Mortgage Papers and Foreclosure

It's easy for a homeowner's payments to fall through the cracks.

At first, Nancy Perez thought it was a neighbor's house on fire.

She and her two children were returning from dinner at Perez's parents' house on June 19, 2005. It was already past 9 p.m., and she tried turning onto the small Spring Branch street where she lived, only to find it barricaded and full of smoke. Sitting there in her car, she couldn't see much — until a worried neighbor emerged from the smoke and screamed at Perez: Where are your children?

Perez told the woman that Ian and Isabella were sound asleep in the back seat. The woman peeked through the back windows and clapped a hand to her chest, relieved. A split second later, she shouted: Your house is burning!

Nancy Perez bought the house so her kids, Ian and Isabella, could enjoy their own bedrooms and a big backyard.
Daniel Kramer
Nancy Perez bought the house so her kids, Ian and Isabella, could enjoy their own bedrooms and a big backyard.
After the first fire, the Spring Branch house was salvageable.
Photos by Daniel Kramer
After the first fire, the Spring Branch house was salvageable.

Perez said no, it couldn't be her house. She killed the ignition and got out of the car for a closer look. Her neighbor's husband appeared and Perez accepted his offer to take the kids to the couple's house, where they wouldn't have to see anything. Then it finally hit Perez that, yes, it was her house in those flames. Suddenly her chest was tight, her legs rubbery. She was dizzy and shaking. Time became an abstract thing. Now a firefighter was there, handing her a brown paper bag to breathe in while he asked questions. Now her neighbor was back, asking Perez for her mother's phone number, and then all of a sudden Perez's mother was there, and her husband was checking on the kids.

After firefighters extinguished the blaze, they led Perez through the charred innards of her 1,600-square foot home, sloshing along saturated carpet, nearly gagging from the stench of smoke.

Perez quickly filed a claim with her insurance company, and after an inspection, Liberty Mutual cut Perez a check for $28,448 in August. As bad as the damage was, Perez expected the house to be restored in a reasonable amount of time, and for things to get back to normal. But, she claims, it wouldn't be long before she discovered that the worst thing to happen to her home was not the fire, but mismanagement among the mortgage servicers — the companies charged with collecting monthly payments — on her $76,000 loan. In the three years before the fire, the servicing rights for Perez's loan had fallen into a mortgage merry-go-round between IndyMac Bank and Countrywide Financial, before landing with Wells Fargo.

Each time the servicing rights changed hands, Perez claims, the servicer selling the loan kept a payment that should have been forwarded to the new servicer. This, coupled with Wells Fargo representatives' conflicting statements as to when the bank acquired the servicing rights, appears to have created a chain reaction of procedural errors that kept Perez's house from being rebuilt, which led to foreclosure, which led to Perez suing Wells Fargo, and which led Wells Fargo to countersue Perez. And, after sitting vacant since June 2005, Perez's house suffered another fire in July 2008. That time, it was a total loss. (The 2005 fire was ruled an arson by Houston Fire Department investigators. The case is still open. No information was available for the 2008 fire.)

Characterizing the spirit of the lawsuits is the easy part: Wells Fargo believes Perez lost her house because she's a deadbeat. Perez believes she lost her house because she was beholden to idiots. Digging for the truth is messy and migraine-inducing, and in that way, it's a lot like the structure of mortgage-backed securities itself — that bizarre investment practice that collapsed in on itself, ­dragging much of the economy down with it.

First, some number stew.

In June 2002, Perez put down $4,000 on her first home and closed on a $76,000 mortgage. She got a 7 percent fixed rate over 30 years; the national average for the same loan during that period was 6.7 percent. Her monthly payment, after taxes and insurance, was $825. At the time, she was an office manager for a copy machine distributor, making $38,000. (In a strange coincidence, her next job was with Wells Fargo, working as an assistant to the head of the Houston region's community banking division. She worked there from 2003 until she was fired in 2005, for allegedly working after hours without recording the extra time in a log. In a deposition, Perez stated that, before she was fired, she filed a complaint against her boss regarding "sexual behavior." After her termination, she sued Wells Fargo for wrongful termination, and the matter was settled confidentially. )

The four-bedroom, one-bathroom wood-framed home offered a great rear porch and a big backyard. Her son was two years old; Perez and the boy's father had been a couple since 1997, but they didn't get married until August 2003. The day after the wedding, Perez's daughter was born. The couple separated in 2005.

Perez's mortgage was through ­IndyMac Bank, an institution that would go on to become one of the biggest bank failures in history. In October 2008, IndyMac was seized by the federal government, and the FDIC assumed control. (The FDIC sold IndyMac in March to an investment group called IMB Management.)

IndyMac began as a real estate investment trust within Countrywide Financial, an institution founded by Dick Loeb and Angelo Mozilo. IndyMac declared its independence in 1997. Although the companies were separate, Loeb was IndyMac's chairman, and several of Mozilo's kids became IndyMac executives.

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