Last December, Virginia Naill learned that the monthly mortgage payment for her three-bedroom home on Ordinary Road in tiny Mineral, Va., would jump by hundreds of dollars.
"I started crying," she said, "'Oh no, what did I do?'"
In 2006, it turned out, she'd unwittingly gotten herself into an adjustable-rate mortgage with a two-year teaser rate. As a result, in December, the interest rate shot up from 7.5 percent to just over 10.1 percent, and the monthly payment on her $280,000 loan went from $1,800 to more than $2,300. She and her husband didn't know how they were going to pay it.
Naill, 50, thought she'd refinanced into a fixed-rate mortgage. Back in 2006, that's what she'd told the broker she wanted. But she signed the documents that were put in front of her, and what she got was a case study in irresponsible lending -- a debt trap that even the broker has admitted was based on a fraudulent application.
Okay, let's take a look at what happened here. This family wanted a fixed-rate mortgage. The mortgage broker fudged her paperwork and gave her an adjustable rate mortgage instead. Now that the ARM is expired, her interest rate jumped up.
I'm sorry, I just can't muster up a whole lot of sympathy for this lady. Allow me to explain why: it's her own damned fault.
Yes, if you read on into the article, you'll see that the broker apparently admitted to providing false information and documentation. But, that doesn't excuse Naill from being responsible for her own financial decisions and obligations. If she's illiterate as she claims, she should have brought a friend who can flippin' read to her closing! Quite frankly, I can't understand how anyone can be illiterate in America in 2009, but I digress. If she is, then she needs to understand that she's operating with 2.9999 strikes against her in every circumstance every day of her life. If she refuses to fix this gigantic problem, she needs to at least be smart enough to compensate for her weakness, and have someone with her who can protect her from vultures like this broker. And, even if you don't keep someone like that around regularly, wouldn't even the most dense person figure out that it might be a good idea on a $280,000 transaction?
Here's another thing - ARMs aren't inherently eeeeevil. Speaking from personal experience, we've had two of them over the past few years, and they've worked extremely well for us. The first was on what could be considered a 'starter home' that we knew we wouldn't be in for more than five years. The second was on a home that we knew was in a fast-appreciating part of town, and that we knew we were going to refinance in just a couple years. Success, and success. An ARM can be very, very useful...provided you understand it, and do something different before it expires. That, too, is a failure of Naill to take responsibility for herself - even if she didn't have someone who could read for her (seriously? illiterate??) come with her to her closing, she had two full years to take that contract to a friend and have them check it out for her. She had plenty of time to make other arrangements.
I understand she's in a tight spot now, but this is not the broker's fault. As you can see from the article, the broker is getting the full legal treatment, as they should. But Naill needs to take responsibility for her own predicament, and learn from it. For starters, she needs to LEARN TO READ. Duh. Then, she needs to take responsibility for her own financial decisions, and the bigger the dollar amount, the more attention she needs to pay them. It's not hard to ask questions, and it's not too much to ask the mortgage broker to help you understand how all the numbers add up. If you're not comfortable with what's happening, don't sign your name.
Yes, it is possible to refuse. On one experience we had with a mortgage broker a few years ago, they promised us a certain end number. When we showed up to do the closing, the number on their paperwork was much higher than promised. We walked. By the time we got home, we had a voicemail saying that they'd 'fixed' the problem, and that everything was as promised now. Funny how that works when you take responsibility for your own decisions, huh?
Anyway, the HuffPost titled this article, "This Loan Is An Example Of What Went Wrong In America". I agree completely. This lack of responsibility, this instant claiming of the mantle of VICTIMHOOD, this expectation of someone else to fix all your problems...that's what went wrong in America. It's been creeping in for decades.
We should also take a moment to revisit the cause of the mortgage meltdown, because it is definitely relevant here. Recall:
And this is how we end up having an illiterate couple with jobs at Wal-Mart and as a roofing contractor getting a $280K loan without having any clue as to what they're signing up for.Pushed hard by politicians and community activists, the regulators systematically and deliberately altered financially sound lending practices.
The mortgage market was humming along just fine when, in the late 1980s, progressives decided that it needed to be "fixed." Their complaint: Some ethnic groups got approved for mortgages at lower rates than others.
In reality, mortgage lenders were simply being prudent - taking care to provide mortgages to those who could best afford to make the payments.
The shift began in 1989, when Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates. Banks were "Shamed By Publicity," as one 1993 New York Times headline put it.
In fact, they found a racial disparity only by ignoring relevant data on applicants' ability to make mortgage payments - such as their assets and credit history.
But the political pressure was intense - with few in politics or media eager to speak the truth. And then, in 1992, came a study from four researchers at the Boston Fed, which seemed to bear out the critics' contentions.
That study was, in fact, based on quite flawed data - but the authors' political, media and academic protectors stifled most serious criticism, smearing the reputation of one whistleblower and allowing the Boston authors to avoid answering serious academic challenges (mine included) to their work. Other studies with different conclusions were ignored.
The very next year, the Boston Fed announced new requirements for banks - rules that have now turned out to be monumentally catastrophic: Adopt "relaxed lending standards" or risk being labeled as racists, and face serious penalties under the federal Community Reinvestment Act.
Gone (as "arbitrary" and "outdated") were traditional lending requirements such as requiring a down payment or limiting mortgage payments to 28 percent of income. (Of course, the loosened lending standards weren't limited to poor and minority applicants - that would be discriminatory.)
The new standards performed as intended: Home- ownership rates, stagnant for 25 years, began a rapid 10-year ascent in 1995, with many new homeowners being lower-income and/or minority families.
The large rise in demand for houses, however, fed a run-up in prices starting in 1997 - the infamous housing bubble. And rising prices hid the great vulnerability of these loans to defaults and foreclosures, because refinancing or selling at a profit was the easy alternative.
Yes, these liberal policies are definitely what went wrong in America.
There's my two cents.
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