Issue #150, Summer 2007

American Nightmare

Homeowners under threat of foreclosure suffer a level of trauma that's largely invisible to most Americans, while professionals working to keep people in their homes are often overwhelmed by the complexity of the crisis.

By Desiree Fields, Francine Justa, Kimberly Libman, and Susan Saegert

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By now, most Americans have heard about the country's growing foreclosure crisis and seen the statistics showing the growing numbers of mortgage delinquencies nationwide. But while the numbers are startling, even frightening, they do little to convey the hardships and despair of the households that experience delinquency, default, and foreclosure.

When foreclosure threatens, the attendant trauma often isolates homeowners from the very information and support they need; the shame they feel discourages them from contacting organizations that could help them, even leads them to withdraw from the support of their friends and family. Fear of foreclosure undermines family stability, parent-child relationships, and the ability to make long-range plans. In many cases, homeowners in trouble feel that their life is ruined.

In 2006, the Housing Environments Research Group at the City University of New York Graduate Center undertook a series of focus groups in five cities - New York, N.Y.; Waco, Texas; St. Louis, Mo.; Duluth, Ga.; and Hamilton, Ohio - to learn more about how low-income homeowners go into mortgage delinquency, how they decide to deal with the crisis, and the results of their efforts to avoid foreclosure. We conducted three focus groups in each city: one with the nonprofit professionals who come into contact with homeowners at risk of foreclosure; one with delinquent homeowners who sought help from a nonprofit counseling agency; and one with delinquent homeowners who did not seek help from a counseling agency. In all, we spoke to 88 homeowners and 39 professionals. The conversations yielded a vivid picture of the devastating effects of the foreclosure experience and the difficulty many professionals have in supporting the emotional needs of these homeowners.

"You feel sick to your stomach and scared every time the phone rings."

o A woman named Naira, before breaking into tears, told us, "Truthfully, it feels like you're walking down a one-way street, a tunnel, dead end, no way out. None. What's left? Death? You consider it. You consider it why? You've got life policies. They'll take care of your kids." When she separated from her husband, they agreed that Naira would care for their children and pay for their day-to-day needs if he maintained the mortgage. She only learned about the delinquency when their lender gave up on collecting from her husband 15 months after he stopped making payments and turned to her for remittance.

o Marion, a young single mother, explained that she left her job to attend to her mother's illness. Marion became delinquent on her mortgage after a few months of caring for both households. Still, she felt that providing this care was important because "if it happened to me, she'd do the same thing for me."

Even when overspending is the root cause of difficulty, people described feeling a loss of self control in the face of the consumerist values of American culture. One woman in St. Louis described how her efforts to "keep up with the Joneses" led her into delinquency. Regarding the powerful media images, she said, "They show you this big American dream and we're trying to obtain it, and we can't even afford it."

Home gives cohesiveness to the daily lives of individuals and their families and serves as a marker of stability and accomplishment. Thus, foreclosure represents a cascading series of economic and emotional losses that interfere with people's day-to-day lives.

The impact of, and stress from, being mortgage-delinquent interferes with homeowners' abilities to strategize and make rational decisions about how to deal with financial crises. For example, a New York woman who refinanced to avoid foreclosure acknowledged that acting while she was in an emotionally charged state led her to engage in a fraudulent process that involved signing her home over to a straw buyer. Other homeowners agreed with her assessment of the disastrous consequences of decision-making under extreme stress. A St. Louis woman remarked that "we're not looking at it, we're just looking for a way out; we're just looking for something to say you're current, to stop the late charges, to stop the little sheets of paper."

A Duluth, Ga., woman in her 50s lost her job, went into delinquency after using up her savings, and became depressed. Like many homeowners we spoke to, her depression interfered with her ability to find work and address her finances. She said, "When I get depressed, then I don't have any motivation, or energy, and it's like it's all I can do to just go get the mail out of the mailbox." She eventually became so overwhelmed by the collection notices and calls that she stopped opening them or answering the phone.

Nonprofit foreclosure-intervention counselors characterize this kind of reaction as a typical "head-in-the-sand" response, explaining, "…some people don't want to face that they're in trouble." Many in the housing-finance sector believe that between 30 percent and 50 percent of homeowners who go into foreclosure fail to make any calls for help. Professionals said such homeowners turn to nonprofit assistance only when it is too late to help them to stay in their homes.

However, some professionals acknowledged that they rarely take the initiative to connect with clients after they became homeowners, noting, "We have to figure out the best way to do that, because I think that's going to be one of the keys to preventing foreclosures." Yet nonprofit professionals also expressed reluctance to reach out to those in need of assistance "because the phone might ring, and then we won't know what to do because we won't have enough staff." In particular, one high-ranking professional noted that "Stable, competent staffing is hard to do because demands of the job are not at all like pre-purchase counseling."

As foreclosures have surged recently, professionals have indeed found themselves unnerved by the demands of assisting homeowners with the financial and emotional dimensions of foreclosure prevention. A professional in St. Louis remarked that delinquency "is not their only problem, they have other issues, too." Another professional compared working with homeowners in danger of losing their homes to working with disaster victims. Addressing the complex needs for assistance, counselors become "overwhelmed." This complicates the process of providing help, sometimes resulting in missteps that affect homeowners. The executive director of one nonprofit said, "They [foreclosure counselors] feel they must do everything to save each person, and then they complete nothing."

Policies and practices of lending institutions are also intertwined with how homeowners cope with the threat of foreclosure. Until the scope of the problem became evident, financial institutions resisted offering early assistance to mortgage-holders in trouble because most homeowners managed to get current with their mortgages before it was necessary to foreclose. Indeed, many homeowners respond to delinquency by cutting costs. Often this means cutting back on basic expenses like utilities. One man in Texas went to so far as to turn off his gas for six months.

Working for additional income is another common way of trying to resolve delinquency. A homemaker from Ohio described this strategy as, "You just live with no money and you don't get to do things, but you just work really hard work - two, three, four jobs." In her family's case, her husband was injured and out of work for more than a year. She would "work two jobs at two offices and clean apartment buildings on the weekend. My kids would help and I just worked really, really hard." She also home-schooled her three children in part so that they would not need to spend money on shoes and clothes. After a year of struggling to make monthly $1,000 mortgage payments, it was a tax refund that helped the family catch up.

Other homeowners reach a limit to what can be done, like one older woman who found, after taking extra jobs that still brought in little money, that she did not have the physical fortitude to keep up the effort, and resigned herself to whatever would happen. At the time we spoke with her, this woman was still behind on her mortgage payments and unsure if she could get caught up.

The experience of struggling to prevent foreclosure can create a home environment dominated by fear, tension, and stress between parents and children and between spouses. In Ohio, one mother told us that her daughter wanted new school clothes but that she couldn't even go to consignment stores because there was no money. She said, "Your whole house becomes depressed because all they hear is we can't, we can't, we can't, we can't."

Taking on extra work and going without means making tradeoffs that affect the entire family. Janice, a single mother in Texas said, "I could make as many hours as I needed to if I needed them, but that'd mean I have two teenagers at home all night by themselves unattended." Deciding to work overtime meant that her children would have to feed themselves. The exhaustion of being "up five, six days working overtime" meant that she would come home too tired to talk to her children. Overall, she regretted feeling "too stressed out," explaining, "They tell me 'Mommy, what are we going to eat today?' and I go all crazy on them."

Becoming a homeowner is often viewed as a means of creating wealth and providing for the financial future of one's children, which makes the pain of possible foreclosure worse. One mother said of her children, "I want them to be those people sitting on the side of the table that have the clout to negotiate what they really want up front and not have to fight just to get the little tidbits that people are willing to throw out there." Delinquency represents the possible dissolution of a once-secure future for one's family: "If you have a baby, and you want them to have a stable home where they can grow up and have some stability in their lives, it [delinquency] really adds a lot of pressure."

"You asked some people for help, but then they looking down on you for asking."
Some homeowners who sought institutional help for financial problems and the crisis that started them on the road to foreclosure found that it added to their stress and financial problems.

In Texas, Janice became delinquent on her mortgage after she and her husband divorced. As a newly single mother of two teenage boys, she was struggling to take care of her kids and work enough overtime to get caught up on her mortgage. Her monthly payments had recently increased as a result of her working out a forbearance agreement with her lender. She was reluctant to seek public assistance but said, "I'm making money, I pay my bills, just feed my kids. That's all I ask." When she applied for food stamps, she said she was asked, "Why are you asking for help when you got gold on your neck?" Janice walked out feeling angry and disrespected.

Some people had similar experiences when they sought help from nonprofit organizations that offered foreclosure intervention services. Talking about her efforts to budget well and get current on her mortgage, Charlene revealed that she had already cut back expenses on food, work transportation, and other necessities. She said, "I'm not a high-maintenance kind of girl or anything like that, you know, where… I got champagne tastes with beer money." But foreclosure intervention counselors often expressed the belief that their clients had "Champagne tastes on a beer budget." Delinquent homeowners seeking help picked up on their attitudes. Jim, an older man who had fallen behind on his mortgage because of mounting late fees, was frustrated by his experience with a foreclosure-intervention counselor. He said, "They take the attitude that everybody's got money and everybody's rich that you don't have any problems. That guy evidently has never been there. They need to change their attitude."

Homeowners frame their spending on a set of needs and values that are sometimes different than those held by the professionals who strive to help them. Juan is a father of two who had already been in and out of jail, as had his father during Juan's youth. In justifying expenses that seemed frivolous to debt counselors, Juan said, "Every one of my kids are spoiled, you know. But the big picture is the big cycle. I mean, if spoiling them and being hard on them and being late on a mortgage is going to keep my son from going to prison, well then."

Mortgage delinquency can also promote feelings of shame. Jackson, a man living in Waco, Texas, with a wife and children, said, "I tell you, there's nothing worse than a man feeling like he's not providing for his family." Feelings like Jackson's prevent some homeowners from seeking help or even talking about their delinquency with family, friends, and coworkers. Jackson cautioned, "Those same people you try to talk to, that you think would bring you up, will be the ones that bring you down." He worried that people he confided in would tell others in his community about his financial situation. One woman kept her delinquency a secret from her family because "everybody is living kind of paycheck to paycheck" and "you don't want anybody just feeling sorry for you."

The shame and silence surrounding mortgage delinquency may prevent the kind of word-of-mouth networking that nonprofits tend to rely on to get the word out about their programs.

Homeowners seeking help felt misunderstood, ashamed, and excluded from resources they believed were a part of the American social safety net. When trying to obtain temporary financial assistance, food stamps, or emergency grants, many found that they were not eligible because their home was an asset that counted against them. Others found that being unemployed or being single without children also made it difficult to obtain assistance. Such bureaucratic roadblocks left some people facing foreclosure feeling unsupported by government agencies and nonprofits because they were not the poorest of the poor. A man from Hamilton, Ohio, commented, "Our government won't let us get out of debt."

Many homeowners on the brink of foreclosure see racial discrimination as a factor in their plight. Cheryl was a homeowner in New York who felt that as an African-American woman, she was given an unfair deal at closing, despite her good credit history. She said that although she was quoted a great interest rate, at the closing she was presented with a mortgage that was two points higher than the original quote. She described this as "a hurtful thing, 'cause you know the black people just get higher rates. I mean, why would I have such a high rate when I had a perfect credit score, perfect, perfect, perfect?"

As many people do in hot markets like New York City's, Cheryl purchased a multifamily home and planned to use her tenants' rent to help cover the mortgage. She accepted a tenant receiving Section 8, but fell behind on her mortgage after receiving no Section 8 payments for six months. In an attempt to sell the property, she signed a contract with a real-estate broker who colluded with a lawyer to drag her into foreclosure by using their contract to prevent her from selling in time. Cheryl filed for bankruptcy in an unsuccessful last-ditch effort to prevent foreclosure.

When we spoke with her, Cheryl lamented that as a result of the bankruptcy and the foreclosure "now, five years later, my credit is absolutely destroyed." Beyond the loss of her home and the savings she had invested in it, she lost her hope for a secure financial future. She said, "Well, what am I going to do? I mean…, it's going to stay on my credit report for like seven years, 10 years they say. By the time I get that [the bankruptcy] off, if I was going to buy a house, then - I mean I'll be too old." The home that had been foreclosed had become the only home that she felt she would ever own.

Foreclosure: More Than Dollars and Cents
The stories of these homeowners show that we need to reconceptualize what is really at stake in the current foreclosure crisis. Clearly, the potential losses are much more than economic.

Intervention strategies by nonprofit homeownership counseling and education agencies must take a more holistic approach that considers the psychological and social dimensions of delinquency. Similarly, prevention strategies must be predicated on a rethinking of what individuals and communities have to gain and lose through efforts to increase homeownership.

The experiential dimension of delinquency and foreclosure points to an immediate need for new forms of counseling, outreach, and community-level interventions. The isolation and emotionality inherent in the threat of foreclosure may be more readily addressed through a peer-support approach than solely through one-on-one counseling. Our focus groups proved a unique opportunity for homeowners to come together and share their experiences, challenges, and strategies. In fact, people who have lived through these challenges may be more aware than professionals of the full range of available local resources, and a group setting encourages the exchange of valuable information. With homeowners providing this kind of social support for one another, service providers may be better able to concentrate on the practical and financial aspects of foreclosure prevention without becoming overwhelmed by their clients' need for this kind of assistance.

Homeowners and professionals expressed the need for strong policy and regulatory intervention. Professionals fear that the rise in foreclosures means that their "work in increasing home ownership in our neighborhoods" is at risk.

For homeowners, their families, and communities, a great deal more is at risk. Increased protections for consumers aimed at stopping foreclosure before it starts are needed to preserve their dignity, health, hope, and social cohesion.

Taking into account the full scale of what is at risk in this crisis also requires us to reevaluate the risk/benefit ratio of our current all-or-nothing ownership paradigm. Preventing foreclosures and the human tragedies they produce may require developing new ownership schemes that limit risk while allowing families to experience the stability and asset-building potential of ownership.

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