I see Antonio a few times each year. Since his stroke five years ago, he doesn’t get out much. He has about 30 % control over the right side of his body; he can’t even hold a pen in his right hand. When he has to write or sign something, he stoically scratches away with his left hand, too proud to ask for help or dispensation.
Antonio is 75 years old. His wife passed many years ago, they had no children. Fifteen years after buying a home, and just five years ago, he refinanced the mortgage so that he could replace the roof. He asked for a fixed rate loan, but the loan officer insisted that he could only qualify for an adjustable rate, saying that he could always refinance again later to keep the rate low. Mere days after signing the documents, he suffered the stroke and medical bills took all the cash he had taken from his equity for the repairs. Today he keeps his TV under plastic; the roof leaks so badly there’s hardly a dry spot inside. He gets about $18,000 in social security, and takes the rest that he needs for minimal living expenses from his IRAs and a 401(k) plan. Combined, his retirement plans now total about $200,000. His yearly mortgage payments, during the first, reduced-rate period, are $17,500; note the similarity with his social security income. In April, just two months from now, the teaser rate expires and his mortgage payments more than double, to $3900 per month.
I only follow his lead in the conversation; he is very worried that he will lose his home, and he is trying desperately to convince himself that it is for the best. He has spent $15000 from his IRA account over the last 18 months paying attorneys to try to modify his loan. The bank denied all 3 submissions. He knows he can’t keep pouring money into these attempts; he is resigned to the fact that he must stop making payments in order to get any type of accommodation from the bank.
So here’s the crux of the matter: Antonio was raised with two fundamental beliefs; one, that your credit rating is your reputation, and neither should ever become tarnished; and two, that because homes will always increase in value, not owning a home keeps you in poverty. He lived his entire life guarding his credit and working towards owning a home. He built a relationship with a local bank, saved money for the down payment, worked hard and finally realized his dream of home ownership. He doesn’t understand why he sends his monthly check to a loan servicer, not the bank that he went to for the loan. He doesn’t know that the bank created most of his loan amount out of thin air, made a handsome profit from originating the loan and then selling it, and has no interest in maintaining any type of relationship with him. A part of what is gnawing at his heart is the rejection, the abandonment, he feels. He is loyal, and honors the bank that helped him buy his home. Now he asks for respect and dignity in return, yet is only ignored, shamed, and belittled. His home, if he keeps paying the skyrocketing mortgage, will keep him in poverty the rest of his life, contrary to what he was taught as a youngster.
I plead with Antonio to stop making his payments. I tell him he can’t pay the new rate for long, he needs to husband his meager resources by moving. He asks, “How long before my home will start to increase in value again?” and I answer, maybe not for 5, 6 or 7 years. His eyes look down at the tabletop, and when he looks back up at me, I see tears. “It will ruin my credit, but I have to move. I don’t sleep at night; I lie there and worry about how I can find money to make this higher payment. I don’t see any way out.”
The desperation in his voice is palpable. I worry that he has reached the end of his rope, that he will die soon out of shame or from feeling so totally inadequate. I tell him that he should take advantage of living rent-free for the several months foreclosure requires, to get his things in order, to find an affordable place, even to look into moving to a different part of the country where rent is less. He points out that he has no family, and all of his friends are here. He can’t imagine moving far away and starting over, not at this age.
I shake his left hand with mine, put my arm around his shoulder, give him a squeeze. “You have to take care of yourself, save your money,” I tell him as he dons his jacket to leave. Unspoken between us is the understanding that he may not live long enough to see equity in his home again. Will any of us?
 Under the fractional reserve system, the bank need only have a small (less than 10) percent of money that they lend out; the promise to pay is the asset that backs up the mortgage, not funds held by the bank. The bank has no claim, therefore, to interest since it’s not the bank’s money being “used” by the borrower. If you make the first 8 mortgage payments, the bank has recouped it’s own money. Every subsequent payment is profit.