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"Won't You Sign On The Dotted Line, I'm Gonna Make Your Dreams Come True..."

I've been trying to get my head around this whole "sub-prime mortgage collapse" thing, and I think I finally got a grasp on it. And it's thanks to the Boston Globe.

From what I could glean from the article, a great many people took out mortgages on their homes in recent years under terms that they couldn't afford. Now they are finally facing the reality of their decisions, and are paying the price.

While I feel a lot of sympathy for these folks, I can't completely absolve them of their circumstances. No one forced them to apply for these mortgages. No one hid the terms and conditions of the agreements. No one kept them from asking financial experts if they could really make it work.

Mario DeJesus had long dreamed of owning a home, and two mortgages covering the $375,000 purchase of a three-family Victorian on Tower Hill let him live it. DeJesus, however, earns about $23,000 a year. It didn't take long for the math to catch up with him.

DeJesus, 46, bought the home in the spring of 2005. He figured rental income from two apartments would cover all but $400 of the $2,600-a-month mortgage, an amount he could cover with his monthly take-home pay of about $1,500.

But tenants proved hard to find, and the third floor remained vacant most of the time. The other apartment rented for $1,000 a month, meaning rental income was less than half of what he planned.

DeJesus soon was late on his payments, scrambling to find money. He drove a cab when he could, to supplement his earnings as a delivery truck driver for the Eagle-Tribune newspaper. His wife, Ruth, picked up a paper route. By the spring of 2006, however, DeJesus knew it wouldn't work. He put the home up for sale.

The guy pulls in less than 25K a year, and he signs TWO mortgages for 375K? His monthly payment is nearly double his monthly take-home? I'm sorry the guy's family has to pay the price for his denseness, but DAMN that was stupid.

I know, there's talk of "predatory" lenders, but for god's sake NO ONE HELD A GUN TO HIS HEAD. He signed the papers willingly. If he didn't know what they meant, or even what they said, that's HIS problem.

I've signed quite a few papers in my life. And each and every time, I knew precisely what I was signing -- and what the penalties would be if I failed to fulfill the obligations I was agreeing to. And when I've failed, I've not whined about the price I had to pay.

Yes, the lot of the people in the article sucks. And that they are in Lawrence, Massachusetts means that it sucks that much more. (I'm passing familiar with that city, and in particular that part of the city. The article refers to the part "between the hills," and that's the infamous downtown, inner-city, scummiest part of the city I've called "the armpit of the Bay State.")

The lesson here is appallingly simple: READ what you sign. If you don't understand it, DON'T sign it. Get someone to explain it to you in terms you can understand -- and make sure it's someone you trust, NOT the person on the other side of the agreement. "Caveat Emptor" is the rule -- "buyer, beware."

And never forget this: "if it sounds too good to be true, it probably is."

Ron White's saying, "you can't fix stupid," isn't quite right. You can fix it -- but it's never easy, and always painful.


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Comments (19)

Unbeatable headline.... (Below threshold)
kim:

Unbeatable headline.
===================

editor's note: headline added. Sigh...

I think the lender and reci... (Below threshold)
jpm100:

I think the lender and recipient are both to blame and now that we've rewarded their bad behavior, I expect more of the same on a wider scale.

People who played within their means, both lenders and recipients, get to pay. Another victory in the War on Self-Reliance.

Probably hundreds of time p... (Below threshold)
SPQR:

Probably hundreds of time people have claimed to me that the lender lied to them about the terms of the loan, and then to prove it to me, faxed me the disclosure page that had the terms in bold print and their signature on the bottom.

A lot of people delude themselves far more than any "predatory" lenders ever could.

Where's the pen?====... (Below threshold)
kim:

Where's the pen?
===============

While the signer should hav... (Below threshold)
Joe:

While the signer should have obviously known better, what were the LENDERS thinking - handing out loans to a guy who couldn't afford 1/2 of the payments?? Aren't there any adults left out there?

The lenders are deservedly ... (Below threshold)

The lenders are deservedly having their asses handed to them daily. Significant officer terminations at Bear Stearns and Merrill Lynch show that Directors and the market are extracting some measure of accountability in this fiasco.

For the socialists concerned only with the "innocent borrower", they can take comfort in knowing that some wealthy hedge fund investors are taking it in the shorts.

A few years back my bro, wh... (Below threshold)
M.Elston:

A few years back my bro, who lives in one of those formerly "hot" spots in Fla. Took out a second mortgage on his house to put in a snazzy pool. The aftermath was his owing $225,000 on a house he paid 188,000 for. I asked him why he thought that was wise, and he told me that with the pool he was told he could sell the palce for $280,000. Now that the rate adjustment has bitten him in the ass, he can't sell the house - on the market for $199,000. Some idiots won't listen even when told they are being idiots. He just *Had to have that pool...

I am a Realtor here in Minn... (Below threshold)

I am a Realtor here in Minnesota, and this seems to be one of the biggest culprits in the real estate slide of the last 2 years. The people who signed onto these loans now put their homes on the market when they can't afford them anymore. The glut of homes on the market just keeps the cycle perpetuating itself, penalizing people who have lived within their means. I prefer a refinancing regime to a bailout, because bad lenders shouldn't be rewarded for their behavior.

I can't believe someone cou... (Below threshold)
Lledowynn:

I can't believe someone could possibly be that dense. I'm making close to $50k a year, and I wouldn't even think of signing on to a mortgage yet. Especially given the fact that I'm in Florida, home prices here are still too high.

What ever happened to the concept of living within your means?

The borrowers were stupid, ... (Below threshold)
Dennis P. Skea:

The borrowers were stupid, and the lenders were predatory. The only economically correct solution is to let the borrowers default, and let the lenders take the hit.
Lender gets what he can from the forclosure, borrower is off the hook for any balance, with no loan forgiveness. This punishes the lenders, as they should be punished, and punishes the borrowers for stupidity, by losing the house. If the lenders get flushed down the toilet, so be it.
(I realize this solution would not be acceptable to any democrat, for "don't punish my voters" reasons, and not to most republicans, for "leave business alone" reasons. Me cynical?)

Darwin at work!... (Below threshold)
epador:

Darwin at work!

The lenders, who sought to ... (Below threshold)

The lenders, who sought to profit from such careless loan practices, were funded largely by foriegn money.

Do you really think American tax-payers should bail-out French & Saudi money-lenders?

Besides... the dynamics of this were to bid up prices across the market by artificially adding unqualified borrowers to compete with qualified borrowers for loans.

So those qualified borrowers already paid more for their homes then they should have.

Do they deserve a bail-out?

I listen to Dave Ramsey, an... (Below threshold)
The Listkeeper:

I listen to Dave Ramsey, and thereby tend to avoid such stupidity.

What bailout, DANEgerus, I'... (Below threshold)
SPQR:

What bailout, DANEgerus, I'm not seeing any bailouts being proposed.

Listkeeper, Dave Ramsey has some good advice although too few are willing to adopt his amount of austerity.

These lenders weren't "pred... (Below threshold)

These lenders weren't "predatory," just stupid. A simple credit check would have shown them the guy hadn't the history to justify so much credit, and they should have looked at the income closer.

Other than that difference, I agree with Dennis P. Skea in #10. The market has a built-in method of weeding out the chaff, and it should be allowed to function. There is no reason at all to ask people who have behaved prudently with their own money to bail out those who have frittered theirs away.

ListkeeperYou're cor... (Below threshold)

Listkeeper
You're correct about Ramsey...he saw this coming long before others did. But SPQR is right...most wouldn't accept his plan of debt avoidance and strict budgets. I happen to like them, though.

DANEgerous, you are seriously wrong on this subject. Ron Paul?

For everyone that claims t... (Below threshold)
GianiD:

For everyone that claims the borrower didnt know the terms of the loan, BULL.

The Truth in Lending, or TIL form has been in existence for over 30 yrs. It's required to be signed at least twice, initial application, and at closing.

This form displays the APR, which everyone should be familiar with, but it also indicates late fee, grace period, prepayment penalty if necessary, rate adujustemts and max payments, etc.

Everyone wants to point the finger at someone else, when borrower is responsible for their actions.

This one's a bit different ... (Below threshold)

This one's a bit different because it involved a three unit dwelling, so would be evaluated as a commercial loan. The borrower is at risk if he can't manage the tenancies, but the bank is liable to get back its money because it has an income producing property to sell.

"..and punishes the borrowe... (Below threshold)
Les Nessman:

"..and punishes the borrowers for stupidity, by losing the house."

Agreed. And everyone should also keep some perspective here : Many of these people had no business owning a house in the first place. They did not have enough money to support a house and/or the financial discipline/track record to support a house.

" But they're losing their HOUSE! Their HOME! That's different; that's SACRED!", shriek the limp-wrists.

No, many of them are 'losing' something they had no business 'owning' in the first place; at least until they gain some financial maturity.




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