In 2003, I had a cash-flow crisis. I will spare you the details if only because telling the story requires a drink or two... along with a cache of anti-depressants.
What I do want you to know, however, is how that journey affected my mortgage and more important, how the accord I reached could just work as a paradigm to help the country out of the current crunch.
I had bought my home two years before, 2001, just before the housing prices here in Los Angeles started to skyrocket. With a thriving business with several years of a a quarter-million dollars a year, I qualified for a nice fixed rate, or so it seemed at the time.
Even better, when my cash crunch happened, my house was now worth hundreds of thousands more than I'd paid for it just two years before. So I could refinance the house and everything would be fine.
A year later, with things still not fine, I needed another fix from that real estate nipple. This time I sucked it dry - a five year, interest only ARM. a mortgage I got it without a single page of income documentation. Good thing too, since in real life my income was falling. No issue, I figured; this new loan kept my monthly payment manageable, and surely my personal fiscal crisis would be but a dim memory before the variable took affect in 2009. I would just re-finance one more time.
Just one problem: in 2005, still burdened by the same problems, I was forced into bankruptcy. I started negotiating with the bank holding my mortgage almost immediately; but while I wanted to reinstate my mortgage, the bank wanted a pound of flesh. I hemmed, the bank hawed; twice, despite a written agreement between us that precluded their being able to, they put my house up for foreclosure.
Then out of nowhere, the bank sent me an offer: though I only had 48 hours to respond, the bank would not just reinstate my mortgage as I wanted but would modify our agreement into a long-term fixed at a similar rate that I could have gotten in 2005. They had my yes in 24 hours.
After first getting reassurances that the bank had actually done this and it wasn't a cruel "Candid Camera"-like joke, I called the bank to express my eternal gratitude. I also asked but never learned why they acquiesced to such a helpful conclusion to our differences. I still wish I knew.
I wish I knew why they did it so I could tell others how to get the same opportunity. If banks offered everyone in similar circumstances the same deal, tens of thousands of people at risk could now save their homes: so many face foreclosure only because their monthly mortgage costs have shot up as their introductory rates ended. For example, my new deal saved me from an April 2009 mortgage payment that could have been close to $10,000, my mortgage today and for the next few decades is about half that.
At first blush, I was the big winner; the bank revised my contract to take less than it was ultimately owed, but a full analysis reveals how the bank won, too. Not only will the bank still receive hundreds of thousands in interest in the years to come, it avoided ownership of a house worth less than the value of the 2005 mortgage.
For two years my bank played chicken with me, probably because part of their business strategy when making loans they knew became untenable in time was that with the housing boom, they could also profit by taking over the homes through foreclosure and reselling them, not realizing that when too many people faced the same fate, their homes of cards would fall crashing down.
In the end my bank chose to make some money instead of demanding all the money and ending up with a loser. the country might benefit if somebody, even somebody called a regulator, went in and made every bank offer a similar solution to their customers, devaluing the profit of the loan instead of the value of the house.
Do you have a better idea?