This is a non-tech post but wanted to share some quick facts about our mortgage horror story (and also to vent a bit so that I can move on). If you’ve ever wondered how it could be possible to pay two-thirds the value of a tiny summer cottage built 90 years ago and still owe the bank over a half-million dollars, read on.
There’s A LOT of information here but I want to share just a small sliver to show just how ridiculous this is. I’ve heard people say things along the lines of “people who are in bad situations did dumb things to get there”. Let me know if any of you still feel that way in a few paragraphs. Before I go into the mortgage history there’s some necessary background to explain how this situation developed in the first place.
Our daughter had had extremely unusual medical condition and we were advised to relocate to a short list of hospitals which had the staff to appropriately care for her. We found a small 1BR cottage (600 sq. ft.) available for rent which was close to a support system (which turned out to essential and may have saved her life).
At one point my wife needed an emergency appendectomy but was errantly sent home by the hospital. Different doctors called the next day and said, “I read your scans, please get here ASAP”. Long story short, the doctors believed she was within minutes of having large amounts of toxins released. The doctor said “I’ll understand if you want to sue” and we explained that we were grateful for their emergency work and that we weren’t like that. We tried to pay the doctors first and then the hospital (several night stay) with what disposable income we had. The week that the statute of limitations expired, the hospital sued us for a VERY large amount and moved to have my wages garnished.
We got legal help and filed for bankruptcy. When we were before the judge, we presented less than $4,000 of credit card debt. The judge was incredulous that we had no more consumer debt to claim and asked several times for more debt to claim. We didn’t want to claim our vehicles, so we only claimed $4K in credit cards and the hospital bill.
Not even one month after being discharged for bankruptcy, our landlord came to us and said “I need to sell this property. Either you buy it or I will sell it to someone else who will evict you.” Not an ideal situation but we had to put our daughter first – moving at that time was not an option. We reached out to our bankruptcy attorney who advised that if we could afford insane mortgage payments for the first year and make every payment that we could later refinance. So we entered into a mortgage at 10.8% plus paying an additional 3% in pre-paid interest on this premise that we could refinance. Per the Truth In Lending statement we would have paid over one million dollars in INTEREST ALONE over the 30 year term of the mortgage.
With that background, the below table summarizes the initial mortgage and every modification that was available along the way:
|Accepted||Increase in Debt Owed||Interest Rate||Percentage Decrease in Monthly Payment||Break Even Point|
|Mod 1||Paid $200; denied by bank||$6,000||6.75%||35.4%||6 months|
|Mod 2||No||$20,436||8% increasing annually||28.9%||2 years|
In the first 18 months of the mortgage we paid to the bank exactly 66% of what the house was appraised for just this summer. Go back and read that sentence again to let it sink in. After countless calls to the bank we finally got pre-approved for a modification (Mod 1) that would have been sustainable. It would have reduced our monthly payments by over one-third. We paid $200 to lock in this deal, but the bank denied it. Why? Because there wasn’t enough equity in the mortgage and therefore they couldn’t add more debt to the mortgage. Remember that when we look at the next mods.
The HOPE mod was a pre-TARP Federal program. It added $13,000 in debt to be financed. The savings from the reduced mortgage payments would have taken 6 years just to break even on this “deal” but we accepted because we were desperate enough that a 5% reduction in monthly payments would help us keep food on the table.
We kept going back to the bank asking for help and we were offered a mod (Mod 2) that would have added an ADDITIONAL $20,000 to our mortgage. We said no thanks.
Then we applied for HAMP which is a TARP program for which banks were given BILLIONS in taxpayer dollars. While the banks accepted the taxpayer dollars they had great latitude in which to implement the program for their own interest. The HAMP solution would have added over $37,000 in ADDITIONAL debt while reducing monthly mortgage payments by 1.2%. It would have taken 87 years for the savings from the reduced mortgage payments to cover JUST the additional debt that was added. Just to be clear that’s an 87 year payback on just the mod for a 30 year mortgage from a bank that accepted tens of billions in taxpayer TARP dollars.
So far I’ve only covered the modifications and none of the countless examples of bad faith by the bank. Just two quick stories. For one of these deals we received a FedEx letter on December 28 to announce a deal and we had to return signed by January 3 – making any legal or professional review impossible.
On another incident we never received the package and the bank said this would be our only offer before legal action. We never received the package. Long story short we had to work with our Congressman who was eventually able to find the tracking number and a manager at the bank was absolutely livid that this information got out. The tracking revealed that the letter made it to a distribution facility near us before the bank RECALLED it and it was sent back to their facility. The bank knew how much we already paid into the mortgage in a very short time, so they figured they try to have their cake and eat it took and finish what they’ve been doing to us for years.
And that’s just a taste of the background that led us to current situation. We went to court and he had no opportunity to present our evidence – we were forced to either accept a new modification or be evicted AND owe the bank a half-million dollars. So after paying 66% of the appraised value in 3 years what would be the new mod? To now finance an amount that is 35% larger than what the property was appraised at. When we add the legal fees we now owe, basically our monthly payments are the same as when the load was originated and we still have no equity AND an underwater mortgage.
For me it’s not so much about the money, but the impact on my family. Some might say “living in a small house is cute” but this is a bit beyond that. Meals are eating kneeling on the floor and when the refrigerator door is open no one can move between any rooms. Inconveniences yes, and things could be far worse, but we now have 3 children and living in this space is beyond “dysfunctional” or “inconvenient”. It affects our moods. It affects our time. It affects our studies and our careers. It affects how we raise our children. Many of the things I always imagined doing with my children are simply not possible in this environment. And now the bank – with the help of the court system – has essentially forced us to stay here and to spend every waking hour working to try to keep this one roof over our heads.
So yes, it’s a very demoralizing condition and occasionally I vent about it, but I try to remind myself to be thankful for our health and all that we do have. I’m going to try to not vent as much more now that I’ve gotten this out, but if I do I hope you’ll understand and forgive me. The other thing that drives me nuts is the inference I hear on occasion that “they made bad choices”. There was only one point where we ever really had any choice – and we made the only and right one.