Thursday, March 12, 2009

Why I Bought A House I Couldn't Afford

I have a request. Please, will all of you that read this little blog do something for me? Will you all stop talking about this recession being caused by "people buying houses they couldn't afford"? Then, will you ask all of your friends to stop using that phrase and then ask them to ask their friends... and so on. I think everyone pretty much realizes by now that there are a lot of problems/reasons/causes for the current economic climate and they weren't all caused by people upgrading their homes. Remember the skyrocketing costs of food, particularly rice and corn? (Tortilla Wars, anyone, anyone?) Food costs are still continuing to rise and that isn't because of people buying homes. How about that huge 550 BILLION dollar bill our country's been paying? (Iraq war anyone? Remember that? Yeah, still going on - dollars still being spent.) Or how about the soaring cost of gas? ($4.00+ gallons of gas - last summer? Anyone? Anyone? ...Bueller?)

Can we all just agree that there are all sorts of things going on now or that happened in the last few years that have contributed to this crises? If we could do that, then vow to eliminate the whole "people buying houses they couldn't afford" phrase then maybe, just maybe it will go away and I won't have to grind my teeth and clench my fists every time I hear it to prevent screaming. Really, it isn't good on my teeth and I don't have the money just now for dental work.

Why do I hate this phrase so, so much?

Well, isn't it obvious? I am one of those people.

That's right, me. And I have to tell you, I am getting a bit tired of hearing how me, and all the other people out there who thought they were making very sound financial decisions for their families, have caused the downfall of American civilization. Even one of my closest friends said this to me the other day. In return, he was treated with a half hour tirade from me (complete with wild gestures and raised voices) which was probably better than the roundhouse to the jaw that I was contemplating.

First of all, let's take a look at that phrase "people buying houses they couldn't afford." Let me ask you something, who do you know who has bought a house they could afford? I personally don't know one person who has bought their home with cash. I know there are people who have owned homes without mortgages, but they are in the tiny minority. Most folks (even ones saying this phrase) have a home loan (or two.) And why do they have home loans?? Because they cannot afford to buy their homes outright. That's not all - I have a car loan too. Why? Because I didn't have $19,000 when I bought my car. Anyone who has ever gotten a car or a student loan, used a credit card, borrowed from a friend, or had a mortgage has bought something they couldn't afford. So frankly, the whole phrase is pretty moot. The author of Life As I Know it has a nice post about it called People in Glass Houses.

Now, let's look at what really happened, from someone who was there, from someone who has not only 1 home they can't afford - but has 2! Me. So, let's take a little trip down memory lane, shall we? Let's go back to 2004 and talk about what was really happening then and why so many people are losing their homes.

This American Life recently did a wonderful show on why the financial crises really happened. It had a lot to do with international finance and only a little to do with your neighbor buying a new house. I really recommend checking it out - they make sense of the whole mess in a way that no one else can. I'm not going to explain it, because they do a far better job of doing it than I ever could and you can download the transcript or listen to the audio show on your own, but for reasons they go through on the show, at that point in time there was a pretty big housing bubble going on and a lot of money changing hands. So what did that mean for the average consumer, aka "those people" we hear about? Well, I'll tell you...

The banking industry went about creating a whole lot of different loan types. Remember ARMS? Or the NINA (aka Liar's) Loan? Yep, I had them both!

Now, I hope that if you've been reading this blog for awhile you've gotten to know me a bit. I'm not a dumb person. I research, I pay attention, I make budgets, I plan. I also make mistakes... but buying my houses was not one of them. Here's what happened:

During this time my soon-to-be husband and I were living in a home he had recently purchased. He had bought it with an 80/20 loan. If you bought a house during this period, you know what this is. Instead of putting a down payment on the home, you got two loans. One is (usually) a traditional mortgage for 80% of the home value. The other loan is (usually) a home equity line of credit for the other 20%. In fact, you could sometimes get the home equity line of credit for a little more than the 20% and use this surplus to pay off or consolidate your credit card debt. Don't you roll your eyes at me blog reader! Though I wasn't blogging back then, I was reading plenty of articles written personal finance gurus and in 2004 there was a whole lot of advice out there about using home equity lines of credit to pay off credit cards. I didn't do this then, but there were a lot of people who did.

So anyway, he had bought his house that way. This house was broken into 3 rental units (one each floor) and we were living in the first floor apartment. Around about that time he and I started talking about having a little place away - each of us had always had dreams about owning a bit of waterfront property. It just so happened that before meeting him, I had been saving up for a house of my own. Now that we were living together in his house I could, instead of buying a house in town, buy a little place out in the country. So, we began the search and over the course of a summer we looked at all sorts of property. I ended up falling in love with and buying a little cabin in the woods for $72,000. (A mighty low price for waterfront property, I might add.) He and I weren't married yet, so I bought the house on my own. I had some money for a down payment, but by doing the 80/20 loan, I could save that ready cash and use it for some repairs the place would need. Everything went through like a dream. My 20% home equity was an interest only ARM at 4%.

Wait, was I an idiot? An interest only ARM?!? Heh. Just wait. It gets better...

So, we've been living together for awhile and soon realized that the whole apartment thing just wasn't working out. Looking back now (ah, gotta love hindsight) it was actually some mighty big signs of future relationship woes to come, but at the time it didn't feel that way, it felt like we were cranky because we didn't have enough space. My office was in a nook in the hallway, my closet was so deep I couldn't see the back of it, but so narrow the hangers brushed the sides. His closet was so small he had to crouch to get in it, and his dresser was shoved under the stairs. I had my stuff scattered between a storage unit and the cabin and I never felt like I was "home." There was no room for anything. There was, however, a whole lot of houses in our neighborhood for sale and a whole lot of talk about what a great bargain and good investment real estate (especially rental real estate) could be.

We made a list of the things that were important to us. We also figured out a budget and how much we could afford. It was mostly idle wishful thinking, that is until he found the "perfect" home. It was everything on the list, and considering it was a pretty fanciful list - that was a tall order to fill. For example, I ideally wanted to live in a particular area of town - he wanted a three stall garage. Most homes in this area don't have any garages let alone one with three stalls. My house? It has a three stall garage and is in the heart of that neighborhood. We had gone to a few open houses and looked at other homes in the area and this one was about $24,000 less than similar homes for sale. In fact, it was such a good deal that by the time we put an offer in, there were two other offers already in.

So, you know what happened, right? We got the house and once again we went for the good old 80/20. We figured it would be no problem - I have a good steady job, my soon-to-be husband and cosigner owned his own business, which had been successful for over 30 years. It turned out there was a hitch though - he had been married before and it turned out that after his divorce his ex had done some mighty shifty things on a loan that he was still on. That left him with less than perfect credit. My mortgage broker (same one who had helped out before) said there was a new loan out that I could qualify for - alone. It was a NINA loan. NINA is No Income, No Asset verification - it means that the bank didn't want to see things like tax records or pay stubs, they just wanted to know what I did for a living. Well, my credit is good and my job title is very impressive (for all that is worth) so, my husband and I couldn't get the loan together, but I could get it on my own. That's what we did. The house was funded on a NINA 80/Interest Only ARM 20 loan. That's right - all the big whammys in one big fat basket!

Now again, what was I thinking?

It wasn't that I didn't do my research. I asked about the rates. I was told that the 4% on the ARMs (Adjustable Rate Mortgage) would change. Historically they would go up by 1% to 1.5% a year. My mortgage broker even recommend that if I had extra money, these were the loans to pay down first. However, the rates were locked in for a year. I think one of them (if I remember right) was an ARM for the first 5 years and then had a lovely big fat balloon payment. However, I was assured, don't worry: "we can always refinance." Now that I had the loans, all I had to do was keep my credit score up and whenever I felt uncomfortable with the rates or if I saw them going up too fast, all I had to do was call and we could refinance them into more traditional fixed rated mortgages. Easy-peasy.

Yes, I knew what I was getting into was slightly dangerous, but I had been reassured by an expert that there simple options out and lots of plans I could fall back on. Was I irresponsible for believing my mortgage broker? Well let me ask you, the last time you had surgery, did you read the physicians manual first? When you went to your attorney, did you read all the law books and double check every one of his facts? At some time you have to take an expert that you have hired on faith. Let me say too that at this point I was not the only one with NINAs and ARMs. I was not the housing bubble. These loans were everywhere. It was common knowledge and commonly accepted and not one of the professionals I worked with, from the various loan originators to the realtors, raised an eyebrow. In fact, at this very moment I have a copy of "This Old House" magazine from 2004 sitting on my dining room table. I was looking for an article I had read on installing crown molding, and ran across an article on the different loan types. Included in it were ARMs and they dicussed the risks, but even there they made it sound slightly risky, but not insane - similar to the difference between investing in Goverment Bonds vs. a Mutal Fund. A traditional mortgage gave you a guaranteed rate, the ARM "adjusted" so you got a much better rate, but it wasn't guaranteed. Reading it today I have to chuckle - no one expected what would happen.

Plus, don't forget, I wasn't going into this blind - I had a budget. The husband would rent out the apartment we had been living in. The income from that plus the other two units in his house would pay for that house and contribute a bit more. That "bit more" would go to the house. Then we would also rent out the one bedroom apartment in the new house. That money would also go to the mortgage. What was remaining we split about 70/30. He paid 70 and I paid 30 - plus all the expenses for the cabin. (It worked out to about equal). We looked at all the payments and they were no problem. Even if they went up a couple of percentage points, we could still manage it with room to spare. Of course, if they went up too much, then we just refinance. What possibly could go wrong?

What went wrong was that interest rates started to skyrocket. It was no 1-2%! I was lucky, when my ARMs started climbing I managed to get in and get them refinanced... just months before the whole bubble burst and you couldn't get a loan to save your life.

There were other unforseeable problems as well - the company I worked for lost a major customer (to no fault of our own) which effectivively killed my monthly profit sharing checks from my job. That was about 20% of my income - cut. Heating costs went up, which killed the profit on the rental house. Plus there were months where we didn't have every unit rented. Following all that was my divorce, and we all know what happened there.

Here's the point... many of those "people buying homes they couldn't afford" weren't. They were making what they thought were smart choices. They looked at their budgets and could make the payments. Then interest rates started skyrocketing, home values started plunging, the old "just refinance" trick wouldn't work - the homes weren't worth the orginial buying price anymore, or even if they were, the banks stopped lending money! A family member loses a job, has high medical bills, goes through a divorce, has a paycut, or a thousand other unforseen things and suddenly you can't make the house payments anymore. I know people who have been out of work for months - they've gone through their emergency funds and are getting past unemployment. When one cog in the machine of your life gets stuck, it sometimes can take a long, long time to get that machine going again. When many cogs all across the country go belly up at once, you have a disaster.

I won't deny that there are people out there who made bad choices, but I will say that there are a lot of people who were doing what they thought was the right thing - before it all went wrong. I was almost one of them. Frankly, I still could be. That is why this blog is called "Fighting Foreclosure." There but for the grace of God go I. It was a "perfect storm" of events that swamped many folks, and continuing to blame them - or me - isn't going to get any of us to smooth sailing again.

Photo by: nz lawyer


Holly said...

I think it's great that you've had the courage to write about this and tell everyone your story.

Life doesn't always go as planned but that doesn't mean you have to take the blame for the downfall of our economy!

Great post!

Michelle said...

Thank you for talking sense - to those that will listen. When my inSignificant other and I purchased in 2004, we had 2 incomes - not envisioning that injury would keep him out of work for 3 of the next 5 years...We were lucky in a way that we qualified for fixed rate FHA 3% down - otherwise, I am sure my mortgage broker would have had us in an 80/20 or something comparable. As it was, we have been as few as 21 days from foreclosure. Thanks for sharing and thanks for your blog!

Dawn said...

Hi Holly! You are SO right - life certainly takes its twists and turns. If we could predict was going to happen all the time, I would be a multimillionaire by now! Thank you for the great comments.

Michelle - Thank you for telling your story! 21 days from foreclosure - that had to be scary! I'm glad you enjoyed the post and I am happy to be the poster child for all of us that thought we were doing the right thing - then got smacked with the sledgehammer of life. Best wishes for you - hope things pick up for you soon!

Kemkem said...

Well said! I just read the story of an executive who made 70,000 a year and was downsized. After several months spent looking for a similar position or something even close, he is now making 12 dollars an hour cleaning restrooms. Extreme to be sure, but he said he had to put his pride apart and try to survive. His wife said she had been ashamed before, but now is just proud of him for trying to take care of his family. I, by the way, on the house l am in danger of losing, did put 21% down ($235,000!). Yep, l took an equity loan, but still quite a chunk of my money is in the house, but add a couple of deadbeat renters into the mix and all the trials and tribulations with evictions, I am trying to sell the house now but l am close to throwing up my arms in defeat. I can't compete with the banks that are just dumping the houses at ridiculous prices. From where l stand, l am better off being current with the mortgage l have now than trying to save that one and probably end up losing both. The contract with the bank is that you make your payments for 30 years and your house is the collateral, for which they make a ton of money. You stop making the payments and they have the right to take the house back. It's the risk of doing business. They helped with making the mess and they are suffering the aftermath. I have paid $53,000 YEARLY interest alone since march of 2004 which is down the toilet if they foreclose. Pardon me if l don't feel sorry for the bank. It will still make out like a bandit! I am so sure there are stories abound like mine and yours.. not everyone was greedy, but were just lucky to have gotten out before the madness stopped.

Kari said...

I didn't read the whole post I'm just getting home from being gone for a little over a week. I do have to say I'm tired of hearing it all too and you know what? I've never even owned a home myself.

Firstly, things happen... divorces, extended job loss, unexpected things that sometimes people can't prepare for. Secondly, I truly believe even those who did make a poor decision did so thinking they were making sound and healthy financial decisions.

Serendipity said...

I think everybody at one time ( myself included) has bought something they couldn't afford. And even though we're all grown up, things happen we cant control. But you did the smart and biger thing, instead of backing out you have been doing everything you can just to get yourself out. Not to mention your so honest and tell your story well. I'm going to add you to my blogroll because you really are an inspiration.

Shaun Connell said...

Quite frankly, you sound like a gambler justifying his gambling problem.

"What do you mean I gamble my money? Well everyone does! Even investing is gambling! And the expert poker players said they made a killin' maw! They just made a killin'!"

You knew the risk. You took it. You got hit with that risk.

Now don't make me pay for it.

My best friend and father and a financial advisor friend tried to get me to buy a house several years back. I said no thanks -- too risky. They said I was crazy. But I wasn't. They admitted it had a bit of risk -- too much for me, thanks but no thanks.

But, oh, right, you're the victim. No. You aren't. You made a decision, you took on risk, now live with it. Otherwise, what the HECK is the point of even knowing risk? Why do you get bailed out and other people who went on a "sure thing" don't get bailed out? C'mon. Bleh.

getting stuff done said...

We bought in 2007 - at the very peak. So far we are ok, because we have a tracker mortgage (risky.....) at this has played to our advantage in that interest rates have been brought down so very far we are at least paying a lot less than we would be in rent.... but still. Its hairy. And oh hindsight, why did I not borrow to the hilt in 1996!! But that is life, we are not planning on moving for a long while. We just havent made any money by sitting on an investment. Our house is probably worth about the same as it was when we bought it. Possibly a little less. We are holding tight and trying to pay off as much as we can when we can. the problem was the easy credit and stable interest rates meant that there was too much 'money' chasing too little housing stock, which pushed prices up and up. And it kept going for so long that everyone just started to settle into believing it would always continue. A lot of finance is all hot air, and bubbles just burst. I am just praying that interest rates stay low for as long as possible so that we can get rid of some of our mortgage. My parents suffered a 14% stint. that would seriously knacker us. fingers crossed they are trying to figure out how to prevent that ever happening again

Dawn said...

Kemkem - I think the story of the executive is a tough one. There are a lot of people who are going through some major life changes right now. I wonder though, is that all bad? Will his relationship with his family be better now? What will his next job be? I almost imagine that he will find a way to make this make his life better in the end.

Thank goodness (knock on wood) that I have had (mostly) good renters. I will say this though - I will never be a landlord again!

Kari - One of the things I learned in therapy, back when I was spending a whole lot of time beating myself up for my mistakes, is that people almost ALWAYS make decisions they think are the best thing at the time. Later, on reflection, they might see their error, but that is hindsight. You can only make the best decisions you can with the information you have at the time. So, yes, I completely agree.

Serendipity - Thank you so much for your kind words! Welcome to the blog - I hope you enjoy it!

Dawn said...

Hi Shaun! I knew there would be a dissenting voice or two out there - thank you for providing the other perspective. Just a couple of things though - I am not being bailed out. Nor will I be - not if I can help it anyways! I probably should have written something about that in the post, but it was rather long as it was. As it happens, I agree with you in some respects, I did take a risk I felt very comfortable with, and it blew up in my face. (I'll let you decide if I am talking about my marriage or my mortgage.) However, I am taking responsibility for it. That is what this blog is about. I work multiple jobs, scrimp and save and so forth to pay those mortgages plus my other bills. I am not in foreclosure because of that and I am looking for a handout for no one.

I don't feel that I am a victim. The story you read is what happened to me - it is just fact. I don't blame anyone - not the mortgage broker, my ex husband, my loan officers, the finance gurus, or myself. I do not ask for pity. That was not at all the intention of this post. All I am saying is that there are a multitude of reasons why this recession happened - and the people who bought houses? Most weren't greedy sots who wanted McMansions - most were just folks trying to do the best they could for themselves and their families.

Getting Stuff Done - I am with you. I'm trying to do the same thing in many ways - keep moving ahead, keep my head above water, and figure out how not get back in this situation ever again! 14% mortgages? OUCH! Wow, your folks must have been strong to get through that. My house is presently "under water" - I owe more than it is worth, but that is temporary. I live in a wonderful up and coming neighborhood and the house really is wonderful. Too much for me long term, I think, but still wonderful. I'm going to hold on, make some major improvements and then put it back on the market. Fortunately the cabin has gone up in value - not as much as the house has gone down and not that it matters much because I plan on holding on to it for a long time, but it is still kind of nice to know.

Bouncing Back said...

This is another one of your excellent posts. Thanks for sharing it. Isn't hindsight a wonderful thing? Don't we all wish we could look 5-10 years into the future and see how the decision we are about to make will turn out? Well we can't and that's that. I think you are doing a wonderful job with both houses. As I've said before, many of us made the best decision at the time with our finances and it still ended up biting us in the rear at a later point.

You are a perfect example of someone being given lemons and making lemonade!

Keep up the great posts and excellent work!

Dawn said...

Thanks Bouncing Back! I admit this post is a bit tongue in cheek - I was feeling a bit punchy when I wrote it. Reading it with fresh eyes I can see how it might have come off as snarky instead. So, thanks so much for all your kind words - I really appreciate them!

Anonymous said...

I hate to be the voice of reason here,but you are an example of someone buying houses you cannot afford. The thing that stands out to me from your story - continued lack of equity, poor financing choices and faulty budgeting. I also noticed that you never mentioned your DTI ratio in your story.

If you own rental property, any "profit" after you pay the mortgage should be used to establish a reserve account. The reserve is to cover maintenance capex, loss of rent, etc. This is the example of faulty budgeting - you used the "profit" to meet minimum debt requirements on new purchases. Additionally, you do not buy a 2nd home/vacation home if you have no equity in your primary residence.

An no, everyone that has ever used a credit card or has a loan is not someone who bought something they cannot afford. For example, I recently bought a new car, financed for 4 years with 40% down. I'm doubling my monthly payments to pay it off in 2 years. I also have sufficient savings to write a check today to pay off the loan.

Another example, I recently refinanced my house, bought in 2001. I have never taken cash out, used an equity loan to payoff credit cards, and have always had a goal of 15-year pay out. I'm on track to pay it off in the next 4 years, ahead of my original 15-yr goal. My minimum house and car payment total less than $1000 per month (10.5% DTI), but I am paying at least $2500 per month in order to pay off the loans. Notice, I have always paid extra principal on any loan. I never chose to pay interest only.

Now I realize I am lucky and have a good income, but that was not always the case. My income has increased significantly in the last few years - I just did not feel that meant I needed to "upgrade" my lifestyle. I bought a house that was $100,000 less than what I "qualified" for. That is an example of buying a house you can afford. Doesn't mean that I am risk free - if I lose my job, have a serious injury, etc. I could also be at risk. However, if I miss one month's income I am not at risk. I have no credit card debt.

I am single and 38 and have chosen to live within my means. I haven't upgraded my kitchen to stainless steel and granite countertops because I think it is more important to pay off my house first. Choices....

Now your story doesn't sound like you were reckless or completely irresponsible. However, I do think your story is an example of someone buying houses they could not afford.

J. Money said...

i like this post :) that's all i wanted to's a terrible situation all around, but keep on keeping on girl.

Kristy @ Master Your Card said...

I don't think you're an idiot Dawn, I think you've had a lot of things come at you at once and you handled them the best you could. But, when people use the phrase "owners who've bought more house than they could afford," they're not talking about you. They're talking about people who took on loans they knew damn good and well they wouldn't be able to afford when the rates adjusted. Those people who counted on the bubble getting bigger rather than bursting. I don't lay the blame solely at these guys' feet, though. The participating banks were just as guilty by not verifying income and documents on these loans.

Just a question...are you sure the 80/20 split you had was a home equity? It could be different in your state, but in Texas you can't get a home equity loan until you actually have equity in the house. If you have no money down on a house, there's no equity built up. That second loan is usually through a partnered mortgage firm who handles it at a slightly higher rate, usually with an ARM that you will eventually be able to refinance if you want to. I'm just curious how it is in your state.

Dawn said...

Anonymous - Thanks for the comment! In many areas I agree with you, but not all. For example, the second home wasn't actually a second home - it was a first home for me, it just happened to be out of town. I wasn't married at the time so I was a first time home buyer at the time. Truth be told, I think my husband and I could have weathered any of the financial storms that came through, we never had issues in that regards. It was the divorce that swamped the ship. We had enough in income and reserves to handle the renter issues and maintenance (especially since my ex is very handy) but the divorce is what turned everything around - and that could not have been predicted.

The big point though is not whether I am or am not someone who bought a house they couldn't afford - see the title of this post, I fully admit to that. If it wasn't true then, it is now. I do a lot of extra work to afford my properties post divorce. My point is more that the housing crises did not cause the recession alone, and that many people were making what they thought were valid choices at the time.

I appreciate your insights and glad you took the time to write your comments. It sounds like you have made decisions that have worked out well for you.

J. Money - Thanks Sir! I thought you might. I was feeling a bit punchy when I wrote it so the silliness and humor reminds me a bit of all the great posts you write!

Dawn said...

Kristy - I've refinanced both those 20 loans from the 80/20s but I know one of them for sure was a home equity. Back then there was an "assumed" equity, based on "standard" raising housing sales. In other words, if I turned around and sold it tomorrow, it would be worth more than today. Silly, right? But it was a silly time. I think the other one was exactly how you described it. Both are traditional fixed loans now.

Thanks for the kind comments as well!

Anonymous said...

You are classic example of a person who plans everything & everyone but yourself for the problem you are in...the banks are at fault for offering ARMS, "offering refinancing," problems at work, heating costs, etc, etc. But essentially, if you & everyone else that has life's problems thrown at them & keep making excuses that does nothing to solve the problem. You wouldn't be in this position if you would have decided to save money & ACTUALLY wait to buy something. There are a lot of things going on in the economy right now & I don't think the people in foreclosure caused it, but with gas prices, stock market, consumer debt, mfg levels down, job loss etc(typically economic cycles), it makes for quite a mess. But if you wouldn't have bitten off more than you can chew & had money in the bank as a reserve, you would be fine. I guess next time you'll go the route of paying 100% down instead of trying to figure out how to save $900/month. That sounds like a lot less stress. I hope you aren't driving around in a nice car, with a hefty car payment, b/c if you are, I really wonder how concerned you are with saving $900/month??

Dawn said...

Anon - Actually, I don't blame anyone for my situation. This post, though written rather tounge in cheek, is simply my story. It is a summation of how things happened. In truth, had I stayed married I think my ex and I could have weathered the financial ups and downs without a problem. We had our issues, but finances was not one of them. We could have pulled through. It was the divorce that left me in my situation. Our agreement had been that he would take the house and I would take my lake property. He decided to bail on the house, leaving me with a lot more than I EVER would have bought on my own. But you know what? I don't even blame him. Life is what it is - I got stuck with the "fuzzy end of the lollipop" as my dad would say. Usually it is the man who takes the financial hit in a divorce, but this time it was me. I'm not complaining about it though, that is just how it is.

I'm coming up with $900 any way I pretty much can so that I can keep all my financial balls in the air. It is occasionally stressful, as you mention, but worth it. Not only am I keeping my credit score up there, but I am investing in two really good pieces of property. Values are a bit low now of course, but in the end it will be worth it, I think. Actually, I know it will.

As for what I drive, I drive a 5 year old Honda Civic. It will be paid off at the end of May. (I can't wait!) I love my car and plan on driving her as long as I can.

Anonymous said...

I wrote the first anonymous post and I just wanted to add something. Regardless of my comments in my post, I have nothing but respect for your efforts to make money and honor your obligations. I wish you success, and I hope this market turns soon for everyone.

Dawn said...

Anonymous - thank you so much! I really appreciated that you dropped back by to say that. I hope the market turns around too - I think we could all use that!

Tom | Easy Googler said...

I disagree with you.

A house you can afford gives you a monthly payment that you can budget it and still live a quality life. When your monthly payments are as high as yours were, it was irresponsible for you to make your purchase.

People like you kept purchasing homes, and that drove up demand, which drove up the price further. You artificially inflated real estate.

Now, President Obama has unveiled a $1 Trillion bailout plan for the toxic assets. Did you know that your loans are toxic assets?

You can justify all you want, but the fact remains -- you bought more home than you could afford.

Dawn said...

That's okay Tom, you aren't alone in disagreeing with me. Remember though, that at the time I bought the house there were two incomes paying for the properties. We were living very comfortably. The dis-comfort, if you will, came in when I got divorced. That is obviously something I should have explained a little better in the post, I think. Now I am paying for this myself - without the assistance of that second income. That is why my payments are high. Two properties - one income.

Are my loans toxic? Depends. I am paying ALL my bills on time and at full amounts. In fact, my credit score is in the "excellent" range. I think to most lenders would be happy to have my loans.

AnnJo said...

You sound like you are doing a commendable job in getting yourself out of a difficult situation and I hope you are successful.

There truly are forces in life that overwhelm our best efforts to prepare and plan. Death, divorce, disability, disaster.

That being said and without this in the slightest being intended as a criticism of anyone, some of the choices being made in the last few years have sent shivers up and down my spine all along.

A 30-year variable rate mortgage on the assumption of a later refinance? Interest-only loans? 80/20 loans? Those all sound to me like huge gambles. I've done at least a dozen purchase money or refinance loans in my life - all fixed rate. I remember one loan I did for a small office building in 1979 that was locked in at 13.5%; by the time it closed about three months later, market rates had gone UP by 3% or more.

I really wonder if it is partially a generational thing combined with a lot less respect for the "old-fashioned" kinds of advice I remember hearing from my grandparents (who immigrated to this country around 1906 to escape extreme poverty in Eastern Europe) and my parents, who grew up during the Great Depression. My father did hundreds of loans in his life, some as high as 17% interest, but all of them fixed rate. Variable rate mortgages (ARMs) though rare were available to him, but he had been a professional gambler in his youth and he knew gambling when he saw it.

People who live through experiences like that are always dishing out advice, and most of theirs was risk-averse, maybe too much so.

From having lived myself through the inflationary 1970s, I'm very attuned to the risks of that (which, by the way, look to me to be rising rapidly).

If you don't have a wise great-grandparent around, I think the best protection against the kind of thinking that kicks in during amd right after "bubbles" is some historical reading. My recommendation is a book written in the mid-1800s, called "Extraordinary Popular Delusions and the Madness of Crowds." I am just re-reading it now for the first time in many years, and its descriptions of some past bubbles, and especially of the deluded efforts of politicians to try to prevent reality from setting in, could be taken out of today's headlines.

My own cautionary note:

As we watch more than a trillion in new government spending hit the books just in the last three months, with more trillions promised, remember and plan for this, if you can:

There are only three ways government can get the money it spends: Tax, borrow and print.

Heavy taxes kill economic growth and depress private sector employment (the promised Obama tax increases on corporate overseas profits will likely cost millions of U.S. jobs over time);

Public debt competes with private borrowing (and in today's global debt market, unsafe borrowing from hostile foreign nations risks far greater problems, like war);

Printing causes inflation (as in the 1970s in the USA) or hyper-inflation (as in pre-WWII Germany).

I sure hope I'm wrong, but I think we're in for a bumpy ride. On the plus side for you, Dawn, inflation is especially kind to landlords (assuming you have a fixed rate mortgage on the rental property and you are not in a hyper-liberal area that will impose rent controls).

Well, sorry for the long-winded comment, and good luck to us all!

CD Rates Blog said...

Dawn, you know that I have nothing but respect for your efforts to do what it takes to keep your bills current.

But Dawn, there are very few of you. Most people did buy what they thought they could afford and then walked away when the risk took a turn for the worst.

Those are the people that cause people like me, who didn't over extend, to be frustrated.

Those same people blame the experts when they should have read all of the small print. My expert suggested the same thing. I read the small print and decided for me, his advice was not the best.

I am not currently able to write checks for all of my debts, but if I had to, I get could out from under them by selling the house, car, etc and be okay.

When deciding to take on debt, that becomes the big question. If things go south, can I liquidate and still be okay?

Again, I hold you in very high regard for continuing to do what it takes.