My Thoughts On This Whole Mortgage Crisis And Why I Don’t Feel That Bad.
Here is the thing – I do not own a house. I do not have a mortgage. Why? I cannot afford one here where I live. My rent is $1,949 a month, and a house equivalent in size to my apartment would be about $1 million dollars. This would mean I would have to carry a mortgage of about $5,400 a month, give or take a few bucks. Who in their right mind would give me a loan that big on our salaries?
The bank, that’s who.
However, I am not going to blame the banks for this crisis like so many people are doing. I am going to blame the people who took out the mortgages in the first place that they could not afford. That’s not fair, you say? I say it is, and here is why – every single person is responsible for their own actions. If a person decides to use drugs, it’s their fault if they get hooked. If a person decides to drag race in their car, it’s their fault if they get in an accident. If a person decides to spend themselves into credit card debt, it’s their fault. So why should this be any different? Buying a home is the single biggest purchase anyone will ever make in life, and it should not be taken lightly. Did you really think a $500,000 mortgage was a good idea on your $11 an hour job? Just because the friendly banker guy said it was does not make it so…the borrower is solely responsible for signing the paperwork and no one can make them do it. It is up to the individual to get a second opinion if they think someone is trying to pull something over on them.
Death Pledge. Did you know the the word Mortgage is actually a combination of two French words: the word Mort which means “death”, and the word Gage which means “pledge”? Me neither, till just the other day.
I know I will probably get a lot of flack for my opinion on this, but that’s how I see it. I would not buy a car without doing my homework, I would not invest in a company without doing my homework, and I surely would not buy a house without knowing what I was getting myself into. And no banker could ever convince me that I could afford a million dollar home, even if he promised to keep the payments at $1500 a month for the first 5 years of interest only payments. I know that come 5 years, I will probably not be making enough to pay the $5,400 a month for the mortgage – so I would not take the offer. Banks can be evil, I understand that…and that is why borrowers need to know what they are doing. But as evil as they are, they cannot force a mortgage on anyone.
And just to show you that I am not heartless, I feel for people who lose their homes due to unemployment for a long time (like someone I know who is out of work due to the writer’s strike here in L.A.), or someone who has some kind of medical issue that hampers their ability to pay for their house, or any of the other legitimate reasons why people get foreclosed on. But losing a house due to taking out too much of a mortgage is a different story. The American Dream has turned into just that – A Dream. People think they deserve more than they can afford, and now the government is swooping in to save them from their self-created problem. I did the responsible thing and did not buy a house – I don’t think the government is going to give me a cookie. Sure, the economy might collapse if they don’t save some of these homes, but maybe that is what we need to make people plan a little bit better the next time around. But the economic problems this country is facing is not just due to the mortgage crisis – we overspend, we misuse funds, we think we deserve whatever we want at whatever price it may come at. This goes for the government all the way down to your next door neighbor. We need some fiscal responsibility here, not more handouts. Recession here we come, and I don’t think it is necessarily a bad thing.
Here is the complete list of participants in the series “Home Finance: Mortgages and the Real Cost of Home Ownership”:
- Why Renting is Right for Us Right Now @ Mrs. Micah
- Frugal Hacks for Your Home @ Being Frugal
- Why We Have an Adjustable Rate Mortgage @ My Dollar Plan
- Debt-To-Income Ratio and Why It Matters @ Moolanomy
- Catch a Falling Knife – Buying the Housing Slump @ Millionaire Money Habits
- Can we afford the Payments @ PaidTwice
- Pay off Credits Cards with a HELOC @ Debt Free Revolution
- So You Want to Buy a Fixer Upper @ Remodeling This Life
- Frugal Hacks For Your Home @ Being Frugal
- American Subprime Crisis—Should We Care @ Plonkee Money
- Mortgage escrow accounts Explained @ Cash Money Life
- Don’t Use Your House to Pay for Your Life @ Rocket Finance
- Why the Sub-Prime Crises has not Affected Canada Yet @ Four Pillars
- That Damned Rent vs. Buy Question @ Blueprint for Financial Prosperity
- Predatory Mortgage Lending and the Subprime Market @ Chance Favors
- After Foreclosure Guide to Housing: It Ain’t Easy @ DebtKid
- How to Avoid Foreclosure – The Definitive Guide @ Credit Withdrawal
You might also like:
- Getting Federal Help For Your Mortgage Problems.
- Reader Question: Should I Get A 15 Or 30 Year Mortgage?
- California To Delay Tax Refunds Due To Budget Crunch.
- Own A Home? You’re On Welfare.
- What Is Your Debt Philosophy?
Related Websites:
- 8 Tips on Saving Money Without Scrimping
- Do You Need a Mortgage Broker?
- How to Save on Mortgage Costs, Including Refinances.
[...] My Thoughts On This Whole Mortgage Crisis And Why I Don’t Feel That Bad @ My Two Dollars [...]
Randy – so glad you have the time to go around leaving such lovely comments about authors and their readers, thanks so much!
Oh, and it does mean death pledge. But thanks for sharing your thoughts.
[...] Two Dollars posted My Thoughts On This Whole Mortgage Crisis And Why I Don’t Feel That Bad. This excellent post explains why David is a bit annoyed that people who overbought are getting [...]
[...] My Thoughts On This Whole Mortgage Crisis And Why I Don’t Feel That Bad @ My Two Dollars [...]
[...] My Thoughts On This Whole Mortgage Crisis And Why I Don’t Feel That Bad @ My Two Dollars [...]
[...] My Thoughts On This Whole Mortgage Crisis And Why I Don’t Feel That Bad @ My Two Dollars [...]
[...] My Thoughts On This Whole Mortgage Crisis And Why I Don’t Feel That Bad @ My Two Dollars I am not going to blame the banks for this crisis like so many people are doing. I am going to blame the people who took out the mortgages in the first place that they could not afford. [...]
Wow, that’s a lot of comments – obviously a topic that gets people fired up. I have no sympathy for people who wanted more house than they could afford – the keep-up-with-the-jonses folks who also drive a new SUV and are watching the game today on a big screen tv. And I have no desire to bail them out. But I am sympathetic towards the poor and uneducated (in some cases, even mentally disabled) people who were victims of extremely unethical mortgage lenders at the height of the housing boom a few years ago. The whole mortgage industry needs far more legal oversight – in some states there’s virtually no regulation at all. A county in the northern part of my state has crazy high foreclosure rates right now, due in large part to a group of appraisers who were in cahoots with mortgage brokers to inflate home values – and thus the size of the loans – and now people are upside down. It’s sad, and I really feel for the people who were taken advantage of. A large number of them are hispanic immigrants, just getting started in this country, which makes it even sadder.
BUT – for the people who could have afforded a 1200 sq foot house and decided that they wanted/needed/deserved a 3000 sq foot house instead, I don’t feel sorry for you if your ARM has now reset to a point that you can’t pay your mortgage.
Lots, Frugal Babe! And thanks for adding yours in, it is always nice to read people’s feelings about this issue!
This is a multi-faceted problem. There were speculators (home flippers), greedy individuals buying more home than they could afford, and predatory lenders that convinced many to re-finance their primary residence with subprime loans.
Some states are taking action. Last Fall, Texas passed a law that makes Liar Loans a felony. The law targets the individual home buyer that fudges his finances on an application to fool the lenders into giving him a loan.
The lenders were encouraging this fraud as well, but they are not being held accountable. More at the link:
http://thefinancialengineer.blogspot.com/2008/01/its-now-felony-to-lie-on-loan.html
[...] My Two Dollars takes a critical look at the “mortgage crisis” in My Thoughts on the Mortgage Crisis and Why I Don’t Feel That Bad. [...]
[...] Two Dollars features a piece on the mortgage crisis, and why he doesn’t feel all that bad about it. While I don’t agree with all of his points, I definitely understand living somewhere [...]
[...] many bloggers have avoided the topic, only offering a few quick thoughts that aren’t necessarily [...]
Let me tell you my story. 3 years ago, my husband and I decided to refinance our home. The home was appraised by the bank and it was worth more than we thought, so we used the equity to pay off a credit card, a student loan and a car loan. We never doubted the appraiser. Why would the bank lend us more than our house was worth? A year later when we had to relocate and were surprised to find that we owed more than the house was worth. Turns out the banks appraisal was off by about 40,000! The same bank refused to allow us to make a short sale. We had to move. There was no choice but to continue to pay the mortgage on an empty house and pay rent at the new location. After a year and a half every penny of our savings from 10 years of marriage was drained. We still owed more than the house was worth, and they still wouldn’t allow us a short sale. We had to surrender it to the bank. The point is, had we not put those debts into our mortgage based on the bank’s deceitful appraisal, we would have been able to sell our house, and continue to pay our other debts after relocating.
It certainly wouldn’t be tolerated if a doctor made money by selling people treatments that weren’t right for them. Why is it OK to give people loans that aren’t right for them? THE BANK LIED TO ME. If my mechanic lied about what needed repaired on my car I could sue him! Shouldn’t people be able to trust a lender just like any other professional? I can trust my beautician and my pharmacist. If I had my hair colored and all my hair fell out, was that MY lack or responsibility?
The bank took a risk by lending me more than the collateral was worth. The risk didn’t pay off. They are responsible for their own loss.
Just another perspective
Oh, and by the way, we are white and have college educations.
That does suck Jen, but I would never advise anyone taking home equity to pay off debt, when the homeowner is not 110% sure that the house was appraised correctly. I even made my mom get hers appraised again by an independent party before she took their money.
[...] Two Dollars explains why he doesn’t feel bad for those who over-extended themselves and are struggling with their mortgage. I am not always in total agreement with 2 buck’s [...]
In a lot of cases, these aren’t people buying more house than they can afford. These are people being tricked into refinancing into sub-prime ARMs, i.e.(quote from aforementioned article)
Are you serious ? Another example of the white man keeping the brother down? Dear Lord when does this load of bull end? No one “tricked” anyone. You can cloak these poor decsions in racism or in chocolate, either way your wrong.
People; white, black, purple or yellow have always lived beyond thier means. This is not a phenomena of ethnicity.
Never, ever use a bank appraiser. Banks will accept an appraisal by licensed, independant appraisers. Do your homework before you have your house appraised. Don’t accept an appraisal by the bank. Find another bank if they insist you use their appraiser. It’s your own fault if you buy a house appraised by the bank at $500,000 and come to find out it’s only worth $400,000.
Again, it all comes down to doing your homework and taking responsibility for your actions/mistakes.
The truth hurts! It used to be that people paid cash for things, hence they bought what they could afford. They would save and scrimp. After all that they really knew how badly they wanted something, because it came with sacrifice. Today, it’s I deserve it! This false since of entitlement is now as American as apple pie. We buy homes that we can’t afford, cars that we can’t afford, and the list goes on and on. After it’s all said and done we expect the government to save us from our own stupidity, and greed. However, we don’t what them telling us how to live our lives. Wake-up America!
I neglected to mention in my earlier posting that I’m a black female who owns her own home, and bought my home 4 years ago, for considerably less than what the bank said I qualified for.
I am with you christel, we all need to wake up. Thanks for the comment!
I can see your point and I appreciate it but I can’t help feeling that a lot of people facing foreclosure now were somehow duped into the mortgages. I think it was a herd mentality – if Bob next door can do it why can’t I? The point is people just thought that the housing boom would last forever and that house prices only ever went up.
Christel, what does you being a Black Female have anything to do with how much you pay for a mortgage?
Though, I applaud you for doing the right thing-taking out a mortgage for less than you are qualified for.
[...] there are people doing something about this ridiculous mortgage crisis and bailout plan that I have discussed before. From CNN: “We are both working professionals [...]
Your lack of sympathy is hard to swallow. You say it’s the “too many people who buy too much” who are at fault for this crisis. But you dismiss the lenders/collectors role in this. Banks love loaning money to people who cannot pay them back. That’s how they make the bulk of their money and they use everything including bald faced lies to get people to sign papers. Why do you think it’s OK for them to be so aggressive to someone who may not be as savvy?
It’s great that you don’t own real estate and aren’t suffering because of it, but have a heart.
I do have a heart – for people who legitimately are having an issue. However, banks cannot force anyone to sign papers, and unfortunately, most who are having troubles got greedy – and borrowed too much money or took out multiple mortgages/loans against their house. No one should be buying a home if they do not understand how mortgages work, sorry. If you make $35K a year, you cannot afford a $500K house. It’s simple math, really.
Neither myself nor my friends have bought houses in the last couple of years, because we could not afford them in our neighborhoods. I could have easily qualified for way more mortgage then I could have paid for, but I did the responsible thing and waited. Where is my bailout/reward for thinking before signing papers?
“Where is my bailout/reward for thinking before signing papers?” Your reward is you don’t have to file bankruptcy, move, feel so ashamed that you consider suicide as a way out. That’s not enough?
One comment sticks out from one of your cohorts: “As personal finance bloggers we know how people are: ignorant. If it wasn’t this way, there would be no market for any of the stuff we write.”
Wow. This post and this comment are blithe. If you don’t respect your readers, you certainly cannot have a reader in me.
Yet the same writer states: “The solution lies in regulation so that these kinds of irresponsible products aren’t even offered to the public”
I just figured you could provide less of a narrow view by realizing that some people are not as savvy as yourself because they believed what creditors said. Were the Banks/Creditors not greedy too? I agree people should be accountable for their actions–but on both sides.
I agree that there is responsibility/blame on both buyers and banks that lent out too much. But the fact remains that those who didn’t jump into housing will be paying for this. I think this is what David is getting at when he mentions the bailout/reward. There are many of us who did the right thing and didn’t buy a house because we knew we couldn’t afford one yet. So why do we have to pay for people who didn’t do the responsible thing? The bailouts/economic changes help those who made the wrong decision and hurt those who made the right decision. Why does my savings rate have to drop? Why are housing prices being kept higher with economic incentives?
They are people who were genuinely swindled and that’s a horrible thing. The gov’t needs to find a way to make banks responsible in these cases. But for the others their mistake of buying too much shouldn’t come out of my pocket.
Thank you FFB. I am tired of paying for other people’s mistakes with my tax dollars.
[...] [...]
[...] my opinion, the individuals, not the banks, are at fault for creating this so-called crisis. The banks didn’t hold a gun to anyone’s head [...]
You are so correct it’s amazing! You can tie not having a mortgage and not using credit cards into you list of ways to save money!
Its the americans fault. They purchase something that are beyond their means. Very greedy.
So basically what you are saying is that the government bail out of the banks is a good thing, because people cant afford a mortgage that was given to them in the first place? alot of people forget that the banks were making HUGE amounts of money on all of these loans… now, My only question is… What happened to all that money and why should we bail the banks out when they have all of this money in reserve? it doesnt occur to anyone that the housing boom was planned? or that the bail out was planned? how can you possibly blame people for being dumb enough to spend 1,000,000. dollars on a home when the bank is the one telling them that it is worth 1m dollars? (for their own greed) I know this post will probably be deleted… but, I dont care! you have to deal with your own concious!
Nowhere did I say any bailout was good. They are all bad and none of them should be taking place.
[...] What You Can AffordThis is not the amount of mortgage for which you can qualify. More than likely you can qualify for more than you can afford. You need to sit down with your spouse and make a reasonable budget. Live on that budget for a [...]
The way I see it. The mortgage crisis is as plain as the nose on my face:
I’m going to use simple numbers here. Mortgages use to be held by the local banks. If you needed money you could use the equity in your home, but it was only at the price that the bank knew it would be. For instance, in times past, if you purchased a home at $30,000.00 and in 20 years you wanted to borrow some money, you could re-finance your house, because in that 10 years, your principal went down. The reality at that time was that your house was still worth $30,000.00, maybe even $32,000.00, but you had already paid down the principal to $20,000.00 so you could get an equity load to fix things that deteriorated with time. It was a good system.
You want to really know what happened? The mortgages went from the local bank to the stock market. The stock market took the price of a mortgage and because of the way they “predict” prices, they “predicted” that a $100,000 mortgage would be $300,000. That was the price that someone would have paid for it in the course of the 30-year loan. That actual price was real. If you purchased a $100,000 mortgage you would pay back $300,000 in the course of the loan, when you add in the interest.
What the stock market did, was state, this WAS the price of the mortgage, so then you had a mortgage that was now $300,000 instead of $100,000. They had to make it ‘easy’ for people to get mortgages because they KNEW that the average income of the American working family was $35,000.00 a year. They made the interest rates lower so that when people were paying on this $300,000 house, they knew that the actual price people would be paying for this house in a 30-year loan would only be $500,000. But then they started ‘predicting’ houses were worth $500,000, and the cost of the housing went to $500,000. and so on. It was based on ‘prediction’ and NOT what the house was worth when you look at what the average American was making for income. They screwed the American People and should be punished for it. Anyone in the financial institution that NEW this is what they were doing, should be punished.
The question now is what are the homes “REALLY” worth? What should that principal be? I think EVERYONE should re-evaluate their homes, at the ‘real’ worth in the ‘real’ world. But they can’t do it at ‘today’s’ prices, because they were inflated to begin with.
As an example: 3 houses on a street. 2 houses are in foreclosure, because of unemployment or whatever. All houses where purchased at $300,000, when they should have been $150,000. In fact, the reality is that the banks KNOW it is only worth $150,000, so they sell it in foreclosure at that price! Does that mean that the 3rd house on the street is only worth $150,000? YES!!! That is the price the banks are NOW saying the houses are worth. So, should that one house have their property re-evaluated at the ‘real’ price? YES!!!!!!! Everything should go back down to a level it SHOULD HAVE BEEN in the first place. This would never have happened if the “financial institutions” didn’t ‘play’ the mortgages in the stock market. Also, notice that the stock market can’t even figure out what a “Bank” is and a “Financial Institution” is. Those words have been interchanged in the past 10 or 20 years!
That would FIX the mortgage crisis and punish the stock market for playing it in the stock market and punish these “financial institutions” that played this game. Mortgages should go back to the local banks where they should have been in the first place!
[...] have written before (and got a ton of comments) about my thoughts on people who knowingly took on more than they could pay for, and I hope the government has something in place to help only those who made the right decisions [...]