I was just floored by the mail today. I will explain in a moment.
I now have 2 mortgages, one on the house we are in the process of buying and moving into and the house I left behind when my last job didn’t work out. The newer mortgage is a 15 year fixed. We went fixed and conventional just because of the current market and fears of becoming just another leech on the US Treasury via a bailout.
The old house, which we still own because the market sucks rocks, has an adjustable rate mortgage. We went that way for a number of reasons, not the least of which was that we were cash strapped and we could get an ARM with a lower down payment and much lower monthly payments. At least to start.
Because we had that house/mortgage, we rented a house in our new location. We figured we should hold off buying until we could afford to buy a fixer-upper. We paid our rent and the old mortgage all this time without complaint. We borrowed the money, we pay it back. A totally American attitude, at least in my mind. We will continue paying the old mortgage until we can sell the house, or more likely, until it is paid in full.
Responsibility. Honesty. Honor.
We could have gone ahead and bought a house when we moved. We could have taken a crazy “creative” mortgage but we decided to wait until our finances were back in order. That just happened (almost 3 years later).
Back to today’s mail…
The adjustment statement for the old mortgage just arrived. I experienced a moment of panic as I started to open the envelope, my heart raced and head hurt as I unfolded the letter with all the confusing numbers on it. I quickly searched for the “bottom line” number, worried that I just bit off way more than I could chew by buying the new house.
Turns out that my adjustable rate mortgage is not of the “crazy/stupid” variety. There are caps on how far the rate can move, both up and down. The rate cap came into play this year, but not the cap you’re thinking… The rate dropped so much the lower cap was activated.
That’s right my monthly payment went DOWN. Actually it went down 10% from last year’s payment. It would have been EVEN LOWER if the low end cap didn’t exist. Of course, I am happy those caps are there. Then again, it should not have come as a surprise that we had a “sane” mortgage, its not in my character to take crazy risks with my family’s future.
OK, what does this mean?
I was mildly sympathetic to the people that are getting caught up in the “mortgage crisis” and losing their homes. Not enough sympathy for me to support a Government bailout, but enough to support some non-direct-money actions like a restructuring initiative, or loans to those that have good credit otherwise.
This is no longer my opinion.
In order to be smacked upside the head by your ARM you would need to have no caps, which can’t be the case as my ARM went down, or your ARM had to have some sort of crazy/stupid provision like a low fixed rate for 3 to 5 years then a ridiculous reset rate after that. Maybe a huge balloon payment too.
I have no sympathy for people that either didn’t care about the nuttiness of these kinds of loans or actively sought them out because of investment priorities. I also have no sympathy for 110% borrowers, speculators or “house flippers”. If you can’t get a mortgage that is sane, maybe the lenders are telling you something.
Of course, I have negative sympathy for lenders that wrote these kinds of loans.
I should have known, the Market is the best regulator of risk. Live on the bleeding edge, sometimes you get cut, deal.
Go to AngryRenter.com and sign the petition.
NO BAILOUTS!
Lenders used to lend money to those that could show the ability to repay the loans. Then the government came in and said that if enough minority applicants were not qualifying than this was proof of discrimination so the banks had to change their standards to allow loans to people who would not have qualified before. As long as the market climbed it masked the inevitable result as people could refinance and use the appreciation equity to stay afloat. Countywide was the biggest writer of these affirmative action loans and was lauded by the government and the press for doing so. Just as affirmative action college admissions results in excessive minority drop out rates, hurting the so called beneficiaries, the correcting market is now resulting in defaults for those people who should never have been given the loans in the first place. Add in people not bothering to read the terms of their loans and you have another example of government “help”.
Just like the high oil prices and high food prices this is a government created problem which the government now says it needs more power and money to fix, though they do not know or care that they ARE the problem in the first place. Let’s put out that fire with this bucket of gas.
When I refinanced my house to start a business I got a mortgage that had a low payment for three years, less than the interest alone. As I was planning to sell in less than three years this helped me as money was tight. If I had been planning to stay this would, as you say, be insane. Yet many people did just that. For the most part these are only victims of their own laziness and complacency (and greed). On the business side they are victims of greed, poor judgment, and government tampering in the markets. No bailouts!
Comment by Machinist — April 24, 2008 @ 2:12 pm
Sinner -
Markets are an excellent regulator of risk; I’ve given-up hope that people, as well as politicians (who deserve their own genus), will ever understand such a basic truth.
Capitalism works very well when it is allowed to do so.
Mac -
Excellent points. I also wish the envirotards would quit squawking about off-shore drilling, ANWR, etc. and that Congress would stop subsidizing the biofuel industry. (If current biofuel tech were really cost-effective, it wouldn’t need subsidies; there’s that pesky Market thing again.)
Comment by Fatwa Arbuckle — April 24, 2008 @ 2:56 pm
My brother lost his house but, honestly, you’re right, Sinner. He is culpable for his irresponsible lifestyle (continuously borrowing money to live well beyond his means) and gullibility (he was ripped off by a foreclosure-protection scam artist). The fault must be shared among the consumers who are fiscally irresponsible, the sharks who take advantage of them, and the government that doesn’t protect them. Education, law enforcement, and regulation are what we chiefly need.
Comment by Northwesterner — April 24, 2008 @ 3:00 pm
30-year fixed rate here…just boringly plugging along, but I’ll get it paid off in my slow and steady manner.
Congrats on the new house, BTW!
Comment by BrendaK — April 24, 2008 @ 11:50 pm
Happy renters here, for all the reasons you outline.
I’ve held your new opinion for a long time, and I’ve often been told I’m heartless. The only situation that comes to mind that garners sympathy from me is having a sick child, or a sick spouse, or a sick self, and limited healthcare.
Comment by Starry Fruit — April 25, 2008 @ 1:44 am
My cousin is losing her house in Illinois-it’s been in her family for close to a 100 years. I’d help them out if I could but the amount of debt they have is more than I can do anything about. It’s not the mortgage that’s the problem, but all the other decisions they made along the way coupled with things just not turning out right.
It took my wife and me 15 years of saving to be able to buy our first house two years ago. Fifteen years of not taking vacations, of staying in jobs we didn’t like, going to school at night, of putting money away so we could afford a house some day. We’re both pushing 50 years; I’m a college dropout, my wife is a high school graduate, and we bought this place without a realtor and navigated all the paperwork on our own-a 30 year fixed rate loan with 25% down because that’s what we could afford. If we can figure this stuff out, anyone can. I got no sympathy at all for these folks that are in trouble now-no desire to bail anyone out with my tax dollars.
PBob
Comment by PBob — April 25, 2008 @ 6:59 pm
thanks for the link to the petition, Sinner… i’m telling all my friends about it…
Comment by ottavarima — April 29, 2008 @ 11:34 am