>>This item is part of the May 2010 cover story Tales From the Boom and Bust. To read an excerpt from the article, click here. To read the complete account of the rise and fall of the housing market in Washington, pick up a copy of the magazine, now on newsstands.
Ari and his wife, Rachell—who wanted their last name withheld—bought their first house, a three-bedroom in Silver Spring, in March 2007. They paid $455,000 with a five-year adjustable-rate mortgage. They won’t be able to afford higher monthly payments starting in 2012, and they can’t sell or refinance because their home value has dropped. We talked with Ari about their choice: stay and face foreclosure in two years or walk away from their mortgage.
We went into this very naively. I have a master’s in literature from Cambridge University, but I don’t know anything about money. We were advised not to put any money down. The broker said, “Save your money for your monthly payments. I’m going to get you this great ARM.” At the closing, I was signing all kinds of documents. I saw one that was showing $3,700 monthly payments in 2012—until then, our payments are about $3,000. I paused. My agent glossed over it: “Don’t look at that. You’re going to refinance before then.”
About six months after we bought, when the market started going down, I e-mailed my mortgage broker—whom I knew through our religious community—and asked him to explain more about how an ARM works. Do I have to hope that the market is going to recover enough by 2012 that the house is worth what we paid for it? His answer was “Hopefully, God will take care of it.”
Right now our house is worth about $350,000. Maybe less. When you’re $100,000 under water and you have an ARM that’s about to adjust in two years and you have four little kids—that’s a source of stress. We couldn’t afford to pay $3,700 a month. I work in communications and teach Hebrew school on the side, and my wife takes catering jobs. Seven hundred dollars more a month? No way.
A year ago, a friend told me about the Neighborhood Assistance Corporation of America, a nonprofit that helps people get loan modifications. They said we were perfect candidates. Then they asked which bank we used. When we said Chevy Chase, they said, “That could be a problem. They’ve been really hostile to us.”
Chevy Chase Bank contacted me and said they wanted to help directly and we shouldn’t go through a third party. So I got all my documents and sent them faxes, and after calling and calling for weeks, some guy says their guidelines are changing so they can’t make any new modifications until then.
Weeks go by. Capital One buys Chevy Chase Bank. My file is transferred to Capital One. Everybody we talked to told us to submit all our paperwork, and then it goes into the computer, which spits out whether or not you’re eligible. There’s no person who looks at it? They said no, it’s a program.
I faxed 21 pages—bank statements, pay stubs, tax forms. A week goes by and we get a letter that says, “Since you decided not to apply for the modification . . . .” I called back, and they said they never got the fax, so I sent it again. Then we get a form letter saying we’re ineligible. It didn’t explain why.
After a year of this, we decided, forget it, we’re going to walk away. Four doors down, we have friends who wanted to sell their house but are renting it. We worked out a five-year lease with them for $700 a month less than we are paying now.
If the bank had just given us a fixed-rate loan, over the course of 30 years we would have paid something like $1 million. They’re going to end up with $350,000 or less at an auction. It doesn’t seem like there are humans on the other end of the phone who are thinking about this.