A Decade Out From The Mortgage Crisis, Former Homeowners Still Grasp For Stability

Originally published on May 23, 2016 9:14 am

Before the mortgage crisis, real estate seemed like a sure bet. Pretty much anyone could buy a house: no money down, thousands of square feet, second and third vacation homes were not out of the question. Then the bubble burst.

Homeowners across the U.S. confronted the reality that their houses were worth a fraction of what they had paid for them. Now, a decade later, even though the recession is over, more than 6 million homeowners are still upside down on their mortgages.

This week on For the Record, we hear the stories of two people who lost their homes in the mortgage crisis and how they're coping today.

Brian Burns, Las Vegas

For 26 years, Brian Burns watched Vegas grow. He saw the desert dirt roads transformed by construction projects. Land was available and cheap. By 2004, housing prices soared.

"The builders couldn't keep up with the demand," he says. "Land prices went through the roof."

Burns and his then wife had bought into the dream. They lived in a huge house he estimates was 3,500 square feet. "There were parts of the house you never even saw. That's how big it was," he says.

When a Realtor friend persuaded him to sell, he was blown away by the profit he turned.

"That house that I bought for $250,000, my friend sold for $645,000 three years later," he says. "I had never had remotely that much money in my life. Probably never had more than $10,000 to $15,000 in the bank before. And I took $40 out one time and I showed my friend my ATM receipt and it said $228,000 balance. And we just looked at each other and laughed, it was ridiculous. I didn't know what to do with it."

He decided to keep it in the bank and buy another, smaller house in a brand-new development in the town of Henderson, Nev. Sure, the tan, stucco tract-style housing didn't have a whole lot of charm, but Burns didn't care. He persuaded some of his friends to buy other houses in the neighborhood. He had cash in the bank, excellent credit, and he put no money down.

Before we return to the second half of Brian's story, let's bring in a second voice.

Guillermo Galindo, Medford, Mass.

In 2005, Guillermo Galindo and his wife bought their house in Revere, Mass., for $450,000. They put about 5 percent down and ended up with a manageable monthly mortgage payment of about $2,000.

He worked delivering medical supplies, and they got monthly payments from a family who rented a unit on the second floor. Galindo and his wife lived there for a few years with their baby daughter, and life felt pretty stable.

But that security began to crumble in 2008 when his employer started cutting his hours. The interest rate on his adjustable mortgage started creeping up. Then, he lost income from his second-floor tenants.

"The people upstairs, to top it off, this girl had a baby and then she had problems with her husband," Galindo says.

Eventually, the young woman's husband abandoned her and the baby.

"At the end she was just was left alone and she stopped paying rent," he says.

He wouldn't kick her out, but that meant Galindo was now really struggling to make his mortgage payments. Around the same time, he found out that his home had lost about 50 percent of its value, so he got in touch with his bank hoping to work out a deal.

"They asked for more papers; I send them all. It was back and forth, back and forth, until they said they couldn't help me, that the price was that. And they couldn't do anything," he says.

Across the country in Las Vegas, Brian Burns had also seen the value of his home plummet.

"I think everybody's dream, when you are a normal person — not super rich, not super poor — is that your home is kind of your biggest asset," Burns says. "That you feel like, 'I'm going to play by the rules, I'm going to pay my mortgage, it's just going to continue to increase in value.' Maybe not by leaps and bounds, but by no means should it be worth a third of what you paid for it. And it started to scare everybody."

He found out that the house he bought for $320,000 was now worth only $140,000.

At the same time, his work as a graphic designer was drying up. Eventually, he chose to stop paying his mortgage. He didn't feel good about it.

"I wasn't raised that way to not honor your obligations, and do the right thing and pay your bills on time," he says. "My credit score was perfect. In fact, when I bought that little house, the guy said, 'We're willing to give you no down because you have one of the best. I've been doing this for 20 years and your credit score is 850 points or something like that and I've never seen one that high.' "

He could have used his savings to keep paying his mortgage payments, but he thought that was a bad idea.

"The analogy I use back then is, I'm not going to pay Mercedes prices for a Kia. Why would I pay $320,000 for a house that's never going to be worth that?"

The decision destroyed Burns' credit. He let the bank take his house and he moved to Oregon to start over again.

Meanwhile, Guillermo Galindo was in a different situation because he didn't want to leave. His life savings were wrapped up in this house, and that's where he wanted to raise his daughter.

"I thought I was going to pass [the house] on to my daughter," he says. "I thought it was going to be something that would last for my remaining life."

He kept talking with the bank, trying to figure out how to stay. Eventually they sent him a letter saying they were foreclosing. He fought it for another five months and finally said, fine, take it.

They gave him $3,000 and he handed over the keys.

"It was very depressing for me," Galindo recalls. "I was trying to show my best face to my wife and my daughter. I remember we had a dog because that was one of the things that I promised my daughter if we had our own house ... And it was really, really, really heartbreaking for me to find the words to tell my little one, was probably 3 years by then, that we were going to have to get rid of the dog. So, believe it or not, I wasn't even thinking on anything else but that how we were going to tell her that her dog was going to have to go."

Today, Brian Burns is back in Las Vegas, where he rents an apartment with his fiancée. They feel really gun-shy about buying anything, mainly because it doesn't seem like the housing crisis is over in Vegas. Roughly 20 percent of homeowners are still underwater there, and it doesn't look like a recovery.

"I drive up into suburbia, and there are streets still of empty houses. No curtains, no nothing, weeds in the yard," Burns says. "There are still a lot of empty houses in this town."

Over in Medford, Mass., Guillermo Galindo also rents an apartment. There are two main rooms — one where Guillermo and his wife sleep, the other they use as a day care facility. When all the children leave at 6 p.m., Guillermo's now 12-year-old daughter converts it into her bedroom.

"My daughter is still thinking about having a house, and the first thing she's going to do is to get a dog," he says. "I feel very proud of her. She's getting high honors. She's been adapting really good."

Galindo's credit rating is still in the tank because of the foreclosure. And they don't have any money for a down payment, so buying another house is not an option right now, and might not be for a long time.

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RACHEL MARTIN, HOST:

This is For The Record.

(SOUNDBITE OF FILM, "THE BIG SHORT")

STEVE CARELL: (As Mark Baum) Wall Street took a good idea and turned it into an atomic bomb of fraud and stupidity that's on its way to decimating the world economy.

MARTIN: That was a clip from "The Big Short," the Oscar award-winning film about the winners and losers in the mortgage crisis and the global economic meltdown that ensued. Before it hit, real estate seemed like a surefire bet. And pretty much anyone could buy a house - no money down, thousands of square feet, second and third vacation homes. And then the bubble popped.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER #1: The worst financial crisis in modern times - certainly the largest financial disaster in decades in this country.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER #2: We're in challenging times. But another thing is for certain - that we've taken...

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER #3: The market took a freefall today.

MARTIN: Homeowners across the U.S. confronted the reality that their houses were worth only a fraction of what they paid for them. And to this day, even though the recession is over, more than 6 million homeowners in the U.S. are still upside down on their mortgages. For The Record today, staying afloat after your house goes underwater.

(MUSIC)

MARTIN: We're going to hear the stories of two people who lost their homes in the mortgage crisis. First...

BRIAN BURNS: My name is Brian Burns. I am 50 years old. I live in Las Vegas, Nev. I've been here for 26 years.

MARTIN: Over two decades, Brian watched Vegas grow and grow some more. He saw dirt roads in the desert transformed by construction projects. The land was available and it was cheap. And by 2004...

BURNS: The housing prices were skyrocketing. The builders could not keep up with the demand. Land prices went through the roof because there was such a demand.

MARTIN: Brian and his then wife had bought into the dream. They lived in a huge house.

BURNS: Thirty-five hundred square feet probably. There was parts of the house that you never even saw. That's how big it was.

MARTIN: And around this time, a realtor friend convinced him to sell. And, yeah, he turned a pretty good profit.

BURNS: That house that I had bought for $252,000 my friend sold for $645,000 three years later. I had never had remotely that much money before in my life, probably had never had more than 10 or $15,000 in the bank before. And I took $40 out one time and I showed my friend my ATM receipt. And it said $228,000 balance. And we just looked at each other and laughed. It was ridiculous. I mean, it was just - I didn't know what to do with it.

MARTIN: He decided to keep in the bank. And he decided to buy another smaller house in the town of Henderson, Nev. It was a brand new development - not a lot of charm.

BURNS: They're all stucco tile roof. They're all tan or brown or light tan, but they're all the same.

MARTIN: Brian didn't care though. He convinced some of his friends to buy other houses in the neighborhood. He had cash in the bank, amazing credit. And he had put no money down. Life was good. So that's the first half of Brian's story. Let's bring in the second voice.

GUILLERMO GALINDO: Hi, my name is Guillermo Galindo. I'm living right here in Medford, Mass. At this point, I am an assistant for my wife - family childcare.

MARTIN: Guillermo and his wife bought their house in Revere, Mass., back in 2005. They paid $450,000 for it - put about 5 percent down and ended up with a monthly mortgage payment of about $2,000. Guillermo had a job delivering medical supplies. And they got monthly payments from a family that rented the unit on the second floor of their house. Guillermo and his wife lived there for a few years with their baby daughter. And life felt like it was supposed to - stable, secure.

When did things start to change?

GALINDO: Well, what happened from my work, they cut my hours just about 20 percent at first.

MARTIN: This was in 2008.

GALINDO: And I think their interest rate went up a little bit at first and then...

MARTIN: On your mortgage, so you had an adjustable mortgage?

GALINDO: On my mortgage, exactly. And then the people from upstairs, to top it off, this girl had a baby and then she had problems with her husband.

MARTIN: These were Guillermo's tenets. Remember the couple who lived in the other unit. Eventually the young woman's husband abandoned her and the baby.

GALINDO: At the end, she just was left alone there and she stopped paying rent.

MARTIN: Oh no.

GALINDO: So that was another income that I couldn't get any more.

MARTIN: And you couldn't kick - you didn't kick her out?

GALINDO: No, no, I couldn't. I - you know.

MARTIN: But that meant Guillermo was now really struggling to make his mortgage payments. Around the same time, he found out his home had lost a huge amount of its value - about 50 percent. So he got in touch with his bank, hoping to work out a deal.

GALINDO: And then they asked me for more papers. And I sent them all. That was back and forth, back and forth until they finally said that they couldn't help me, that the price was that. And they couldn't do anything.

(MUSIC)

MARTIN: Across the country, in Las Vegas, Brian had also seen the value of his home plummet.

BURNS: I think everybody's dream when you're a normal person and not super rich, not super poor, is that your home is kind of your biggest asset, that you feel like I'm going to play by the rules. I'm going to pay my mortgage. It's just going to continue to increase in value - maybe not by leaps and bounds but by no means should it be worth a third of what you paid for it. And it started to scare everybody.

MARTIN: Brian found out that the house he bought for $320,000 was now worth only $140,000. At the same time, his work as a graphic designer was drying up. And even though he could have used his savings to stay in his house, he didn't want to. It felt like a dead-end. He made a choice to stop paying his mortgage.

BURNS: I felt really bad back then that I was doing what I did. I wasn't raised that way to not honor your obligations, and do the right thing and pay your bills on time. My credit score was perfect. In fact, when I bought that little house, the guy said, we're willing to give you no down because you have one of the best credit scores I've ever - I've been doing this 20 years, and your credit score is like 850 points or something like that. And he said, I've never even seen one that high.

MARTIN: And again, he could have used his savings to keep paying his mortgage payments, but he thought that was a bad idea.

BURNS: The analogy I used back then is I'm not going to pay Mercedes prices for a Kia. You know, why would I pay $320,000 for a house that's never going to be worth that?

MARTIN: He had a big garage sale - got rid of all his furniture. The decision destroyed his credit, but Brian didn't care. He let the bank take his house and he moved to Oregon to start over.

(MUSIC)

MARTIN: Guillermo was in a different situation because he didn't want to leave.

GALINDO: I thought it was going to be, you know, to pass it on to my daughter. I thought it was something that it will last for my remaining life (laughter).

MARTIN: His life savings were wrapped up in that house. He kept talking with the bank, trying to figure out how to stay. Eventually, they sent him a letter saying they were foreclosing. He fought it for another five months and finally said, fine, take it. They gave him $3,000 and he handed over the keys.

Do you remember any of that day, that last day when you left the house and just what that felt like?

GALINDO: It was very depressing for me. And I was trying to show my best face to my wife and my daughter. I remember we had a dog because that was one of the things that I - we promised my daughter that if we had our own house we could be able to have a dog. And the one thing that we start thinking about getting rid of was the dog. And it was really, really, really heartbreaking for me to find the words to tell my little one, who was probably 3 - probably 3 years by then - that we were going to have to get rid of the dog. So, believe it or not, I wasn't even thinking on anything else but how we were going to tell, you know, her that her dog was going to have to go.

(MUSIC)

MARTIN: Eventually, Brian Burns moved back to Las Vegas. He lives in an apartment with his fiancée. They're renting and feel really gun-shy about buying anything, mainly because it doesn't seem like the housing crisis in Vegas is over. Roughly 20 percent of homeowners are still underwater there. And it doesn't look like a recovery.

BURNS: I go golfing and I walk down these fairways, and I look over and I see these gigantic empty homes. And I drive up into suburbia Las Vegas and there's streets still of empty houses - no curtains, no nothing. Weeds in the yard. There are still a lot of empty houses in this town.

MARTIN: Guillermo Galindo now lives with his wife and daughter in Medford, Mass. They rent an apartment. There are two main rooms - one where Guillermo and his wife sleep. The other they use as a day care facility. When all the children leave at 6 p.m., Guillermo's now 12-year-old daughter converts it into her bedroom.

GALINDO: My daughter is still (laughter) - just still thinking about having a house. And the first thing she's going to do is to get a dog. I feel very proud of her. She's getting high honors. She's been adapting really good.

MARTIN: Guillermo's credit rating is still in the tank because of the foreclosure. And he doesn't have any money for a down payment, so buying another house is not an option right now. And it might not be for a long time.

How has this whole ordeal changed how you think about home ownership and how important it is to you whether or not it's a measure of success?

GALINDO: When you commit to a house, you want it to be forever. You don't want to buy a house and then get rid of it. And the fact that something like that happened, it makes me feel like failure at first. So it becomes more than a dream. It becomes like a nightmare. And it's something that you really have to be making sure that that will not mark or stay with you forever.

MARTIN: That was Guillermo Galindo of Medford, Mass., and Brian Burns of Las Vegas, Nev. Transcript provided by NPR, Copyright NPR.