Opinion: Housing: The fine print in a tale of woe
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The housing market remains deeply troubled, with more than 800,000 homes on their way to foreclosure or in the process of being auctioned, according to RealtyTrac and Moody’s Analytics. That’s part of the reason the economy isn’t growing fast enough to put many of the unemployed back to work.
The Obama administration has launched several efforts to avert foreclosures and stop the slide in property values, under the theory that investors will come back into the market once it’s clear that prices are heading up again. But none of those initiatives has lived up to its billing. Some analysts blame the banks for dragging their feet; others blame the administration for putting too many restrictions on the aid.
The larger truth, though, is that troubled borrowers’ situations are more complicated than they might seem. A good example is provided by my colleague David Lazarus’ column Tuesday about a couple in Downey who fell behind on their Wells Fargo mortgage while one or both were temporarily unemployed for several months last year and early this year. By the time they were both working and eager to start paying off their debt, the bank was no longer interested in working out a deal, and it moved in June to foreclose.
The bank’s treatment of Jackie Durra and Pedro Balladeres was hard to justify from a pure business standpoint. Given the couple’s renewed ability to make mortgage payments, Wells stood to gain more if Durra and Balladeres stayed in their home than if it repossessed and sold the place. The bank eventually came around to that point of view, telling Lazarus that it’s now working with the couple to avoid foreclosing.
Nevertheless, one graf in the story jumped out at me:
Durra bought her three-bedroom house in 2001 for $280,000. After a second mortgage was taken out several years later, the total outstanding loan balance was about $375,000. The real estate website Zillow estimates the current value of the property at $348,300.
In other words, the couple took a significant amount of cash out of the home during the housing bubble, piling on more debt. Had they not done so, they wouldn’t have been in such a vulnerable position when the bubble burst and the economy collapsed.
Such stories are all too common. Americans took advantage of rapidly rising property values to engage in a slew of ‘cash out’ refinancings and home-equity loans, banking on the continued increase in home prices to provide an escape valve if they had trouble repaying. Some of these borrowers used the loans to help make ends meet -- a sign that they were carrying too much debt to start with. When the market tanked, the escape valve closed and the loans became a trap. Millions found themselves owing more than their houses were worth, making it well-nigh impossible to get out from under their debts by selling their property. The subsequent credit crunch, recession and mass layoffs only made matters worse.
I’m not pointing a finger at Durra and Balladeres -- or anyone else, for that matter. I’m just suggesting that it’s worth considering the role many borrowers played in their own difficulties. Durra and Balladeres’ home is worth more today than when they bought it, by Zillow’s calculation. But their debt load appears to be greater still. In hindsight, that kind of borrowing looks like a pretty good way to dig a hole that’s impossible to climb out of. But at the time, neither borrowers nor lenders could see the risk.
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-- Jon Healey
