What you learn when big money goes away

DAN VOELPEL; THE NEWS TRIBUNE
Last updated: March 27th, 2009 01:20 PM (PDT)

He made $37,000. So he took $5,000 in cash and his fiancée, Heidi, to Bellevue Square.

“I told her, ‘We’re not leaving here until we spend it all,’” Rob recalled this week.

They spent it all right. Heidi bought a pair of designer Richmond jeans, diamond stud earrings, and some odds and ends to supplement her wardrobe. Rob, always impeccably dressed, bought clothes too, including an Italian leather jacket.

Over the following 18 plentiful months, Rob bought a used BMW M3 high-performance sports car, upgraded to a better mortgage company, bought a Hilltop house in Tacoma with Heidi, then married her.

Not bad for a kid from Tumwater who had six heart surgeries before graduating from high school to fix a miswired aorta.

He thought life couldn’t get much better than that.

It didn’t.

Last June, Rob, 29, lost his job writing mortgages for U.S. Bank because he couldn’t write enough approved loans to reach the $1 million minimum his bosses set for him. He sold the M3 immediately and hasn’t owned a car since. He and Heidi, 26, have fallen four months behind paying Countrywide, which owns the loan on their home. Countrywide calls every day asking for its money.

By chance, on a trip to Starbucks in Federal Way last month, I found Collins sweeping the floor before his turn taking orders at the drive-through window. He rides the bus to and from work.

“Starbucks is a great place to work,” Rob said. “I make $8.65 an hour. But I’m up for a raise here shortly.”

Rob, who dropped out of Pacific Lutheran University two years into a music major, picks up a little extra cash now playing French horn for Tacoma Urban Orchestra gigs.

“It’s ironic,” Rob said. “I dropped out to work, because, as a music major, I didn’t want to be a starving artist. Now, here I am a starving artist.”

And Heidi? She just took a third job. Rob calls the job “swimsuit model.” The wisp of a woman walks the edge of the boxing ring at the Tulalip Casino Resort in Marysville between rounds holding up a placard with the number of the next round.

How are you doing with all this? I asked her.

“Not well,” Heidi said. She choked up. She doesn’t like to talk about it much. The mental and emotional strain, at times, becomes unbearable.

“We are doing everything we can to save this house,” Rob said. “That’s our focus. We want to keep our home.”

We sat at his dining room table. You know, I told Rob, plenty of people will read this and won’t have any sympathy for you. They’ll blame you for getting yourself into this mess.

“I understand,” Rob said. But he wants to share the story because he has become an evangelist of sorts preaching against deceptive practices of some in his former industry. He speaks well of U.S. Bank, which earned a positive national reputation for not jumping on the subprime bandwagon.

Rob takes out a notepad and draws me a picture that shows how lending companies provide kickbacks to mortgage brokers who write loans at higher interest rates for less-than-ideal borrowers.

“The more rebate the broker could obtain is directly related to the higher (interest) rates he charges the customer,” Rob said. “And the amount grows exponentially.”

The transaction, which lenders call an “overage,” doesn’t always show up on loan documents. If it does, you might see “Yield Spread Premium” or “YPS.”

But the bad news for Rob and Heidi has nothing to do with kickbacks.

The U.S. Department of Housing and Urban Development reported recently that delinquency rates on home mortgages last year rose 20 percent over 2007 and foreclosures rose 22 percent.

Some of those problem mortgages stem from exotic adjustable-rate loans written for home buyers who figured they could refinance later as their homes’ values continued to rise.

Count the Collinses among them.

Life and the housing market haven’t kept going up.

Rob and Heidi picked out the 1890-vintage, three-story charmer in the Hilltop neighborhood near Mary Bridge Children’s Hospital for two reasons – one practical and one romantic.

They wanted to join the Hilltop’s reawakening as an emerging destination for young professionals buying their first homes. The house also sits 0.9 miles from Engine House No. 9, the historic Sixth Avenue eatery where Rob and Heidi met.

“I was living in Olympia and commuting to Southcenter, and I’d stop at E-9 on the way home to throw darts and have a beer,” Rob said. “And there she was.”

Heidi, in her final year of a psychology degree at the University of Puget Sound, and Rob hit it off right away.

When they bought the house in April 2006, they opted for an exotic loan known as a W-2. The early years you pay interest only at a fixed rate, then the loan kicks into an adjustable rate.

Countrywide didn’t ask how much the Collinses made. Heidi needed a letter of employment, her transcripts from UPS and proof that she kept a bank balance over $5,700 for at least two months.

Why not a simple 30-year, fixed-rate mortgage? They would have qualified. Rob alone made $76,000 that year. But the exotic mortgage saved them $54 a month.

The problem? Their home has a market value today at closer to $150,000 than the $260,000 they paid for it or the $320,000 at its peak value. They can’t refinance.

“It was a high-risk loan. I know it was, because I was a loan officer,” Rob said. “It was widely accepted at the time. In retrospect, the types of loans such as Heidi and I got are directly responsible, in part, for the widespread depreciation we’ve seen in home values.”

Now, their paperwork shows, they owe 9.5 percent on a first mortgage and 11.125 percent on second for a combined monthly payment of $2,496.

“If I knew then what I know now, I never would have done it,” Rob said. “I’m furious. … I feel guilty. I’ve been battling a lot, doing a lot of soul searching battling who I am now.”

They have asked Countrywide to allow them to enroll in a federal bailout program that reappraises a home at its current market value and restructures the loan to a fixed rate. Countrywide, which got itself into financial trouble selling subprime mortgages and later got bought by Bank of America, has refused – even though they qualify.

They have sought help from the state Attorney General’s Office, and relatives who live in Washington, D.C., have contacted our state’s senators. Not just for themselves, but because the boat they find themselves in has many passengers – and it’s sinking.

So.

Rob, while mixing lattes and blowing the French horn, has mulled over finishing college – studying socioeconomics at The Evergreen State College.

Heidi works at a North End Tacoma psychiatric lockdown facility for children, performs contract work for a state family preservation program and walks boxing rings in her swimsuit.

Says Rob: “My grandfather, who’s helping me through this, says, ‘The majority of people on this planet live at the end of their means when we should live beneath our means.’ I know what he’s saying.”

Dan Voelpel: 253-597-8785

dan.voelpel@thenewstribune.com">dan.voelpel@thenewstribune.com

Originally published: March 27th, 2009 12:26 AM (PDT)