Congratulations are in order. We are now the proud owners of a weekend-killing, money-guzzling, stucco-coated construction zone. That we get to live in. Once we get a toilet installed.
Our newest purchase is a grimy one-story rectangle whose most notable exterior decorative flair is the dining room's sagging bay window. There are no appliances, no toilet, bare plywood floors that creak underfoot, and a basement covered in terrifying, decades-old shag carpeting. The house smells like years of cigarette smoke infused into dog grease smeared onto the walls. A meth lab blew up in one of the bedrooms, or at least we think that's what it looks like.
It's a dump, but it's our dump, and it will feel like a home one day. We're grateful to have it. There is no shortage of people who would be happy to own a dump like this, so it seems almost vulgar to complain about having the ability to buy a house, any house.
But especially this house, which an older couple finally lost last year under the weight of huge debt. We don't know much about the former owners, except that they smoked too much, and that they were struggling with their money for years.
In 2002, the bank began the foreclosure process against the house, but the owners were able to buy their way out of it. A few years later, for whatever reason, the owners took out another loan against the house. In the end, they owed $290,000. After the bank foreclosed on them, the house was transferred to the Federal Home Loan Mortgage Corporation, aka Freddie Mac. Its fellow government-sponsored enterprise Fannie Mae put it on the market for $200,000. Two months later, Fannie dropped the price to $139,000. We got it for even less.
That $160,000 wasted and lost is the tragedy of the subprime crash, written millions of times over. Purchasing this house is the closest I have come to seeing the effects of the subprime collapse applied directly to my life.
Rent vs. buy
Before moving here with my wife, Michele, I had arranged an apartment through Craigslist. I didn't know it was dark and squat and dingy, or that its slanted ceilings make it hard to not hit your head. The kitchen also makes cooking uncomfortable, and a table unlikely.
When she first opened the door, Michele started crying. Our cat, released to explore, instead put herself back into her carrier and closed the hatch.
Our first night in town, we rented a hotel room in Manitou Springs. The next day, we began looking for houses.
After living in our own home near Albany, N.Y., for eight years, the idea of renting was obnoxious. Why spend all that money on rent when a mortgage is almost always cheaper?
I remembered from 2003, sitting in a shabby, ready-made office in a strip mall, listening to a car salesman (seriously) explain to me that for no money down, he could arrange a loan for about three times what our local, conservative bank was offering. While it felt like we were opting out of the party, we went with the bank. The loan went through painlessly, and we closed in a matter of weeks.
A few years later, we decided we'd like to have some extra cash to make some repairs, so we went back to our conservative bank, and were stunned when they cut us a check for $20,000. No strings attached. No questions asked. Just money loaned against the measly equity we had in our house.
This time around wouldn't be any different, we assumed. And we knew roughly what we were looking for: a fixer-upper on the west side with a good foundation. Not attractive, just solid and affordable.
Our realtor, Jason, warned us off the bat: Our worst bet would be a short sale, where the owners are way underwater but the bank has yet to close on them. In a short sale, the property can have multiple liens against it held by multiple banks, multiplying the complexity of making a buy. In a short sale, buyers can wait three or four months just to find out if their offer will even be accepted by the bank or banks. Then, after that, there are the months of trudging through the paperwork.
Regarding foreclosed houses: There are hundreds entering the local market each month, but Jason explained that they, too, can take months to close on, especially when you're dealing with a large national bank. And when the process begins to drag out, there's no one to beat up on.
"It's just some girl in Minnesota," he said, "and she's just doing her job."
But, he pointed out, buying a bank-owned property can be a good deal. While the bank might take longer to rally itself, it has no emotional attachment to the house. It is a number on a ledger, and negotiating can be blunt.
No way out
When we found our newest sad little project in early November, we knew instantly. It was a foreclosure, but in good shape — somehow, its lack of personality seemed more blank-canvas than bleak. We got pre-approved and put in an offer. After a round of counter-offers, Fannie Mae came back with a number that it said was the absolute lowest it could go.
I pointed out that the house had no appliances. Fannie Mae dropped it another $1,000. That was the absolute lowest it could go.
We chose Ent Federal Credit Union for our lender and were quoted a great interest rate of 4.375 percent. So we signed over $400 for the appraisal fee, sat back, and waited for the closing.
Our first roadblock came when we were told that we didn't actually qualify for the loan we'd been quoted by the loan officer. According to the loan consultant — apparently the consultant handles the loan processing, while the officer does the up-front sell — we had to prove that at least half of our down payment was "our money."
We'd been clear with our loan officer from the outset that we were borrowing the full amount of the down payment from family. Without having been able to sell our place back in Albany, we didn't have our own cushion. If we had been cautioned by Ent early on that this would nudge us into the higher-risk bracket, and qualify us only for a Federal Housing Administration loan, we don't remember.
Either way, it made no sense to us. The money was a loan from Michele's parents, sure, but we have owned a house for eight years, during which time we've been fully employed and paid all our bills. We have great credit, a comfortable debt-to-income ratio, and so on.
Our new interest rate, because of the FHA loan, rose to 4.875 percent. As we were told by the loan consultant, that was only $35 more a month than what we had originally been quoted.
But $35 a month seems like a fortune when you feel like you shouldn't be paying it at all. Because, as we were told, if we had just borrowed the down-payment money from our folks and let it sit in our account for a few months, the bank would have then considered it ours and qualified us for the conventional loan.
Our real estate agent wasn't interested in steering us to any other lenders, though there are still a few out there who would have possibly given us a conventional loan piggybacked by a second mortgage to cover the down payment. (While way more regulated than they once were, the 80/20, 90/10 type of loans do still exist.) Going with Ent, he said, which would always service the loan, was the best option.
Plus, we'd already paid $2,000 in earnest money, a down payment that Fannie could keep if we dragged out the process on our end.
The timeline in the contract held us hostage — even if no one else was going to pay any attention to it.
We filed for our first extension because everyone agreed that closing on this bank-owned house would take longer than closing on your average privately held house. We applied for our second extension when our lender failed to get the appraisal done. No one quite knew who was to blame for that, the seller or our lender.
When the appraisal was done, it led to another series of surprises. To secure the loan, we had to get estimates for repairs to make the house, technically, "habitable." Not only did we have to get these estimates, but we were required to have the work completed by a licensed contractor, whose bill we would then have to submit to the bank within a set time frame.
In our case, this means that we have to get the hole in our stucco repaired, though we're certain there is underlying water damage. (I was planning to fix it myself this summer, before having the whole house re-stuccoed.) Also, it means hiring a contractor to carry a toilet into the house, set it into the already-plumbed footing, and tie in the water lines. We have to have the work done and the proof to the bank within two months.
Total cost for repairs that I could have done myself: $800.
Then there's the leaking pipe on our boiler. Our bank didn't catch it until it read through our inspection report; once it saw that a $525 repair needed to be done to the heating system, the whole contract was thrown into chaos. We applied for the third extension less than two weeks before the closing.
Talking about the process later, Ent's vice-president of mortgage lending, Jon Paukovich, tells me, "We are going to slow it down to make sure that we do it right. We are not going to artificially speed up something to just get it through, because there are real dollar consequences, and legal consequences, if we aren't following the law correctly. So we are double-checking and slowing it down."
I'd rather not dwell on all the panicked phone calls that I made to the lender, the seller, and my agent over the past couple months, or the frustrated e-mails and lack of sleep, or the faxed and re-faxed documents, or that nobody seemed to be able spell "Michele" correctly. In those last few weeks, Michele became convinced that we'd never close on the house, and I became convinced we wouldn't want to.
'Every little thing'
Fannie Mae never really understood what it was selling. Not in a physical sense. I doubt its local agents ever stepped foot inside the property, and if they did, you wouldn't know it by the listing.
According to the MLS, it is a four-bedroom, two-story with forced-air heating and a detached garage. It's actually a three-bedroom, one-story house with a two-story detached garage and hot-water heat.
Not a big deal, I guess, especially not when you consider the quantity of homes that Fannie and Freddie are moving — at last count, they held $24 billion worth of distressed properties — but it is a gnawing concern when you are entering into a contract for more money then you've ever spent on anything. (And it makes you wonder what else they don't know about the stock of foreclosed homes they're selling.)
When you couple the massive catalog with the thorough overhaul of an industry that suffered a devastating failure of ethics and responsible stewardship, it comes as no surprise that Fannie foreclosure will mean delays and headaches and irritating rules.
And if the buyer feels them, the lender does, too. For Paukovich, two pieces have significantly changed since the subprime crash.
"One is the compliance aspect. The government regulations that have been imposed over the last two years, and the plethora that will be imposed over the next two years due to the Dodd/Frank Act. We have undergone significant federal compliance regulation changes, and those to come may even be more significant."
These regulations, he says, are intended to slow the process and make it more transparent to borrowers, so they're aware of the risks that their loan carries. Many regulations are meant to remove any incentive for lenders to direct clients to ill-suiting loans just to turn a quick profit.
"So that's the consumer protection piece," he says. "So the other piece of it is the changes to credit. Back in 2003, money was much more free and easy. No income, no asset, no job verification. It was very, very simple to get a loan."
Not so, anymore.
"There are strict guidelines that must be followed. There are no no-income-verification loans. Credit scores are much higher now to receive a loan. Pricing is much higher, so that higher-risk loans, which may in the past been considered very good loans, have to pay additional fees to compensate for the risk. As lenders, the process has become much more complicated."
Or, as our loan officer put it: "I've been doing this for 20 years, and now I feel like the new kid on the block.
"The way that we were doing things, I can do that in my sleep. But now I have to be awake; we are monitored on every little thing. Has it slowed us down with the new regulations and the laws that they installed on us? Oh yeah, it has slowed us down. The days of doing a mortgage loan from application to contract in a week to 10 days, you will never see that again. You will never see that again."
Six years ago, we could have closed on our house in weeks, says our realtor. Of course, he adds, six years ago we never could have gotten the house at the price we paid. He guesses that the house would have gone into a bidding war, driving the price up 10 to 15 percent above the final listing price, whatever it had been.
Last Friday, after signing our names to dozens of documents we have no ability to understand, we closed on our first bank-owned house with our first FHA loan. We want to move the kitchen, add a bathroom, bust out walls, lay all new flooring — we're even gonna build a hidden door behind the shoe rack.
First, though, we're going to have to do something about that smell.