Mortgage Crisis Hits Home For Troops, Veterans
by Gidget Fuentes
CHULA VISTA, Calif. — Air Force veteran Nellie Cooper thought she was following good advice when she refinanced her home’s mortgage with an adjustable-rate loan. For the self-employed real estate agent, it seemed smart.
But her mortgage payments ballooned while local property values dropped, sinking her prospects of refinancing into a more secure, fixed-rate loan. With lenders nationwide tightening eligibility rules, Cooper is finding few that are willing to refinance or rework the loan into something financially manageable for her.
“Nobody will finance 92 percent value of a house, and I am getting more in arrears,” Cooper, who is juggling three part-time jobs to keep her home, told a Nov. 27 public forum led by Rep. Bob Filner, D-Calif. “I’m still … trying to see if I can do something with the lender.”
Cooper, who lives in Oceanside, Calif., found no help from the Department of Veterans Affairs: Except in very rare cases, VA does not refinance mortgages it didn’t sell. She didn’t buy the house through VA because she was told repeatedly she didn’t qualify and the paperwork was “too cumbersome.”
“I was dissuaded by many to take the conventional way” with bank-backed loans, she said…
“Home ownership is one of the great aims of the American dream,” Filner told a crowd of about 75 in Chula Vista, a suburb south of San Diego.
“We also know this dream can become a nightmare, especially for our veterans who are on deployments,” Filner added.
After several years of an expanding housing market and soaring prices, service members and veterans are among tens of thousands of homeowners facing financial ruin in today’s housing market. Homeowners see their initial low interest rates resetting at higher rates, sometimes doubling their monthly mortgage payment. But the lending industry that sold them those loans with so-called “creative financing” has largely abandoned them, and the industry’s recent belt-tightening has left many unable to refinance into more affordable payments.
Homeowners like Cooper face foreclosure on their homes. “The effect on Americans have been acute, especially in California,” Filner said, noting that “an increasing number of borrowers in the market happen to be vets.”
San Diego County is home to more than 110,000 active-duty members and a quarter-million families and veterans. Mortgage defaults in the county have doubled since January, with 15,582 issued in September, said Tony Young, a San Diego council member. “We project the rate to increase and continue unabated for two years,” he said.
In Chula Vista, where average property values have dropped by nearly $150,000, more than 3,000 homes have been foreclosed and 800 sit vacant, said Ed Smith, California Association of Mortgage Brokers’ vice president for governmental affairs.
Each neighborhood takes a hit, too. “Within 150 feet of every foreclosure, values die at least 10 percent,” Smith said.
Smith, a former Marine and experienced mortgage broker, noted that few of the 548,000 licensed real estate brokers in the state belong to the association, which is guided by a set of ethical rules. “We have fueled a market with illusionary interest rates and illusionary loans,” he said.
Young heads the City-County Reinvestment Task Force, which recently urged local officials to lobby for tighter laws to prevent predatory lending, expand housing counseling, establish a local bank to buy foreclosed properties and press for broader lending authority by VA and the Federal Housing Administration.
He blames the default rate on thousands of sub-prime loans dumped on the market, as many as 70 percent sold by unlicensed, unscrupulous lenders who have since skipped the industry.
Young, who represents the Chula Vista area, home to a large number of Navy families and military veterans, said “it troubles me” that many victims of predatory lenders are military, with many troops who deploy to Iraq or Afghanistan returning to find their homes have lost value or that they face larger mortgage payments each month.
Pamela Beard, program manager with the Housing Opportunities Collaborative, a nonprofit community service program in San Diego, gets calls daily from worried homeowners.
Beard recounted several nightmares: a veteran whose mortgages on three properties have doubled to $8,800 a month; a National Guardsman and father of three facing foreclosure on his home after his $60,000 income dropped to $20,000 while he deployed for a third tour; a military wife who hadn’t yet broken the news to her husband in Iraq that their $1,200 monthly mortgage just doubled to $2,500.
“She doesn’t want to tell her husband that they are losing their home,” Beard said.
She and other counselors are hearing more concerns from military officers who worry about losing security clearances if they fall behind on their mortgages and are forced to foreclose. “One of the first questions they tell me is: Are you going to tell my commanding officer?” she said.
Recent changes to military security regulations mean that financial troubles and bad credit will cause more service members to lose their clearances and, with it, assignments and promotions.
“I would like to see a moratorium” on such reporting, Beard said. “Our military should not be dealing with the fear of reprisals … for being caught up in a bad loan.”
The public forum generated several ideas from speakers and audience members, which Filner promised to look into when he returns to Washington:
• Increase the maximum VA and FHA loan limits — $417,000 and $362,790, respectively — especially in pricey Southern California, where home prices average $500,000 and higher. Only Alaska, Hawaii, Guam and the Virgin Islands are considered “high cost” areas now. San Diego County’s high costs prevent many veterans and others from getting the federally guaranteed loans. In the past two years, only 218 VA-based loans and 279 FHA-based loans were approved — “an abomination,” Smith said.
• Give VA broader authority to refinance non-VA mortgages, which would offer relief for many veterans. “We’d need to change the law to raise the guaranty,” said VA’s Judith Caden.
• Cooper suggested having a third party “oversee the exact terms of the loan and explain to them in simple terms” to the homebuyer.
VA could serve in that role “if it’s given the authority,” Filner said.
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