A Personal Perspective on a Public Crisis
On January 23, 2008 I bought my first home. At the same moment a single mother lost her home to the foreclosure process. Purchasing a home that was in foreclosure was difficult, both personally and professionally, but has given me a new perspective on what is happening across our country.
For the last year I have been searching for a home, and attempting to break into the extremely expensive housing market in our area. I know from my work at United Way that homeownership can be one of the most important ways to build personal wealth and assets that can last a lifetime. As I'm sure most of you know, it's not easy to get started. I searched and searched and everything seemed just out of my reach. Meanwhile, something dramatic was happening at a much higher level - the market was turning downward. I have a topical understanding of some of the economic forces at play - questionable lending practices, bad personal decisions, the not-so-theoretical "housing bubble"...
Just before the holidays I found a house. It was in the right neighborhood, it was the right size, and just felt like it could be my home. I quickly learned that its lower than average listing price was a result of the lender attempting to quickly sell off this property that had fallen into foreclosure. As time went on I began to learn more about the family that had lived there, and realized that they have an all-too-common story. A family disruption caused temporary economic hardship. In an attempt to recover, they took on more debt they were not able to repay. Less than 2 years later the family had moved out and I had made my offer to purchase.
Maybe this family made some bad decisions - maybe they did all they could do. Maybe the lender made some bad decisions - maybe they were just trying to make a profit. I've learned that there is never only one party at which to point the finger in such cases. Everyone just wants a place where they feel at home, and when you tie such broad-based economics to something so emotional there are bound to be endless complexities and moral questions.
I felt torn about the whole process, given my work at United Way in trying to help families retain their homes. How do I reconcile my work - my passion - with my own personal desire for the American Dream? Should people like me be benefitting from the downfall of others? I never would have been able to afford this house had it not been priced below what it otherwise could have garnered. I don't even know for sure I would have gotten into the housing market at all at this point in my life had it not been for these awful circumstances. I would venture to guess that others at my stage in life could feel the same way. Those of us now settling into our careers, earning a good living, but still priced out of the outrageous Northeastern housing market now see some ray of hope. They call it a buyer's market for a reason. We benefit, and we need the opportunity to build assets in our lives.
I still feel torn, which is probably evident from how I've just described this experience. Mostly, I'm asking myself how everyone can find a positive place in the housing market - a situation where there aren't massive foreclosures but prices aren't out of line with incomes. Maybe this is naive, but I'm hopeful this situation will improve and everyone will have a safe, affordable place to call home.
Liz, This is a great entry.
Liz,
This is a great entry. I, being in my mid-twenties, livng in a rented apartment with roommates, can find it hard sometimes to relate to the issues around foreclosure, but your entry really helped put the reality of how the housing market can take an ironic turn when looking for your "home". This blog at least helped me look at foreclosure issues and the housing market through a perspective I hadn't thought before.
Liz, thank you so much for
Liz, thank you so much for sharing your feelings about purchasing a home that had fallen into foreclosure. I am facing some of the same emotions as I look toward the near future. While I am not yet prepared to purchase a home, I hope to be able to within a couple of years. It will be in the less-expensive midwestern market, but will still have a good chance of having been touched by foreclosure.
As you said, this is a buyer's market. I remark with the glee of a young hope-to-be homeowner that the media is claiming that prices might not rise again for a few years, and that this coincides remarkably well with my real estate plans. As I made this exclamation to my parents over the holidays, I saw their faces fall. "Wait until you're a homeowner," they said. That was my own personal little moment with the two faces of the current housing situation. Because of my station in life, I stand to gain. My parents, approaching retirement and watching the value of the home they've worked so hard for fall, feeling their financial retuirement picture in jeopardy.
In the end we'll all experience the ups and downs of the housing market, no matter if we rent or buy. What is good for us today will not be good for us tomorrow, when we're on the other side of the equation. At that point, there will be a new crop of young families thrilled to buy into the American dream, and we'll be the ones lamenting our housing values.
I'm so glad you wrote on
I'm so glad you wrote on this. You captured how tangled and difficult this whole mess is. As you said, " when you tie such broad-based economics to something so emotional there are bound to be endless complexities and moral questions." It's something a lot of us are going to be thinking about for awhile. With that said, I wish you the best with your new home. It's a big milestone and something you should be able to enjoy.
Liz! Thanks for sharing your
Liz!
Thanks for sharing your story and your struggle. I purchased my modest condo several years ago, at the top of the market, yet continue to benefit from income-eligible programs via the City of Boston. I am so grateful for those programs, every month...it helps keep the roof over my head, it helps keep me participating in a neighborhood that I care about, and able to make a non-profit job choice. Yet, I wonder, if I am eligible for these programs, what is happening for folks who do not have a support system to fall back on if "the roof falls in", folks who don't have an education to garner a decent job with benefits? I am encouraged when I hear of housing development that is targetted for 80% or lower of median income. Yet, I still feel mixed...years later. I have nothing profound to say, other than thanks for sharing the struggle...and the passion to make life better for others.
Liz, Thank you for posting
Liz,
Thank you for posting about your homebuying experience! You have raised two issues in my mind with your comments. First, you've reminded me of the struggles I have faced in the last 4 years trying to become a homeowner. In my case, the combination of market factors and my modest income/assets have made the goal impossible to achieve. Certainly, the downturn in the real estate market offers some promise for my future. Albeit, at the expense of of other people (like the family you mentioned and Clare's parents) which brings me to the next point...
Your experience also provides a snapshot of the conflicts that arise often in the practice of philanthropy. How do we reconcile the work we do for others (or our ideals), with our own well-being? It's a very difficult choice we make, but this constant dichotomy makes the work we do much more important for our community. Hopefully, someday we'll achieve an even playing field for everyone.
In the interim, think that your purchase (as difficult as it has been) is helping to reinvigorate our economy and the work you do helps bring promise for the future.
Liz: It has become
Liz:
It has become increasingly difficult for young families to settle down here. Certainly as someone committed to combatting poverty (specifically family homelessness) this must have been a difficult experience for you.
Here are several reasons why you should feel OK about it:
-You could not have prevented the foreclosure from happening.
-Had you not purchased it a for profit developer most likely would have " bought and flipped" it putting it out of reach for most moderate income families.
-You and your partner are now likely to stay in the Boston area to continue your work in improving the lives of parents and their children.
Congratulations!
It is important to point out
It is important to point out that -in addition to the depreciation of house values- the crisis of foreclosure will push a significant number of people into the rental market. This phenomenon might not be a terrible consequence in other places, but in Boston -where the rental supply is very tight- this will inevitably raise rental prices (as if renting in Boston wasn't expensive enough!). It is the simple economic rule of supply and demand.
I have already received notice from my landlord that, upon the expiration of my lease, my rent will be increased. I am trying to negotiate the terms of the increase to make it more affordable for me, but I have noticed (for the first time in 4 years) that there are no vacancies in my building. I reckon that asking for reconsideration of the rent increase will not be an easy task.
Maybe my landlord was one of the unfortunate people who refinanced under unfavorable terms. He will need to get his loan paid somehow, and it might take squeezing me for a few more dollars. I'm just hoping he won't squeeze too tight.
Liz, Thanks for sharing. As
Liz,
Thanks for sharing. As I've told some of you, I had a similar experience. Thirty-five years ago my husband and I bought our second home - a foreclosure. As Liz did, I wondered about the previous owners and whether we should be benefitting from someone's misfortune. Our case was different from the stories we read and hear about today. The previous owners of our house didn't fall prey to unscrupulous practices or exercise poor judgement. Our next door neighbor filled in the details that led up to the previous owners' foreclosure: 1) they worked, saved and had the house built - their dream house; 2) within a year, the wife became ill and suddenly died; 3) the husband lost interest in the property; 4) the husband walked away from the property after another six months. He was so broken hearted that he didn't care to try to sell the house. Knowing this made me feel somewhat better because the foreclosure was a person's choice instead of their misfortune.
Things have changed so much in the last 35 years. The greed of the last 10 years have hurt so many people. Property has been sold at prices that never should have been and "creative" financing has bled people dry. Every day there's another different example of who (homeowners, tennants, pets) and what (neighborhoods) are being affected. Over the years, there have been 'buyers' and 'sellers' markets but not to the extreme we now see. I understand everyone's desire to be a homeowner but never would I have thought it would be out of reach for so many people who work, earn "decent money", manage their debt and do the other necessary good stuff.
My last thought is about affordable housing. Today, 'affordable' seems to be a negative term. 'Market' price is the preferred term. It seems to me that most people would want to own something afforable for them. What's wrong with afforable? It appears that getting away from affordable has put too many families in jeopardy.
Congratulations, Liz. Enjoy. To all of you aspiring to homeownership, this may be your year. my best wishes and good luck.
Liz, Thanks so much for your
Liz,
Thanks so much for your post. It certainly got me thinking. In a sense, your individual experience is an example of how the market is supposed to work - properties that people can't afford to keep up with re-enter the market at lower prices; other families pick them up, and the market restabilizes over time. In this scenario, it's nobody's fault - it's just the free market at work.
But that's not the whole story. Because of the extent of the problem, the quantity of sub-prime (often predatory) loans, and the lack of transparency and regulation in the investment markets, there are massive unintended consequences for all of us. Today's boston Globe Editorial talks about the effects on neighborhoods. A recent NPR story tells the story of a Hyde Park family and puts it in context.
It also creates homelessness among the tenants of foreclosed properties (see article here) . Banks want to simplify their lives as much as possible, and an empty house is easier to sell than one full of families. So, when they foreclose on a three decker, its not just the landlord on the firdt floor who loses his or her home; the two families upstairs are out on the street, too. I beleive ther are some groups organizing to oppose this and shame the banks out of employing this practice. I don't know how much success they're having.
The problem is compounded by the securitization of mortgages and the lack of transparency. Mortgages are bundled into securities, which are purchased by investors, making it very unclear who owns the problem. Responsibility is so diffused that sometimes it's near impossible to find a party who has the power and interest to renegotiate a loan. In the old days, the banks didn't want to get stuck holding foreclosed property and they had a self interest in preserving house values in their communities. Now they sell off the loans, and they no longer "have skin in the game." Because it's all so obtuse and no one can tell what the real losses are, so it's also affecting the overall investment market, where your and my 401K's are invested.
It's a vicious cycle and I think there are some villains, behaving with at least callous disregard of the consequences of their actions and sometmes worse. These include the people who market and push these unsustainable loans, the folks engineering these investment vehicles that amount to ponzi schemes, and regulators who have been asleep at the switch (and the federal policy makers who give the regulators their marching orders). A few weeks ago 60 Minutes did a good story on the subject
There have been a couple of reponses from President and Congress, but so far it's been the usual case of too little, too late.
What a mess, and what a shame.
Wow! Chris, your post is a
Wow! Chris, your post is a great overview of the mortgage system and helps illustrate the complicated factors at play.
I'm interested in expanding on the issues related to multi-family home foreclosures and how these affect asset poor households most, so I'm starting a new blog post to address specifically the federal protections available to Section 8 tenants.
Come by and visit...
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