Low-Income Homeowners Fear Lurking Foreclosures
RENEE MONTAGNE, host:
Families with lower incomes have been especially hard hit by this recession, and the lowest-priced homes have suffered the deepest drops in value. All of that has meant even more pressure on the poorest homeowners. NPR's Joshua Brockman has our report.
JOSHUA BROCKMAN: Tracy Diggs(ph) is desperately trying to keep the house she's owned for the last 18 years.
Ms. TRACY DIGGS: This is our home. It's not a house. It is a home. I have put love in this home. I have children who I have had in this home from day one.
BROCKMAN: Diggs is a single mom living with her four sons in a three bedroom row house. They live in southwest Washington, D.C. Diggs says she's having a tough time, because there used to be two incomes to support her family, and now there's just one: her salary from a social services job.
Ms. DIGGS: I am just barely making it.
BROCKMAN: Diggs fell behind on making her monthly mortgage payments of about $1,240. She requested a mortgage modification from her lender - Wells Fargo Home Mortgage - to reduce her payments by about $140. So what was the lender's response? A foreclosure letter arrived at her front door. That made her situation even more difficult.
Have you ever thought about just walking away?
Ms. DIGGS: Absolutely not. I mean, where am I going walk and go to? This is my home.
BROCKMAN: One reason so many borrowers are facing foreclosure in low income neighborhoods is because home prices there have fallen more than anywhere else in the country. In fact, recent report by Harvard's joint center for housing studies says the average declines for low-end homes were more than 50 percent greater than high end-homes. That has left many borrowers underwater, with homes that are worth less than the loan amount owed.
The Center for Responsible Lending says the percentage of African-American and Latino borrowers who have lost their homes to foreclosure is nearly double the percentage of whites.
For generations in America, through the policies of both parties and tax codes, we've promoted the idea of homeownership. Economist Dean Baker of the Center for Economic and Policy Research says many people automatically believed that it was better to buy than to rent.
Mr. DEAN BAKER (Center for Economic and Policy Research): And oftentimes, that can be true, but the idea that homeownership is an automatic ticket to the middle class is just silly.
BROCKMAN: That's because prices don't always go up, and during the boom, people took out bad mortgages to pay for their homes. A sizeable number of homeowners have simply decided to walk away from their homes. Almost 20 percent of strategic defaults through much of last year were intentional. That's according to a new report by Experian and Oliver Wyman. Baker says there are some good reasons for low-income home owners to think about walking away.
Mr. BAKER: So they're paying more to stay in their home every month than if they were to look at a rental, a comparable rental. And they aren't going to accumulate equity. So in that context, I think walking away could make a lot of sense.
BROCKMAN: But there are credit consequences. Walking away makes it harder to get other types of loans, including another home mortgage. Last month, Fannie Mae - the mortgage finance giant - said homeowners who walk away without first trying to work out the problem with their lender would not be eligible for a Fannie Mae loan for seven years.
Luckily for Tracy Diggs, that single mom, she's not going to have to worry about making that tough call. A day after an NPR reporter called Wells Fargo to inquire about her foreclosure, she got a call from a bank executive. Diggs says the executive told her the bank would modify her mortgage by lowering her monthly payments and reducing her interest rate. She and her family will now be able to stay in their home.
Joshua Brockman, NPR News.
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MONTAGNE: This is NPR News.