I don't know about you, but I am getting tired of the smug, "blame the stupid/crooked/greedy consumer" attitude floating around too many financial blogs. Therefore I was glad to read Syd's recent post on her blog, Retirement: A Fulltime Job. I particularly like Syd's candid admission that her housing success was more a matter of good luck and great timing than any special financial gifts that she possessed.
I don't excuse the outright liars and cons out there, but running a mortgage scam takes more than one crook--it takes greedy banks that don't check out the information they are given; it takes mortgage brokers willing to make up jobs, income and assets they know don't exist; and it takes a buyer willing to commit fraud to get the house, the money or both.
So let's realize that the folks running cons will always be with us. Let's understand that the only way we can control fraud is to strengthen the controls, increase the number of investigators and provide stronger sanctions.
But that still leaves the "stupid" homebuyers or the "greedy" mortgage-holders.
Just how culpable are they?
In general, I work with people mired in poverty. Lately, many of my clients are new to the ranks of the poverty-stricken. Unlike my more usual clientele, these folks come with real property or have recently walked away from real property.
So far, I've not found greed to be a motivation. Stupidity? More like ignorance. More like feeling middle-class pressure to be a homeowner. And much, much more like being one job or a spouse away from financial disaster.
Consider one woman I deal with.
She and her husband both had full-time jobs. Three years ago, they bought a home in an up and coming neighborhood for a reasonable price with monthly payments that were just under 25% of their combined incomes. They and their two teenagers lived a solid, if not expansive, middle-class life.
Then the mother was diagnosed with cancer.
And then the father turned out not to have paid attention to the "in sickness and in health" part of his marital vows. He bailed out. He quit his job and he left the state. Needless to say, he has not contributed to the mortgage payments.
My client and her children continue to live in the home but it is in foreclosure and it is doubtful that any of the proposed governmental programs will help her. She is upside down in terms of what is owed on the mortgage compared to her existing equity.
Greed? I don't think so.
Stupidity? Well, fifteen years ago, the deadbeat dad probably looked better than he does now, but maybe the marriage was stupid. Buying the house? At the time, it seemed like a great plan, with a good buy, the ability to make the payments with relative ease, and an expectation that if the day came when they couldn't make the payment, they could always sell and live for awhile on the equity.
How about plain bad luck? How about horrible timing?
I'm with Syd on this one.