The spirit of the age on the front page of today's NYT:
When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.
Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.
Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”
There is an entire worldview in that quote. Zulueta's freely taken-on mortgage was a promise he made to pay back the money he owed. But he saw it only as "negativity," and that worrying about making good on his word was "stressing over nothing." If Zulueta were an honorable man, circumstances might still have forced him to walk away from his mortgage (it could happen to me or you, you know), but he would have done so with his heart heavy and his head hanging over having welshed on a debt. But he's not, on evidence of his therapeutic orientation, an honorable man.
Zulueta's insouciant deadbeatery is part of a larger cultural shift that's already been made, it would seem:
Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Mr. Menegatti said, 20 million households will owe more than the value of their homes.“Will everyone walk out?” he said. “No. But there’s been a cultural shift. Buying a house used to be like entering a marriage, a commitment for life. Now, if you see something better, you go back into the dating market.”
We've talked before about what this sort of thing represents about moral degradation in contemporary America, and it's worth reviving Patrick Deneen's point that if the hoi polloi are behaving this way, it's only because they're following the example of the elite:
As the Greeks well knew, the vital ingredient for shame - and, correspondingly, honor - to function in society was immediacy and care for the people in one's polis, their views and opinions, the esteem they bestowed or withheld. Elites were honored in our society to the extent that they were themselves exemplars of the virtues that they both preached and expected of others in turn. The current widespread hostility to all these elites - Wall Street, lawyers, doctors, politicians - reflects the breakdown of a covenant of respect and honor. As our economy has become more abstract and distant, as our "communities" are compared to bedrooms (or perhaps, more aptly, hotel rooms), as our sense of continuity between past and future has been undermined by rampant mobility, impermanence and instability, there can be little wonder that "shamelessness" has spread like a contagion through our society. Such lack of shame and disregard of honor began at the top and now ripples downward through the feeding chain of class and status.
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One estimate I saw said that almost 50% of subprime loans were made to people who qualified for regular loans with better terms.
And the smart consumer should have said, no thanks, I'll pass on the ARM and take the 15 or 30 yr fixed. Just as the smart consumer passes on the overinflated service plans offered on electronics and appliances.
aaron, are you friggin' serious, man? People weren't told "well, you can take this subprime ARM mortgage with terms which could cause your payments to increase 75% in a couple of years or you can take a more favorably termed ARM or fixed rate mortgage from a conventional lender." Jeeze Louise, think!
People were told, "well here are the problems with your credit [almost everyone has something on their credit which is less than perfect], but I worked really hard and managed to find you a special lending program for people with problem credit. Because it is a program for people with problem credit, you will be paying a higher interest rate, but we can put you on an ARM or an interest only loan which will allow you to afford the payments for the first couple of years. That will give you time to fix up your credit and allow the value of the house to increase. Then you can refinance under more favorable terms before the ARM adjusts upwards."
NO ONE would pick a subprime loan over a conventional loan. Even a subprime ARM or interest only loan is going to be more expensive than a conventional loan because they set interest rates for such loans much higher.
A smart buyer would have shopped around to find someone who would help them get a conventional loan, but once someone has been told that they have bad credit (even if they don't really) and that this one person has pulled strings to help them out despite their undesirable status, they often figure it's not worth the embarrassment and risk that they will lose the opportunity to get financing. Besides, enough people were playing this game that it is entirely possible that a buyer could go to more than one mortgage broker and get this same dishonest line.
Your assumption that people CHOSE to enter into subprime loans when they knew about other options is insane!
BTW, when I was 20 I got conned into this same sort of thing by a car dealership when I bought my first car. I was young, shopping alone and obviously didn't know what I was doing. I was told that because of one problem on my credit report (I missed the yearly fee for a store credit card that I no longer used and they declared the $5 charge as a charge-off and reported it to the credit agencies), I had problem credit and would have a very hard time finding anyone to make a loan on a car. But this particular finance manager had decided to take up the fight for me and had called over to corporate to advocate for me and he thought he could get me some sort of deal. The terms wouldn't be great of course, but since I needed a car and no one else would work with someone like me, I was lucky that I had gone into that dealership with this particular finance manager who was willing to help me out. I actually called another dealership and talked to their finance manager who said he was sure my credit wasn't such a problem and he could get me a better deal. When I called the first dealership back and told the finance manager this, with an eye on negotiating me, the man told me in authoritarian terms that they were trying to swindle me, would say anything to get me into their dealership and would screw me over in the end. Plus he was upset that I was potentially walking away after he advocated for me, blah, blah, blah. I fell for it hook, line and sinker and got completely screwed. So it's not new - it just wasn't as common before. So before we get on the people who have fallen for this crap, let's look at where the real blame belongs.
Your assumption that people CHOSE to enter into subprime loans when they knew about other options is insane!
Caveat emptor, the best investment in my house and other real estate purchases was a simple $20 "all you need to know about home-buying" type book, Amazon has a great selection with comparative reviews. My sympathy meter will not be as great as yours I expect.
I did not read all 80 posts so forgive me if someone has already stated this.
Our family lives in a rented home. We choose to do this because we believe we should get out of debt and stay out of debt. Too many people think that they should jump into a house feet first and see what happens. What will be, will be, they say. Our society, for the most part, takes responsibility lightly. "I can buy a home, if I can't pay then the bank will eat the cost, so what?". That is the common attitude it seems. Rod simply is speaking that even the man in the article had this attitude about responsibility. Now I know of two different families. The first one bought a home. They didn't go above their budget, just a simple modest home. All at once things happened. The husband lost his job, the home started breaking down left and right with no funds to replace the broken things (needed things like a septic tank). They stayed there for as long as they could trying to make it work but finally had to file bankruptcy. I felt for this friend. Her husband is a hard working man and she is a good budget stretching homemaker. It just so happened everything happened at once for them. On the other hand, the second family I know both worked, spent money on stupid, materialistic things, came into money at one point and STILL filed bankruptcy. All because they can't control their spending thousands of dollars on credit cards. Eventually they sold their home and even though they are in their late 50's, they live in a home that a relative bought for them. This is the difference. And it is huge. People walk into these loans knowing they can't afford but still do it anyway. You don't HAVE to own a home. I have been married for 12 years and we still don't own our home. I would rather die not having anything to my name than to die knowing I left someone else to foot the bill. Yes, the lender may not have your best interest at heart but it is up to you to fulfill your part too. Just because the lender is crooked does not mean you should be too. Come on people, be responsible for yourselves! Stop letting everyone else bail you out. Christian charity is for those that truly need it, when circumstances cause us to stumble, not for greedy materialistic people who can't tell themselves no.
And shame on those of you who think that two wrongs make a right. You should know better.
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