5
Falling into triple mortgage trouble
Acquiring a mortgage loan
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF STORY
Tess Vigeland: This week as fallout from the financial crisis continued Congress approved the release of the second half of the bank bailout. The incoming Obama administration says $50 [billion] to $100 billion of that will go toward reducing foreclosures.
Moody's reports nearly 10 million homeowners are having trouble making their mortgage payments.
For some of them it's because of an untenable adjustable rate mortgage. For some it's a job loss that makes it impossible to keep up with those payments. And for others it's not just one mortgage that's the problem.
Tanya Ott reports from Birmingham, Alabama.
Tanya Ott: This is not a story about people who speculated in real estate and ended up in mortgage trouble. Kitty McCoy and her husband followed the American script. They got married and bought a little house. They had a couple of kids and bought a bigger house, but held onto the little house thinking it would eventually help pay for their kids' college. But the McCoys story takes a turn when, in 2006, Mr. McCoy took a job in Alabama. They put their Florida house on the market and got an offer.
Kitty McCoy: And about three days before the closing for the sale of our house in Florida, the buyer had a heart attack.
The sale fell through. Florida's housing market crashed and the McCoys found themselves with three homes -- the two in Florida and a new one in Birmingham. They tried selling the Florida properties, but after more than a year on the market, they settled on renting them, for less than the mortgage payment. So now they're in negative cash flow. Triple mortgage trouble.
McCoy: We're not unaccustomed to doing things the hard way, but we thought maybe we could take a little bit of a breather at this point and -- not a lot of oxygen out there!
Ott: It's pretty stressful. I can see it in your face.
McCoy: Oh, well. It's really hard to watch my husband with it. He struggles as wanting to be the provider that I think men envision themselves to be and wanting to solve all the problems and take care of it. And you know, just, every month there's something that you didn't plan for, you didn't see on the horizon that comes up and it's like, where do you squeeze the balloon to get the money you need to solve the problem?
The balloon that popped is college. The McCoys had to take out a student loan for their oldest son. Another son is deferring college for a year because they can't afford it. And their daughter, Summer, graduates high school in May.
Summer McCoy: They're going to do whatever they can to help me. They're not going to throw me out the door with my bags packed and go 'see ya'. But I don't want to put them in the position that they feel like they have to do everything.
Summer McCoy says she's really nervous. She's been accepted to the University of Alabama, but her part-time job at a movie theatre isn't enough to pay the tuition.
There's no telling how many families are in this situation. No one keeps those numbers. But University of Alabama at Birmingham real estate expert Stephanie Rauterkus has been pouring over foreclosure records. She sees a trend: the average number of mortgages per consumer has almost doubled in the last 15 years. She says in many cases, multiple mortgages means big trouble.
Stephanie Rauterkus: The whole thing fell apart and they lost the investment property as well as the primary residence. So, so it's, it's unfortunate.
Unfortunate, and unhealthy. Financial planner and life coach Brady Stamps says he knows some homeowners who are so stressed out they've developed high blood pressure, depression and other medical problems.
Brady Stamps: Any time you have this emotional situation where everywhere you turn your friends are talking about it, the TV's talking about it, you try to watch a movie or comedy to get relief and jeez, they're talking about it! You've got some people, their way to handle finance is they just choose to ignore everything.
Brady Stamps says reach out.
Stamps: There's no shame in it. There's a lot of people that are in similar situation.
The McCoys have looked at refinancing their mortgages. They keep hearing about the historic low rates right now. But their debt-to-income ratio is too high so they don't qualify, even though they say they've always had good credit and they make their payments on time. The McCoys are looking to Washington for relief. Congress hopes to pass the hotly debated economic stimulus bill next month that helps fend off foreclosures.
In Birmingham, Ala. I'm Tanya Ott for Marketplace Money.
The discussions currently happening in Washington whereby to retract the mortgage interest deduction would be a stake in the heart of any already depressed and declining market. Why would anyone purchase a home? Home ownership can be costly with regard to regular maintenance, lawncare, etc. With the spike in the cost of insurance for that home, there would be little, if any, fiscal advantage to owning a property. Why not rent or lease? Maintenance issues become the responsibility of the landlord, insurance is for contents only and people will be given the flexibility to move to a newer, more attractive home or apartment as the market declines for the same monthly rent payment. To remove the mortgage interest credit from homeowners would truly be stake in the heart of an already declining industry that currently remains in freefall.
I agreed with Troy Davis & to a lesser degree with Linda. My family lost out to speculative gains when we sold our apt before moving to a house back in 2001. It was a difficult decision but the risk of not being able to afford two mortgages in the worst case scenarios prevented us from lucrative gains in the following years. It frustrates me to see people who took risks in hope of personally financial gains but conveniently forgotten the risks and blame the environment when things do go wrong. To me that's irresponsible, selfish, and unamerican. If we bailed everyone out, it only sets precedence for the future generation to take even more risks and rely even more on the government.
I encourage them to take the non-traditional route of ALL working together to pay these mortgages even if they have to postpone college for a year or if that means the kids need to live at home until the houses sell. They have their health and the ability to work. They can dig their way out of this hole. Worst case scenario they can sell the houses for their mortgage value - that is the payoff value. Don't go bankrupt - you can work past this...
The story says that they didn't speculate in real estate, and yet that's exactly what they did. To speculate is to take a risk in hope of a monetary gain. They moved forward prior to closing the sale of their existing house, and then did so again.
Presumably there was a financial gain from taking what is obviously a risk. Many other people looked at that same risk and declined to take it.
One can infer that they also assumed home appreciation would fund college tuition, given that there was an expectation of attending and no other funding source.
Now, they may not have assumed they would make 25% annually on a dozen houses, but there were still serious risk:reward decisions made here -- speculation.
How is borrowing money to buy a house(or keep a house, i.e. the first house) as a means of "savings" for their kids college tuition not "speculation"? The McCoy's were "betting" that house prices would continue to rise and they were "betting" on it with someone else's money, i.e. the bank's. While we can all feel sorry for the McCoy's and others who find themselves in difficult financial circumstances, what they did in keeping that first house and buying a third house before ensuring that they could sell their second house is no different from someone buying stocks on margin in the hopes that they can sell it before they get the margin call.
