Sunday, August 10, 2008

No one could have forseen...

The following is an excerpt from a guest editorial in today’s San Diego Union-Tribune entitled "The American dream as a nightmare,"
I am not a scam artist, speculator or greedy investor. I willingly bought a bigger house, a fixer-upper, in the East County at the peak of the crazed California market… I put down 30 percent on my home. That’s a down payment of $200,000 that I worked hard for, and borrowed against my 401(k) along with some equity from another house that I had also worked hard to buy.

I did however make the foolish mistake of getting a negative amortization adjustable loan recommended to me by a loan officer who is still my best friend. We both agreed that I would get the lower interest rate on the adjustable to keep costs down, build equity more quickly and after a couple years refinance to a fixed – just as so many others had done.

This is followed by a very lengthy and self-pitying “who could have foreseen” discussion of rates going up and home values going down, and then being unable to pay mortgages and being treated with terrible unkindness by Countrywide Mortgage. "They do want your home. And all of your money that you have worked so hard for and scrimped and saved. They want to take it all away from you." That kind of thing.

The writer says that good judgement was exercised in making a 30% down payment, but notice that the down payment consisted of “borrowed against my 401(k) along with some equity from another house.” Hardly a model of fiscal conservatism.

What really boggles the mind, though, is the thought that a loan described as “negative amortization” would be thought to “build equity more quickly.”

“[J]ust as so many others had done” is exactly how Ponzi schemes work. The con artist shows the “mark” how many people have been raking in money on their “investment” at a huge profit. It makes huge money, until it collapses. The last ones to join the party lose.

Finally is that “no one could have foreseen” seems to be becoming the American mantra. We use it to justify our foreign policy disasters, our economic disasters, our lack of preparedness for natural disasters, and our unwillingness to accept the outcomes of our own greed.

And just for the record; I saw this coming. My wife and I bought a house we could afford, the down payment was money we had in hand, and we financed it with a 30-year fixed. We declined many, many offers to refinance and "take out" money. I’m not proud of that. We just have more good sense than greed.

Well, maybe I am a little bit proud of that not greedy part.

1 comment:

  1. Anonymous7:01 PM

    I agree with the good sense part. Did you really see that 'crisi' coming? Actually, yeah I can understand that you could. I knew that the spiraling market would have to cometo an end somehow. And it sure did...