Avoiding Foreclosure A Maze For Many Homeowners

Geoff Williams, author, Living Well With Bad Credit
Dina Elboghdady, reporter, Washington Post
Felix Salmon, finance blogger, Reuters

In 2008, the Obama administration enacted the Home Affordable Modification Program to help assist some of the millions of Americans on the brink of losing their homes. But the law has helped fewer troubled homeowners than envisioned, leaving many struggling to save their homes from foreclosure.

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NEAL CONAN, host:

This is TALK OF THE NATION. I'm Neal Conan, in Washington.

While parts of the economy show signs of recovery, housing still stinks, and experts warn that millions of homeowners are still in difficulty. Two years ago, the Obama administration enacted the Home Affordable Modification Program to give some of the Americans on the brink of losing their homes some breathing room.

When practiced, though, the law didn't actually help all that many. Last week, three federal agencies issued new guidelines in response, and the Justice Department is trying to negotiate a separate settlement with banks.

Whether it was the loss of a job or an illness, once you started to fall behind, where did you turn - to the government, to the bank, to a credit consultant? Once you missed a payment or two, what did you do to try to save your home?

Our phone number is 800-989-8255. Email us, talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

Later in the program, the message from Standard & Poor's, and your letters. But first, the road to foreclosure, and we start with Geoff Williams, a freelance reporter for AOL Small Business, who wrote an article on how he almost lost his house in 2007 for walletpop.com, and he joins us from his home in Goshen, Ohio. Nice to have you with us today.

Mr. GEOFF WILLIAMS (Author, "Living Well With Bad Credit"): Thanks, nice to be here.

CONAN: And when did you realize you were in real trouble?

Mr. WILLIAMS: Well, probably month three or four. I know that sounds like you'd think I'd know that I was in trouble, you know, a little sooner than that. But you know, as a freelance writer, you know, my income can be really sporadic, and I had been late before, a little. But during this particular time, you know, this was right before the recession, you know, at first, you know, I'm like: Okay, I'm a month behind. Okay, I'm two months behind. That's bad, but you know.

Then when I started to get around month three, I started really getting nervous. I paid, you know, I think it was May when I paid my February mortgage, but you know, it was literally this year-long process where eventually I was, you know, four months behind, five months behind.

CONAN: And you wrote something I did not understand, that after a certain amount behind, paying off a little bit at a time, they don't want to hear from you.

Mr. WILLIAMS: Yeah, you know, you get - yeah, you get letters where they say it's kind of all or nothing, that if you - they make it clear that if you, say, make a partial payment, you know, it's June and you pay your February and March mortgage, they may send it back.

Now, really, I should have tested that. I mean, I just, I see that and I think: Oh, gosh, okay, well, you know, I'll just wait until I've got all the money. And I really think if I had tested that, you know, it might have worked out.

I mean, one, if they sent the money back, I could have - maybe by then I would have another month or two, and it might have worked out, but...

CONAN: You also wrote that once you start to get short of cash, you start to make some interesting and not necessarily brilliant decisions.

Mr. WILLIAMS: Yeah, like - well, you know, I'd pay credit card debt, you know, instead of mortgages, mortgage payments, which is insane. And it's not - I mean, at this point in my life I didn't even have a line of credit. You know, I was maxed out.

So it's not like I thought, well, I need to, you know, have some income, so I'll pay down my credit cards. I just thought I was being responsible, but you know, you can't live underneath a credit card, but you know, you can in your house.

And so, yeah, I was really stupid. I mean, I did all sorts of stupid things, like denial. You know, you get into month four and five, and I kept thinking, well, I'll figure it out, I'll figure it out. And I - you know, I just, I didn't call my mortgage company enough. I just kept thinking that somehow things will work out.

CONAN: And one of the things you eventually worked out, you turned to where, I guess, a lot of people turn to. You turned to your family.

Mr. WILLIAMS: Yeah. First I received a letter from the sheriff telling me that in about five weeks my house would be going up for auction. And that was kind of a wake-up call. And then I actually had two people show up in my driveway saying, you know, that they would be happy to help me with the house.

And so, yeah, I went to my parents and my mother-in-law, and that was a lot of fun. But yeah, I mean at that point I realized we were in really, really big trouble. And I was able to work out a loan modification deal with my mortgage company. But I needed $5,000 in this case.

I mean, I had a lot of equity, but not enough. So with that $5,000 shortfall, you know, I had to go somewhere, and I went to my parents and mother-in-law, and you know - I mean it was terrible. It was a terrible, terrible year.

CONAN: As you say, this was 2007.

Mr. WILLIAMS: Right.

CONAN: You must have looked at the next four years with some degree of horror.

Mr. WILLIAMS: Yeah, well, you know, as it turned out, I mean, in 2008 I ended up declaring bankruptcy, and - because I had had credit card debt for years. And you know, and I realized, I kind of thought, well, you know, if my credit card debt is so bad that I almost lost my house, you know, there's a problem.

And I didn't want to put any - you know, I didn't want to put my family, my wife, kids, my parents, mother-in-law, I didn't want to put them through this again. So I declared bankruptcy and thought, oh, finally, it's all over.

And then three months later the Lehman Brothers imploded, and you know, suddenly, yeah, we've been in recession, and things got really, really bad.

But, you know, amazingly - I mean, they were really bad years, last year and the year before, but 2007 was the worst for me, I mean in the sense I never - throughout the recession, I was always at least able to make the house payments and, you know, and things worked out.

CONAN: Well, it's an interesting story, Geoff. Thanks very much for the call for the story, and we hope things turn around for you.

Mr. WILLIAMS: Oh yeah, they have. They have...

CONAN: Oh, good. All right. Geoff Williams with us on the line from his home in Goshen in Ohio. He's the author of an article called "How I Almost Lost My House."

Joining us now is Dina Elboghdady, where she's a reporter for the Washington Post who covered the foreclosure crisis. And nice to have you with us today.

Ms. DINA ELBOGHDADY (Washington Post): Thank you, it's good to be here.

CONAN: She's at a studio there at the Washington Post. And Geoff Williams' story is, I think, unique only that it happened in 2007 and not more recently.

Ms. ELBOGHDADY: Well, it's unique also in that he had a nice outcome. I mean, that's great because usually I'm hearing from a lot of people who haven't had a good experience and who haven't managed to hold on to their home.

CONAN: Is there any place to turn once you start to get behind?

Ms. ELBOGHDADY: There are places to turn, and I always tell people, as silly as this sounds, that they do need to call the bank. I know there are a lot of stories out there about how frustrating it is to deal with the banks, but that is the first step.

The first step is to call the lender, and I know that a lot of people get the runaround and don't get the information they need, which is why I also always suggest that they get somebody to help them speak to their lender, a housing counselor.

If you go to the website for the Department of Housing and Urban Affairs and just search for housing counselors, they have housing counselors that charge nothing or a very small fee to help out in these situations.

CONAN: Are they the same as credit counselors?

Ms. ELBOGHDADY: Yes, I mean, they can be the same as credit counselors, but you've got to be careful. There are some folks that, you know, charge very little, or there are a lot of folks who charge a lot. And you don't need to be paying that much to get some help from the credit counseling.

CONAN: When the Home Affordable Modification Program, the so-called HAMP law, was passed, a lot of people thought: Well, maybe I can turn to the government. Maybe that can help.

Ms. ELBOGHDADY: Right, well, and that's what the government thought too, initially. This program was announced back in March of 2009, and back then the administration, the Obama administration, said this program is going to help three to four million people.

It hasn't help anywhere near that many people, and it's probably not going to be anywhere close to its goals by the time it wraps up. I think the last number was that it has managed to permanently modify the loans of 600,000 people.

CONAN: Not a small number, but again, nowhere near what it promised to do.

Ms. ELBOGHDADY: Not a small number but nowhere near where it promised to do and nowhere close to the number of people who really do need the help.

CONAN: And what were the problems with HAMP?

Ms. ELBOGHDADY: I think one of the problems is that the lenders were overwhelmed. They're just not equipped to deal with foreclosures and with, you know, defaulted mortgages in the volume that they've had to deal with in the past years.

The other problem is that the program was voluntary. You know, nobody forced the lenders to modify the loans. Certainly the government didn't force the lenders. And there was also very little in way of oversight.

I mean, one of the problems that I hear most often from people who have tried to get their loans modified through the program is that they'd get rejected, and either they didn't understand why or the reasons that they were given weren't true.

You know, there were disagreements about the borrower's income or about the borrower's assets, and a lot of the people felt that they had nowhere to turn.

And to this day there haven't been any sanctions against borrowers who say they're taking part - sorry, against lenders who say they're taking part in the program, but a lot of, you know, complaints about those lenders.

CONAN: And you said overwhelmed, and I'm sure that's true. A lot of people thought the lenders were ruthless. I mean, the scandal about the paperwork, where they were just automatically foreclosing on people without really asking a lot of questions.

Ms. ELBOGHDADY: That's right, and that - the problem, those problems cropped back in the fall - I think it was September when it came to light because a lawsuit basically uncovered that Ally - that one of the employees at Ally Financial had signed off on 10,000 - was signing off on 10,000 foreclosure actions a month without verifying the accuracy of the paperwork.

And so once that came to light, of course there was a furor, and Ally temporarily halted its foreclosures. A lot of other banks thought that they might have similar problems and they halted their foreclosures as they tried to sort through the mess.

And as a result, there have been a couple of investigations now into this, and there were some actions taken last week by the federal regulators.

CONAN: Well, we want to get listeners involved in the conversations. We're finding out what happened once you were one or two payments late. Where did you turn for help to try to save your house? 800-989-8255. Email us, talk@npr.org. We'll start with Chris(ph), Chris calling from Oakland in California.

CHRIS (Caller): Hi there.

CONAN: Hi, Chris.

Ms. ELBOGHDADY: Hi, Chris.

CHRIS: Thanks for having me on. My wife and I bought a house in Oakland in 2005. We moved to New York. We both got jobs and rented the place out. And we both got laid off in 2008.

We fell two months behind. Well, before we fell behind, we called the bank, and they said: Well, we can't even talk to you about modifications until you're late. So we intentionally stopped paying, and then it got bad.

It was really hard to get anyone that wasn't in the collections department, and it finally worked out for us when we wrote to our congresswoman and we started the modification process. And it seems to be going well. The first loan is modified. We're still waiting to hear on the second.

CONAN: Well, I'm glad it worked out for you, Chris. But the quick question to Dina Elboghdady: The bank says we can't even talk to you until you're late?

Ms. ELBOGHDADY: Well, that - I have heard that quite a bit from borrowers who say that's what they're hearing from the banks. That's not the way the government's program is supposed to work. But I do think that the banks were trying to prioritize and get to the people who are in the most severe trouble first, and everybody else sort of had to go to the back of the line, which isn't the way it's supposed to be.

CONAN: We're talking about steps homeowners take to try to save their homes from foreclosure once they're one or two months late. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

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CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington.

The idea that you might lose your home because you can't make the payments is the kind of thing that can keep you up at night, sleepless with worry. Whether you're dealing with some kind of financial crisis, a lost job, medical emergency or just watching the points climb on your adjustable-rate mortgage, it's a too-common experience shared by trillions - excuse me, millions of homeowners.

Once you realized you were in trouble, though, where did you turn? Did you contact your bank? Did you apply for government assistance? Did you turn to your family? Give us a call, 800-989-8255. Email us, talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

Dina Elboghdady is our guest. She's Washington Post's reporter covering the foreclosure crisis. And let's see if we can get another caller on the line. Let's go to Lucy(ph), Lucy with us from Seven Hills in Ohio.

LUCY (Caller): Hi, Neal, thanks for taking my call. I really appreciate this. Where did I turn? My husband and I turned to, immediately, the mortgage lender to negotiate with them in late '08 after I lost a job and suffered a medical disability.

The mortgage lender, we were working with an agency called Aesop(ph) in Ohio, and after about six months they just closed our case, unbeknownst to us, because they basically couldn't work with us because Chase is our mortgage lender.

Two housing agencies and two years later, we still haven't had any loan modifications. Chase, JP Morgan Chase, has rejected four of our attempts. They have obfuscated. They have lied. They have deceived.

And the only question I really have for your audience is: When this company and other mortgage lenders are resorting to such dirty tactics as ripping off overseas soldiers who are fighting for our lives and for our freedom, if they could rip them off, what do you think they're going to do to us? And also, they have lobbyists inside of Washington, D.C. offices.

CONAN: Dina Elboghdady, she's referring to a story where there's a provision of the law that says they're not supposed to be able to foreclose on soldiers on active duty, and yet that has happened too.

Ms. ELBOGHDADY: Right, that has come to light. And I mean, clearly what's come out of all of this is that the mortgage servicing industry is just in complete disarray. And that's why there have been at least two investigations or two broad investigations going on.

I had referenced earlier the investigation that - the enforcement actions that were taken last week. That was by the Office of the Comptroller of the Currency, the Federal Reserve, the Office of Thrift Supervision.

The three of them joined together and said to the biggest lenders in the nation: You guys have really messed up, and you've got to fix this problem, and we're giving you X number of days, I think it was in a 60-day period, to come up with an action plan to fix these kinds of problems.

CONAN: Or else?

Ms. ELBOGHDADY: Or else there will be sanctions. I mean, they're saying there are going to be sanctions anyway and that they just need to figure out the depth of the problems in order to figure out the penalty amount. And so I guess we'll be waiting two months or so for these banks to come up with a plan.

But part of that enforcement action also said that you, the banks, are going to have to hire independent auditors to look back at the foreclosure actions that have taken place in the past year and figure out if there was any financial, wrongful financial harm done to these -to a lot of these borrowers.

And if they find cases of harm, then they have to compensate the borrowers in some way. Now, one of the criticisms of this action that was taken last week is that there wasn't much in the way of detail, and the regulators will say: Well, that's because we're waiting on these independent auditors, these independent consultants, to see what actually happened and to figure out who it happened to before we decide on what the civil penalties should be.

CONAN: And Lucy, being on the other end of this, I'm sure you don't have a lot of sympathy for the lenders at this point, that they're overwhelmed, but nevertheless, how is it working out for you?

LUCY: Well, actually, it's a little bit more compounded in our particular case because we had, we had a very large tax assessment that the city in which we live imposed upon us more than we were supposed to, and then they charged a 30 percent interest on it, and then JP Morgan Chase turned around and said: Oh, guess what, you're behind on your taxes, which we weren't. So they charged us a mortgage spread for the next 12 months.

So our mortgage last October went up 45 percent, from 900 to 1,300 dollars, very suddenly. So they're doing everything they can to squeeze us in every possible way.

CONAN: And are you getting help anywhere?

LUCY: No. Family is helping us, but then the mortgage lender and the housing agencies turned around and then they ask: Well, where are you getting this money? And then they use that against you.

So you know, we're kind of like damned if we do and damned if we don't.

Ms. ELBOGHDADY: That is a problem because one of the biggest fears that the lenders have is what they call strategic default, which is when the borrower has the money to pay the mortgage but chooses not to and then walks away from the home.

And so they are constantly trying to figure out basically who's lying to them about the kinds of assets and the kind of money that they have. And so when they're looking at the bills, when they're looking at the finances, trying to assess if people should be getting their loans modified in some way, if they sense that there's a pot of money sitting out there that the borrower is trying to hide, you know, they'll just crack down immediately.

LUCY: Well, actually, we had - my husband has an IRA that is not allowed to be used for 12 years. But Chase, JP Morgan, tried to tell us that it was a liquid asset and disqualify us. So we had to put a notarized letter and another bank's letterhead, as well as notarized and certified mail, sending them, telling them this is not a liquid asset, you can't do this.

And their underwriters tried to pretend that it was a liquid asset when it wasn't. And it was just enough time for them to drag us through the 60-day deadline on the application for the HAMP program. So we were disqualified and had to start all over again.

Ms. ELBOGHDADY: That's one of the most common things I hear, that there's all this back and forth, back and forth, and by the time everything's together, it's so outdated that you need to start from the beginning again.

And another problem that I often hear, which all the banks say they're trying to fix and which these enforcement actions last week were also trying to fix, is what they call the dual-track process, which is when you're dealing with a lender, you know, presumably in good faith to get your loan modified, and as they're trying to modify your loan, another part of the bank is trying to foreclose on you at the same time.

So I've had people who have said: I've been sitting here negotiating and negotiating and negotiating with the lender, and then yesterday all of a sudden I got a foreclosure notice on my door. And that happens a lot too.

LUCY: Well, thank you so much. I'm sure you have other callers. And do whatever you can to help us, will you?

(Soundbite of laughter)

CONAN: Good luck, Lucy.

LUCY: Thank you.

CONAN: Let's bring another voice into the conversation. Felix Salmon, a finance blogger for Reuters. He joins us from our bureau in New York. Nice to have you with us today.

Mr. FELIX SALMON (Reuters): A pleasure.

CONAN: And as you look at the attempts by the federal government to reform HAMP, the idea that preventing banks from foreclosing on people after they've modified their loan, is that going to stem future foreclosures?

Mr. SALMON: Possibly. I doubt it, though. I think that the scope, the political scope, for improved (unintelligible) and like deals with the Treasury and the executive branch more generally has been extremely curtailed by the new political realities in Washington. The people can't pass legislation.

Basically, the first HAMP bill got passed relatively easily. It didn't do a lot of good, and the chances of passing a sort of beefed-up version are quite slim.

So what we have to do now is place all of our faith in more judicial proceedings, in the attorneys general and in the regulators, and hope that they will be able to get something done.

CONAN: Because you hear stories like Lucy's, and it's just absolutely infuriating.

Mr. SALMON: It is, and it's unbelievable, the situation that she finds herself in. And by the way, the reason why they're asking her about, you know, when she's getting her help from her family and they're asking where's this money coming from, it's not because they're worried about her strategically defaulting on her home, because as Dina was saying, most of these servicers, what they do is they just start barreling down this road to foreclosure without stopping to ask themselves whether that's actually the right thing to do.

Instead (unintelligible) to try and come up with an excuse not to modify the loan, because if the reason that she's being able to make mortgage payments is because she's managing to get that money from family members, then they're going to say: Oh, well, that's not sustainable. You're not - you might be able to get those mortgage payments now, but you won't be able to get them in the future. So there's no point in us modifying the loan if you're just going to default the minute that you stop being able to borrow money from your family.

CONAN: And one hates to be fair to the lenders, but in fairness, there were any number of people who qualified for the HAMP program who then could not make the new lower payments.

Mr. SALMON: Well, that's not actually particularly fair to the lenders. I mean, yes, this is known. There's always going to be what's known as a re-default rate. Not everyone who gets a mortgage modification is going to be able to make their modified payments.

But there's a couple of reasons why that would be the case, and one of the main reasons is because the modifications that the lenders do don't involve what's known as principal reduction. They don't actually reduce the amount of money that you owe on your home. And in fact, many of them increase the amount of money that you owe on your home.

So if you owe on your home more money than your home is worth, it actually makes no economic sense for you to pay your mortgage payments whether they're modified or not. The economically rational thing for you to do is strategic default, walking away.

CONAN: Walk away.

Mr. SALMON: And more people, frankly, should be doing that than are, because they're really wasting their money making mortgage payments on a house where they will never have any equity. And ultimately, that house is always going to wind up going back to the bank.

So if the bank modifies that loan and changes the interest payments, all they're doing is pushing back the day at which they wind up possessing the house.

CONAN: Dina?

Mr. SALMON: So those kind of modifications make very little sense.

CONAN: Dina?

Ms. ELBOGHDADY: I do want to warn, though, because I do have a lot of readers and - who call in and say that's what I want to do. Give me a good reason not to just walk away from the house. And I want to warn that in some states, if you do that, they can still come after you. There's no such thing...

Mr. SALMON: Exactly. There are two different types of states. There's the recourse and non-recourse states. And in the non-recourse states, they can't come after you at all. In the recourse states, it's almost certain they will not come after you. Unless you're a multimillionaire -the banks, once you've walked away from the home, in reality, do not come after your assets. Theoretically...

CONAN: Is that true, Dina?

Ms. ELBOGHDADY: Well, that used to be the reality. I think now they're starting to crack down. I'm just starting to hear of a few cases where they do come after you. They look for, basically, the difference between what they got when they sold your home in foreclosure and the difference on what you owe in the mortgage. And so they will track you down and say, guess what? You owe us $70,000. You owe us, you know, 80,000, 100,000, whatever it is. And in some cases, you know, borrowers are like, okay. I just don't have it.

CONAN: How do you find out...

Ms. ELBOGHDADY: But if they do have some - they can, you know, go after your wages. There are ways that they can come after you for what little you've got left.

CONAN: How do you find out whether you live in a recourse state or a non-recourse state? And what are the rules if you move to Bora Bora?

(Soundbite of laughter)

Ms. ELBOGHDADY: I don't know about the rules moving to Bora Bora. But I do know that there are some groups, and I am just completely blanking out on the names that do list them. But, you know...

Mr. SALMON: A quick Google search will bring that up very easy.

Ms. ELBOGHDADY: Yes, a Google search.

Mr. SALMON: The biggest non-recourse state is California. If you live in California, you're safe to walk away. They can't come after your assets.

CONAN: We're...

Ms. ELBOGHDADY: In Washington area, you're not - D.C., Maryland, Virginia.

CONAN: They can all go after you?

Ms. ELBOGHDADY: Yes.

CONAN: All right. We're talking with Peter(ph) Salmon. You heard him on the line from our bureau in New York. He's a finance blogger for Reuters. Also with us is Dina Elboghdady, a Washington Post reporter who covers the foreclosure crisis. Where do you turn once you start to get payments - or too late, once you start getting way behind to your bank payments?

Stay with us. You're listening TALK OF THE NATION, from NPR News.

And Felix Salmon is with us from New York. And let's see if can go next to - this is Melanie, Melanie with us from Sacramento.

MELANIE (Caller): Hi. Thanks for taking my call.

CONAN: Sure. Go ahead.

MELANIE: This is - we ended up strategically defaulting on a home that I had purchased in 2005 at the top of the market when I was a single person. When we walked away last summer, it was worth almost half of what I had paid for it. And I bought on a first-time homebuyers program with a very small down payment and a traditional, 30-year fixed loan.

After - shortly after I bought the home, met my now husband, inherited two bonus children and had a third child, and we - while we were gainfully employed and still are, ended up making a business decision. We really begged and pleaded with the banks to modify our - the loan on the home that we were moving out of. We were fortunate enough to have access to down payments to be able to buy a home that was better suited for our family size. And we really wanted to keep this home. We had done a lot of work to it over the years.

CONAN: And so you wanted to keep the first home and rent it?

MELANIE: Yeah. We - and we, on paper, qualified - you know, so my story is that we - I really struggled with kind of the moral aspect of it. And then finally, just came down to it, it's a business decision, like Felix said. And we - but we wanted the bank - we wanted some program where even if they would have modified it...

CONAN: So I just want to get - back to the point. Melanie, you ended up walking away from that first house?

MELANIE: Correct.

CONAN: Okay. And that - but in the mean time, you'd bought a second house, so you were OK.

MELANIE: Correct. Yes.

CONAN: Okay. And that...

Mr. SALMON: And the irony here, in this situation, is that the bank would have been much better off listening to Melanie and doing a loan modification, because it costs them so much money to foreclose on the house, to sell the house. They wind up with a house which is worth only a fraction of what they're owed on the mortgage.

And so if they'd worked with Melanie and kept on getting the interest payments, even if they were lower, they would have wound up with much more money in the end. But they don't think that way. They just barrel towards foreclosure, and then you say, well, okay. Fine. I'll just walk away, and I'll leave you with something which is worth much less than what I'm offering you. It makes no sense.

CONAN: And do you - and thanks, Melanie, for the call. Do you accept, Felix, the idea that the, you know - well, I think it's pretty clear that the lenders are overwhelmed. They just don't know what to do.

Mr. SALMON: The lenders are completely - well, they know what to do, in theory. But in practice, they find it impossible to implement. They are drowning in paperwork. They are insisting on things being faxed to them.

This is 2011. They're dealing in faxes still. They have no way of keeping track of cases. They have no way of knowing what information they have, what information they don't have. Different departments don't speak to each other. And, you know, the attorney generals are going up to the banks and saying you've got to fix this. You've got to rationalize the way that you deal with all of these pieces of information and the way that you deal with your borrowers. And it's easy to say that.

And the banks can turn around to say, well, we'd love to. But in practice, they just don't have the organizational ability or the staffing or the expertise to be able to do that. And so we're kind of doomed, I think, for the foreseeable future.

(Soundbite of laughter)

CONAN: Thanks for that. Dina, go ahead. I'm sorry.

(Soundbite of laughter)

Ms. ELBOGHDADY: Well, I wanted to add that aside from these enforcement actions I was talking about earlier that were taken last week, that the attorneys general and the Department of Justice and some other federal agencies are working to come up with some kind of penalty to impose on the lenders, so that they could come up with the money to do the kinds of modifications that need to be done in the way that they need to be done.

And so some of the leaks - it's the very early stages, but some of the leaks that have come out is that they're considering a $20 billion penalty on these lenders, and that they use that money to modify the loans of underwater borrowers. Those would be like a lot of the borrowers who've called in, where the value of their home has been depleted, and so they're left owing more than the home is worth. And so we'll see what becomes of that, but that's one of the plans, to force them to use that money to do these modifications properly.

CONAN: Which might at least represent a shaft of light through that cloud of doom that we were summoning earlier. We're going to take a couple of more calls on the question of what people do when the road to foreclosure starts to look, well, pretty darn serious.

We're also going to be talking, when we come back after a short break, with Jacob Goldstein of NPR's Planet Money team about what message was it that Standard & Poor's was sending to the United States government yesterday.

So stay with us. I'm Neal Conan. It's the TALK OF THE NATION, from NPR News.

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CONAN: In a few minutes, we'll be talking about what Standard & Poor's meant to say when they mentioned the future of U.S. credit ratings yesterday. But right now, let's continue our conversation on what people do when they fall a month or two behind on their home payments and start down the road toward foreclosure.

Our guests are Dina Elboghdady, the Washington Post reporter who covers the foreclosure crisis, with us from The Washington Post, and Felix Salmon, a finance blogger for Reuters who's at our bureau in New York.

And I wanted to read an email that we have, this from Shannon: I was laid off from work, and things got difficult quickly. We made a deal to pay for the house, and that's what we did. We borrowed from credit cards and pulled some money out of a retirement fund. It hurt bad. I'm working now, but not out of the woods. I don't know if we will ever recover. We are still behind, but slowly making progress.

And I guess the question then, Dina Elboghdady, is money out of retirement, that seems drastic.

Ms. ELBOGHDADY: It does seem drastic. But, you know, in the end, everybody has to decide for themselves how important homeownership is to them. I mean, it's really - and it's a tough call. Some people are just so emotionally attached to their homes, that they will do anything. And others, like those who just - you know, the strategic defaulters that we talked about, are not that emotionally attached. So, you know, I know this sounds silly, but you need to talk to some kind of financial adviser, and I'm sure a lot of these people aren't in a position to pay for one. So in the end, they'll just have to - you know, a combination of common sense and emotional sense, I guess.

Mr. SALMON: I'll give you some financial advice for free, if you want to, which is do not pay for a house with your credit card. I mean, that's just lunacy. If you're paying credit card rates of interest, even if it's a really good credit card, you know, just 10 percent or something, but my guess is given that we're in - talking about people with credit difficulties, here, we're talking about interest rates of 20 or 30 percent on the credit card, you can't pay for a house that way. It's impossible.

So - and - absolutely, taking money out of your retirement savings, that's your future right there. So, yes. My financial advice - and I think this absolutely applies to everyone - is do not use retirement savings and credit card borrowings to pay for a house, because you lose your future. You have to pay your interest on your credit card in the future. You don't have your retirement in the future. And you're probably going to wind up losing your house, anyway.

CONAN: And this is - is this based, do you think, on that feeling or belief that a lot of people had: Your house was your retirement. When push came to shove...

Ms. ELBOGHDADY: That's right.

CONAN: ...when the time came, that was going to be your nest egg.

Mr. SALMON: Exactly. People think that because they live in a house and they have title to the house that that's, over time, a nest egg right there. But obviously, if you're underwater on the house, then it isn't. You know, your nest egg is the equity that you have in your house, and there are millions of Americans right now where the equity that they have in their house is negative. And for those people - and for, in fact, a lot of people - their house is much more of a liability than it is an asset. And so there's no particular economic reason why you should ever want to hold onto a house.

Ms. ELBOGHDADY: I do feel worse for the people who are older, because, you know, if you're in your 20s, in your 30s and you lose a house, you have time to rebuild your credit and start over and maybe even be a homeowner again. The calls that break my heart are usually from the people, you know, in their 60s or, you know, sometimes even 70s. I've heard from people in their 70s, where something went wrong. You know, they refinanced all the equity out of their house. You know, those people really don't stand a shot with a house.

CONAN: Let's get one last caller in, and this is Jeff. And we'll go to Jeff in New River, Arizona.

JEFF (Caller): Hello.

CONAN: Hi, Jeff.

JEFF: I successfully negotiated a refinance in '09 after being declined four times for a variety of lies and mistruths and half-truths. When the guy who was helping me do the mortgage quit out of frustration, I took it over myself. And I was instructed by someone else to call on Monday, Wednesday and Friday and wait as long as it took to speak with someone, write down their name and ID number and write down what we spoke about, where we stood on the process.

Then, on the next time I called, I referred back to that employee and their employee number, told them what we spoke about and said where do we go from here? It took me about three weeks of calling, three times a week, to get back in the swing of things, and I successfully got it negotiated.

CONAN: And how - what was the maximum amount of time you waited on hold?

JEFF: Oh, probably about 20 minutes.

CONAN: Oh, it's not too bad. I've heard horror stories worse than that. But, Dina Elboghdady, one of the rules changes that we keep hearing about, that the administration would like to have the lenders do, is one point of contact for each lender.

Ms. ELBOGHDADY: Right, a single point of contact. And I think even the -a lot of the lenders have agreed that would be a good idea. I mean, it's not the most contentious part, obviously, of all that's going on, but that's been the most frustrating part for most borrowers is that every single time they call, it's like they're just starting from scratch, talking to a different person, retelling their story again, re-gathering and re-faxing documents. It's really, really emotionally draining.

CONAN: And, Felix Salmon, can you alleviate the doom of - that you were talking about earlier, at least if we investigate - invest in fax companies? They're clearly making a lot of money now.

Mr. SALMON: Exactly. Every single fax manufacturer in the world is saying, I know, bank services. No. I mean, I think what's going to happen is that the services are going to spend these billions of dollars, which the government is going to force them to spend on revamping their IT systems and trying to get everything much more streamlined and effective.

And, as we all know, because we've all worked for a big organization at some point in our lives, that's going to end in miserable failure. But it will be a hopeful miserable failure, and the least, while it's going on, will be able to think that it might work.

CONAN: Well, Felix, thank you, and we hope that the Reuters company is not one of those faithless institutions. Thanks very much for your time. Felix Salmon is a finance blogger for Reuters. And our thanks, as well, to Dina Elboghdady of The Washington Post. Thank you very much for your time today.

Ms. ELBOGHDADY: Thank you.

Mr. SALMON: Thank you.

CONAN: When we come back, the message from S&P.

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