Sunday, March 1, 2009

Housing Rant

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.


Retired Syd said...

Well, Grace, you know I'm with you on this one . . .

Kemkem said...

I feel the same way Grace, yes.. a lot of people were greedy in terms of buying more house than they could afford. I had a friend refinance his house 5 times in like 3 years with the same broker, same appraiser, same bank! Everyone was in on it, we would laugh as he altered his 401k statements, it was so obvious, yet the bank would give him another loan! He urged us to get in on the act, but l couldn't bring myself to do it.. anyhow, he made out like a bandit, sold the house for 745 (purchased for 395) about 3 years later and moved to Vegas. He is now upside down on his house, now worth 240 down from 400, and he complains which makes me laugh. I reminded him "what goes around comes around" and we had a good laugh. He knew what he was doing was wrong, but he figured he might as well join the herd, He's sticking it out he says. The point is for every one of him, there is one of the woman whose story you told. I am curious to see what's going to happen to all of us.

Florence said...

If we are going to talk about greed, let's talk about Madoff and Stanford and the executives at the big banks and AIG. We could buy a home for everyone in American with the dollars gone to those guys. Why aren't we talking individual resposnibility with these robber barons?? (Actually, I can't talk about it because it makes me too upset and angry.)

Grace. said...

"60 minutes" was very interesting last night on the subject of Madoff. Not only should the SEC have been more vigilant, but the "big money" financial institutions did NOT do business with him--it was non-profits and rich but relatively unsophisticated savers who were duped. Really sad all round. And Madoff isn't even in jail!

Sharon said...

Sigh. I can only imagine the meltdown that is still to come. So many to blame here...but I'm afraid the real crooks are long gone...

I hope things turn around soon. Gov't spending doesn't seem to be helping the markets much. Do you think that's a sign that it isn't the right thing to do????

Louise said...

so true Grace! even though all the research shows that the majority of people end up in financial difficulty due to illness, job loss or other 'crisis' events the media love to blame the victim. The lack of accountability and the selfishness of some of the lenders is incredible yet there seems to be no push to make them more accountable, I also think the legislators have a lot to answer for as well.

Mrs. Micah said...

It's true, a lot of it seems to come more from societal pressure combined with lack of education about homebuying or a big change in circumstances.

It seems like a lot of people have bought into the renting = money down a hole / house = investment idea that plagues society...buying into it may mean they're not well enough educated in the nuances, but it's not an idea that's limited to a few people. And for some, that works just fine because they don't lose their jobs, buy at a good time, and for others it sucks.

I think it's more a dumb, greedy cultural thing than the individual buyers themselves.

Carol said...

Back when I lived in the City, the housing boom was just getting started (1996-2000). I remember several people who "bought" houses that I didn't think could ever qualify. I don't know how it all worked, maybe they were better money managers than I thought they were, but even back then, I could tell that some people just weren't doing the same thing(s) I was.

Some of those people are probably the ones who should be blamed for taking on more house than they could afford, but these people also were not the best educated bunch, and were very much in the lower part of the income continuum.

So who's to blame? I don't blame them for wanting a house of their own. I guess, me, being an old-fashioned kind of person, would have expected the bank to say, "Well, we can't count your food stamps as income....and I just can't approve this loan based on the fact that you work two days a week as a janitor." Apparently that part didn't happen for a lot of people. And while it's fun to point the finger at the "stupid person who got a loan and couldn't afford it", when I think about the people I knew, it wasn't really stupidity, it was ignorance. I think a lot of these people, at least in the poor parts of town, had no idea how to buy a house, what they needed to keep the house, and how to manage the meager finances they had. They trusted the "experts" to guide them.

So, I guess after that little ramble, you could say I blame the "experts" much more than the "average joes" who bought the houses.

Also, I always count my blessings as far as our house goes. It's a piece of cr** but it's better than nothing. I/we had several opportunities to refinance and did not. Right now, my house is more than I'm comfortable with (since I'm paying it on my own) but it is "affordable" and we're in no danger of being foreclosed upon. But also, I had no idea about ARMs and no idea that a banker would/could mislead someone like I know they have. So, like the other poster, "There but for the Grace of God go I"....

Living Almost Large said...

There is a lot of societal pressure to buy a home. And it's not just the consumers. It's the lenders as well. They were lending when they shouldn't have been lending.

My BIL was approved for $300k mortgage on a $20k income??? Um, how would he afford that? Well they did. But he asked us and we told him he couldn't afford it.