If you picture the nation’s home foreclosure crisis as a long chain, the first links in the chain are the Wall Street financial firms and their investment customers that made, as it turned out, an enormous bad bet on complex mortgage investments, underpinned by the premise that house prices would continue to rise, or at least remain stable.
The links in the middle of the chain represent a tangled web of banks, investors, loan-servicing companies, mortgage brokers, lawyers, real estate agents, federal government administrators, politicians, and consumer advocates, all with different, sometimes competing, interests.
At the bottom of the chain is usually a family. The Times discussed their experience with foreclosure with a husband and wife who bought a house in Oak Bluffs. The Times chose not to identify the couple, whose story illustrates the effects, at the human level, of this lose-lose-lose-lose-lose mortgage lending chain of events.
In 2006, the family bought their 3-bedroom home for $577,700. The husband, who is self-employed in a window repair and replacement business, required two major surgeries over the next two years, incurring enormous medical bills while losing income from his business.
“It’s our mess, and I’m trying our best,” the husband said during a conversation with The Times last October. “We tried to keep it to ourselves and take care of it.”
A week earlier, their bank foreclosed on the home where he lived with his wife and four of their six children. Until that day, they thought they could work out a plan with their bank, or qualify for one of the government programs designed to help people like them.
But on the Friday afternoon before the Columbus Day holiday, they learned the scheduled a foreclosure auction would go forward on the following Tuesday.
“It’s been one heck of a year, fighting it,” the husband said. “My biggest fear is we’re losing our home, and the business is lined up right behind it.”
Tide of trouble
When the couple fell three months behind on mortgage payments, their mortgage holder quickly moved to seize their home. The process put tremendous stress on the family, and on the couple’s small business.
They took on extra work to try to make ends meet, and tried unsuccessfully to open two other new small businesses. The husband worked longer days, holidays, and weekends. “We’re down to just one business that’s functioning,” he said. “We’re understaffed to save money.”
As the pressure mounted, they tried to modify their loan so they could make payments. But they discovered their dilemma was far worse than they imagined.
Of the elements of the economic crisis beyond their control — the economy, the mortgage industry, and the government — just about everything that could go wrong, went wrong.
Of the elements within their control — consumer awareness, financial planning, and budget management — just about everything they could have done wrong, they did wrong. Five years ago, the family was living in affordable housing. “To be so proud, to be a homeowner…” he said, stopping in mid-sentence to compose himself.
The couple never owned a home, and they made a lot of mistakes in buying their first one. According to them, mortgage broker Fenton Soliz, an acquaintance they trusted, approached them about getting a mortgage. He took them through the application process, and in a short time, they were ready to sign on the dotted line.
“He said if we got into it and paid it for a year, then we could refinance,” the husband said.
Though they initialed every page of the mortgage documents, and signed their names at the end, they say now they did not get the loan they thought they were getting. Their signatures bound them to a deal that, as it worked out, they had very little chance of keeping.
According to documents filed with the Dukes County registry of deeds, The couple got a mortgage from First Franklin Financial, a division of National City Bank based in San Jose, California. First Franklin agreed to loan them $462,160, at a variable rate, with an initial rate of 7.8 percent
Most often, lenders amortize a mortgage over 30 years, but the couple signed for a mortgage amortized over 40 years, which resulted in lower monthly payments. They also agreed to a balloon rider, which obligated them to pay the loan in full, at the end of 30 years. If they had owned the home at the end of that 30 years, they would have been responsible for a balloon payment, essentially paying the final 10 years of mortgage payments all at once.
They got a second mortgage from the same lender for $115,540. The second mortgage also had a balloon rider, obligating them to pay the entire amount after 15 years.
The couple say they were later surprised to learn they had signed variable rate loans. The were somewhat skeptical they could actually qualify for such a large loan, but they say Mr. Soliz assured them otherwise. The husband said Mr. Soliz filled in all the paperwork for the application, and that they saw very little of the application until they got to the closing. Mr. Soliz declined comment on his work with the family when contacted by phone.
Select Portfolio Servicing, based in Salt Lake City Utah, handled the family’s loans. They said dealing with the company was a nightmare.
“We never get the same person when you call,” the wife said. “I’ve asked to talk to the same person, they say you can’t. I’ve asked to talk to supervisors. Every time, I have to go through the whole story.”
The husband said up until the moment they got word that a foreclosure auction was going forward, they were still trying to work out a loan modification solution with Select Portfolio Servicing.
“They kept telling me everything is going to be OK,” the wife said. But on that Friday before Columbus Day, she says she got one last phone call from the company. “She said ‘I’m sorry we can’t help you. Have a nice day.'”
When contacted by The Times, a Select Portfolio Services spokesman said the company does not comment on individual clients, citing privacy issues.
Like many people caught up in the mortgage foreclosure process, the couple does not see much that is logical about it.
“They can foreclose on our house and sell it to someone else at a lower price. If they would help us…” the wife said. “How does that make sense?
Mr. Soliz, the mortgage broker who solicited the family and helped them apply for the mortgage, is still in the mortgage business, as a consultant for Wells Fargo Home Mortgage in White Plains, New York. The company’s website lists his work history as the president and CEO of three real estate and mortgage companies simultaneously from 1985 to 2009. When contacted by phone, he said he remembered the family, but declined any further comment. “That would have go through corporate, at First Franklin,” Mr. Soliz said.
The Times could not contact First Franklin, because the company is now defunct, except for a small division that services remaining loans.
First Franklin became a very profitable company selling sub-prime mortgages, once employing 2,100, according to an article published in the New York Times. In December of 2006, about three months after the Island family borrowed money to buy their Oak Bluffs home, Wall Street giant Merrill Lynch bought First Franklin, and much of its loan portfolio for $1.3 billion. In March of 2008, fifteen months later, Merrill Lynch abandoned its new sub-prime loan unit. It stopped writing loans, and laid off most of the remaining 650 workers .
About six months later, in the hottest moments of the Wall Street meltdown, Merrill Lynch itself was in deep financial trouble. Crippled by multi-billion dollar losses from its investments in sub-prime mortgages, and under intense pressure from federal officials and stockholders, Merrill Lynch was absorbed by Bank of America.
Mr. Soliz has his own mortgage difficulties. In 2004, he purchased a second home in Oak Bluffs, after securing a $700,000 mortgage from Washington Mutual Bank, which itself became casualty of the economic meltdown.
On July 1, 2010, JPMorgan Chase Bank, which now holds the mortgage, filed an order of notice with the Dukes County registry of deeds, taking the first step to foreclose on that home.