'I'm still angry': Granite Staters revisit the 2008 housing collapse
By SHAWNE K. WICKHAM
New Hampshire Sunday News
February 18. 2018 4:01AM
Foreclosures and bankruptcies have returned to pre-recession levels in New Hampshire. And the state's median housing price of $266,000 last year came close to the all-time high of $270,000 set in 2005. (ISTOCK)
Before Bear Stearns and Leh-man Brothers, before Countrywide, before Fannie and Freddie, some in New Hampshire were seeing troubling signs.
The real estate market here and nationwide was hot and credit was easy. Nobody wanted to miss out on home ownership - and lenders were all too happy to help, writing mortgage loans with no down payments, adjustable interest rates and no income verification. But what if the bubble burst?
In 2005, Federal Reserve Chairman Alan Greenspan warned that the "froth" in the housing market was leading to creation of exotic mortgage instruments that were unsustainable. And that June, Laconia economist Russell Thibeault echoed the concern, telling the New Hampshire Sunday News, "It's housing roulette."
Three years later, the country was in a recession after the subprime mortgage mess infected the credit markets. The stock market crashed; people lost homes and jobs; bankruptcies and foreclosures skyrocketed.
It's been 10 years since the 2008 crash. Unemployment is near record lows and the stock market is at an all-time high. Home prices in New Hampshire are back to where they were before the recession.
We asked folks who weathered the crisis here to look back - and whether they thought it could happen again.
The mortgage banker
Barbara Cunningham believes that "if it sounds too good to be true, it is."
In 2008, Barbara Cunningham was the mortgage origination manager at St. Mary's Bank in Manchester. She remembers signs of trouble even before Bear Stearns collapsed that March.
"The mortgage business had gotten so wild and crazy, you knew something bad was going to happen sooner or later," she said. "There was so much demand for mortgages, both from consumers and then on the investment side."
Investment houses like Bear Stearns, Merrill Lynch and Lehman Brothers, she recalled, "were creating mortgage-backed securities as fast as they could fill them with underlying mortgage instruments."
Lenders such as Countrywide were writing loans with little or no documentation that the buyer could afford the payments. "Everybody was bending and breaking the rules to be able to make more loans to feed the investment system," she said.
And consumers, with lenders' encouragement, were buying bigger and better homes than they could afford, she said. "The consumers that got into these loans, for the most part, I think were banking on a huge and quick increase in equity."
The housing market was so hot that everyone assumed they could sell their homes at a profit if something went wrong.
And go wrong it did: house values started dropping, and once they started they didn't stop. "That's when the whole thing started to unravel," Cunningham said.
St. Mary's had stringent down-payment requirements, so the bank survived the collapse relatively unscathed, she said. Cunningham believes new regulations adopted after the crash will prevent a recurrence - at least until people forget.
"All it takes is a couple decades go by and people forget. Regulations get changed, get removed. And anything that's happened once can happen again."
As for lessons learned, Cunningham said: "If it sounds too good to be true, it is."The homeowner
Shannon Miller says she's the first to admit she was naive 10 years ago when she took a home loan with a local mortgage company. "I trusted them," she said.
What she didn't know was that the unscrupulous company had inflated her income more than three-fold on loan documents. She never saw the fraudulent figures and signed the loan.
Before long, her mortgage payments ballooned; she spent her inheritance trying to keep up with payments. After she took her case to the state banking department, the lender gave her a check for about $4,000 - the commission the company earned on her loan.
But she lost her house and her inheritance, and filed for personal bankruptcy.
A decade later, Miller is happily married and her life is better than ever. She started over, went to school to become a surgical technician and now works at the VA Medical Center in Manchester.
"I'm a fighter," she said. "I just keep going."
She bought a new house, this time taking a VA loan as a veteran. Her credit score has recovered.
What happened to her back then, Miller said, "brought out the fight in me, I guess. To stand up for what I believe in, to make people aware."
A decade later, she said, "I'm still angry."
But she's learned, she said, "to protect myself more and to look at things in more detail.
"Go with your gut."
The federal housing expert
Taylor Caswell was the regional HUD director in '08.
Taylor Caswell was regional director of the U.S. Department of Housing and Urban Development in 2008. He remembers that "it was increasingly concerning to me and our senior staff at the HUD regional office that people were being incentivized to purchase single-family homes in a very expensive market that simply were not in a financial position to do so."
A lot of the concern was about Countrywide's loan practices in urban and rural communities, "and the relentless messaging from multiple sources about homeownership and real estate investments despite all the signs of a bubble."
"The momentum was unbelievably strong."
Today, Caswell is New Hampshire's first commissioner of the newly created Department of Business and Economic Affairs.
At HUD, Caswell oversaw programs to help consumers whose homes were "under water" to avoid foreclosure through mediation.
So what lessons were learned from the crash? "There is no such thing as a sure thing," he said.
Some day, here's how he'll tell his grandchildren about what happened: "The story of irrational exuberance - and there are no shortcuts when it comes to earning the American Dream.
"Kind of like the stories my grandparents told me about the Great Depression."The economist
Russ Thibeault is president of Applied Economic Research in Laconia. In the early 2000s, he recalled, home prices were rising but interest rates were falling, so monthly mortgage payments remained stable. Then interest rates started rising, and the housing inventory started growing.
Meanwhile, mortgage companies were giving out "a lot of poorly written loans to people who had no business buying them," he said. "It was a triple whammy."
One problem was that "everyone in the game was working on commission," he said. "The Realtor didn't keep you from buying that house you couldn't afford because they were working on commission; the bank didn't because they were getting the fee and selling the mortgage to Wall Street.
"And Wall Street didn't because they were packaging them and selling them to pension funds and people in Germany."
"You had a head of steam going into 2007 that was driven by a pretty good economy, lower interest rates, rapidly increasing home prices and weak underwriting standards," Thibeault said. "And that was a cauldron that just was unsustainable and it crashed. The bubble burst."
When home values dropped, many borrowers wound up "under water," owing more than their homes were worth. Between 2007 and 2016, there were 28,631 foreclosure deeds registered here, according to New Hampshire Housing data.
Today, underwriting and appraisal standards for mortgages are more stringent, Thibeault said. "There were lessons learned," he said. "So it would be much more difficult to have the kind of housing bloodbath that we had."
Still, he won't say it could never happen again. "If we had a severe economic downturn and significant increases in interest rates ... we could be in trouble again."The housing authority
Dean Christon is executive director and CEO of New Hampshire Housing Finance Authority, a public authority created by statute "to promote, finance and support affordable housing and related services for the people of New Hampshire."
Christon remembers clear indications as early as 2006 and 2007 that the housing market was beginning to soften. New Hampshire wasn't as hard hit as some states, he said, but "you could see it in the general market data that something was beginning to happen."
By 2008, he said, the economy was showing signs of stress and unemployment was going up. So were foreclosures and delinquencies.
"It was very traumatic for a lot of folks, and it was very directly related to the broader economy," Christon said.
New Hampshire had been through a similar period in the early 1990s with even higher foreclosure activity, Christon recalled. But in the previous downturn, the units being foreclosed on tended to be vacant, so it was builders, developers and banks that took the hit, he said.
"This particular cycle, it really hit individuals," he said. "This was really on people that were living in their homes. ..."
"A substantial percentage involved people who had been in a home and were basically taking equity out, and frankly, the market was encouraging people to do that."
And Christon said, "The reality is a lot of that could happen again."
He agreed there are new regulations put in place to ensure that lenders verify that borrowers can afford their loans. But, he said, "As prices go up and as inventory tightens, there is always pressure from lots of actors to loosen up those kinds of rules," he said.
"And one could argue that the rules got a little too tight during the recession, but you also want to be ever vigilant that you don't get too loose, because it can lead to surprises later on down the road."
Christon said New Hampshire did better than many places in offering foreclosure mitigation counseling. Not everyone's home could be saved, he said, but "that program helped thousands of people over several years avoid foreclosure."
Rachel Victer battled Countrywide.
Rachel Victer took her fight with mortgage giant Countrywide all the way to the New Hampshire Supreme Court.
In 2005, Victer applied for a loan for a home mortgage with the company and was approved for a fixed-rate loan. But two days before closing, her loan officer told her there had been a "glitch," and she'd have to take an adjustable-rate mortgage instead. It was only temporary, Victer was assured; she could refinance in a few months.
That never happened; Countrywide refused to refinance the mortgage and Victer struggled to keep up with monthly payments that had suddenly doubled. It was a bait and switch, agreed then-Banking Commissioner Peter Hildreth.
Hildreth ordered the bank to return all the money Victer had paid. The state Supreme Court eventually overturned that order on a technicality.
But by then, Bank of America had bought Countrywide; the bank refinanced Victer's mortgage and her house was saved.
Looking back, Victer considers her battle with the discredited mortgage giant "a badge of courage."
She's still embarrassed about what happened and admits she was "naive" back then. But she said she trusted that an American bank was an honorable institution.
"You hear of stuff like this happening in other countries where there's corruption, but I never thought at that time that in my country, in the United States, that I would not be able to trust a bank."
Now, any time Victer talks to bank officials, she informs them she's recording the conversation; she stores the recordings on her computer. "I'm never, ever going to get lied to again," she said.
What happened to her a decade ago has made her stronger, Victer said. She now runs her own consulting firm, Your Personal PR, focusing on "helping people find their voice," she said.
"I didn't let this experience define me," she said. She considers herself "a victor," not a victim.
"I fought them with everything I've got and I won," she said. "I'm the first person to my knowledge in the state of New Hampshire that took a bank to the Supreme Court. ... And I'm proud of that."
Peter Wright took on scam artists in court.
Peter Wright is a law professor and director of clinical programs at the University of New Hampshire School of Law.
That's what he was doing 10 years ago when clients began appealing to the school (then Franklin Pierce Law Center) for help with personal bankruptcies and home foreclosures.
"I just remember being astounded as it was unfolding," Wright recalled. "To have major banks collapse and then having the government have to bail them out."
It wasn't just the bankruptcies and foreclosures, Wright recalls. "Right in the midst of so many people losing their homes, the cottage industry of foreclosure rescue scams appeared," he said. "Because so many people were in trouble and fell behind in their mortgages, and if they happened to have equity in their homes, it made them targets for unscrupulous individuals who, under the guise of helping them save their homes, were actually stealing that equity."
It was a grim education for students in his civil practice clinic, Wright said, "that some of these unscrupulous people would treat other people so poorly, so aggressively and in such a predatory manner."
"They were just aghast," he said.
He's not convinced that history won't someday repeat itself. "It seems to be cyclical and in between cycles, we forget."
The lesson? "If we're driven by profit or greed, things can just get out of hand."
One case in particular still haunts Wright a decade later.
His client was an elderly lady who had lived in the same house in Keene for 72 years. "It was the family home and she was the last of the sisters who lived there," he recalled.
"One of these aggressive mortgage brokers got to her by telephone and actually talked her into a loan. He put her into this mortgage she couldn't possibly pay."
His client, who was in the early stages of dementia, was retired and living off a small pension and Social Security. She had been using credit cards just to make the mortgage payments by the time she came to Wright's clinic.
"We tried to help her," he said.
But the woman couldn't remember the name of the person who had scammed her, and the bank foreclosed on her home. She died in a nursing home.
"It was so sad. To think this broker would treat this obviously ailing, elderly person in such an immoral and dishonest way," he said. "They set her up to fail. He got his commission and just moved on."
It turned out the lender was one of those later sanctioned by the federal authorities, Wright said. After the woman died, a $3,000 check arrived at the law clinic in her name.
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