If you were forced to foreclose on an underwater house, you are not allowed participate in the economic recovery. by Bill Gee
(centrist)
Thursday, June 9, 2011
In the previous column I wrote on this subject, I chronicled the tale of how I lost my first house to the subprime mortgage crisis, and how I was struggling to come to terms with the many years of labor, money and my soul that I put into the place.
Since writing that column, my wife and I decided that we were going to officially put that sad chapter in our lives behind us and again become homeowners.
In the one year since we abandoned the first house, we have managed to get our financial house in order. Our consumer debt is basically gone which is due in part to a Chapter 7 bankruptcy filing and what credit cards we had left now have near-zero balances. I have been current on my student loan payments. I got a promotion at work. We even managed to save several thousand dollars for a down payment. A recent credit score check put me in the 650s and my wife above 750.
We found a house that would be perfect within the town we are now living in. It is right next door to friends that we already have including their two year-old son who plays with my son at least two times a week. The house was perfect, the neighborhood was perfect, the price was right, and we could easily afford the mortgage, utilities, and taxes and still have money left over.
There was only one problem
Since the financial crisis, most banks instituted mandatory underwriting guidance for all loan applications when it comes to bankruptcies and foreclosures.
If you have a Chapter 7 bankruptcy on your credit history, you have to wait at least two years before a national lender will approve your mortgage application. There are some ways around this rule, but not many. You could go with a local lender or you can get a co-signer.
When we did the Deed-In-Lieu with CitiMortgage, they told us that it was very different from a foreclosure. That because we had agreed to work with the bank by handing the deed over to them in order to avoid the legal costs of a foreclosure, that the impact on my credit would be minimal. This was both true and false. True, my credit score was not seriously hurt. False, in that a Deed-In-Lieu activates the same underwriting trigger as a foreclosure within the loan application process. The mandatory wait time for a customer to obtain another mortgage after a foreclosure is three years. For some lenders, the wait time is seven years.
Not Alone
I know that I am not alone. I know that there are thousands of other people out there who were victimized by predatory lending practices during the height of the housing boom, and for reasons beyond their control, had to abandon their underwater homes. In my case, I needed to leave a dangerous neighborhood and my realtor could not get an offer for the house for more than 75% of what was still owed on the place. For you, it may have been a change in careers where you needed to move, but it was impossible to sell your first home. You might have been laid off from your job, been forced to move or abandon your house and have since found a new job in a new town.
The economists at the Fed complain that the economic recovery remains sluggish despite a steady rise in productivity and bank profits that have reached all-time highs. They tell us that in order for our economy to recover, we have to buy houses, invest in our communities, and employ our entrepreneurial abilities. They tell us that not enough of us are doing that.
If they will not allow those of us with relatively good credit to get a loan, how exactly are we supposed to do that?
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Posted By: Bentree
Date: June 13, 2011 10:01:39 AM
Bill,
Remember, luck plays a major role in success. All luck is, are events that you have no control over going in your favor or not. Most of the successful among us have worked hard to be able to take advantage of good luck. A good example of this is Rush, He worked hard, loads of talent and was dedicated to his craft, but if the broadcast rules hadn't been changed creating the opportunity, well there you go.
I grew up in a period of time where you just didn't declare bankrupcy, it was the absolute last resort for responsible people. But then, one of the people I have great respect for went bankrupt in the early 70's, I believe he owed 400k. He started all over, and over the next 15 years he paid it all back with interest. He didn't have to but he did. I was in business in the same town and was caught when 3 Mile island killed the uranium business and the Carter high interest rates. Construction money went from 9% to 22% on debt that I couldn't unload. It took 10 years to come out of it. I never considered bankruptcy and I had small children at the time. Remember the only decisions you make that you are not responsible for, is when a gun is held to your head.
We have a right to participate not a right to succeed. I believe that you will succeed after you have paid those dues which the younger generations have felt didn't apply to them. No more shortcuts?
Respectfully, Bentree
Posted By: Bill Gee
Date: June 17, 2011 06:51:18 AM
I do understand that personal responsibility plays a very important role in a person's long-run financial health and for many of my problems I have myself to blame. I am comfortable with that. What I am not comfortable with is the fact that the very bankers and Wall Street CEO's who rigged the system in their favor and then systematically robbed the poor and the middle class of not only their savings but their retirement benefits, who can then reap upon themselves millions of dollars in bonuses backed by taxpayer money. Not one of those people responsible for causing the last crisis has even been investigated beyond a televised tongue-lashing in the Senate. Meanwhile, those of us whose only crime was to try and give their families some facsimile of the American Dream have to be punished for it, and that punishment is one of the reasons why the economic recovery is taking so long.
