Revisiting "From 35th Street to Wall Street"
Faith Burns is fighting in court to keep her south Minneapolis home. Her attorney claims she was sold a toxic mortgage by a string of unscrupulous people. We followed the money trail from her house on 35th Street to Wall Street and outlined how Burns was scammed.
Four months later a lot has changed.
Faith Burns isn't living at 113 35th Street South in Minneapolis anymore. Her stepdaughter is living there, mowing the lawn and making payments. Ownership of the house is still tied up in court.
Burns owes more than it's worth even though she refinanced several times to pull equity out of the home to help finance her business. Each time she was hit with high fees that blossomed into more debt.
Even so, she hopes she can hang onto her house. In the meantime, she's moved on.
"We are now on Second Avenue," said Burns, standing on the porch and talking above the roar of freeway sound from Interstate 35W, across the street. "We've been living here about a month now."
It's actually Burns' boyfriend's place. He wasn't tangled up in her earlier foreclosure, so he qualified as a first time home buyer and they got a good buy.
"When we were looking for houses in this area, we saw the price going tremendously," Burns said. They found an 8-year-old house in good condition going for a bargain price. "The price used to be 200 and some thousand, it went down to $135,000. So that's a great jump."
It was a house in foreclosure.
The good deal gave Faith Burns a clue about the value of her old house just a short drive away.
She still owes $209,000 on the modest one-and-a-half story home. The lender is willing to sell it back to her for $170,000. Burns said the house is worth a lot less, only $120,000.
Essentially she wants what's called a "cram down." That's where the lender agrees to accept what the house is worth even if it's less than the original value of the loan.
Cram downs are common in bankruptcy court for car loans.
Burns' attorney, Mark Ireland, said that's the deal Burns and millions of other mortgage holders should get from the bailout package.
"To do that would save and prevent thousands of foreclosures because you have 10 to 20 percent of homeowners right now who owe more than their mortgage," Ireland said. "If they go under, the banks, or us now if we have bought these, are just going to end up selling them for what they're worth anyway. So why not prevent the foreclosure from happening by getting people cramming down their mortgage to the amount the house is actually worth?"
Ireland said the bailout also needs to remove the toxic elements of millions of mortgages, onerous prepayment penalties and adjustable rates that keep ticking up.
Four months ago, when we followed the money trail of Faith Burns' mortgage, we sought the help of Wall Street investment advisor Todd Petzel.
We lost the money trail when the mortgage reached the Wall Street investment house Lehman Brothers.
Petzel explained it was securitized, parts of the mortgage were sold off. He likened it to a pig at a butcher shop.
"Once the mortgages are chopped up into all those different pieces it's hard to put the pig back together again," Petzel said.
Lots of players owned parts of Burns' mortgage. She couldn't renegotiate because no one really owned the whole thing anymore.
But if her $209,000 mortgage is scooped up in the government bailout, does that help her? We called Petzel again to ask if the pig can be put back together with this turn of events. Petzel doesn't think so.
"It's a very difficult thing to do because you know if you take your sausage and squeeze it out of the links and try to reconstruct the pig again, it's not an easy task at that level," Petzel said.
Petzel agrees that more help for homeowners is desirable. However, he doesn't think the government can manage renegotiating individual mortgages.
Petzel said it's more realistic for the private sector to handle that job. He admits their action on that front has been slow off the mark, but he said it's picking up.
Petzel said the biggest help the federal government can extend to Faith Burns and millions of others facing foreclosure, is to get the credit markets working again.
"What's really important is to get some light at the end of the tunnel so that people see an exit, so that people see a positive potential outcome and at that point the real estate market and housing market can start stabilizing around the country," Petzel said. "And that's what's going to be necessary to really turn the corner for the economy."
Twin Cities Habitat for Humanity is one of the groups helping homeowners facing foreclosure through the dark tunnel. It's the group Faith Burns first turned to for help.
Habitat estimates it's been able to help about 60 percent of the people who come to it to avoid foreclosure. But Habitat president, Sue Haigh, said homeowners and communities could sure use more help like the banks are getting.
"I guess that I would like to make the contrast between legislation that was passed this summer really a very exciting amount of new resource to acquire properties in foreclosure," Haigh said. "$3.9 billion in comparison to $700 billion seems to be out of balance."
Consumer advocates, taxpayers and others have said the proposed bailout raises red flags about accountability and doesn't supply enough help for homeowners. There's no telling at this point what a final version may look like.
Faith Burns is paying attention. She isn't resentful the proposal doesn't contain more help for her and others with mortgage problems.
"We just heard that they are supposed to bail them out," Burns said. "We know the American people take a hit on it, but what type of hit? How it's going to affect individual life we don't know that yet. We're just sitting back now waiting to hear what they're going to do."
Burns' odyssey through the courts to undo her failed mortgage has taught her something. She said she was careful to read the terms her boyfriend signed when he bought his new house.
"It is a 30-year, fixed," she said. "We made sure of that!"
Burns lost the business she ran for ten years, boarding up abandoned properties for the City of Minneapolis. She's looking for a job, and she's planning on forming an investment club so she can play the stock market.