Good Credit Can’t Protect You From Ignorance

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Maybe I just didn’t get enough sleep last night, but the media really has to do a better job to find people with problems that I can sympathize with. The title of this Fortune article is Good credit can’t protect borrowers from bad loans – “More and more home owners with high credit scores are falling behind on their mortgage payments. Here’s why.”

Trish Phillips had enough income to pay about $1,300, perhaps $1,400 a month for her home, which cost $279,900. The minimum payment on her option ARM was $1,276, but she was incurring interest of more than $2,000 a month. The difference of about $800 was added to her mortgage balance every month. […]

According to Phillips, who was making the minimum payments, that meant her monthly bill would jump to $2,300 after just a couple of years and then to more than $3,000 a year after that. She knew she couldn’t afford it and went for help.

Phillips admits that she didn’t clearly understand the loan terms before she closed on the house and says her mortgage broker didn’t explain them. She had misgivings but, “I was afraid of losing the down payment,” she said.

Okay, so why are people with good credit falling behind? Because they are also buying $300,000 homes without even understanding the basics of how their mortgage works. Even if you assume you can refinance, how are you going to do so if you can’t even afford the payment on an interest-only loan? She was actually increasing her loan amount each month.

As for Phillips, she managed to get her loan modified, with Sichenzia’s help. Her payment is now frozen for three years at $1,281 a month and her balance will not increase during that time.

Pretty nice. Wish I could freeze my loan balance for three 3 years while paying less than the interest accruing.

I have nothing personal against Trish Philips. If I were her, I’d be happy to save a ton of interest and have frozen payments for 3 years. Score for her, the crazy lenders should share the pain. But seriously, is this the best you can do? Aren’t there stories out there of people overcoming real problems which weren’t self-imposed? (Although it has since been removed, the original article showed her posing by her Harley Davidson.)

My problem with these stories is that if the house had appreciated in value, these homeowners would be perfectly happy with their risky loans. I don’t like that they get the upside, but no downside.

Question… If I sell you a Hummer and don’t tell you it only gets 10 miles per gallon, and shortly after buying it you can’t afford the gas to drive the Hummer anymore, is that my fault or yours?

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Comments

  1. Ugh, I hate these stories. So what happens in three years? She STILL can’t afford the house. She’s even more underwater, and it’s STILL the evil bank’s fault, right?

  2. Thank you for this post. I am so tired of hearing how this is all the fault of greedy bankers and mortgage people, although they certainly share the blame. How could these people be so stuck on stupid. I am no Warren Buffett but I know about how much house I can afford.

  3. chrisMR says:

    people love rewards, but want no blame for the risk they are taking – i took a mortgage I can afford, but I have to suffer through this mess with the people that didnt – and pay the taxes that will bail them out – maybe i should have gotten twice the house and had someone bail me out.
    everyone wants to be entitled to the big house, big car, american dream that we have been sold.
    living simply, modestly, is considered unacceptable to many.
    why do we need touch screens, navigation systems, heated seats, and DVD players in cars? most of us spend 95% of our time driving the same routes every day – if you get lost, maybe you should stay there, your butt will warm up in 2 minutes on its own, and your kids need to learn how to entertain themselves between your house and the daycare that is 5 minutes away.
    as a society we want more and more, but we dont want to pay for it.

  4. Is good credit supposed to protect people? I thought we were supposed to protect ourselves.

    That kind of story annoys me too. It’s sad if someone loses their home because their industry suddenly got outsourced and they couldn’t find a job to afford the payments. Or it’s sad if an immigrant family gets scammed because someone they trusted lies to them about the terms of the mortgage (happened in to a family in my church, their interpreter was working for a bad subprime group and they were too new to know how American mortgages worked).

    But if someone didn’t spend time clarifying the terms of their mortgage and bought more than they could even afford the interest on…then that’s sad in a “why don’t people learn more about personal finance” way.

  5. Siggyboss says:

    These people merely took the bait of record low interest rates created by the Federal Reserve. The buyers and lenders were both misled by such intervention. Oddly, the same Federal Reserve is now going to save us again with low interest rates. There’s nothing wrong with wanting a ever-growing standard of living. The problem is the government’s intervention with the FHA, Federal Reserve, Fannie/Freddie, etc distorting everything, and then the ‘free’ market is blamed.

  6. Dustin says:

    I was watching CNBC this morning and thought I’d add something to the discussion. Unfortunately, if Trish was allowed to go into foreclosure, her house would sit vacant for an average of 10 months. During that time, the grass would go uncut, vandals may break in (thiefs just LOVE copper these days) and property values of her house will decrease by 1/3 and the neighborhood will also take a hit. While I too disagree with the free rides some are getting, I think we all need to realize that the foreclosure route has costs to society as well. chrisMR’s taxes will be used to bail out Trish, but if the bank foreclosed on her, chriMR’s taxes could have easily gone into a grant fund, like we have here in Minnesota, that GIVES money to landlords who promise to keep up the outside appearance of foreclosed houses. chrisMR and you and I are all getting the short end of the stick either way, its just how we can minimize the costs to us as a society while maximizing the costs to people like Trish.

  7. Jeff Davis says:

    It’s called playing the victim. Sadly, it’s extremely prevalent in modern society. The thinking is that you should be able to do whatever you want. Whenever the repercussions strike, you are just a victim. Society should bail you out.

    The only problem is that who pays for the bail-out, and what happens when nobody is responsible for their bad financial decisions?

    I guess you can just say that in modern society, being responsible has a cost. However, you can sleep well at night, knowing that you haven’t cheated someone else out of their money.

  8. SomeGuy says:

    Good credit doesn’t protect anyone from overspending. If you can only afford ~1,300/mo you simply shouldn’t be looking at $300K houses. Similarly, if you run your monthly budget too close to your net take home, you are asking for trouble. Especially if you do not have a good emergency fund built up.

    I really think you’ve hit on the key point. Folks want all the upside without any of the downsides or risks. Those who start their own companies take on substantial, sometimes huge, risks. I know several who have quit a six-figure job, and drained their savings and 401(k) to start a business. Several of them made it and several of them did not. Those who did now have huge net worths and enviable lives; those who didn’t are effectively starting over. “Nothing ventured, nothing gained”.

  9. ShavenYak says:

    $2000 interest monthly on a $280K loan is over 8.5%! I can almost forgive her not understanding the Option ARM, but did she not compare rates at all? That’s a hideous rate even for early 2007.

    I would hope, also, that the person(s) at the bank who approved this loan are now doing something more suitable to their intellectual abilities. I’d say flipping burgers, but that would be an insult to food workers.

  10. Wait a second though — if she put down a down payment (which she says she did) and it was 20%, then her mortgage should have been for about $223K. Now $223K at 5.625 (which could be had with good credit during this year if you looked), would run to about $1,284 a month. Maybe she’s not getting a bargain or discount at all. Maybe she just started off with a lousy mortgage because she was duped, and the mortgage company now has to eat it.

  11. A few years ago, couple of my friends bought homes with interest only. These are close friends of my, college roommates. Even though I have my own views about interst only, it wasn’t in my right to tell someone not to buy a home. It’s there own choice. Knowing how they are with money, I’m afraid, they too will face foreclosure.

  12. If Trish was the only one who took out a bad loan during the housing bubble, it would just be her problem.

    However, banks recklessly lent out money to thousands and thousands of folks like Trish, and now it’s our problem.

    Mortgage-backed-securities and derivatives based on risky loans lurk in 401(k)s, in money market funds, pension funds, and bank balance sheets. I think the taxpayer-funded bailout started when the Federal Reserve exchanged pristine Treasuries for Bear Stearns’ toxic paper.

  13. I really hope that in light of the subprime mess, banks will feel more pressure to be careful with their loans and try to sell someone something they can’t afford.

  14. The economic choices people knowingly make is amazing. File this along with the CNN article I think I saw yesterday where a mom was outlining her uses of the $600 or so “stimulus check” she was getting: a few wks of diapers stocked up, a few wks of food and $200 ON HER 3 YOs BIRTHDAY!!!!!! The kid WONT remember it. Put it in a savings bond at least…..

  15. People who don’t understand something they’re signing are stupid. “Sign here where it says, ‘I understand you will receive my first born child'”

  16. FeedTheFam_Gretchen says:

    I read an article yesterday about how people were going to spend their rebates. A single mom w/ two young kids was going spend her $900 on several things: $200 toward food and $200 toward paying off an electric bill that she was behind on. BUT then they go on to say that she’s spending another $200 on a birthday party for a 3 year-old! I thought it was really weird that someone who is behind on her basic utility bills would spend such a high amount on a birthday party for a 3 year-old. But then, I didn’t even throw birthday parties for my kids until they turned 4, so maybe I am just out of it. I think we can learn a lot from these stories but we have to remember that we all make stupid decisions from time to time.

  17. I agree that everyone should understand the terms of the loan.

    However, how many of us really understand the paperwork that we sign when we close on the loan. (Note that I’m referring to the paperwork this time, not the terms of the loan.) You sign probably 20 or 30 pages and they are all full of legal mumbo jumbo.

    I think a loan should require one signature on one document, and you should be provided a copy of the loan package three days in advance to review and read over every document.

  18. feedthefam says:

    @Thad – Guess I shoulda read your post before saying the exact same thing. 🙂

  19. These sorts of stories both amaze me and douse any little hope I have remaining in humanity.

    The fact of the matter is that most people can barely plan past their next paycheck so they make really really dumb decisions like this story. A friend of mine’s sister is walking away from two homes she and her husband bought in the last two years. They bought the first one for 450K in 2004 then figured they couldn’t deal with the commute to their jobs. They decided to buy another home last year near their jobs for 570K. Keep in mind, one of them is a school teacher and the other runs a Karate studio (which just saw enrollment get cut in half due to everyone’s cutting back). So they two don’t even clear 100K a year and they have a million dollars worth of obligations?!?

    If you were buying a home, wouldn’t you go to a basic calculator online and just fill in the numbers to see what your payment should be? If they came out vastly different than the payment your broker is offering you, wouldn’t you be at all curious? I mean, you are signing a paper that says you owe the bank more money than you’ve ever seen in one spot so wouldn’t you be the least bit curious and want to dot the i’s and cross the t’s?

    If you don’t understand the 20 or 30 pages of legal mumbo jumbo and don’t know how to get help (ie, hire a lawyer for a few hundred bucks to explain it to you), then you really have no right buying a home. If you don’t make enough money, you don’t have any right to buy a home.

    I do agree that the docs could be simpler and I see that coming out of this mess will be loan docs similar to what car dealers have to show you:
    This is what you are going to owe us, here’s your payment, here’s the interest you’re going to pay, etc.
    For loans with an option or arm type, they’ll probably add:
    This is what you SHOULD pay a month, this is how much you will OWE more each year if you CHOOSE NOT TO PAY the proper amount, etc.

    Anyway, to all the savers, keep the faith. Hold on to your down payments because it’ll be time soon enough to buy a place.

  20. As a renter, I don’t appreciate the efforts of the government to cushion the inevitable housing market correction. If housing prices are inflated, let the prices correct themselves. If people bought too much house than they can afford (through stupidity or trickery), let them lose their home. They can rent the apartment next to me.

    Such actions from the government ultimately punish those young renters like myself who are trying to get into a crazy real estate market by maintaining the prices artificially high. Without government intervention, doesn’t economics teach us that prices will reach equilibrium through supply and demand?

    Here’s an unrelated commentary on the real estate market. My next-door neighbor is trying to sell her condo in this bear market. Assuming that it sells for the list price, she will have realized a 20% annual return over the past 2.5 years (I love zillow). She was trying to tell me a sob-story about having been unable to sell her home over the past 2 months. Now she might have to drop the price and only realize a 15% annual return on investment. Go cry me a river. Homes will sell in this market; they just won’t sell for what the owners hope for.

  21. Haven’t we all heard enough squawking about this? How is the subprime/real esate mess any different than other times when a few took advantage of the masses?

    Internet mania (anyone remember Cramer saying we should short Berkshire?), S&L’s (before my time but I’ve read enough), etc. The list goes on and on.

    When the guy that cuts my lawn is telling me that he quit that job to sell mortgages (he didn’t graduate high school), is anyone really surprised that we are here?

    I once thought that with the Internet we would finally get to the holy grail of financial literacy… information transparency. We would all know what these brokers were getting paid to do and how much it costs us, seniors would understand why that annuity is too good to be true, and people could no longer hide behind 4 layers of middlemen.

    Unfortunately the Internet has become yet another conduit for scams and only rarely a medium for relevant information transfer.

    Wow, sorry for the rant. I do feel for the folks losing their homes, they may be getting help but I’m sure it’s stressful.

    I do wonder what benefit I’m getting for working hard, saving, and being fiscally responsible.

    – My ‘stimulus’ check for a family of 4 = $0
    – My reward for working hard = alternative minimum tax
    – My tax cut for the working class = phased out deductions’
    – My mortgage bailout – a phased out mortgage interest deduction

    Anyone see recently the new taxpayer ‘simplification’ act? Where instead of self policing HSA distrubutions we would instead have to submit everything to a 3rd party auditor? Love it, more government! Way to simplify.

  22. Ted Valentine says:

    Here’s the harley pic:

    Edit: oops apparently img src html doesn’t work in the comments.

    http://i.l.cnn.net/money/2008/04/24/real_estate/good_credit_bad_loans/trish_phillips.03.jpg

  23. While I’m personally a bit sick of these tales of whoa. I think it’s a little too easy for us (people who clearly have an interest and knowledge personal finance) to castigate people for signing on the dotted line on something they might not know all that much about. Many of these loans were sold, not just applied for. My understanding is that mortgage brokers and such got fatter commission on the option arms, etc. Sure everyone should and can learn the details, but sometimes people place trust in experts (in this case bankers who might not have the borrowers best interest in heart). When I go to the doctor I try to know a little about what might ail me, but I place trust in my doctor.

  24. I wholeheartedly agree!

    There’s a radio ad currently running in my area that says: “You shouldn’t have to pay a higher interest rate just because you have bad credit”.

    NO… That’s EXACTLY why you should pay a higher rate. Now I’m not saying a usurious rate… but yes, a higher rate than someone who’s kept their credit clean.

    There’s also an ad where one person bemoans the fact that she can’t buy a dress that’s on sale this week… “What can I do?!” Her friend suggests she take out a paycheck loan.

    NO… what you can do is NOT BUY THE DRESS!!!

    We’ve created an “I deserve it even if I can’t afford it” culture. It’s a big reason we’re in this mortgage mess.

  25. This happened to us (thankfully it was a rental property and not our home). My husband and I have excellent credit and had no reason to get in to this type of loan. We paid 20% down for the house making the outstanding balance 240k. If we had just did a fixed loan our payments would have been around only 1500. With a rental income of aobu 1100 a month, we would only have a net cash flow of 400!

    But instead the loan officer (my husband’s coworker) talked us in to an ARM saying that our payments would be so low etc etc… Fast foward 2 years later and our monthly paymetns are over 2k! little more than the mtg payment on our principle home whose outstanding balance is almost 200k more!
    Worst of all, there is a prepayment penalty for 3 years so we’re stuck.

    As much as we’d like to blame the loan officer for not expaining, in the end it was our fault. Our fault for not understanding what we were doing and most of all trusting this person to have our best interest in hand. In the end, this loan officer was acting in her best interest. Something my husband and I should have done by really understanding the type of loan we were getting in to.

  26. Nick Ambrose says:

    I am 100% with you chrisMR. When I bought my place 5 yrs ago, the real estate agent said I could borrow $428K, get an interest-only like she was doing etc. etc. prices are going up blah blah.

    Instead, I took a loan for $284K and put 30% down on a house that I actually can afford.

    Now I have to pay for all the people who “didn’t understand” the loans they got ? What a crock. How about all the people who were drawing out equity year after year after year, buying new cars, expensive vacations, new kitchens. Do I have to pay for those people too ?

    Heck, why dont I just take my paycheck and distribute the entire amount around the neighborhood ?

    And all this crap about “oh, it’s worse for the economy and our house prices if we have a lot of vacant/foreclosed homes”

    What’s bad for the economy is for all our “growth” to be spurred by decades of people spending money they dont have and expecting (and getting) bailed out for it (after all, it’s no ones fault right ?)

    I would love to get some of these deals I am hearing about (one in the bay area that got their rate fixed at something like 4%)

    And it wasn’t like we couldn’t see this coming (despite everyone acting all surprised about it). It was as plain as the nose on my face.

    Our society is based far more around our “right” to live the way we want, rather than living within our means.

    Some think the american dream is home ownership, family, big cars etc. but really I see the American dream as the right to strive for those things, to work toward them in the hope of achieving them, not some god-given right to spend like crazy on credit and then ask for handouts.

    And no one is addressing the root cause of these issues (because that would cause the grand old “economy” to shrink, and thats the worst thing in the world apparently, although it’s pretty obvious it’s unsustainable growth)

    So looks like we are doomed to repeat the pattern, and once more the people who made sensible decisions will pay the bill, and the rest of the people are off spending their “economic stimulus” checks on new dresses and cars ….

    Whole thing disgusts me.

  27. Nick Ambrose says:

    Greg — I am with you on the loan terms.

    I am wondering (since apparently the much lauded “free market” and “marked forces” and “responsible corporate citizens” and “capitalism” have repeatedly been shown not to work time after time after time, no matter what Libertarians and Republicans may try to convince us of)

    How about this.
    A standard mortgage document for the whole country (or at least per state) where it’s impossible to change the terms.

    Then, the financing details (initial rates, max payment, min payment, when the amounts can change etc.) are printed on ONE letter-sized sheet of paper in 16point text (or whatever size). If it’s interest only, or the payments will be smaller than whats required to pay off the loan, this should be in 26 point, red, bold.

    If the mortgage company cannot fit that info on ONE page, then we declare it’s simply too complex.

    Of course, this would probably prevent “people from living the american dream of home ownership”

    or prevent “lenders from offering people the optimal best-priced loan to get them into a house they cannot afford.”

    Yes, I’m ticked off with this whole thing.

  28. We are surrounded by ads. What is not being sold today? Cars, prescription drugs, whole life insurance, payday loans.

    I can understand not wanting to read some fine print sometimes. But if you don’t bother to understand when you are buying the most. expensive. thing. you will ever buy, when will you bother?

    This is just a sign of a greater problem. We expect people nowadays to each save enough for their own retirement and/or healthcare? Guess what happens when that doesn’t pan out…

  29. Nick Ambrose says:

    Dustin — I say let the chips fall where they fall.
    Maybe if we have to walk around our destroyed neighborhoods for a few years, looking at the results of our (as a society’s) actions, we will be less hesitant to repeat our mistakes ?

    Maybe at some point, we will actually realize that unchecked capitalism, cannot be sustained, that corporations and citizens are subject to greed, stealing and cheating and without strong goverment interventions and regulations we will end up here again and again and again while the corporations rob us blind.

    When people were selling these mortgages, all they cared about was getting their cut, now how are they being held accountable ? They are not.

    I think that all email, paper, voicemail records for all mortgage brokers, companies and agencies need to be subpoeaned and gone over with a tooth comb. That’s the only way we will prevent this kind of disaster from hitting us again.

  30. chrisMR says:

    basically, people want their boat, corvette, retirement, big house, gardener… then they are shocked when they cant afford it on a teacher’s salary. so what do we do? we buy stuff cheap, mostly from china, where human rights & safety are ignored, so we get our affordable, extravagent lives back, and we have to one up the neighbor… before long, we wonder why every factory is closing, nevermind everything we buy is the cheap stuff made in china, and we drive until we are blue in the face, then get pissed when gas goes up… and if you are too dumb to realize that your mortgage is more than your monthly income… oh god, we need gov’t run healthcare, retirement, everything… SS may be a mess, but its no worse than most people are doing on their own.

  31. Nick Ambrose says:

    Chris, dont even get me started on China or India outsourcing.

    How the hell can we expect to “compete in the global market”
    when
    – they tax our exports, but we essentially dont tax what we import very much ?
    – we claim we cannot afford to pay people to inspect goods coming in, so we may as well let fake or dangerous drugs, toys etc. etc. come in because the alternative is the grand old “economy” going to hell ?
    – we ship hundreds of thousands of jobs offshore and tell the victims they should go learn a new career.
    – How can you compete with people being paid $2-3 a day ? Should we even be expected to try ?

    Yet another crock

  32. I say let darwinism work, foreclose on these morons and let them rent, and eventually the “I didn’t understand my mortgage contract” gene will be “eliminated” from the gene pool. Not through death — through modification of the rewards system we have in this country. If personal irresponsibility were punished and responsibility was rewarded, we would see behaviors change. If the federal government is going to be hell bent on intervening with the economy, they had better understand that when you reward a certain type of behavior YOU GET MORE OF IT!

  33. "Mo" Money says:

    There is a saying that “ignorance of the law is no excuse”. The same is true for all those home buyers that thought buying a house with no money down, or making a no interest payment, ignorance is no excuse. What happened to buyer beware.

  34. Yep, the borrower SHOULD have known better, and ultimately it is her responsibility….however, and I’ll probably get flamed for this, the lender is, or should be, an expert on the product they are selling and….well, are taking advantage of people’s ignorance.

    If the mechanic overcharges you for fixing your car…say charges you a set of muffler bearings…he did so by taking advantage of your ignorance…you expect the mechanic to be honest. Is it the consumers fault for being ignorant in this case, or is it the mechanic’s for being unscrupulous?

    Further…why are ARM rates going up? (I ask because I really don’t understand)…I mean, the prime rate continues to decline..so why aren’t rate savings being passed on to the end borrower?

  35. There’s a petition against government bailouts at http://www.angryrenter.com

    I’m not a renter but I’m angry too!

  36. Nick Ambrose says:

    m0loch — I agree with you.
    The difference is that if a mechanic rips someone off, it’s not usually the case that every other tax payer has to pay back that ripped off person.

    ARM rates are not going down exactly *because* of this issue.
    Since the mortgage companies are going to lose a fortune on all these subprime loans, they are keeping the prices of everything higher to try to recoup those costs.

    And THAT is one of the things that ticks me off. Now I get to pay a higher rate due to unscrupulous lenders and moronic buyers. Thanks a lot people!

  37. Thanks Nick for clearing that up a little bit.

    I’m not thrilled about my taxes going to bail out incompetent borrowers either….however, didn’t Thomas Jefferson or someone of equal stature decree that America was to have a government of the people, by the people and for the people? My point being that I’d rather have my tax dollar helping out the laziest and stupidest of American citizens before it helps out a non-living, non-breathing corporate entity. It’s sticky business – sort of like who do you blame for drug use, the dealer or the user…

    CEO pay hasn’t been affected as much as that of the average worker. James Cayne was compensated very generously for running BSC into the ground. Where’s the accountability here? I’ve read about bankers crying the blues because most of their compensation is bonuses based on writing loans…my advice, don’t write bad loans and stop whining. Maybe these bankers should have to pay back bonuses since their loans defaulted. These bonuses are an incentive to push high-risk loans, the end borrower should have some protection against these practices – or, preferably, there should be an incentive on the part of the lender to make less of these high risk type loans.

    Ultimately, I think what I would have liked to have seen was to let the market fix itself. People who couldn’t pay their mortgage should lose their house, lenders whose loan defaults became overbearing should cease to exist. Mary Jo lender and Fred CEO would then learn not to do the things they have done, as it is, they are being rewarded for their lack of fiscal responsibility.

    The fact that rates are going up because of these bailouts is quite frightening…seems the bailouts have the potential to cause even more need…

  38. Amanda says:

    I too am not happy about my taxes supposedly going to bail out ignorant homeowners… but I’m WAY LESS HAPPY about my taxes going to bail out corporations.

    All this talk is pretty scary, though. My husband and I are shopping for a mortgage right now and I’m not 100% sure about how exactly we will tell if we’re getting a good deal or being screwed when we have never done this before. We’re doing as much research as we can and asking people about it ahead of time, but I’m kind of afraid of all that fine print: what if we think we understand what it says, but it turns out that we didn’t read it right? What if it’s specifically tailored to be an impenetrable block of industry terms and lingo, and we ask the mortgage guy to explain in detail what this means here where it says “……..” and he tells us something that sounds right but it turns out that’s not what it means at all?

    I feel somewhat overwhelmed.
    Why can’t I just sign something that says “we will pay you x number of dollars now, then x number of dollars per month until this thing is paid off, and if we stop paying at any time then the house goes back to being yours” and hand it to the people who own it now, and be done with it?

  39. Nick Ambrose says:

    m0loch — I’d rather my money not go to either of those places.

    As an experiment. Why not get say $500 of your own money, then go find 3 or 4 people in your neighborhood on interest-only morrgages, who have 2 brand-new leased vehicles, holiday in the Bahamas, just “upgraded” all their kitchen/bathrooms, bought a house 2x bigger than yours even though they earn less and spent their “economic stimulus” check (aka a loan from China) on shoes.

    Then start writing them checks for their mortgage payments and see how you feel ….especially when you see them going off on holiday again this year ….

  40. Abraham says:

    If the property appreciated in value, everyone would’ve been happy. Since it went south, everyone who jumped in to make a buck has to blame someone for their Stupidity & Greed.
    But again – Stupidity is not illegal.

  41. So considering how bad banks are, and how heavily advertised payday loans are, would it be totally Machiavellian of me to suggest…

    …investing money into payday loan companies? Or is that similar to investing in tobacco, gambing and landmine companies, morally?

  42. Independent George says:

    m0loch – the thing you’re forgetting, though, is that if the borrower defaults, the lender LOSES money. The lenders weren’t ‘taking advantage’ of the borrowers; they were making a fiscally unsound investment because they got caught up in the exact same mania as the borrowers.

    The point is, this is not a moral issue. It’s not about right and wrong, victimizer or victim, but a simple economic matter of ‘good investment’ vs. ‘bad investment’. People who made those bad investments – borrowers who bought too much house, and banks who lent too much to borrowers – are paying exactly the price they should: they’re losing the money they invested. That should be the end of it.

  43. Cully Perlman says:

    I am an ex banker, as well as an ex realtor. I’m also in the market for a home–but I’m moving from Seattle to Atlanta, where homes are that much more affordable.

    To comment on the entry: I feel for those people who don’t want to bail anyone out, and believe people should be responsible for their actions when it comes to buying homes. Unfortunately, for a lot of Americans, the dream of owning a home often seems like an impossibility. When they were given the opportunity to buy, they jumped on it. Sure, they are definitely to blame, but so are the circumstances in which they were allowed to buy–and those circumstances were created by the banks and lenders. I’m not condoning irresponsible borrowing–only pointing out irresponsible lending. Not everyone is educated when it comes to the consequences of borrowing–and it isn’t always that easy to see when you’re being told you can walk into your dream home for a few bucks–

  44. Josh has it right. Let Darwinism run it’s course and weed out the defective genes that cause people to do things that they shouldn’t. We’ve dug ourselves into a nice hole by letting big brother get bigger and bigger and now big brother wants us to pay money to help out defective little brother.

  45. Independent George:

    Very well stated! Your perception on the situation rocks!!

  46. JimmyDaGeek says:

    “…admits that she didn’t clearly understand the loan terms before she closed on the house and says her mortgage broker didn’t explain them. She had misgivings but, ‘I was afraid of losing the down payment,’ she said.”

    Uh…. what kind of desperate @#$% idiot puts a down payment on a home they don’t know if they can afford? Apparently many, many people were spooked by the soaring house prices and, literally, went for broke, afraid they couldn’t afford a house in the future.

    I have no sympathy for this person as she did not bring someone along who could help her understand what she was doing and was too stupid to ask questions about the most expensive purchase of her life.

    When I bought my first house, I spent 2 hours reading and understanding my contract.

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