So listening to the SOTU, I was struck by the President’s use of the term “Responsible Homeowner” in reference to a proposed bill that would expand aid to families “struggling to make their mortgage payments”. I found myself immediately wondering: what exactly would qualify as a responsible homeowner? I mean, taking care of mortgage payments is only one of many responsibilities a homeowner has to manage. Most homeowners also have families, the responsibilities around which, dare I say, perhaps sometimes trump those of paying the mortgage and other bills. So being responsible can take many forms.

Not according to the President and Congress. Evidently, a responsible homeowner is one that is current on their mortgage payments.

text of responsible homeowner bill

That’s right folks. The families who are responsible, and therefore deserve to have their mortgages refinanced at today’s historically low rates, are the ones who are somehow still able to make the payments regardless of drastic changes to their financial circumstances. The people who need help most don’t qualify, since their need for help defines them as irresponsible.

It makes me think hard about the definition of responsible. I want to share with you a story about a family struggling with mortgage payments due to the economic crisis, and you decide for yourselves if they are responsible or not.

This is a true story about a family who lost a big corporate job over four years ago when Dad’s company was consolidating entire departments to keep their stock price up, just before the economy started to tank.

Picture a sole provider Dad, who had worked his way up in the same company for eleven years. Through expertise and hard work he had reached a mid-level management salary despite not having a college degree. This household had chosen to purchase the least expensive home they could find in the best school district, moving across several states to be near a sibling. This choice was part of a long term plan to keep the family close in order to be able to help one another. One of the reasons they moved to this particular area was the combination of lower housing costs and good quality schools. They left a city they loved to make this move because they thought it was the best long term choice for their family, hoping to convince their parents to retire to the warmer state with a lower cost of living so the siblings could eventually share the work of caring for their parents as they aged, and the little ones could grow up with the security of an extended family nearby.

This family chose a simple, older home without many modern amenities at a purchase price well below what they qualified for during the heady days of the housing boom. They had a good income and excellent credit. Because they had doubled up payments on their first home purchase, (a condo) they had a substantial down payment. The home was not in perfect condition, it had issues. But it also had a nice big yard and room for both a home office for Dad, and for a second child.

Shortly after the birth of their second child, this family realizes that their plans for Mom to go back to work need to be put on long term hold because the oldest child does not thrive in an institutional school environment. After much soul searching, the family decides that private school is incompatible with their long term financial plan, and home schooling becomes the obvious best choice for that child.

So, now you have a young family, two young kids, one a school age home school-er, one a toddler. Suddenly, after an excellent performance review, Dad’s job is eliminated…. right at the point that thousands of companies start shedding jobs like dandelion seeds in the wind.

There are almost no job listings.  Companies are laying off workers by the thousands each month.  The news is full of the financial crisis.  The housing market is crashing.  Many homes are sitting on the market.  Many are in foreclosure.  This is not actually a recession, it is a structural adjustment.  The results are equivalent to NAFTA for middle class people.  Most of these jobs will not return.

Dad looks for another position, learning quickly that the job that just disappeared evidently requires an MBA according to the market. But he only has two years of college credit.

He applies for every open job that looks remotely possible, including night shifts at low paying jobs that could bring in some income while leaving him available to look for work during the day. But no one bites. Not even when he applies for jobs doing things like stocking shelves or telemarketing. He does not meet the criteria for these jobs either. Presumably his experience is too….executive….for that kind of work and hiring managers at retail stores and level one sales jobs feel he would be a poor fit and probably leave as soon as a better paying job became available. Which is of course true.

Mom looks for a job. But even with her BA, and background in finance, she has been out of the market for too long. Her skills are rusty, her recent experience as a SAHM is not viewed as economically valuable. Everything she remotely qualifies for pays less than her child care costs would be for the youngest child, never mind the concerns about sending the oldest one back into an environment that was causing great distress. She looks into providing home daycare, and discovers her house would not meet local regulations for a daycare provider.

She works hard at cutting expenses, eliminating anything they can define as a “want” rather than a “need”. The family all let their hair grow long. Mom’s exercise and acupuncture regimes have become unpardonable luxuries. She stops indulging in these, quitting the gym and yoga classes. She focuses her attention on economically productive activities…..growing a vegetable garden, cooking everything from scratch including bread and yogurt, hunting for clothing and household goods at the thrift store. She frequents the dump for useful cast off items. She cancels the cable. She makes Halloween costumes and gifts for birthdays and Christmas by hand, usually out of scraps. She cooks, sews, felts….realizing the economic value of her efforts meets or exceeds what she would make in income at any of the jobs she is “qualified “ for, and she is taking good care of her family at the same time. One month she sells her jewelry to pay bills, keeping back only her wedding ring and a few heirloom pieces she wants to pass to her daughter. She works very hard to be a good neighbor and develops strong friendships in the home school community, realizing in the process how community ties enable her to trade favors for things the family can no longer afford, like classes and camps for the children. She goes to swaps, picking through her friends’ cast-offs to find clothes and shoes for herself and he kids. Used toys are now acceptable gifts.

Dad variously tries consulting and sales, and works at several failing small businesses. He spends long hours at the computer, often many more than he did when he had a paying job. These ventures bring in some income, but not enough to consistently and reliably pay the bills. The family depletes the home equity line of credit. Since they are juggling each month to pay the bills, Dad ties the checking account to a credit card to catch any overdrafts. This is a mistake. Soon the credit card payments are too high. They contact the credit card company. They close the card and begin a repayment program at a reduced rate. They begin to rotate bill payments, often waiting to pay until a service is about to be disrupted. They start to ignore the telephone, since debt collectors now call the house constantly. They increase their barter activity, and begin selling household items on eBay. Dad begins scavenging and reselling what he can glean cleaning out friend’s garages and abandoned homes. The family becomes adept at assessing resale value of things they find, and becomes familiar with eBay, half.com, consignment clothing shops and the used bookstore. They explore their artistic talents to find those they can trade for goods and services they now cannot afford, and possibly generate a bit of cash here and there to buy food or gas for the car.

At this point, they look seriously at the possibility of selling their home, and realize the poor market would require them to make costly repairs before even listing the house, which is likely to sit anyway a long time before selling. AND, with their newly poor credit and lack of reliable income, where will they live? They decide to withdraw some money from their retirement, certain that a few months down the road, things will be better and Dad will have a job. The long term investment prospects for their property are good, given the rate that people are moving into the area, so the house may, in fact, be a more stable investment than the money they have in the retirement account anyway. All they have understood about the market, home ownership as an investment…all this has changed.  The future is very uncertain.  They remain hopeful. But things are pretty bad.

Mom talks with a bankruptcy lawyer, who advises her that bankruptcy would be a good idea, but only after Dad gets a steady job since employers now use credit checks as a factor in vetting job candidates. She feels the lawyer is selling bankruptcy, and decides to at least wait until things are worse.

Two years pass. Things get worse. Dad has intermittent work, but it is never quite enough to keep up. They spend all the retirement money, taking the account they contributed to so diligently for a decade down to $1.69. This at huge penalty since income taxes are determined viewing the withdrawal as current income on top of the 10% penalty they are already paying to withdraw early. The credit card payments have now become impossible. They go into default on the credit card, but continue making payments to the card company, who claim the amount they are able to pay is not acceptable, since it does not meet the minimum requirements. They pay something each month anyway.

Dad takes advantage of a state program which provides career counseling for displaced workers. He signs up for a subsidized program to prepare for a technical certification, hoping to improve his value in the market.

Companies begin hiring, in a very cautious way.  There are a few openings. Very few.

And…the job search process has changed. First off, there are very very few traditional salaried jobs available. Most companies now use contract labor to meet short term needs, perhaps hiring traditional employees out of the pool of contractors. Many firms just use new contractors all the time, or renew contracts over and over, effectively outsourcing the hiring and benefit burden onto contract firms who offer minimum benefit packages or none at all.

The way employees are selected has changed too. Now instead of HR professionals looking through resumes, robot search agents troll the internet, hunting for keywords which indicate that a candidate may meet the criteria set out by the hiring firm (client).  Anxious to be certain that the contractor will be able to perform the work, and confident that a labor market flooded with unemployed talent will yield the ideal “Cinderella” contractor, criteria is set as stringently as possible. Which means among other things that our Dad in question, being honest on his resume about his education and experience, gets ZERO calls. The robots cannot find him, since he does not have a college degree, which they associate with his skillset. Because he does not meet the criteria for the job he was doing very successfully for the past 8 years, the robots cannot find him; no hiring managers see his resume.

Finally, Dad follows the advice of several friends and lies on his online resume, listing a BA where he actually only has two years of college. He lists it in a liberal arts major, totally irrelevant to any professional work he has done in his 15 year career. He also re-tailors his experience to meet a newly emerging career path which has significant elements of the job he was doing before, but is far less complex. He is hired within a week as a contractor. The client likes his work, and continues renewing his contract for a year. Dad puts in long hours of unpaid overtime, and has to stop attending certification classes. He juggles his reported hours since the client only wants to pay for 40 hours a week. Sometimes he takes a morning or an afternoon off to keep his hours within the limit. On those days he looks at jobs, and pursues hobbies that he hopes might lead to supplemental income.

Occasionally he gets a gig building websites. The family tries to catch up on things like doctor and dentist visits, only to discover that the insurance provided by the contracting agent is chimerical, and many procedures like lab work are not covered. They build up medical bills that stretch the family’s ability to meet even the minimal payment plans they make with each particular provider. They begin juggling those. They pay off the smaller ones, and some of the larger ones go into default.

Immediately following a review at which Dad is assured his contract will be renewed, the client company Dad is working for lays off tens of thousands. The contractors are first to go.

Savings completely exhausted, they are unable to pay the mortgage. They contact the mortgage company and request a forbearance. Because their credit is tarnished by the past few years, they do not qualify for a refinance at a lower rate, even though current rates are half the rate on their existing mortgage.  A current rate would save them hundreds of dollars a month.   They complete the paperwork for a forbearance, which would give them a three month break on payments, and add those payments to the end of the loan. They stop paying the credit card company.

Dad jumps quickly into the job market, stopping only to sign up for unemployment benefits (up to this point not taken), food stamps, and medicare for the kids. Mom and Dad don’t qualify for medicare, since their unemployment income is too high (at 20% of their previous income). The family juggles every bill now, struggling to stay warm and fed on 20% of previous income. The food stamps are a huge benefit, they would not be able to manage even basic needs otherwise. They borrow money from family, who also give them firewood as a Christmas gift.

The marriage is strained, and they go through a difficult period with lots of fighting. The take advantage of social services for counseling and things improve. Despite all this, they manage to maintain a reasonably happy household most of the time. Their friendships are strong. The children are thriving.

That Christmas the real Santa Claus shows up in the form of many seemingly random anonymous gifts of gift cards, cash, food items and wrapped presents for the children. These are from their friends, their community. In many ways it is the best Christmas ever.

Dad applies for contract work anywhere—out of town out of state, global, whatever. He gets lots and lots of phone calls from India.

Evidently first line of hiring has been outsourced to India. Recruiters for whom English is a second or third language send out email blasts to any potential hires that are pulled in by the resume trolling robots. The family derives great amusement from the computerized transcripts of voice mail messages from recruiters with Indian accents.

Dad gets 3-5 calls from recruiters a day. The way it works is this: after an initial interview with the first line recruiter, the candidate is passed to an account manager. If the account manager feels it is a good fit, they present the candidate’s resume to the client. If the client feels it is a possible fit, they schedule a phone interview. If this goes well, there may be more phone interviews or perhaps a face-to-face.

Dad has many interviews, at various stages in this process. He can hardly keep track of which job is being discussed. But he does not quite fit easily into any particular niche. He can do lots of different things. Given that there are 5.5 candidates for any given position, companies are certain they can get their wish lists met exactly. He could do a lot of these jobs. But he is not an exact fit for the criteria of very many. And companies are looking for Cinderella. But the glass slipper is too small…it is a much reduced salary with little or no benefits that will evaporate at midnight or after a few months when the contract is up.

He gets an offer from a local company. It pays quite a bit less than his last contract, but he is grateful to accept. Unlike the previous contracting agency , this one asks for proof of his college degree. No degree is specified in the job requirements. Dad contacts the hiring manager at the client company, and lets him know his situation. He writes about putting BA on his online profile to get past the robots, stating that he hopes the offer will not be withdrawn. There is no response. He fills out the agency paperwork truthfully. After several weeks of back and forth confusion with the contracting firm, Dad is informed that the firm has lost the contract.

Dad resumes his search.  He changes his online resume to say he has a BA from the University of Hard Knox, hoping to bypass the robots, without confusing the recruiters. He continues to get lots of calls. Several opportunities look promising. Progress is slow. Many companies say they are in budget discussions, and re-evaluation procedures regarding the jobs they have listed for hire.

The mortgage company, instead of granting forbearance, sells their loan to a “servicing agent”. The servicing agent informs the family that they will have to re-apply for forbearance with them, since the forbearance process had been interrupted by the sale of their mortgage. This company has a reputation online for making homeowners jump through multiple hoops seeking forbearance or refinancing, only to be foreclosed anyway. They demand the homeowners sign paperwork authorizing them as owners of the loan. The family puts this off, concerned about being scammed. Dad does some research and finds a little known state program for mortgage assistance that they may qualify for. After several false starts, he has a face to face interview with the agency and quickly completes the relevant paperwork. After 45 days and many more documents, the program sends notice that they have enacted a stay of foreclosure for 90 days, and accepted the family into the program which qualifies them for financial assistance with the mortgage payments up to a certain dollar amount until they attain salaried employment.  If such employment pays significantly less than their previous income, they may qualify for a refinance at the newer, lower rates. They are still waiting for confirmation that the program is in effect. The servicing agent still calls the house 10-15 times a day.

Are these people responsible? They now have so much debt they will never get out from under it. They have terrible credit. They are prioritizing family and community, while trying their best to keep whatever agreements they have to pay for basic things such as home, food, healthcare…..

Are these people “responsible homeowners”? Do they deserve this program? How about a lower rate? Are they a good risk? Are those two things actually related?

 

 

 

 

 

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