Thursday, August 16, 2007

Who's to blame?

I read an article about one family's experience with a sub-prime loan today that had me questioning if the writer really thought I would feel sorry for the family.

The further I read the more bewildered and frustrated I became. I kept wondering if these people really understand how irresponsible they sound. Then I wondered if this is what mainstream Americans are like. This is a frightening thought!

For those that don't want to bother with the article I'll sum it up... This family took out a mortgage on a $567,000 house with little or no down payment. The payments were interest only for 2 years at which time the payment would go up by almost $1000. They knew when the 2 years were up that they wouldn't be able to afford the payments but planned on refinancing using the equity gained as the price of the house climbed. It's now been almost 2 years, the house isn't worth enough to refinance and they don't know what they are going to do.

The family states that they didn't know about the large prepayment penalty and that they believed the mortgage broker who told them they would be able to refinance after 2 years. They aren't first time home buyers so they can't feign ignorance about how mortgages work. Having bought and sold a couple of homes I know that you have to sign a document on every aspect of your loan, this means they didn't bother to at least scan what they were signing.

I'm just left shaking my head. With their combined income of $90,000 why didn't they buy a less expensive house? Or couldn't they have saved money during the 2 years they were renting? There is no way their rent payment was as much as their $3200 mortgage payment! Now they are going to have to cut back on eating out (only 1-2 a month instead of weekly) and discontinue piano lessons for their teen-age daughter. I'm still sitting here trying to figure out why they are going out at all if they are having such a difficult time.

Ultimately they can only blame themselves for taking out a mortgage they knew they couldn't pay. It's too bad they don't seem to see that it isn't any one's fault but their own. It's difficult to feel sorry for either this family or the mortgage lender who lent them money knowing they wouldn't be able to afford the payments after 2 years.


elephantschild said...

Some things that struck me about the family profiled:
1. It didn't dawn on them to get out when their property taxes doubled.
2. They have car loans at $700 a month. Duh. Why on earth would you get into multiple car loans when you know your mortgage is due to reset to higher rate?
3. They think they're "sacrificing" because they're giving up a Lake Tahoe vacation and cutting back to eating out 1-2x per month.

It's called being upside down, and now they're stuck. Boo-hoo.

Kim said...

I wasn't surprised about the property taxes, in CA they can only reassess your property value when a property is sold, transferred or extensively remodeled. Everyone's taxes go up when you buy a house with the understanding that they will stay around that amount for as long as you own the house. On our little house the taxes went from $500 to $1200. It's a good system because if you stay somewhere long-term and your property value doubles there isn't much of a change in your taxes.