Creditland Exclusive: Office Worker in Minneapolis with 2005 'Upside Down' Mortgage

The following Creditland exclusive interview with an underemployed Minneapolis office worker paying a mortgage on a Minneapolis house purchased in 2005 was conducted on October 21, 2009 via Gmail's Chat.

1:25 PM
Office Worker, Minneapolis: Hello!
Creditland: Hoping that 'should know better' [referring to OW's Gmail status] does not refer to this interview!
OW-MPLS: No.
Just in general I should know better about most things.
CL: Aaaaaaah. I hear that
OW-MPLS: Being a person with some experience. That is.

1:26 PM
What can I do for you>

1:27 PM
CL: First, thanks for doing this. Sharing your experience is a service to people who share your experience.
OW-MPLS: You're welcome
CL: Not that you have the exact same as anyone else - but some of the issues might be similar.
OW-MPLS: A lot I am sure.

CL: First let's start with home ownership
You have one large mortgage?
OW-MPLS: I have 1 mortgage.
We purchased our house in '05
for about $184,000.

1:29 PM
CL: You and a partner?
Friends splitting a house?
OW-MPLS: My best friend and I had been roommates for several years and decided to purchase a house together.
CL: OK

1:30 PM
Do you mind if we just get down to numbers?
OW-MPLS: Sure.
CL: What is your total monthly mortgage payment for both of you?

1:31 PM
OW-MPLS: $1520, including property taxes and insurance.
CL: Did you make a down payment?

1:32 PM
OW-MPLS: No.
We were part of a 1st time homebuyers program that didn't require one.
CL: Two part question:
1. Do you feel you purchased the house for a value higher than it's worth?
OW-MPLS: Yes.
CL: The second part is: Would you have bought the house knowing what you know now?

1:37 PM
You do not have to have an answer.

OW-MPLS: The house has decreased in value based on the city assessor's valuation (currently valued at $165,000 taxable value, currently about $172,000 owing on mortgage, putting us underwater). And the answer is definitely: NO! I would not have gotten such a large mortgage if I had known that it would drop in value, leaving me stuck.

1:38 PM
CL: You say 'stuck'
Do you feel the situation where you are reponsible for 750+ per month of house expenses changes how you feel about your life?

1:40 PM
OW-MPLS: Actually, since I am responsible for utilities and upkeep too, the total that I put in on a monthly basis is around $1200. And yes it does make me feel differently about my life. I am constantly worried that I am going to fall behind.

1:42 PM
CL: Before we get into your income situation, can you give me an example of how your house situation has changed a decision you might have made for the postive in your life - from a vacation to buying a gift for someone - anything. One example.

1:46 PM
OW-MPLS: I haven't been able to take vacations. That's a big one, basically I have no extra money. It all goes to servicing this gigantic debt.
I take time off but only to go places that I can get to by car.
CL: Have you and your roommate discussed ways you might get out of it?
OW-MPLS: We have tried, and there are no good options. Our house would need a lot of work before we could sell it, which we can't afford. Any of the programs that help you finance home repairs only let you finance work up to 110% of the value of your home. And we owe close to that at the moment thanks to the drop in value.
We are starting to look at the "Obama Refinance" where they write down the principal balance of your mortgage.

1:50 PM
CL: How old are you?
OW-MPLS: I am thirty and the other home owner is 40.

CL: How long is the mortgage?
OW-MPLS: 30 years.

CL: Any chance someone else would take over your mortgage?
OW-MPLS: I don't know, it seems unlikely, given that you can buy houses in our neighborhood in better shape for $50,000-70,000 now.

1:53 PM
CL: Am I correct in concluding - even with the Obama plan refinance - you will be in this or a similar situation for 30 years or until the value of similar homes in your neighborhood move from 50k to 70k to over 160k?

1:56 PM
OW-MPLS: There are a couple of ways out of the situation over time.
1. eventually we are able to rent the house out. Assuming we get something close to the value of the mortgage and they pay utilities the rest is a loss/investment in equity.
2. the value of the house only has to come up to the remaining principal balance before it starts to become feasible to sell it, although generally there is commission and fees to pay to realtors and such so it will have to be worth more than we owe.
3. we have enough cash on hand to make up the difference between what we owe and are able to sell it for.
I am guessing it will be at least 5 years before we can make these things happen.

1:59 PM
CL: Regarding 2. You will still take a loss on all the money paid til that point
Regarding 3: the on hand cash is also a loss - a way to buy yourself out of living there
OW-MPLS: Yup, I think we have paid around $70,000 in principal and interest since we have bought the house. Not to mention all the money we spent on trying to fix it up.
CL: Wait
OW-MPLS: Mortgage interest is front loaded.
CL: You bought the house for how much?
OW-MPLS: $184,000.
CL: Since 2005 you have paid about $70,000?
And your balance is what?
OW-MPLS: $172,000/
Like I said, mortage interest is front loaded

2:02 PM
CL: You have paid down $12,000 on principal - the remainder includes all the interest on the entire 30 year mortgage then?
OW-MPLS: You start off the loan paying more money towards interest, and end the loan paying more money towards principal
CL: Doesn't that keep the principal you are paying interest on higher for a longer period of time?
OW-MPLS: That is how mortgage loans are structured. I can send you an amortization schedule if you would like to see how it breaks down.
CL: That would be 'lovely' thank you!

I would like the schedule. I'm feeling like I have led you down into the backwater eddy of financing talk. I have some more to cover so let's move on to income.

OW-MPLS: No problem, just so you know I think that might be closer to a straight annual accounting of interest.
Not compounded.
CL: Your mortgage is not compounded?
OW-MPLS: I don't think it is compounded interest.
CL: OK.
I would say that is 'kind' if that word could be used in relation to the financing industry.

2:09 PM
You are an educated professional, college graduate?

OW-MPLS: No, actually, I went to technical school to be a chef and then switched careers. I have been contemplating a return to school though.
CL: If I met you would I know you are not college educated?
OW-MPLS: Only if you asked. I suppose.

I feel that it's hard for people to tell that about me, because I am pretty well spoken and versed on current events. And don't forget crafty.

CL: Right :)
You currently work in an office?
OW-MPLS: Yes.
CL: You work for an organization which has seen a dip in revenue since the recession, is that correct?
OW-MPLS: Very much so.
CL: How has this situation at work changed your income situation? If possible, please use specific numbers as I would like to compare those numbers to your monthly commitments (house, car, food).

OW-MPLS: Before the cuts I was making about $2000/mo in take home pay. After the cuts I am making about $1000/mo and am supplementing that as I can by filling in in other dept.'s. Right now my checks are back up to about 700, but this fluctuates with availability of hours.

They had to cut my position about 45%.
Which about tripled the cost of my health insurance.

2:18 PM
My monthly commitments are, like I said, about $1200. That includes all of my monthly debt payments.
I am not proud of this, but my parents have been helping me out with grocery money.
While I look for another job.

2:19 PM
CL: Does the the $1200 include Health Insurance?
OW-MPLS: My health insurance is still coming out of my checks.
CL: Do you know what you were paying and what you are now paying since your position was cut back?
OW-MPLS: I was paying about $100/mo. It went up to about $280.But that might change because of the extra hours I have been putting in.
CL: Thanks for clarifying
I will try to summarize what I'm hearing:

2:24 PM
OW-MPLS: I did want to add something.
CL: Go for it

2:26 PM
OW-MPLS: We currently rent out 3 of our rooms to roommates, totalling about $1250 in rent a month (when they are all paying) and currently we have been receiving about $900/mo for the last 6 months. That $1200 is what I pay AFTER that 900 has been applied to our mutual bills.
So without that I would have to be putting in an additional $450/ mo.

2:27 PM
CL: So total money going into the house is?

2:29 PM
OW-MPLS: Do you want just the house? Because what I pay a month is based on our house, car, car insurance, utilities and debt that we have incurred together and are working on paying down.
CL: So $1200 is your total monthly expenses on house, car, car insurance, utilities and other debt?
OW-MPLS: That's the portion that I am responsible for .
CL: Do you share all these expenses with the other homeowner?
OW-MPLS: Yes.
CL: Do you share a car?
OW-MPLS: Yes.
CL: What other debt do you share?

2:33 PM
Costs associated with upkeep I assume>
OW-MPLS: Mainly.
CL: I feel I'm taking us into the backwater again and want to get back on course.
OW-MPLS: It's pretty easy

2:37 PM
CL: No kidding! I really appreciate your patience in parsing out the details. While the devil is in the details I also believe there is a really important story about you and how your life is affected in the details.
So...$800 was your discretionary monthly spending.
Now you have $1700 in income bringing that down to $500
OW-MPLS: Which sounds pretty OK, until you realize that means that's your money for food, transportation, clothes, entertainment and trips to the doctor.
Assuming you don't try to put any in savings.

CL: 401k?
OW-MPLS: I do have one, but I've only had it for 2 years, I basically dedicated one years annual raise to it and haven't felt comfortable adding more since. We don't have matching anyway.
CL: So that's about $125 per week living in a city.
OW-MPLS: Yup.
CL: and that income fluctuates.
And that includes all the money you have for 'emergencies' - car tow, car repair, animal hospital, personal miss work crisis, all of the above?

2:48 PM
I should mention dental work, as it is rarely cheap.

OW-MPLS: I am really hoping none of those emergencies happen.
CL: Do you feel secure about your life?
OW-MPLS: Not at all at the moment.
CL: You mentioned your parents are helping with grocery money and yet that you work in an office, are a homeowner, clearly have a sense of financial accountability and could easily be mistaken for a college graduate.
It seems to me there might be a disconnect between how you perceive yourself, how others perceive you and your actual inner economic reality.

2:53 PM
I am wondering how you deal with this? Are you angry? Are you sad? Are you thinking at least I don't live in Rwanda? Do you feel injustice? Do you feel critics of this situation - many of whom would ironically be in the same situation - are right when they say you made this situation on your own? Do you feel the entities who financed you were wrong?

2:54 PM
Do you want to make more money at any cost?

2:55 PM
OW-MPLS: That's a complicated issue. I think the disconnect between people's perceptions of me and reality are something that was created by situations that are out of my control, and the differences between how I perceive myself and reality are a recent change.
As for how I feel
Without sounding to whiny, it really hurts.

2:56 PM
Because it took years of work to reach a level where I felt I was finally able to pay for what I had to and some of what I wanted and still make enough money to put some away.

2:57 PM
It feels like I have been sent back 5 years for progress.
It's frustrating to have all your success taken away.
And even though you know it's not your fault it feel s like you are being punished for something.

2:58 PM
CL: What about liberty and freedom? Pillars of American life - do you feel they have been reduced?
OW-MPLS: I feel like those things don't apply to the financial world.

2:59 PM
CL: Do you feel the financial system protects consumers? Is the way in which you got into this situation fair?
OW-MPLS: It certainly did not.
The funny thing is, I honestly had misgivings about buying such an expensive property.
But everyone from the realtors to the mortgage brokers insisted it was a good investment.

CL: Doesn't this situation limit your freedom? Your liberty?
OW-MPLS: It does. But...

I feel that there are a lot of debt traps out there and very few ways to get through without falling into one of them.
College,
credit cards.
houses,
or just being poor.
Money is a huge limiter.

CL: Which makes financing...
even more attractive
OW-MPLS: Exactly

CL: I want to thank you for your time and absolute thoughtfulness
Anything you want to add?
OW-MPLS: It's hard enough for people to try to find ENOUGH financing, who would have thought that what would really kill us would be finding too much too easily.

3:08 PM
CL: I've only financed credit debt and one other thing, so I have not considered that issue. It's a very good point - a complete shift in perception from there needs to be 'enough' to what I got is 'too much.' And of course what you are getting is the temporary money for a high price.
OW-MPLS: And the price that I got it for was considered a very good price.
Have a nice day.

CL: I want you to know that what you've done today is highly unusual.
You have directly confronted what I consider to be one of the biggest taboos in US society: openly discussing personal financial issues.

I therefore consider you both a trailblazer and courageous. Many thanks for sharing. I will do what I can to make this available to other people, in hopes that it helps others.

OW-MPLS: I think that the only thing that you should really be embarassed about is not being able to see and admit to the truth. I think it's better.
Thanks for listening.

CL: My pleasure. You'll know when it's up. Have a good day.