As a business-media critic, I sometimes get caught up in the crush of events and forget that at the heart of this crisis are an estimated four million people who will lose their homes through foreclosure.
Which is odd, because it happened to me.
I was about fifteen. It was back in the early 1990s. My family — dad, mom, sister and I — lived on 56th Place in Tulsa, Oklahoma, sharing what I thought was a more-or-less normal, middle-class life.
We owned a three bedroom, 1,900 square foot house with a big corner lot that seemingly took me hours to mow. We had two cars, cable TV, a Nintendo, a basketball hoop in front, and my mom’s garden in back. My two best friends lived down the cul-de-sac and a block over, and my house was our headquarters for sports, games, and midnight runs to Whataburger.
But my dad had gotten sick a few years earlier and was unable to work. A government program kept us in our home for a couple of years and then, it was over, and we had to go.
I thought it might be useful to share my experience and explain firsthand what it was like, from one business reporter to another and to anyone who reads the business press. (UPDATE: See my follow-up post on the response to this piece)
I’ll bet that very few, if any, business reporters working today at major media outlets have personally been through a foreclosure. I’d bet very few business reporters know anyone who has been through a foreclosure or is on the brink. I’d go as far as to bet that, unfortunately, a surprisingly small number of working business reporters have even interviewed anyone going through a foreclosure.
I say all this not to make anyone feel guilty or to imply that you can’t cover these things well if you haven’t experienced them firsthand. I just think it’s important that the financial press think about the fact that we, most of us, come from a particular social and economic class, and we spend most of the time talking to and interviewing people even better off than we are. We are middle class. Most of us are white. Everybody went to college; many to elite schools. We just don’t run with the foreclosure crowd.
Don’t get me wrong. I’m glad business reporters are well-educated and don’t have to peer out the curtains to see if the person at the front door is the sheriff with an eviction notice. And this crisis is certainly affecting people far beyond the lower-income levels. But sometimes I wonder if we had been in better touch with regular people outside our circles, we might have been more attuned to the perilous state of the American middle class and what the effects of the lending boom might be, and thus might have provided better warnings.
In any case, I’ve got my own story about what it’s like to lose one’s home.
We bounced around a few rentals when I was small before my folks were able to save up enough to put ten percent down on the $85,000 house on 56th Place in 1985. They got a plain old thirty-year fixed-rate mortgage through the Federal Housing Administration.
My dad supported us by working two jobs. During the day, he laid carpet with a partner. At night, he worked the graveyard shift as assistant manager of the produce department of a Skaggs Alpha Beta. Both jobs were physically demanding and didn’t pay tremendously, though combined they supported us well enough.
He didn’t sleep very much. He was basically a workaholic. I didn’t care too much, except when I got dragged along in the summer to do carpet.
Laying carpets is lousy work (not that stocking produce in the middle of the night is a picnic). Carpet rolls weigh hundreds of pounds. Stretching it requires a tool you kick with your knee, which is brutal on your joints. We installed carpet in new houses with no air conditioning in 105-degree Oklahoma heat. The biggest problem was the overpowering fumes (technically called volatile organic compounds) from the carpet and glue.
One day, my dad didn’t get up in the morning. He had no energy. Indeed, he didn’t get up for weeks. I asked what was going on, and my mom said he was sick but they didn’t know why.
For two years doctors tried to find out what the problem was, but the tests were inconclusive. His joints had swollen up to the point that he literally couldn’t get out of bed much of the time. Other times when he did, he’d collapse on the floor until someone came home to help him up. He went from workaholic to totally disabled in a few weeks.
The spiral began. His workmen’s compensation ran out, and my folks ran through their savings—$10,000, including his retirement from seventeen years at Skaggs. They got behind on their $800 monthly house payments, which were more than my mom’s entire—pre-tax—monthly income of about $660. My sister and I qualified for free lunches at school. Finally, we went on food stamps.
This in particular broke my parents’ hearts. They’re conservative Republicans. They don’t favor government programs. They do believe in the work-hard-and-you’ll-make-it ethos that if you do what you’re supposed to do, things will work out. I’ll never forget the sight of my mom, the first time she had to pull out the food stamps to pay for groceries at the supermarket where my dad had once worked. She broke down in tears, right there at the checkout. She was so ashamed. I learned to avoid the whole scene by going out to the parking lot while she paid for groceries, something I regret to this day.
Housing and Urban Development lowered our monthly payments to $68 a month, which kept us in our house for a couple of years. If we hadn’t had it, I don’t know what we would have done. We couldn’t even afford a cheap apartment. There was just no money. My grandparents sometimes had to bring us groceries.
Creditors would call several times a day. I still don’t know why, but my dad would answer and let some vulture berate him for half an hour about what a miserable deadbeat he was. Here was someone who had worked since he was a small child, as soon as his parents let him. If he could have worked for $5 an hour he would have, but he was a shell of his former self. I thought the pressure would drive him crazy.
Slowly, though, my dad recovered somewhat and went back to laying and cleaning carpet, though at a much slower pace than before the illness, and for much less money. The HUD program ended, meanwhile, and by that time so much interest had accrued on the mortgage by that time that we couldn’t have afforded it before he got sick. In February 1993, the jig was up. We had to pack up our stuff and go.
I think it’s hard to overstate the psychic impact of losing your house. It’s like being under siege or being in the middle of a nightmare— illness, job loss, creditors, telephone calls, and the attendant strains that come with all those. You try to hold them off and sometimes succeed for months or even years, but eventually all your defenses give way. It is utter defeat.
At last count, 1.2 million homes are in foreclosure, about one in thirty-six mortgages in the country. One in eleven are behind on their payments. Some say total foreclosures will hit four million. The impact is multiplied because each foreclosure affects an average 2.6 people per household.
I’ll grant that a not insignificant number of these foreclosures are from people who knew better: speculators betting on ever-rising prices, for instance. I don’t care about them. And I’m not going to pretend that people aren’t responsible for their own financial decisions. They are. But as we’ve written on The Audit, the evidence is overwhelming that the lending industry underwent a dramatic transformation, using boiler-room tactics and other tools of mass deception to sell defective mortgages with incomplete or inaccurate disclosure.
However they got into these mortgages, the vast majority of people struggling to save their homes are probably going through something like what we went through when we lost ours. Losing our home was the worst thing that happened in my childhood, and it surely has colored how I view the world since. It plays hell on your self-esteem and sense of security, I’ll tell you that.
After the foreclosure, we moved a mile away to a shabby duplex, our side of which rented for $600 a month. My dad got sick again and that payment proved too much and they had to move to a $475 a month apartment in a complex once known for its swinging singles scene in the 1970s, but since better known for its drug dealers. His medical bills soon forced my parents into bankruptcy.
They bounced around and eventually moved up to a rental house (fortunately, by this time I was off at college, able to go because of a full-ride scholarship from the state). My mom went to school and got her associate’s degree and now has a good career as a medical transcriptionist. My dad was no longer able to do backbreaking labor, but he became a truck driver. They slowly got back on their feet.
They had an unfortunate brush with the mortgage industry a few years ago, though. They finally purchased another home then with a conventional fixed mortgage in the fall of 2001. But in 2005, they refinanced. I was in New York by then, but I warned them repeatedly: don’t get an adjustable-rate mortgage. Interest rates will only go up. My folks didn’t. Or thought they hadn’t.
But guess what? An unscrupulous broker had added an ARM to the mortgage —against their expressed wishes and unbeknownst to them. My folks didn’t notice it at the closing, or indeed, until they decided to move outside of town a couple of years later. They also learned that the broker had put a big fat pre-payment penalty on the note to boot. Like most people, they didn’t understand the fine print. Their fault was in trusting someone who they thought was on their side (They had to structure a lease-purchase agreement with a buyer to avoid the big pre-payment penalty).
Both terms, it should be noted, increased the broker’s commission and increased the mortgage’s value on the secondary market—the one that is blowing up now all around the world.
Most people aren’t losing their homes today because they’re sick and can’t work, though that’s surely not a tiny number. Others lost their jobs, or their lives got complicated by divorce or some other family trauma. And many others got put into balloon mortgages or option ARMs they didn’t understand, or were refinanced into ones they couldn’t afford, by some crooked broker. Or they just simply bought too much house, egged on by marketers and a culture that says spend, spend, spend.
However they got into foreclosure, my heart goes out to them. I remember what it’s like.
Fifteen years after we lost our home on 56th street in Tulsa, I’m glad to report that my folks are doing okay. Two years ago, they were able to get out of the second house and buy that property outside of town. They’re trying to pay extra on this note so they can pay it off —30 year fixed at 6 percent—in their early 70’s, God willing. They’d be about ready to burn the mortgage on the first house if they hadn’t lost it.
So, we’re all right. Most of these Americans losing their homes may be, too, though only after huge setbacks that will make them far less secure financially than they would have been for the rest of their lives.
My sister and I both went to college. I’m a journalist, newly married, and she’s raising a family. A few months ago she and her husband moved across the street from my parents… into a house bought from someone who could no longer afford the payments.
Me and my wife? We rent.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.