Alisha and Otis Blackwood tried for five years to save a down payment so they could buy their new home. They managed to save $6,000, but the price of real estate kept rising, and they worried that they might never be able to afford to buy. The soaring real estate market made them wonder if they could continue to afford to rent, let alone buy. After all, their rent nearly doubled over the five years they lived in the apartment.

In early April 2004, Alisha and her husband Otis went to the Northern Virginia Real Estate Fair at the local convention center. Otis, a master carpenter who worked for Piedmont Construction in Centreville, heard about the fair at work. It featured real estate and financial experts from around the region and even speakers from across the country, available to provide advice and counsel to people like them who wanted to own rather than rent. His boss, Frank, raved about how easily one could find all kinds of creative ways to buy a house at the fair. All the local realtors had booths, as did all the local banks and mortgage companies. Piedmont Construction planned to participate with its own booth, too.

In fact, Otis got free tickets from his boss, with the grumbling understanding that he had to spend an hour at the Piedmont booth greeting visitors and handing out flyers. Otis didn't like the idea of having to work for the tickets. He felt he more than earned the tickets by working 10-12 hour days for the company, six days a week. He didn’t see why he had to work the booth too. As for Alisha, her job at the local hospital as a physical therapist normally didn't afford her any free time during the week, but her supervisor had listened to her stories of frustration for so long that he didn't hesitate to give her the day off this one time.

The morning of the show, Alisha felt so excited that she could hardly wait for Otis to finish his breakfast so they could go.

“Come on,” she exclaimed as he lingered over his eggs and bacon. “I want to get there as soon as possible!”

Otis looked up at his 27-year-old wife who stood over him as he sat at the kitchen table. Standing only a shade or two above five feet tall and having an average build didn’t exactly create a dominating physical presence, but Alisha never let her lack of size prevent her from making her wishes clearly known to her husband. With her dark brown hair tied back, he found her face easy to read. He recognized the determined demeanor, the same one she wore whenever she wanted him to do some yard work or something else on her “honey do” list.

He sighed and replied, “Can't you wait 'til I finish?”

She stared back at her muscular husband as if to demand why he complained, but then her face softened. Just two years older, the man she loved might not be the sharpest tool in the box, but she knew he worked hard for his family and cared about all of them very much.

His piercing eyes, black hair, and quiet, manly demeanor still gave her goosebumps, so her tone softened when she said, “Yes, of course you can finish, but be quick, okay? I've only got today off, and we've got a lot to do and see at that show. Don't you care about whether we buy a house?”

He shook his head and growled, “ 'Course I care, but I gotta eat!”

“Okay, okay.” She put up her hands in a defensive posture as she walked back to the sink to wash her breakfast dishes. She excitedly anticipated having a dishwasher in their new home. Doing dishes by hand really sucked.

“Sherise! Tyreese! Come on, get dressed and ready to go! We leave in five minutes,” she called out to their two children as she dried her hands. She heard running feet as four-year-old Tyreese rushed out of the children's bedroom.

“Sherise hasn't got her shoes on, but I've got mine!” he announced proudly. She saw he had indeed put them on, although she noticed he tied his shoe laces in a huge knot again.

Alisha sighed but said, “That's good, baby. Go get your jacket on.”

He ran off while she walked briskly down the hall to the children's bedroom. The tiny apartment required only about six steps for her to reach it. Peeking inside, she saw five-year-old Sherise sitting at the foot of her unmade bed watching a cartoon on the TV, which sat squeezed onto a table between the two beds.

“Sherise, what are you doing?” she demanded.

Sherise jumped, startled, and replied, “I'm almost ready.”

She ran carefully down the narrow aisle between the beds, turned left and slid over to the dresser she shared with her brother, pulled out some socks at random, and quickly put them on.

“I count on you to provide a good example for your brother,” her mother said, “although he's the one providing the example this morning.”

Sherise frowned as her face burned, but she said nothing as she put on her shoes. She didn't dare catch her mother's eye.

Alisha sighed yet again and said more softly, “I'm sorry, Sherise, but we really need to get going. Don't you want to have your own bedroom?”

Sherise paused with her shoelace half tied and turned to face her mother, a new look of anticipation in her eyes.

“My own bedroom? You mean it? But I thought Daddy said we couldn't 'ford it?” she inquired, as hope dawned.

“We didn't think we could, until we heard about this fair. We're going there to see if we can make it happen, but it won't happen if you don't hurry up!” her mother replied, with a tilt of her head for emphasis. Sherise finished dressing in seconds.

“Let's go!” the girl cried, hurrying from the room to find her coat.

Alisha smiled inwardly and went back to the kitchen, where she found Otis finishing his last piece of toast.

“I've got the kids about ready,” she announced.

“Okay, okay,” he answered, getting up from the table. “I'll be ready to go in a minute.” He strode from the kitchen to their bedroom, closing the door behind him. She saw the dirty dishes he left on the table, sighed again, and picked up his breakfast plate, fork, and coffee cup, putting them into the sink. She could wash up later.

The trip to the convention center took about 20 minutes. When they arrived, they found the parking lot jam packed and a line of cars slowly working its way in. Five minutes later, their car nosed through the gate of the parking lot. An attendant took their $5 parking fee.

As Otis rolled up his window, he heard another attendant say, “That's it. We're full.” People in cars behind them groaned when they heard the bad news, and one started shouting while someone else honked the horn.

Otis parked the car at the far end of the lot where directed. The four of them piled out and began the long walk into the convention center. A huge line of people waited for tickets, but Otis led them to a special entrance where he presented their tickets. The attendant quickly admitted them.

The floor of the convention center overflowed with exhibit tables as far as the eye could see. The crowd flowed in all directions, and Alisha instructed her children to take her hands. Right in front of them stood an exhibit booth with a huge sign that read, “Hanover-Rush: 100 Years of Dependable Service with 21st Century Expertise.”

“Come on,” Alisha commanded.

The family walked up to the booth, where a salesman with a friendly face in a dark suit greeted them.

“May I help you?” he asked.

Alisha and Otis glanced at each other.

Turning back to him Alisha said, “We've been trying to get financing to buy for a few years now, but we don't seem qualify for anything. So we wanted to see what you have to offer.”

The man behind the counter smiled and said, “You're in luck! Our Senior Manager for Loan Underwriting will give a short talk in Conference Room 2 in about 10 minutes. He plans to talk about alternative mortgage options. I can give you free tickets if you'd like to hear him,” he added pleasantly.

Otis perked up a bit as Alisha said, “Wow!” She turned to her husband, and they exchanged a silent glance of understanding.

“Sure,” she said to the salesman after a moment, “Where do we go?”

He gave them directions.

Before they set off, Otis stopped his wife and said, “I promised Frank I'd stop by when we got here. Why don't you take the kids to the conference room, and I'll check in at our booth. I'll join you there in a few minutes.”

“What? You plan to come, don't you?” Alisha asked in surprise. “I can't do this by myself. You have to be there!”

“Yeah, 'course I'm coming. I'll only be a few minutes!” he replied defensively.

She sighed and nodded. She gave him one of the tickets, and they set off in opposite directions. It didn't take long for her to lead Sherise and Tyreese to the place the salesman directed them. They saw huge doors labeled Conference Room 2 and a sign below which read, “Real Estate Financing Alternatives. Speaker: Jack Reese, Senior Manager, Loan Origination and Underwriting, Hanover-Rush, Inc.” They presented their tickets at the door after waiting briefly in line and walked inside.

The huge room had filled nearly to capacity, with at least 200-300 people already! She spotted four seats together and led her children over to them. It took a few minutes for them to sit down, settle in, put coats over the backs of chairs, etc. All this time, Sherise and Tyreese peppered her with questions, requests, and complaints about each other's behavior. Almost immediately, someone spoke into the microphone and announced Jack Reese as the speaker, and a young man in his forties went to the podium. He surveyed the audience as they took their seats and quieted their conversations.

As Jack began to speak, Otis came into their row, found his seat, and sat down. He and Alisha shushed their children so they could listen to the speaker.

“As you all know, the real estate market surged over the last five years or so, not just here in Virginia but all across the country. While a booming real estate market helps our economy, it sometimes makes it more difficult for average people to afford to buy a new home. Hanover-Rush is committed to helping everyone who wants to buy a new home to find an affordable way to do it.

“So I want to talk with you today about some alternative forms of financing that have gained a lot of popularity recently. Let's start first with the Option ARM, a kind of variable mortgage which starts off at a below market interest rate. Here's how it works.

“You get to pick your monthly payment. Most mortgages force you to pay off a predetermined piece of the loan as well as the monthly interest every month, but the Option ARM allows you to decide how big a piece or how little a piece to pay in a particular month. This comes in particularly handy for home buyers who have seasonal or varying income levels such as construction workers, agricultural workers, resort workers, etc. It also proves useful in some cases for people who can't otherwise qualify for traditional financing.”

Otis and Alisha exchanged excited glances. Reese had just described Otis's job and their family's financial situation! They tried to follow the rest of his talk, but they found the financial jargon confusing.

As he wrapped up, Jack said, “I will be available afterward to answer your questions more specifically. Thank you for listening, and good luck with your home hunting.”

A small crowd of people already formed at the foot of the dais, and Otis said, “I don't think we can get close enough.”

“Why don't we go back to the Hanover-Rush booth? They could probably help us with it.”

As they prepared to leave the room, a woman called out to them. “Alisha! Otis! How wonderful to see you!”

Cynthia Jaymes, the agent at Barstow Realty who showed them a new development north of town the previous week, waved to them. The middle-aged woman in a light business jacket and skirt with a perfect coif and steely gray eyes came rushing up to them. She shook their hands warmly and asked pleasantly, “And who are these fine young people with you?”

Alisha replied, “These are our children, Sherise and Tyreese. Sherise is five, and Tyreese is four. Say hello to Ms. Jaymes, kids.”

“Hi!” Tyreese shouted loudly, his head lolled as he swung back and forth while hanging onto his father's arm like a rope. Sherise just blushed a bit and hid coyly behind her mother, her braided hair swinging over her ears and her big brown eyes staring.

“It's very nice to meet both of you,” she said, then looked up. “So what did you think of the presentation? I find this Option ARM format quite exciting, don't you? In fact, it occurred to me that it might be perfect for your situation, given the fact that we couldn't quite find a mortgage that fit your needs. It should give you the flexibility you need to afford a house in the current market, before the prices go any higher.”

“Well, yeah,” Otis answered hesitantly.

Alisha jumped in and said, “We're on our way over to the Hanover-Rush booth to ask them some questions. We plan to ask lots of questions before we do anything.”

“Wonderful,” Cynthia replied with a big smile. “Mind if I tag along?”

Otis glanced quickly at Alisha, who pulled a face suggesting that having a real estate agent along didn't appeal to her at all.

He said, “Well, we wanna talk to some folks first before we buy anything.”

“Exactly right,” Cynthia responded quickly, helping Sherise with her coat. “One should never make such decisions quickly or without careful examination and thought. But I can be a real help to you with the bankers. They can be great smooth talkers, and it often helps to have a professional around who knows how to watch out for your interests.”

Otis didn't know what to say to this, and Alisha rolled her eyes and shook her head as if to say, Oh, all right, if you must. Otis nodded curtly, and the family set off with Cynthia tailing them.

They found the salesman at the Hanover-Rush booth and talked with him for about an hour. They didn't have the easiest of conversations because Sherise kept trying to push up off the table to get a closer view of the brochure the salesman held while Tyreese kept trying to break away from Otis's firm grip so he could go run around the hall. Cynthia kept throwing in her two cents worth too, but somehow they managed to get through it. The salesman answered all of their questions willingly. Otis wanted to apply right away, but Alisha hesitated. She asked about the risks involved.

“Well, you have three main concerns you need to keep in mind,” the salesman said. “First, if long-term interest rates go up, so will your monthly mortgage payment. Second, if you have reason for concern that your home might lose value, that could also cause a problem. Finally, it would cause you really big problems if both of those situations occurred at the same time.”

Cynthia jumped in at this point and said, “Real estate prices have been going up for more than 40 years. Even if there's a small correction, it's likely to be temporary. The overall trend is going up because everyone needs a place to live.”

“But what if the prices don't keep going up?” Alisha asked. “What if they go down? If that happened we could get into trouble. Or what if one of us lost our job? What would we do then?”

“You're the one who wants us to buy a new home,” Otis accused her. “Now you're trying to talk us out of it?”

Alisha glared at him. “No, of course not, but we have a really big decision to make.” Her tone turned imploring. “Baby, I think we should talk to someone first, a lawyer or something.”

Otis rubbed his hand on his forehead. With a relenting sigh he said, “Okay, so we talk to a lawyer.”

They took some brochures and paperwork with them and thanked the salesman, who gave them his card saying, “Call me any time.”

“I'm hungry,” Tyreese moaned.

“Me too,” Sherise echoed.

“Okay, we'll find something to eat,” their mother replied.

Alisha turned to Cynthia: “I think we want to get some lunch now. Why don't you give us your card so we can call you when we're ready to buy?”

Slightly crestfallen, Cynthia accepted the dismissal with good grace, handing a card to each of them. Even Sherise and Tyreese got one card each, and they oohed and aahed over them. The family of four went off in search of a food vendor.

The huge convention center allowed the Blackwoods to increase the distance from Cynthia Jaymes quickly. They wandered around for a bit until they found the food court, where everyone gobbled down hamburgers and hot dogs. After throwing the wrappers, cups, etc. into garbage and recycle bins, they found a program and located the real estate attorney’s booths on the floor map inside. Choosing one at random, they walked up to the booth, saw the sign offering free consultations, and sat down to talk with him.

After they showed him the brochure about Option ARMs, he nodded with an understanding smile and started answering their questions. He said pretty much the same things the salesman said, but when they asked him about the future of the real estate market, he didn't reply in the same glowing tones that Cynthia and the loan salesman used.

“You must understand,” he patiently described, “no one knows for sure what the real estate market will do. Any market can go down, even real estate. Keep that in mind, even though we live in a time when real estate prices seem to go up and up endlessly.

“On the other hand, you will find some very nice tax advantages that homeowners with mortgages receive. You can write off all the interest portion of your mortgage payments every year, as well as your initial broker fees and any points on your mortgage that you pay in the year you buy it. Your tax preparer can show you how to take the appropriate deductions. It should reduce your income taxes substantially!”

Otis and Alisha sat very quietly. When neither of them indicated that they planned to say anything else, the lawyer handed them his card and said, “I handle real estate closings. If you decide to go ahead and buy a home, I would gladly represent you at the closing. I will go over all the contracts and paperwork very carefully in advance to protect your legal rights and interests. I will also answer any questions you might have during the entire process. You will find my fees quite reasonable.”

With both Sherise and Tyreese getting antsy, they decided to forgo talking to anyone else at the show. They accepted the attorney’s card, thanked him, and gathered up their things for the trip home.

Over the next few days, Otis and Alisha talked often about what they wanted to do. Ultimately, they decided that if they could ever afford to buy a home, they would have to do it now before prices rose too high. Sherise and Tyreese needed separate bedrooms very soon. As a family, they needed more room in general, room to grow. They decided they really had no alternative.

They ended up buying a three bedroom McMansion (as some people called them) on the north side of Manassas in a lovely new development near the old Civil War battleground. The price of the home frightened them a bit, but they reasoned that if something went wrong–if the economy took a nose dive or one of them lost a job–they could always sell the house. Given the likely direction of the market, they would probably even make a nice profit!

Their relatively small down payment proved more than adequate to buy the home. It took awhile, but the bank qualified them for the Option ARM mortgage they requested.

Moving day proved stressful but terribly exciting. The new house featured brand new appliances, and the amount of space in the kitchen absolutely thrilled Alisha. The huge amount of storage space in the unfinished basement easily accepted the overflow from their old apartment. The small yard space didn't concern them because of the nice common area and playground for the kids.

Apparently, a lot of families lived in the neighborhood already, with more arriving every day. Sherise and Tyreese both made new friends their own ages with Josie and Franklin, who lived next door, even as the movers unloaded the large truck. Two other houses up the streets also had moving vans outside. The kids watched with wonder as all their familiar furniture and stuff quickly moved inside the house, but soon they asked their mom for permission to go to the playground. The street ended in a cul-de-sac and had very little traffic, and the playground stood just two houses down from their new home. With a promise to their mother not to stray into the quiet street, they took off with their new friends toward the swings.

The Blackwoods quickly and easily settled into their new home. Otis worked seven days a week now because of all the new construction going on. He and Alisha spent as much time with the kids as they could, although Alisha took on most of the child care outside of daycare and school. They took advantage of the extra large paychecks Otis brought home, socking away as much as they could into their savings account. Christmas that year proved the most bountiful the family ever experienced.

In 2005, Otis gratefully cut back his hours to just five days a week. This dramatically reduced the amount of money they added to their savings account each month, but they didn't mind because they’d already managed to save about $10,000. More importantly, Otis spent more time with the kids. Real estate prices continued to soar, and their house, which they bought for $350,000, rose in value to more than $400,000! Life was good.

However by 2006 the real estate construction market slowed considerably. Otis still officially worked a full week, but his supervisor Frank sent him home early more and more often. Since Otis worked on an hourly basis, money started to get tight. Piedmont Construction laid off half their workforce due to the slowdown that June, but Otis survived the cut because of the good work he did and because of his seniority. By October, however, the team had been cut by another 25%, and the inventory of finished houses could find no buyers. He and Alisha tried not to show their concern around Sherise and Tyreese, but the kids had already picked up on the fact that their parents acted nervous and a bit high-strung these days. They sometimes asked why, but the two parents repeatedly deflected their questions.

The only good news came when the Smiths down the street sold their house for $430,000. At least their home value kept going up.

The news media noticed the housing slowdown and reported it. Industry experts from the National Association of Realtors didn't acknowledge the end of the bull market. They did acknowledge that the market could experience a small correction, but their forecasts for 2007 still suggested a positive market for real estate, although not as vigorous as the previous seven years. Some industry commentators suggested that a market correction for real estate could happen, given the tremendous ride the market had given everyone to that point, but they expressed confidence that new, sustained growth would follow any minor correction.

The news media didn't report, however, that buyers had dried up. Less than half as many buyers as before shopped for houses anymore. Meanwhile, the number of sellers doubled as investors attempted to cash out and collect the impending profits from their investments, but real estate prices had reached a level where most remaining renters couldn't afford to buy. It's not that they didn't want to buy; they just couldn't afford it. The run-up in housing prices also drove the rental markets up too, and many who still rented dearly wished they could get a home of their own. On average, renters paid 25-35% more in rent than they'd paid before the turn of the millennium, yet, curiously, the media ignored this fact too.

By September 2007, neither the government nor the media admitted that the country faced recession. They acknowledged an economic slowdown, but no more. Otis noticed it, however. Piedmont cut his hours in half. At least he still had a job. Most of the company's workforce got pink slips. Alisha noticed it too as she went over the monthly bills. The bank sent them notices that they needed to make a principle payment this month in addition to their regular interest payment, but they didn't have the money in their checkbook. They sadly dipped into their savings and wondered what tomorrow would bring.

They had a more frugal Christmas that year, although Tyreese and Sherise barely noticed the difference. The kids grew like crazy. Sherise had already turned eight, and Tyreese celebrated his seventh birthday. Between new clothes, soccer club fees, piano lessons, judo classes, and all the other little expenses that crept in here and there for kids in school, Otis and Alisha barely held it together.

Otis received the bad news in January 2008. Sales of new homes dragged to a halt at the end of 2007. Piedmont laid everyone but the owners off until work picked up again. Frank got laid off too. He told Otis that Piedmont had promised him they would rehire the two of them first when things picked up again, but neither of them really believed it would happen any time soon.

Alisha knew what happened just by Otis's face and posture when he came home that evening. They didn't say a word until they'd gotten the kids to bed after dinner and homework. They flopped down on the sofa together later that evening and put their arms around each other.

“Frank got laid off too?” Alisha asked.

Otis nodded but said nothing. They cuddled together more closely, and she laid her head on his shoulder.

After a few moments, Alisha asked, “What are we going to do?”

Otis shrugged forlornly and whispered, “Don't know.”

“There's always unemployment.”

“Yeah, but it ain't gonna be nowhere near what I was bringin' home, an' Frank told me no one's hirin'. Frank said unemployment checks might last up to a year.”

“At least we've got some savings,” Alisha pointed out. Otis agreed.

In May 2008, Otis got work at the local building supply store. Retail wages earned him about half what he made as a carpenter, slightly higher than unemployment checks. With all their savings nearly gone, he and Alisha despaired.

Alisha wrote a long letter to Jack Reese at Hanover-Rush, telling their story, since they'd bought their home as a result of the talk he gave four years earlier and asked if the bank could do anything to help. She visited the local bank branch, but they told her nothing hopeful. She and Otis just didn't qualify for any other mortgage alternatives.

By June, their savings disappeared, and they sent in their July mortgage payment late. By August, potential bank failures and the Fannie Mae/Freddie Mac crisis appeared daily in the news, and the Blackwoods couldn't make their August payment. In desperation, they contacted Cynthia Jaymes about selling their house in an attempt to stave off bankruptcy. Unfortunately, a quarter of the homes on their street had “For Sale” signs on the lawns already. She agreed to try to sell it for them, but she said that they might not break even compared to what they paid four years before.

“The market is flat right now as prices fall. With so many people trying to sell and not as many buyers as when you bought it, we may have problems finding you a buyer,” she said.

Alisha asked, “Can we do anything to improve our chances of selling the house? With Otis making less than half what we he used to make, we can't make our monthly mortgage payment anymore. We really need your help.”

Cynthia tilted her head and replied, “Well, we could try an offering price below the current market, hoping to attract one of the few buyers out there to consider your house first. You paid $350,000 for it four years ago, and today the market price is about $320,000 to $340,000. Even in that price range it's hard to find buyers. Your mortgage hasn't reduced much because you exercised the option to underpay your principle, so you still owe about $330,000. We could try asking $300,000 or $310,000, but you're going to have to pay the difference in order to settle up your mortgage if we sell below that amount, in addition to your seller fees. You could try contacting your bank to see if they could work with you on that.”

Alisha sighed and told her, “I wrote to that guy Jack Reese at Hanover-Rush's main office in New York who spoke at the fair where we saw you four years ago. I wrote to him this past May about our situation, but I haven't heard anything back, and the local branch couldn't help either.”

She and Otis decided to ask $330,000, and Cynthia promised to do her best to find a buyer. Unfortunately, it didn't happen. By November, prices plummeted another $70,000, and they already had fallen three payments behind. Their home's value fell to just $260,000, and they still owed $328,000 on the mortgage. Foreclosure loomed. Meanwhile, the federal government passed the $700 billion bailout bill and talked about bailing out the Big Three auto makers. Hints in the news suggested the bailout might help people refinance their homes, but when they checked into that possibility they found that the politicians and bankers would only help those who had enough income to qualify for sufficient refinancing to cover their current obligation. Only those who merely needed an interest rate fix would gain assistance. With their reduced income, the Blackwoods didn't qualify for the assistance. In January 2009, they anticipated their foreclosure notice from the bank.

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