Stupidity Got Us Into This Mortgage Mess

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, 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.

54 responses to Stupidity Got Us Into This Mortgage Mess

  1. 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…

  2. @ 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.

  3. 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

Trackbacks and Pingbacks:

  1. Stupidity Got Us Into This Mortgage Mess | US Mortgage Rates - January 22, 2008

    […] Original post by AllFinancialMatters Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages. […]

  2. The Simple Dollar » The Simple Dollar Weekly Roundup: Downloadables Edition - January 23, 2008

    […] 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) […]

  3. Some Thoughts on the Stock Market, the Federal Funds Rate, and Economic Stimulus ∞ Get Rich Slowly - January 23, 2008

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

  4. Comment on Stupidity Got Us Into This Mortgage Mess by Pat Hengl - September 21, 2008

    […] Read the rest of this great post here […]