A Personal Story about the RTC and a Conscientious Democrat

Hello, this is my first diary here. It has already been posted and did pretty poorly at DailyKos until being rescued. It is a story of pain and suffering and I believe it is a decent prediction of things to come.

This is an old story from 1994 that has some relevance today. It is a story from a Democratic administration but the victims were forced to deal with a Republican resolution. It is a story that I had to live through.

I live in a 3000 unit apartment complex in the Bronx. It is a massive dwelling on 22 acres that was built in 1961. There was a conversion from a rental property to a cooperative in 1987, the last breath of a housing boom. A complete renovation made the property much more desirable.  

In order to sell many apartments very quickly the holder of unsold shares steered new shareholders towards seven and ten year balloon mortgages. People believing in their own upward mobility put up ten percent and made smaller payments that paid down just a small amount of the principle.

When these balloon mortgages ended so many of those loans were with defunct savings and loans and many residents ended up at the mercy of the Resolution Trust Corporation. Not only were many tenant/shareholders in big trouble, because of the RTC it looked like the entire complex was going to fail.      

Usually mortgages are secured by the value of the property. Between the time the unfortunate tenant/shareholders who did business with savings and loans to secure those balloon mortgages and the day they had to find a new mortgage the value of their apartments had been cut in half.  

In 1994 when these seven year notes came due people who had made regular payments to banks that were still in business, through something that used to exist in this nation called customer relations, were able to secure new mortgages. These commercial banks were not happy about giving $150,000 mortgages for $90,000 apartments but the alternative was kicking good customers out of their apartments and auctioning these notes on court house steps for far less.

Some of the tenant/shareholders who were forced to deal with the RTC weren’t even that far away from the new lower asking price of their apartments. Many to avoid mortgage insurance had put up twenty percent at the closing and had made many additional payments over the life of the balloon mortgage but since they no longer had a relationship with a bank, they would be forced to come up with a second down payment on the same apartment. Some of the earliest buyers who had impeccable credit, the first to experience dealing with the RTC, secured personal loans or borrowed from their pensions to secure new mortgages.

125 shareholders didn’t have this option and their lives were turned upside down as they searched for answers where none were being given. A few just left the keys at the management office and walked away with their initial investment lost and their credit destroyed even though they never missed a payment.

The Resolution Trust Corporation could not see the common sense of securing new mortgages and only saw their mission as liquidating the assets of failed saving and loan associations. These bureaucrats could not see nor care about the human factor and they had started the process of taking away the propitiatory leases of 125 families who lived in my complex and auctioning off these apartments at pennies on the dollar.

As bad as that sounds, losing the initial down payment, the principle paid over seven years and being made homeless by our good government, these people had much more suffering to do and most certainly would have lost everything until it became obvious that the actions of the RTC was going to undermine every shareholder in the complex.

I’m sure that many Americans who owned single family homes in this era must have lost all being victimized by the terrorist activities of the RTC but these 125 families had a board of directors to turn to and during the September 1994 shareholder’s meeting the whole mess came to light.

My building or the three buildings that make up the complex where I live got lucky, or got some action because of much hard work and because of our numbers. While still more buyers would give up in their attempted to move an unmovable force and lost everything, after the shareholder’s meeting they would no longer suffered in isolation and there is strength in numbers.

Once it was made know that this mess had snowballed or avalanched way beyond those 125 families every shareholder began demanding action from the government. At that point in time the complex was just a little over fifty percent shareholder owned and the rest were either rent stabilized or market rate tenants. It averaged about two voters per household so we were 1500 strong and a political action committee was formed to address the issue.

As all of the shareholders were made aware of the situation everything started to fall apart. Because of the RTC actions against these 125 families, the $50 million underlying mortgage was in jeopardy. This bureaucracy  had managed to transform a very solvent complex into untouchable and the holder of unsold shares was forced to sell of their interest in the property.

Because the commercial banks got wind of the fact that the RTC was in the process of destroying an entire complex they stopped honoring balloon mortgages that came due and were not giving mortgages to new owners. With the 125 who had seven year balloon mortgages up in limbo the complex was recalculated as being under fifty percent co-op (a very bad thing finance wise) and there would be many more families with ten year balloons right around the corner.

The holder of unsold shares may have taken a beating but they got off easy compared with the tenant/shareholders because we were all frozen in place and could no longer sell our apartments. People who wanted to move could not as it was explained to everyone that if the underlying mortgage defaulted we may all be forced out of our apartments. Unlike renters who have many protections by law we were not tenants. We were owners and if the underlying mortgage defaulted, our overlying mortgages would not be worth the paper they were printed on.

There was an emergency meeting and management changed the rules in the hope of keeping the complex solvent. The sales only policy was adjusted and market rate apartments would be made available for rent so the sales office could stay in business. The strict sublet rules were adjusted so residents could move if they needed to. This would also bring business into the sales office but the sales agents all left and with only one employee left most days it would not even open.

There was also a failed vote for an assessment to create a defense fund so the tenant/shareholders could hire a law firm that would defend us against the actions of the U.S. government. It failed because management and the board were confident that it would never come to that and the owners left that meeting with a little more confidence with those reassuring words.        

By the end of 1994 it became obvious that nobody was going to take an interest in this injustice. All responses from the RTC were indifferent at best and usually just plain heartless. The same message kept coming back “The business of the Resolution Trust Corporation is liquidating the assets of the failed savings and lone associations, not finding answers for owners. The RTC is not obligated to property holders.”  

It really looked like we were all going to lose everything. Elected officials had just gotten through the campaign season and didn’t very much care because the next election wasn’t anytime soon. The same scumbags who all walked around the swimming pool shaking hands and asking for our votes that summer would not even come to our community room to discuss the situation. But there was one who took an interest, freshly elected and filled with good intention Jeffrey Dinowitz our representative from the New York State Assembly agreed to come to a meeting.

One cold night in the winter of 1994 around one thousand people packed the community room and held a meeting of desperation. Before the board members and accountants took the podium to explain what the outcome of these RTC actions would be shareholders who had been fighting with the federal government for close to a year, victims told their stories. People who had already lost their apartments had come back to tell their story and these were people who never missed a payment. Hard working people sat up there and told about how their lives had become letter writing campaigns, writing letter after letter to people who just didn’t care. There was one short and painful sentence that every single victim said “I don’t deserve this.” Grown men began crying as they attempted to explain what they had been through.

Mr. Dinowitz was the last person to speak. He was upbeat and filled with promise. He felt our pain but he showed great confidence. Our new state assemblyman promised to use all of his powers as our newly elected representative to get this injustice fixed and get our lives back in order. Even though he was a state official and this was a federal agency he would get to the bottom of this.

About six to eight weeks later Mr. Dinowitz returned and this time he sounded just like the desperate shareholders who started off the previous meeting. He was filled with the same stories of “running into a brick wall.” Mr.Dinowitz was being told at every step of the way that he was a state representative dealing in a federal issue. Being a good Democrat Mr. Dinowitz was careful not to disparage the elected officials surrounding him but after claiming his highest hurdle was being a state official in a federal issue he was asked many questions about our very invisible congressman.  

Jeffery Dinowitz was far from through. He was heart broken that still more owners had turned in their keys and he was going to continue the fight. There was much promise as he informed us that his last letter to the RTC began with a promise that his next inquiry will take place on the pages of The New York Times.

I honestly don’t know if the media threat changed the stance of the RTC or the new sponsor (holder of unsold shares) worked out a deal with the regional banks but a few weeks later everything was straightened out. In the spring of 1995 the sales office reopened, banks were giving mortgages again, the prices of apartments skyrocketed and the turnover was very rapid.

I should have found out but was too busy celebrating the fact that my life savings, tied up in my apartment at that time would stay invested in my apartment. I did learn that the remainder of 125 families, those who stuck it out did all get new mortgages and every single one of them, once they became solvent again, immediately put their apartments up for sale. These families just didn’t want to live here any more. The whole ordeal was very painful and many shareholders just needed a change of scenery.

I’d like to think it was the actions of Jeffery Dinowitz so I could have a touchstone of positive actions from an elected official but I just can’t find out. There is almost no shareholders left in my complex from those dark days.

Now as history repeats itself only far worse, I can’t help but think about the 125 victims of a Republican resolution and think about how many Americans will suffer if the Democrats listen to George W. Bush. This time the failed banks don’t have to fail but Americans will get to pay for those banker’s actions for many many years. And now in these harsher times I don’t think a threat to go to the media carries the weight it once did. The victims yet to come won’t even be considered newsworthy.

How does this relate to a deal where Paulson gets to buy $700 billion worth of mortgages? Some of these mortgages will be impossible to resell. The ones that have no value are the ones purchased by Americans that have an end date where the entire principle will come due. Many predatory mortgages that do not end with full ownership being transferred to the buyer may never find a market because the value of the properties will not reach the value of the note. Many of these will probably end up in the hands of the federal government until they come due.

I had an account with Merrill Lynch and in each monthly statement there was a brochure that offered interest only mortgages. “Why live in a house you can afford now? Buy the house you can afford ten or fifteen years from now.” People who took that offer will find out that they cannot get a mortgage on those houses after the last payment because the house won’t be worth the amount they still owe. Predatory ARM’s are all over the place out there on Main Streets all across America and as our Democratic leadership considers taking up a failed president on his despicable ploy to bail out Wall Street, where will these Americans be able to turn?

While there is much confidence that we are coming up on a Barack Obama presidency, the similarities are undeniable. Just like the previous answer that came from a far better Republican administration this whole mess happened during the administration of Bill Clinton and now a solution that comes from George W. Bush, well just like Bill Clinton who felt our pain, Barack Obama can’t solve everything.    

A deal done in one week with a president who consistently offered bad deals has me thinking the days of the conscientious Democrats are long gone. As they are now patting each other on the back, there will be a great deal of pain to go around. None for the investment bankers, just ordinary Americans will pay for this bad bill.