Stupid Lenders

One really has to wonder about the mortgage industry.

A few months ago, we reported on the troubles our nanny is having in keeping her home. A couple years ago, when lenders were approving so-called "sub-prime" mortgages with barely a glance at the file, our nanny managed to get a first and a second mortgage on her home with relatively low "teaser" rates.

She could afford the initial payments and we guess everyone just thought real estate prices would climb 10% a year so she could refinance before the rates and her payments got too high.

Then her interest rate started to adjust upward and her payments skyrocketed. Right now, her mortgage payments are nearly $900/month higher than when they started, representing a 65% increase. Now she's behind in payments, with not much prospect of catching up.

However, if she could get her loans restructured, our nanny could keep her house. We're willing to help by co-signing and providing additional security, as well as bringing the loans current. You'd think that would be a terrific deal for the bank, which is Wachovia: they avoid a costly foreclosure with a loss of tens of thousands of dollars on the loan and they get a new loan that provides tremendous security.

But when the Curmudgeon contacted Wachovia to discuss a restructuring, he got the cold shoulder. Initially, we spoke to a Jennifer, at the Wachovia mortgage center in Philadelphia. She was helpful--we weren't surprised when she said she would need to refer us to someone higher up, and after a call to Wachovia's Charlotte HQ she soon transferred us to Wachovia's Wilmington service center, saying they could provide assistance. There, we spoke initially with a Kay, who also was helpful, saying she'd transfer us over to the right person.

We then got on the phone with a Monica Anthony in Wilmington and explained the situation. Ms. Anthony didn't seem at all interested in helping out. She said there were "brick walls" at every turn, but refused to elaborate so that we could see if there was a way to negotiate around the "brick walls." Her only offer, of which even she was skeptical, was to have us bring the delinquent payments current, then wait another 10-12 months--to "establish a good payment history"--and THEN talk about restructuring. Of course, that would require a year of making mortgage payments at the rather outrageous interest rate 10.125 percent in the vague hope of working something out. That's a nice fat profit for Wachovia, but not a flyer we're willing to take.

As for doing something now--mind you, to avoid a costly foreclosure for the bank--Ms. Anthony said "there's nothing we can do."

It's rather amazing that the same bank that two years ago could manage to do practically anything to give two loans to a lady with horrible credit and low income now says there's "nothing" it can do to restructure the loan under conditions that should be vastly more preferable to the bank than foreclosure (a foreclosure sale in the current market would undoubtedly net less than the outstanding value of the loans, and that's before the expenses of foreclosure.)

In the end, Wachovia deserves to take a bath on this one. The phrase "garbage in, garbage out" seems to apply to the mortgage industry these days.

We'll be helping our nanny out in some manner, but not to save Wachovia from itself.

UPDATE: Suspecting that the Wachovia person we got on the phone was simply lacking in imagination and initiative, we went over to our local Wachovia branch and tried again. This time, Wachovia's representative was much more helpful. After running through the pros and cons of a number of options, including going through the numbers with us, he came up with a successful strategy, under which we'll simply take a loan against our home for the amount of our nanny's loan--at an excellent interest rate--and then have her execute a note to us for the amount of the loan. This will, in effect, reduce her payments by nearly $900/month and leave us in about the same position as if we were a co-borrower.

Subprime Collapse Hits Close To Home

The collapse of the subprime mortgage market was all too predictable. All those low introductory teaser interest rates and short term adjustable rate mortgages were bound to blow up as soon as interest rates went up. And interest rates, at record lows, had nowhere to go but up. Suddenly, millions of new homeowners with low to modest incomes find their mortgage payments doubled--or more--while their incomes haven't exactly kept pace with those of CEO's and the hotshots who packaged all those shaky loans into securities.

For many immigrants, the subprime meltdown is a double whammy, because the income to pay the mortgages on their new homes came from jobs in the formerly booming housing construction industry. (See, e.g., Foreclosure Wave Bears Down On Immigrants.) Now they're losing those jobs or finding work more intermittent. And many used up what little savings they had to get into their new homes that are now about to be foreclosed on.

For the Curmudgeon, the crisis has hit close to home: our nanny, a legal immigrant from Panama (and now a U.S. citizen), who's taken care of our kids for 12 years, is one of the victims of the crisis. She's in better shape than many--she hasn't defaulted and may be able to sell her home at a slight profit. But she needs to sell it soon, because the mortgage payments have doubled and her husband is finding little construction work these days. Selling won't be that easy, either, because she's in a neighborhood of mostly Hispanic immigrants, all of whom are struggling with the same issues, meaning many other homes are also on the market in her area (Woodbridge, Virginia). (We won't let foreclosure happen to her, but we hope we won't have to offer a bailout either.)

As with the S&L crisis of the 1980's, the subprime meltdown will no doubt result in years of lawsuits and recriminations, while regulators--having stood by and watched as the barnyard emptied out--suddenly decide to take steps to put new locks on the gates (which will only deepen the housing crisis).

Perhaps we're to blame. We knew our nanny's loan was risky. But we didn't say anything. After all, it seemed the Washington area housing market could only go up forever (despite ample historical evidence to the contrary, having purchased our home in the downturn of 1991).

No doubt that will be the defense of the mortgage brokers, real estate agents, lenders and everyone else in the chain who profited mightily from the unrealistic housing boom: "who knew rates would go up so dramatically and that home values would suddenly decline?"

It's too bad, really. So where will our nanny go? She'll probably rent one of those townhomes or condos that suddenly no one can sell. And so goes the cycle.