Foreclosures mount, mediation efforts fail
'We're still in the middle of the storm'
By Kat Aaron and Mary Kane
FLORIDA
Home from War and Facing Eviction
Investigative Reporting Workshop, News Report, Donald Barlett and James Steele, Posted: Jul 25, 2011
NATIONAL
The Dream that Got Away: Tracking Homeownership Trends
New America Media, News Report, text: Michael Lawson and Kat Aaron, graphic: Allen Meyer, Posted: Jul 25, 2011
Editor’s note: Since 1995, the federal government has spent nearly $40 billion and provided trillions of dollars worth of insurance guarantees to lenders to promote homeownership, especially among communities of color. The infusion of money boosted homeownership rates slightly over the decades, but the ongoing national foreclosure crisis is wiping out all of those gains. We provide this timeline of homeownership promotion by Michael Lawson and Kat Aaron with the Investigative Reporting Workshop, and graphic by Allen Meyer with New America Media.
Timeline of Homeownership Promotion
1995
President Bill Clinton’s National Homeownership Strategy aimed to create 8 million new homeowners by 2000 through an “unprecedented collaboration of private and public housing industry organizations.” The program was going to “help moderate-income families who pay high rents but haven't been able to save enough for a down payment; to help lower-income, working families who are ready to assume the responsibilities of homeownership but are held back by mortgage costs that are just out of reach; (and to) help families who have historically been excluded from homeownership.”
At the 1995 ceremony announcing the plan, Clinton’s rhetoric was almost metaphysical: Homes were more than bricks and mortar. They were part of the intangible promise of America.
“This is a big deal,” the president said. “This is about more than money and sticks and boards and windows. This is about the way we live as a people and what kind of society we're going to have.”
Not everyone was as sanguine about housing as the president. The Department of Housing and Urban Development produced an urban policy brief the same year that took a hard look at the pros and cons of homeownership.
“The ideal of homeownership is so integral a part of the American dream that its value for individuals, for families, for communities and for society is scarcely questioned,” the brief read. “However, many external factors can affect whether and at what rate a home's value increases or decreases.”
Homeownership could be a key builder of wealth, but low-income and minority families were particularly “vulnerable to economic downturns that can result in job loss and, eventually, foreclosure,” the brief continued.
1999
Ameriquest, a subprime lender whose slogan was “Proud Sponsor of the American Dream,” became the first subprime lender to have its loans financed by Fannie Mae (the Federal National Mortgage Association). The lender that pioneered “no-document” loans eventually settled for $325 million with several attorneys general over charges of predatory lending, in 2006. Ameriquest closed in 2008.
2000
Five years after announcing his strategy, Clinton could boast a homeownership rate of 67 percent. African-American and Latino homeowners still lagged behind whites, but they were making clear gains.
2002
By 2002, the administration had changed hands, but the American-dream language was still going strong.
“We must begin to close this homeownership gap by dismantling the barriers that prevent minorities from owning a piece of the American dream,” President George W. Bush said in a June 2002 radio address. The Bush administration’s “ownership society” framed homeownership as an engine to help eliminate persistent racial inequalities. Building on Clinton’s goal seven years earlier, Bush set out to create 5.5 million new minority homeowners by the end of decade.
President Bush put cash behind the ownership society goals. From 2002 to 2006, the administration spent $412 million on its American Dream Downpayment Initiative to help first-time homebuyers with costs associated with down payments. His administration also ramped up spending on housing counseling, the thinking being that education led to responsible homeowners. Grants for counseling totaled $176 million over the same four-year period. And more than $440 billion was committed by Fannie Mae, Freddie Mac (the Federal Home Loan Mortgage Corp.) and the other government-backed mortgage players, targeted toward making loans available to minority homeowners.
Mortgage lenders jumped on the bandwagon, ramping up lending to communities of color — never mind that the loans were often high cost and packed with provisions like balloon payments and adjustable rates that turned them into ticking time bombs.
2003
Angelo Mozilo, head of mortgage lender Countrywide Financial, delivered a lecture in 2003 entitled “The American Dream of Homeownership: From Cliché to Mission.” He explained his company’s purpose:
“We wanted to make the American dream of homeownership something tangible — something to which people could do much more than just aspire. We wanted to make it something they could access, afford and achieve. We wanted to prove that our company could and would succeed by offering home loans to hard-working families — of all races and of all ethnic backgrounds,” Mozilo said. “In other words, it has always been our intention to be more than a corporation that makes mortgage loans; we wanted to be a force in making positive differences in people’s lives. Our goal was — and still is — to demonstrate that there is a unique role for the private sector in public service.”
Mozilo also played a unique role in the financial crisis: His company made nearly $100 billion in subprime loans between 2005 and 2007, more than any other lender. Mozilo paid $67.5 million to the Securities and Exchange Commission in 2010, to settle charges of insider trading, misleading investors and disclosure violation.
2005
Although no one knew it at the time, 2005 marked the high-water mark of American homeownership. The national rate of homeownership was 69 percent. Some 76 percent of white Americans owned a home, compared to 49 percent of black Americans and 48 percent of Hispanic Americans.
2008
Barack Obama referenced the American dream in his first speech as president, in Chicago’s Grant Park, on Nov. 6, 2008.
“This is our moment,” he said. “This is our time, to put our people back to work and open doors of opportunity for our kids; to restore prosperity and promote the cause of peace; to reclaim the American dream and reaffirm that fundamental truth, that out of many, we are one; that while we breathe, we hope.”
2009
A year later, Obama invoked the dream again — three times in one speech — this time, in the context of exploding foreclosures. As he announced the creation of a $75 billion plan to address the housing crisis, he noted that “the American dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods. It is a crisis that strikes at the heart of the middle class: The homes in which we invest our savings, build our lives, raise our families, and plant roots in our communities.”
2011
Despite more than 15 years of commitments to the American dream, almost all of the gains in homeownership made since Clinton launched his plan have been erased. Nearly a quarter of Americans owed more on their homes than they were worth in the first quarter of 2011. For underwater borrowers, their homes are not building household wealth, but draining it. Fewer Americans own homes now than in 1998. The gap between African-American and white homeownership has actually grown by 2 percent since 1995.
MARYLAND
Foreclosures mount, mediation efforts fail
'We're still in the middle of the storm'
By Kat Aaron and Mary Kane
PRINCE GEORGE'S COUNTY, Md. -- A widely touted strategy aimed at keeping Maryland residents from losing their homes by bringing banks and homeowners to the bargaining table has met with little success as the nation braces for another wave of foreclosures.
Maryland passed a law a year ago that gave homeowners in foreclosure the right to mediation, if they ask for it. The Justice Department reported in a November study that there were 25 mediation programs in 14 states.
As of May 31, just 56 homeowners in the state have gotten a modification of their loan through the mediation program. Borrowers complain that lenders are more interested in foreclosing than negotiating. One borrower was horrified to discover that the bank had sold her home during the mediation process.
Foreclosures slowed in the early part of 2011, as lenders dealt with accusations of "robo-signing" — approving foreclosure documents without looking at them. But now, they're coming back with a vengeance: In March, almost 30,000 notices of intent to foreclose were filed, more than twice as many than in any month since the state began keeping records in 2008, according to an analysis of state records by the Investigative Reporting Workshop at American University.
For communities of color around the country, a "lagging collapse" may be ahead, said Alan Mallach, a nationally known housing expert who has done extensive on-the-ground research into the foreclosure crisis. Prince George's county is a case in point. The nation's wealthiest majority-black county, it has been devastated by the foreclosure crisis. Heavily targeted by subprime lenders in the boom years, the county is now staggering under the weight of abandoned homes and plummeting prices. The county received more than 7,100 notices of intent to foreclose in March.
"I think it's grim. And it's going to be grim for a while. I'm not sure we're anywhere near the aftermath yet. We're still in the middle of the storm," said Mallach.
A year after the Maryland law was passed, fewer than 1,000 borrowers had applied for mediation, and just 56 borrowers had received a loan modification as of the end of May, according to the Maryland Department of Labor, Licensing and Regulation.
Another 159 cases ended with a so-called contingent resolution, meaning that the borrowers were promised a modification pending additional paperwork. In total, 829 mediation cases have been closed since the law took effect.
Despite the low participation rates, mediation sessions have been good for borrowers, said Carol Gilbert, assistant secretary for neighborhood stabilization at the Maryland Department of Housing and Community Development.
"Whether or not they prevent foreclosure, they do get to closure, by understanding what their lender's position is and understanding what their options are, or are not," she said.
What the mediation program has accomplished is "getting both sides of the (lending) shop to communicate," Gilbert said. "The foreclosure side of the shop that's working in turbo drive is very effective, and the modification side is not."
"We were seeing so many consumers fall through the cracks who were midstream in their modification process and next week they were getting foreclosed upon," she said.
Except that's still happening.
Antoinette Barber, a homeowner in Baltimore, requested a mediation session, using the information provided by her lender, HSBC Bank. But paperwork problems plagued her case from the start, including that HSBC listed her home as abandoned, said her attorney, Legal Aid lawyer Gretchen Reimert.
Trouble started when the envelope that foreclosure attorneys representing HSBC gave to Barber to send in her mediation request was labeled with an incomplete address. The paperwork never arrived at its destination, so no mediation session was scheduled. Barber received a second notification of her mediation rights and submitted a second request on March 9.
But HSBC's attorneys had already scheduled a foreclosure sale for March 11. And although the court scheduled a mediation session for April 13, and notified the foreclosure attorneys about it, the foreclosure firm didn't cancel the sale. Barber's house was sold two weeks later. Barber, a single mom with two children, arrived at the April mediation session in tears.
HSBC's servicer said that Barber's file had been transferred to another department and couldn't be found. HSBC's foreclosure attorney said she wouldn't agree to anything that day, unless Barber would allow the foreclosure sale to go through. Barber refused, and Reimert has filed a motion to rescind the sale and stop the foreclosure.
"Mediation is a joke," Barber said. "I was really counting on it helping me. But they did nothing for me. It was a waste of time."
'HSBC has a strong commitment to home preservation and regards foreclosure as a last resort. We are looking into the matter," said Neil Brazil, vice president for public affairs at HSBC. He said the company had no further comment, citing pending litigation.
Borrowers and counselors around the country have complained that the modification process breaks down because the people at the servicer call centers don't have the power to change the terms or balance on a loan.
The mediation problems in Maryland are yet another indication that so far, government efforts aren't putting a dent in the foreclosure problem. Mallach isn't optimistic they will any time soon.
"This is the disgrace of the whole thing," Mallach said. "Basically, the lenders who made these loans are paying huge amounts of money to the investors that they defrauded. But the problem for these communities is that basically the lenders got away with murder, and they are continuing to get away with murder."
Investigative Reporting Workshop data editor Jacob Fenton contributed to this report.
Spanish translation
Las ejecuciones hipotecarias se acumulan, los esfuerzos de mediación fracasan
Home from War and Facing Eviction
Investigative Reporting Workshop, News Report, Donald Barlett and James Steele, Posted: Jul 25, 2011
CAPE CORAL, Fla. — After the Second World War, returning veterans were welcomed home to two of the most successful government initiatives ever — the FHA and VA housing programs — which put millions of them into their own homes for the first time.
Today, later generations of veterans are being confronted by much different housing policies — ones that can toss them out of homes they've bought with their life savings.
John Aguiar is a veteran of the Gulf War, a former intelligence analyst for the Army who took part in Operation Desert Storm in 1990 when U.S. forces brought Saddam Hussein to heel after he invaded Kuwait.
Aguiar and his wife, Syrena, built a house here after relocating from Chicago to be nearer her parents. Using proceeds from the sale of their Chicago house, they bought a lot in a new subdivision in the Cape, a middle-class suburb across from Fort Myers in southwest Florida.
The house they built reflected their values and way of life. It was nothing fancy: a one-story Cape rancher with three bedrooms, two baths and a two-car garage. There were no granite countertops, no Jacuzzi — just the basics, in keeping with what they could afford. "We always lived within our means," said Syrena. Nor did they see it as a steppingstone to something larger. "It was all we wanted, a place to raise our kids," said John.
"We wanted to retire there."
But the mortgage, like so many at the time, contained a ticking time bomb. Their bank had given them an adjustable rate mortgage, one of the products being aggressively promoted by the deregulated mortgage industry, and soon they were struggling when their monthly payments ballooned. Then Aguiar lost his job in a housing-materials firm when his division was shut down. He cashed out a pension plan from a former employer, drained his 401(k) account, and worked part time at a Home Depot. "We did everything we could to try to hold on to the house," he said. But it wasn't enough.
When their bank refused their appeal to adjust their mortgage payment, foreclosure began and the family soon lost the house. John, Syrena and their two school-aged children moved in with Syrena's parents. When John still couldn't find work in Florida he took a job with a trucking company in Chicago and moved in with relatives, separated from his wife and children by 1,300 miles.
"We had the American dream," said Syrena, "and it was taken from us."
Not the only ones
The Aguiars have lots of company. Veterans have always faced daunting problems in finding jobs, obtaining promised benefits and meeting other challenges when they reenter civilian life. But to those problems has been added the fear of losing their homes. The Fort Myers-Cape Coral region, home to about 60,000 veterans, is a microcosm of what is happening to former service people all over America.
You can hear their stories almost every day at the Veterans Foundation of Cape Coral, lodged in a nondescript, one-story storefront set back from busy Del Prado Boulevard. Three years ago the foundation didn't exist, but escalating problems led a group of former service people to band together and create a center to provide food, counseling and other help to beleaguered veterans.
"We have guys coming in here as often as you can imagine who are losing their homes and not knowing what to do," said Ralph A. Santillo, president of the group, himself embroiled in a foreclosure case on his own house. "There's a whole group out there in this position, and it is growing."
Just how many veterans fall into this category isn't clear. The Veterans Administration assisted 66,000 who defaulted last year alone just on VA loans. But that number did not include the tens of thousands of other veterans who faced foreclosure on FHA or conventional mortgages that many took out to survive. And of course the number does not include reservists or National Guard personnel who fell behind on payments when they were called up for multiple tours in Iraq, Afghanistan or both.
While the Cape Coral center provides help to veterans of every era, Santillo said the foreclosure crisis is much worse among older veterans, many of whom have owned their homes for 15 or 20 years.
"They're living on a fixed income, usually just Social Security, sometimes a little pension," Santillo said. "All their costs are going up — insurance, taxes. Most times when people refinanced they used that money just to keep up with their bills and pay their mortgage. So there was no real benefit. It was not like people were going to get rich and live off the money."
Santillo said banks and financial institutions made it so easy to borrow money that a lot of people were trapped.
"There was stuff out there like no-interest loans or loans where you paid 1 percent interest," he said. "Then all of a sudden you find out two years down the road you are paying $5,000 a month. Some of these were usurious. They would have put you in jail for that years ago."
Making matters worse, says Donald Graf, executive vice-president of the veterans foundation, is that once veterans encounter financial difficulties, the banks refuse to even discuss a mortgage modification that might make it possible for people to stay in their homes.
"All of us have felt the sting of the banks," he said. "If you had an IRA and you thought that was secure, that was taken away. If you had equity in your house and you thought you could sell it and move into an assisted-living facility with the money, that's gone from you. People are knocking on our door asking for help so we are getting into areas we didn't before."
County swamped by foreclosures
More than one veteran facing foreclosure has found himself caught up in the mass foreclosure court created by Lee County across the river in Fort Myers. An epicenter of the crisis in the United States, Lee County became so swamped by foreclosures that it created a special court to handle them.
The "rocket docket," as it's called, lets judges process foreclosure cases with the speed of an assembly line. On any given day, hundreds of cases may be heard by a judge in a crowded fifth-floor courtroom of the Lee County Justice Center. Sometimes the docket is so packed with cases that another courtroom is set aside to handle the overflow.
Lawyers representing banks rise and approach the bench. The case citation is read into the record. Usually no one is present to represent the property owner. Even when a homeowner's lawyer is present, the process takes only a few minutes. The judge invariably rules in favor of the bank, according to lawyers representing homeowners.
Since 2006, when the housing bust began hitting southwest Florida, more than 75,000 foreclosure cases have been filed in Lee County — this in a county with a population of 618,754, according to the 2010 census. The volume has slowed in the last year, but there is still a backlog of nearly 8,000 cases awaiting hearing.
Attorneys who represent homeowners before the court say that Lee County's expedited proceedings permit banks to run roughshod over the rights of homeowners. If a homeowner is behind in a payment, regardless of the reason, judges almost always rule for the bank, they say, even when there are extenuating circumstances that should be considered.
"Being current on one's mortgage is not the sole issue in a foreclosure case," says Todd Allen, a Naples, Fla., lawyer who has represented 235 property owners in foreclosure, mostly in Lee County. "Discovery may yield evidence that refutes a plaintiff's standing, or it may reveal fraud ... behind a particular foreclosure proceeding," Allen wrote in a court affidavit. "Categorically refusing to allow homeowners to proceed with discovery therefore undercuts their ability to develop their case and present all defenses that may be available to them."
Allen said that Lee County officials are apparently rushing to judgment because they believe that the sooner they dispose of houses in foreclosure, the sooner the local economy will rebound.
"The idea that you kick people out of their houses, then the economy will return, I think it's a false premise," Allen said. He said that mortgage fraud and ownership questions surrounding many quick foreclosures will mean authorities will have to deal with the problem for years. "It would all work better if the banks just helped consumers and threw them a lifeline," he said. "Now they have to pay thousands to go through foreclosure."
Running through savings
Typical of homeowners with extenuating circumstances who've been caught up in the Lee County foreclosure mill is Georgi Merrigan.
A paramedic, Merrigan quit her job to care for her husband, who was critically ill from a combination of severe health problems and injuries suffered in a catastrophic car wreck that confined him to a wheelchair for months. With no money coming in, the couple soon ran through their savings and retirement accounts to pay the mortgage on their Cape Coral home.
When she approached her mortgage company for a modification, Merrigan said she was told that the company wouldn't be able to negotiate until she was 90 days in arrears on the mortgage. Taking that cue, she didn't make a payment for three months. Then, according to Merrigan, the company refused to make a realistic offer to modify and instead instituted a foreclosure action against her. The company was Countrywide Home Loans, the poster child for fraud and abuse in subprime mortgages and liar loans. Its practices cost investors billions of dollars and helped to collapse the American housing market.
Some politicians blame the avalanche of foreclosures on a federal policy of easy money that they claim pushed many first-time homebuyers into purchasing houses they couldn't afford.
But many victims are like the Aguiars, hard-working families who owned a home for years and who were victimized by the convergence of deceptive practices of the unregulated mortgage industry — Ralph Santillo calls them "trick mortgages" — and a tanking economy.
SUBHED: Disastrous move: Fixed rate to adjustable
When the Aguiars bought their lot in western Cape Coral, they had a fixed-rate mortgage of 6 percent. Florida's real-estate industry was booming, and John landed a job with a building materials company. Syrena worked as a mortgage broker.
Their troubles began when the City of Cape Coral hit them with a bill for $20,000 to connect to the city's water and sewer system. When they built their house, they had been led to believe that city water and sewer were years away, so they had spent $22,000 to drill a well and build a septic system, which now wasn't needed. Because they had sunk everything into the house, they were forced to refinance.
This time the mortgage company substituted an adjustable rate mortgage for their fixed rate. "I didn't know it was an adjustable rate mortgage until it was a done deal," said Syrena. "Then it was too late." At first, they were able to handle the monthly payment, which rose from $1,100 a month to $1,400.
But the interest rate on the new mortgage continued to climb just as the Florida economy began to falter. Worried that his job in the housing-related field might not be safe, John began moonlighting 20 to 25 hours a week on nights and weekends at a Home Depot. Then his company closed its Fort Myers area office, and he lost his day job.
John and Syrena scraped to pay the mortgage, cutting back on expenses and depleting their savings and retirement accounts. Their monthly mortgage payment soared to $2,000 a month. "The mortgage payment just kept getting higher," said John, "and we kept sending out one more payment, one more payment, one more payment, until we could figure out what we were going to do." They tried to negotiate with their mortgage company to lower the interest rate, "but they didn't want anything to do with us," said Syrena.
The Aguiars were swept aside by one of the powerful forces driving foreclosures — the company servicing the mortgage did not own the loan and so had no incentive to offer an arrangement that might let the family stay in their home until they got back on their feet financially. In an earlier time things would have been different. After World War II and the Korean War, the federal government oversaw housing programs that did not permit the kind of financial gimmickry by Wall Street, banks and investors that have proven so destructive to the Aguiars, other veterans and millions of other middle-class Americans.
In 2009, with their mortgage company turning a deaf ear, the Aguiars could no longer come up with the ever-higher monthly mortgage payments and were facing foreclosure.
Shortly before they were to appear in foreclosure court, the mortgage company gave them permission to short sell their house. It sold fairly quickly (at a loss, of course), and the family moved in with her parents in September 2009.
When John took the job in Chicago in shipping for the huge trucking company, YRC, Syrena and their two children stayed in Florida. John couldn't visit them for nearly a year, in part because of unexpected medical problems, which included a hospital stay for complications from diabetes. So for now they visit mostly by phone.
"When we lived in our house, we had the American dream," recalled Syrena. "We had our family. We had good jobs, we had a nice house that we built, we had a dog, we had a cat, and we were happy. And then one day we woke up and everything started going backward on us. We just want to get our lives back together."
Donald L. Barlett and James B. Steele are contributing editors at Vanity Fair. They have worked together for four decades, first at The Inquirer (1971-1997), where they won two Pulitzer Prizes and scores of other national journalism awards, then at Time magazine (1997-2006), where they earned two National Magazine Awards, and since 2006 at Vanity Fair. They have also written seven books, including the New York Times No. 1 best-seller America: What Went Wrong?, an expanded version of the 1991 Inquirer series. Both live in Philadelphia. E-mail the writers at info@barlettandsteele.com.
photo credit: James Steele