Public service ads about foreclosure were all over the nation's airwaves by late 2007, airing frequently at night when worried homeowners couldn’t sleep.
The messages, accompanied by somber music and stark images, urged U.S. homeowners to take action — to call a hotline or their lenders if they were falling behind on their mortgages:
“Foreclosure doesn’t affect just you, it affects your whole family, too … Because nothing is worse than doing nothing.”
With mortgage defaults rising at alarming rates, the U.S. Treasury Department and the Department of Housing and Urban Development prodded the lending industry and nonprofit housing counselors to form The Hope Now Alliance in October 2007 to assist American families facing foreclosure.
The effort was a harbinger of troubled times ahead: mounting foreclosures, job losses and a financial crisis that would test the nation’s nerves in September 2008.
Economists say the Great Recession started in December 2007, but for millions of homeowners — like Maureen McKenzie who lived in Kirkwood — the downturn began months earlier.
When her adjustable rate mortgage payment doubled to more than $1,600 a month in August 2007, McKenzie sought help from a housing counselor and attempted to negotiate with her lender. All of her last-ditch efforts to save her home failed.
A decade has passed, but McKenzie’s eyes still fill with tears when she recalls moving out of her one-story ranch home in May 2008, just days before it was sold at a foreclosure auction at the St. Louis County Courthouse.
“It’s very painful. I still miss that house,’’ she said. “I still grieve losing that house. It was not only the house that I grew up in, it was my sanctuary.”
Lost: an American Dream
McKenzie’s American Dream was a small one. Just 900 square feet — three bedrooms, one bath — on a tree-shaded cul-de-sac.
She was divorced and in her 50s when she bought the home in 2004 from her father who had owned it for half a century. She and her four siblings grew up there.
McKenzie had a conventional loan and a monthly payment of about $900 that she could afford. That changed a year later — when chronic health issues forced her to leave her job. She knew she needed help and turned to a mortgage broker who offered an adjustable rate mortgage that would lower her monthly payment by $150.
“Somebody had referred me to this guy that could do these low-interest or no-interest mortgages,’’ she said. “And so I refinanced, and then within a very short time the mortgage payment went up and up and up.”
McKenzie’s house joined hundreds of thousands of foreclosures that were already clogging the real estate market and driving down house prices. The housing bubble, which had been driving the economy, had burst. And it would take down financial giants — Countrywide Financial, Bear Stearns, Lehman Brothers, Merrill Lynch — that were heavily invested in risky mortgages and mortgage-backed securities.
On Sept. 24, 2008 — four months after McKenzie’s foreclosure — then-President George W. Bush grimly addressed the nation and explained that the government needed to step in and stabilize the nation’s banks. The federal government would eventually spend $700 billion on the bailout, as house prices continued in free fall and the unemployment rate spiked.
The Great Recession officially ended in June 2009, but its after-effects lingered. As many as 10 million Americans lost their homes to foreclosure — along with their home equity. U.S. employers shed more than 8 million jobs.
In the St. Louis area, house prices fell by more than 11 percent between 2006 and 2010, according to a federal index. The region lost about 70,000 jobs, with the manufacturing and construction sectors taking the hardest hits.
The economy’s “new normal”
The Great Recession lasted 18 months, making it the longest economic downturn of the post-World War II period.
Financial experts say the nation’s economy has finally recovered but not to its pre-recession level. They're calling it "a new normal."
“If you look at the aggregate numbers — things like household wealth, all families together. If you look at the unemployment rate. If you look at GDP — the output of goods and services — I think you'd have to conclude that we're fully recovered. But at a lower point than we thought we would be 10 years ago,” said Bill Emmons, lead economist with the Center for Household Financial Stability at the St. Louis Federal Reserve Bank. The center's researchers study household finances.
Foreclosures have fallen to pre-recession levels, and the nation’s unemployment rate, which peaked at 10 percent in October 2009, is down to 4 percent. But for many Americans, wages have remained stagnant, and the nation's savings rate is low.
Economic trends that were in place before the recession have resumed, such as the widening gap between the wealthy and the less well-off, Emmons said. And, he noted, recovery has been lower and slower for Americans hit hardest, especially minorities and young families.
Ray Boshara, who directs the center, points to a telling statistic: A Federal Reserve survey conducted last year found that 44 percent of respondents could not cover an unexpected $400 emergency expense or would rely on borrowing or selling something to do so.
“It’s been a highly uneven recovery,’’ Boshara said. “When you see financial stress — the fact that nearly half of Americans could not cover a $400 expense — what does that tell you? It tells you that despite a full recovery and great stock market growth, underneath there's a lot of struggling families.’’
“We’re still struggling”
Ten years after foreclosure, McKenzie has reassembled her life. Her face lights up when she talks about meeting and marrying her husband during the recession.
“I thank God every day that I found him and that he loved me in spite of all the problems that I was dealing with,’’ she said. “And I'm very grateful, as otherwise I don't know where I'd be. I really don't know.’’
They live in a modest, one-story home in south St. Louis County that’s similar to the house she lost to foreclosure.
“I think it's still a very difficult time, and a lot of people I know are still struggling,’’ she said. “We're still struggling.’’
McKenzie is 66 and has no plans to retire. She has no retirement savings, which puts her in the same boat as about 30 percent of non-retired American adults, according to consumer statistics compiled by the Federal Reserve.
“I can't afford not to work,’’ she said.
McKenzie insists that the terms of her failed mortgage were never clearly explained to her. She knew she was signing an adjustable rate mortgage, but she thought she would have at least three years before the rate would begin rising — enough time to get her financial affairs in order.
The terms of McKenzie’s loan were in the fine print, according to a consumer law attorney who examined her loan documents for a story published by the St. Louis Beacon in 2008. The loan was an “option ARM” — a payment option adjustable rate mortgage — that provided just weeks of respite before resetting at a higher rate. McKenzie’s payments began rising almost immediately after she signed on the dotted line. The loan was also loaded with upfront fees. She paid nearly $17,000 in fees to the mortgage broker and lender.
Looking back, McKenzie said she would have sold her home, instead of attempting to refinance it, had she understood how risky the mortgage was. Instead, she spent all of her savings trying to save her house.
“I had to borrow a substantial amount of money from my dad to keep paying the mortgage,’’ she said. “And when it did finally foreclose, it's like I have nothing to show for it. I have no equity. No assets. Nothing.’’
In July 2008, two months after her foreclosure, McKenzie stood before a live, studio audience at KETC-Channel 9 and identified herself as a foreclosure victim to a panel of experts discussing the mortgage crisis. She said it was difficult to go public with her case, but she felt the need to speak out about what was happening.
"It was just a very shameful and difficult, terrifying time,'' she said.
She resents that the government bailed out the nation’s banks, which profited from selling the failed loans, but offered scant assistance to homeowners.
“There are so many ways that I felt taken advantage of and violated,’’ McKenzie said. “People were not getting the help they needed. Lots of people lost their homes. And that's a devastating thing.”
St. Louis financial analyst Juli Niemann doesn’t mince words when she looks back on the past decade of economic woe. She blames bad federal government policy and lax lending for allowing risky subprime and adjustable rate loans in the first place — and Wall Street for bundling and selling them as mortgage-backed securities.
“Nobody shut down the crooks who had liar loans — you could buy with nothing down. You could purchase everything, it made no difference as to what your credit quality was,’’ she said. “All the lenders wanted were the fees.’’
Read more: St. Louis Beacon's three-part in-depth analysis a decade ago of how a risky mortgage doomed Maureen Mackenzie's home to foreclosure.
- Anatomy of a foreclosure (Part 1): For Sale - A house full of memories
- Anatomy of a foreclosure (Part 2): How an adjustable rate mortgage led to crisis
- Anatomy of a foreclosure (Part 3): Life in the aftermath.... now what?
It was only a matter of time before failed mortgages caused an economic slowdown that would snowball as more and more people couldn’t make their payments and defaulted, she said.
“So you had all this garbage debt out there,’’ she said. “But the primary cause was bad real estate lending. Then, you had Wall Street jump in, slicing and dicing these mortgages. Basically, they had no collateral.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress in 2010 put into place mechanisms designed to prevent bad lending practices, Niemann said. But she worries that the overhaul is currently under attack — and that eliminating regulations could open the door to pre-recession bad habits.
“Some of it doesn't work,’’ she said. “It became very ominous for the smaller banks. So, OK. Let's figure out a way to get effective regulation for them. But to give a pass to all the big boys that are too big to fail? No. If we see Dodd-Frank go down the toilet, we've got a huge problem.’’
In the coming months, St. Louis Public Radio will continue talking with area residents to see how they’re faring, a decade after the worst financial downturn since the Great Depression. We’d also like to hear from you. Tell us: "How has the Great Recession affected your life?"
Follow Mary Delach Leonard on Twitter: @marydleonard