Down the Up Escalator (22 page)

“I borrowed against my house and purchased the house next door for my son. I paid $22,000 to get the loan in his name, and I found a house for my daughter in Vacaville. Cost me $40,000 to get her into a house.

“It was an adjustable rate—no, they wouldn’t give me a fixed rate—that started at 7.9, call it 8 percent. It was supposed to go down if I paid for two years, but instead it went up to 17 percent.”

Did Mrs. Epps really believe that the interest on her adjustable rate mortgage would go down as a reward for paying on time for two years? Did the loan salesman mislead her or outright lie about how much the payments could go up when the initial or teaser rate adjusted?

Investors who bought mortgage-backed securities have won big settlements from banks because they were given fraudulent or misleading information about the riskiness of the mortgages. But it would be hard to win compensation for borrowers when the fraud
(if it occurred) went on during a sales pitch with no disinterested witnesses around.

Whatever she was told, or wishfully believed, Alice, like millions of others, couldn’t keep up when her adjustable rate mortgage payments rose by hundreds of dollars a month.

“When my son got killed, I called and told them I need to bury my child, I need two months. So they said I should go ahead and bury my child: ‘We’ll work with you.’ So they offered me, what do you call them things Obama’s giving?”

“A modification?”

“Yeah?”

“And you got it?!”

“Yeah, took a couple of weeks.”

A couple of weeks?! Alice Epps managed to get a loan modification in a matter of weeks when a cool head like Balty Alatas couldn’t wade through the paperwork in a year and a half?

“My note became $4,939, close to $5,000, per month. I worked two, three jobs at a time and paid it. One month I earned $12,000. Then I tried to get away from Litton by refinancing but …”

“Litton!”

“But they [a new mortgage originator] sold my mortgage right back to them [Litton].”

Suddenly I understood how she got a modification. To most underwater homeowners, the word “modification” referred to an ineffective government program meant to keep people in their houses. But there are many ways to modify the terms of a mortgage. Litton Loan Servicing is known among consumer advocates for offering mortgage modifications that fail and leave homeowners owing more than ever.

This is how that works out profitably for them: Normally, a
mortgage servicer passes along all of the interest and principal it collects to the banks or investors who own the mortgages. The servicer earns its money from regular service fees, late penalties, and special charges like the ones involved in modifications.

But a mortgage servicer normally can’t offer a modification (a change in a loan’s basic terms) without the consent of the loan’s owner. This, as we’ve seen, can be hard to get. But Litton and its associates buy up delinquent or otherwise malodorous mortgages at a discount. With the original investors out of the picture, Litton is free to grant modifications in its own interest.

During the course of most Litton modifications or “trial” modifications, the homeowner’s payments can consist almost entirely of fees and new interest. By offering one likely-to-fail modification after another, Litton can collect payments like Alice Epps’s $4,939 a month for as long as the homeowner can pay. The company is free to raise or even lower the payments if it decides that’s the best way to squeeze out a few last drops. But since almost none of the money goes to paying off the mortgage debt, the recipients of Litton modifications often wind up owing more than they would have if they’d never been granted the favor. When they’ve paid all they can, they lose the house.

Litton had been leading people in poor neighborhoods through this Kafkaesque modification maze well before the Great Recession. After the crash it came under press scrutiny because it had been acquired by Goldman Sachs. The calm, cool, and collected
Financial Times
took a stab at describing Litton’s modification procedures in a story of June 16, 2010, titled “US Consumers Rage Against Goldman Unit.” In its accompanying human interest feature titled “ ‘A Quick Fix’ That Added More to Debt,” the
Financial
Times
’s sample Litton customers are a white couple reduced to near lunacy by Litton’s modification process.

Alice knew the term “modification” in connection with her Litton loan, but she had also heard about what many in her neighborhood call “Obama modifications.” She pursued that angle too, or at least she’d started several times.

NACA, the organization she’d mentioned to the judge, holds traveling Save the Dream conclaves where distressed homeowners gather in places like civic centers to meet counselors who might be able to get a concession from their mortgage company right there over the phone or at least get legitimate negotiations started.

Other groups, both altruistic and not so altruistic, offer similar services. Alice had tried both kinds.

“I went to five different community agencies. I waited all day in Pittsburg [California]. But it was a sham. All those agencies getting money from the federal government saying they are helping people. They’re shams and frauds. Do Obama know what’s going on? So I hooked up with Help-U-Modify. They charge $3,500.”

“And you paid them …?”

“Thirty-five hundred dollars. Come to find out, Help-U-Modify wasn’t even licensed. They was taking people’s money—they’re still taking people’s money—but they don’t do nothing. The Legal Aid told me they weren’t even licensed.”

“You went to Legal Aid?”

“They told me that they were too busy, had too many cases. I asked the judge today, ‘Don’t I get no papers?’ He says, ‘I’ll give
them
[the bank’s lawyer] a writ.’ I don’t even know how long I got to do anything. So I called this attorney today that I’m going to see tomorrow.”

“Another lawyer?!”

“He said, ‘Bring $250 with you tomorrow.’ I said, ‘I’m about to lose my house. I went to Legal Aid, they referred me to you.’ He said, ‘Nah, I want $250.’ ”

“Alice,” I’m practically pleading, “it’s too late for lawyers. You have to think about where to move.”

“But the judge, he said maybe I could go to another court. That’s why I called that attorney.”

Alice Epps isn’t stupid, but she has a way of giving things a twist, a consistent way of mishearing official or legal talk that sets her off on these wild-goose chases. That morning in court the judge said that she
might
have a case in another court if someone deliberately misled her. But here, here in his courtroom, she had lost, absolutely. It was his forceful and frustrated way of cutting this thing off. Alice heard all the words but processed them as an invitation to go to another court.

“I just can’t believe this is happening to me,” she said. “I been living in that house thirty-eight, forty years. What’s the bank want my house for?” That was certainly a reasonable question. The streets of her neighborhood were dotted with derelict bank-owned houses.

“I’m going to the bank tomorrow myself, in person, and ask them to come out to the house or say, ‘Can I tender rent till I can get my stuff out of here?’ And I hope they don’t tell me they can’t talk to me, to go to an attorney, ’cause a lawyer in Berkeley told me …”

“THE HOUSE BELONGS TO THEM!” I wanted to bellow. Instead, I began asking Alice about family and friends who could help her find a temporary place to move.

“My sisters, my daughter, they don’t know a thing about what
happened to me today.” Like Bibi San Antonio, Alice hadn’t told anyone, not even her daughter, about the impending eviction. “I’m used to giving help, not getting help.”

“But they’ll want to help you,” I said. I described how unemployed bankers, “million-dollar executives,” aren’t embarrassed to “network” when they need something like a job. “They call everyone they ever met. By the way, do you have e-mail?… Okay by phone.”

I listened quietly while Alice listed relatives and old friends she could call. Each had his own economic worries at the time. “What can they do for me?”

“You can never imagine in advance what you’ll hear once you start asking,” I said.

“Like what?” she asked. By then I had realized how limited her lucky breaks were likely to be, but I toughed it out.

“Look, I went to court today to interview a blind woman. I needed a story, I stopped a complete stranger, and I got to you.”

Then Alice really got to
me
.

“I kept saying, ‘Lord, I don’t know if this is good for me. I don’t know what she is doing.’ And I prayed about it, and then I said, ‘I’ll go meet her. I’ll go because she is tiny. She can’t do me no harm.’ ”

Oh, God, I can’t hurt her, because I’m small. “No, I’m not going to do you any harm,” I said, “but I’m not going to do you any good. That’s the problem.” Then I moved to Alice’s side of the booth and cried because my books never do anyone any good.

Mrs. Epps said she understood because all her patients always die. “The doctor tells me it will be four months, but I’ll keep ’em a year or two. That’s my job, to keep ’em. But in the end, they pass.”

I learned more about Alice’s son that evening. He’d worked for a moving and storage company. If he were alive, he’d know how to
handle the packing and where to store her things. But if he were alive, that wouldn’t be necessary, because she wouldn’t have paid $12,000 to bury him, so maybe this wouldn’t be happening.

“I don’t know how I’m going to sleep tonight,” Alice said. “My head feels like a pincushion.”

Mrs. Epps insisted on driving me to the bus stop because she felt it was dangerous for me to walk in the neighborhood at night. “I can’t say that I’m sorry that I bought my children homes,” she said, “but if I had knew what I know today, I would never have borrowed against my house.”

The Return of Option One

Unlike Alice Epps, the blind woman I’d come to meet that day in court never tried to profit from the house price boom and instinctively kept her distance from mortgage sharks. But in some waters sharks abound.

Fifteen years earlier Eletta Robertson had been living as a renter with her own six children, three orphaned relative children, and her mentally disabled cousin Curtis. This adult cousin stood quietly behind her wheelchair wearing a four-year-old’s grin except at moments when something startled him. A word from Eletta calmed him immediately.

When her landlord wanted to sell the house, Mrs. Robertson bought it as a way to keep the large family together. The landlord helpfully waited six months while Eletta worked two jobs to pay off some credit card debt. That allowed her to qualify for a decent, old-fashioned, fixed-rate mortgage.

Seven years later she had a fall at work (she’d been an aide in a children’s group home) that left her in a wheelchair. The gradual blindness was diabetes related.

Before the Great Recession the most common causes of bankruptcy
were job loss and catastrophic medical bills. Mrs. Robertson suffered from both. Yet she’d managed to keep current on her mortgage payments for another seven years with the help of workers’ compensation. Unfortunately, she’d been transferred to California’s state disability system. With its recession-slashed budget, the state didn’t cover enough of the costs when Eletta had new medical bills. Mrs. Robertson fell behind on her mortgage payments and caught up a couple of times. But when a fallen tree created electricity damage, the repair bill combined with the increased medical bills put her over the line, and she went bankrupt.

She was in court that day to firm up a seven-week delay that her Legal Aid lawyer had already negotiated with the bank’s lawyer. He expressed regret that all he could do was buy her a little time. Eletta responded with gratitude. It would give her time to find a place where she could keep everyone together. That’s what mattered.

Outside the courthouse Mrs. Robertson answered my questions courteously because that was her nature. But she didn’t have a “victim’s” passion to tell her story. From her point of view, she couldn’t pay her mortgage, so she lost her house. It was a misfortune, not an injustice.

Before we parted, however, she broached a topic that stirred other emotions. “May I tell you something?” And here stress came into her voice. A couple of years earlier a close relative had transferred a house into cousin Curtis’s name. “They
gifted
him the property, and they was gonna
gift
it back to themselves. In the meantime, they had Curtis sign for a $318,000 mortgage.”

“What?!” I exclaimed.

Eletta had become aware of it through an IRS letter about taxes
Curtis would owe. She thought that it must be an error. “Then I got his credit report, and it was right on there; he borrowed for a mortgage. So I called Option One to get that changed.”

“Option One?!”

Option One is the name I asked my readers to remember. It’s the loan company involved in a foreclosure that Judge Schack of Brooklyn dismissed as fishy. He noticed that the company had transferred a mortgage the day before the borrower signed for it. “Nonexistent mortgages and notes are incapable of assignment,” Judge Schack wrote. With that he bought a “little guy,” in this case a black hospital worker from Brooklyn, more time.

“My question,” Eletta continued, “is how in the world did that go through? Curtis don’t work; Curtis can’t show no pay stubs; so how could they give Curtis a mortgage?”

That’s a reasonable question. One innovation of the securitization craze was a mortgage that requires no proof of stated income. It’s commonly called the “liar’s loan.” But looking at cousin Curtis, I realized that Curtis can’t even lie!

Still, his signature had been accepted by someone connected with Option One. His brief foray into home ownership might have jeopardized his Supplemental Security Income payments for the rest of his life, Eletta feared. “So I had to go down to SSI and explain. What SSI did is put a restraining order against [the offending relative]. He couldn’t come around Curtis for three years.”