The Foreclosure Crisis Hits Close to Home

A couple weekends ago my son had a friend over to play. The friend's family was moving that day and they wanted him out of the way and we were happy to help. But there was something strange about the move.

To set the scene, we don't know the family well, but we know them "well enough." We see them at church, we sat with them at a dinner event last year, the kids have played together before (the son's been to our house a couple times), and my wife attends a ladies event with the other lady every week -- so they are more than acquaintances. And yet something seemed a bit unusual about their move to a new home. Here are the details as we knew them:

• They were moving into a new home (we had the impression that they were buying a new home, but it could be they are just renting it.)
• The new home is not ready yet (someone's still living there), so they're moving to an apartment for a couple months in the meantime.
• But they haven't sold their current house.

See what's strange? Why move? Why not just stay in your current home until the new home is ready? My wife had asked the lady about the move and she (somehow) side-stepped what they were doing with their current house.

Anyway, when the son was over at our house, he said that they were moving, that he wasn't supposed to say why, but that he did know that they were "kicked out by bank." Immediately it was clear what was happening. They were being foreclosed on. We changed the subject quickly so our kids didn't catch on, but it was clear to both my wife and me what was happening. We had no idea.

Later we talked about it and will send them a house-warming present for their new home (a gift card to a local mass merchant where they can get whatever home stuff they need -- or, if they prefer, groceries) in hopes it will help them out a bit.

It's difficult to understand what happened. They'd lived in the home for a decade, so unless they did something that put them in a bad spot (like borrow again and again on the equity), then I can't see what happened. In other words, they didn't buy too much of a house hoping it would go up and they could refinance. No, this was just a regular purchase for them 10 years ago and they had done fine in the years since.

Of course when we look back on it, there were signs. The dad was laid off a few months ago (though we thought he had gotten a new job.) The mother was going back to school (to become an accountant, no less.) Anyway, it's a sad event all the way around.

All this reminds me of a book I recently received in the mail. Stop Foreclosure Now: The Complete Guide to Saving Your Home and Your Credit is supposed to do just that -- help you stop being foreclosed upon. If anyone out there is in the same situation as my son's friend's parents, you may want to check it out. It looks like a decent resource.

Comments

[Mark B.]

Most likely the father lost his job, possibly found a lower paying job, could no longer afford the house payment, so they tried to sell their home.

However, home prices in Michigan have tumbled more than 30% in most areas, that would have wiped out all gains from the past 10 years, and if they had borrowed even once against their equity they would be left "underwater" on the mortgage.

Unable to bring any cash to closing to settle the mortgage, they had to leave the price of the house too high for the market, hence it never selling.

Finally, after falling further and further behind on payments it is easier to enter foreclosure, walk away from the debt, and start over.

I have seen this happen to many of my neighbors.

[Mark B.]

Funny thing is, the government is bailing out Wall Street, but what about people like this? Where is their help?

[Kevin]

That sucks, but it sounds like they have a plan with the wife going back to get a good, in-demand degree so hopefully it will be temporary.

Mark B's question brings up a good point - are we better off bailing out Wall Street or should we concentrate on helping people like this? It's clear where Bush stands from his doom and gloom speech, but I'm sick of these big companies making terrible business decisions and the government stepping in to clean up the mess. It's only a matter of time before the Big 3 automakers get their corporate welfare.

[Rhea]

There is such a stigma about being foreclosed on or declaring bankruptcy. I expect there will be a lot of reticence on the part of the foreclosees to keep it quiet. Not long ago, there was a woman so stressed out by her mounting financial troubles here in Massachusetts that she killed herself.

[MonkeyMonk]

The government is also bailing itself out. Just yesterday I read a report that estimated that Treasury Secretary Henry Paulson (once the CEO of Goldman Sachs) still had up to $500 million invested in the company. Since GS would be one of the prime beneficiaries of the bailout plan that seems like a pretty big potential for conflict of interest. No wonder he's pushing so hard for the bailout.

I agree that the whole bailout plan seems misguided at the moment. I would want to make sure that couples like the people mentioned above get the majority of the benefit and not so the rich Wall Street fat cats can continue to live in the extravagant style they've become accustomed to.

[Strick]

I was shocked when a fairly close friend was getting foreclosed on. I was always impressed by his small business which I always considered quite a success.

But those who have the cushion to get by in a small financial crisis and those that don't usually differ in as little a thing as those who spend 90% of their income versus those who spend 101%. This difference in spending is unnoticable from an outside party, so I don't think anyone could ever know who is on the edge and who is not, but it is the savings that build from that reduced spending that gets you through the slumps that, whether you work for yourseld or not, are inevitable.

[Mark B.]

Instead of giving Wall Street $700b, they could give that to every American homeowner (about $20k for each adult) to put toward their mortgage on their depreciated houses. That would solve the crisis without giving the fat execs any cut of it.

[Other Mark B.]

Mark B: where do you get 20k? 7b/200mil = $3500

[Foobarista]

Neither deserve bailouts. Life isn't guaranteed to make you a winner. And the market signal being sent here is to get the heck out of Michigan and go somewhere where an actual economy exists. Failing that, vote out the idiots in the state capital who think tax increases and populist posturing will somehow create a viable economy.

[JimL]

Mark B.,

I don't think you really understand how bad things really are. It is just not a matter of a "bailout" to save a few banks. Instead, this is to impact the lack of the liquidity in the market. Banks are currently not lending any money (or very little money) to businesses, to buy cars, new homes, etc. Cash is drying up. In a survey I saw this morning, it shows that 65% of companies are getting hit by the credit crisis. Guess what happens when companies have cash problems? They start getting rid of employees. Think of the snowball effect. You may not like it, but this potential "bailout" IS to help the average guy on the street, as without it, the average guy just might have a job if things really go south.

Mark B. I agree with JimL above. Also, giving that $700B to the homeowners would essentially do nothing, since the money is coming from taxpayers anyway (not that all taxpayers are homeowners but a good portion are).

[Funny about Money]

Guy across the street is getting foreclosed on a house he's lived in for longer than I've been in the neighborhood (and I've been here 14 years) because he borrowed $320,000 against a piece of property that was worth...oh, probably $280,000.

Ditto the lady who bought my old house. The guy across the street is a real estate appraiser whose car rarely leaves the driveway; the woman who bought my house tapped the equity and drew down her 403(b) to finance an endless vacation.

In the case of the guy across the street, we have to add that he divorced, too, an expensive proposition. The wife at first had the house, but somehow he got it back. He claimed she ran up a bunch of debt and he bailed her out in return for the house...so it could be he borrowed against equity as a strategy to get the place back from her. If so, it was an ill-advised strategy.

You never know what happens to people. Sometimes they're victims of circumstance (or rapacious lenders). Sometimes they're victims of their own stupidity.

[Memboy]

What a wild September - the largest Chevy dealer here in Memphis closed their doors forever this week.
An omen of things to come? Want to see something eerie?

Go to www.billheard.com

[Miss Thrifty]

What a sad story. I hope that everything works out okay for them.