A decade after the banking collapse and the start of the mortgage crisis — which disproportionately targeted minorities and women — people who lost personal battles and homes still are struggling to recover.
If you tallied up the value of all of the housing stock in Seattle in 2017, it would add up to about $645 billion, more than the gross domestic product of Argentina. Even more remarkable, that figure shot up nearly 12 percent in a single year, compared with 2016.
The net worth of Amazon founder Jeff Bezos, meanwhile, soared to $105.1 billion in January by one measure, placing him ahead of Microsoft co-founder Bill Gates, whose net worth was valued at a slightly less-astounding $93.3 billion.
The Seattle area, under the influence of a tech boom, is rich by any standard, and home to some of the richest people who ever lived. But a decade after the Wall Street banking collapse and mortgage foreclosure crisis, the historic wealth flowing into the region’s economic elite makes the struggles of people who barely squeaked by all of that time even more striking.
While the rise of Amazon, a flood of newcomers and a dazzling construction blitz had us fighting over the contours of our collective future, thousands of homeowners fought more personal battles to ensure they had a future to fight for.
The mortgage crisis, exacerbated by massive job cuts and uncooperative lenders, devastated households from Snohomish County in the north to King and Pierce counties farther south, and it evaporated the collective net worth of entire neighborhoods as home values plummeted, and homeowners — unable to pay their bills — fell into foreclosure.
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In one suburban neighborhood of newly built homes in Southeast Pierce County, for instance, court records show the severity of destruction, with about one out of every three or four homes in the period between 2008 and 2014 facing foreclosure.
In some South King County ZIP codes, foreclosure rates rocketed to 10 to 20 percent for that time span, according to research by the California-based ATTOM Data Solutions, which tracks real estate trends.
Even with the creation of the Consumer Financial Protection Bureau in the wake of the Great Recession, homeowners continued to be at risk. Obama-era foreclosure-relief efforts were sluggish, poorly supervised and underused, given that only a fraction of the roughly 4 million mortgages meant to be rescued were permanently modified by 2016.
In Sunday’s Pacific NW magazine cover story, The Seattle Times looked back on the economic crisis that brought the region and nation to its knees a decade ago from the vantage points of four Seattle women who fought to save their homes from foreclosure, becoming activists against predatory and negligent financial institutions in the process.
One of those women is Chettie McAfee, who has owned several properties over the years but wound up losing a house she owned in South Seattle to foreclosure in 2014. A former account executive who was laid off just as the recession hit, she drew from savings to pay the bills while muddling, in vain, through a protracted loan-modification ordeal.
McAfee discovered that very few people, even in the banking and legal fields, fully understood how to untangle the complicated web of transactions that led to the mortgage crisis and prevented people from climbing back in the aftermath.
“We were just trying to fight for what we had, but there was no help for us,” McAfee says of the crisis and the frustrating, yearslong ordeal that led to her house being sold at auction in 2014.
McAfee, 61, did her homework, learning about Mortgage Electronic Registration Systems, or MERS, a corporation created by banks to transfer mortgages privately and avoid the public recording fees typically associated with these transactions. It’s supposed to help homeowners keep track of their loan servicer, especially as mortgages change hands from one lending institution to another.
But in the 2012 Washington state Supreme Court case Bain v. Metropolitan, the judges ruled that MERS violated state law by foreclosing on homes on behalf of lenders, despite the fact that MERS never held the promissory notes.
In McAfee’s case, knowledge was power, and she drew additional strength from sharing what she knew with others dealing with foreclosure.
“I just couldn’t take it lying down,” McAfee says. “You’ve got to stand up for the truth.”
Now: a difficult market
Much has changed since the mortgage crisis.
Windermere Real Estate chief economist Matthew Gardner says one of the most notable post-crash trends nationally is that homeowners are living longer in their properties.
“There are as many homes available as in the late 1990s, despite adding 40 million people,” he says.
That only adds to the current scarcity of homes available for sale in the Seattle area’s inflated housing market, where owners face the daunting task of finding another home to buy if they choose to cash in on what they currently own.
And good luck working with a lender. Banks have tightened their lending rules post-crash.
“The bank of mom and dad is not as amiable as it used to be,” Gardner says. “We’ve gone from it being extra easy to get a mortgage to extraordinarily difficult — I would say too difficult.”
Historically in King County, home prices have increased about 5.5 percent per year. Today that figure is more like 10 to 15 percent, he says.
“It’s not even close to sustainable,” Gardner contends. Too many people who want to buy have been locked out of the market.
Another cause for worry is that the amount of income needed in the Seattle area to purchase a home, compared with just a few years ago, stands well above what most of us earn.
In early 2014, a buyer would need a salary of $59,129 to afford monthly payments on a median-priced home, assuming a fairly burdensome 20 percent down payment, according to mortgage research by HSH.com.
By late 2017, the required income had risen to $93,400 as home prices continued to soar.
Taking into account only the homes available within Seattle city limits, the required income needed grows to $140,000. The average salary in Seattle as of last spring was $68,688, according toPayscale.com.
Still, despite record-setting home prices, Gardner isn’t convinced we’re in a housing bubble, because there are so few homes actually on the market, and because banks, chastened by the crash of a decade ago, appear to be playing it much safer.
While it’s true the banks got burned during the mortgage crisis and aftermath and subsequently tightened their lending rules, much of their suffering was self-inflicted, the result of bad loans, deception, illegal racial bias and all-around recklessness.
JPMorgan Chase, which took over the assets of Seattle-based banking and home-loan giant Washington Mutual when it collapsed in 2008, agreed to pay out $5.1 billion in restitution to Fanny Mae and Freddie Mac in 2012 for misleading those two government-backed institutions about risky loans and mortgage securities it sold them.
The bank, the nation’s largest, also got caught foreclosing on properties it didn’t technically control and, like Bank of America and Wells Fargo, seizing houses using hastily processed paperwork prepared by untrained “robosigners” who had no clue what was in the documents.
Last year, Chase agreed to pay out $53 million in restitution to African-American and Hispanic borrowers to settle a lending-discrimination suit claiming the bank charged 50,000 people from those demographic groups higher rates and fees on Chase wholesale mortgages than it charged similarly qualified white borrowers between 2006 and 2009.
Banks exploited women borrowers, too.
“Despite having higher credit scores, single female homeowners were overrepresented among subprime mortgage holders by 29.1 percent, and African-American women in particular are 256 percent more likely to have a subprime mortgage than a white man with the same financial profile,” according to a 2014 report by Amy Castro Baker in the journal Social Service Review.
“They were targeted,” Castro writes. “Cash-strapped but equity-rich elderly African-American women were more likely than anyone to receive these costly loans.”
Fraud still a concern
Other things have stayed the same, according to Massachusetts-based attorney Marie McDonnell. Her firm, McDonnell Property Analytics, produced a damning 2015 report based on an audit of 195 home mortgages in Seattle. The study was commissioned by the City Council to determine the impact of the state Supreme Court’s MERS ruling, particularly on foreclosures.
She found that because of the role MERS played in the mortgages her firm studied in a sampling of Seattle properties, those mortgages were void. Because of this finding, she concluded that nonjudicial foreclosures on those properties would be invalid as a result.
The city didn’t endorse McDonnell’s findings. City Auditor David Jones explained at the time that McDonnell’s research didn’t include an adequate-enough sampling of mortgages and foreclosed homes to reach definitive conclusions.
Speaking by phone, McDonnell stood by the report. She expressed frustration that her research didn’t win as much support from local officials or cause more alarm, given the difficulty her firm had untangling mortgage documents.
She says that all across the country, not just in Seattle, financial institutions are using electronic recording practices to “water down the chain of title.”
“When we’d send a request for a MERS mortgage identification number and milestone report, most of the time we were totally rebuffed,” she says. “The lack of transparency and the resistance to providing a clear chain of title creates an environment that is ripe for fraud.”
One of McDonnell’s concerns is that lower-income, minority homeowners are often left to fend for themselves against a lending industry with a record of inappropriate behavior involving mortgage and foreclosure documentation.
Even for homeowners who currently have no problems paying their mortgages or dealing with their lenders, McDonnell has words of caution: “That’s great, but guess what? These lenders have many ways to engineer a default.”
A single life crisis can derail the best of plans, McDonnell says. “This is a time when consumers cannot count on a job or income remaining at their current level forever.”
She’s also concerned that many attorneys who work with homeowners lack expertise in mortgage-based consumer law.
McDonnell says homeowners should save every written agreement, every proof of payment, every correspondence with a lender and every tax bill, but laments that many don’t keep good track of such documents.
In the event of legal action, those documents “can turn a case upside down,” she says.
Buying a home — in most cases the largest purchase any of us will make — naturally excites passions, and that can make people vulnerable to deception.
McDonnell is developing what she calls a “toxicity test” that will help determine whether a homeowner’s loan agreement is sound or problematic — before they sign.
“The consumer has to understand how to protect themselves by educating themselves and by returning to common sense,” McDonnell says. “You’ve got money. Somebody’s going to want to take it from you.”