Fighting foreclosure: How one couple got caught in mortgage crisis

MARYSVILLE — Terry and Lloyd Berger live in their dream house in Marysville. Members of their extended family live nearby.

“I love Marysville,” said Terry Berger, 52. “I’m from here. I don’t want to move out of here.”

But they may have to move if things turn sour.

Like millions of others in this country, the Bergers are struggling to stay in their home. A subprime mortgage with a high interest rate they got a few years ago has choked their household budget. Their savings continue to dwindle, even though Lloyd Berger, 47, makes about $62,000 a year as a fleet mechanic for Frito Lay in Everett. The veteran also gets approximately $9,600 per year in early retirement payments from the Army.

The Bergers hope to get a mortgage modification through a settlement with Washington and 10 other states reached in October by their lender, Countrywide Financial Corp. The nation’s biggest mortgage lender rose by selling risky loans and then fell when those loans turned bad and triggered the nation’s financial crisis.

The $8.4 billion settlement, the largest of its kind in history, aims to modify troubled mortgages for about 400,000 homeowners nationwide, according to the state Attorney General’s Office. The program is expected to be up and running on Monday.

The settlement showcases the increasing efforts of the government to reduce home foreclosures, which continue to bring down the housing market. Falling home prices have yet to see the bottom in Snohomish County and elsewhere in the nation, compounding the economic downturn.

The Bergers grit their teeth thinking about how they switched from a safe, 30-year traditional mortgage to a higher-interest loan in 2006. It was fast and easy to get into the riskier loan, but getting out of it has been hard because of extra fees the Bergers said were not clearly explained.

They made their own mistakes, the Bergers said. But aggressive lending tactics by Countrywide pushed them into the quagmire, they added.

“I understand Countrywide was in business to make money,” Terry Berger said. “But when they use deceptive practices to make money, there’s a problem.”

From prime to subprime

Lloyd Berger moved around a lot while serving in the Army. Terry Berger followed him to Alaska, Louisiana and Texas.

When he retired in July 1997, she was ready to come back to Snohomish County. Her husband, originally from Stanwood, granted her wish.

The couple moved back and rented a place for a year before finding a two-story house for sale in Marysville. Lloyd Berger, who enjoys woodworking, loved the big shop in the back yard.

The couple got a 30-year Veterans Affairs mortgage from Countrywide with an interest rate fixed at 7 percent. The $152,750 loan was a good deal: No closing costs. No mortgage insurance. No down payment.

They started paying about $1,300 per month for their house. The payment was reasonable because both of them held jobs.

But their debts would mount over time: credit cards, a student loan and an energy conservation loan.

In 2006, the Bergers decided to refinance their mortgage with Countrywide to reduce their total monthly debt payments from about $2,700 to about $2,000.

“We had more going out than coming in at that point,” Lloyd Berger said.

The refinance came with a setback.

Countrywide told the couple that they could qualify only for a subprime mortgage with a fixed 8.375 percent rate because of a bad credit score, the Bergers recalled.

As they negotiated by phone and e-mail, they struggled to keep up with their debt.

“We needed to get the refinance done, and they knew it and they got us in the corner,” Lloyd Berger said.

They didn’t shop around for lenders or check their credit score by themselves, they said, adding that they learned much later that their credit score was not bad.

In May 2006, they closed the deal while looking at a pile of paperwork at a coffee shop inside a Lynnwood book store.

“We never met a live body until we went to sign the paper,” Lloyd Berger said. “That wasn’t even somebody who worked for Countrywide. That was just a contractor.”

The new, $225,000 loan included a prepayment penalty for paying it off early. The penalty would expire a year into the loan, Terry Berger said she was told. She said she was also told it could be waived by negotiation.

She would find out otherwise later.

Stuck with subprime

Terry Berger said Countrywide called her again and again after the refinancing was done, urging her to switch to yet another mortgage. Some offers were for low, adjustable rate mortgages in which the interest rate is set to spike in a few years.

She refused all the offers. Another refinance would give Countrywide more money in closing costs and fees, but it would do her no good, she said.

Countrywide also kept calling her husband’s cell phone.

“I basically told them, ‘We are done with talking,’” Lloyd Berger said.

Why so many calls?

Because there was money to be made by the mortgage companies through extra fees and higher interest rates, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University in Pullman.

Crellin noted that the riskier, subprime mortgages were developed several years ago to give people a chance to buy a house when they couldn’t qualify for a traditional mortgages. “There was a lot of pressure from federal agencies to increase home ownership,” he said.

Investors loved mortgages when home values kept rising in America. The burgeoning global economy, especially spurred by China, generated a huge amount of money to invest, Crellin said.

U.S. financial firms such as Countrywide competed to issue and collect mortgages to sell them as securities to worldwide investors. The bigger the demand for mortgages, the looser the lending guidelines, said Steve Tytler, vice president of Best Mortgage in Bellevue and a real estate columnist for The Herald.

At the height of the housing boom, people were able to buy expensive houses without any income verification, he said.

“Bad guys abused the system,” he added.

Initially, the Bergers managed to keep up with their mortgage payment.

In March 2008, though, Terry Berger quit working as a paralegal for health reasons.

Tired of repeated calls from Countrywide, the couple tried to refinance their mortgage with Pentagon Federal Credit Union. They wanted to get another 30-year loan with a fixed 6 percent rate to make it affordable on one income.

Countrywide said that they would have to pay about $6,000 in prepayment penalties, Terry Berger said.

The fee won’t expire until March — three years into the subprime mortgage, she learned. She had thought the penalty would go away after a year.

“What I heard from them was different from what appeared on paper,” she said.

The penalty kept the couple from switching to the credit union. Even without the loan, they had to pay $600 to the credit union for administrative fees that would have been waived had the new loan panned out.

Terry Berger filed a complaint with the state Attorney General’s Office against Countrywide.

‘Everybody lost’

Terry Berger wants to know who owns her mortgage.

She sends her checks to Countrywide, which continues to service her loan after selling it to a different firm. But the company doesn’t answer her questions, she said.

“Well, you can’t tell me who you sold our loan to? That’s weird,” she said.

The company changed its ownership this summer.

Bank of America bought Countrywide on July 1. Countrywide, headquartered in Calabasas, Calif., directed inquiries from The Herald to Rick Simon, a spokesman for Bank of America.

The bank doesn’t disclose information about investors who own Countrywide mortgages, Simon said.

Even if it did, it might have a hard time figuring it all out, said WSU’s Crellin.

“The question is simple; the answer is very complex,” he said.

Countrywide issued and sold numerous mortgages to different investment firms, Crellin said. Those mortgages were categorized by rating agencies and were turned into securities by Wall Street firms to entice investors.

Numerous investors could have a stake in a subprime mortgage pooled with others, Crellin said. That makes it difficult to identify who owns those mortgages and even tougher to modify their terms.

When many people started defaulting on subprime mortgages, that set off a chain of bad incidents. Investors lost money and became hesitant to invest. That hurt the stock market. Banks lost capital and got tight on lending to businesses and consumers. The economy slipped into a recession.

Borrowers who defaulted on subprime mortgages are losing their homes to foreclosure. Many brokers who sold those risky mortgages have lost their jobs as the housing market has shrunk.

“It looks like everybody lost,” Crellin said. “You can argue that Countrywide lost, too. They lost their identity.”

Home prices continue to drop in Snohomish County.

The Bergers’ property had continued to appreciate since they bought it in 1998, they said.

This year, the property value dropped for the first time, falling from $286,900 to $268,000, the county assessor’s records show.

Waiting it out

The Bergers don’t want to pay the prepayment penalty even if they can afford it, they said. They believe they were deceived by Countrywide.

“It’s not something we would give them,” Lloyd Berger said.

Exactly what happened in the Bergers’ dealings with Countrywide will likely never be known.

It’s hard to prove wrongdoing in mortgage negotiations, said Deborah Bortner, director of consumer services of the state Department of Financial Institutions.

“It’s one of those things we call, ‘he said, she said’ cases,” Bortner said.

If any good has come from the housing crisis, it’s that lenders are returning to their traditional, responsible practices, Bortner said. A 30-year mortgage with a fixed rate and down payment is getting more and more popular.

People used to use their home as a checkbook to buy things, taking out home equity, Bortner said, noting those days are gone.

“It’s very, very dangerous,” she added.

The Bergers said they’ve learned from the past. They frequently check their credit score and monitor their credit card use.

“You just have to live and learn,” Terry Berger said.

If they don’t get help from the state to modify their mortgage, they said they plan to wait for May 2009.

That’s when the prepayment penalty is expected to go away.

That’s when they plan to say goodbye to Countrywide.

Reporter Yoshiaki Nohara: 425-339-3029 or ynohara@heraldnet.com.