By J. G. Robinson
In my last column I began the story of someone I call Jose, and what led to his financial crisis. In this column I look at the Kafkaesque process he went through in his failed attempt to save his home from foreclosure. The experiences I describe here are neither rare nor random. The difficulties Jose and his family encountered in trying to get their bank to re-evaluate their loan were all too representative of the random sample of people I interviewed. The tragic fact is that the delays that Jose’s family encountered were not the result of inefficiency, but rather a deliberate policy to protect banks. Banks do NOT want foreclosures rapidly resolved because that would bring these properties down to market value, reflecting badly on their bottom lines. Thus families like Jose’s are the deliberate casualties of a war of attrition that banks have waged on the public to protect their economic interests.
Jose’s original mortgage was through the Bank of America. The home was a modest condominium in a somewhat marginal area of El Cajon. Marginal, but not horrible—the schools in the area were decent, and that was the main attraction for Jose and his family. It was also supposed to be the source of future stability for the family:
I got tired of renting. I proposed to my wife that we make a purchase, first and foremost for me it was secured equity for the future. My son was born in 2001, and my whole thing was to build up an equity for him so that when it was time for me to retire or pass-on I wasn’t going to leave him without anything. So by 2004 we did it, we got our own place.
It is not a stretch to hear Jose’s own economically troubled childhood speaking here, nor, for that matter, the hunger for the “American Dream”. He was going to have something for his family; he was going to provide the security that he had not known as a child; he was going to be able to leave something to his son.
As was pointed out in the last column, this ‘dream’ began to unravel when his hours were cut back at work. He struggled to provide for his family and still make the house payments, but it was increasingly difficult. He had bought the condo for $280K., but by early 2010, with the San Diego real estate market in free fall, the value was only $130K. In spite of so much negative equity, he and his family kept struggling to make the mortgage payments month after month. Finally, after nearly two years of struggle, he had to admit defeat and go to the bank to see what could be done to save his home.
I had called the Bank of America and informed them what was going on with my employment: I’m looking for a second job; I’m cutting spending in any way I can. And they told me ‘Keep us informed; keep us informed. We’ll send you the application; it sounds like you’re right for the program [initiated by the Obama administration to keep homeowners in their home].’
But they were just leading me on. But they said OK we’re going to send out the application.. Yeah, and I did it. I filled out their application. And I filled it out. And I filled it out. I went through like 27 or 30 applications and it was just a redundant thing with them.
I would send information over to their processing center and either the processing center didn’t put the paper work in right, or they didn’t scan it through the machine; or the machine would eat the information; or it never made it across to the individual who was to review the paper work; or it didn’t make it to their other department which was located elsewhere.
I was getting bounced around and around. Over 25 times in a year and a half time period. I was irate. …And they just kept bringing up political red tape. Every time I put the ball back in their court, they came back with a different answer. It was my habit in the Marines that you took down names, times, dates, and you had copies of documents that you submitted—for your personal records so that if there was a fudge factor you were protected. And I did this with the Bank of America. I took down every time I sent them something; I always had a receipt/a piece of paper. So I couldn’t understand why they were delaying. [Eventually I came to] believe that it was their intent to go ahead and do a foreclosure on the home instead of helping the homeowner try to retain their home themselves.
It is my personal feeling that if they got a foreclosure then they can still come after the home owner for whatever loss they had sustained because of the housing dropping in value. I don’t know if it was a psychological process, trying to make you get exhausted. But it was like they were trying to wear you down. Tire you out.
This is an important passage. This was a picture of what should have been a strategic default. That is, with negative equity in his home, with a monthly payment he could not afford, with his finances and job taking a nose dive, Jose and his family should have mailed the keys back to the bank and left. Like the majority of the people I interviewed, however, he never considered this option. Far from rational market watchers who strategically defaulted at the first hint of negative equity, most people I interviewed were hopeless romantics irrationally in love with a dream of home ownership. And like romantics they refused against better judgment to walk away from what had become an abusive relationship. While their homes left their wallets black and blue, these abused romantics kept coming back for more time after time. .
In Jose’s case, after a nearly two year struggle to keep his home, he declared bankruptcy and let the bank take his home. Jose could not understand why after months of run around, after the home collapsing in value, after all his suffering, the bank would not simply reduce the loan and let him stay.
…[I]t just doesn’t make any sense. I’m sitting here in an apartment complex renting for $938 a month. When the individuals at the B of A sell our place it’ll be for like $138K—that’s what they told us it was worth. But with interest rates and what have you, that can’t be much more than $938 a month! We could have done that. We could have paid that. Why couldn’t WE have paid that? It just doesn’t make any sense.
The foreclosure was hard on everyone. Like so many other people I interviewed, the financial troubles stressed the relationship between Jose and his wife, but the worst of it was the impact on their son. Leaving their home, his friends, (though his parents were able to keep him in the same school), all had an impact on him, but the greatest difficulty was losing his dog.
We couldn’t bring the dog with us to the apartment complex, but she’s staying at [a friend’s] house and we’re visiting her every weekend, and it’s just been an emotional roller coaster for everyone here. He really misses that dog. We explain about apartments not allowing dogs, but he doesn’t understand. He just wants his dog. It all has affected him.. Like I said, his esteem has taken a ride down.
It’s [long pause] yesterday he left campus at 3 and nobody knew that he had left. I had an appointment with the principal and the director of the school this afternoon and my concern was accountability,. How do you lose a child from the time that the school is out to the time that they’re supposed to be in Homework Club? I was four years in the service, and I never lost a marine, you know, I was holding an E5 billing, and I never lost equipment. [I was responsible for] millions of dollars’ worth of equipment, and I didn’t lose nothing, not even a screw. How do you lose a child?
It turned out that the boy had run away from school
Well the sheriff’s officer found him. He was hiding in an alley. They brought him back to us. The sheriff’s officer did, and he told us ‘you need a strong hand, strong discipline with this boy because if he’s done it once, he’s going to do it again’. But I said, ‘that’s a problem officer, he’s not an individual who would do such an erratic thing. This is out of the norm for him, so there is something else that’s happening. There’s something else that he’s not sharing with us. Maybe he needs to open up, and I need to know what’s going on.’
So I brought him home and [pauses and chokes up] and and I sat with him, and it was just like the flood gates opened up for him. He thought he was a financial burden on us. That maybe without him in the picture we would do a little bit better. I had to explain to him it’s not you. You know, mom and dad are financially struggling because dad lost his job, and mom can’t work, and we have to get by. But I can’t go on without you, I told him. You’re the most the most important thing in my life, I’m doing college, I’m trying to get a better job because of you. You’re my responsibility, you’re my pride and joy and I’m doing everything because of you. If you’re not here what’s the use of me continuing to do what I gotta do?
No parent should have to go through this. Not when the Federal Reserve during the financial crisis provided the Bank of America alone with over a TRILLION dollars worth of bailouts, direct loans, and loan guarantees. Why can’t the Fed find funds for those who are truly suffering? Jose recognized this. When I asked him what he thought should be done about the foreclosure crisis, he told me:
“[The government] should’ve set up an agency that was under the government itself to process these loans. That would stop all the running around. The government could have just loaned the money or made the bank loan it. That would stop them denying the loans on purpose.”
This is not all that far fetched. It was done during the great Depression. The Home Owners Loan Corporation (HOLC) was a government lending institution set up by FDR that took over the marginal loans from that period and refinanced them. At one time the HOLC was responsible for more than a fifth of all mortgages in the country, AND most of these loans were paid back producing a modest profit for the government. There is no reason we can’t do this again. .The only thing missing is the concern for people like Jose.
J. G. Robinson is a professor at Grossmont College