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Sad Fact: Some People Are Just Idiots
By JLP | April 14, 2008
Lily over at TheHonestDollar alerted me to an interview with a couple who’s home is in foreclosure. If this couple is any indication of America’s view of debt, this country is in BIG TROUBLE!
Here’s the part of the interview that made me cuss:
The Sinclairs say they never meant for this to happen, but Esmeralda lost her job and a third child was on the way.
Sinclair: We had to start making some hard choices, which included going into foreclosure on our house and kind of starting again. We’re midway through the process, about a six to eight month process and we kind of have a plan of attack. If plan A doesn’t work, we go to B, C and D.
Plan A is asking the mortgage company to lower the principle they owe on the house, something Fed chairman Ben Bernanke has suggested to the banking industry.
Plan B: Try for a short sale.
Plan C: Just walk away.
Plan D: Chapter 7 bankruptcy.
Many of the current government proposals call for reductions in interest rates. Dan says even that wouldn’t be enough:
Sinclair: If they reduced our interest rate back to 4.25, we might be able to make the payments, but I don’t think we’re going to.
Vigeland: Now, why not?
Sinclair: We would do it if the equity was there, but in a case where we’re already so behind… Imagine that for five years, say, we’re gonna pay four grand a month and then we’re just gonna be back up at what we bought the house for. We feel like we’re throwing away money.
The Sinclairs say they want to take responsibility for their debts, but right now it makes more financial sense not to.
Sinclair: I mean, you ask a good question. Is it really the right thing to do to let the mortgage companies take up the difference? That’s a really tough ethical question.
Dan says he experienced the various stages of grief, including denial and anger. Now he’s just relieved.
Sinclair: We went through months of being skinflints, because we knew that we were going into the red, so we didn’t buy anything. All the sudden, we had a bank full of money and we’re living rent-free, but we know that’s not really our money.
Vigeland: How does that feel?
Esmeralda Sinclair: Great! Like he said, we were so tight with money…
Dan: It does feel great, because all the sudden, we feel like we have a little margin now where we can go out to dinner, get a babysitter…
Vigeland: But you’re not paying your mortgage. You’re not paying the biggest obligation you have. How does that feel good?
Esmeralda: We already went through the guilt. his is really what we need to do, not what we wanted to do, but what we need to do.
IDIOTS!
I understand the feeling of helplessness but bailing out on your obligations is not the answer. They may say they feel great, but my guess is that deep down, they feel like miserable losers!
I don’t know what else to say. I’m both saddened and stunned. I HOPE that this couple’s attitude is not representative of the rest of the country.
Topics: Housing Market, Mortgages | 19 Comments »
April 14th, 2008 at 1:21 pm
The stories like this just amaze me. People completely freak out about paying money for a mortgage their puts a roof over their head when the value of their home goes down. They say they are “throwing money away” or that they feel “helpless” and want to walk away.
What? How about a car payment? Vehicles don’t appreciate at all, and decline in value drastically. Many people are upside down on their vehicles, whether they know it or not, yet you don’t see people feeling “helpless” and walking away from their car payments because they feel like they are wasting money.
It is amazing that this expectation that real estate has to go up in value can create such deadbeats. You borrowed X amount of dollars, and agreed to repay it over set amount of time. That is how a loan works. Sometimes you are fortunate enough to find yourself in a situation where the item you used the money to buy increases in value, but other times it doesn’t. Just because things don’t go as you had hoped doesn’t make it acceptable to shove the burden on to someone else.
Sadly, I know that there are many others out there right now who have similar attitudes to those in the above story. The, “Hey I bought a house a while back, it didn’t increase 10% in value last year, so screw it, I’m not going to make any more payments” attitude.
April 14th, 2008 at 1:34 pm
Hell, I’m ready to cuss myself! This is a perfect example of why it might not be such a bad idea to go back to the old days of having debtors’ prisons!
April 14th, 2008 at 1:52 pm
For the past few years, many people have not had to actually sacrifice and save a down payment in order to “buy” a house. Thus they have little money invested in the house, so the temptation to “walk away” is great.
It sickens me that the government wants to subsidize irresponsible financial decisions (including the banks that lent the money).
April 14th, 2008 at 1:52 pm
It is just so hard out there in the housing market right now. These people are obviously suffering in their modest, affordable home (only $4,000 a month)they picked out for themselves. Why should they be responsible when they can’t make the payments anymore? Now that they have eliminated this monthly bill, which they really shouldn’t have to pay, they finally have a little wiggle room in their budget for basic life necessities like eating out and baby sitting. That mortgage company was so mean to put them into that house with such a high payment, they deserve to face the consequences of their decisions along with the bank that financed them. They are all horrible big corporations with too much money to begin with. They don’t even care that this poor family is absolutely suffering because of them.
April 14th, 2008 at 1:56 pm
Yea, the rationalization is just amazingly short-sighted.
“We’re in trouble on the mortgage! Start saving money so we can pay it.”
A little while later…
“Well, now that we saved all this money, it seems such a waste to spend it on the mortgage when we’ve been living free for so long. Let’s just blow it on babysitters and eating out!”
And you’re probably right about them feeling miserable. That’s why they need to compulsively spend to keep up the appearance of happiness when they’re just walking out on a promise that they still somewhat believe in. It’s all just rationalizations for illogical behavior. Hopefully more people will be responsible, rather than acting like this couple.
April 14th, 2008 at 2:01 pm
“The Sinclairs say they want to take responsibility for their debts, but right now it makes more financial sense not to.”
HA! Yeah right
I want the tax payers to pay for me to live in my house too – as long as the eventual equity is mine to keep free and clear. (See, I’m very “responsible” too.)
This is so pathetic AND infuriating – I can’t decide if I should break something or just break down in tears…
April 14th, 2008 at 2:12 pm
LOL I am so GLAD me and my husband didn’t buy the house we were looking at 2 years ago. And this is why: we had no downpayment, and it would have been barely affordable and would put us in the danger zone (if anything else happened, which it did btw, we wouldnt have had any money to pay) We could be in this situation right now and I’m so glad we’re not. Why is it so hard for people to realize when they cant afford something, DONT BUY IT
April 14th, 2008 at 2:22 pm
i hope these ppl get hit by a bus.
April 14th, 2008 at 4:00 pm
Business and morality are mutually exclusive.
If someone pays faithfully on their 30 year mortgage for 29 years and falls behind on the 30th year, then the bank takes away the home. How is that moral?
How many new startup business declare bankruptcy to preserve remaining capital from debts? Return the money to the investors and screw the vendors.
The banks should have calculated this outcome into their lending qualification guidelines before giving out such outrageous loans.
You forget that the nature of money is that greed is king.
I don’t blame that family – their protecting themselves and doing what they believe is right for them.
April 14th, 2008 at 5:12 pm
HisMoney hit on a big contributor to this attitude, and that is that there is no debtor’s prison. Bankruptcy means you don’t have to pay, and it is the foundation of the way our system operates to use credit and contribute to the economy by spending money one does not have. I don’t personally subscribe to playing this kind of game, as I am extremely opposed to paying interest and don’t see any debt as “good” debt.
I can’t condemn the Sinclairs. They are products of our society.
April 14th, 2008 at 5:51 pm
What are you guys so worked up about? These people signed an agreement – a contract. They stopped making the payments and so the bank will take the house and their credit will suffer. These are the rules of this game. If you think they’re getting off easy, then go vote and lobby for more stringent oversight of the banking system. If you think they’re not being treated fairly, then go give them some food, money, and maybe invite them to spend some time at your place.
April 14th, 2008 at 6:36 pm
I disagree. This type of behavior seems entirely rational–they essentially made a bet that the value of the home would increase, and now that it clearly won’t they’re exercising their put option and giving it back to the bank.
The real idiocy here is on the part of the financial institutions who built their risk models around the assumption that real estate prices would always increase, and who purchased loans to securitize from originators whose only incentive was to issue as many mortgages as possible. Talk about moral hazard!
April 14th, 2008 at 7:29 pm
It’s not even a problem of them getting punished in the end or not, nor enough to wish them dead. I think this is a perfect example of the deepest problem nowadays, where people just don’t take responsibility seriously anymore.
Like parents passing the nurturing and teaching responsibility completely to schools…
Like people blaming school violence on drugs and not “diagnosing” (labelling) young people early enough — where the responsibility should be everyone involved in that person’s life to show some compassion… (perhaps that’s all is needed to keep that person sane, some warmth and companionship…)
And here we have people not taking the responsibility to learn and evaluate their own options and future before deciding to buy a house… and then not taking responsibility of the outcomes of their financial decisions.
All along, we also have a government that seems to promote such irresponsibility. What are we to do?
April 14th, 2008 at 10:02 pm
“The Sinclairs say they want to take responsibility for their debts, but right now it makes more financial sense not to.”
Love this. Oh, I just borrowed this money, but it really makes more financial sense for me to keep this money rather than return it, so I’ll just keep it. It certainly never makes financial sense to give any money away. Even somebody else’s money. How original.
This is why I always say that the reason for both current mortgage problems and people’s overspending with credit cards is not the issue of financial education or lack thereof, but of morality.
I also love their idea of bank’s lowering the principal. Great business decision too – buy something expensive than have the price lowered after the fact. To think of it, this couple is not stupid at all. It’s those of us who return our debts and pay mortgages who are stupid, since we aren’t doing what “makes more financial sense for us”.
$4000 a month? Oh, they are soooo poor and so need our (taxpayers) help.
April 14th, 2008 at 10:02 pm
Wow!
They might say they feel great but just wait until they’re escorted out of their home! I’m sure it won’t feel so great then.
As for the whole comment on “it makes sense financially..” Why did you buy the home to begin with?
April 14th, 2008 at 11:43 pm
Idiots? Not at all. They made rational decisions (to them). You may even call them smart. They bought the house for 440k. When the value rose to over 600k, they probably did a cash-out refi, pocketing a nice chunk of cash. Now that they are upside down, they stop paying and live rent-free. From the time they bought the house till they are eventually evicted, they probably will have zero or negative housing cost for the entire time (cash out refi offsetting all monthly payments and having leftover to spare). Isn’t that smart or what?
April 15th, 2008 at 1:23 pm
It’s very true that the penalties for deadbeat debtors in this country are quite low. There isn’t much disincentive to walk away. We’ve made the bankruptcy laws tougher but we need to go further. Somehow these people need to be held accountable particularly those that did cash-out refis. The lending environment in this country is currently tight and is going to get even tighter. IF the banks are left with this mess you can bet we won’t see another subprime or alt-A loan in this country until all current bankers retire. The comments that seem to show support for these people, I have wonder if they are being sarcastic or are just trolls looking to stir things up?
April 19th, 2008 at 2:57 am
You know, this mindset is part of the reason this country’s economy is going around the bowl and down the hole right now, These (EVIL) investors, are now losing tons of money which means they are losing business capital that can go for things such as payroll, and growing the business.. ie the stock price drops, earnings go down.. and the people these investors are employing are now out of a job, which reduces their income and puts them under stress.. (cant afford the mortgage, car payment, food, etc because thier job at the mortgage investment company is gone…) because people like this think its in their best interest to keep money that isnt thiers… in the end they are stealing from the hard working people that make this country work and hurt alot of people in the end.
June 11th, 2008 at 11:45 pm
The problem here is that the lending system is flawed. Banks need to thoroughly investigate the borrower’s ability to keep up with their loan. It should be a partnership between the lender and the borrower where both share the opportunity to profit/and risk of loss equally. Unfortunately, banks are quick to lend to make increase their portfolios. It’s not right for the family to get off without a hitch, but neither should the bank. I think that if banks were more responsible in their lending policies, we’d hear less of these stories.