Profiles In Folly

From Ben Jones' blog:

“Marco and Marissa Meza, a couple from California, snapped up a brand-new colonial in the Town of Wallkill for $319,000 in 2003. It had all the amenities a new homeowner could want.”

“The builder, Gary Swanson of GJS Construction Corp., said it was the strangest closing he’s ever experienced in his years of building and selling houses. ‘When I went to that closing I didn’t think they were going to have enough money to buy the house,’ he said.”

“Still, months into the closing process, Marissa Meza asked Swanson to quote a price for a circular driveway. He told her $5,000 and ended up building it for her. Then, Meza asked him to quote a price for a finished basement. His $15,000 estimate was apparently too high for her. But Meza had another builder do the work.”

“‘These people should have bought a house $100,000 less than the house they bought,’ Swanson said. ‘They can’t afford a house, and here they want a circular driveway. People just think they need these extravagant-type houses,’ he added.”

“Within a year of buying the house, the Mezas had refinanced with Countrywide Home Loans Inc. for a $304,000 mortgage. They also tapped Countrywide for a $38,000 home equity loan. In April 2006, they refinanced again, this time with Wells Fargo, for a $396,000 mortgage. The loan was clearly a subprime one and their initial interest rate rose to 8.375 percent.”

“By August, they stopped paying their bills. Wells Fargo started foreclosure proceedings in March 2007. Marco and Marissa Meza moved back to California. They did not respond to a request for an interview.”

The Buffalo News from New York. “Thomas and Jeaneen Maglietto, who religiously watch TLC’s Flip This House show, decided to buy a second house a few blocks away to use as a rental property.”

“The couple went to Alexis Funding and, on Wednesday, got prequalified for a mortgage from Arizona-based First Magnus Financial Corp. for the $65,000, two-unit house. The price would have been 90 percent financed, with the Magliettos putting about $6,000 down.”

“But the next day, with no warning, First Magnus abruptly shut down. And all the remaining lenders Alexis used now want the couple to put down at least $10,000.”

“‘We really can’t come up with $10,000 or $12,000 for a rental property,’ said Thomas Maglietto. ‘We were looking for someone to work with us. Now everyone wants my first-born, and I’m not willing to do that.’”

“‘It’s almost like Alice in Wonderland. You’re just dropped in a whole new set of circumstances that can change as soon as the fax machine rings or an e-mail comes out,’ said Michael J. Meyer, senior loan officer in Williamsville, who was filling out a client’s paperwork for a home equity loan when the bank pulled out of the business. ‘I’ve never seen this much collapse of a product.’”

“‘I haven’t seen changes like this so drastic, so suddenly,’ said Frank Fialkiewicz, senior sales manager for American Equity Services in Cheektowaga. ‘The public doesn’t understand that things are changing by the hour, by the day.’”

...

“Mark Gibbons, an agent in Stoughton, said a client who was selling a house turned down an offer at the list price, in favor of a bid that was $15,000 lower because that buyer was more certain to obtain a mortgage.”

“‘The dollars weren’t as important as the confidence in the actual closing happening,’ Gibbons said.”

“One of mortgage planner Robert French’s clients, who earns about $700,000 a year and has a high credit score, was recently unable to get a stated-income mortgage. These loans became popular during the housing boom because it does not require borrowers to provide a copy of their W-2 tax form to the lender.”

“Stated-income loans, French said, are ‘just disappearing.’”

The Connecticut Post. “At her two-bedroom condo on the East Side of Bridgeport, Donna Pearce is anxious and a bit angry. The nanny has fallen behind on her mortgage payments and blames her mortgage broker for selling her a loan that she could not realistically afford.”

“‘When she [loan writer] came to me with the loan saying I was approved, the interest rate was extremely high,’ Pearce said. ‘But she said not to worry about it because ‘in six months you will be able to refinance.’”

“Pearce, who earns $525 a week, put $3,000 down on the $135,000 condo and accepted the deal. She figured that she could squeeze by paying $1,300 a month for the first six months and then refinance and lower her monthly payment. Six months later, Pearce found that she did not have enough equity in the condo to refinance nor the money to cover substantial penalties for refinancing.”

“Moreover, she learned that the 13.05 percent interest rate could rise to 15 percent within two years.”

“‘Right now I am in default,’ she said. ‘You trust the person you think is working for you that you will get lower rates and be able to pay the mortgage only to find out there are hidden glitches you don’t know about,’ she said.”

“Pearce does not believe Congress should bail out Wall Street. ‘It’s folks like me that should be bailed out,’ she said. ‘These banks that did this to people deserve what they are getting. They should be made to pay for hurting people like myself.’”

The New York Times on Connecticut. “Three years ago, Martin and Jennifer Cossette bought into the dream of homeownership,— the quintessentially American ideal of personal striving and family stability celebrated by politicians, promoted by Madison Avenue and financed by Wall Street.”

“The modest Cape Cod-style house, in Meriden, Conn., had three bedrooms, and a backyard for their young son. Like so many families, they stretched to buy their first home. In the red-hot housing market at the time, they put no money down and got a mortgage for its entire $180,000 price tag.”

“They had qualms but too few, as reassuring lenders spoke of rising housing prices, falling interest rates and easy access to future loans.”

“None of it turned out that way. There were unforeseen expenses. Bills mounted and credit card debt got out of hand. They refinanced in late 2005, folding other debts into the mortgage, but that proved to be only a stopgap.”

“Earlier this year, the Cossettes filed for bankruptcy under Chapter 13, used by wage earners who want to hold onto their homes. But the monthly payments on the $230,000 mortgage were $1,800, 40 percent higher than the first mortgage, and headed even higher. So they decided to let the house go.”

“‘We were totally naïve,’ said Mr. Cossette.”

“Joseph and Lu-Ann Horn bought their 1,200-square-foot, three-bedroom home in South Windsor, Conn., in 2002, paying for nearly all of it with a $150,000 loan. The mortgage was a 30-year loan with a fixed rate of 7.5 percent. Two years later, they decided to refinance to pay off their truck and their credit card debt and to buy a $4,000 motorcycle.”

“The new mortgage was for $198,000, at a fixed rate of about 8 percent for two years and variable rates afterward. The monthly payment was about $1,600. The mortgage broker, Mr. Horn said, told them not to worry about the variable rate because they could refinance in two years and lock in a fixed rate again.”

“‘They basically put us in a loan that they knew we couldn’t pay,’ Mr. Horn said. ‘We never should have done it.’”

“When the fixed rate expired last year, the Horns found no willing lenders. The interest rate has jumped and the monthly payments rose to nearly $2,200, Ms. Horn said. ‘It just goes up and up,’ she said.”

“Mr. and Ms. Horn make about $70,000 a year, but with two children and other expenses they fell behind on the mortgage. They have been served with foreclosure papers, and have filed for Chapter 13. ‘We’re fighting to hold onto the house now,’ Ms. Horn said.”

“For Mr. Cossette, who is now a renter, homeownership no longer has much allure. ‘You put your life’s sweat into a piece of real estate that may or may not go up in value,’ he said. ‘So I don’t have a house. That’s O.K. with me.’”