Diedre* is a teaching professional within the nursing industry. She has guest lectured around the country as well as taught semester long courses in several top universities. When the economy was stronger in 2003, she worked as a consultant to several hospitals, from which she enjoyed the benefits of a strong six-figure income.
Wanting to take advantage of her new disposable income, she chose to invest her money in the housing sector. In 2003 through 2004, she purchased two condos and one large "dream" home with a pool on a golf course -- all at well-bargained prices below market. Because she traveled extensively between three hospitals in two different states, it seemed a wise decision to invest her disposable income when all seemed so promising for her career.
Life changes happen to the best of us in ways never anticipated. In 2005, it was revealed that Diedre's husband of thirty years was having an affair and wanted a divorce. At about the same time, two of her hospital consulting positions were eliminated due to budget constraints. With three mortgages and less than 1/3 of her income, she was suddenly in bad shape financially.
Fortunately, she did have savings, as well as solid equity in these homes at 2005 top-of-the-boom price evaluations. Like so many others, she opted to solve the cash crunch by taking out a home equity line.
Problems solved? Only for the very short term, because the housing bubble burst in 2006. One of the states hit hardest by the downturn was the highly over-inflated Florida real estate market.
By mid-2007, her divorce was final and most of her teaching and consulting had come to an end. She had no money coming in except for a few guest lectures. Her pool home's equity had been maxed out, and with no verifiable income, her ability to borrow through any other means was ended. The housing market was at a low, especially for her condos. What could she do?
She rented out both of the condos, but opted to keep the fine furnishings in her pool home intact by not leasing it except at a very high monthly price. It was never leased at that price. Some of the burden was managed, but not all of it.
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Diedre is a woman with an excellent credit history who made investments prior to the housing boom, but chose to take cash out pre-bubble burst during a down-turn in her life.
During this same time, her taxes tripled on both the Florida condo and pool home, and doubled on the other condo. The homeowners insurance went sky high on the coastal condo (tripling) and doubled on the pool home. In 2007, her mortgage payment for the pool home increased by $600 per month even though her home was worth less than in 2006.
After two years on the market, her pool home was not sold at a price to cover her debt. In 2008, she is upside down on it as well as the Florida condo as neither are worth as much as owed. Fortunately, she has the second condo rented out. She was offered cash for her Florida condo, but would have had to bring $15,000 to the closing table. She could not get that much money together.
This professional woman was trying to realize the American Dream. Her mortgages are now a huge burden to her -- truly toxic mortgages. Was she mildly over-enthusiastic about her new career potential, overly expansive in her investments, or just plain foolish to try to jump on the bandwagon of the housing boom? It is not my position to judge, but to try to assist her out of her nightmare.
Unfortunately, without a change in banking policy, there is no way out for Diedre. With no verifiable income, there has been no opportunity to refinance at a lower fixed rate. Because she has tried to do the right thing by keeping her payments current in effort to preserve her credit while selling off her real estate holdings, she has exhausted her resources. Should we accept that this is just punishment for her over-optimistic investment in real estate?
There are no "mercy" refinances coming from the banking industry. She has been told repeatedly that she has to be in default before the banks can do anything for her. She has asked for interest only payments for the balances, or to be allowed a few months respite of non-payment to be tacked onto the end of the mortgage. All to no avail.
In light of the terms of a bailout, will there be an option for a person that has tapped all resources to preserve her credit and her investments? This type scenario will be problematic for some portion of those suffering hardship from the down turn in the market. Some Americans are fighting foreclosure with every resource available to them. Not all will be successful.
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Diedre, like so many of us, has endured at least two years of stress from the mortgage crisis. Diedre's tenacity in keeping herself afloat is not the experience of the average American homeowner facing financial crisis. Most have no resources or friends or family from which to borrow to work toward keeping their homes and will lose their slice of the American Dream to foreclosure.
Hillary Clinton and others made strong statements in favor of placing a moratorium on foreclosures. She knew that is was mandatory over six months ago to avoid allowing the downward spiral of conditions into where we find ourselves today with regard to mortgage securities. The Bush administration as well as Congress chose to take no action.
In Barack Obama's speech on the economy last week, he stated the necessity of adding conditions to that bailout plan that would help Americans by stemming the tide of home foreclosures that have been crippling homeowners as well as the American economy.
Fellow OSer, Stellaa, has kindly provided us with the points of the proposed bailout, one of which is the following:
"The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year."
There may be a perceived "normal situation" for a family experiencing potential foreclosure. In my experience, circumstances are so varied that the extremely regimented banking industry will not effect much change without specific guidelines. Can we trust the current Congress to choose to draft "compassionate" guidelines for re-writing failing mortgages? Will there be representation from those who know the diverse criteria that will need be applied from whatever legislation is written by Congress?
I despair for customers like Diedre. I am fairly certain that there will be no solution in the slammed together bailout to help her. This plan may be a start, but it is going to be a VERY long road to full recovery.
( * Diedre is not her real name. The circumstances have not been modified in meaning although just enough that she would not be recognized.) Thank you for rating!
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Comments
I plan to write a few more posts on the variety of situations in which homeowners find themselves. In spite of all her trouble, this particular woman has a big McCain sign on her lawn. So, I guess she thinks she will be OK with more of the same?
Fortunately for me, I don't have any listings at this time where the sellers are heading toward foreclosure. There are agents that specialize in short sales and they are NOT doing well as the banks are not cooperating.
The agent that handles the foreclosed properties is doing extremely well, as they are giving the homes away. Everything is VERY out of balance.
There are a variety of sad situations all around me, however, and in many of the cases the homeowners are the victims. I am putting some more stories together, but have to get all the details before I present.
On Diedre, I am fully versed and know exactly what has happened with her situation.
No one really talks about the meltdown of the dotcom and the stock market as a "sure thing" as the catylist of much that happened in the housing market. There are stories I can tell about flippers -- for those people, I don't really have as much pity as for primary homeowners...
Thanks for your post.
I have argued the issues of over-taxation with the Tax Appraiser himself for over two years. The values in our area have declined by 20%, but this is not reflected in current property valuations.
The state of Florida passed a bill to reduce taxes, but let open several loop holes. Even if the property is reduced in value, a homesteaded property's taxable value can be increased by 3% every year. Although not a logical position, all homes were increased by that 3% this year.
Also, they left it to the discretion of local government to access whatever millage they deemed fit. In the end, my taxes on a property reduced by 20% in value were reduced $82 dollars, or 2.6%. Something is JUST not right with this picture.
Especially harsh, in view of the economy, is the fact that funds were allocated to spend $9 million dollars on a new sheriff's administration building. No local labor or sub-contractors were hired to build. In the meantime, they keep a $24 million reserve as businesses are closing and citizens losing their homes partially due to the 114% increase in local property taxes since 2005.
If I had my wish, no public official would gain office without having at least one economics course under their belt!
And I was really, really trying to empathize.
I am personally in favor of some kind of bailout, mostly because if we let the banking system go under, we'll end up paying anyway, both in FDIC insurance payments to account holders whose banks have folded, and in terms of having to prop up the currency and the TBill market so that our national credit rating doesn't implode. I'll be more comfortable if the 700 billion was buying equity and not debt, but that's a fine point.
I think this snowball is only about halfway down the hill. What a shame. Thanks for the post.
BB -- That is the story here in Florida. Perhaps the next thing I write will be about people buying a home here in Central Florida before their home on one of the Florida coasts was sold. A LOT of people were stuck just like your two friends. It is so sad.
Liz, if the administration would have listened to Hillary about calling a moratorium on foreclosures, so much could have been prevented. At this point, and a cursory reading of the bill, there is no call for a moratorium on foreclosures.
Instead, the Secretary of the Treasury is tasked to develop programs to help homeowners keep their homes. No time frame...I am sure it will not be Paulson's first order of business...so, we will be buying debt that is likely worth somewhere between 50 to 70 cents on the dollar once the home is foreclosed upon, in some cases even less...
Now we hear the bailout has failed. Big banks are being purchased by even bigger ones for bargain basement prices. I doubt if it is in their interest to take over insolvent real estate that cannot be sold. Aren't these banks far more interested in creating a payment plan that will ensure some income, rather than taking ownership of assets that will require the payment of new property taxes?
I feel for Diedre's dilemma. I'm not sure what can be done about it other than look for assistance from the banks that will be left holding the bag if she defaults. And yes, she may have to dump the condos for a substantial loss.
It does sound, though, as if she was shooting for a bit more than the usual American dream. Did I understand correctly that she bought three houses/condos in 2003-4 but didn't consider the condos to be rental properties until 2007? Three houses of one's own--that's a lot, I think, no matter what kind of job one has. Maybe I'm just overly conservative, though.
She rented the NC condo permanently in 2007. She shared the rental (and ownership) of the Florida condo with her daughters, and the pool home was also set up as a trust for her daughters.
Hi Steve: I have always been unclear as to the ex-husband's share of the misfortune (if any). He was a career policeman, so I assumed he is living on his retirement somewhere -- it is not a topic she will discuss with me...
Once she was behind the eight ball, she would not price the pool home properly. It had lots of showings with no solid offers as it was always at least 10% to 15% overpriced. She was always chasing the market down.
In order for her to even attempt a re-fi, the home had to be off the market for 90 days. That period is up, she is still not working full-time, so I doubt a refi is in the cards...it is tough right now, but sellers need to be flexible as well. I could have sold the home if she would have allowed me to price it to sell. She is a very stubborn person, but got to where she is in life for good or bad with tenacity.
Funniest thing of all? She has been writing a book about women getting ahead - title:
A Pitbull with Lipstick (I kid you not...!)
I had hoped to see a moratorium called on foreclosures within the bailout bill. Without it, the few are yet again saved at the expense of the many. They will probably pass it today, but what I read was not friendly to homeowners.