http://money.aol.com/wsj/realestate/canvas3/_a/one-familys-journey-into-a-subprime-trap/20070816152009990001#rollover

 All right, I’m not saying this isn’t sad – it is terrible to think of anyone losing their home.  But I do have a couple of questions.

First of all, in what universe does a family making $90,000 a year qualify for a $537,000 mortgage loan?  Why is this okay? 

I have read a lot about the credit collapse recently and thought I knew the background – yeah, we are all in debt far beyond our ability to recover, and something needs to be done.  Yes, mortgage companies have vastly overextended themselves providing loans to bad credit risks and people unable to repay.  I understand the basics.

What I didn’t realize, but am beginning to understand, are the reasons behind all this.  When I read about people taking out mortgages for half a million dollars or more, I assume (erroneously, I see now) that these people are making considerably more than my husband and I.  After all, we own a home that appraises at $137,000 (yes, I understand that much of a home’s value is dependent upon location, and it’s likely that this couple could never have found a decent home in their area for anywhere near that) and have very little debt, and we make a combined total of about $170,000 a year – and we are certainly not taking upscale vacations every year or eating out all the time!    So I figure, if people are buying homes for this amount of money, and have this type of lifestyle, they are doing pretty well in the income arena. (I know $90,000 sounds like a lot to many people, but many people are probably fainting at the notion of a half million dollar home, too.)

Not so, evidently.  I find it horribly frightening to think that, in a parallel universe, it could have been my husband and I taking out this insanely huge mortgage – because with our income, evidently we would have qualified.

I want to know first of all, why would you ever overextend yourself so drastically?  Knowing that you have car payments and you’ve got teenagers who will be going to college in the next few years, and having enough common sense to realize that nothing is ever guaranteed – why would you do that?

Ah.  Common sense.  Perhaps that is the sticking point.

Secondly, I want to know why, in the name of all that is logical or sane, mortgage companies ever thought it was a good idea to lend on this level.  Please don’t tell me that it’s out of a genuine desire to help consumers improve their lives.  No, it is purely a business decision – when the rate skyrockets, the money rolls in.  Right?  Um…except, obviously, that it doesn’t.

Here’s a tip, folks – if the people borrowing the money can’t afford that rate now, they probably won’t be able to in two years.  And the bank doesn’t make all that much money on a foreclosure, which is the inevitable result, so how does this make sense, long-term? 

Clearly it doesn’t, and mortgage companies are learning this the hard way.  Sucks to be them, right?  Except it also sucks to be us, because guess what?  Down comes the rain and washes out the all-too-fragile American economy, leaving Man and Woman On the Street…on the street.  And Man and Woman aren’t even the ones taking out these ridiculous loans – they’re you and me, people who have some financial prudence but do have a home loan and maybe a car payment or a credit card or two.  Nothing dramatic, just a moderate level of debt.  The government starts bailing people out, and you and I pay the taxes to fund that – because last time I checked, the federal government wasn’t holding a lot of bake sales and car washes to support these programs.

And what is most pathetic is that it is a cycle that repeats itself ad infinitum.  Hark back a decade or so, if you will.  Do the words “savings and loan” spark any gruesome memories?

 When are we going to learn, people?  Smart, educated consumers and reasonable, cautious businesspeople – clearly there is a shortage of both.

Which leads us, inevitably, to the education system.  Show me a high school that requires students to take economics or political science courses.  Bet you can’t!  Not a public high school, that is.  Maybe a few private ones, though I doubt it – but the vast majority of our kids are learning nothing whatsoever about what drives our modern, information-based society.  They are learning pure sciences and arts, getting an education that prepares them (hopefully) for college, but does nothing to prepare them for survival in the real world.  Witness the number of credit card applications sent to, and snapped up by, college students who don’t even HAVE any income. 

Yes, we need reform, in a wide variety of areas.  We need to start teaching our kids about how the world really works; we need to pass laws that ban solicitation of borrowers by banks and credit card companies; we need to standardize and tighten the criteria by which people are evaluated for loans; and we need to make “common sense” actually common.

None of this will happen, of course.  But it would at least be nice to have people recognize what the real crisis is.

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