A Lender With an Unusual Offer: A Second Chance
Three years ago, after the government moved in to save big banks from failure, many homeowners facing foreclosure started asking, “Where’s our bailout?”
Annemarie Zaparesky got hers.
Through an unorthodox program in Massachusetts, Ms. Zaparesky was able to save her home, a white raised ranch in a neighborhood of wide streets, large yards and modest houses in this blue-collar city near Boston. At a time when roughly 20 percent of homeowners owe more than their homes are worth, an innovative program lowered Ms. Zaparesky’s payments and reduced her total debt to something closer to the house’s actual value.
The program, run by a nonprofit investment corporation called Boston Community Capital, is helping to bring homeowner debt in line with reality, something many lenders have been reluctant to do even as foreclosures continue to drive down housing prices. Boston Community buys houses out of foreclosure, sells them back to the families that lost them and gives them a new, more affordable mortgage.
Ms. Zaparesky and her husband, Bradford, bought the house — their first — in 1995 for $90,000 and moved in with their three children. But a few years later, Mr. Zaparesky learned that he had cancer. The doctors gave him three to five years to live.
Mr. Zaparesky was a claims manager for an insurance company, and Ms. Zaparesky had quit her job as a paralegal and begun working as a manager at a Save-A-Lot grocery store (she now manages two stores). Mr. Zaparesky had always handled the couple’s finances. “He was the one with the big paycheck,” she said.
In 2002, when property values were rising, he refinanced the house. Ms. Zaparesky said she was unhappy when she learned that he had gotten an adjustable rate loan that lacked even a short fixed-interest rate at the beginning. But she did not protest. “He was dying,” she said.
Mr. Zaparesky outlived the doctors’ predictions. But in 2008, when their daughter Danielle got married, he was too sick to attend the wedding. He died a week later.
Almost immediately, Ms. Zaparesky, now 53, fell behind on her payments. Although her children were grown, she shared the house with her elderly father. Unused to dealing with bills, Ms. Zaparesky has only a foggy grasp of what happened next.
In an interview last month, she said she believed that she had been offered a loan modification under what she called “Obamacare,” but the offer from her mortgage servicer, American Home Mortgage Servicing, came before President Obama took office. It allowed her to make interest-only payments for five years.
The payments were to be around $1,100 a month. But even that was too much to handle for Ms. Zaparesky, who was juggling financial responsibilities on her own for the first time.
“My world came crashing down,” she said.
Ms. Zaparesky and her mortgage servicer disagree about subsequent events. She tried several times to apply for a permanent loan modification, she said, a process she described as “a farce.” She repeatedly faxed and mailed in papers, she said, that she was then told had been lost — a common story among struggling homeowners.
American Home Mortgage Servicing, though, prides itself on its ability to work with delinquent borrowers. The company, which will soon change its name to Homeward Residential, said it tried to give her another modification but did not receive the required paperwork. According to the company’s records, Ms. Zaparesky did not qualify for the federal Home Affordable Modification Program because the house was not her primary residence. She said she never moved out of the house.
At any rate, the foreclosure process began in August of last year. At that point, she owed about $200,000.
“They just kept saying nope, nope, nope,” Ms. Zaparesky said. “All they cared about was, Let’s foreclose on the house. You’d think they would work with me instead of having another house foreclose.”
Despair was close at hand.
“I did wake up one morning and said, ‘That’s it: I’m not going to fight anymore,’ ” Ms. Zaparesky said. “I was on a roller coaster.”
At about that point, she heard about Boston Community Capital from a local mortgage counselor. The group has tried to prevent evictions and vacancies through an initiative it calls SUN, or Stabilizing Urban Neighborhoods.
The concept is predicated on the fact that homes in foreclosure usually sell at distressed prices, which are even lower than the home’s already depressed fair market value. When homeowners default, Boston Community offers to buy their homes, either from the bank or from the owners in a short sale approved by the bank. If the bank consents, Boston Community buys the homes at the distressed value and sells them back to the homeowners at something closer to market value, which is usually substantially less than they had owed.
To qualify for the program, the homeowner must have experienced hardship, like job loss or illness, and must demonstrate the ability to make the new payment. In Ms. Zaparesky’s case, her boyfriend, who is now living in the house, signed on to help. The homeowner also makes a $5,000 down payment. If the house is later sold at a profit, Boston Community is entitled to half the proceeds.
The program is two years old and has just begun to near its goal of roughly 10 mortgages a month. Before Ms. Zaparesky’s house could go on the auction block, Boston Community bought it for $128,000 in a short sale, which is where the lender or servicer agrees to accept less than is owed on the home. Boston Community then sold it back to Ms. Zaparesky for $168,000 — more than the estimated market value, but $32,000 less than she owed. Her payment decreased by $300.
Although Ms. Zaparesky’s recent payment history would have disqualified her from getting a loan at most banks, a network of private investors and foundations enabled Boston Community to give her a loan with an interest rate of 6.25 percent.
In this particular transaction, every party seems to have come away happy. Boston Community puts its $40,000 markup in a loan loss reserve to protect investors. (So far, only one homeowner has defaulted.)
American Home Mortgage, by its calculations, saved the investors who owned the loan a lot of money — 99.3 percent of its fair market value, according to Philippa Brown, a spokeswoman for the servicer, compared with the 78.7 percent it estimated it was likely to get in a foreclosure sale.
Ms. Zaparesky and her father get to stay in the home. And there is one less foreclosure weighing down property values in the neighborhood.
But not every transaction is as smooth. Many banks refuse to participate in the program.
Bank of America and several smaller banks, as well as some servicers, will allow Boston Community to sell a home back to the original owner, but in many cases HSBC, JPMorgan Chase and Wells Fargo will not. One of the country’s two giant mortgage guarantors, Fannie Mae, cooperates with Boston Community, but the other, Freddie Mac, does not. Can you believe this? Same government – two agencies – different rules – who the F is running this show?
Some lenders refuse because they believe they can get more money for the property; others simply will not allow short sales to be transferred back to the original owner, saying they are trying to prevent fraud. Still others fear that the program will encourage other homeowners to default. Oh yeah – sure – I want to screw up my credit life for 7 years – can’t wait to default. WHO ARE THESE PEOPLE?
In a similar program that is still in its infancy, a consortium of housing groups led by Mercy Housing Inc., based in Denver, has arranged to buy loans, instead of houses, and write them down. It thus avoids having to negotiate with unwilling banks.
For her part, Ms. Zaparesky said the Boston Community program relieved her of her biggest burden. Giving a brief tour of her house, she paused in the cozy kitchen, where on Sundays she makes an Italian pasta soup for her children and four grandchildren. Since she closed on the house in late January, the kitchen has gotten a fresh coat of paint.
“I felt like 100 pounds or more was lifted off my shoulders the day I walked out of there,” Ms. Zaparesky said. “Totally gone.”