On the cover of this week’s US News & World Report, next to a picture of President Bush: “Is he resolute — or delusional?” Well, only 28% are picking the former.
Also, from the “signs of the apocalypse” department: Cheerleading is rapidly globalizing. Not surprisingly, the Chinese are charging fast (while the French suck).
I got this message in my Rutgers inbox, since it’s an AP story that quotes a professor in my department. It really clarifies the origins of the subprime mortgage market collapse that hit the stock market hard a few months back: everyone was incredibly stupid. I mean really, really stupid. Companies lent absurd amounts of money to people either with low incomes or houses beyond their means. You used to have to be able to pay at least 10% up front and have an income of at least 20% of the house’s value … but somewhere along the line, Americans got more money than sense and banks — the same ones that send your dog a pre-approved platinum card — were more than willing to follow suit …
With a second child on the way, Chris Shields and his wife, Michelle, wanted to move from their two-bedroom apartment in Southern California to a house with more space. But because their timing coincided with a shakeout in the mortgage market earlier this year, their credit now isn’t good enough to get a loan to purchase the house they wanted with no money down.
Rising interest rates and falling home prices squeezed a market that had been propped up by risky loans and easy credit during the housing boom. As mortgage bills came due, foreclosures rose, and the easy credit dried up for families like the Shields. “Now we’re stuck in the apartment,” said Shields, 31, a firefighter who lives in Manifee, Calif. His wife gave birth to baby Gabriella at the end of March, and they are running out of space without options for a house.
These mortgages, also called “subprime,” opened up homeownership to people who otherwise couldn’t buy houses because they had weak credit or little money for a down payment. Unlike traditional 30-year fixed mortgages, these loans are often adjustable and payments grow with rising interest rates. The nontraditional loans allowed homeowners to borrow large amounts thanks to low initial “teaser” rates, piggyback loans split into two mortgages, or interest-only payments.
In the past, lenders didn’t want to give mortgages to people with below-average credit because it was risky, said Kathe Newman, a professor at Rutgers University in New Jersey who has studied the subprime market and foreclosures. But the explosion of a secondary market for repurchasing mortgages provided more cash to lenders, and investors were willing to take bigger risks. Technology, such as automated credit scoring, also allowed lenders to quickly assess risk, she said.
The shakeout of the market could have positive benefits, some housing advocates say. Ira Rheingold, executive director of the National Association of Consumer Advocates, said people won’t qualify for loans they can’t afford. “People will have the opportunity to buy homes they can sustain, not the absurdities we’ve been seeing,” he said. “What’s going to happen is only good for homeowners and consumers.” Some people who got into trouble with loans they couldn’t afford have since refinanced with better rates.
Now here comes the crazy part:
Deborah Beatty recognizes that she and her family could lose their home in Jersey City, across the Hudson River from New York, because they can’t afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty’s master bedroom window. “I’m going to miss that,” said Beatty, 53, who collects disability payments and does not work. “When I come in, I like to see the lady (the statue), especially when it’s a beautiful clear night.”
Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans of 8.75 percent and 12.5 percent. With income from tenants, which didn’t happen right away, Beatty’s daughter thought she could afford monthly payments of nearly $5,000. But she hasn’t made a mortgage payment in more than three months, and she’s receiving letters threatening foreclosure.
Beatty’s daughter had to take out a nontraditional loan because she would not have qualified to borrow that much money through a traditional 30-year-fixed mortgage, said Judith Brzuskiewicz, a loan counselor with Citizen Action, a nonprofit advocacy group that is helping the Beattys and other families avoid foreclosure.
Beatty acknowledged the mortgage was probably too good to be true, and now her house is on the market. The family wouldn’t be able to afford buying another house and would likely rent. “It’s embarrassing. It hurts your pride, your respect.”
Well … honestly? You deserve it. This is freaking absurd. While it doesn’t say how much the house in Jersey City costs, I can tell you from personal experience that it’s a boatload of money. Really pricey housing is popping up all over the place, as even the wealthy are getting priced out of Manhattan. And she doesn’t have an actual job? What the hell was she thinking? Look, I’m compassionate, but if you get into a circumstance entirely on your own accord, then my sympathy is severely curtailed. Did these people look at the monthly payment and just have the number go over their head?
But wow. I’m a graduate student making less than $20,000 … I didn’t know I could qualify for a $600,000 mortgage! Here I am renting an apartment … I guess I’m just a sucker. But the baffling part is the mortgage companies … why would anyone make a loan with such a low probability of being repaid? Idiots, one and all.
