There are no victims in the housing bust
April 3rd, 2008 | Budgeting
It seems like I can’t go a day without watching or reading another news story about how an innocent American family has become completely overwhelmed by debt. Each story is the same, a family goes about their daily routine, oblivious to their financial situation, when they get a call from their creditors.
Frankly, I’m getting tired of listening to the same story over and over again, when I already know who these people are victims of. Themselves.
Media abuse
The media loves to use “Joe Sixpack” stories, where everyday people are interviewed on otherwise extraordinary circumstances. The recent housing downturn has provided newspapers and television with an overload of stories about families that are finding themselves put out on the street. So what tipped the media off to the U.S. consumer’s financial problems? And more importantly, what led all these families to financial ruin?
The Real Estate Industry
The U.S. real estate industry (comprised of banks, mortgage brokers, realtors, and everything in between) had a phenomonal five years of growth. Real estate prices across the country were ballooning to record highs, and everyone involved was cheerleading the gains. At first, the housing boom was fairly contained. But like any financial mania, the average consumer eventually gets caught up in the game just as it is winding down. TV shows such as “Flip That House” gave people who could otherwise never afford a home the dream that could could fix and flip a home for enormous profit. After all, everyone was telling those hopeful consumers that they too could afford a home. So what happened?
The fine print
Unfortunately, an overwhelming amount of consumers either neglected, or failed to read the fine print of their mortgage documents. Sure, teaser rates on exotic mortgages were affordable. But nobody stopped to consider what would happen when their rates would reset. The sight of potential wealth can be blinding at times. And so, with reckless abandon, millions of families signed for an unaffordable mortgage, and virtually guaranteed their financial ruin as the housing bubble began to burst.
So who is to blame?
So who do you blame in all this? The bank that approved the loan? The TV show that pumped homeownership? The realtor who sold the house? In the end, the only person to blame is the one who signed the mortgage document. The media can portray these people as victims, but the sad truth is that the vast majority of people who are being foreclosed upon could never afford a home to begin with.
The people you see on TV complaining that their mortgage simply got to be too much are not victims, and should not be portrayed as such. The sad truth is that they could not afford the home they lived in at any price. Exotic mortgages got them into the home, and foreclosing lenders will get them out.
Man, I feel the same way. I’m getting tired of all the people claiming they were victimized when the real problem is that they just couldn’t afford their mortgage.
I think something like 98% or 99% of all mortgages in the US are NOT in foreclosure. Sure, that could change, but we’re not talking about 25% of the houses falling off the market cliff.
I am really, really big on personal responsibility. It really burns me up when it’s “oh boo hoo, I bought 3x more house than I could afford on a 40 year interest only mortgage that I can’t afford to pay now!”
We read every single document when we signed our mortgage. You sign the papers, it’s your responsibility.
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Just to play devil’s advocate: There were a few cases of borrowers being downright lied to by their loan officer. Some populations were targeted due their perceived or actual illiteracy of the whole process. Not a majority or anything near it, but there were those out there. I guess there always are, though.
Greed got the best of everyone, really. It is so important to read and UNDERSTAND what you are signing and following the rule: If it sounds too good to be true….
I hate the whole “bailout” mentality, but it really isn’t in anyone’s best interest to have whole neighborhoods sitting and literally rotting–not the populous, the banks, or America as a whole. This is truly a mess, and since when has the government actually made a mess better, and not worse?
Thank you for not being afraid to publicly say what I’m thinking. I’m not a mean natured person, I’d give you the shirt off my back if you needed it more - but for crying out loud people be responsible for yourself. I really hate how the government is trying to bail everyone out of this problem of their own doing. Is the government bailing people out of credit card debt, no so why help them with this debt at the cost of others.
If you (Joe Public) can’t afford your house, just go ahead and sell it - take the loss and get out of it. After you do that I’d be more than happy to help you out via Food Bank, housing assistance, job placement etc but don’t keep hanging onto a house that you can’t afford.
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Thanks for the comments everyone. I think what gets me so upset about the situation is that my wife and I have been diligently saving for a large downpayment for our first home.
In hindsight, we should have done a 100% interest only loan. Then, when the payments got to be too much, we should have just handed the keys to the house back to the bank. Talks of bailing out homeowners really hurts when you’ve been sitting on the sidelines, saving to do the right thing.
That is what is irritating, watching people get rewarded for their stupidity. We bought our home with a good sized down payment and a fixed rate in march 2004. Everyone, EVERYONE, was telling us to get an adjustable rate. I said “no way!”. Looking back it actually wouldn’t have been bad for us since we are able to refinance but it just didn’t seem like a good idea at the time. I knew rates were low and I wasn’t willing to risk a higher rate for 28 years to save a few bucks at the start.
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The thing is… these people that are losing their homes…. they never should’ve had a home to begin with - so why are they crying? They couldn’t afford it, they weren’t ready… so they never should’ve got the house in the first place. Good post!
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[…] Copper writes about how there are no victims in the housing bust - I couldn’t agree more. I get tired of hearing everyone whine about getting suckered into […]
The Fed is taking on all these bad loans to stop the whole banking system from coming apart at the seams, so sadly there is a victim - those of us who are responsible savers and tax-payers.
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I disagree, but only marginally. I think there are two classes of victim here:
1. Anyone who really was lied to to get their loan. But it’s pretty much the lender’s word against the borrower’s.
2. More seriously, anyone with a landlord who took on one of these stupid mortgages. Renters are renters for a reason; they can’t afford to take on a mortgage or they don’t want to. The people who get evicted because their landlords bail out of bad mortgages didn’t ask for this in any way, shape, or form.
And I think the banks have a certain responsibility to take a good look at their prospective borrowers’ financial data and to not lend to those who are not good lending risks; this is why we have credit bureaus to begin with! But they’re not reaching out and grabbing people off the street and forcing them to take on mortgages, either, so there’s lots of blame to go around.
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[…] from Pinching Copper presents There are no victims in the housing bust, and says, “It seems like I can’t go a day without watching or reading another news story […]
I agree with you!
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Dana makes a good point about renters. And I know this may sound tired, but think about the children. Can you tell me it was their laziness and whatnot which got them evicted?
I don’t think the country should bail out everyone who made a financial mistake. That doesn’t mean that there are no victims. It’s just that the victim isn’t Joe Six pack, it’s his kids. Even if their parents manage to land on their feet, this is a traumatic time for them.
@ Mrs. Micah: I think those children are going to go back to where they lived before their parents lost their home… to a rented house or apartment.
While the media might portray it as such, I highly doubt people will become homeless with a foreclosure. Many rental units don’t check credit histories. While they might not have granite counter tops, they do provide a roof and a locked door.
Seb
That view is actually pretty short sighted and well incorrect. Its late though I’ll be back in the morning…
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OK Im back…
I think those children are going to go back to where they lived before their parents lost their home… to a rented house or apartment.
While the media might portray it as such, I highly doubt people will become homeless with a foreclosure. Many rental units don’t check credit histories. While they might not have granite counter tops, they do provide a roof and a locked door.
I dont know where you live but in the DC, NYC, and Miami and heck the east coast, they are doing credit checks for renters, with more scrutiny than ever before. Landlords are asking for amounts in savings accounts to make sure that renters are able to pay the rent and they come on hard times then they will still be able to fulfill their obligations. I don’t agree with it, but it is a sign of the times.
I used to work with folks who lost everything and continue to do so in a smaller capacity even now. Unless they have family to help them out they lose EVERYTHING.
Your post struck me because just yesterday I helped a young single mom who I dont know but contacted me get emergency rental assistance so that she wouldnt be kicked out on the streets with her young son. I called the local emergency rental assistance rep and set her up with him so she could go in with the needed documents to initiate the grant. She was laid off, severance and savings have run out and had no where to turn.
People are not going back to here they were before, shelters are busting at the seams and landlords are defaulting on their mortgages because renters are going through hard times themselves. How do I know? I have more than a few friends going through this with their tenants and I belong to several local DC metro listservs and can attest to what’s happening based on the messages going back and forth.
No offense but the bubble you live in doesnt dictate what’s happening in the rest of the country.
But I still love your blog
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One more thing…
there are people who were genuinely screwed by their realtor and mortgage brokers. We were almost one of them who got screwed AT THE CLOSING TABLE and we walked away. We went with another program and got 5.3% !
Yes I know there are people who screwed themselves but I still have compassion for them. I do agree with the govt bailout *gasp* because in the end if they do not bail them out and get thingsback on track it affects my property values and dominoes into others areas as we’ve been seeing.
It never ceases to amaze me how WE demonstrate a lack of caring when it comes to the people we deal with everyday. Some of us are a few checks from broke and it could be any combination of bad circumstances. Add to that no real social support and you now have a recipe for disaster. I repeat I am not saying that people shouldn’t be responsible, HOWEVER there are some for whom the perfect storm got hold and they need help getting out.
Don’t mind me, Im all about helping my neighbour get through tough times if I can help. Its not just politics for me.
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Ginger, you bring up a good point. It’s not that I don’t care about the families that are being torn apart by losing their homes. I’m just extremely jaded after hearing story after story in the media about how banks are putting people out on the streets, and that the families are blameless in this situation.
While the situation sucks, nobody was ever forced to sign for a mortgage they could not afford. Sure, games were played at the closing table so realtors and brokers could earn more commission money, but I always read every single word to a contract when my signature is required.
Sadly, a lot of families are learning an expensive life lesson.
[…] Seb at Pinching Copper apparently said aloud what other people have been thinking when he wrote “There are no victims in the housing bust.” […]
Call me cold-hearted, but I hate the bailout idea. Certainly some people just had a run of bad luck ( it happens! ) but that doesn’t mean we need gov’t handouts to everyone in / near foreclosure. You make a bad call, suck it up and do the best you can. It’s called “real life”. It ain’t always easy, and it ain’t always fun.
If we’re going to bailout everyone who might lose their home, then we should bail out everyone who is in danger of having their car repossessed. After all, they have to get to work somehow right? And they deserve that $45,000 Tahoe with leather seats, DVD, four by four, and navimagation. They work hard! Who cares if their income doesn’t justify that $850 monthly payment. It’s the lenders fault anyway.
Personal responsibility, folks. If we could all learn that word, then this world would be a better place.
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We just had a house built in a new development. There are homes in here that were built during the very peak of the “bubble” and a few as the prices dropped a bit, a few are already for sale. I have no idea if those folks got involved with ill-concieved mortgage products to buy their homes for far more than they should have. The average contract sales price is 2-3x the city average, including our place, and a good number of folks are in high earning professions, so you’ve gotta hope they stick around.
We got what we consider a big discount (12% of final contract) when we signed up for this construction last fall, put plenty down and are hoping that the values remain reasonably close to what we bought as more people buy in, who knows though. I, like many other prudent folks, also waited through the big run up so i could get my financial house in order, credit scores in the high-700’s, full legal residency (rather than a visa) and save up something for the downpayment. Could have picked up plenty of equity, even if some had dropped out lately, if i had bought with 0 down a few years ago, but that is hindsight. We picked up a great mortgage rate when they dropped earlier this year and are fixed into those for a the life of the loan. I have spent my time plotting out this financial decision to buy a dream house for myself and my family. I dislike that others also had access to that dream when they couldnt really afford it, but i do fell sorry for them as this has turned into a nightmare based on their miscalculation/projection of how their financial decisions turned out - but it is their responsibility to see it through or work it out! I am not keen on my taxes also being used to bailout big spenders who dont have the clout to back it up!
sure there are victims. The taxpayers that are bailing out the crooked banks. The people who now have to pay higher prices for inflation. No victims my ass.
I totally agree.
Most of the people that are loosing their home, could not of afforted it at any price, and shouldn’t have been allowed to buy it in the first place.
The Lack of Financial Education in America Is a National Liability
The public has been taken advantage of – and their lack of financial education has been exposed by the mortgage crisis. The government can no longer let people make mortgage decisions that put the financial markets at risk. The coming regulations will have to be very heavy in order to be sure a home owner knows what they are doing.
At a high level, the people losing homes they can’t afford is no different than people having the BMWs or Maseratis re-possessed when they don’t make payments.
If you can’t afford something, don’t fricking buy it. You ***holes who pumped up the market to insane levels priced me and my family out of a home in Los Angeles.
Let it crash back to a normal level. That’s where it should have been all along.
I’m sorry some people got hurt, that others got rich off of these **it loans, but it’s done.
Let’s not reward greed, naivety, stupidity and laziness.
[…] Freedman of MSN’s Smart Spending blog linked to a comment I made over at Pinching Copper: There Are No Victims In The Housing Bust. You’ll see that I am really passionate about the topics around the recent sub prime mortgage […]
a lot of people are on the left side of the bell curve when it comes to IQ. but even if they weren’t, expecting them to read 50 pages of tiny-print documents and correctly interpret that information is just plain illogical. i bought a new car from a dealer a few years ago and i can tell you that as a non-lawyer trying to comprehend all of that and extrapolate it to my future is not a simple task in the moment.
the plain truth is that the ones who _are_ sophisticated and _did_ understand these documents, loans, mortgages, constraints…they structured them purposefully knowing that a) anyone could qualify for a loan; and b) a high percentage of them would never pay them back; and c) the chips would fall where they may down the line but they’d cash out long before that with a crapload of money.
which is exactly what has happened.
do i believe in ‘caveat emptor’? yes. do i believe in government watchdogs and regulation? no, not really. but do i believe the fed (which pumped in the easy money), the government (which looked the other way), and the banksters with all the money who structured these loans/CDOs/SIVs/derivatives in the first place are all in bed together with the express purpose of enriching themselves at the expense of the rest of us, particularly the ’suckers’ with sub-100 IQs and speculators who availed themselves of these toxic loans? absolutely.
there are laws against fraud and usury for very good reasons. and this housing/credit bubble is the reason.
YOu people and the person that wrote this artice are so brain washed and clueless to what goes on in the real world. You are nothing but shills for the giant corporations and conglomerates that are driving the working class into poverty while the upper 5% is richer then ever in history.SUCH SHEEP !!!
THese PEOPLE were selling the “Junk Bonds” of the 21st century. They were peddling these homes to the poor and under educated and all you had to have was a job and a heart beat to get in on the “furtune under your feet”.
Who made all the money in this mess? Alot of people are crying foul now but where did the money go? Title Companys made a fortune. Home inspectors mad a fortune. Home builders and Lenders also made a killing for about 5 years. They are crying now and want a bail out but where did the money go that they collected for the last 5 or so years? The home owners don’t have it because they were taken advantage of and are now broke, credit less, in debt and have nothing to show for it. Their nest eggs are gone along with their hope. Alot of these people are broken spiritually as well. They just wanted what everybody told them they had to get in order to survive and now you people want to call them “stupid and Morons”, say they deserve what they get. You should be ashamed. You make me sick. This is probably the most unAmerican thing I have read in 20 years.
GREAT post.
Remember that many subprime borrowers not only went in with NO down payment, but steadily drained every bit of available equity through their HELOCs.
Now, some people (politicians mostly) think I should feel sorry for them because they are “losing their homes”. HUH? Would someone please explain to me how getting an underpriced (teaser rate) McMansion for a few years and then winding up right back at square one qualifies as a tragedy?
Now, just to be clear, I DO have a LOT of compassion for….
…people whose neighborhoods have become blighted and high-crime due to subprime borrowers walking away from their homes….
…responsible mortgage holders who scrimped and saved for a down payment, only to have their hard-won equity wiped away a greed-fueld housing crash….
…people whose jobs depend upon a stable balance of supply and demand in the housing market (construction workers, etc) who are now finding themselves unemployed….
…all the other people who have done their best and are experiencing hard times through no fault of their own….
Where is their bailout? (Note: The tax rebate doesn’t count.)
Johnny, you are my hero and Spot on with your post… Taking advantage of the poor and under educated was the name of the game.
And DAN, sir you are one of the most ignorant people I have ever seen post on a web site. Do you honestly believe these forclosures were because people were trying to buy “maserati”style or size homes? Wake up !! These are common people trying to buy ANY home to live their American Dream that everyone under the sun was telling them was in owning a home…They got taken and will be screwed financially for the next 7 years and maybe the rest of their lives. Yoou need to look around some time and see where that money went before you open your mouth.
[…] There Are No Victims In the Housing Bust from Pinching Copper - read through the comments too - this has turned into quite the controversy. […]
Excellent post. I disagree that it was the “fine print” that tripped up these idiots - I think it was a lack of common sense.
Mike
[…] from Girls Just Wanna Have Funds brought up a great point when discussing my post There are no victims in the housing bust. A lot of families are being put out of their homes because they can no longer afford the mortgages […]
[…] There Are No Victims In the Housing Bust from Pinching Copper - read through the comments too - this has turned into quite the controversy. […]
Working in a bank I see first hand the people that are affected every day. Sometimes it is so hard to face them, but I have to realize that they did sort of get themselves into this situation. You can look at it both ways: people shouldn’t overextend, but banks shouldn’t lend more than they know a customer can handle. On the other hand, people should have an emergency fund in case they lose their jobs so they can afford their mortgage. I think it can go either way.
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Our current situation is all about choices. Yes, consumers made bad coices, taking loans they shouldn’t have, buying too much house, etc… but often they were led astray by people they should have been able to trust.
The best thing we can do now is encourage them to take the best way out for our economy and neighborhoods.
Have you read the 1099 forgiveness act? People who just let the bank take their home are likely to get their 1099 forgiven, while someone who tries to short sale their house may not be! I think it should be the other way around!!!
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Whoa! Looks like you struck a nerve saying people who took out subprime loans were aware of what the score was and should be regarded as informed rather than victimized. I have another category — clueless.
Way back in the dark ages (1982) my then husband and I bought our first home. Looking back I seen now how utterly dumb and clueless we were about how money works. Until that time we lived on a cash basis. When we decided to buy a house, the realtor told us about an 80/20 loan that would get us into a house with no money down. Because my dad was in the tile business and offered to tile most of the house for free as a gift to us we actually walked away with money at closing.
Let’s look at the 80/20 loan. It was for a 15 year escalating note at a set rate of 15.5% interest. Yes, 15.5% (not a typo). The escalating part applied to the amount of principal paid. It adjusted annually by 3%. We were told what a great deal we were getting and, not understanding compound interest and simple interest, we believed it.
We could have easily made a down payment but simply didn’t understand the advantage to doing so. Nor did we see anything wrong with the terms of our loan .., until it adjusted — what a surprise! Yes, it was in our loan papers. Seeing the new amount due in our coupon book made it real.
All in all, we had the loan for three years before we refinanced at 11.5% fixed. In fact, we were so ignorant we didn’t even know we had the option to refinance. (Did I mention we were young and dumb? - mostly dumb). Oh, and did I mention I got laid off 2 days after putting earnest money down on the house and got a new job (paying exactly half my salary) 2 days before we closed? Did I mention we bought at the height of a housing bubble and it took over five years for the house to, again, be worth the purchase price? Did I mention that we were counting on the pay raises we were expecting to be able to afford our home and its escalating note?
What should we have done differently? EVERYRTHING! Were we victims of an unscrupulous realtor, parents who didn’t teach us to understand money basics, an economic bust, or a housing bubble … NO. Did we learn a lesson … several, though we continued for many years to do stupid things with money. It was our decision to accept rotten terms. No one forced us into a house. No one forced us to live above our means. Did we expect anyone to get us out of the mess we’d made once we woke up and understood better what we’d done … no, it was ours to clean up.
Greed and keeping up with the Jones fueled the subprime market. Did I have a hand in creating that mess … no. Do I think my tax dollars should be used to bail out to those who did create this situation … hell, no.
I think the reason the bail out is happening is not just because people are in untenable situations but mostly because our country’s economy is built on overspending. So many families and businesses are affected by the subprime market debacle that the sector has been deemed too big to be allowed to fail.
Do I feel for those people in the midst of losing their homes? Yes … absolutely. I remember all too well the terror and dread I felt when we were in the same situation. What changed it around for us? We worked extra, cut back where we could, gained a bit more wisdom, and stayed the course. It wasn’t quick and it certainly wasn’t easy. It did, however, help me learn to look at how I contribute to creating messes in my own life. Will those who are bailed out have that same opportunity for growth? I don’t think so. Time will tell.
Carrie:
If you “trust” a real estate agent or mortgage broker, then you really should reconsider that in a hurry. Regardless of their fancy titles and / or clothing, they are “salespeople”, in every case. Would you believe everything a car salesman or furniture salesman had to say? Why believe someone who can cost you so much more money?
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My husband and I always insist on fixed-rate loans at the very lowest rates we can get. If we find out that it goes lower, then we refinance.
When we bought our house, we got a 10-year, 4.75% fixed-rate mortgage, and we’ve got 6.5 years to go before we own our home free and clear. We also live in a part of the country where the housing market is still rising (not phenomenally, but still rising steadily).
We ALWAYS read the fine print and understand it before we buy, and it has paid off. You don’t have to be a real estate attorney to do it, either. Don’t trust anyone except yourself and an attorney, should you choose to hire one to advise you.
To my mind it all comes back to an overriding attitude that has swept the West, that attitude is? - The World owes me a living.
These people have no one to blame but themsleves, I have zero pity for any of them or anyother person who gets into debt problems. What really annoys me are college/university students wo complain about the debt they have BUT you still see the same students out partying every night.
Anyway, America encourages debt, I have known a good few Americans (Brit me) and, while they were/are all very good, friendly people, they were all aghast when I said I don’t have any credit cards and pay cash where ever possible. THAT is the problem, the American economy operates on debt, if everyone in the states cut up their cards the Am economy would collapse over night.
Interesting discussion! I was talking about this recently with a friend who works in the Vegas area, where some buyers have apparently been trashing foreclosed homes before moving out. In some cases, they are literally stripping these homes down to the 2×4’s, taking cabinetry, appliances, bathroom vanities carpeting and anything else of value with them when they leave. In one home, rafters and support beams had actually been cut out and removed from the living room. Apparently, some banks are offering cash bonuses to people in foreclosure who actually leave the home intact and undamaged.
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No Victims? That is royal BS!! I feel I am very much a victim in this mess!!! The ONLY mistake I made was purchasing my home in 2005! I have a conventional fixed rate loan that I can easily pay and have NEVER missed a payment or paid late EVER! I would and COULD go on this way and not worry about a thing but my husband to be was offered an outstanding opprotunity that we just can’t pass up. So I need to sell my house but WOW I am going to owe $25,000 more than what I can get for it….WHO’s FAULT IS THAT??? I was told when I bought my home that housing prices DON’T go down only up….umm helloooo What the heck do I do now?