could not afford on a house that was absurdly overvalued.
AN ALL-IN PROPOSITION
Like millions of other borrowers in the mid-2000s, the sisters bought into the false narrative that home prices would continue to soar.
The plan, it seems, was for Mejia to use the money from the refinancing to pay off the earlier home equity loan, pay off other debt, and move into a house in St. Cloud, Fla., which she bought around the same time for $255,000. She would quickly sell off the Islip house, at a profit, which would help make the $2,300 monthly mortgage payment on the Florida home.
This was an all-in proposition. In addition to the mortgage on 27 Hamilton Ave., she also sold off property in her native Ecuador to raise money for the move, she said.
She had no other way to land that house. She is disabled from a fall, she said, and hasn't worked since she lost her job at the Entenmann's plant in 2007. She has had three surgeries on her back and might need another.
It was an incredibly risky plan. The new mortgage on the Islip house was an adjustable rate loan. The starting interest was 8.25 percent, and it could swing up to as much as 14.25 percent. The initial monthly payment was around $2,200, Mejia said.
She was betting that she could sell the Islip house for more than $213,000 within a few months. Otherwise, she wouldn't be able to carry the combined monthly payments of about $5,500.
It's not clear how much of this plan was spurred by an appraisal in her mortgage application that greatly overstated the home's value.
This an old house, likely built in the 1940s. It sits on the working-class side of a Long Island town, out of commuting range for most people from New York City. It faces the back fence of a strip mall's parking lot. Yet the securitization documents show that the loan amount in 2006 was just 60 percent of its appraised value. That means someone, somewhere, determined the little two-bedroom house on one-sixth of an acre was worth $355,000.
According to the mortgage website Zillow, the home is now worth $137,900. But the $355,000 valuation didn't even make sense in early 2007, when real estate prices were peaking. Mejia said she did indeed find a buyer, who agreed to pay $240,000 -- $115,000 less than the appraised value included in the securitization papers.
Nancy Manfredonia, the executive director at a nonprofit housing group in the neighboring hamlet of Central Islip, isn't familiar with the Brentwood home but said she's not surprised by those numbers. She said predatory lenders targeted her community in the run-up to the financial crash.
"There was widespread collusion between realtors, mortgage companies and appraisers," Manfredonia said. "[These homes] were never worth that money even in the best of times. It was just crazy. Some borrowers were aware of what they were doing, but many more were just scammed."
Other lenders, such as Countrywide, now part of Bank of America, have paid substantial fines to settle allegations that they targeted minority communities for high-priced predatory loans.
Borrowers have filed a handful of lawsuits against People's Choice, but it folded in the spring of 2007, just three months after making the loan to the two sisters. Like hundreds of other subprime lenders, there's nothing left to sue.
Despite its riskiness, the plan seemed to go well at first. Though Mejia couldn't afford both loan payments, everything had been settled: the sale of the Islip house would pay off the mortgage with a little left over. But the buyer didn't show up for the closing a few months after the refinancing -- this was in early 2007, just as the air was beginning to rapidly hiss out of the housing balloon.
Reached by phone at a two-room apartment in Kissimmee, Fla., that she now shares with three children, Mejia said taking out the People's Choice loan was the worst decision of her life.
"I lost everything," Mejia said, including the house she had just purchased in St. Cloud. "I made a big mistake."
SOLD UPSTREAM
Yet while the initial lender has gone under, the Islip sisters' loan didn't go with it. Instead, its path serves as a classic example of the kinds of deals that made up the subprime bubble, a root cause of the 2008 financial crisis.
People's Choice sold the mortgage almost immediately to Lehman Brothers, one of the biggest Wall Street purchasers of subprime loans. Lehman's huge exposure to that market would eventually lead to its downfall, nearly triggering the collapse of the U.S. economy.
But the investment bank managed to get rid of this one on May 30, 2007. The bank "securitized" the loan, bundling it with other loans and selling that package to private investors. Fitch Ratings, one of the three major credit-rating agencies, stamped the highest investment grade, AAA, on the vast majority of the 3,700 loans in a pool that included the Islip mortgage. Eighty percent of the pool consisted of risky adjustable rate loans.
That security, with the enticing name "Mortgage Pass-Through Certificates Series 2007-BC3," hasn't done well. As of March 26, its most recent reporting date, the pool, originally valued at $823 million, had realized $92 million in losses. Of 1,929 loans remaining in the pool, 766, representing $173 million in value, are in some way troubled -- late, in default or in foreclosure.
Who actually owns this junky debt? It isn't U.S. Bank, the "trustee" representing the interests of investors. Nor is it Wells Fargo, which is both the "security administrator" -- meaning it does all the work for the pool, such as calculating investment value -- and the "servicer," meaning it collects payments in good times and manages the foreclosure process in bad.
The actual owners of the debt, according to Jay Patterson, a forensic accountant The Huffington Post asked to research the security, are mostly insurance companies. ICI Mutual Insurance in Washington owns a piece, as do Capitol Indemnity in Wisconsin, Proassurance Indemnity in Alabama and several others.
Securitization has made unwinding a loan's history and ownership incredibly difficult for homeowners and their advocates. This cuts to a massive structural problem with the mortgage industry that remains unresolved: Separating mortgage lending from mortgage ownership, and both from mortgage servicing, has yielded a chaotic system largely devoid of accountability.
Most of the investment companies that own some piece of the mortgage at 27 Hamilton Ave. didn't return a request for comment. None of these entities likely have any clue what is happening with the home loans in the bonds they bought, other than what they read in the gloomy performance reports from Wells Fargo. None of the investors saw the photo of the house on Hamilton Avenue and said, "Hey, I own that."
RIPPLE EFFECTS
The rest of the area is in equally bad shape. Homes in Brentwood and surrounding neighborhoods have lost roughly half their value since 2007. Anyone who borrowed in the last decade is likely deep underwater. Prices continue to drop. The only buyers right now are investors -- companies that have swooped in and hope to make money by renting foreclosed properties out. Everyone else is waiting for the bottom.
It's not just the homeowners and their families who suffer when a home is lost to foreclosure, or even investors. On a recent Friday afternoon, a woman leaving one of the well-maintained homes adjacent to 27 Hamilton Ave. said the abandoned property "hurts the whole community." She declined to give her name.
"It's embarrassing for people," said Manfredonia, of the Central Islip Civic Council. "You've got a mess next to you. You don't want to invite guests over to your house because of the eyesore."
The loan servicers responsible for maintaining foreclosed properties often do a terrible job, Manfredonia said. Employees at her agency often pick trash out of the yards of abandoned properties, she said, because no one else will.
This is not a problem confined to Islip. Earlier this month, the Department of Housing and Urban Development announced it was investigating Wells Fargo after a nonprofit found "overwhelming" and "troubling" evidence that it and other banks neglected maintenance on properties in minority neighborhoods, while taking better care of those in white neighborhoods.
The framers of the $25 billion mortgage settlement -- the one that led to the wide distribution of the photo of the little Islip house -- say the deal is supposed to help communities like this one. Some $10 billion will supposedly be made available by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial to reduce the debt of underwater borrowers.
Some of this money might make the difference between homeownership and foreclosure for some borrowers on the margins. But a little bit of relief for a few qualifying homeowners isn't likely to stop home prices from sinking or to encourage prospective buyers to consider purchasing a home like 27 Hamilton Ave., even if it were for sale.
FULL HOUSE, EMPTIED
The foreclosure notice on the Islip house was filed on Sept. 15, 2009 by an attorney with the now-infamous law firm of Steven J. Baum. In 2011, that firm shuttered its doors following an investigation by state and federal authorities for practices that included robo-signing, forging signatures on mortgage documents in order to speed loans through foreclosure. Firm employees also drew widespread scorn after they dressed up as foreclosed borrowers for a Halloween party.
It's not clear whether any of the documents in the Islip loan file were robo-signed. Since the sisters do not contest the foreclosure, it is doubtful they will ever know.
It is also unclear what, if anything, will happen to the house. No foreclosure sale has been scheduled, though it has sat empty for two and a half years. In fact, Mejia and Carmen Velez are still listed on tax documents as the owners.
They are 41 months delinquent, and owe $58,437.53 in back interest, according to a statement available to investors in the mortgage security. That doesn't includes maintenance fees and late penalties that have undoubtedly accrued over the past two and a half years.
Wells Fargo spokesman Tom Goyda said he could not specify why 27 Hamilton Ave. has sat abandoned for so long, but said factors like requesting a loan modification or filing for bankruptcy can delay the process.
Goyda said he "can't speculate on when the foreclosure process will complete." Meanwhile, in response to Manfredonia's concerns, he said workers hired by the bank recently tore down the rest of the garage, hauled the trash away and trimmed several overgrown trees on the property. This is all part of standard maintenance on abandoned homes, he said.
Mejia now squeezes into her two-room apartment in Kissimmee with three of her four children, including a son who graduated from high school last year and two daughters, ages 16 and 11. Her oldest child, a son, lives in an apartment in New York.
Foreclosure has hurt the rest of her family, too. Carmen Velez, her sister, has kept her home, but went through bankruptcy recently. The sisters, Mejia said, aren't on speaking terms.
Even their mother, Maria Velez, lost her home in Brentwood to foreclosure. She now lives in housing for senior citizens.
Mejia said she is struggling to pay her rent and to repay about $4,000 she owes to friends and relatives. She's worried about her ability to afford even the modest rent she is paying.
"We don't have nothing now," she said. Asked what her plans are for the future, Mejia said, "I don't have the money to have plans."