One of the benefits of this kind of work is that, like Laura Gottesdiener’s new book, it shows that these “look-back” stories are not, in the end, retrospective at all. These stories are still going on. They’re news. Gottesdiener, for instance, told of an ongoing migration of foreclosees, disproportionately black, that is at this point, only a little more than half over.
The latest WSJ pieces shows a vintage 2006 MBS as a Venus flytrap of trouble from which borrowers are still, in 2013, trying to extricate themselves.
Amanda Gavini and her husband, for instance, are doggedly trying to paying two loans totaling $398,000 of 11 and seven percent even as their house’s loan value has sunk to roughly half that amount. The story reminds us that the Treasury Department, to put a floor under the then-crashed market, created a taxpayer-funded initiative called the Public-Private Investment Program, or PPIP, through which the US provided debt and equity investments to nine bond buyers, totaling $18.6 billion. The program added a whopping five percentage points to returns, the story says.
The borrowers, however, are left to twist. The Gavinis, even with their good credit, can’t refinance because their home value is so low. But, what’s bad for them is good for bond holders:
In its current form, Mrs. Gavini’s mortgage is valuable to the investors in CWABS 2006-7, given its interest rate and steady repayment.
In the lingo of the mortgage-bond industry, her high-rate loan is “trapped” in the CWABS 2006-7 bond.
Among other things, the story, which includes a nifty graphic, helps to explain why bond prices have recovered to more than 90 cents on the dollar: most of borrowers in the bond had either refinanced, sold their homes or defaulted, leaving mostly only current borrowers, like the Gavinis, in the bond.
Another borrower profiled is a water-filtration system salesman who got a loan after emerging from a medical-related personal bankruptcy. The details of his story aside—an upward rate adjustment comes as a surprise to him, as it did to so many people—I was struck mostly by the video, where the stress of this outwardly calm borrower is made visible, at about the 3:50 mark, in a shot focusing on him absent-mindedly and anxiously rubbing his hands together.
There’s room to quibble with some of the editorial choices. The choice of focusing on white families (at least in the photos and video) doesn’t jibe with the fact that blacks, even controlling for income and credit scores, were far more likely to get a subprime loan than whites. And the focus on Florida is fine, but as the Center for Responsible Lending has pointed out, different markets had different problems during the mortgage frenzy. Weaker markets, like say, Ohio, were flooded mostly with subprime, high-rate products aimed at low-income borrowers while in boom markets, like Florida, the products were more likely to be option ARMS and the like, targeted to a surprising degree at higher-income borrowers (p. 26, fig 8).
Still, great work, which has the added benefit of showing the financial crisis may be over, but the mortgage crisis certainly isn’t.