Table Of ContentMarch 9, 2009 Vol. 173 No. 9
Holding On for Dear Life
PHOTO-ILLUSTRATION FOR TIME BY ARTHUR HOCHSTEIN. HANDS: WHITE
PACKERT/GETTY; ROPE: ISTOCKPHOTO. INSETS, FROM LEFT: ISTOCKPHOTO,
DEIRDRE O'CALLAGHAN.
COVER
House of Cards: The Faces Behind
Foreclosures
By David Von Drehle Friday, Feb. 27, 2009
Zachery, a firefighter, was injured in an on-duty accident in 2007. Disabled and battling a
weak economy, he had to liquidate his fledgling demolition business. Bills from the failed
business deepened his debts.
Livia Corona for TIME
Jeff Wagoner is a bankruptcy attorney in Kansas City, Mo., with the brush-cut hair
and clear eyes of a former Navy aviator. From his office in a tower on a hill, he can
see miles of prairie and a world of hurt. Wagoner's clients (and he has plenty these
days) range from folks who had no business ever buying a house to folks freshly
fired from executive suites. Based on his survey of the economic wreckage,
Wagoner's conclusion is that even the slightest miscalculation or change in
circumstances could send another customer through his door: "There are not a lot of
second chances out there right now."
We have entered the one-strike-and-you're-out era. One lost job. One medical
emergency. One bad risk or misjudgment of the heart. "I've seen more people lose
their houses in the past year than in the previous nine years put together," Wagoner
said one recent afternoon, as gray skies hung low over the vast horizon. "It sounds
crazy," he continued, "but I'd say unless you're making over $350,000 a year, the
more you're paid, the more vulnerable you are. If you lose a job, you're going to
have a hard time finding another that pays as much. Or maybe you need to move to
find that new job, but you're stuck with a house you can't sell. Or maybe your
marriage breaks up, and you have to liquidate your assets at today's prices."
In the one-strike economy, it's not just the subprime suckers going down. Trouble
stretches beyond the province of liar loans, condo-flipping and the collateralized debt
obligations that no one fully understands. A hard rain now falls on the just as well as
the unjust. Consumers have stopped spending, factories have stopped operating,
employers have stopped hiring — and home values continue to fall. For millions of
people, the margin between getting by and getting buried is becoming as thin and as
bloody as a razor blade.
The number of homeowners headed toward foreclosure is rising so quickly that "you
need somebody to project what the projections will be — because they're just
changing so fast," said Lindley Higgins, the applied-research manager at
NeighborWorks America, an urban revitalization project created by Congress. A
decade ago, Higgins said, 400,000 foreclosures nationwide was a busy year. America
may see 2.5 million in 2009.
"The other day," Wagoner says, "I had a visit from a corporate executive who moved
to town and bought a house." Which should be fine; a big wheel need not fear a big
mortgage. But this guy's one strike was moving from Florida, where the real estate
market is so screwed up that judges in one county are hearing nearly 1,000
foreclosure cases a day. Mr. Exec was stuck with his old house too, and that one was
dragging him down, down — until there was nothing left to do but pay a visit to the
bankruptcy attorney. " I would bet a majority of people are only a few paychecks
away from being in this office," says Brent Westbrook, a partner in Wagoner's firm.
President Barack Obama described this stark reality in his recent speech rolling out
an expensive plan to keep the housing market from sinking further. Picture "a young
family," he suggested. "They save up. They search. They choose a home that feels
like the perfect place to start a life. They secure a fixed-rate mortgage at a
reasonable rate, make a down payment, and make their mortgage payments each
month. They are as responsible as anyone could ask them to be."
Then one thing goes wrong. "Perhaps someone loses a job in the latest round of
layoffs, one of more than 3.5 million jobs lost since this recession began," Obama
said. "Or maybe a child gets sick, or a spouse has his or her hours cut. In the past, if
you found yourself in a situation like this, you could have sold your home and bought
a smaller one with more affordable payments. Or you could have refinanced your
home at a lower rate. But today home values have fallen so sharply that even if you
make a large down payment, the current value of your mortgage may still be higher
than the current value of your house. So no bank will return your calls, and no sale
will return your investment. You can't afford to leave, and you can't afford to stay."
This is a harrowing experience, tightrope walking over the financial abyss. American
Dreamers are optimistic, but few can tread that wire now without looking down in
panic. We're geared to believe that risk begets reward and our tomorrows are
brighter than our todays. One-strike-and-you're-out is a neck-snapping reversal for a
culture accustomed to assuming that fate is a welcome friend.
Stay Well, or Lose It All
What's an American dream story without a lucky break? Joseph Zachery's took the
form of a mysterious stranger who pulled to the side of the road one day in 1986. An
older white guy, slowing his car to ask a strapping black teenager why he was
running down the street. Zachery, who was 19 at the time, could think of no benign
reason why this man might be interested in him, but instead of ignoring the driver
and running on, he gasped out an answer. His car wouldn't start, and he was due
downtown to take a test for a job with the fire department. If he was late, he'd be
locked out, and 50 blocks was a long way to run, so he was almost certainly going to
be late — but he had to try.
Climb in, said the man. Zachery swallowed his misgivings, and away they went. They
arrived at the test site with moments to spare. As Zachery bolted from the car, the
man called out, with eerie conviction, "The job is yours." How did he know?
Zachery still wonders, as he reflects on the upward path his life followed from that
chance encounter. His was the textbook tale: a foot in the door, some hard work and
enterprise, and another American gets ahead. Twenty-two years after his lucky
break, Zachery was a veteran firefighter earning north of $60,000. Like most
firefighters, he always had a second job — delivering pizzas, driving a street
sweeper, installing meters for the power company. Eventually he started his own
business, demolishing houses condemned by the city. He supported an aging
mother, a son in college, a new wife and a stately old house on a large lot with big
trees in the center of Kansas City. The home cost him about $100,000. It needed
renovation, which Zachery planned to do himself, one room at a time. As home
values rose, he used his equity to buy the heavy machinery required for his business.
He was pursuing the ideal of the self-made entrepreneur, but his ambition left him
dangerously exposed when the housing market soured, because he owed nearly
twice the original purchase price.
Then chance paid another visit.
It was July 13, 2007, Zachery's 41st birthday. He was working in the hazardous-
materials unit, and a call came in from a local hospital: chemical spill. Normally,
Zachery would have been behind the wheel of the truck, but on that day, he was
acting captain, so he rode in the passenger seat. Siren blaring, lights flashing, horn
honking — none of it registered with the driver of a city trash truck, who turned into
the path of the speeding haz-mat unit. The crash folded the front of Zachery's
vehicle, and his head spiderwebbed the windshield.
The aftermath played out in slow motion — and is playing out still. Zachery suffers
from pain in his back and neck. There are unexplained memory lapses, lost initiative,
mood swings and depression — symptoms that eventually led doctors to a diagnosis
of postconcussion syndrome. In time, the fire department placed Zachery on full
disability, but not before a doctor assigned to his case by the city prescribed a course
of electroshock treatments that left him unable to remember his own neighborhood.
His finances began to fall apart. As he shuttled from one doctor to the next, his
demolition business went into the tank. He was in no condition to rip old houses
apart, and even if he had been, the soft economy was suffocating. Having pledged
his home equity as collateral, now he was forced to sell his demolition equipment at
a loss. He fell behind on his mortgage payments of $1,647 per month. His son had to
leave college in Virginia to attend a school near home. His mother passed away.
Zachery showed up for a recent interview at one of Kansas City's barbecue temples
carrying a large box full of medical records. But no amount of documentation could
resolve his bewilderment over what was happening to him. "You play by the rules,
then when you need them, the rules change," he said. "I had an occupation. I was at
the top of the food chain, keeping my head above water. Then I happened to show
up for work on my birthday — and everything since then has just spiraled."
The math looks like this, he said: his pension pays him a little more than $50,000
before taxes, out of which he pays about $800 a month for medical insurance. That
leaves some $2,400 a month, he said, for his mortgage and other expenses. He has
about $15,000 in unpaid medical bills and a similar amount in missed house
payments. He has no significant assets; his home equity is gone. Houses comparable
to his in more desirable neighborhoods are selling for less than the amount he owes
to the Bank of New York Mellon. As the saying goes, Zachery is under water. It was
this math that led him to Wagoner's bankruptcy office.
Late last year, Zachery told me, he received an invitation from the company that
services his mortgage to apply for a loan modification. He has a 30-year, fixed-rate
mortgage at 8.99% interest, at a time when the Federal Reserve is trying to push
rates below 5%. But after faxing his paperwork and waiting for several weeks,
Zachery received the same invitation again. Evidently his application had been lost.
Zachery's documents had vanished in a flood of urgent requests for mortgage relief.
So he sent his materials a second time, but instead of an answer from the service
company, he received a letter from lawyers for the bank. This, too, is typical, said
Wagoner. Modifications and foreclosures often proceed simultaneously along
separate bureaucratic paths, so that the bank's customer-service face is encouraging
even as the legal arm is threatening.
In any event, the nub of the message from the lawyers was that Zachery must pay
up or get out: "Should you wish to retain the property," the letter declared in
boldface type, "demand is hereby made upon you for immediate payment of
$188,101.57 plus interest." Zachery immediately called the modification number, only
to be told once again that his application was missing. The woman was polite but
unyielding as she informed Zachery that his home was scheduled for sale on March
20 on the steps of the Jackson County Courthouse. "And then," he says, "she asked
me in a nice voice, 'Is there anything else I can help you with today?'"
Since the accident, Zachery's renovations have stalled. He has fallen behind on the
yard work and hasn't gotten around to hanging his father's portrait — a striking shot
of a muscular man in dark briefs. Jerome Zachery wrestled professionally in the
1950s before settling into family life. The champ used to tell his sons, "As long as
you have a place to keep the dew off your head, you're O.K." Facing foreclosure,
Joseph Zachery worries about pride more than shelter, though. He has rented a
storage unit so that his belongings will never be dragged to the curb. "If I have to
leave," he said, "I want to leave with some dignity."
Hard Work Is Not Enough
A couple of facts stand out when you meet Paula Stevens for the first time. No. 1:
she is not afraid of work. She has done everything from catering sandwiches for rock
bands to light landscaping for rich old ladies. Her résumé starts at age 9 and runs to
56 without significant interruption. Stevens has stories from inside the health-care
industry, the hospitality industry, the computer industry, the casino industry. She
knows the day shift, and she knows the night shift. Also, she could make
conversation with a statue. That's Fact No. 2.
Her break in life — the twist that put her on the path to a snug house in the suburbs
with a vaulted living-room ceiling — was the product of these two qualities, the work
ethic and the gift of gab. As a free-spirited young woman, Stevens liked working in
hip restaurants and bars where musicians would hang out when their tours passed
through Kansas City. Bonnie Raitt, the Doobie Brothers. "Those boys from Lynyrd
Skynyrd," as she now calls them, arrived after closing time at a joint where she
worked and smashed some things when she refused to serve them — then came
back the next day to apologize. Fun times. But life goes on, and the free spirit grew
into a divorced mom of two daughters. Stevens decided she should find a job with
better hours and benefits. There was just one problem: no college degree. A friend
told her about a job processing medical claims. Stevens talked her way into the
interview and just kept talking as the boss looked at her quizzically. Suddenly
something clicked in his head, and he said, "Aren't you that girl from the deli?" He
had met her years earlier, maybe with a sandwich in her hands, and he hadn't
forgotten.
It wasn't a Wall Street bonus or a corner office, but Stevens' lucky break gave her
enough to raise her kids and put a roof over the head of any friend or relative who
happened to hit a rough patch. She left that job after eight years for the Kansas City
office of Gateway computers, which was then a booming enterprise with a
Midwestern flavor. There, Stevens rose through the ranks from customer service into
sales. In her best year, she racked up so much overtime that she outearned her
supervisor, grossing some $42,000 — not far from the middle of the pack of U.S.
incomes. And if she sometimes spent too freely on clothes and gear for her girls, she
was able to balance the books by drawing on her equity in the home she bought in
1995.
"I always managed to make ends meet," Stevens said over breakfast at a burned-
toast diner near her home in Independence, Mo. "I was working day and night, but
that's what happens in this country if you're not educated. Anyway, I'm not afraid of
hard work."
Along came the curveball. Gateway's personal computers, marketed in cow-spotted
boxes, lost their appeal. Sales tumbled; stores closed. The company's stock price
plummeted. Fewer customers meant less customer support. When the Kansas City
operation finally closed in 2006, Stevens was among the last employees let go. Now,
for the first time in her life, she's finding it difficult to talk her way into a new job.
"It's a hard time to be 56, going on 57, and looking for work," she said matter-of-
factly. "They're not allowed to say it, but you see it in their eyes: Why hire an older
person who might have some medical issue when there are young people behind you
in a line that goes clear out the door? I really can't blame them. Businesses are
struggling, and insurance is a big problem." That's when she can manage a face-to-
face encounter at all. Many employers take only online applications nowadays, a fact
that discounts her charm while highlighting her lack of education. "You can't go in
and sell yourself anymore," she lamented. "You just send your résumé into
cyberspace and hope that it works."
In the roughly 14 years that she has owned her home, Stevens refinanced three
times — nothing crazy — but the bad news for her was that the third time was very
near the peak of the real estate bubble. At that time, in 2005, her 3,000-sq.-ft. house
was appraised at $185,000; she now owes about $159,000 on it. Real estate agents
have advised her that she could not sell it for more than $145,000. Her debt is
actually two loans, the larger of which was recently modified from an adjustable rate
to a fixed-rate note at 9% interest. The second loan charges over 10%, and the two
payments combined are slightly more than $1,400 per month.
With only a part-time job — she visits office-supply stores and makes sure that the
floor-model printers have enough paper and ink for demonstrations — Stevens found
she could pay for food and utilities, or she could pay the mortgage. Not both. After
she fell four months behind on her payments, the bank moved to foreclose. Stevens
briefly considered letting the bank have the house, but her oldest daughter, Maggie,
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