In the days before my foreclosure process began, I sat at my desk before a pile of unpaid bills. I shuffled statements from one pile to another trying to make decisions about which ones to pay. An ache in my belly crawled up into my heart, traveled through my veins and settled into every cell of my body. It was the pain of shame and inadequacy.
Foreclosure didn’t cause it. Foreclosure pushed it out from its sheltered place. As I became a “defaulted one,” I began to see more clearly that my life rested on a foundation that said, “you don’t have enough; you are not enough.”
Sitting there I didn’t fully comprehend the dis-ease that was spreading through the streets and settling into the homes of the American body. I was just one woman in her home unable to pay the mortgage to keep it. I accepted the unpaid stack of statements as a part of my life, and along with them, I accepted the belief that it was somehow my fault. I now know that it’s not my default, and at the same time, it is.
What made the housing boom boom was the potential for default. The worse your credit, the higher your chances for default, the greater risk you were. The greater the risk, the bigger the return, the more money there was to be made. These greater risk loans, eventually referred to as subprime, were the engine driving the economic gravy train. The track that kept this giant gravy train on the ground was the newly created Mortgage Backed Security (MBS). The value of a MBS is derived by the value of the underlying bundle of mortgages—prime and subprime alike. Bundling mortgages together allowed for the dispersal of the risk, and it freed up capital so lenders could lend more money and keep the whole thing steaming ahead. This meant more American Dreamers could buy homes, and more profit for all the cogs and wheels that made it happen. How could it go wrong? Well, it seems that foundation of mine—“not enough,” was actually the same foundation upon which the whole train moved.
From 1998, the year I built and owned my first house, to 2007 the mortgage industry became a feeding frenzy. The enormity of the money in the business created a hunger that said, “produce as many loans as humanly possible.” This do whatever it takes attitude led to predatory lending (deceptively convincing borrowers to agree to unfair or abusive loan terms), the creation of loan products that were impossible to pay back (for example adjustable rate mortgages or ARMs where the rate could be changed at the lender’s discretion), or outright fraud (such as home values being falsely inflated by appraisers working for lenders). Such practices essentially turned default into a guarantee. The key was to not be the one who owned the loan when it happened.
Mortgage lenders, and the Wall Street companies that funded them and bought back the loans lenders made, handled the risk like a hot potato. They knew that someone was going to get burned when the music stopped. The idea was to pass the hot potato of risk off to as many people as possible (via the MBS), as quickly as possible, so as not to be the one left holding it. And if you were the one left holding it, you couldn’t be entirely sure who or what passed to you. Needing more to win kept the hands moving in a game of grab, take the money, and pass.
A few of the major players had to close their doors when the game ended, but it was primarily homeowners that got burned. This isn’t to say that there weren’t homeowners who knowingly or even fraudulently got loans and defaulted before they ever made a payment. But I believe the majority of homeowners were like me.
I didn’t go into home ownership wanting or hoping to fail. I signed on the dotted line with the full intention of paying my debt. I signed because I wanted a home and the benefits that came with it. I wanted to be included in the American Dream of homeownership, and for 10 years I was. I wasn’t high risk. I wasn’t subprime, but as default spread throughout the economy, it settled into my home like the common cold. I don’t believe lenders wanted people to fail either, but at the end of the day they got their money and it was we defaulted ones who didn’t have the house anymore.
Yet, what remains clear is that those who made the most profit off our default are still doing so today. The wealthiest one percent captured 95% of the post-financial crisis growth since 2009, while the bottom percent became poorer. Jamie Dimon, the CEO of JP Morgan Chase (the company that foreclosed on my house) has earned more than $90 million since 2008—the year I sat at my desk unable to pay my mortgage. With the money this one man alone made from then to today, I could have made 32,142 mortgage payments, or paid cash for my house and 329 others based on the U.S. average, or paid the average annual U.S. salary to 2,030 people so they could make house payments and avoid default.
In geology a fault is a fracture or discontinuity where there has been significant displacement. The term “fault zone” is used to refer to the zone of complex deformation made by many fractures. This is where earthquakes happen, where transformation takes place.
We defaulted ones, we displaced ones, are the default zone. Our default built the house. Our default brought the house down. Our default can birth new ground if we stay bundled together and remember we are the underlying assets from which value is derived.