Foreclosure victim or serial refinancer?

There's an Interesting piece of citizen journalism taking place over at Curbed LA: First Curbed linked to a story in New Angeles monthly about the plight of a Boyle Heights foreclosure victim. The story, billed by New Angeles as "particularly haunting," describes a couple who refinanced twice, in 2004 and 2005; the husband died of cancer, the widow now faces an unaffordable mortgage payment and foreclosure.

Here's the twist: a commenter on Curbed LA researched the loans against the property, and found numerous refinancings that made a once-affordable house unaffordable: "This house was purchased on 8/21/97 for $98,000. Over the next 9 years they pulled out $282,000 which is $31,300 per year.  This is a case of someone living off of their equity, not bad broker taking advantage of them."

Our take: It is harder and harder for journalists to stay ahead of the readers these days -- which is a good thing, we think. The fact-checking and second-guessing that takes place on blogs is a long-overdue reality check. In the case of the foreclosure crisis, blog readers are adding serious, hard-headed analysis that is often lacking in media accounts.

Our other take: It is getting harder and harder to keep your financial life secret, which is not such a good thing.

Your thoughts? Comments? Email story tips to lalandblog@yahoo.com.

Comments

[inland Empire]

After reading the articles, if she knew he was dying, why did they refinance? If it was to pay medical bills, why not sell the house outright? If the broker used any truth in lending, they had to be shown that there were costs involved in a refinance. If the loan had gone down $200 a month, it would have still taken time to recoup the costs involved.
People need to read and understand anything they sign. I do not see her as a victim or as a serial refinancer but as someone who did not pay attention.

[Al]

When I worked in finance back in the early 90's, I had a couple who had very prestigous jobs who were habitual refinacers. They continously racked up the debt on their creit cards even though they had two sons that were getting ready to go to college. Although they could afford it at the time, they more than trippled what they originally owed on their home in Norwalk in a very short time.

I remember this vividly because I couldnt believe that such well eduated people (both professors w/PhD's) would be so careless w/their debt. So who's to say many others didnt do the same?

[mike]

i own multiple properties. i'm glad the appreciation has slowed down. these people had no business or the tools necessary to deal with large sums of money such as the real estate boom. i look foward to a return to normal when real estate once again becomes a high quality long term investment. of course i will need to be paitent and wait now that the masses have stalled the market.

[Giacomo]

That pesky fact-checking again. If I remember correctly, the local print media has published a few real estate "sob stories" which turned out be gamblers (criminals?) who lost big. It makes journalism tougher than just following a lead from a neighbor and doing one interview with the subject.

On related angle- it is just me, but are "people of color" disproportionately represented in these real estate mini-tragedies? Does that reflect reality, or there a reporting bias at work here?

[Ace]

Serial refinancing isn't exactly a new thing. I was suprised to find out that when my mom sold the house that I grew up in, she barely had enough cash to cover the mortgage.... after owning the house for 25 years! She refinanced and rolled credit card debt into the loan many times.

When my dad had some big family expenses come up a year or two ago, he said that he was going to refinance to get cash.

My parents (divorced) are both around 55 so hopefully they will still be able to pay off their mortgages before retirement. This will be a big problem for Gen X and Gen Y. Our parents are going to retire with no 401k, bankrupt the social security system, and a have a mortgage and credit card debt. Their parents were debt free with social security and a pension.

[TakeFive]

Re: Our take

"The fact-checking and second-guessing that takes place on blogs is a long-overdue reality check"

Wow. Thats quite a change from the the not so old days:

The Wolf in Reporter's Clothing: The Rise of Pseudo-Journalism in America
By John S. Carroll, Editor, Los Angeles Times
May 6, 2004

"I'd like to discuss a broader array of talk shows and web sites that have taken on the trappings of journalism but, when studied closely, are not journalism at all."

www.latimes.com/news/opinion/la-050604ruhllecture_lat,0,7352952.story

[caliguy2699]

Partially agree that it's not a good thing that people's financial lives are less and less secret. Yes, there are some negatives in others knowing the details, but the bottom line is, if you've been financially responsible and are guilty of nothing, then you've got nothing to hide. So, this doesn't necessarily have to be a problem.

Also, when data is technically public record, it should be widely available to those who want it - if you want to assign blame, blame the internet for making information in general more accessible.

[BobR]

It's part of our culture's victim mentality...if something bad happens, it's someone else's fault. We were serial refinancers in the late 90s and early 00s. But we always refinanced for the amount due on the mortgage, in order to lower our monthly payment. Just once did we take out some equity, $50k to do some home improvements. If we had pulled out cash for a plasma TV, BMW and vacation to Europe, it wouldn't have been too smart.

[AnnS]

I read the articles in the 2 links.

My first response was that they must have refied because of medical bills but then the other shoe (or more like pair of shoes) dropped.

In the 2nd link, the woman says that when they did the 2005 her husband was ill and (IMPORTANT) that he was a "senior citizen." Taking the phrase at the ordinary meaning, he must have been over 65 and would have had Medicare. (The 20% copays if one doesn't have a Medigap policy can get nasty but it is still coverage for most of the bills.)

More over, they have been refingthe place for years. This was not a case where they were getting clobbered with medical bills in 2004-2005 and needed the money and did a one-and-only refi.

They refied that place regularly. They started with a $98000 purchase in 1998 – then raised the mortgage like this:

(1) 9/2002 $98,200 (after 4 years of payments, they were at the same level)\
(2) 7/2003 $102,600
(3) 2/2004 $156,700
(4) 11/2004 $225,000
(5) 8/2005 $274,500\
(6) 12/2005 $34,000 more
(7) 3/2006 $384,000

And in the linked stories, she is whining about a loan in 2005and, after having done numerous refis before, is claiming she ‘didn’t understand.’!

Borrow MORE money and think your payments will be less? Hello –what’s wrong with this picture. That woman is not credible when all the facts are known and her story has some real holes in it.

[sfvrealestate]

Like I've said on this blog before: many foreclosures are truly tragic for the people involved. Others happen to folks who have used their homes as ATMs over the past several years to pull money out and finance a life-style that they didn't otherwise have the income to pay for. Recall as well that all equity pulled from homes in re-fi's and home equity loans is tax-deductible. Ergo, some folks have been enjoying their home-equity-bought possessions and taking a tax deduction on money spent on those possessions, too. So maybe some of these foreclosures aren't quite as tragic as they first seem.

[Cal]

"It is getting harder and harder to keep your financial life secret, which is not such a good thing."

The liens have to be recorded publically due to the concept of "constructive notice", I dont have to go around and find everyone with a legal interest (not all of them could be recorded publically) in the property and let them know there is a lien filed, I can file a lien and that will serve as notice to anyone who is interested. Without this idea (which isnt exclusive to real estate) things would get rather cumbersome really fast. It has been this way for a long time, what is different today is the access to information at a click of the mouse.

The couple in the article has made many choices along the way what to do with their equity. Now that she needs her house and some money to live on she is crying foul.

[are they crazy]

Thank you, Peter. I don't understand why not a single reporter can do the easy research regarding properties and loans before they print victim stories. In fact, it would seem they should do that before interviewing the folks so they can ask them pertinent questions. I'm not doubting there are some victims, but my bet is the large majority are people who made bad choices or have serial refied themselves into foreclosure. Do we really believe that MILLIONS of people didn't know they had an ARM, didn't know what the application stated for income, didn't read the loan disclosure one sheet that clearly tells the terms of the loan, didn't know that housing values could go down, and didn't know that loan criteria could change? Are we really willing to say we are a nation of morons?

[Cal]

OT: http://www.cnbc.com/id/15840232?video=542378266

Ok, this guy has got to have his numbers wrong, but I cant find data on it either way. But he says that 30 million households where the debt is larger than the house... I'd love to see the data on that.

[tew]

"...Boyle Heights foreclosure victim."
Victim?
"...the foreclosure crisis..."
Crisis?

Lay off the Kool-Aid.

The folks in the story were not victims of foreclosure. Foreclosure happened due to other things, some of which they may be termed "victims" of. Crisis? A country with over 300 million people - in an extreme case maybe a couple million will go from paying a mortgage to paying rent. That's a "crisis"?

[Desmo]

I used to work for a law firm that specialized in Bankruptcy Trustee litigation, and I had access to online property profiles.

The point is that these records are public, but that it costs money to do these searches. The New Angeles reporter, most likely a freelancer, probably did not have the money to pay for these searches, though I suspect the reporter didn't know that he/she could/should do a profile search.

Yeah, the reporter blew it, because the right questions were not asked.

The real question to my mind is how symbiotic the relationship was between the broker and the borrower. That she re-fi'ed early generally means the broker will keep coming back for more. I'm not holding her blameless, but I doubt the borrower simply though "Hmmm, let's pull out some equity today," and then made a call to the friendly neighborhood mortgage broker. She was probably on someone's frequent call list, and I'm betting that someone was in her ear regularly.

[Toby]

...but the bottom line is, if you've been financially responsible and are guilty of nothing, then you've got nothing to hide.

Posted by: caliguy2699

I don't want to be mean here but I HATE this Orwellian take on privacy.

I do have things I like to hide. It's stupid stuff. Stuff that only matters to me, but it's my life, and I want to hide them.

And so do you, and EVERYONE on this site. Medical health, family drama, marital affairs, financial situations...

All things that we have a prefect right to keep private, because we want to keep them hidden for WHATEVER reason.

So please stop saying "If you've done nothing, you've got nothing to hide" Because EVERYONE has stuff they like to hide, and they have VERY right to hide it.

End rant :)

[ocrenter]

what an interesting twist Pete...

This same type of issue happened exactly 6 months ago, except it was the LA Times that pulled the shody reporting. And instead of Curbed LA, it was BMIT that found the story behind the story.

Innocently enough, the LA Times at the time just wanted to do a story about a poor sap that purchased recently but now can not refi. I did a post about this poor sap named Sharon in response, only to find out the following:

http://bubbletracking.blogspot.com/2007/03/
-have-to-laugh-to-keep-from-reporting.html

http://bubbletracking.blogspot.com/2007/03/
thank-you-los-angeles-times.html

with this being the LA Times response:

http://bubbletracking.blogspot.com/2007/03/
los-angeles-times-got-it-wrong-once.html

I can't seem to find the original article that I linked to on my posts, but Peter I'm sure you can help me out on that one. Cheers! =)

[Mr Income Stream]

Desmo-

You're rational is unbelievable, anything to keep those retainers and civil suits coming...hunh. Forget about personal responsiblity I'm a lawyer i'll take care of you.

bwwwaaahhhaaa

Whatever

[Dave P]

giacomo asks "On related angle- it is just me, but are "people of color" disproportionately represented in these real estate mini-tragedies? Does that reflect reality, or there a reporting bias at work here"

There is a reporting bias, and it's not a good thing. As both a realtor and a person "of color" I'm rejecting the way this mortgage mess has been portrayed so far. The finger is pointing at subprime as the culprit and with the media reporting one would think that low income black and latino people can't read contracts or understand finance. Much worse is that with the reporting slant people are getting the idea that these people are solely responsible for the run up in prices and the coming downturn.

I sell in the beach cities and west side. Almost by definition that means my clients are white. Generally they have good to great credit as well. And do you know what? For the last 2 plus years, they have overwhelmingly gone with little to no money down loans, stated income loans, and ARMS. I'll qualify that statement a bit. This applies to people buying homes for less that 1 million. Over 1 million, things were much more traditional.

Almost all of those buyers are stretched to the limit and thier loans are going to be resetting in the next 3 months to 1 year. Their going to be in the same exact boat as subprime bag holders are right now. Actually, a lot of them already are, so I'm not sure why Boyle Heights and South LA keep being the focus of stories like this. You can tell this same story in Mar Vista or westside condos.

Low income (minority or not) people get hit hard and early when downturns happen. That's the way of the world. But this housing issue was not caused solely by poor minorities, nor will the sweeping changes affecting SoCal real estate be limited to their chosen neighborhoods.

[Tim K.]

Actually, there are free sites that let you do these searches without charge. PropertyShark.com will let you do 6 free searches a day. The trick is finding the exact address this woman lived at. I'm guessing the guy who did the initial research just plugged in each of the two dozen or so houses on this street into his computer until he found the right one.

The reporter knew the exact address, so he didn't have to guess, and could have easily researched this.

[TakeFive]

"I don't understand why not a single reporter can do the easy research regarding properties and loans before they print victim stories."

They can, but I think it just goes against a liberal, sympathetic, or crusading perspective a lot of reporters bring to a story. And who wants to be the guy to write about an elderly couple in financial hardship due to their own poor decisions. You'd become a newsroom pariah and suspected right winger.

This is why blogs have become so wildly popular. The reporters and editors need to get over their fear and revulsion for these "psudo-journalists" and recognize what they can bring to the story, as Peter is implying.

I think the fact that reporters have to write about disparate subjects on a weekly basis means that we should view their stories as a rough draft. I don't mean that in a demeaning way, though. There's just too much to cover in too short a time. And without the original reporting, many blogs would have nothing to write about.

[Aldo818]

My two cents on this one...

I also think that she was preyed upon by a broker or two and they convinced her that her house value would "never go down." So, she prob fiured that her house was a big ATM machine that could finance the rest of her life. Older people are frequently targeted for money one way or another and this is no exception.

As far as refinancing to get nice things... Well, my neighborhood is considered kinda "ghetto" and see quite a few $70k plus cars around.
Could be drug dealers but I am betting that these people refied and bought fancy toys.

We'll see what happens in the next couple years, I guess.

[Jack]

The LA Times did a story a few years back, when prices were still climbing and sales were fast and easy, specifically about how some folks were regularly refinancing their homes and using that new cash to pay the mortgage and for other living expenses. One person interviewed for the piece was a down-on-her-luck sometimes actress who was having some health problems and using her refinancings to pay for health expenses.

I remember thinking at the time that, wow, when the market went south, as it always does, these people would be seriously in trouble. It would be interesting for the Times to do a follow up story now about what happened to the folks interviewed in the original article. I have to image that most, if not all, lost their homes or will soon.

[Todd in WeHo]

Note to sensational journalists: stop the sob stories! I’m fed up with hearing about home buyers who are shocked that the real estate ATM has run dry and are now crying for help.

Case in point: today’s article ‘Giving borrowers a break’ (www.latimes.com/business/la-fi-workouts4oct04,0,4830171.story?coll=la-home-business) just makes me want to vomit. It tells of a couple who, when they got a home loan in 2005, “a broker had assured them they'd be able to refinance before their payments jumped. But that was before home prices fell, loans became harder to get, foreclosure sale signs appeared down the block and John had to take five months off work to battle cancer.” Did this couple ever think to get the broker’s promises in writing? And what about making sure they could afford a home in the first place while still saving for a rainy day?

Don’t get me wrong. I’m all for protecting true victims and penalizing criminals, but I’m absolutely against bailing out people whose greed and/or stupidity got them in a pickle. What about those of us who did NOT buy a home in the last 5 years because we were leery of predatory lenders and knew the market wasn’t sustainable? Let’s see some stories written about us.

[investorguy]

tew: it can be if you're one of them, even if it's their own fault. Show a tiny bit of humanity. You may need someone to show some to you someday.