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Stupidity Got Us Into This Mortgage Mess

By JLP | January 21, 2008

This is the introductory paragraph to an article in the February 2008 issue of Money (sorry no link to the actual article):

Luis and Kelly Madera have done everthing they can to save their house. They refinanced most of the $550,000 they owed on a risky, adjustable-rate home loan to a conservative 30-year fixed rate mortgage. They emptied their savings accounts and pulled thousands out of their 401(k)s. But the coule, who have a 15-month-old daughter, may still lose their three-bedroom Northvale, N.J. home to foreclosure. With gross monthly pay of about $10,000 ($6,000 after taxes)—he owns a trucking business, she’s an MRI technician—they can no longer keep up with the $4,100 house payments. And Kelly, 31, now wonders why she and Luis, 34, were able to get a mortgage they couldn’t afford in the first place. “I expected that if we were approved for a loan, we would be able to pay it,” she says.

Okay, he OWNS a company and she’s a professional and yet they weren’t smart enough to figure out that they couldn’t afford their house? Are they really that stupid or are they just looking for someone to blame?

The article then goes on to give several reasons why all these people should be rescued:

Before you join this tough-love brigade, however, consider how you might find your own fortunes tossed about in the rising tides of foreclosure. And make no mistake: A deluge is on its way. Without any intervention, an estimated 3.5 million homeowners could default on their mortgages in the next 2 1/2 years, says Mark Zandi, chief economist at Moody’s Economy.com, a West Chester, PA economic research firm…

For starters, a sharp spike in foreclosures will increase the number of houses up for sale; additional inventory in an already glutted market will further depress prices. Second, houses in foreclosure generally fall into disrepair. Clumps of empty, boarded-up dwellings surrounded by weeds lower prices not only neighborhoods. And for every 1% increase in the foreclosure rate, a neighborhood’s violent-crime rate rises 2.3%, according to a study by Dan Immergluck of the Georgia Institute of Technnology and Geoff Smith of the Woodstock Institute.

The author also states that if a bailout isn’t offered, mortgage interest rates will go up and that foreclosures and falling house prices could hurt the economy.

I just don’t understand how we can really help these people. Take the couple in the example. They’re in a $550,000 house. The article doesn’t mention whether or not their $4,100 house payment includes taxes and insurance. My guess is that they don’t . What exactly can be done to make their house payment more affordable? My guess is not much.

Let capitalism work this out.

Topics: Housing Market, Mortgages | 54 Comments »


54 Responses to “Stupidity Got Us Into This Mortgage Mess”

  1. marylandterps Says:
    January 22nd, 2008 at 1:13 am

    Money Mag also tries to scare us into accepting a bailout. They think there will be all these empty houses & people will have no place to live (move back to apartments). In FL wise people are buying foreclosures and getting wonderful discounts. The houses won’t be empty forever. No government bailout with Taxpayer money!

  2. Stupidity Got Us Into This Mortgage Mess | US Mortgage Rates Says:
    January 22nd, 2008 at 1:20 am

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  3. alanj878 Says:
    January 22nd, 2008 at 1:25 am

    I guess most are in the same boat and she is but I have a nice article about the internet on my site that probably could have helped her just click on my name to go to m site

  4. Danny Tsang Says:
    January 22nd, 2008 at 1:53 am

    I think people get caught up in the excitement of home ownership and the potential for appreciation. Let’s face it, during the boom you hear about everyone making all this money in RE and you want to dive right in. I wrote a full article about how greed got us into this mess. Greed from all parties lenders, agents, brokers, sellers and buyers.

    “I expected that if we were approved for a loan, we would be able to pay it”

    That is the worst way to get into one of the biggest purchases of your life. Very dumb move..but I help but to feel very bad for them. I can’t imagine payments that high and the pain they’re feeling. Unfortunately theres no real way to fix the problem besides starting over again. Short sell it and move on..

  5. Cory Says:
    January 22nd, 2008 at 1:58 am

    Well said JLP! Capitalism 4tw.

  6. Dan Says:
    January 22nd, 2008 at 2:22 am

    What can be done is that the government can, in one guise or another, helicopter these people some money so that they can pay off their loan. But that money has to come from somewhere; to wit, you and me.

    To be honest, I didn’t particularly feel like subjecting myself to the double whammy of propping up some sucker’s overpriced assets in the present and then buying it off of him in the future. Bring on the foreclosures!

  7. Brooke (Dollar Frugal) Says:
    January 22nd, 2008 at 5:36 am

    I hate these people! What are they thinking?!?! Why aren’t they being responsible for their own actions?

  8. johnnye Says:
    January 22nd, 2008 at 7:30 am

    I am a Money subscriber and my first thought on this story was WHY did they get a mortgage in the first place that took 2/3 of their take home pay? Sheer lunacy based on greed. They, like many others thought they could sell if the prices did not continue to go up.

    They gambled and were wrong. Meanwhile, my mortgage is 20 percent of my take home pay and I say DON’T bailout these people. Let them suffer through foreclosure and let them watch the person who buys their home make a hefty profit on their failed experiment at quick money. Some people should only rent….

  9. Gayle Says:
    January 22nd, 2008 at 8:15 am

    No bailout. The taxpayers cannot afford it. It is the quickest way back to sanity. You can be assured that these people will teach their children some things not to do in the future.

  10. BD Says:
    January 22nd, 2008 at 8:30 am

    I don’t think a bailout’s the right answer, but I DO think we need more affordable housing options. $550K won’t get you a garage in the ZIP code where I’m renting now – with four other people to keep costs down – and without a steep decline in prices, it’s likely to stay that way. I think until there’s a way for an average earner to afford an average house, we’re going to see a lot of overextended buyers and defaulted loans. It’s not the government’s job to fix the defaults; it IS the government’s job to ensure its citizens have a place to live.

  11. Ernesto Says:
    January 22nd, 2008 at 9:35 am

    After poking some numbers into a mortgage calculator, I’m guessing these people have 0% invested in this place and have refinanced several times rolling the closing costs into the mortgage amount.

    If someone invests 0% in a property, then loses it, how much have they really lost? Like the old ’70s song goes: nothing from nothing leaves nothing.

    If they were renting before, they go back to renting. If the mortgage company has in interest in working out a payment plan then they’ll do so. Other wise someone will eventually buy the property at some price. No government bailouts.

  12. JLP Says:
    January 22nd, 2008 at 9:41 am

    Big surprise…

    Not one commenter thinks a bailout is in order.

    Ernesto,

    I, too, did some calculations last night when putting this post together. It looks like their interest rate is around 8%, which might be a little high but this is a jumbo mortgage (it’s over $417,000) so their rate couldn’t go much lower. Bottom line: they’re in a house they can’t afford.

  13. kitty Says:
    January 22nd, 2008 at 10:18 am

    Ernesto, I also have problems understanding what they lost. They keep saying “they will loose their home”, but they never really owned any part of it to begin with. If they’d paid 20% down, yet they’d have lost the downpayment. But if they paid 0%, then they haven’t spent any of their own money. They can view it like they were renting a really expensive place for a while and now that they experienced it, they can move back to cheaper renting.

    BD, there are more affordable housing options – condos, co-ops, even renting. A house is not a necessity. 550K may not buy a small house in my zip code either, but it will certainly buy a small condo or a co-op, even a small townhouse condo (430k) without a garage. Co-ops are significantly cheaper. Unless you are in Manhattan, I’d bet it is the same in your zip code is well. If there is nothing in the same zip code, there might be something some distance away. A collegue of mine, an engineer (his wife is a doctor and they have one child) recently bought a two bedroom townhouse-style condo which doesn’t even have a garage. Sure, they could’ve taken a huge mortgage and bought a small house, but they preferred to buy something they could easily afford so they can afford other things as well. Some of my collegues choose to move North to Dutchess county which is cheaper because it is farther from NYC, and commute. This way they can have a house they want and still be able to afford it. There are always options. Renting is a valid option too. So what if it is their dream. If I want an apartment on Central Park West, shall I buy it too?

    In terms of the bailout, I have mixed feeling. I don’t have much sympathy for these people, but I also don’t like seeing my stocks go down every day. Sure, I am there for the long haul, and I don’t need to sell anything now, but it is still unpleasant. As to the bailout I think we’ll be paying our taxes one way or another – either it is the bailout or bank losses or both.

  14. moneymonk Says:
    January 22nd, 2008 at 10:41 am

    Well the article fail to mention their other debts.

    Sometimes letting go a house or short sale is the best option. The house is killing them and renting a 2K a month apt is not so bad.

    2-3 years later they can buy a house and this time do it right !!

  15. Mrs. Micah Says:
    January 22nd, 2008 at 10:55 am

    Like Kitty, I’m not precisely sure what they’re losing. I mean, if the bank takes their house, then perhaps they can turn some of that money towards renting instead. They have the income because they work. And they won’t be going into debt on this—I think.

    It’s sucky, but it’s as though they’ve just been renting this big house and now they’re going to rent something a bit smaller.

    I’m sure it’s emotionally tough, but they let their emotions get them into this.

  16. Lily Says:
    January 22nd, 2008 at 11:26 am

    I’m also really irked by the line, “I expected that if we were approved for a loan, we would be able to pay it.”

    I suppose Kelly thinks that she was only approved for her credit cards because the credit card companies thought she’d be able to make the payments?

    Predatory lending is one thing, but at some point debtors need to assume some responsibility for making sure they didn’t get in over their heads.

  17. Ernesto Says:
    January 22nd, 2008 at 12:14 pm

    Lily, I’m not ready to let mortgage companies or credit card issuers completely off the hook.

    This mess is partially their fault as well. If the mortgage broker who arranged this deal had any fiduciary responsibility, he would have said “no”.

    In the insurance industry, if I find a poor risk it’s my duty to avoid getting the insurer involved by turning down the business. I lose premium $$ (and commision) that way but protect my companies bottom line.

    If mortgage companies and credit card issuers want to avoid delinquent borrowers, don’t issue the credit. “No” still works in this day and age.

  18. Foobarista Says:
    January 22nd, 2008 at 1:35 pm

    Sounds to me like they should give their lender the keys and move into an apartment or rented house and work on rebuilding their lives. They’ve got plenty of income, and their baby won’t starve on $10K/month.

    The world – and certainly the American taxpayers – don’t owe these people a house.

  19. Greg Says:
    January 22nd, 2008 at 2:10 pm

    People who gleefully anticpate foreclosures to teach those irresponsible borrowers a thing or two about personal responsibility completely overlook the potential ripple effects of mass foreclosures. As Money Magazine points out, foreclosures will inevitably lead to lower home values for all of us, as well as an increase in violent crimes in neighborhoods with foreclosed homes. Putting aside the humanitarian implications of your pounding the drum for “letting capitalism work” consider the impact on your personal financial situation if and when foreclosures mushroom across the country.

  20. Greg Says:
    January 22nd, 2008 at 2:16 pm

    The concept that people who put zero money down on a house have no “ownership” of that house is also highly inconsistent when applied to other transactions consumers and businesses enter into every day. Do you own your car if you finance it? Does a business own materials and goods if it uses a line of credit? Do you own the groceries you just bought with your credit card, without putting any money down? Of course you do. Further, if you believe that putting zero down means that there is no ownership, then what is the benchmark that you use? What if I put 10 percent down or 20 percent down for a house? Do I then qualify as an “owner” whereas my neighbor who put 0 percent down does not?

  21. JLP Says:
    January 22nd, 2008 at 2:19 pm

    Greg,

    Did you not read the post? I mentioned the concerns that Money mentions. I think they are overblown. If housing prices go low enough, there will be buyers. It’s basic economics.

    Finally, what are we supposed to do to help these people out? They are in way over their heads. Aside from giving them their houses, there’s not much that can be done to fix their situations.

  22. JLP Says:
    January 22nd, 2008 at 2:35 pm

    Greg,

    Here’s the problem I have with your thinking: there’s no negative consequences for bad decisions. As bad as I feel for these people (and I do feel bad for them), it shouldn’t be up to the American taxpayer to allow them to keep their house.

  23. Greg Says:
    January 22nd, 2008 at 2:44 pm

    I am not an expert on distressed lending but there would be many solutions to this problem that could be “innovated” by the minds in the financial industry. For one, delay the adjusting of mortagage rates for those with ARMs by five years to allow the borrower to come up with a plan to deal with new financial realities. For two, extend the maturity of the loan…rather than a 30 year loan, make it into a 40 year loan, give the borrower more time to pay it off and reduce the monthly payment.

    I strongly disagree with your statement that “there’s not much that can be done.” The impact of the housing crisis on all of us will be so dire that a solution needs to be found, and not mass foreclosure. Unlike you, I am not so confident that the potential ripple effects are “overblown.”

  24. JLP Says:
    January 22nd, 2008 at 2:58 pm

    Greg,

    I just ran some numbers. Using the numbers for the couple in the Money article. I’m assuming that their $4,100 payment is going towards principal and interest (taxes and insurance are paid for separately). At a payment of $4,100 on a 30-year mortgage of $550,000, I get an interest rate of 8.15%. If we changed the loan term to 40 years, their new payment would be $3,886 for a savings of $207 per month.

    That’s not much of a help if you ask me. The problem is the people in this example are in way over their heads and the only realistic solution for them is to sell their house and rent something cheaper until they are back on their feet.

    I fail to see how artificially propping people up in the short term is going to solve this crisis.

  25. Dan Says:
    January 22nd, 2008 at 3:59 pm

    Greg, many of the current spate of foreclosures is happening even before ARM resets. So delaying the reset would certainly not help these people. Similarly, we should probably assume that most of the borrowers who are unable to afford their payments post-reset in the current situation will be equally unable to afford their payments if the reset is delayed several years into the future. Some percentage would benefit from this delay, yes; but I suspect many more would simply (mis)use the additional breathing room to continue throwing good money after bad. It would be better for them to cut their losses instead of continuing to drawn down their 401k (!!!) to fund unsustainable payments.

    Ultimately, the problem is simply one of overpriced assets: they bought during a speculative bubble and are now unable to refinance out as prices return to more appropriate levels. There is no “solution” to this market action except to let it run its course–fighting a correction of this magnitude is a fool’s errand. The mechanism by which assets will necessarily return to appropriate valuations is of course sale at a lower price, forcibly or otherwise.

  26. Greg Says:
    January 22nd, 2008 at 4:15 pm

    Well it’s hard to argue with those numbers. I agree that $207 a month is not likely to make a huge difference for most people.

    I guess I am not as concerned about the fate of those who bought too much house with creative financing because they thought prices would keep going up. Although I hate to see people thrown out of their homes, it is a fact that they were being irresponsible. (although behavior was undoubtedly enabled by many other actors, including lenders, mortgage brokers and real estate agents.)

    My concern is that the neighbors who have been financially responsible and did not take as many risks will be dragged down along with those who lose their homes. I fear that the entire bath will be muddied by these foreclosures and we will all feel some pain because of irresponsible lending and borrowing. That’s why I am not so eager to see mass foreclosures.

  27. JLP Says:
    January 22nd, 2008 at 4:39 pm

    Greg,

    I’m not eager to see foreclosures either. I just don’t see any way around a lot of them – whether they happen now or later.

  28. Minimum Wage Says:
    January 22nd, 2008 at 10:53 pm

    “And for every 1% increase in the foreclosure rate, a neighborhood’s violent crime rate rises 2.3$…”

    How does that work? Homeowners get foreclosed and increase their violent crime? People who don’t own homes see their neighbor get foreclosed and go on a violent crime spree?

  29. JLP Says:
    January 22nd, 2008 at 11:12 pm

    Minimum Wage,

    LOL! I wondered the same thing!

    Actually, I think they mean that vacant houses are the problem because they attract criminal activity.

  30. Minimum Wagec Says:
    January 22nd, 2008 at 11:50 pm

    AHA, I see an opportunity here! I’ll be happy to housesit any vacant foreclosed house in my neighborhood. The lender and the neighbors should heartily approve!

  31. The Simple Dollar » The Simple Dollar Weekly Roundup: Downloadables Edition Says:
    January 23rd, 2008 at 8:01 am

    […] Stupidity Got Us Into This Mortgage Mess I’ve been very wary of commenting on the current subprime mess because I’m emotionally involved in it. My wife and I got a prime loan in July with a very nice rate, the result of a lot of hard work. We were also available for an ARM for substantially more money that would have allowed us to borrow a lot more than that and have the same payments for the first three years (then they would jack up). We chose the prudent route, and now when politicians talk about locking in ARMs, I feel as though the government is telling me I should have been irresponsible. That’s the wrong message to send. (@ all financial matters) […]

  32. Adam Says:
    January 23rd, 2008 at 8:23 am

    Housing prices have been out of control for quite a while now. Easy credit made it possible for people to overspend on real estate, and prices rose to represent this. I feel that $550k for a three bedroom is quite over priced (though it is hard to say without knowing much else about the place).

    It is quite possible that the house the couple has is what they would have had if the market hadn’t experienced a boom. Now due to the boom, past achievable goals have become unreachable for most (not that people didn’t stop reaching though).

    It’s a shame that the couple is losing their home. And that is what it is. They may have no equity built up in the place, but to them they own it. It will take a lot to convince them otherwise and they will try to fight tooth and nail to keep the place even if it is to their detriment.

    The wave of foreclosures that is coming is an unfortunate but necessary mechnaism for resetting the market. While it may be able to be postponed by government intervention, a reset will have to occur. Unfortunately there is no “fair” way to prevent many of the foreclosures. Extending the fixed rate term of the ARM will only prolong the inevitable because if you can’t pay now, you most likely won’t be able to pay two or three years down the line. Loan forgiveness gives the people with unresponsible borrowing habits a carrot for making poor decisions while the people who practiced fiscal responsibility pay for it.

    The only easy solution I can think of would be to find investors (not likely) who would be willing to take on the mortgage (and ownership of the home) for the residing families and then charge reasonable rent. Unfortunately, this is a losing proposition for the investors. Though a neighborhood group may be willing to do something like this to prevent foreclosures and the problems that will accompany them, though as I said before the price resets (de-valuing of property) will still nedd ot occur.

  33. B Says:
    January 23rd, 2008 at 10:08 am

    Let’s be real about the crime-rate factor: pimps and crack dealers aren’t normally hanging out on the corners of neighborhoods where 3 bedroom houses cost $550K. Otherwise the home value wouldn’t be that high to begin with.

    The crime rate applies more where you looked at things like serious predatory lending and inflated home values – where older people were talked into refinancing their house that was worth about $40k for a loan of about $80k so they could lower their payments by $75/month, or those who really didn’t understand what they were signing were talked into majorly inflated prices for homes in areas not worth it. In places like rural Cleveland, where houses in neighborhoods that were just barely winning over crime as it was, now have 10 of 20 houses empty and just can’t win the fight anymore.

    That is not an argument for this story – this is a couple who was careless in every respect – by buying much more house than they needed to begin with, and playing the refi game as long as possible. If you are gaming the system, it’s only so long before the system wins a round or two, and that is what is happening.

    It sucks that these people will probably lose their home. It sucks worse that it will probably really hurt their credit, which in a tighter market, will make it much harder for them to get another home. They may be renting for quite a few years to pay for this mistake. In this respect, it is right to say – let the system work itself out, no bailouts.

    The problem is, it’s impossible to separate the two scenarios. The game got played so long and so hard by so many, there’s no solution that isn’t unfair to someone. I don’t think everyone screaming foreclosure is fair – to that elderly woman who just really got duped, it’s not fair. The person who put her in that loan will walk away free and clear, she’ll lose her home. To the couple in the article, it is fair – they played the game and won for a while, then lost, and unfortunately they lost at a bad time and they lost big, and they have to pay for it.

    Unless you take this case by case, somebody is going to get screwed, and regardless of all the “NO BAILOUT!” screamers, they are going to take it one regard or another. The market is evidence of this already, and if there is no bailout and the foreclosure wave grows, it’s only going to get worse for all of us. It’s a no-win, and there are A LOT of people to thank for this.

  34. Chester's Clean House Says:
    January 23rd, 2008 at 10:19 am

    A responible lender wouldn’t let someone get a morgage they couldn’t afford. With the housing boom of 2000, too many morgage brokers were out to make a quick commision. It used to be fairly hard to get a home morgage so people just thought the banks were looking out for them. If you look at companies like Quicken Loans or Ditech, they were just after the quick $395 closing costs then sold the loans to unsuspecting investors who are now taking the losses along with the bond insurnace companies.

    The real issue is that kids are not taught personal finance in high school. I am in my 30s and wish I would have learned good personal finance much eailier in life.

  35. Eric Says:
    January 23rd, 2008 at 10:51 am

    My wife and I together earn almost $250k a year and we bought a condo that only cost $195k. By the way we bought it well under its listed price of $239k, back in August 2006.

    At the time, we certainly could have taken out a larger loan and bought a really nice, big house in a great area but then we would have to “sweat the mortgage” .. as it is, our monthly mortgage, pro-rated taxes and pro-rated insurance is only costing us $1700 – and we only put 5% down (80/15/5). We will have paid off our small note in a couple of months and then our monthly costs will be down to $1400. I have friends with apartments that are comparable (not quite as nice but comparable) to our place, and they are paying $1850 in rent so I think we made a pretty good move.

    My point (yes I do have one) – after maxing out our 401(k)’s our take home after tax pay is just over $10k per month. We are spending less than 20% on home-related costs (not including power, water, gas, trash, etc which we would have pretty much even in an apartment), if I lose my job or my wife loses hers we are still in fine shape. Contrast that to the many friends of ours who think we are crazy for not getting the biggest house in the best neighborhood we can find.

    You will notice something else about those folks. My wife and I make a lot of money relative to the mean but I am still driving a 2001 Honda. A close friend of mine who is not so good with money – not saying that I am, I still have a long way to go – well, this guy is always broke, has a philosophy about buying stuff that is just crazy (“If I can afford to make a 10% payment on my credit cards per month when buying something I will go ahead and buy it”), but is always buying crap. He drives a nice car which he has spent a lot of money making even nicer (rims, stereo, blah blah). I go out to lunch with this friend and he is usually all over me about how I deserve a better car and I should get a new one .. nevermind that at 90k miles my little honda has at least another 3-5 good years in it. Sadly more people than not have this sense of entitlement these days.

    And we wonder where the mortgage “crisis” came from ..

  36. Michelle Says:
    January 23rd, 2008 at 11:28 am

    The violent crime numbers are from a 1982 study by James Wilson and George Kelling, which coined the “broken windows hypothesis”. Basically, buildings in disrepair attract violent crime. However, more recent research has found that this is not the case. In one study, groups of people living in high crime areas were given vouchers to move to low crime areas. The violent crime followed into neighborhoods which were in good repair. Here’s the link to that paper, it’s in the Chicago Law Review, http://www.ssa.uchicago.edu/pdf/broken_windows.pdf
    Just a few thoughts from someone who has studies this particular issue on an academic level.

  37. Michael Says:
    January 23rd, 2008 at 12:37 pm

    Greg,

    As someone who has rented instead of getting into a mortgage I know I can’t afford, the financial impact to me, and many of my friends, of mass foreclosures is that we will be able to buy homes. Propping up a failing market will only hurt the economy more.

  38. bethh Says:
    January 23rd, 2008 at 12:39 pm

    If that couple grosses 10k/month, they’re making 120k/year. The house was 550k, and it sounds like they financed 100% of it, so they financed about 4 1/2 times their annual income.

    I was recently tempted to do the same, but after some hard looking at the numbers, I realized it was insanity. At best it would be very stressful, and at worst, well, see the above example.

    So now I know it’s not a market for a person with my so-called middle class income, and I’ll be renting until I make a lot more money OR prices come down OR I save up a ton of money OR I have a partner to combine my income with OR ’til hell freezes over… and frankly, that last one seems the most likely scenario!

    It sucks that foreclosures are going to affect the more-responsible and more-lucky people, but I really don’t see a way around it. People have gotten into untenable situations. My recommendation for renters is to make sure you like your apartment, because the rental market is going to get really tight.

    Also, I think Minimum Wage is right: there’s likely to be some self-employment opportunities here, house-sitting a range of empty places.

  39. Dan Says:
    January 23rd, 2008 at 12:40 pm

    I’m not at all interested in a bailout, it seems incredibly arrogant to believe that my tax payer dollars should be used to bailout someone who didn’t educate themselves about the mortgage process and terminology.

    NOW, it’s not acceptable to simply stand idly by while millions of people lose their homes. This can only stand to hurt us really badly if we do nothing.

    So I suggest that the president/congress/senate get involved as much as possible to twist arms at the banks to negotiate interest rates to extend the teaser rate period for the life of the loan or at least a substantial amount of time to allow the housing market to work out these issues. Or maybe a guaranteed refinance no matter the appraisal value so that the borrower will have a fixed payment for the life of the loan.

  40. Livingalmostlarge Says:
    January 23rd, 2008 at 1:22 pm

    If you go to wastrelshow.blogspot.com you’ll see the writer blame the mortgage companies, credit card companies, etc. Basically everyone other than the consumer. It’s how americans got into this mess. Blaming everyone else for their problems.

  41. Some Thoughts on the Stock Market, the Federal Funds Rate, and Economic Stimulus ∞ Get Rich Slowly Says:
    January 23rd, 2008 at 5:27 pm

    […] All Financial Matters: Stupidity got us into this mortgage mess […]

  42. Melissa Jones Says:
    January 23rd, 2008 at 5:56 pm

    This artical is all a lie! I know these people and this is not the situation. There annual income is wrong they make more and they are not about to lose there home. This is slander and another thing they are having a problem paying there bills because of a Carvel franchise owner sold them a franchise illegally!!!!!!!!!!!!!!!!!!!!!!1

  43. anon Says:
    January 23rd, 2008 at 7:58 pm

    If stupidity got us into this mess, maybe more stupidity will get us out… That seems to be the current plan with this economic stimulus package…

  44. Ginger Says:
    January 23rd, 2008 at 8:18 pm

    In this case I believe the purchasers should have had the good sense to know that they would not be able to afford to carry this house! Just because the bank says you can afford it doesnt mean that you can!

    I dont know what should be done. Ive moved past the tough love and I am all for whatever will get our economy throving again. I know that the masses of people along with the banks made really bad decisions but Im hoping that lesson learned and we can do soemthing to help them get on track. It’ll help all of us in the end.

  45. pfodyssey Says:
    January 23rd, 2008 at 10:39 pm

    Uhhh…Carvel franchise eh…as in ice cream…as they say, truth is stranger than fiction. Regardless, I think the discussion is a valid one. A few comments:

    * Generally, the government should not get involved…except to prevent (pass laws) or prosecute things like fraud, etc.

    * Yes, home prices may go down as a result…that’s basic economics (supply and demand). Some say we will get “hurt” as a result. I would strongly argue that artificially propping up prices is worse…and not sustainable.

    * In principal I have no issue with banks / lending institutions modifying the terms of the original loans (ex: maintaining their current interest rates for X years in order to stave off foreclosures). Given the expected losses they will incur due to massive foreclosures, it seems a rationale business decision to do so in order to minimize the damage to the business. It also seems sensible to have someone help coordinate such a big undertaking. I am also ok if someone in our government is willing to take on that task. However, they should be the facilitator…not the arm twister (per my first point above).

    * People need to be accountable for their finances…period. I think we should be protected from fraud and the like..but if you don’t pay attention and / or are irresponsible…it’s your responsibility to deal with the consequences.

    * Similarly, businesses need to be accountable for their finances. If they don’t know how to underwrite risks, then they must deal with the consequences, whether it be lost profits, battered stock prices, or a bankrupt business. Obviously, stockholders may suffer…but poorly performing or failed business are not new…happens every day for all kinds of reasons.

    RESPONSIBILITY. ACCOUNTABILITY. We must have it and embrace it as we will likely be facing similar issues in the future:

    * Credit card debt
    * Social security
    * National debt

    The sooner we face it, the better off we’ll be.

  46. Smelt Says:
    January 24th, 2008 at 10:31 am

    I’m sooooo steamed…these freakin’ idiots who make 3 times what I make, are “professionals” and go and blame “the lenders”….what are you? Freakin Nuts?

    You bastards deserve it…I make 40K a year, have 3 kids, my wife stays home, have no debt…paid off the house (240K). How? By being responsible…no cell phone, no cable, no fancy cars. No BS. We live quietly, tastefully…I bet I eat, sleep and live better than these idiots ever will. Save, spend wisely, give to the poor and work, hard. You sorry sacks of sh**!

    You greedy bastards..materialistic whores!

    Damn, I’m so P.O.ed about this…

    OK…I’ll be quiet now.

  47. Marie Says:
    January 24th, 2008 at 10:33 am

    Nobody has even mentioned what happens to these people when they are hit with unexpected hardship like job loss or health problems. They put themselves out on a limb. Everyone grows up with the “American Dream” of owning a home. I consider my husband and I very lucky that we had a local credit union that very carefully calculated a loan that was tied to a low percent of our income. It was almost impossible to find a nice house that cheap (think Green Acres), but after a lot of searching, we found one. Three years later, DH, our major breadwinner, lost his job due to a disability. It was a major scramble for most of last year with only my $1K take-home pay (after insurance premiums and child care expenses) and some savings to live on. But, we were never even late on a mortgage payment. It seemed like tough-love at the time, but we are now really grateful we listened to our credit union and borrowed low instead of high. We now have some disability payments to help us, and I have taken on more hours at work, we cut our expenses to bare-bones, etc. We are having it really tough, and I don’t think we should have to pay for people who got in over their heads just to try to speculate on the market. There are a lot of people in our type of situation every day (ie s*** happens in life), and nobody talks about giant government bail-outs.

  48. Dragon Lady Says:
    January 24th, 2008 at 10:45 am

    In looking at this article, I’m left cocking my head like a confused golden retriever for a completely different reason. These guys are bringing in about 2K a month above their housing expenses, and they still can’t make ends meet?? I know that property taxes and insurance can take a huge bite out of your monthly take-home, but even so, what are they doing that takes up so much $$ per month that they can’t cut out?

    Between me, my husband, and our boarder income, we bring in about $93K to $98K (depending on unreliable bonuses). Our fixed monthly expenses above mortgage include utilities, insurance, food, entertainment, and property taxes of $2150. (And we still contribute 13% to the 401k.) At the end of this exercise, it looks to me like my household and the Maderas live on a similar $2K-ish extra a month. Yes, their house costs about 35% more than mine, so their insurance and prop taxes are likely that much higher, but that would still costs only an extra $160 a month. That could be absorbed by just downgrading the food and entertainment budget of $400 a month to more like $200, or reducing the 401K to a minimum 5% to keep the company match.

    And I should probably mention: we live in the infamously overpriced Bay Area of California (only 30 miles from San Francisco). Living frugally is the only way a non-six-figure-earner can buy a house in this market.

    I honestly don’t think these people have thought about all their options. It’s not like this is some poor idiot making $40k a year that managed to take out a $400K “liar loan”. The difference between their expenses and their income is actually manageable with some belt-tightening. If Melissa Jones is accurate, and a bad business decision pushed them over the edge, I’d actually be more understanding. As is, it just looks like they’re so used to living the high life that they can’t even picture occasionally eating mac+cheese at home like the rest of us.

  49. REM Says:
    January 24th, 2008 at 2:17 pm

    I am wondering, with the foreclosures and more people perhaps turning to renting, how will that affect the rental prices of current multi-family housing market? I know that building new affordable multi-family housing has not been a priority during the recent years because it is not a money-maker for contractors and investors, but now with more people needing to rent and having a more limited amount of rentals than mcmansions, will rental prices go up? Can anyone add input?

  50. KC Says:
    January 24th, 2008 at 9:48 pm

    I read this article, too. These people make about what my husband and I do and I’m wondering… “how in the —- did they get into this position?” There is no excuse for this if you compare them to what my husband and I have been able to do with a similar income – course we actually own our older cars, have paid off our credit cards, and bought a much smaller and affordable home in a very nice neighborhood. These people are just dumb, but I’m afraid there are lots more dumb people with high incomes to go along with them. Shameful!

  51. Pikk Says:
    January 24th, 2008 at 10:31 pm

    Where I live (Dallas) all they’ve been building lately is 200K+ townhomes. Guess Dallas is going to be filled with even more rich stupid people soon…

  52. jane Says:
    January 25th, 2008 at 2:05 pm

    @ Dragon Lady In your respons about where does the other $2,000 a month go: probably a lot to taxes. I live inside the City of New York (not Manhattan but another boro) I bought there because property taxes in New Jersey and in the suburbs around New York are outragous (It’s a trade off as NYC has a city income tax.) Most of the people I know who own homes outside of New York City have Property taxes of AT LEAST $10,000 (although its probably closer to $15,000 for the money article couple). By living in the city my combo of income and property tax are more like $6,000.

  53. Pat Hengl Says:
    September 20th, 2008 at 10:42 pm

    I am sorry but I hear all kind of blame put on the barrower and not much put on the lender I ‘ve been around for 65 years and there was a time you didn’t get a loan or a credit card until you could show you were responsible and the lending company checked into your records and if you had bad credit you didn’t get a loan or a higher interest rate just so you could charge more that you probably were going to default on .I’m sorry you really do need to be your brothers keeper or theres a good chance everybody is going to pay for it….like now…I don’t think people know what a mess this irresponsible lending has done and the sad part about it could have been avoided

  54. Comment on Stupidity Got Us Into This Mortgage Mess by Pat Hengl Says:
    September 21st, 2008 at 4:11 am

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