In November, I got a frantic call from a good friend in Dallas. My friend's sister -- a divorced mom with a teenage son -- had lost her teaching job in the recession. She had been managing to keep all the financial balls in the air, but barely, and an unexpected back injury pretty much ended even that.
Her sister, said my 52-year-old friend, was in trouble. The bank was threatening to foreclose on her home mortgage of $62,000, which is less than the house is worth. Did you catch that part? Less. She isn't upside down on her loan. She is just an out-of-work single parent who is physically unable to get another job at the moment. Without income and without savings, she had fallen behind on her mortgage payments and, with fees and penalties the total amount of what the woman back-owed was about $10,000.
My friend called me, knowing I reported on real estate for the past decade, and asked for advice. She had already contacted the bank on behalf of her distraught sister and offered to write a check for the shortfall. But something about that plan felt wrong to her and she wanted my opinion.
"Call the bank back and tell them you'll send that check when hell freezes over," I told her. "Tell them your sister is a prime candidate for a loan modification and will be applying for one post-haste." Her sister has equity in her home, had excellent credit until the double whammy of unemployment and illness struck, and as soon as she is able to work again, will literally be back on her feet and paying her bills on time. Temporary relief for a temporary situation; isn't that precisely what the loan modification is suppose to address?
There is another consideration too, I told my friend. The money she was planning on using to help her sister out of this jam was money meant for her own retirement. My friend has dodged a few layoff bullets herself these past few years and you just never know when one with your name on is heading your way.
I also raised the unmentionable. What if her sister never actually got back on her feet? With her teaching job gone and preferring not to move while her son finishes up high school, her sister's employment prospects may not be all that bright for the next few years. Wasn't it possible -- likely? -- that despite the family bailout, she would wind up losing her house anyway? And why hadn't she explored simply selling the house -- remember, she wasn't upside down -- and renting an apartment in town until her son graduated? Nobody likes to hear it, but the recession has rocked many a world. Few of us are living at the same standard we once did.
My friend took my advice, but here's the part that makes me want to scream. The bank turned down the woman's application for a loan modification for one reason: They had noted in their records that my friend had stepped up willing to pay the back due. They knew that when push came to shove, my friend would step in before letting her sister and nephew be tossed to the curb. So, armed with this knowledge, the bastards at the bank decided to play hardball.
The story unfortunately has a familiar ring to it. I regularly hear from readers who tried for short sales but were told because they are current on their payments, it's a no go. Or who tried for a loan modification and were advised by the bank that to be eligible, they had to miss payments -- and once they did that, the bank foreclosed on them. Or unemployed people who have struggled to stay current on their payments who are told that if they can't show a pay stub, the bank won't consider giving them the current loan rate instead of the higher one they have.
It simply makes no sense. Welcome to America friends, where we bail out the banks who turn around and stomp out our lights.
But if anyone has a story to top this, I'd love to hear it.