Tuesday, September 25, 2007

All These Mortgage Sob Stories...

Stories about families facing foreclosure seem to be in the news every day. It's usually a low- to middle-income family, often black or latino, who are working hard to achieve the American dream, but they've let someone talk them into buying an overly expensive house with some kind of crazy financing that is impossible to pay off.
The tone of these stories always seems to teeter between portraying the home buyers as victims and making them look like idiots who should have known better. Read this passage from today's New York Times article "The Loan That Keeps on Taking:"

The first and biggest [of three loans, two from banks and one from an individual person] was a pay-option adjustable rate mortgage. The loan allows borrowers to pay less than the interest due, adding the difference onto the balance so more is owed with each passing month. The interest rate on the loans from [the individual] was 10 percent, with a 15 percent upfront fee added to the principal balance. That loan called for borrowers to make interest-only payments and pay off the full amount in two years.

...

To assure that borrowers would qualify, the lawsuit claims that [the mortgage broker] and her associates exaggerated their incomes and assets using no-documentation loans.

Tomas and Martha Hernandez said [their real estate agent] had convinced them that they could afford a $745,000 home in San Jose, even though Mr. Hernandez earned about $4,000 a month and told them he could pay no more than $2,500 a month.

The couple balked after learning that their monthly payments would be $4,660. But [the mortgage broker] assured them that they would be able to refinance in a few months and reduce the payments to less than $2,900 a month, according to the lawsuit and Mr. Hernandez. They moved into the home two days before Christmas in 2005.

“They said not to worry, that we were in good hands,” Mr. Hernandez said of [the broker and real estate agent].

Do you just want to smack your forehead and say "what were they thinking!?!?!" Do people who are dumb enough to fall for these offers deserve everything they get? In this particular case, there was a language issue and it seems the home buyers should have been provided with a Spanish translation of their paperwork and weren't... but that isn't always the case. Should people who can't understand the financial transactions required to borrow a home just not be allowed to get themselves into these messes?

But really, although the average New York Times reader is probably a better-educated English speaker and might think they could never make this kind of mistake, don't we all put a lot of trust in others when we manage our finances? When I bought my home, I read all the documents and asked a lot of questions, usually via email so I'd have the answers in writing. I had an assumption of sleaziness about the mortgage industry, so I never gave anyone the benefit of the doubt. But there were times when I just had to assume my lawyer knew what he was doing about some point that I didn't understand. And in areas outside of real estate, how often do we read information about stocks or mutual funds and just assume that what we are being told is true and correct? When we use retirement calculators, don't we often just assume that their underlying assumptions are correct? What about other issues? We let teachers tell us about history and science, and we let doctors tell us what is healthy and what isn't. Even if we seek out second opinions and do our own research, how often can we really know something is true without putting ourselves at the mercy of someone else's expertise? The Hernandez family in the article put an awful lot of trust in what their real estate professionals told them-- perhaps they should have known better, but it's just a different version of what all of us do every day.

Here's an interesting part of the story: California doesn't require people to have a lawyer present at their closing, and this family didn't have one. Could they have been better protected by better laws? Some of the laws in place to protect them weren't enforced. Now they have a non-profit legal assistance group trying to help them. How could their situation have been avoided in the first place?

19 comments:

Boston Gal said...

While I do sympathize with the family, to be honest the first thing that popped into my head to answer your question:

How could their situation have been avoided in the first place?

Doing some simple math? The great thing about numbers is they transcend language barriers. Purchasing a $740,000 home with a $4,000 a month salary is just not feasable - that alone should have been warning enough to the family to walk away from these con artists.

Harsh I know - but the numbers here are particularly wacky.

Simone S. said...

In this market families of ALL races are facing foreclosures. And predatory lenders usually focus on socio-economic status.

But really, who understands EVERYTHING they sign when buying a home. I asked a lot of questions but never really understood each and every detail. That is what my realtor was for. If she said it was ok...then I assumed it was. Of course I too qualified for much more than what I eventually bought, but was smart enough to do the math.

Also, anywhere in California is going to be a financial drain when buying a home. If you want to buy instead of own...you are going to pay mightily for it.

Scarfish said...

That's one of the problems I've had about a lot of what is showing up in the news lately regarding the economy: people are not willing to take responsibility for their own decisions any more. They are allowing themselves to be talked into mortgages they can't afford or opening up another credit card because "If the banks thought I couldn't pay, they wouldn't approve me" (quote from Maxed Out the book and movie).

Lenders have been putting themselves at risk. Individuals and families have been putting themselves at risk. Is is simple greed? Or just ignorance? I feel like the root of the problem is a combination of the two and maybe a bit of entitlement.

Anonymous said...

I agree with scarfish that the root of the problem is a bit of ignorance and greed.

I don't not have a lot of sympathy when I read these stories. My husband and I purchased our first house when all these alternative mortgages were an option. Before we started house hunting we sat down and number crunched and figured out what was the maximum payment we could afford. We have a lot of student loans and credit card debt from graduate school. We were, of course, approved for a mortgage amount that would have far exceeded our monthly maximum payment which we allowed for ourselves. Because we did the number crunching prior to buying the house, we knew that we could not afford what they told us we could.

The state of Pennsylvania, like most states I believe, does not require an attorney to be at a closing. In PA, it is actually a rarity for an attorney to be present at a residential closing.

I do not think more governance (attorneys being present or higher standards for real estate agents to meet) are the answer. Those things will only increase the cost of buying a house for everyone. People have to read fine print (or realize they should hire someone if they can't/don't want to do it themselves) and take financial responsibility for their own actions. The cost, in no way, should be shifted to those individuals who have done their own research.

frugal zeitgeist said...
This comment has been removed by the author.
frugal zeitgeist said...

You've touched on a subject that completely chaps my ass. I don't disagree with the fact that the subprime meltdown was exacerbated in many cases underhanded behavior on the part of lenders, but I think responsibility lies primarily with the borrowers. Borrowers are responsible for knowing what they can and can't afford and structuring their contracts accordingly. A signature establishes a contract; no one should ever sign a document if he or she doesn't understand all the implications of it in full. If that means backing out at the very last second before closing, so be it. If a borrower's not capable of understanding the terms of the agreement on his or her own, then the borrower needs to make an appropriate judgment call about having professional represntation. Closing one's eyes and hoping for the best just doesn't cut it.

Home ownership is a responsibility, not a right. I'd like to see the lenders that engaged in unscrupulous and predatory loan practices get a righteous smackdown, but I'm also totally against bailouts for borrowers.

hazygrey said...

I am an attorney and I don't think I'd be able to understand everything in a real estate contract. So in general I have sympathy with people who are confused by the legal terms. But in the case of the Torralba family, it says they were not aware of a third loan for $74,000. Where did they think that money came from? Their house cost $595,000, and the other two loans they knew of add up to $535,000. Are they not capable of basic math? It looks like there was a lack of due diligence on the buyers' part.

Anonymous said...

Yep, not a whole lot of sympathy here. Simple, basic math tells you the #s don't add up, and you can't afford that much home on such a small income. I like the comment before .. home ownership is not a right. I don't own a home - because I can't afford one right now.

RichC said...

I do have difficulty in digesting many contracts ... and can relate knowing some documents I've signed without fully reading or understanding them. (I know ... stupid) Thankfully to this point, I've not been bamboozled.

Nevertheless, the largest fault falls with the consumer IMHO ... especially those thinking they can swing bigger homes, bigger payments and creative ways to nose their way into a home. Commonsense should tell them they can't afford. It hard to believe that the gut check doesn't give a least a small warning sign?

Thorny subject: You're comment above in regard to "not being given a Spanish translation" has me a little irritated. The last time I checked, the U.S. was still an English speaking country. It shouldn't required that companies provide non-English speakers a special translation. If you don't speak the language, bring a translator -- its the non-English speakers problem ... not the other way around. IMHO, too many Americans (and immigrants) expect others to do for them what they should be doing for themselves. The sooner we return to personal accountability and take responsiblity, the stronger our nation will be -- if we don't, the door is wide open for the socialist Mother State to take over.

Madame X said...

@ Simone, you are right that people of all races are dealing with mortgage problems these days, but it's my impression that the media focuses more on stories about minority home buyers...

Madame X said...

@ Rich C, according to the article, California has a law requiring translations of contracts when negotiations are conducted in languages other than English. Interesting, given that they DON'T require the involvement of a lawyer!

Mrs. Micah said...

I was just reading this woman's story on Associated Content: http://www.associatedcontent.com/article/360791/how_i_bought_my_first_home_with_no.html

On the one hand, she and her husband were wise to be wary of people who told them that they'd have no trouble with their mortgage.

On the other, I doubt it was a good idea for them to take a mortgage which is interest-only for 10 years! That's just...yeah. They won't build equity for 10 years! What if they sell and the market has gone down? Too bad. Eesh.

Mark said...

I am also agree with Scarfish, We have to change our mentality. And this line clear our mentality "If the banks thought I couldn't pay, they wouldn't approve me". Great post.
payday loans uk

J said...

imagine being a regular person who knows NOTHING about home buying but you want so badly to get out of ur apt into a house.

Now...I do understand WHY they got caught up in something like that. I dont feel bad for them though because reading is fundamental and the library, as far as I know, is still free.

However, that doesn't negate the fact that people like this are being preyed upon.

Tired of being broke said...

This all boils down to basic math. That's it, do not buy more than you can afford. No sympathy.

OptionedUnarmed said...

Math skills aside, many of these new in-trouble borrower "homeowners" had no skin in the game to begin with (no down payment to lose). So once they lose their house, they are basically back where they started (renting an apartment), except with a worse credit rating. These are not people who "lost their homes", because they never truly had their homes in the first place.

mapgirl said...

I am sorry but if a person's gut feeling tells them that there is something not right, THEY SHOULD LISTEN.

The utter queasiness I felt the week before closing makes me wonder what kind of anti-emetics these people were taking when they went through the process. Honestly, I still have no sympathy for these people if they went through this process without demanding foreign language services. In the state of California, there are Spanish language services absolutely everywhere. I used to live there, so I can tell you that the family from San Jose should have had no trouble getting what they needed in Spanish. Their ignorance is appalling as it would by for any other family in the US. I find it very hard to believe that they were ignorant of the situation. If they didn't like their mortgage banker because she talked in English the entire time, they could have easily have walked to the bank next door and found someone who could do the business in Spanish. Ridiculous.

What I find interesting is that the article is focused on the clients of Linda Tran and Norma Valdovinos only, but does this really represent a trend nationally or just the sorry clients of two shady people working in partnership?

Anonymous said...

Well first off i respect all the comments made about the article...

the fact of the matter is that these people were not lineing up outside the real estate offices to purchase a home. they were not looking to buy a home, the homes were brought to their door step. i live in the bay and have seen this take place right before my eyes.. peopel were selling homes in youre local super market, both inside and outside the store. houses were being sold everywhere where you could find "potential buyers".. that means anybody with a job and a dream to have a better future.. in this case the person to blame is norma valdovinos and nobody else... why many peopel are going to ask .. well here goes.... she is first off a scam artist.. she got these loans approved by any means not thinking about the home buyers... normas requirements to buy a house..

social security number notice i did not say card all you need is the number she takes care of ordering you a card from her local scam printer.

a bank account with atleast $20 dollars yes $20 dollars.....

and yes peopel that is it ...

that is all you need to buy a house from norma..!

anybody with any questions about norma please contact me ..


i am in the works of making a movie about this situation people like norma put on my peopel..

Denise said...

Let me begin by saying that I am not a U.S. citizen looking for a free ride. I expect to pay my mortgage, I expect to pay my utilities and I expect to pay my taxes.

I lost my job in March, 2008 as a paralegal. I was making $80,000 per year and I could comfortably pay my $2400 monthly mortgage payment, ON TIME. After I lost my job, I was entitled to $300 per week on Massachusetts unemployment, hardly enough to survive, much less pay a $2400 mortgage payment. I did, however, manage to pay all of my utilities and my $187.00 per month car payment. I sold my 2005 Ford Mustang and I sold whatever items I could, all in an effort to keep my priorities in check. I hit the ground running on March 14, 2008, the day after I lost my job. I applied for jobs that I was overqualified for and underqualified for. I took chances in areas that I did not have expertise in, but to no avail. I went to unemployment workshops, I contacted recruiters and accepted jobs that were from $12 - $18 per hour, compared to my $41 per hour. I wanted to save my home on my own. It took me nearly 7 months to find full-time permanent employment, but for $20,000 less. I am now 7 months behind on my mortgage, but am in a position now to carry my mortgage payment. I have been through the trenches and back my entire life and will now and then still hit a pot hole, but I am determined. My dignity is important to me. I do not want the government to hand me $15,000 to get me out of the mess that I got myself into, but I do need a set of crutches so that I can get on my feet again. We have all been victim to unfortunate circumstances, and most have prevailed. We manage. With every day a new hand is dealt. The weak surrender and the strong survive. I have gained strength with each new obstacle. With all of the challenges that life has brought me thus far, I have prevailed. I was a single parent at 16, with no support, financially or otherwise, from his father. I never married and divorced and staked a claim in my husband's worth. I have never asked either of my parents for a cent. I have made decisions in life, both good and bad, but God willing, I will keep my home. There were times I swore I wouldn't survive as a single parent. I played mommy, daddy, brother, sister, nana and grandpa. Nobody, and I mean NOBODY, helped this girl.

I'm interested in hearing more about the “bailout” that the government is proposing. As an individual looking for a piece of the pie, I propose that a lien be held on the dwelling that would be paid upon the property being sold. In no way, shape or form, should anyone be entitled to free money, but does anyone know the details of this?

For those of you who object to the housing bailout plan, think about this. Do you have any idea how much a foreclosure in your neighborhood would bring down the value of your home? It is quite substantial. If your neighbor loses his home, you could pay the price yourself. You are paying taxes regardless if your neighbor forecloses. Keep in mind that you may not need help now, LORD KNOWS I NEVER THOUGHT I WOULD, but when you do, will you still reject any government resources?