I feel like got three distinct people or personalities living within me.
Not like in a Sybil sort of way, but well, actually yeah, sort of like that minus the whole bad mental illness part.
I just don't really know what I'm doing, and I'm trying to reconcile who I am with the circumstances that I find myself in.
I haven't explained this very well at all, but it's all I've got right now.
Scott, over at Sardonic Bomb, poses this question about the mortgage bailout situation:
Were the people who GOT the mortgage acting irresponsibly, or were the institutions that loaned them the money giving them misleading information?
Because I didn't want to clog up his comment section, what follows is my answer to his question...
I think that people who got the mortgages were acting irresponsibly; I also think they were acting naively, especially the first-time home buyers (who may not have even realized they were acting irresponsibly). As for the institutions giving misleading information, I can’t answer that. I’m sure some did, but I’m also sure that many did not. It would be hard to prove what mortgage originators told or didn’t tell their prospective clients.
I worked in a bank from 2004-2007. This was arguably a pretty prosperous time, and definitely in the midst of the housing boom. We had a mortgage originator who worked at our office, so I can only provide evidence from what I saw and heard while she was there.
There were two types of loans that were very popular back then, they were the 3/1 ARM and the 5/1 ARM. For those who don’t know, these are mortgages that have either a 3 or 5 year fixed interest rate, after that time the rate adjusts to the current prime rates plus whatever points may have been included in the contract (if I remember correctly). For example, a bank could offer a 3/1 ARM fixed at 5% interest. For 3 years, your mortgage would only have 5% interest, with a monthly payment of only $500. Then, after those 3 years are up, all of a sudden your interest rate adjusts to the current prime rate of 9%, now your monthly payment balloons to $900! This is where people are getting into trouble and falling behind on their payments. See, when they first got their loan 3 or 5 years ago, it was assumed that within that time limit, they’d easily be able to re-finance their home, thus never having to incur the adjustable rate on their mortgage. Unfortunately, there are so many reasons why someone might not have been able to re-fi their loan.
Now, although the math is admittedly bad in the example above, I’m going to use it to illustrate something I saw over and over again at the bank I worked at.
We had one couple come in to get qualified for a loan to purchase their first home and obviously had stars in their eyes. According to the ratios that the bank used to determine loan amounts, they qualified for $200,000. Could they realistically afford that? No probably not, more like $150,000. With an ARM loan though, those first few year’s payments would still be reachable with a loan for $200,000. The mortgage originator would explain over and over again that after the 3 or 5 years, their payments would skyrocket and they wouldn’t be able to afford it anymore. Unfortunately, the couple wouldn’t listen, they would always point out that surely they’d be able to refinance it before it skyrocketed. You see, this couple, like many others, wanted to hear that bigger loan amount because it meant that they could buy something bigger and better, something that would allow them to keep up with the Joneses. Are they irresponsible for not heeding the mortgage originator’s advice? Perhaps a little, but I’d also say they are naÃŊve and didn’t do their homework (making a budget, deciding what they could really afford, etc.) before deciding to buy a house.
Now, a few months ago, I went in to get qualified for a home loan. The bank said I qualified for a loan of $100,000. Could I afford that? Hell no! At the very high end I could stretch to afford a loan of $85,000; more comfortably, I could afford something around $75,000. (Not much, I know, but hopefully in this housing market, I may just get lucky!) Their needs to be a certain amount of personal responsibility when dealing with your money. Sure, in theory I could afford the full $100,000, but I also know that on top of the loan amount, I’ll have to pay for taxes, heat, water, repairs, etc., and those costs also need to be taken into account when you buy a house. People’s inclination is to want to believe they could realistically afford that higher number; hell, it even made me stop and dream for a moment. Most people want the American Dream of owning a home, by believing in that higher number, we can own a bigger piece of the American Dream! Unfortunately, it would be irresponsible and naÃŊve of me to think that my circumstances (financially-speaking) are going to change overnight, or even much in the next few years.
What do you think?
Live all you can; it's a mistake not to. It doesn't so much matter what you do in particular so long as you have your life. If you haven't had that what have you had?
Reading Lolita in Tehran, by Azar Nafisi
This couple of sentences has stuck with me since I read that book a couple months ago. I thought it deserved to be posted here.
