A lifeline to the American Dream

By Tim Collette of Bend, Oregon. Tim is, for now, a homeowner in Bend.

For at least the next few weeks, I am a homeowner in Bend. My home, which I purchased nearly five years ago, is in foreclosure with a sale date of April 11th – five days after my 59th birthday. Just like so many other Oregonians, I was also able to easily make my mortgage payments when I bought my home. I moved to Bend because I was in the construction business, and for many years, it was the epicenter of that industry in the Northwest. In every respect, I was in a good place. I had plenty in retirement and savings and a mortgage payment that was perfectly reasonable given my income.

But when the economy crashed, so did my once-booming business. When it became clear that the market downturn showed no signs of reversing, I called my mortgage servicer, Chase. That began the intensely frustrating process of trying to modify my mortgage. Chase lost my paperwork several times. Sometimes they got part of it. They never told me if they got it or not, I had to call and check. Just about every time I’d call I’d get someone different and have to explain everything from the very beginning. This back and forth and piles of documents and hours of headaches may have been worth it if I had gotten some result. But I got nothing.

I’ve tried everything I can to save my house. I’ve drained my retirement and my savings. I don’t even have the money to pay for a small apartment. Instead, I plan to move in with a friend if and when Chase takes my home. So now, instead of a few years from retirement, I am starting over.

Federal programs aren't working. In fact, the Feds are subsidizing the banks with our taxpayer money - essentially paying them to take our homes. Chain of title laws are being ignored. Local legislation is the best solution because every state is different. Local is more effective and efficient. And when we enact these laws, we need to put some teeth in them. The major problem with federal programs is that they dangled a carrot in front of banks to try and persuade them to modify mortgages. Heck, it was just one of those little baby carrots. It’s no wonder that didn’t work. Only when it becomes more costly to break the law than to abide by it will we see banks change.

These are just some of the many reasons I came across the Cascades this week to ask the Oregon Senate Committee on General Government, Consumer and Small Business Protection to support SB 826 & 827. To me, one of the most important provisions this legislation would provide is the end of the dual track process. That’s when banks tell a homeowner they’ll work with them to modify a mortgage, but put them in active foreclosure at the same time. Banks don’t modify 96% of mortgages, but they keep collecting trial modification payments while homeowners move closer and closer to foreclosure. Then, the homeowner is left with no home, and no cushion – I am a prime example of that.

I've worked hard since I was 12 years old and I've had my hard earned American Dream taken away. It may be too late for me, but please join me in calling on our leaders to pass these laws to protect our fellow Oregonians from the same fate.

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    Some lessons here.

    Don't ever take money out of your savings, and especially not your retirement, to make payments on a house that is underwater. Since Oregon is a non-recourse state, meaning the bank can't come after you for any deficiency after a foreclosure, you're throwing money away if you can't afford the house in the long run.

    No one at a financial institution will have to explain to their boss why they didn't extend or modify or reduce a loan balance. So the safe thing for them to do is....nothing.

    The financial institutions have a lot of smart people in the backroom figuring out how to extract the maximum amount of payments from the entire group of homeowners in distress. So it doesn't matter if in your particular case it makes sense for the bank to work with you. It's like write downs on credit cards. You, or anyone else, can pay off a delinquint credit card by offering them about 60%, cash. You can tell them you will file bankruptcy if they don't accept 25%. They don't care. They have figured out that overall, if the agree to take 60% they will maximize their income, after providing for actaul losses, people who are bluffing about bankruptcy, and collection costs.

    Never forget that when you bought that house, you and the bank went into business together. It was a business deal. They made you pay for an appraisal, the banks allowed the mortgage brokers to run wild, they set you interest knowing the market, your income the risks and the fact that Oregon is a non-recourse state, so they did calculate for the possibility of a loan loss. You have no more moral obligation to pay for an upside down asset than Donald Trump has an obligation to pay for an asset that is underwater. The banks knew the risks, they knew them better than you. A home mortgage loss is simply a business deal gone sour. The homeower has ALWAYS had the right to walk away from the deal with losing only the ownership of the home. Banks would like you to think that there is some solemn duty to go over and above your contact obligations and the law. You don't have a legal or a moral duty to do that. Do you think the bank believes it has a moral obligation to you? (The exception here would be if you didn't tell the truth on your loan application. This happened often, many times at the urging of the mortgage broker. If you overstated your income, and filed for what we call a "liars loan", the moral release I'm handing out here doesn't apply)

    I believe that in the near future, credit scores are going to adjust for strategic defaults. The scores will take a hit from these foreclosures on underwater homes, but it won't be as bad as it is now. Why? Because I think banks will be more than willing to loan to someone with a good income who no longer has the burden of a large mortgage on an asset that is worth less than the amount owed.

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    And some possible remedies.

    The bankruptcy laws could be modified to allow bankrutpcy judge in chapter 13 cases to modify the terms and principle of loans.

    We could charter a new Oregon State Bank empowered with buying, on short sale, homes in foreclosure and re-selling them to the homeowners. This would, in essence, reduce the loan balance to the market value. Banks would make out better, because they'd avoid the costs of foreclosure, and get the homes turned into cash quicker. The Homeowners would get to stay in their home. The Oregon State Bank could charge the homeowner some premium so that it would pay for the cost of the program.

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    Thanks for sharing your story, and I hope things work out for the better. The current playing field rewards very bad behavior on the part of the banks, at the expense of the people who work hard and play by the rules.

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