Wanna buy a watch?
It would be funny if it weren't so tragic. Earlier this week, I read the travails of a couple near Washington DC who had their home foreclosed because they refinanced through Metropolitan. The scam was this: they'd let their payments lapse, so that their loan would be attractive to a buyer. That buyer would "invest' in them, by allowing them to take out a loan against them (the new buyer). If you cannot see how this is a bad plan, I don't think you should be playing with matches, let alone money (and money is far more dangerous than matches). The scam is based upon people's over-inflated views of their self worth. Let me put it to you this way: if I told you to stop paying your electricity bill, because then, after you were getting collection bills and calls, somebody would come in, able to see that you were not a credit risk, and would take over paying your bill for you, so long as you paid them a fraction of that bill, would you think that sounds right? So, why would you believe it about your mortgage?
I think it has something to do with people's confusion over the very basics of mortgages. A mortgage is a contract about a debt. It's an agreement to loan you money. It is not your house. Your house is part of the "insurance" you offer to the person who gives you the loan that you will pay them back in a timely manner. So, when your house is appraised at double the amount it was listed at when you bought it, all that means to your lender is that they made a better investment in loaning you the money. It doesn't mean that they need to offer you another loan. If you loaned your nephew a thousand dollars to buy a motorcycle, would you loan him 2000 dollars to buy a car because that motorcycle was a collector's item, worth 3000? After all, you didn't see a 2000 dollar profit. You just were on schedule to get your 1000 back. If he chose to sell the motorcycle, and got 3000, he could pay you back, and buy that 2000 dollar car with the profit, right?
I can already hear the protests: what about adjustable rates? It's different because the house is the same! They lied to us!
Adjustable rates are a term on your mortgage. It's part of that contract you signed. Would you complain if your employer told you that on your next contract, he could pay you less, depending upon how much your work was worth in the open market? Or, would you simply not sign that contract? People chose to sign asdjustable rate mortgages. That's every bit a contract as your employment agreement. If you chose a contract that was likely to cost you more money over time, if the market changed that way, well, then, you thought it was a good idea. Your mistake is not my crime.
Your house is not the same as when you bought it. You might have made improvements, and the weather might have damaged it. Your neighbors might have turned to Google stock or they might have turned to crack, but in any event, it's simply not the same house as when you bought it. Even if you bought it a week ago.
Yes, mortgage brokers have lied. Not all of 'em, and not all the time. But, it does happen. There are laws about that, and most respectable places comply with those laws. But, even with the not-so-respectable places you have what's called a "right of recision". For three days after you've agreed to buy a house, you can turn around, and say "no". You don't even have to give a very good reason. The idea is that this will give you time to look over the mortgage, and over the house. It's your protection against fraud. If you fail to exercise that right, and then, three years later say 'hey, wait, this ain't right' do you really think it's anybody's fault but yours?
See, what I'm getting at is that a big percentage of the current default rates has to do with people blindly believing in miracles that do not happen in real life, because they simply do not understand real life. There are an awful lot of people that signed up for adjustable rate mortgages that included terms that they could not realistically meet. They entered into these contracts because they believed that those terms would never come to pass. I can remember people saying 'Well, we'll "flip' this house before the rates adjust". I can remember people saying "We're just getting established now. In three years, I'll be making a lot more money". Those same people, now, are saying "I didn't know what i was signing up for". No, you knew exactly what you were signing up for. What you didn't know, and what nobody can know, is what the future holds economically. You were hoping to run a "scam" of your own, and purchase a home you could not really afford, because you believed you could outwit the financial industry. I remember the ads, just like you do: "Lost another one to Ditech", "When banks compete, you win" and so on. You really wanted to believe that you were smarter than "the banks". Newsflash: You can't and you shouldn't. You should work with the finance industry.
Now, groups like ACORN truly gall me. I really believe in an equitable society. Furthermore, I believe in charity. I believe that a society is judged more upon how well it treats the weakest members of its society, rather than on how well it rewards the wealthiest. But it would truly be an injustice if the blame for this problem was not placed squarely upon the the delusion that took hold in buyers from 2002 until 2004. People were credit-happy, and now, they're sad from reality.
If you want any more proof that we're talking about a delusion, listen to what decided people on this: the Prunty's, the people who believed in Metropolitan, decided because they saw an ad for Metropolitan on BET. That's right, they're saying they saw it on TV, in a commercial, so they decided it must be true. I've completely glossed over the racism implicit in this. They decided that white people would try to cheat them, because "the bankers" are white, and Metropolitan are "their own people". But, I can't gloss over the sheer ignorance and stupidity. You can hate me, and think I'm a cheat when I tell you the truth. But, you cannot blame me when you believe a lie, instead.
Yes, it's tragic that so many people believed so strongly in things that are not true. But, believing in another lie, that the "evil bankers" did this, would simply be another tragedy.
