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Betting The House

Earlier today, I heard an NPR feature on the subprime mortgage crisis. They interviewed one guy who was in trouble with his mortgage, in arrears and facing foreclosure. They asked him what his stated income was on the application, and he said he had no idea. When they told him it was $16,250 a month, he burst out laughing -- the year he applied for the mortgage, he'd only made $35,000 all year. He had literally no idea that number was there.

This brought a fundamental question up to me: how did that number get put on his mortgage application?

I've never applied for a mortgage, but it seems to me that there are only two possible explanations for how that number was filled in: either the applicant wrote it in, or the mortgage agent did. And if we take the applicant at his word, he didn't put it there, so that leaves the agent.

OK, so the broker wrote it in. How did he get that number? More importantly, how did the applicant not know about it?

Again, two ready answers spring to mind: either the agent wrote it in after the applicant signed the forms, or the applicant simply didn't notice the numbers when he signed it.

If the agent filled it in after it was signed, then we have a clear-cut case of fraud here against the agent. They put in numbers that they had no business putting in after the document was signed, and therefore ought to be on the hook -- both financially and criminally -- for the fraudulent mortgage.

If the applicant simply didn't notice the numbers, then it's a clear-cut case of negligence on the borrower. I'm sure somewhere in the application process there's a form that says "I have read every single detail of this agreement, agree to every part of it, and attest that the statements I have made are true" or something like that. If he did sign that, and there was a part of it he didn't read, then he's screwed.

As I've said, I've never applied for a mortgage. (Never had the financial wherewithal, and besides as a single guy with no real ties anywhere, it seemed unnecessary. Just rent an apartment and let the landlord deal with all the headaches.) But I have signed other significant financial agreements (leases, car purchase agreements) and in each case, I read the penalty clauses for my failure to live up to my obligations to pay. And when I did have those failures, I knew precisely what to expect and sucked it up. It wasn't fun, I didn't like it, but I knew about it going in and didn't think I had any business whining.

Maybe that makes me a freak, but when I hear about people who are running into serious trouble with their mortgages (yes, even some dear friends of mine), I don't go into convulsions of outrage over it. I offer sympathies (and in one case, some assistance), but I don't go blaming the system or the mortgage company for "screwing them."

There's an old saying: "you can't con an honest man." It's not 100% accurate, but it is true far more often than it's not. Most cons and scams are based on the victim having a little bit of larceny in his soul, and thinking that they might get something for nothing. (This is the basis of the Nigerian 419 scams, for example.) And if these people are being victimized by bad or fraudulent mortgages, then I'm fairly comfortable in assuming that most of them either knew that there was bogus info on their application (either by their own hand or their agent), or should have known by simply reading it carefully (and, perhaps, consulting a disinterested expert) before they put their signature on it.

I know if I signed a contract that put me on the hook for six figures of money, and tied me up for a couple of decades, I'd read every goddamned word of it, and run it past at least one professional, to make sure there were no lies, no surprises, no loopholes, and no blank boxes to be filled in later on the thing. And if it did end up blowing up in my face, I wouldn't be looking to blame anyone besides myself.

I guess I'm just a freak that way.


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Comments (19)

When my wife became disable... (Below threshold)

When my wife became disabled and unable to work the mortgage we could comfortably afford became a burden as interest rates began to climb. We refinanced into a fixed mortgage, started cutting out the extras we enjoyed, and made the payments. Our income has improved a bit - even though gas prices are negating a good chunk of that - and the first of the month is a little less nerve-wracking.

We are not quite out of the woods but we can see the edge of the forest.

I have a lot of difficulty mustering up sympathy for anyone who refuses to do what it takes and whines for a bail-out from taxpayers.

The guy lied to you, he wro... (Below threshold)

The guy lied to you, he wrote in the number himself.

"I guess I'm just a freak t... (Below threshold)

"I guess I'm just a freak that way."

No Jay, it's called CHARACTER...

Every time a client would c... (Below threshold)

Every time a client would call me and claim to have been either sold a mortgage different from what they'd been told, or some other tale that blamed the mortgage broker, when the paperwork was faxed to me, their signature would appear on the key page. Invariably.

...his stated income was... (Below threshold)

...his stated income was on the application... was $16,250 a month...he'd only made $35,000 all year
I blame Bush.

I've got an adjustable rate... (Below threshold)

I've got an adjustable rate mortgage on my second home that adjusts in September. My husband and I knew damn well what we were getting into. As it turns out, our adjusted rate will be less than what we would get if we went out now for a fixed rate mortgage so we've decided to "ride it out" for another year. We have made bad decisions in the past, but we learn to live with them and suffer the consequences. And we read everything we signed.

Isn't it reassuring to know that the Dems want to bail out guys like that with their $300 billion program when schmos like me are following all the rules and just sucking it up?

People feel entitled to the... (Below threshold)

People feel entitled to the salary increases that will allow them to 'work' their way out of buying in over their heads.

The entitlements were always an illusion. Most People were just able to live with the risk in a growing economy.

When I got cancer, we got a... (Below threshold)

When I got cancer, we got a month behind on the mortgage. Some money came in and we were able to catch up. I blame people who thought that the economy would fix it for them, or just plain screwed up.

I've been in the mortgage b... (Below threshold)

I've been in the mortgage business for almost 20 yrs.

2 questions come to mind.

If the guy made $35,000 all that year, where did he think the money was going to come from to pay for that too big house, which also carries with it, along with a higher mortgage amount, more taxes, more utilities, more carrying costs etc. (An income of that size would support total debt payments, including new mortgage, taxes, and insurance, of anywhere from $6-6500. Know anyone that can handle that kind of monthly expense on less than $3k a month??)

Also, there are AT LEAST FIVE chances to read about your loan terms prior to you getting keys to a new home. The initial app, the initial Truth in Lending, an ARM Disclosure(all done right at the start of the process), and at closing, the final note and note rider(if anything other than a fixed rate loan), the final TIL, and the mortgage rider.

Anyone claiming they didnt know is a flat out liar. They rolled the dice, they lost, deal with it.

I do real estate closings f... (Below threshold)

I do real estate closings for a living, and can tell you, that if a guy only makes $35k or whatever, and is signing a $200k or more loan, there's a problem.

And, he knows, or should not be excused from knowing, that if you don't make enough to cover your mortgage, you don't qualify for the loan.

This schmuck, I guarantee you, knew exactly what was going on. Bastard.

The buyers should not be be... (Below threshold)

The buyers should not be be bailed out. They should be put in a mental facility and the sellers in prison. Just the facts Mama, Just the facts.

"When they told him it was ... (Below threshold)

"When they told him it was $16,250 a month, he burst out laughing"
That was because HE LEFT IT BLANK !!!
And he left it blank for a reason. The same reason I LEFT MINE BLANK !!! So my broker could fill it in with a number that would FLY.
All the numbers my broker told me I AGREED TO.
The only number I didn't have is "What income the bank would buy"

I guarantee you that the gu... (Below threshold)

I guarantee you that the guy wanted a certain house that was beyond his means. He finagled with the broker (or agent or whatever) to fudge numbers to get him that house. He knew that he couldn't get the house by the conventional means of submitting bank statements, W-2s, paycheck stubs, etc. so the broker told him they could do it on "stated income" and he wouldn't have to prove a thing. Whether it was $16,250 or $6,250 he knew that the number there would be a lie.

I've bought 3 houses in my ... (Below threshold)

I've bought 3 houses in my life. Own one now I'm paying on. I've never signed any mortgage agreement that didn't tell me how much my monthly payment would be.

If he didn't know how much the broker filled he had to know when the first note came in and was greater than his take home pay that something was up.

He was in on the scam as much as the broker, if not more.

My neighbor's son, 24, is claiming the same "the broker fooled me." He's a cook in a local chain restaurant making $12K a year. He claims he didn't realize that wasn't enough money to buy a $700K. Yeah right.

When I got my first loan, t... (Below threshold)
the brain:

When I got my first loan, they required I bring my two most recent pay stubs so they knew exactly how much I made per year and put that number directly in the box.

I also spent a lot of time figuring out how much I would pay each month for a given house before I even made a bid. Apparently I should have just bought a house I liked and asked for a bailout just a few years later.

I had to bring paystubs to ... (Below threshold)

I had to bring paystubs to my closing. It wasn't a problem with the house I'm in now, though. When I was looking, I told my buyer's agent what I was comfortable with for a monthly payment, and trusted her to show me houses that would fit that requirement.

Masonn, if you left part of... (Below threshold)

Masonn, if you left part of your mortgage application blank with the expectation the broker would fill in an income that would "work", you engaged in fraud, pure and simple. It's a risk you took, and if get in over your head it's up to you to dig yourself out. If you can't, you should go to jail.

I don't understand this one... (Below threshold)

I don't understand this one. I had to bring pay stubs, W2s, and bank statements to my mortgage officer.

This whole mortgage crisis sucks and there really is no good answer to it. Obviously the mortgage industry needs to be more tightly controlled. A bailout pisses me off on the surface too, but honestly how does the country benefit from millions of people being foreclosed on and tossed out on the street?

Ryan, the answer to that qu... (Below threshold)

Ryan, the answer to that question is that people will see that you don't get away with doing it.

And when frauds get tossed out on the street, the properties are resold to people who can afford to pay the mortgages and worthless assets become productive assets.






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