The Never-Ending Foreclosure

Christina Chung

GLENDORA, California—In retrospect, refinancing their home was a bad idea. But the Santillan family never thought that it would lead them to foreclosure, or that they’d spend years bouncing among hotels and living in their car. The parents, Karina and Juan, never thought it would force three of their four children to leave the schools they’d been attending and take classes online, or require them to postpone college and their careers for years. They did not know they would still be recovering financially today, in 2017. “Having lived through everything I see life differently now,” Karina Santillan, who is now 47, told me. “I’m more cautious—I probably think through financial decisions three, four, five times.”

In the big picture, the U.S. economy has recovered from the Great Recession, which officially began a decade ago, in December of 2007. The current unemployment rate of 4.4 percent is lower than it was before the recession started, and there are more jobs in the economy than there were then (though the population is also bigger). But for some, the recession and its consequences are neverending, felt most strongly by families like the Santillans who lost jobs and homes. Understanding what these families have experienced, and why recovery has been so evasive, is key to assessing the economic risks the nation faces. Despite ever-sunnier economic conditions overall, the Great Recession is still rattling American families. When the next economic crisis hits, the losses could be even more profound. “There are people who still, to this day, are trying to get back on their feet,” Mark Zandi, the chief economist of Moody’s Analytics, told me. “These households are slowly finding their way back, but they’re still on a journey.”

Their struggles are present in the economic data, if you look closely enough. The labor-force participation rate, which measures the share of working-age adults who either have jobs or are looking for them, fell sharply during the recession, and remains at a decades-long low, at 62 percent. Lower-income families aren’t just not doing better; they are actually doing worse: The average household income of the bottom 20 percent of Americans fell $571 between 2006 and 2016, according to Census data, while for the top 20 percent of Americans it grew by $13,749.

The housing market, too, has not fully recovered from the recession. Although population growth means there are 8 million more households in the country than there were in 2006, there now are 400,000 fewer homeowners. Before the recession, the homeownership rate in the United States was 69 percent, according to the Federal Reserve. Now, it’s 63 percent. A drop of six percentage points may seem small, but it represents a tremendous amount of pain and suffering for the millions of families who once had homes and no longer do. These are all families, like the Santillans, who saw the money they had accumulated disappear, who saw their credit scores ruined, who have not caught back up to where they once were.

Perhaps worse, millions of families like the Santillans essentially put their lives on hold for years during the recession, figuring out how to survive rather than how to thrive. The foreclosure crisis and subsequent recession didn’t just deplete families’ wealth—the instability it caused also meant that families like the Santillans lost out on years of productive economic activity. For example, the family’s oldest son, whom they call Juanito to distinguish him from his father of the same name, graduated from high school in 2009, the year the family lost their home. His grades suffered as he watched his family struggle to hold on financially, and though he wanted to attend college, he knew the family couldn’t afford it. This year, Juanito, who is now 27, finally enrolled in the film school he had wanted to attend in 2009.

A foreclosure is a one-time event, but for many families it’s something that never ends, wrecking years of their lives and the hopes they once had. The story of the Santillans’ foreclosure illustrates the way that the recession changed the American economy, and for millions of Americans, forever changed their lives. Some nine million families lost their homes to foreclosure or short sale between 2006 and 2014. But many lost more than that: They lost their momentum, too. Families like the Santillans had been moving up a ladder towards the American Dream, and fell off into a deep pit. They’re still at the bottom of the ladder a decade later, trying to get back to where they had been.

Karina and Juan Santillan bought their home, a single-story bungalow in West Covina, 20 miles east of Los Angeles, for $152,000 in 1999. Juan, the solemn patriarch who feels more comfortable conversing in Spanish than English, had worked for two decades at an ink manufacturing plant in Commerce, California; Karina, who has a heart-shaped face and a strong faith in God, sold insurance. For a few years, everything was going well—their finances were stable enough that they put their two older sons, Juanito and Isaac, two lanky and talkative all-American kids, in private school.

A few years after they bought their home, the Santillans say, people started knocking on their door selling financial products. It was easy money, the Santillans were told. Borrow against your house, it’s sure to gain value. The Santillans refinanced their home in 2003, taking out an adjustable rate mortgage, which opened them up to the instability of changing interest rates. Records show they took out an additional mortgage in 2004, but Karina says she has no recollection of taking out a second mortgage. They refinanced again in 2004. They used the money to remodel their home, which they figured would give it more value. As housing prices in the region soared, they refinanced one more time, in 2005, borrowing $396,000 from New Century Financial Corp., which would itself file for bankruptcy two years later. At the time, their house worth less than $300,000, according to Zillow.

In retrospect, they didn’t look closely enough at the terms of the paperwork they were signing, they say now. They didn’t realize how much the amount they owed each month could change suddenly, depending on interest rates. Before they refinanced their home, their monthly payment was $1,200. By the time they lost their home, the payments had risen to $3,000. They contacted a company that said it would be able to save their home, and paid the company $6,800, only to lose their home anyway. (The proprietor of that company, Jose Casares, lost his license to practice business in California in 2012 as a result of a lawsuit against his company, court records show. “It is the Lord who will avenge us from your lies,” Karina wrote to him in an email in 2009. Casares did not respond to a request for comment.)

The payments would have been high even if both Karina and Juan had been working full-time. But Karina’s work selling insurance dried up as the housing bubble burst in 2007. Then the ink manufacturing company where Juan worked cut everyone’s pay 10 percent. They first fell behind on payments beginning in 2007, and received an eviction notice in early 2009. To keep their home, they would have had to pay $447,431. They moved out of their home on June 29, 2009, when their children were 10, 13, 16, and 18.

Their story is not unlike many of those who lost their homes during the recession. The foreclosure crisis was particularly concentrated among black and Latino families, who were targeted by high-cost lenders. One study found that Latino families were 78 percent more likely and African American families were 105 percent more likely than white borrowers to have high-cost mortgages. Many of these families were first-time homeowners who wanted desperately to own a house, and had limited access to more-traditional financial products.

These families tended to be more vulnerable than other middle-class families in the economy—as first-time homeowners, they had less savings, less education, and fewer connections than families who had owned homes for decades and accumulated wealth through real estate. Because of these disadvantages, and because of the variable nature of their loans, these families were more likely to fall behind on payments than higher-income borrowers with more-stable loans.

A foreclosure set them back them even further. Academic studies point to the many negatives associated with foreclosure: Families in foreclosure have more frequent emergency-room visits and worse mental-health outcomes. Their children do worse in school and have higher truancy rates. They are more likely than other families to rely on the social safety net. Losing a home can also mean becoming disconnected from the community where you lived,…

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