Tuesday, November 11, 2008

Hurray for the Housing Slump!

Okay people listen up! Owning a home does not make you smarter, better, cooler, prettier, or thinner. This whole mortgage meltdown or economic slowdown or recession….whatever you want to call it…is what some people deserve.

I know you are thinking wow that is harsh. Really, really, have you read my blog?

Moving on with some background information, I used to work in the mortgage industry. Specifically with home equity lines of credit and home equity loans. Quickly for those unfamiliar those types of loans; they are generally a second mortgage, where in essence the person or people are taking any equity “money invested” in their home and sucking it out for a fee (read interest payments) and to use it for something else.

The most common way I saw people using this “money” was to pay off credit cards. Now in theory taking out a mortgage or loan at 3% (which was the rate when I was working) to pay of credit cards that are at 16% makes good fiscal sense. The fly in this ointment comes when that nice little home equity loan is actually an adjustable rate mortgage and you happen to pay off those credit card bills, and then just run them right back up. Now that is the pickle! You have taken “value” out of your home, increased your mortgage payments (which can adjust monthly) and then spent more money so you end up worse off than you were.

Compounding this issue is that now these people can’t even sell these homes to get out from under the double mortgages they have created. Why can’t they sell…well lenders have tightened their mortgage guidelines and people are feeling a recession and not buying homes. Again, what a pickle!

Well, back to my main point (yes I have one). I do not feel badly for these people. They were stupid. I know, I saw it first hand. I saw the paychecks, bank statements, credit card bills, car loans, student loans etc. that people were carrying and then increasing their payments for stupid reasons. Again, I will reiterate on paper it makes sense to take out a loan at 3% to pay something off at 16%. However, a credit card company cannot kick you out of your house. Yes, they can attack your credit, garnish your wages, sue you, or basically make your life hell, but they cannot seize your home. Keep in mind that if you can manage to make the monthly payment, you will be paying forever, but none of those other bad things will happen.

In addition to the home equity people, I also don’t feel bad for the adjustable rate first mortgage people. A lot of people who are in trouble now are people that should not have bought a home in the first place. Buying a home when you can’t come up with a down payment or you are buying a home that has a mortgage payment that is more than 30% of your monthly income is a BAD THING. People want to blame the mortgage companies, oh they are big meannies….we didn’t know any better.

Well ever heard of “buyer beware”? Yeah you may not know all of the ins and outs of mortgage law, but you should know that if you and your living partner make less than $100k a year you probably can’t afford a 800k home or even a 400k home.

When the mortgage company tells you the monthly payment and it seems really high it is your job to say hmmmm…..if we do that how will we buy food? Then your next thought should not be….well in a couple of years we will both make more money so we can scrimp for awhile…..because you won’t you will use credit cards for drapes, couches, paint, clothes, shoes, vacations, eventually food, electric, gas and anything else you can’t afford.

These are the people I don’t feel badly for. The people who looked down their noses at others those second class citizens “renters”. Well maybe these renters had the right idea, waiting till they could save some money to put down 20% or realizing that they really could not afford a mortgage on their salary and need to wait awhile to earn more money before burdening themselves with a huge payment. Who is laughing now?
I do feel badly for the people who are losing their jobs! That is something that affects all of us and is a very bad thing. I also feel very badly for the renters who are being evicted when their landlords can’t afford the mortgage and are being foreclosed on. These are the real victims in this “mortgage crisis” not the late 20 early 30 somethings that can’t afford their ballooning double mortgage costs on their McMansions