There is one class of person who I truly feel sorry for regarding the subprime crisis: Those who got a mortgage they could afford, and then lost their job. But my sympathy meter is almost at zero for people like this:
She says in 2006 she and her husband put a total of $50,000 down — their life savings — on a house they purchased for a little more than $500,000. About 3,400 square feet, it has five bedrooms and three bathrooms.
"They approved us for the loan, but my husband only made $39,000 a year as a supervisor at Pulte Homes," she says. "They told us we would have a $4,500-a-month house payment, and we said we couldn't afford that. But the loan processor said to sign, that we could refinance in six months to a much lower payment … that the interest rate of 10.75 percent would go down."
However, a chance at refinancing did not come for several months, Rosie Adaoag says, and the payment only lowered to $3,800 a month.
"We took money from my husband's 401(k) and borrowed from many people," she says. "But we finally couldn't make any more payments last year. That's why we got foreclosed on."
Rosie Adaoag says she and her husband repeatedly stressed their concern to the mortgage lender that they couldn't afford the house before they bought it, but were told that, through creative financing, "it would all work out."
"They weren't honest with us. We shouldn't have trusted them."
Source: ReviewJournal.com – News – Henderson officer sees families grieve over evictions
Let’s do some simple math:
If you make $39,000 a year, you gross $3,250 a month. That means that you can’t afford a $4,500 a month mortgage. PERIOD. If someone is telling you otherwise, they’re either an idiot or a liar. And if the person who is telling you otherwise is going to make a bundle by convincing you to take the mortgage, that person is a damned liar.
I generally don’t feel sorry for greedy people, stupid people, or stupid greedy people. People who get mortgages with monthly payments that are $1,200 a month more than they gross fit into one of those groups.
They are of course suing the lender to get their money back:
In the weeks since the Adaoag family was evicted, the family's self-filed lawsuit asking that the eviction be stopped because of unfair lending practices was denied.
"I'm sure another lawsuit will be successful," Rosie Adaoag said in a recent interview. "We have to get our money back. We just have to."
They wouldn’t want me on the jury. There’s a principle in the law that says you can’t sue someone for fraud if the fraudulent statement is so outrageous no reasonable person would believe it. Hence, if I buy a 2009 Rolls Royce from a guy who claims it was William Shakespeare’s personal car, I can’t sue him when I find out that it wasn’t. For similar grounds, I wouldn’t allow a person to recover because they believed that “creative financing” would allow a person to pay a $54,000-per-year mortgage when they only make $39k.
But that’s not to say the lender’s are blameless. Oh no. If I can figure out that a guy earning $3,250 a month can’t pay a $4,500 a month mortgage, so could the crooks at their mortgage lender. The system went horribly awry if ability to repay wasn’t factored in at all in whether to approve a mortgage. I suspect there’s an easy fix to make sure this never happens again: Don’t allow lenders to sell their mortgages.
That simple cure would ensure that lenders don’t make mortgages they don’t feel comfortable with. Sure, it would probably make it much more difficult for many people to buy homes, but every American citizen does not have a God given right to homeownership. It’s not written into the Bill of Rights that “no person shall be denied a mortgage based upon inability to pay.” Homeownership is not a right. It’s something that you have to earn. You don’t get a house just by showing up.
What makes matters worse is that the people in this news story likely could have afforded a $175k mortgage without a problem. I suspect their greed is what drove them to buy a $500k mansion instead of a $175k house. People – don’t bet the farm if you can’t afford to lose the farm.
Now of course my tax dollars are going to bailout people who got mortgages they knew they couldn’t afford, the banks who made mortgages to people the banks knew couldn’t afford them, and the insurance companies who insured mortgages.
What’s next? A bailout for gambling addicts?
