eirias | (no subject)

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People who've talked to me about the economic crisis have probably heard my take on home-buyers who bit off more house than they could chew. To wit: Think of your high school class; try to imagine how many of them understood compound interest at the time; recall how many years have passed since the tenth grade. Morally you can say whatever high-minded things you like about signing a contract and responsibility and blah blah blah, but on a practical level, expecting the median American to understand home financing to the point of being able to think critically about loan offers is just a losing proposition. If you don't want people to leave the thinking to the experts, you're gonna have to ditch the ideal of homeownership for the common man.

So: I think my attitude is about as sympathetic to the mortgage-screwed as you can get. And even still, there are people out there, apparently, who make me wonder: What on earth were you thinking?

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...wow.

Yeah, I generally don't blame people for not having as finely tuned a bullshit meter as I do. But that journalist is supposed to have a bullshit meter to help the rest of us. Aaargh.

Seriously. I'm sorry, but if the guy handling my loan told me that the tricky way to justify giving me the loan had failed, I'd say "Alright, that's the end of that." And I'm not an economist.

Sure, there's some bank blame to go around, and there's some predatory lending going on here, but what the hell was this dude doing trying to buy a half a million dollar house with a take-home income under three grand, an unemployed wife, and kids? It boggles the mind.

Yes, I have a lot more sympathy for cases where people felt they could handle their loans but then one of the wage-earners lost his/her job or unexpected medical problems cropped up or such.

I also have some sympathy for those who really didn't understand the terms and didn't understand how bad it could be. But if your job is to write about such matters, I expect you to have some understanding of it.

*nod* The way he writes about it, they had no reason to expect they would suddenly be making a lot more money when they put the half million dollars in as an offer. This wasn't a case of a sudden life change, or someone being strung along by a silvertongued lender. He'd written about the kinds of loans he was being offered, he knew his wife was in a rough position for finding work.

He should've been more than capable of figuring out how much he could afford to put down on a house, and how much of a mortgage he could afford. When the loan officer came back and said "Oops, the first lie we tried to tell won't work, we need to hide a bit more information to make them think you can afford this..." Yeah, he should've guessed he couldn't afford it. No sympathy.

Yeah, I saw that article, and it bugged me because it purported to give some insight into how someone who shouldn't have been such an idiot was, and it never gave that insight. He was just an idiot. Sigh.

EXACTLY! This is exactly it.

I also wonder whether there's also a class element going on -- perhaps he's trying to import the screwedness of poorer people who lost homes into a context that wealthy Times readers will find more sympathetic. But I look at this and I'm like, Dude, you totally had the cultural capital not to screw up this horribly, and if by some miracle you remain financially intact today, it is only because of that cultural capital and other people somehow saving your ass.

And despite all his "mea culpa" posturing I have the strong sense he doesn't really feel any of it is his fault. I mean, you don't just wake up one day with $4,000 in alimony and a fiscally-incompetent second wife. The bad decisions started well before the timeline for this story did.

It sorta makes me wonder how he ended up in his job in the first place.

Although, it does beg the question as to what your lawyer is doing if you're shelling out $4000 a month in alimony and child support. I don't know what state is calculating his CS, but that seems like a lot, even accounting for his salary. Also, alimony? Not a common thing any more, especially not long term.

Also, the wife is far from being the only one who's fiscally incompetent.

Also, the wife is far from being the only one who's fiscally incompetent.

Point!

see, with an income like his, he could have gotten a nice $100-$150K loan with a fixed rate, been able to afford it and the other expenses for himself and his new family, and not have wandered into massive credit debt territory. then, if his wife gets a job, they have play money for christmas and so on. much more sensible, i think.

Sure, if he wants to commute to DC from West Virginia ;).

Seriously, I do think part of his problem is his choice of where to live and work. Affordable housing around here isn't actually around here.

maybe he could have found a condemned postage stamp sized property and fixed it up!

ok, maybe not, but he should have done at least the basic math to realize how much he could afford and still have money to feed/clothe 3 dependents.

i can't help but wonder what his wife was doing out west when she was a stay-at-home mom with 2 kids... who paid for her expenses out there, before she moved to DC? being a stay-at-home mom is a full time job, but it sure doesn't pay well, unless you can sign up for a $4000/month in alimony and child support, and the guy actually pays up.

Oh, of course he should've done the basic math, especially since he clearly had the wherewithal to do so. I just wanted to point out that your easy and obvious solution doesn't actually apply around here. It could be that that's why he got so screwed -- that an honest appraisal of the situation would have told him he could not afford to own any property anywhere within 30 miles (at a guess), and that was too inconvenient to believe.

The issue is less understanding interest so much as critical and skeptical thinking. But yeah, the median American isn't doing to hot in that arena.

I don't totally agree -- I think you have to have some baseline level of knowledge, both about "what is normal in this field" and "what this agreement implies," to think critically. Both of those are screwy when it comes to mortgages, both because people's math skills likely aren't up to the task and because "normal" has recently been only distantly related to "a good idea."

I mean -- to take a different example, my having a Ph.D. in psychology means I can think critically about issues touching on my training. However, it does not mean I can think critically about particle physics. The skills do generalize somewhat, but there are some things you just plain aren't going to get if you don't have basic background knowledge. I'd contend that "how mortages work" depends crucially on good understanding of "what interest is."

I do think people would get in less trouble if they followed my personal paranoid general-purpose rule: "say no to all offers I haven't sought out." But this rule is only the crudest sort of critical thinking -- and if everyone followed it we'd probably lose a lot of other stuff in the process.

I'd contend that "how mortages work" depends crucially on good understanding of "what interest is."

Sure, there's also the issue of knowing what you know. When things go beyond the bounds of your expertise one should be extra skeptical in making decisions. I'm not sure how good people are at that.

There's also the issue of playing things safe versus trying to maximize your deal.

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