DEBT, INC. Extractive Design As my friend Orion Kriegman and I climbed the pebbly cement staircase in the sidewalk that gave James Court a distinctive charm, he shared with me the story of his quest to buy the home we were on our way to see. It was a little two-unit at 56 James Court* in the Jamaica Plain neighborhood of Boston. After the family that lived there for 13 years lost it to the mortgage company, it stood empty for years. Orion had lined up bank financing to buy it. But when his real estate agent tried to make an offer, he couldn''t find anyone on the other end to talk with. No owner. Or at least no owner that anyone could locate.
Some entity somewhere in the chain of financing had gone bankrupt, and the company left in charge was in absentia. Orion tracked down that firm through the register of deeds, but when he called the company--not once, but over and over--he felt he''d entered that special circle of Dante''s Inferno reserved for those on hold. In his months-long effort to buy the home, he got as far as discovering that the "owner of record" was Ocwen Financial Services. But there the trail went cold. "Their phone service is a true nightmare," Orion said. "There''s no category this fits in, so they transfer you to someplace where you can''t leave a message." When he finally talked to someone, he figured he''d reached a call center in India, because the person spoke with an Indian accent and seemed to be working from a script with no provision for his particular problem. "He gave me an 800 number, but I said an 800 number is not a direct line.
''Oh yes, it is, sir, I promise it is, sir,'' he told me. So I tried it, and it took me back to the start." Consulting again with his agent, Orion got the name of the person at Ocwen in charge of foreclosed properties and phoned him. At one point, he even found a returned message on his answering machine. But after calling the fellow back three times, Orion was met with a final, enduring silence. Odd. How does one lose ownership? Where did it go? This intrigued me. Somehow, the seemingly simple fact of ownership had been deconstructed beyond recognition and vaporized.
That process had triggered economic crisis across many nations--something like the splitting of the atom triggering nuclear explosion. Because the owners who''d lost this home seemed close to ground zero for the whole thing, I thought the story of this one family might help unravel how things had gone so wrong. THROUGH THE WEEDS Orion finished telling his story as we reached the house, where we stood for a moment. "I don''t even know if it has its plumbing anymore," he said. A lot of abandoned homes didn''t. Scavengers had been known to strip out copper piping, rip sinks out of walls, and haul boilers out of basements. Since this home had plywood slabs covering its windows, we couldn''t tell what shape the interior was in. We pushed through the weeds to the backyard to try to see.
From beneath the side porch protruded the edge of a stained blue sleeping bag. "There''s definitely someone living under there; I see him all the time," said a young man walking toward us (who didn''t seem to have bathed that morning). He told us that he too dreamed of occupying the house, as a squatter. Like Orion, he said he''d visited the website for the register of deeds to follow the tale of the home''s ownership. "It''s like seeing people''s life story in a handful of documents," he said. Peering past this home''s boarded-up windows proved impossible that day. If I were ever able to see into the story of this home, I realized that I would have to be the third in our erstwhile trio to dig into the public documents posted by the register of deeds. The tale began in 1992, when Helen Haroldson bought the 2,100-square-foot two-family house for $140,000, with a mortgage from Shawmut Mortgage Co.
Five years later, she seemed to be getting a small business under way, because a Small Business Administration (SBA) loan was added in the amount of $23,500, secured by the value of the house. On SBA documents, the name of a husband, Michael, appeared for the first time--possibly indicating a recent marriage. With a home, a husband, and a business, Helen''s life seemed to be coming together. For two more years, all seemed to go smoothly. Then in 1999 the couple took out an innocuously small loan, $16,000, from a local credit union. In less than two years, they''d fallen behind on payments, and the credit union gave them a few months to become current. The growing equity in the home allowed that problem to disappear. The Haroldsons got a $233,200 mortgage from Aegis Mortgage Co.
, totaling $50,000 more than all previous loans combined. That likely meant they''d added some cash for themselves into the refinancing (as well as cash for the hefty fees no doubt charged by Aegis). It was easy to imagine their relief. Yet had it been a Shakespearean play, this would have been the moment when the plot turned. Aegis (a company organized in the state of Oklahoma, with a post office box in Louisiana and a street address in Texas) would appear again in the Haroldsons'' life, as would a second corporation mentioned on this mortgage: MERS--Mortgage Electronic Registration Systems, Inc. MERS was a privately owned loan-tracking service created to facilitate the trading of mortgages. Its presence on the deed meant that this home''s mortgage could be sold countless times, with few hints of those transactions showing in county land records. MERS was, you might say, the legal representative of the financial whirlwind.
Nine months later, the Haroldsons were back with another new mortgage, this one from Ameriquest Mortgage. I recognized the name, because when the meltdown came, it made headlines as the object of multiple state prosecutions for predatory practices--such as pressuring borrowers to refinance when it wasn''t in their interest to do so. Perhaps in part because of lender fees and penalties, the mortgage was now $50,000 higher. It seems the Haroldsons had begun paying down old debt with new debt. From that point, it became painful to read on. Six months later, another new mortgage--Aegis again. This one $71,000 higher. Another six months, another new mortgage, this one from a lender incongruously named Community First Bank, adding $44,000.
Then an Instrument of Taking from the state Office of the Collector-Treasurer, threatening to seize the house for nonpayment of taxes. The notice arrived 12 days before Christmas. Five months later, the Haroldsons were back with another new mortgage--Aegis again (no longer organized in the state of Oklahoma, now reorganized in Delaware). This mortgage totaled a crushing $462,500. The Haroldsons hung on for another 18 months, and then MERS filed in court to foreclose. Even in the dry prose of registered deeds, there was something raw about these transactions. The Haroldsons were clearly unsophisticated in the ways of finance, possibly lax, or, more charitably, desperate in their decision making. For whatever reason, they cycled through five mortgages in five years.
Why did no bank counsel them? If reckless borrowing was clearly in evidence, the larger story--the enabling framework--had to do with reckless lending. A TANGLED SKEIN OF OWNERSHIP For years after the house was taken, the power of sale that MERS had claimed lay unexercised. Any ordinary bank would have wanted to see this home put on the market immediately. But this was no ordinary bank. MERS wasn''t the owner but a processing agency acting on behalf of some unnamed other. I guessed that Aegis wasn''t the owner, either, because companies like that often sold off mortgages within days. Aegis had also gone bankrupt, ceasing operations less than eight months after the Haroldsons'' foreclosure. I thought the most likely "owners"--and the word clearly needs quotation marks in this context--were the investors in mortgage-backed securities.
What such investors generally invested in were not individual mortgages, or even pools of mortgages, but instead characteristics of pools of mortgages, packaged into collateralized debt obligations (CDOs). Many of these investing vehicles melted down in the housing crash, making them possible candidates for the missing owner. Because of MERS''s presence, the whole thing remained opaque. If the Haroldsons'' house stood at one end of this tangle of financial arrangements, at the other end stood investors. These often weren''t individuals but institutions--like the banks of Iceland, which were destroyed in the CDO meltdown, or the pension fund of King County, Seattle, which lost a bundle on structured investment vehicles. So it was that between, say, a Seattle policeman whose retirement depended on the performance of a mortgage loan and the mortgage payments made (or not made) by the Haroldsons, there stretched a complex of connections so densely woven as to be impossible to untangle when the need arose Holding the supposed responsibility for this snarled skein was Ocwen Financial Services. It was a story in itself. When I put its name into Google, I might as well have searched on the phrase "mortgage fraud," so numerous were the lawsuits and allegations of abuse.
According to a Government Accountability Office (GAO) report, the firm had charged the Veterans Administration for home repairs never made, instead leaving houses in disrepair and covered in debris. The Better Business Bureau of Central Florida, where Ocwen was located, had given the company its lowest ranking, F, after receiving 520 complaints in three years. In a customer service survey, J. D. Power and Associates ranked Ocwen dead last, in large part because of what the Palm Beach Post called "its tortuous and unhelpful phone ser.