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Going Under In A Lexus
The mortgage crisis is, again, a crisis of responsibility -- both on the part of the lenders, who gave loans to people who weren't likely to be able to pay, and, of course, on the part of the borrowers. Here's a borrower lady with some messed-up priorities -- from a Wall Street Journal story, "Citigroup Feels Heat To Modify Mortgages," by Laurie P. Cohen:

In Granada Hills, Calif., Natalie Brandon is fighting to keep the three-bedroom ranch house she bought in 1985 for $105,000. Mrs. Brandon, 51, does medical billing for doctors; her husband is a dispatcher for a local gas utility. Last year, she got a $625,500 mortgage from Argent, now owned by Citigroup. Her 7.99% interest rate isn't set to rise until next June, but she already is behind on payments.

Over the past five years, she has refinanced her home five times, each time taking out cash and paying prepayment penalties. Last year, all she had to do to refinance was state that she and her husband earned a combined $100,000. She says she used the proceeds to pay off $30,000 owed on her white Lexus.

This year, she says, their income fell after she suffered a short-term disability. Mrs. Brandon figures if she sold her home today, she wouldn't get more than $450,000 -- what a nearby home sold for in foreclosure.

She has tried for months to get her loan modified, and missed her June and September payments. Last month, Damien Gutierrez, a Citi Residential home-retention manager, offered to fix her interest rate at 6% for 40 years, she says. One week later, she says, he said he was authorized only to offer her a five-year fixed rate. Earlier this month, Citigroup offered her a six-month trial at 6%, saying it would extend the modification to three years if she keeps up with her payments, she says. Mr. Gutierrez didn't return calls seeking comment.

Here are two letters about the story, aptly billed on the WSJ's op-ed page under the header, "Who Is to Be Left Holding the Empty Bag?":

If I understand correctly, mortgage lenders, urged on by non-profits such as Acorn Housing Corp., made loans to sub-prime borrowers who had inadequate income to meet their mortgage payments, either from the outset or after the expiration of low initial rates ("Citigroup Feels Heat to Modify Mortgages," page one, Nov. 26). These borrowers were really only qualified to have less pretentious homes or to rent rather own. Now, after getting the loans and living in homes they weren't qualified to own in the first place, they and the non-profits who encouraged them to do so, assert that the mortgage owners or mortgage servicers, such as Citigroup, should accept a loss and enable these borrowers to live in homes that they cannot afford. "You loaned me too much money and put me into too good a house; therefore you should subsidize me so that I can continue living over my head."

As a shareholder of Citigroup, I am supposed to take the fall? The logic and equity of this escape me.

Ebert Weidner
Chagrin Falls, Ohio

The efforts of Acorn amount to a massive redistribution of wealth from those who make sound economic decisions to those who don't. It's difficult to have sympathy for Natalie Brandon, who bought her home in 1985 for $105,000 and has managed to borrow her way up to $625,000. Imagine, instead, if she would have kept her initial 1985 mortgage. Her payments would be on the order of a few hundred dollars and her house would be nearly paid off. However, this so-called victim has managed to increase her mortgage debt by a factor of six, and she seeks to force the rest of us to pay for her toys. Surely her white Lexus had nothing to do with this largess, as the loan officer must have forced her to buy it.

John F. Sevic
Los Gatos, Calif.

Sure, some people fell on hard times, but I'm mostly reminded of "Leslie," the girl arguing that the Wirkkalas, with their $70,000 in income, their ocean-view, $535,000 home, and their THREE children, and the mother who chooses to home-school them rather than work, are "awesome parents" -- despite their failing to be able to cover their kids' healthcare (with a $450/month family policy). To me, anyway, the essence of being a parent is digging ditches if you have to -- whatever it takes to avoid burdening your kid with "Hey, kid, whatever you do, don't fall of that skateboard -- we don't have health insurance!"

Likewise, somebody should tell the Granada Hills lady that a Lexus is supposed to be a luxury car; meaning it's what you buy with all the extra money you have after you pay your mortgage and all the rest, and put away money for your retirement.

Posted by aalkon at December 3, 2007 11:37 AM


Maybe, not being a homeowner myself, I'm missing something, but what exactly does she want that they haven't offered? They offered her a 40-year fixed, and changed their mind a week later - why'd she wait the week? Then they offered 5-year fixed, then a 6-month trial that could be extended for up to 3 years. What is she holding out for?

Posted by: jenl1625 at December 3, 2007 3:48 AM

And what does her age have to do with it? I'm 50 in a few months and have never owned. I'd love to buy a house and free myself of landlords forever but my credit's bad, partly my fault (stupid decisions when younger and dumber) and partly bad luck. If someone offered me a mortgage before I accepted I'd make damned sure I knew and were prepared for my monthly payments both now and down the road. One that also that has stopped me from even looking into getting one is knowing that I need to have some cash in the bank in case anything needs fixing in addition to down pays, closing fees, etc.

I have come to accept that I'll always be a renter which I don't like as I face retirement because there's no way of knowing how high rents will climb but I am already investigating places I can move to with lower costs of living and accepting that I may not be able to retire as early as I hoped. I am doing a lot of research into places with a lower cost of living that I might like. (I love the internet which allows me to do this fairly easily!) Last week, I worked out just how much I have to have in the bank in order to retire before Social Security kicks in or if it goes kaput (if it does I'm screwed unless they device someway to return what I paid in which will exceed what I need). I put this in a spread sheet which I can easily update and ties into tracking my actual expenditures on necessities. (Also love Excel!)

Frankly, it's hard to feel sorry for her when she could have had the house all but paid for now if she hadn't been greedy. Lexus? Buy a bus pass. No bus service by your house? Buy a Dodge. And what the hell? You have two incomes and you can't make it. Maybe you could if you didn't view a Lexus (or two, no mention of what hubby drives) as a necessity. And why the hell didn't she take the six month offer? Could it be that she counted on the boo-hooing to get her a free ride. I hate that these days, they wring their hands and cry about screwing themselves and as long as they say some corporation took advantage of them, they get a hand-out!? Gimme a break.

Rent. Take the bus. In short, deal.

Posted by: Donna at December 3, 2007 5:04 AM

Repeat after me: Thirty Year Fixed.

If you cannot afford the payments on a mortgage that meets that description, you have no business buying that much house.

I have to say that it's refreshing to see the blame being placed where ti really belongs, though - the race pimps and the banks they cowed into doing something colossally stupid: selling big houses to poor people.

There's a sequence that works - grow up, get educated, rent, get money, buy a house you can afford, pay for it, retire and enjoy.

Now, people think they can skip everything except "get money" and "enjoy".

Posted by: brian at December 3, 2007 5:32 AM

She's got a freakin' Lexus?? What's she bitching about? She could live in her Lexus, fer petesakes! o_O

Posted by: Flynne at December 3, 2007 6:38 AM

When someone grabs more than they deserve, I use the term "looter".

Posted by: doombuggy at December 3, 2007 6:41 AM

I have a theory that the writers of stories must be trying not to create sympathy for the people who have gotten themselves into these problems. It's a lot like Dana point family. The only reason these people can't make their payments is because they acted like fools. Screw 'em. Personally, I find these stories encouraging, and I'm looking forward the housing market being relieved of some of the distortions these mortgages have created. If this keeps up, it might even make sense to buy here in a year or so.

Posted by: justin case at December 3, 2007 6:55 AM

After I got out of the army I worked as a loan officer.

I wasnt very good, apperently people dont like being told thier plans for ttheir money were stupid.

Thatg being said I have thre comments

1. The government encouraged this behavior alon with the industry itself

2. That being said people are still responsiblr for their own actions, and most of the people losing their home deserve it
Seriously what kinda moronthinks its sound finacial planning to pay intrest only on a 500,000 dollar loan with a bollon payment at the end of the term

3. If lenders do indeed allow those in trouble to refinance in order to 'keep' their homes they better offer the same deals to those responsible enough to keep their accounts current. Otherwise they will still wind up out of business from all the lawsuits that will follow

Posted by: lujlp at December 3, 2007 7:11 AM

It reminds me of the time when tech stocks were going wild. I'm no economist, but I could see there was no there there and stayed out of it. It's pretty simple: you don't get something for nothing, and if you can't afford it, don't buy it. I suspect that many people think they can do anything they want because there's always Social Security to bail them out. I could be wrong, but that's my suspicion...same as having access to welfare dollars contributes to ongoing poverty.

Posted by: Amy Alkon at December 3, 2007 7:16 AM

Regarding welfare, no, not for all, but for many, many people.

Posted by: Amy Alkon at December 3, 2007 7:17 AM

I do wonder if anything can be done to soften the economic blow that is going to ensue when millions of people's homes are foreclosed upon. As concerned as I am about people being responsible for their actions, I am more concerned about how screwed I am going to be when I am out of a job because the economy is in the proverbial toilet.

Posted by: Shinobi at December 3, 2007 7:25 AM

I'm concerned, too. If you read me in a paper, and you like my column, please write and let them know. If you don't read me in a paper and you'd like to, please write and ask them to run me.

Posted by: Amy Alkon at December 3, 2007 7:54 AM

I'm a high-end construction supervisor. I started off as a kid lumping lumber. For over a decade and a half, at least, I've been working head shaking houses. Were talking Saddam-like here.

What do people want out of a physical structure? You can buy a house. You can buy a mansion. Or, in this discussion, finance it. But, you cannot buy a home. You make a home. A big, expensive house is not a home.

Posted by: Paul at December 3, 2007 7:57 AM

Shinobi - Anything that the government attempts to do to "soften the blow" will result in my taxes going even higher. If they go up much further, I won't even be able to afford my modest mortgage, and I don't even have a car payment, much less one on a Lexus.

You want an answer? How about taking some cash from the shakedown artist himself, Mr. Jesse Jackson, to cover some of the losses?

Posted by: brian at December 3, 2007 7:59 AM

"The government encouraged this behavior"

lujlp - please explain this one to me. Are you implying that cutting interest rates is a bad thing?

Posted by: snakeman99 at December 3, 2007 8:50 AM

I am suggesting that endorsing loans with no verification is a bad thing

Posted by: lujlp at December 3, 2007 9:00 AM

On February 26 2004, he said, "American consumers might benefit if lenders provide greater mortgage product alternatives to the traditional fixed rate mortgage. To the degree that households are driven by fears of payment shocks but willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."
"Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr Greenspan, whose deregulatory philosophy is well known, Mr Gramlich broached it to him personally rather than take it to the full board.

"He was opposed to it, so I didn't really pursue it", says Mr Gramlich. Still, Mr Greenspan's views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny." (Wall Street Journal)

Posted by: lujlp at December 3, 2007 9:08 AM

When my wife and I bought a house ten years ago, we bought a small townhouse that we could afford with only one income in case something happened(good thing, too, since something did happen). Despite steadily increasing incomes, we resisted temptations to buy bigger houses in more posh areas of town, opting instead to incrementally improve our townhouse with upgrades.

I resent being told my tax dollars should go to bailing out people who bought too much house or spent their equity too quickly because they failed to plan ahead and think "what if...."

I've also worked in the mortgage industry, so I can tell you that the people buying too much house were not the only greedy ones in this train wreck.

Lenders loaned money based upon stated income (no verification) to get more loans in the portfolio. Brokers encouraged applicants to lie (or lied themselves) so they could get a bigger commission. Non-profits (ACORN, etc.) encouraged profligate lunacy in lending so they could over-emphasize their role in getting poor people into housing and get more political influence in local governments (CRA, DAPs, Silent Seconds, etc.).

There is plenty of blame to go around, but the ones being asked to foot the bill in bailing everyone out appears to be the ones who didn't overextend, lie on applications, or phony up a housing crisis...the rest of us.

Posted by: Conan the Grammarian at December 3, 2007 9:26 AM

> I could see there was no there
> there and stayed out

Listen, I don't want to harsh you on a commonsense point that can be good for people. You protected yourself as I wish many friends had but didn't, and that's no small thing when such base human feelings are in play.

But let's try to kick this up just one level of abstraction higher, which is about half-a-level more than I'm ready for anyway.

The truth is that nothing, whether it's a collar for your dog or a tech stock for your portfolio, is worth more, or less, that people will pay for it. As long as the bubble was actually going on, all of those silly companies ( etc.) really were worth what people were paying for them.

I think you're right that the underlying value was sketchy, and the market has validated your skepticism. And seeing some of those investors become so harshly disappointed (especially the technically illiterate people) has been one of the most satisfying things of my life. I rode the market up and down and came out a little bit ahead (not a lot).

But let's not pretend we knew what was going on. In a sophisticated, modern bazaar, you can make money in a falling market as readily as in a growing one. The trick is to always, always see what's really going on.

Truly sophisticated people are always invested, one way or the other. If you'll forgive the presumption, they are neither me or thee.

Posted by: Crid at December 3, 2007 12:13 PM

worth more or less than what people will pay ... etc

I hate when I do that.

Posted by: Crid at December 3, 2007 12:15 PM

This article really hit home. Here we are in the richest country in the world and many folks, who have so much in their lives, don't have health insurance for their own children. And that is with our paychecks supposedly growing. As we get older, our paychecks will dwindle. But the sky high premiums don't alter. So what are we to do? The quality is lowering while the prices are rising. AARP knows this and they have addressed the problem in the form of an informative website: where we can also sign a petition to have our voices heard. I know about this because I am working for AARP on their behalf in this quest for quality health care.

Posted by: Shan at December 3, 2007 1:40 PM

Is Shan a new name for Spam?

AARP is not working for "quality healthcare", they are working for entitlements for old farts who think that after working 30-40 years they should coast until they fall off this orb, and that someone else ought to subsidize it if necessary.

Maybe we ought not be retiring at 62 when we live to 102. Just a thought.

And people that don't have health insurance for their children aren't making the proper life choices. If I see someone driving a car newer than 10 years old complaining that they can't afford something necessary for their kids, well, I have no sympathy. You are expected to sacrifice the trappings of wealth for yourself in order that you may provide the necessities for your offspring. To do anything less is to be a failure as a parent.

Posted by: brian at December 3, 2007 2:06 PM

Here we are in the richest country in the world and many folks, who have so much in their lives, don't have health insurance for their own children.

Here Shan, let me make your work a little easier for you. They don't have health care, yet "have so much in their lives"? Tell them to have a little less in their lives, then they can afford healthcare.

Your kid's health comes before your need to watch American Idol on a giant TV the thickness of a sheet of typing paper.

Posted by: Amy Alkon at December 3, 2007 2:21 PM

PS I'm amazed at how many people buy new crap all the time. I only got a new cell phone because mine was deemed obsolete for Cingular/ATT's upgraded networks. It was five years old at the time, and I got a new one free, no contract. Had it not become obsolete, I would have kept it probably for another three years.

Posted by: Amy Alkon at December 3, 2007 2:23 PM

is fighting to keep the three-bedroom ranch house she bought in 1985 for $105,000. Mrs. Brandon, 51, does medical billing for doctors; her husband is a dispatcher for a local gas utility. Last year, she got a $625,500 mortgage from Argent, now owned by Citigroup. Her 7.99% interest rate isn't set to rise until next June, but she already is behind on payments.

Am I reading this right? A house she bought in 85 for $105 appreciated in a major way and rather than pay off her $105 loan (we don't know the terms, but say a 30 year, she was 20 years into it) she CHOSE to take out a bunch of appreciated equity to buy crap?

And now wants to crybaby she might loose her house?

Posted by: TickleToes at December 3, 2007 2:43 PM

I am appalled that someone from the government didn't step in years ago to stop this woman from continually re-financing her home. If Hillary were president, this would never happen, and she'll "take things from you for your own good," such as the ability to sign or loans you can't afford.

No one ever had any financial problems until Bush became President. It's all his fault.

Posted by: Brian at December 3, 2007 2:47 PM

It used to be that Americans thought of government as something to enable them to maximize their freedom to make choices. Now we seem to think that government is something to protect us from the consequences of our choices.

Posted by: Donald Sensing at December 3, 2007 2:47 PM

> "The government encouraged this behavior"

Govt encourages lots of dumb things. If you're willing to accept the benefits of doing what the govt encourages, you should take the losses when govt is wrong.

Posted by: Andy Freeman at December 3, 2007 3:00 PM

What's the old saying about gambling: Bet with your head, not over it?

When you borrow more money than you can possibly pay back, you are betting against the house (literally, in this case). And you'll never beat those odds.

Unfortunately, the banks and federal government are probably going to have to offer these bad adders some relief or else their bad behavior will have disastrous effects on the economy for all of us.

Posted by: jblog at December 3, 2007 3:06 PM

Thank you for this, I am a regular Wall Street Journal reader and subscriber and I missed it (Rule 605 for why to read blogs--because by so doing you will see stuff you should have already noticed elsewhere).

The hard part about this crisis is what is the profile of the average "borrower." I think it varies considerably. Not all are like this woman.

I also agree that the responsibility needs to be shared, as in this instance the borrower is clearly the main reason things have gone awry. But somehow the industry has to do better too--they have been around a long time and we have never had something quite like this.

See for example this video report where the lender, not the borrower, is the primary culprit:

Posted by: Kendall Harmon at December 3, 2007 3:09 PM

I agree Amy. I got a cellphone in 2001 and am still using it. It cost $50 and today would probably qualify as 'ruggedized' and cost $200. My TV is a 17 year old 19" sears off brand. My Car is a 1999 Honda. I will say that now when I do buy something new I make sure it is high quality because I know that I will have it for many, many years.

Posted by: Dale at December 3, 2007 3:11 PM

I recently moved to Florida with my fiance to teach Middle School. We are a two-income family so far, but on a teacher's salary and an executive assistant - we ain't talking 6 figures. I teach an evening course two times a week and have taken on an extra class during my planning to bring our student's test numbers up. We are planning a wedding, paying student loans, pairing down credit card debt, financing two cars and I am taking two courses for certification for the State and for a Gifted endorsement.

Between the two of us we can save about 1200 a month to sock away and pay for the above.

If we can deny ourselves simple luxuries, scrimp, save, and make wise decisions now, then getting a house and starting a family should be no problem. All it takes is some realistic planning and some extra work. I'm no saint - we sometimes buy good cheese as opposed to kraft singles - but savings are out there. The families and sob stories I am hearing about recently make me sick! When did personal responsibility go out the window? When did consequences for actions leave the scene. I smoked for 16 years until quitting recently - I know that those 16 years will cost me when I get life insurance. That's the price you pay.

I'm sorry that they are in the jam they are - but they dug their own hole. I promise I will fight tooth and nail to make sure that I and other like minded responsible people do not have to pay for it.

>end rant

Posted by: Tim at December 3, 2007 3:11 PM

Well done!

In a country of half a billion you managed to find the most extreme example of financial folly.

Now you can perfectly justify throwing the poor out of their homes for your profit. "Don't you see? The poor are the selfish ones, they deserve to lose their homes! In fact they are criminals for trying to steal my profits from me".

Either that, or they deserve ruination because they are genetically inferior due to their IQ scores, or their inability to parse a predatory loan agreement. Something like that.

Fortunately, the USA will remember she is built on Christian morality (silly things like compassion and mercy, and not stomping on the underdog and treating us all like serfs), and not on the barbaric philosophies of your kind.

Posted by: Kip Watson at December 3, 2007 3:13 PM

The truth is that nothing, whether it's a collar for your dog or a tech stock for your portfolio, is worth more, or less, that people will pay for it. As long as the bubble was actually going on, all of those silly companies ( etc.) really were worth what people were paying for them.

I don't agree with this. Although "what something is worth" and "what people are willing to pay" are drawn from the same picture, the former is the time-average value (a trend line), while the latter is an instantantaneous value (which may lie above or below the trend line). The former tells us what the productive value or equity is in something on the basis that time has proven that value to be stable. The latter creates the former as time progresses, but for brief periods it can fluctuate wildly in response to less-rational impulses.

When the instantaneous value is very high compared to the time-average value, then yes, anybody owning "something" can get that high instantaneous price by selling it right now -- but they should have no expectation of getting more than the time-average price as a correction is likely in the future. In fact, as the correction occurs, the value may be less than the average for a short time. A bubble occurs when people either forget this entirely and start looking at the instantaneous value as the only metric of value (tomorrow never arrives), or else know that a correction must occur eventually, but subscribe to the Greater Fool theory (someone else will arrive before tomorrow).

Posted by: anony-mouse at December 3, 2007 3:15 PM

Don't buy anything yet, Tim, whatever you do. Let this debacle play out. It might not bottom out until 2010, especially if the morons at Treasury and in Congress go through with this stupid bailout, which will just prolong the misery.

Posted by: Cassandra at December 3, 2007 3:21 PM

Growing up, my mom taught me that the only good interest was interest I was getting. My husband and I determined we would pay off the loan on our small two-bedroom home as quickly as possible, and sank every extra penny into paying of that mortgage (10 % interest at the time). Any raise in income that we got went toward upping our payment, not our lifestyle. We payed it off in 11 years.

Property values being what they are, the house is now worth ten times what we payed for it, and is a clear retirement asset. After the payoff, when we could have moved on to a new mortgage at will, rather than choosing to upgrade to a more expensive home, we have taken the money that would be going to the bank were we still in debt, and added a master suite, and a lot of toys - all debt free thanks to all that interest we're NOT paying a creditor every month.

When we started we had one job between the two of us, and it only earned my husband $9 an hour, and yes, we had to tighten our belts a good deal to get by some of the time. There were some very difficult financial periods, but we believed that financial freedom was incredibly important. Still do, now that we've got it. All this to say, barring extraordinary circumstances, if we did it, and didn't play the refinance-your-lifestyle game, so can most other Americans, if they're willing. It's a question of priorities, not victimization.

Posted by: kat at December 3, 2007 3:34 PM

Kip, while I generally disagree with your sentiment (Christian morality means that people should not face the consequences of their greed? I'm really curious where that comes from.), there's a particular point that you have wrong.

Maybe where you live, people aren't greedy fools, or they're just of below-average intelligence.

Where I live, however, educated people whose intelligence qualifies them for white collar jobs, did exactly what this "extreme" example did. A LOT of them. I wish this WAS a one-in-a-million case. And no they DON'T deserve to have the government steal the money from the prudent and modest, and give it to them.

But really, since when have gluttony, greed, sloth, envy, and pride had anything to do with what are called "Christian virtues"?!?

Posted by: Barry at December 3, 2007 3:44 PM

If you have a $625,000 mortgage on a $450,000 house, walk away. Only an idiot pays $625k for something with a fair market value of $450k.

Your credit rating takes a hit, but you can put a dollar value on that hit, and it ain't $175,000.

Posted by: TomHynes at December 3, 2007 3:59 PM

"In a country of half a billion you managed to find the most extreme example of financial folly."....Does this represent the extreme, or the mean ? One can suppose that those whom perpetrate this kind of folly have ,previously, perpetrated similar calamities. Creatures of habit tend to maintain their habits.

"Now you can perfectly justify throwing the poor out of their homes for your profit"...No one has suggested punishing the poor, just that the stupid ,foolish, and greedy shouldn't be rewarded. I've no problem helping those whose fortunes are not advantagious, but, I'm damned tired of supporting the won'ts. Those whom won't do for themselves.

"Either that, or they deserve ruination because they are genetically inferior due to their IQ scores" feel that the poor are stupid or genetically inferior ? Rather presumptuous isn't that ? I don't know that anyone has suggested that the poor are stupid, but, blindly stumbling into any situation without advice or support is foolish. What advice and/or support has been offered by Acorn etal, short of crying for "government help", any aid of a monetary nature ? Advice of a professional sort ?

"Fortunately, the USA will remember she is built on Christian morality (silly things like compassion and mercy".....and personal responsibility, taking care of ones self, standing on ones own two feet, accepting the consequences of ones decisions and choices. Instead of expecting a bailout by those whom have and do choose and live responsibly.

This topic is particularly irksome to me. I recently paid off my mortgage, early after a refi. Paid for with the efforts that I made, no handouts, no special renegotiations, no government bailout. Paid for with my earnings while supporting my family and paying my way. Is it so onerous, so unjust to expect that everyone else do the same ? Is it unfair to believe that those whom borrow and sign contracts, abide by those documents and meet their obligations ? Is that so uncharitable ? I have no problem helping someone over a rough patch,and I do, I have no problem helping those in a tough situation. But, most of those paraded in front of the cameras and in the media to illustrate the "dire situation" in the housing market, or those unable to afford healthcare seem to be victims not of unscrupulous lenders, or greedy insurance companies, but, of incredible stupidity and an unwillingness to take responsibility for themselves, their families, and their choices. These people don't need to be bailed out or aided, they need a good swift kick in the ass !! I am tired of supporting the won'ts !!

Posted by: Edward Lunny at December 3, 2007 4:00 PM

Investors at Citicorp and Countrywide etc. hire a pack of fools to run their business. Consequently, they're going to take a bath. But both institutions will likely survive, if only after Countrywide goes through a receivership. The banks will foreclose and sell the distressed assets at fire sale prices. Many renters, in the market for a cheaper home, will purchase the foreclosed properties, and will qualify due to the reduced prices in a distressed market. The fools who signed up to buy homes they cannot afford will take over the apartments of the new homeowners. The improvident investors and greedy homeowners will have had a learning experience, and probably won't repeat their bad decisions.

I don't recall the Federal mandate, in the Constitution's enumerated powers, allowing the Feds to bail out anybody. They should stay out of it and let the lesson be learned. If the investors choose to allow refinancing, good, but it should be because the terms will mitigate their loss.

Posted by: William Graves at December 3, 2007 4:02 PM


Greedy serfs, selfishly imagining they could own their own home! Don't they know all poor blacks are the property of slumlords?

You're completely right. The authoress finds one very loathsome example, and you all eagerly agree this example must surely representative of a whole class or race, a race/class who is in the process of being financially massacred by the real-estate-banking-industrial-complex.

But it must be their fault, I have an _example_ don'cha know.

Well, that makes you all good friends to every bully or tyrant in history. Bad examples are easy to find and the powerless are easy to persecute. All one needs to do is bring the two together.

Posted by: Kip Watson at December 3, 2007 4:08 PM

Ms. Brandon (the Lexus driving woman in the WSJ story) is probably not a typical example. And the plural of anecdote is NOT data. The WSJ story is clearly trying to highlight a particular moral hazard in light of a possible bailout by using her as an example. That's okay as far as it goes.

However, there are other aspects to this story that also might be important:

(1) Home-ownership is at an all time high. The sub-prime market probably helped with that. An ownership society (where the vast majority own real assets such as stocks and homes) potentially has many advantages such as stability.

(2) Foreclosures happen all the time. Generally, nobody really cares and nobody bails anybody out (other than the fact that sometimes lenders are willing to renegotiate the terms a bit in order to save themselves the cost of foreclosing). There's really no reason to bail anybody out now either.

(3) Financial crises don't necessarily have to impact the economy very much. The houses will remain standing whether or not they are foreclosed and whether or not there is a bailout.

(4) The Fed cutting rates is NOT a bailout - they're maintaining liquidity (for other sectors) like they're supposed to. Eventually, they'll probably have to raise rates in order to compensate for the lowered rates now, but that's okay.

Posted by: Bret at December 3, 2007 4:29 PM

My, my, Kip, how "holier-than-thou" you are! You are so off the mark it isn't even funny. Don'cha know.

Posted by: Flynne at December 3, 2007 4:30 PM

@Amy Alkon

"I do wonder if anything can be done to soften the economic blow that is going to ensue when millions of people's homes are foreclosed upon."

I'm waiting for it, I can't wait for it to happen. There are plenty of people like me with a decent income but no opportunity to buy a house until this over-inflated price bubble breaks.

I didn't expect it to fully happen until the boomers start selling their homes and moving to retirement communities, but this is great news for those of us making $50K per year and are renters.

I live in Portland, OR and watched the speculators and "home equity" morons like this drive home prices out of reach for the average wage earner here. It's high time for those prices with no real backing to come crashing down.

Posted by: jordanlund at December 3, 2007 4:42 PM

Greedy serfs, selfishly imagining they could own their own home! Don't they know all poor blacks are the property of slumlords?

Kip, why are you channeling an idiot? There's a difference between "buying and owning a house" and "buying and owning a house that you cannot afford".

Posted by: Mark A. Flacy at December 3, 2007 4:49 PM

@Kip Watson

Yes, foreclosures happen all the time, but a record percent of mortgages are in default. That's what has everyone freaked.

Since Bush took office we have had a record number of personal bankruptcies set in multiple years, a record number of mortgages in default, a record number of credit cards in default.

I guess it's OK for our government to rack up red ink hand over fist, but try doing it on your own.

Posted by: Jordan Lund at December 3, 2007 4:51 PM

Amen to what jordanlund said. I recently got my first apartment. Even though the criteria was that the rent could amount to no more than 30% of my gross income (that's before taxes) I certainly didn't get an apartment anywhere near that number.

I figured what my net income was per year, divided by 12, and took 30 percent of that number. That is what I can afford, after taxes.

The escalation in housing prices was out-of-control. Even in this area (Chicago burbs), the house I grew up in, when my parents bought it in the 70s, they could afford it on just my dad's income, which was slightly above entry level.

I'm quite a bit above entry level income, and I couldn't afford to buy the house I grew up in because of the inflated housing costs.

Posted by: Tony at December 3, 2007 5:09 PM

Kip - I think you had one too many bowls of 'Idiot Flakes' for breakfast. The vast majority of people who got these sub-prime mortgages are people who should not have been given them in the first place. That they were unwilling or unable to handle that reality is not my problem. It has nothing to do with what color or intellect they possess, simply that they thought that they could violate the rules of economics and win.

Jordan - What happened right around the time that Bush took office? Oh, yeah - the Dot Bomb went off, and all those high-flying 22-year-old millionaires were suddenly broke, and had no way to pay for the million dollar condo, the Ferrari, the hookers, and the cocaine. Hence, bankruptcy.

The realtors seem to have figured that the Dot Bomb was such a hit that they should try it in real estate. The results were just as predictable. I called it three years ago. It seems I got in to the market a few years early, as I was expecting the crash later than it happened. Oh, well. I bought a house I can afford. You won't see me in the foreclosure statistics.

Posted by: brian at December 3, 2007 5:13 PM

The government won't let folks use marijuana to protect them from its evil effects. But it allows them to take out bogus loans that eventually harm us all and drives up housing prices. Idiocy

Posted by: Jeff at December 3, 2007 5:20 PM

Jeff -

In case you missed the train - the government was pressuring the banks to make more loans to certain 'protected' groups, at the urging of special interests like ACORN.

This is what happens when group identity politics runs into reality. Reality wins every time.

If ACORN would focus on improving the creditworthiness of those they claim to represent, instead of demanding that government make businesses do things that violate the laws of economics, then we wouldn't have this problem. But, if they did that, then they'd all be out of jobs, because there wouldn't be any more victims for them to exploit.

Posted by: brian at December 3, 2007 5:26 PM

Maybe I had an advantage growing up poor and hating debt. We refinanced to put an addition on the house, and dropped down to a 15-yr. fixed. That way, we had only one more year of payments when our oldest child went to college.

We still don't have a Lexus. I can't imagine wanting one so badly as to court financial ruin. On the other hand, our kids won't have student loans.

Posted by: Mitch at December 3, 2007 5:34 PM

Kip, I didn't start agreeing today.

I've been watching this unfold for a good number of years, and I haven't changed my opinion.

"Greedy serfs" who refinance their homes to buy dune buggies, boats, campers, luxury cars and jewelry is what I've seen.

Surely, there are some people who just tried to get a home for their families. However, like I said, if you believe that the example is "extreme", you don't live around here. It doesn't matter how strong your emotions are; they don't change the reality I've watched for a good long time.

Posted by: Barry at December 3, 2007 5:49 PM

If you have a $625,000 mortgage on a $450,000 house, walk away. Only an idiot pays $625k for something with a fair market value of $450k.

Your credit rating takes a hit, but you can put a dollar value on that hit, and it ain't $175,000.

She's not going to be able to 'walk away'. Certainly not with the lexus too. Even if her house is foreclosed on, she will be sued for the difference. Yes she could file for bankruptcy, but she's still going to need to spend down some assets. What did she BUY over those 5 years with the 625k?

She could probably negotiate a short sale, but then maybe not.

Posted by: Brian at December 3, 2007 5:58 PM

I'm just wondering where Kip got the idea that the family in the WSJ story was African American. I read the article in the original print version, and I don't recall a picture of her or any description of her ethnic background.

I believe Kip is projecting to a) fit his picture of the "serfs," and b) to fit his picture of the "real-estate-banking-industrial-complex." Kip also probably believes that members of said class dress like the guy on the Monopoly box, with top hat, spats, etc.

Posted by: Percy Dovetonsils at December 3, 2007 6:02 PM

BTW Kip, if you think I'm at all wealthy, think again.

But while some were refinancing houses near me to buy toys they couldn't really afford, and others were using these wacko new loans so they could "afford" a beach house, we bought a modest townhome because we could afford the payments on a 30 year fixed mortgage. Hell, the interest rate was 5.5%. It wasn't going to go any lower, but people still got ARM's.

Our incomes were the same as the rest. We just chose differently, and I'll be good and goddamned if I want to pay the price for their prodigal lifestyles.

That's here in San Diego. Again, it may be different in other places. But if you think that the example above is some extreme case, you're dead wrong.

Posted by: Barry at December 3, 2007 6:09 PM

jordan lund wrote: "Since Bush took office we have had a record number of personal bankruptcies set in multiple years, a record number of mortgages in default, a record number of credit cards in default."

That would be primarily because there are a record number of PEOPLE every year.

In other words, the population of the United States is growing so of course there's more of everything, good and bad, in a typical year.

Posted by: Bret at December 3, 2007 6:11 PM

> The former tells us what the
> productive value or equity is

There is no God-certified price for things. If you think there is, you're going to be very, very disappointed. Value is a product of human judgment, not natural verity.

Posted by: Crid at December 3, 2007 6:17 PM

If you can't keep within a budget, you don't deserve whatever you acquired...what part of that don't you understand?

Posted by: PC at December 3, 2007 6:32 PM

That Lexus Lady re-fied last year and paid 7.99% tells you she was already in trouble. Thirty year fixed rate loans could be had for around 6% if your credit was decent. To pay two percent over that means hers wasn't, and that's nobody's fault but hers. She should never have bought the Lexus, or had the sense to sell it the first month she couldn't pay for the roof over her head.

I drive a seven year old F150 I plan to keep til the wheels fall off and pay an extra $300 each month toward the principal on my mortgage. My big splurge this year was to put a hardwood floor in the den, cost $750.00 for materials, oh, and a bottle of generic pain-killer since my knees aren't what they used to be. I like it enough to be making plans to do the living and dinning rooms after Christmas. If that sounds so financially responsible as to be utterly boring, I bought an iPhone when they came out in June, for no better reason than because I wanted one, but if I lost my job tomorrow I have enough in liquid assets to meet expenses for a year. I blame my father for all this because he was self-employed when I was a kid and taught by example how to manage money. Thanks, Dad.

Posted by: Retread at December 3, 2007 6:34 PM

Greedy serfs, selfishly imagining they could own their own home! Don't they know all poor blacks are the property of slumlords?

Poor blacks? Huh? The story says "In Granada Hills, Calif., Natalie Brandon," it doesn't say, "Natalie Branden, who is a black lady."

I don't own my own home. I live in Southern California, one of the priciest housing markets in the country. Am I somehow a groovier person if, instead of renting, which is within my means, I get a loan with a rate that will skyrocket in a few years, driving me into bankruptcy? Oh yeah, and then, don't forget this is a woman who does "medical billing for doctors." I'm guessing this is a job that doesn't exactly pay six figures.

Actually, just looked it up:

It pays...$20,000-$40,000 a year. And the woman is buying...a Lexus?

Is saying there's something wrong with this some kind of poor-hating ideology...or just an excercise of common sense?

Posted by: Amy Alkon at December 3, 2007 6:57 PM

>>> They offered her a 40-year fixed...What is she holding out for?

Speaking as a mortgage broker that deals with these people all the time, I can answer this question for you:

She is shopping around for another broker or lender that will also toss her a $25,000 cash-out snack so she can get her new plasma television and pay her boat docking fee for another year.

It's just taking awhile to sink in that she's drained the well dry, there are no more free goodies waiting for the poor, put-upon homeowner that was abused by the big bad mortgage broker.

Posted by: John at December 3, 2007 6:57 PM

If she now has a mortgage for 650k, even discounting for early payment penalties, it would mean that she has taken out around 400k since 1985 in cash. What stuff has she bought and what does she have left to show for it?

This is the issue here. Our culture believes in spending money before we earn it. This may be an extreme example, but I see the same thing happening day after day. I own a CPA firm and too many people do just what she did, although not to her extent.

Her parent's generation did not have so many opportunities to waste money as do the baby boomers. My view is that the boomers will go down as the worst financial group in history. The only thing that most boomers have going for them is that eventually their parents will die.
Then they will have what Mom & Dad have saved. The problem is for the next generation, there will be nothing left.

Posted by: bob phipps at December 3, 2007 7:28 PM

It's not that I or the other readers here who are unhappy about the contemplation of bailing out distressed homeowners are heartless bastards who want them to suffer. But as someone living in San Francisco, who's looking at anything in the city limits costing 500k+ (that's for a 1 bed loft place or similar in an up-and-coming area), I'm ready to to see this mess getting sorted out. For that to happen, some folks have to lose their homes. It sucks but it's true. I feel sorry for them, but they can rent - it won't kill them. Meanwhile, a bailout screws over taxpayers or investors (or both) as well as people who want to purchase responsibly.

Posted by: justin case at December 3, 2007 7:58 PM

Own their homes? With 110% LTV, option only ARMS, no income verification, the majority of these folks never owned a sliver of the house they inhabit. Spend your first 15 working years living like a monk (or nun), invest every dollar, drive only used cars, go out to dinner once/quarter, and you will find yourself with a very tidy down payment on a reasonable house.

Posted by: Paul at December 3, 2007 8:54 PM

There is room for special consideration for those who of low income who have been caught in this subprime situation. However, the lady in question certianly could afford to continue living in her home had she elected not to borrow against the equity or, had she wisely invested the monies that she borrowed. Her's is not a case of having been bamboozled by unethical lenders. Her's is a case of greed.

Posted by: Walter Kisner at December 4, 2007 12:10 AM

Exactly, Walter. I've worn out two heavy duty shredders getting rid of new credit card offers, home equity line of credit offers, re-fi offers, etc. I have credit cards, which I keep paid off. My only foray into re-fi was another 30-year fixed, for a lower rate, for only the remaining amount on the mortgage.

These people were looking to get something for nothing, with predictable results.

Posted by: SDN at December 4, 2007 2:38 AM

Oh, and Kipper (what a red herring you are), I defy you to show me a single Bible verse that commands me to be charitable to fools who waste their substance. Remember the parable of the talents? Those who were prudent with the money they oversaw and made more were the ones rewarded.

Posted by: SDN at December 4, 2007 2:41 AM

I used to live in San Jose in an 800-square-foot apartment. When we were in our early 30s, my wife and I decided to have kids, and there was no way we could afford the space we wanted --- unless we took out one of those new wicky-wacky loans. We decided it was too risky and moved to a cheaper area: LA.

In LA, we bought a 50-year-old fixer-upper in a marginal neighborhood on a 3-year ARM. Again, after a year or so we decided it was too risky and refinanced to a 30-year fixed. The refi cost us about ten grand to close.

It now looks like the move and the refi were unnecessary, because Uncle Sam would have bailed us out if we'd defaulted. Lesson: The government will always make others pay for your bad decisions. The next logical target will be credit card companies. So I would recommend getting as many credit cards as you can, and charge all your necessities, like food, doctor bills and tuition to them. That will leave plenty of spending money for the good things in life we all so richly deserve, like a Hummer with a couple of TVs in it. Uncle Sucker will never let those mean old banks go after your assets, when you've been so cruelly forced to charge Junior's braces.

Posted by: Artemus at December 4, 2007 4:57 AM

Remember, you can sleep in your car, but you can't drive your house.

As always, it's the working stiffs who end up paying for the government's largess. Taxpayers should realize that politicians are only interested in holding on to power. FDR learned in the 30's that the more dependent you make the people, the easier it is to hold on to power. Try reforming Social Security and you have to tangle with the AARP and soon to be 80,000,000 retired baby boomers (me included). I won't join the AARP because they opposed Pres. Bush's Social Security reform and are likely to oppose any meaningful reform in the future. So everyone can continue to get their $1,400 per month and "free" healthcare until the our country goes bankrupt. Meaningful reform is too painful (at the voting booth) for any politician to propose. It's easier to continue to give away the pork and get re-elected. If our parents were "The Greatest Generation", then we are the "Worst Generation". We led the way to our nation's decline with our hedonistic ways of the 60's and 70's, protested everything our parents wanted for us (except material things)extended our childhood until we were 30, and took over the universities to teach the useless mantras being force fed to Generation Xers today, i.e. multiculturalism, global warming, and other worthless crap. And if you think it's bad now, wait until they swear in Hillary in January 2009.

Posted by: Tom at December 4, 2007 6:10 AM

I'm a fiscal conservative, and have the silly notion that you don't spend money that you don't have -- as a person or as a country. By the way, neither party is the party of small government. The Republicans just make more gestures in that direction.

Posted by: Amy Alkon at December 4, 2007 6:16 AM

This whole situation reminds me of the people who live in flood prone areas who don't buy flood insurance (N'Orleans, anyone?) and expect the government to bail out their folly after the flood.

Posted by: W_B at December 4, 2007 6:36 AM

We took out a subprime ARM just over two years ago. We had to move for my husband's job, and rents in the area were about the same as house payments. The housing bubble hadn't hit our area yet. We had just gone into credit counseling as part of a long-term plan to get out of debt and improve our credit score to the point where we could afford a house in a few years, so we didn't qualify for a traditional mortgage. But we knew (because it was disclosed to us) that the payment would be going up in 2 years, and so we had a plan. We saved up money for closing costs despite a difficult pregnancy, spotty work for me, and some reversals in my home-based business, and we refinanced into a fixed-rate mortgage. Our home had appreciated so much that we got some cash out to pay off what was left of our credit card debt, and even bought a new used car for my husband to commute to work in (now he has a car with heat!)

The subprime loan was a good decision for us, BUT it only worked because (a) we bought in an area where housing prices were not overinflated, (b) we had an exit strategy. Nobody told us we needed an exit strategy, though; perhaps there would be fewer subprime mortgages if the homeowners had been informed that they needed an exit strategy.

Posted by: Wacky Hermit at December 4, 2007 8:23 AM

JordanLund, Portland is too expensive for you because of the local urban planners. The building and zoning codes there (called "anti-sprawl" rules) make it impossible to build affordable housing for those who are not wealthy.

If you want to be out of an apartment, change the regional government. Your problem is not Washington.

Posted by: Kurmudge at December 4, 2007 1:01 PM

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