“Brother, can you spare a dime? Yesterday I was a broker, today some corporation is taking my home.” As the foreclosure axe fells a record number of American families, this plaint is alarmingly familiar. For the past 15 years, we have somehow been able to dismiss the soaring numbers of homeless. Alas, the truly poor are always easy to ignore.
But with this new epidemic of foreclosures, the homeless fate is crushing taxpaying, voting citizens. The politicians must, and have, taken notice. Even George Bush, after battling Congress for two months, finally succumbed to his Cabinet’s advice, and on July 30 signed a $4 billion home mortgage relief package that will help nearly 400,000 homeowners remain homeowners. (See Biz4NJ Headlines.)
Is this massive political and media fervor pointing to a dustbowl depression - even in the industry-strong Garden State? Roger E. Pierson, senior loan officer with J.P. Morgan Chase has been guiding buyers into home and business properties for over 25 years. And he suggests we may want to rein in our panic.
* How Bad, How Long?In 2007, 53,652 New Jersey homeowners experienced foreclosure - up a whopping 34 percent from the previous year. “I feel terribly sorry for each of these people,” says Pierson. “Being forced out of one’s home is terrible, devastating disaster. However, that said, these must be seen as personal tragedies. I cannot say that it is forcing a statewide economic peril.” Looked at another way, the average Garden State town will face 24 foreclosures among its residents this year. In a median-size town of 10,000, this may mark a spike in the cycle, but it is not dealing an irrevocable blow to the municipality.
Compared to the nation, job-rich New Jersey has remained substantially less scathed than most. Pierson notes that nearly 80 percent of the year’s foreclosures have occurred in California, Massachusetts, New York, Ohio, and Florida - the five states to see the greatesthousing growth in the last five years. Despite the current housing slump, building growth will continue. America’s unprecedented immigration rate and natural birthrate will assure it. Yet though it may not seem so to long- term New Jersey residents, our state is not on the forefront of that growth. A demographically high percentage of retirees and seniors have kept many old houses open for sale. The hope is that the new federal law which strengthens the Federal Housing Administration’s oversight of home mortgage giants Fannie Mae and Freddie Mac, along with a growing consumer consciousness, will be able to staunch the foreclosure wound.
* Fingers of Blame. “The vast majority of foreclosures fall to families facing broken homes, illness, or divorce,” says Pierson. “We have been borrowing to the edge and living to the edge.” Thus, in a two-income family, pouring a not-infrequent 40 - 60 percent of their total salaries h into shelter, when one earner goes down, the mortgage goes unpaid. So what brought us to this brink?
At first, in good capitalist tradition, lenders and media tried to blame the foreclosure victims themselves. But the sheer numbers made a tough sell of the image of the American homeowner as an irresponsibly foolish borrower.
In truth, there are ample culprits to share the blame for our nation’s foreclosure epidemic - some inadvertent, others greedily reprehensible. Together, each forms a link in a ruinous lending chain that has pulled more Americans from their homes than any era since 1930. It begins rooted in the initial construction. Unlike the post-World War II Levitt-Town-stylehouses,which were designed for affordability, this decade’s houses are made for profit. If you are a builder or speculative seller taking, say 15 percent profit on each unit, are you going to construct an affordable $80,000 cozy cottage, or a $350,000 McMansion? It’s a no brainer. So builders have flooded the landscape with high-priced, high-profit mansions. These quickly have become the sole freestanding home option. Young home-seekers thus are forced into staggering size homes with mortgages to match.
Enter the predatory lender. Since the home cannot be affordable, the home mortgage must be. Low and no down payment contracts lure home seekers into the contract. They are assured that the tried and true formula of never buying a home priced more that three times the family’s income is old hat. The “Oh we trust you,” scarcely makes the impracticably huge monthly payment any easier.
So, our new proud and fearful homeowner now rattles around in his vast home, hoping to some day be able to afford furniture. Now comes the little push over the edge. The steady economic downturn since 2001 has driven unemployment up to 5.9 percent. Even those laid off from large corporations who luckily do find jobs, are mostly taking them with smaller firms, at smaller salaries. Perhaps the 40-year-old wife joins the thousands called up to serve in Iraq. For whatever reason, a mortgage payment gets missed.
Now comes the big, recent shift. It has long been known that banks hate foreclosing and will do anything to help clients avoid it. However, today almost no banks hold mortgage paper. Instead, bankers close the loan and get a paper cut hastily selling it off to a mortgage company, like Countrywide. Still O.K., but in the last five years, most of these companies quickly pass the mortgages to Wall Street brokerages, who use the loan for security. It is not in these firms’ interest to avoid foreclosure.
As a final serpent in the pit, hedge fund speculators have begun to invest in foreclosure futures. They are, in effect, betting on the number of national foreclosures, and with billions behind them, they have a cornering-clout to make their investment come true. It should be noted while some of the managers of such funds have shown a reprehensible lack of human concern, most of the monies they handle are from major pension funds and the like. Ironically, the average worker’s retirement fund may be helping ease him out of a house.
* Individual Solutions.“When a homeowner even suspects he may have trouble making a mortgage payment, his immediate response must be to call his lender and let him know,” says Pierson. “Banks and original lenders are almost always willing to work with you. But you’ve got to get there early on, and be honest.” If designing a relaxed payment plan or even refinancing are still too burdensome, owners may try selling short. “Selling short is a way to get at least some of your foreclosure debt forgiven,” says Pierson. An owner still owing $225,000 on his $300,000 mortgage can agree to let the bank sell the house short (below value) for, e.g. $200,000. The bank sells it, taking the $200,000, and crosses off the debt. The owner is still homeless, but his credit is less ruined, and he avoids carrying the extra $25,000 debt into his future.
Often, banks and even some loan companies will work out such a solutions. But recently, finding the actual owner of one’s mortgage loan has become no mean task. The company to whom you send the monthly payments may merely be a loan manager, with no restructuring authority. “There is always a paper trail, and while it may take an attorney to help you find it, usually it can be tracked down,” says Pierson. The only hope is that the loan holder has a policy of working with defaulters, or that you connect with a reasonablehuman being who will help. Currently, federal legislation is pending to make the original lender take responsibility for each loan it makes for the first five years.
If the loan holder is a bank or some SEC supervised entity, your odds increase. Pierson points out that, for example, an institution that has $10 million in non-performing loans, must keep $3 million in unproductive reserve to secure that paper. Therefore, they will want to keep the mortgage performing some degree of repayment.
Soviet dictator Joseph Stalin once cynically remarked that the death of one man is a tragedy; the death of thousands is statistics. Foreclosures may be viewed in this same vein. It is important that we as a nation take a highly compassionate view toward all individuals facing homelessness, for whatever reason. Our people are our greatest assets, it is vital, and in our own interest that we protect them.Biz4
Roger Piersonhas found people mortgages and financing for the past 25 years. Son of a New York Life Insurance agent, Pierson grew up in West Orange. He studied finance and business at the University of Rhode Island, earning his bachelor’s in l982. Following college, Pierson worked for 15 years with Security Pacific in California, helping local businesses secure loans. Returning to the Garden State, he worked for several mortgage firms. Most recently, he left Countrywide Home Loans and is a senior loan officer with J.P. Morgan Chase in Morristown. For the last year and a half, Pierson has joined United Credit Education Services, and as a field trainer has lifted veils of debt and stress for scores of clients.
