How the Heck Did This Woman Get a Mortgage?

November 27, 2007

From Citigroup Feels Heat To Modify Mortgages ($) in yesterday’s Wall Street Journal:

Ana Cecillia Marin, a 36-year-old single mother of three, owns a 20-year-old ranch house on a dusty, garbage-strewn acre in Palmdale, Calif. She says she earns $34,000 a year managing flower sales at a Los Angeles food store and selling clothes on the side. She bought her house in 2005 for $385,000. By taking out a first and second mortgage, she was able to buy it for no money down.

At first, her ex-boyfriend helped make mortgage payments, she says, but his construction jobs dried up. She hasn’t paid anything for months on the $76,426 second mortgage serviced by Citigroup, and she has also fallen behind on her $308,000 first mortgage, serviced by a unit of Bear Stearns Cos.

Ms. Marin says she got a foreclosure notice on her first mortgage. Judging from recent sales of similar homes in the area, it’s unlikely that Citi Residential will be able to recoup money owed on the second mortgage in the event of a foreclosure sale, because the first-mortgage lender gets its money first.

“I’m afraid I’m going to lose it,” Ms. Marin said recently of the house. Already, she had moved most of her belongings into a wooden crate in the yard. All that remained inside were the mattresses on which she and her children sleep.

This woman was destined for disaster!

I just did a hypothetical mortgage amortization using her purchase price of $385,000 and a 30-year fixed mortgage at 6.3%. Her principal and interest payment (not including property taxes) would have been $2,383 per month (her monthly income was $2,833). Her monthly payment would have represented over 84% of her income! Yes, the article did say that her boyfriend helped with the payments, but he wasn’t included in the mortgage. In other words, this woman should have NEVER been approved for this mortgage!

Totally unbelievable!

48 responses to How the Heck Did This Woman Get a Mortgage?

  1. Just incredible. Being a licensed RE agent I am almost positive that the loan officer wanted the commission so bad that most of the figures on the loan docs are fake. The loan docs probably say she makes 70k a year. During the pre-meltdown days thats just how things were done. If you have a social security number, some trade lines and can sign some papers, you can likely buy whatever home you want. This all stemmed from greed from all fronts, banks, loan officers, RE agents, even the buyer’s themselves. That sucks, she along with many others should have been renting.

  2. I totally agree with you here. Since when did banks feel that the general rule of thumb of no more than 36% of your income goes to debt is no longer valid? Criminals.

  3. That’s crazy. Crazy.

  4. I agree the bank must have been pretty sleazy to approve this. But what in the world was the women thinking to buy a house like that? Has the population really become so helpless and naive?

  5. How do we know she didn’t lie on her application? maybe she included her boyfriends income with her own. The bank should have verified this, but we cant just start bashing them. Its not like they forced her to buy a house when she makes

  6. Don’t forget, a few years ago many places also offered those “introductory” adjustable rates of like 1.9% or less. If you calculate it on that, she very well could have been 40% or less for her mortgage. Now, whoops! I can’t afford my house.

    A few years ago, my wife and I were moving for a job, we managed to get approved for the new mortgage without the requirement to sell our old house! There is no way we could actually have afforded that. It was nice for us as we were able to have the closings within 2 days and actually get the new one just before selling the old.

    I’ve always said it’s best to do the math yourself and know what you can really afford. Don’t trust the bank to tell you the answer to that.

  7. I’m sure the lender fudged some numbers to get this loan through, but again, I have absolutely no sympathy for the borrower. Seriously, she thought that she could afford a mortgage payment that was basically all of her income? I don’t care if you’re getting help from someone or not, but you’re an idiot if you think that you can swing that loan.

    You don’t have to have a degree in business or finance to understand that.

  8. I’m imagining a self-certified mortgage, Casey Serin style – possibly without the annoying swagger, and not necessarily done with deliberate fraud.

  9. Jordan,

    I’m in no way washing this lady’s hands of responsibility. She’s the one who signed on the dotted line so she is the one who should ultimately be held responsible. However, she should have never been offered a loan in the first place.

  10. I don’t feel bad that banks are getting punched in the mouth and borrowers are losing homes (maybe a little bad), they shouldn’t have been in them in the first place.

  11. “I don’t feel bad that banks are getting punched in the mouth and borrowers are losing homes”

    But you will feel bad when all these douchebags (lenders and borrowers) have collapsed our economy because of their wreckless lending and spending practices.

  12. Whatever happened to income verification? So much of this nonsense seems to stem from people providing whatever figures they feel like and having absolutely nothing to back it up (no tax returns, pay stubs, whatever). This is equally the lender’s and the borrower’s fault.
    There as been way too much moral hazard in the mortgage industry and it’s finally coming home to roost.

  13. Short quips of who did what wrong fail to capture the real essence of it. Was this a case of a woman who saw the possibility of obtaining a dream for the sake of her family? Perhaps. Maybe she intentionally lied or defrauded, or whatever, the system to illegally obtain financing. It could have been the system or the bank eager to lend. Our economy requires that people work, get paid, and spend the money. To keep people in that cycle our economy requires that people break even or over spend keeping them working. At least that’s my cynical view.

    It’s more likely that this woman saw the dotted line, was promised the home of her not-quite-dreams, and figured she could make the payments if there were two incomes. Her kids would have a home, she would have a home, a place to put the Christmas tree.

    I don’t blame her for signing the loan and getting the home. I do however blame the bank for taking a high risk client. She may not have been a business major or financial anyalyst. If she didn’t know the numbers it’s up to her to find out. But equally, the bank should have verified income, validate the risk, and assumed her to be too high of a risk. It’s the bank’s job to perform that due dilligence and not wantonly hand out loans. It’s not good for the stakeholders or the economy.

  14. it could have worked…
    if the house price had doubled after she bought it
    if she rented it out to cover her loan
    if the moon was made of cheese

  15. Deferring responsibility: The New American Way(TM)

    Frankly, some of these posts piss me off.

    Listen, I’m not condoning the lender for approving the woman in the first place–but it doesn’t take a rocket scientist to figure out that $34,000 can’t buy a $385k house. JUST BECAUSE THEY SAID YOU CAN BUY IT DOESN’T MEAN YOU SHOULD.

    The problem with this country–and most of the economy in fact–is that a large portion of Americans are whiney immature children that want to blame anyone else for their financial than themselves. Can’t afford that 50″ flatscreen TV? DON’T BUY IT.

    Yes, the bank should be punished for allowing such a terrible mortgage to be written, but the woman had it coming and should lose the house on principle alone.

  16. I applied for a mortgage (the telemarketer was sure he could get me a loan) and was rejected. What did I do wrong?

  17. You will feel even worse when our Senators and Representatives figure out a way for us to pay the banks back.

    Being cynical just means you have been paying attention.

  18. I am with H.W. McDaniel. The moral hazard that the government, including the Federal Reserve, creates only leads to further stupidity from individuals and the financial industry. Folks figure the government will bail them out so they take asinine risks.

    This subprime mess is going to get worse considering another 2 Million ARMs adjust through August 2008. Right now, 20% of all subprime loans are 60 days in arrears. I expect that to increase, especially if we enter a recession where job losses occur. After subprime, the credit crunch will hit junk bonds. These instruments have gotten a free pass for years due to the Collateral Debts Structures.

    Hang on folks, we are about to hit some real turbulence.

  19. How about, “WHY the heck did this woman get a mortgage?” She was able to get the mortgage because she had decent tradelines and a steady job. FNMA regulations allow for “stated income”. You can argue the positives and negatives of Stated Income loans all you want, but why would she take out such a large mortgage when it was obvious that she couldn’t actually afford it? Would YOU take a loan like that if you weren’t absolutely positive you could afford it?

  20. Man I wish I had more cash. There will be some good deals coming up.

  21. Yeah … Agent and Brokers just want their commission … and there is no REAL checks and balances … of course not all sales people are bad. Of course the woman is to blame too …

  22. Don’t underestimate the power of social pressure. The message of owning a house = success is all-surrounding. Even I had huge arguments with my wife about the absurdity of buying a 750K house here. I’d lay down the numbers but her answer was simply I don’t care, XYZ is buying — or in other words, how can I maintain my appearances in my social circle if we don’t own a house also? It took some external circumstances to take the house option off the table. It’s only now that she sees the news about the housing & credit crunch and compares to our investment account balances does she understand what it means.

    But I doubt this woman (and many others) have the support system necessary to make good decisions. What’s the savings rate in this country? 80% of the general population can’t defer current consumption to save for the future. They don’t have the psychology — much less the math skills — to turn down the opportunity to “own” the American Dream at any cost. It sad fact that the lenders need to take measures to keep people from ruining themselves — not only for their customers’ benefit but their own to avoid costly loan defaults.

  23. RealPete,

    That’s a good point. I think most readers of this blog would never take out such a loan.

    I’m certain she was pressured into taking such a loan but that’s still not an excuse for doing so.

  24. tikiloungelizard November 28, 2007 at 1:55 am

    For those of you who want to put all of the blame on the buyer: That’s fine, but the problem is that the ENTIRE economy suffers because of the actions of both the lender and the buyer. I don’t care about either entity, but I do care that the rest of us will be shouldering the consequences.

  25. Why has she put her stuff in a crate in the yard? Surely her possessions can be seized regardless of whether they are in the house or in a crate. I would have thought they would be more useful to her in the house, though if she spends a lot of time in, or in the vicinity of, the crate then they would obviously be more convenient out there.

  26. You think this is bad. How about a $720,000 mortgage on a $14,000 a year income? This person is considered prime A paper compared to some other people:

    $720,000 mortgage on $14,000 income

  27. It’s a new paradigm, and everybody who doesn’t buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

    Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

    This asset bubble is different than all of the others – it will never slow down, or pop. The gains are permanent.

  28. It is stories like this repeated thousands and thousands of times over that are about to screw over the world’s financial systems. When it all comes crashing down and you start to suffer (which we all will) remember that stupidity and greed are what took the world to this point.

  29. In 2004, I refinanced my $189,000 mortgage, and added a second mortgage for a total of $265,000. At the time, my income was $0.00, but I was using the money to start a business, and had 10 years of tax returns showing that I would be able to continue making that income. The bank did not require proof of income, and gave me the mortgage based on previous tax returns.

    The business tanked, and I was left with two monthly payments of $3801 total. I got a full time job and two part-time jobs and was able to pay the $3801, with my wife contributing her salary to household expenses.

    We’ve decided to let the house go. We should never been allowed to refinance the house at all.

  30. Indentured Servitude…coming soon as a solution to the sub-prime collapse.

    This woman will be the first to be accepted into the new program.

    When someone like this woman, and thousands others like her, is given a loan, perhaps there is a sinister reason for it.

    Slavery in America was initially based on a system of indentured servitude. Perhaps the bankers are seeking its return, but must first create the conditions for it.

    Giving loans to saps who can’t obviously repay is one tactic…and if there are so many saps…then the government
    can aid the banks by introducing a type of Indentured Servitude program (but they’ll call it the WPA of CEC or something like that).

  31. “her monthly income was $2,833”, that is BEFORE taxes. So her take home was probably closer to $2,100. Meaning that after paying the mortgages she actually lost money each month.

    By the way, how long before plaintiff’s lawyers start suing lenders for loans that have put people in terrible situations (see above) that should never have been made.

  32. Unfortunate. This is why we need financial education to have more emphasis.

  33. Sadly, I am seeing this all over Palmdale, where I work as a real estate agent. It’s not just the lenders who are being irresponsible, though. Let’s not forget the greedy buyers who take out a HELOC on their overvalued house, purchase a new house, move, and then stop making payments on their original home. They figure they don’t need good credit for 7 years b/c they’re not planning on moving, have already purchased three new cars and furniture…and they just take zero responsibility for the loans they took out on their first home. There are plenty of EDUCATED and dishonest people who’ve been getting free money this way. THEY should be prosecuted, as well.

  34. I work for a mortgage broker, as well as in a processing center for a mortgage banker and to top it off I served as a notary public before the bubble burst on the mortgage industry. So I’ve seen my fair share of these situations, where the borrower shouldn’t have gotten the loan and/or had no business buying a home.

    However, there are a few problems that I’ve seen first hand with these situations:

    First, because of the refi-boom there were a lot of new loan officers and real estate agents that were/are green to the business. All they saw were the huge commission checks and didn’t realize that they were to provide a service for that commission check. A qualified/honest loan officer or agent will discuss what to expect with the type of loan being obtained or what to expect with a new home.

    Second, the borrowers who obtain any loans are typically naive/ignorant of mortgage loans altogether. By law the details of the loan are being disclosed to them, even rate adjustments that may happen in the future. So really there’s no excuse for not knowing you can’t afford the loan in the future. I think that a lot of the time borrowers get caught in the ‘American Dream’ and seeing that they can afford a new home now.

    I can talk on this subject a ton more than that but it seems my comment is getting longer than the article itself 😛

  35. @Richard:

    Just because at the time you got the loan you weren’t making money doesn’t mean you shouldn’t have been allowed the loan. They make special financing products for the self employed like yourself.

    Plus, being a business owner you should know the risks of owning a business and should be prepared for failure. Most successful business men make it where they are because of their failures. With that said, you should own up to your own mistakes and not blame a lender that you shouldn’t have gotten a loan when you knew the loan was based on future income.

    Side note, good luck with picking yourself back up and starting another business. Hopefully you worked out a few of the kinks.

  36. JLP, I heard that if one Digg’s a WSJ story it will be available for free to the unwashed masses. Can you digg this story? Or maybe they haven’t set it up yet.

  37. Independent George November 29, 2007 at 4:00 pm

    I really don’t understand the opprobium against the lenders; they made a lot of really stupid decisions, and now stand to lose a ton of money as a result. Isn’t that a self-correcting problem? The brokers and the ratings agencies, on the other hand, made money in commissions seemingly without facing any accountability whatsoever.

    Realistically, what is the worst case scenario for this woman if she files for bankruptcy? Given her income, I can’t imagine she has many assets not exempted under Chapter 7. And given the size of the debt, I can’t imagine she’d be forced into Chapter 13. I’d appreciate any corrections from someone more knowledgeable, but, as far as I can tell, she’s not significantly worse off than she was before taking out the loan.

  38. newbie RE investor November 30, 2007 at 3:21 pm

    This is silly. How can you all discuss this situation in any meaningful way without the context and the details? Like most newspaper articles, the writer goes for the emotional “gotcha” here, and leaves out the essential information which would be so educational to us all. If the writer had made a visit to the courthouse, he could have discovered the exact terms of the loans. Anything we say about it is, well, so much hogwash without the facts.

  39. This is just so funny, even if I am not sure if the entertainment value of it is worth all the money I lost last week in the stock market (on paper though).

    I think the woman is largely to blame. It was her responsibility to ask how much she’ll have to pay after the introductory rate. So what if it was her dream. My dream is to own an apartment on Central Park West. In addition to my home in Westchester, of course, not that matters. So I earn a little over 100K a year and have no way of affording even a closet there. Rephrasing slightly the article referenced by Dr Housing Bubble, it is my god-given right to own a multi-million dollars apartment. I wonder if I could’ve gotten a mortgage for it. After all, the apartment could’ve doubled and I could’ve sold it in a year and became an instant multi-millionaire. Hm.. maybe I missed an opportunity, I am such a chicken.

    I heard a very good explanation why banks gave this type of loans: secondary mortgage market. They couldn’t have cared less if you could afford it. They were planning to package the mortgage with a bunch of others in similar risk category and resell it in a few years, long before there are any problems with repayment. Besides, they probably thought that the real estate can only go up and they can always get their money back. And that the trees grow to the sky.

    “By the way, how long before plaintiff’s lawyers start suing lenders for loans that have put people in terrible situations (see above) that should never have been made.”
    Now I feel really bad for not buying a Central Park West apartment.

  40. This is unbelievable. When I bought my first home just a few months ago, I checked with several lenders. The first was at my credit union. He seemed the most conservative. On the other end of the spectrum was a guy that reminded me of a used car salesman. He said he could get me the largest loan. I actually went with someone that was in between. Why would you want to do business with someone that is unprofessional?

  41. I want to go to Vegas, gamble $385,000 and if I lose it all, I want the casino to give it back.

    Sound crazy? It’s no different from what this stupid single mom is asking for.

  42. I am so tired of hearing about predatory lenders, as though they’re the only part of the problem. Yes, I believe it is irresponsible to say that you can afford $—- simply based on income, but if this woman was not smart enough to do the math on her own, then she does not deserve to buy a house. She needed to be responsible enough to look at the big picture and realize that she does not live “on paper”, that there are bills to pay, groceries to buy, taxes and insurance, doctor’s bills, etc. How do you simply not account for that? And now we’re going to be left footing the bill, through government (read: tax payer supported) bails outs and the like? So, because I’m a responsible consumer, I don’t get a clean slate? Where is the justice?

  43. I’m sorry, but this is ultimately the buyer’s responsibility. Good grief do the second grade math and anyone should realize they could not afford that house.

    This is part of the “entitlement” society we live in. What happened to living within your means?

    And now the gov’t is going to bail these idiots out with taxpayer dollars…

  44. This makes me sick for three reasons;

    1 She was taken advantage of
    2 Because she was dumb enough to do it
    3 Because those of us who picked reasonable homes with mortgages not designed for idiots will keep ours and we will also have to pay for all these idiots in one way or another

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