Gonzalo Lira: The Coming Middle-Class Anarchy

The following article was originally published at Gonzalo Lira’s Blog. The author has generously granted permission to reprint a portion of this article at The Daily Sheeple.

True story: A retired couple I know, Brian and Ilsa, own a home in the Southwest. It’s a pretty house, right on the manicured golf course of their gated community (they’re crazy about golf).

The only problem is, they bought the house near the top of the market in 2005, and now find themselves underwater.

They’ve never missed a mortgage payment—Brian and Ilsa are the kind upright, not to say uptight 60-ish white semi-upper-middle-class couple who follow every rule, fill out every form, comply with every norm. In short, they are the backbone of America.

Even after the Global Financial Crisis had seriously hurt their retirement nest egg—and therefore their monthly income—and even fully aware that they would probably not live to see their house regain the value it has lost since they bought it, they kept up the mortgage payments. The idea of them strategically defaulting is as absurd as them sprouting wings.

When HAMP—the Home Affordable Modification Program—was unveiled, they applied, because they qualified: Every single one of the conditions applied to them, so there was no question that they would be approved—at least in theory.

Applying for HAMP was quite a struggle: Go here, go there, talk to this person, that person, et cetera, et cetera, et cetera. “It’s like they didn’t want us to qualify,” Ilsa told me, as she recounted their mind-numbing travails.

It was a months-long struggle—but finally, they were approved for HAMP: Their mortgage period was extended, and the interest rate was lowered. Even though their home was still underwater, and even though they still owed the same principal to their bank, Brian and Ilsa were very happy: Their mortgage payments had gone down by 40%. This was equivalent to about 15% of their retirement income. So of course they were happy.

However, three months later, out of the blue, they got a letter from their bank, Wells Fargo: It said that, after further review, Brian and Ilsa had in fact not qualified for HAMP. Therefore, their mortgage would go back to the old rate. Not only that, they now owed the difference for the three months when they had paid the lowered mortgage—and to add insult to injury, they were assessed a “penalty for non-payment”.

Brian and Ilsa were furious—a fury which soon turned to dour depression: They tried contacting Wells Fargo, to straighten this out. Of course, they were given the run-around once again.

They kept insisting that they qualified—they qualified! But of course, that didn’t help at all—like a football, they were punted around the inner working of the Mortgage Mess, with no answers and no accountability.

Finally, exhausted, Brian and Ilsa sat down, looked at the last letter—which had no signature, and no contact name or number—and wondered what to do.

On television, the news was talking about “robo-signatures” and “foreclosure mills”, and rank illegalities—illegalities which it seemed everyone was getting away with. To top it off, foreclosures have been suspended by the largest of the banks for 90 days—which to Brian and Ilsa meant that people who weren’t paying their mortgages got to live rent free for another quarter, while they were being squeezed out of a stimulus program that had been designed—tailor made—precisely for them.

Brian and Ilsa are salt-of-the-earth people: They put four kids through college, they always paid their taxes. The last time Brian broke the law was in 1998: An illegal U-turn on a suburban street.

“We’ve done everything right, we’ve always paid on time, and this program is supposed to help us,” said Brian. “We follow the rules—but people who bought homes they couldn’t afford get to squat in those McMansions rent free. It would have been smarter if we’d been crooks.”

Now, up to this point, this is just another sob story of the Mortgage Mess—and as sob stories go, up to this point, it’s no big deal.

But here’s where the story gets ominous—here’s where the Jaws soundtrack kicks in:

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