20 October 2008

Mortaging your future

James Howard Kunstler observes “Fannie and Freddie ... managed during the past decade to make housing virtually unaffordable for any normal, responsible person unwilling to game the system.” Case in point: Elusis tells the tale of how she got burned with her subprime mortgage.
I thought it might be worthwhile to tell my personal story of being a subprime mortgage-holder, because I really feel like I did as much as I could to do things right, and still got screwed.
I got steered into dodgy mortgages when it's possible I might have qualified for better ones (and if I didn't, I might have opted to rent rather than buy!). The terms my mortgages were written for don't square with my memory of what I agreed to, which I only discovered too late in the process to call things off. As a result my payments were always more than I had really comfortably planned for, and yet I managed to make my payments on time every month. In the end, other bad mortgages destroyed the appraisal value of my property, and forced me to pay money to hand over my place to a buyer (who, fortunately, was a friend and someone I could unequivocally say did absolutely nothing but try to make the deal work out in my favor; she even paid all the closing costs when we found out the devastating news about the appraisal.)

I suppose people might find much to criticize in this story. It's always easier to armchair quarterback. I'm not ultra-naive about finance but I'm not super-savvy either. I felt reasonably sure that I understood the terms of my loans and that what I eventually got was not what I agreed to, but would a court of law find that I was misled, or that I misunderstood? I could have been more forceful about wanting to try for a conventional mortgage rather than the no-document, but when you're looking at dozens of hours of work and phone call after phone call for more pieces of paper, with someone saying “it's fine to do it this way,” what choice would you make? When you're sitting across from an expert who's done hundreds of loans, would you second-guess them?

I wasn't trying to over-reach; I knew I couldn't afford a stand-alone house or even a two-bedroom. I bought a well-kept but modest place — no jacuzzi or covered parking or fitness club or new appliances or bathtub with jets. I had been concerned about the market for some time, but the experts I was with told me I needn't worry. And when I found out what the real terms and costs were of the loans I signed, I made every effort to pay them, even over-pay them, to do the financially-responsible thing.

It's a good demonstration of how even people trying hard to be responsible during the housing bubble had an uphill battle.

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