Thursday, May 14, 2009
Yuppie Subprime: A Personal Story By A NYT Reporter
Reading this made me feel weird. It should have been titled "We're all subprime now":
The icy slap of reality hit me two weeks after New Year’s Day in January 2005. We had been living in our new house for five months. I walked out of The Times’s Washington bureau, several blocks from the White House, and crossed Farragut Square to my bank. I had a bad feeling about what the A.T.M. would reveal about my balance, but I was shocked when I looked at the receipt: $196. We were broke.Two more refis and over 50K of CC debt later, they are losing the house. It's as if this couple just OD'd on every easy credit gimmick of the 2000's:
The key was the overdraft protection — more accurately described as “bounced-check loans.” Every time I overdrew my checking account by even a few dollars, the bank would tap my MasterCard for $100, helpfully deposit the cash in my account and charge me $10 for the privilege.My suspension of (dis)belief thingie broke when this was described as "unwittingly" tapping into their credit. If you are not making enough money to live on and pay the mortgage, which they knew they weren't when they bought the house, and if you don't balance your checkbook and figure out how to live on the income you have, there is nothing unwitting about it.
The timeline is something like:
August 2004: Buy house with no-ratio mortgage. (No income verification, no DTI computation.) This is necessary because the new wife just moved out to join the author of the article, she wants a house, they decide she "will" find a job, and they both blithely ignore the fact that he pays 4K a month in alimony and child support, leaving him with less than 3K a month take-home.
January 2005: Checking account drained - they were living partly off the sale of his NYT stock.
April 2006: 50K of CC debt? Huh? The wife had found a job for 60K annually by November 2005, and had found a lower paying job earlier. He had about $50 a week for walk around money after paying the mortgage and his alimony. How did they rack up 50K of CC debt in 16 months?
June 2006: Cash out refi with Fremont (classic subprime indeed) paying off CC debt.
October 2006: Refi again, this to get out of subprime interest rate mortgage (they'd paid off their CC debt and their credit scores had risen again). I'm guessing there were car loans and so forth in there that aren't mentioned. Mortgage was about $700 more a month than when they'd started.
October 10, 2006: The wife loses her 60K job. So here I am thinking, well, what's this about the closing - the final refi? Did they know about her job loss when they signed the papers, and what type of mortgage was it? Were they using both incomes? The way the article is written, you come up with the idea that these people had a while between the last refi and the wife's job loss, but that doesn't square with the dates.
May 2009: They are now 8 months behind on the mortgage, and they have called about a modification. Needless to say their servicer hasn't called back, because these people will not pay the mortgage no matter what happens. Giving a mod to this couple would be insane. He has written a book about the whole thing, and I guess they are banking the 2.5K mortgage payment each month to pay off other debts and their current bills so they can continue to live.
The good news: They are still together.
The bad news: They haven't hit the really bad part yet. They are going to lose the house, and once they lose the free rent, they're really going to be in trouble. This couple cannot jointly work out a budget and live within their income, and they appear destined to be lifelong trailor trash unless they hie themselves to a counselor and learn how to navigate this difficult topic. I am guessing the book is the latest bright spot on the horizon allowing them to ignore their underlying problem.
Let this be a lesson to all of you with spouses who cannot control their spending. That's an issue that has to be fought out, and the earlier the better. Life is pure hell when you are always sliding down the hill on a greased slide of your own making.
There has to be some self-delusion to get yourself in this pickle, that's for sure.
"Let this be a lesson to all of you with spouses who cannot control their spending. That's an issue that has to be fought out, and the earlier the better. Life is pure hell when you are always sliding down the hill on a greased slide of your own making."
Don't even get me started! I know the pure hell you speak of first hand. I was married in 1997 and it ended in 1998.
My credit card paid 1% cash back. After she left me I got a $500 rebate in the mail from the credit card company. That meant we spent over $50,000 (more than half of my income) on plastic in just one year.
Tears of joy for having a brand new bed, blinds, fridge, washer, and dryer in our newly purchased house along with a new car for her (using my savings to afford all of it, including the 20% downpayment on the house)? Nope. Tears of sadness for not having a dining room table yet. Everyone else has a dining room table. Why didn't we? I refused to carry a balance on my credit card, that's why.
That's when I realized that no amount of money would ever be enough. I would never be able to retire early (my dream), nor would I even be able to retire at all. Ever.
We grew apart for a variety of reasons and then she left me.
Some people apparently always want more than they have. It is a concept so foreign to me. Her biggest complaint was that she wanted "more" children than I did. She shared that after she left me. I had very little desire to have any children with a person who just left me though. Further, the number of children I was willing to have was very dependent on my ability to afford them. Go figure.
I don't mean to imply that my ex-wife is/was a bad person. She wasn't. The point here is that although opposites might attract, when it comes to savers vs. spenders in a marriage, that truly is a recipe for "pure hell".
I also don't mean to have you play the role of therapist, but this one really hit close to "home". Literally!
Fortunately, I was able to retire a year after she left me. An investment I made in ~1994 paid off in a major way. I cringe at the thought of what would have happened had it paid off a year earlier. I no doubt would have needed therapy by now.
Quote: But each of us would go through bruising two-decade-long marriages, ...
Quote: Patty spent little on herself, but she refused to scrimp on top-quality produce, Starbucks coffee, bottled juices, fresh cheeses and clothing for the children and for me. She regularly bought me new shirts and ties to replace the frayed and drab ones in my closet. She thought it wasn’t worth agonizing over nickels and dimes.
Quote: We were both building up grudges. "You can’t keep second-guessing me," she told me angrily. "It’s small-minded and petty, and it’s not very attractive."
Quote: "You lied to me," she told me as I got coffee. "You said that what I saw on the outside was pretty much what you were. But you’re completely different. If I had known what you were really like, I would never have come out here."
Quote: "Telemarketers," I would mumble when my son Matthew asked why we got so many robocalls from 800 numbers.
Quote: I took a certain pride that I outlasted two of my three mortgage lenders.
P.S. You misspelled trailer trash.
It's a class thing. Only GOP voters and girls who may or may not have been raped by Bill Clinton live in trailer parks. For example, if you live in CA and live in trailOr, you are not living in a trailer. You are adopting an environmentally conscious minimalist lifestyle devoted to the aesthetic of the relationship between the space which encloses you and the wider landscape upon which you've plunked it, as detailed by Ann Althouse.
The distinction between trailor and trailer trash is based on an English rule that is similar to the i before e except after c rule, but related to socioeconomic status. E becomes o in the final syllable, and extra e's are added at the end of any words describing a development devoted to environmentally minimalist domestic housing.
So, for example, if these two don't figure out how to budget, they may end up in a lovely little neighborhood known as Olde Brooke, which offers lot rentals for $400 a month.
I feel that you have set my efforts at gentility back by decades with that link.
In fairness, we are getting one side of the story only. Many men (and many women) struggle with spendthrift spouses, but few are so stupid as to take out a mortgage that leaves them with less than $300 a month for all other expenses. I have also known few people who manage their finances carefully who suddenly discover that they only have $196 to cover their living expenses for the next month.
My brother's first wife had it. There was also a little problem related to running around with knives, so the breakup was difficult and life-endangering. People who are displaced on outward things and ruled by the judgment of strangers and acquaintances are to be pitied, but avoided.
I do not wish to cast aspersions on men unfairly, but the fact is that biology is not a friend to men in these matters. The more decent the guy, the more protective he is, and the more responsibility he takes. Sometimes you see women stuck in similar situations, but I think our instincts early on tend to help us out there.
If anyone reading this knows the Andrews Family please tell them just write their State Rep. and Tim Geithner. Tim wants people to let him know what's going on and he will follow up. If you don't do that you're hosed because no one at the bank will help you with the big guns behind you.
God could call Chase, and Chase wouldn't modify this mortgage. There's nothing to work with.
MoM, have you been reading rob dawgs blog site too much?
In all seriousness, maybe, just maybe, that once the masses figure out the joneses they are trying to keep up with are hopelessly in debt like these two morons we'll have a fundamental shift in how we look at debt. kinda like the people that lived thruogh the depression.
I'm afraid its probably too late for the boomers though.
"People who are displaced on outward things and ruled by the judgment of strangers and acquaintances are to be pitied, but avoided."
My sister lives in a rural area. She had a friend visit her from overseas. My sister was preparing to apologize for all the dandelions in the yard but her friend spoke up first. It went something like this...
My what pretty yellow flowers you have!
In my opinion, dandelions are pretty. It makes me question the rest of what society tries to teach me (like leveraged debt is a "sure thing" path to the good life).
That being said, my neighbors can't stand dandelions so I make an effort to reduce the pain and suffering that those pretty little flowers seem to create, lol.
"But given that Patty had landed a solid job, it seemed like an indulgence we could work off later."
Will someone please explain the concept of a "solid" job to me? It's been my experience that they will all dump you at the drop of a hat. I have no sympathy for them. They knew that they could not afford that lifestyle, but they did it anyway. It doesn't seem to have dawned on them to cancel their cable or drive the speed limit. Are we all supposed to sit around and commiserate about how hard times are with people like this? They pissed away money hand over fist, ran up a huge debt living beyond their means and yet somehow want you to believe that they are intelligent people.
How in the heck does anyone rack up CC debt at the rate of 3K a month? How? You can't blame that one on lettuce!
My first reaction on reading this article was compassion, if not sympathy. My second reaction was that this is a couple that needs not sympathy, but a kick in the ass sufficient to get them to deal with reality before they find themselves in an even worse position. It's time for a little tough love.
After all, someone needs to help them out, since they can't seem to figure out the crucial step of stopping the spending. Come to think of it, doesn't that describe the US' major problem in a nutshell? We buy stuff - planes, ships, houses, social programs - for which we cannot pay, then we wait around for someone to come and pay the stuff for us. After all, we're too big to fail!!
My question for the group is this: has anyone known a case in which a woman (and sorry, but this behavior is more typically female than male) has been an addictive spender and has ever been "cured?"
BTW, I am not sure if this behavior is more typically female. I know quite a few men with the spending problem and women who have to control the saving aspect.
If you don't want to go happily bankrupt together, you have to set limits. I think I will make a separate post of this to see if you can get more feedback. Male or female, this is a real issue for many people. I know it always has been, but perhaps the bad times accentuate the problem.
Fortunately we now have a leader who knows better and can not only look out for us, but will be able to protect us from ourselves. All hail "The One".
Funny how life is. Who would of thought a man from the South Side of Chicago named Hussain would lead us to salvation.
A German leader who wasn't German.
A Russian leader who wasn't Russian.
ANy one seen that Birt Certificate?
While I realize I can't make sweeping generalizations about the entire cohort that apply to every individual, generalizations still generally apply.
After all, didn't US savings rates begin to drop just as the boomers entered the workforce and only accelerate from there? No, its not causal but I induce that it is.
Once you said that demographics is something you look at a lot in your job, so you probably have better quantitiative insight than I. But my personal experiences tell me Boomers are way more leveraged than their parents ever where and as this point are too old to make up all the lost time and debt or possibly even adjust their behavior since there are simply too many of them. (For example, who in the hell are they going to sell their 4br houses to when they trade down to an empty-nest pad?).
If you ever take requests for analysis/dorks' red meat; demographic impacts and projections of how the boomers will fund their retirement in such mass would be a great one.
1. This guy is an economics reporter
2. He was able to get this far off his own personal economic track
That suggests that he's surely not a very good economics reporter (God help the people who depend on that paper for advice) or so arrogant that he thinks the normal laws of nature don't apply to him.
Yes, he very probably did vote for Obama. They appear to locked in a sort of kinky economic mind meld.
I wrote the new Hud Director and got help fast. Just a letter or call will do it. My daughter had a problem with Chase and noticed Sen. Boxer and Tim Geithner. This is the truth the Chase Bank assiganed some dude to her case and said the CEO assigned him. Obama's appointees do contact you and will help the Bush days are gone.This is the most BRILLIANT satire I've read in months! Uh, say what?.....
It says a lot about NYT that this guy was ever there, writing about economic stuff, and more so that he still is.
Also, regarding the "We're all Subprime Now" meme - I am a boomer and I own a house that's worth less than the mortgage, but I am not in the same league as this moron. I pay my cards off every month, put money in the bank and never use my overdraft protection. And the mortgage is 30yr fixed rate.
5 pounds 20 schilling a week in income and 5 pounds and 10 in spending: happiness
5 pounds and 20 schilling a week and 5 pounds 25 in spending: ultimately failure and family distress.
Hasn't changed much in 120 years.
If it were the woman who had written the story from her POV, perhaps I might be blaming her more, especially if she had tried to claim it was all his responsibility.
To me it seemed like he was subtly trying to put all the blame on her, whereas he was the one who took out the mortgage in the first place. That's what the title meant to me, anyway. An expression of skepticism. It's obvious that we weren't getting the straight story.
I just react viscerally to this. I don't think anyone can get through life without taking responsibility for what a person can control and going on from there. Now ***everyone*** can control buying a house. No one ever got mugged and woke up with a mortgage.
He walked in and got that mortgage. He did. You can't go on from there claiming that pricey vegetables were the dealbuster. He was the one who was rolling the credit card balances.
My second title was "I'm Not To Blame Because I Was Pussy Whipped". The implications in the article may be true, but even that wouldn't excuse him. Being wimpy is not an excuse.
Perhaps Title 2 was clearer, but it's still uncivilized. People do make mistakes, and knowledge doesn't necessarily prevent that. They deserve compassion, although they do not deserve respect for their actions or for their explanations.
I am very serious about the definite possibility that this slide downhill doesn't end with foreclosure and a rental.
"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery."
See - there's a point to reading the classics! Since we are on the subject of Dickens, how about this? Somehow it seems suitable. There is as little moderation in our language as there is realism in our plans:
"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way- in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only."
If a lot of subprime loans are made in an area, then a bunch of people can barely pay, they can't maintain their houses, more homes than normal come on the market due to foreclosures and distress sales, and eventually everyone in the neighborhood has their lives affected, as property values decline. So suppose a person has a jo
The Alt-A lending was predatory. It's not that a person who did what this gentleman did was individually victimized unfairly. It's all the people who sunk their money into a home around people who did what he did, got the traditional mortgage, and were paying on these houses believing that their house values would hold and that they were building financial security in the long run.
There are very firm studies showing that a concentration of subprime loans in a neighborhood does drive down the neighborhood. Everyone thinks this only happens to working class people. That was the delusion Tanta was trying to penetrate. These Alt-A loans were subprime from the start. They did the same thing to neighborhoods and people, and they are close to as socially harmful.
All I can say is that a person would have to have no ability to project into the future when getting themselves into that kind of mess.How scary. Thanks for posting this!
The first thing is that I keep a budget that tracks how much money we have allocated for certain expenses and I keep him informed of what we can and can't afford and how much money is in each "account" or when they are running low. I remind him we have savings goals.
Technology has been a help. He'se dropped the buying of many CDs and movies in favor of emusic, napster, netflix subscriptions--this has been a big savings.
Finally when it comes to big items, like our house: I told him if he wanted to keep his lifestyle, we should buy a house that was more like 1.5 times our annual salary then (that would have been impossible in this area in 2004/5 btw--you couldn't GET a house for that little. But we bought in 1999). I've also been parsimonious about car and payments (never pay on more than one car at a time; hold out for a really good deal). Keeping the really large expenses under control has really been the best help ever.
We still have debt but we're not accumulating new debt. The only time we ever stacked it up like the couple in the article was when we had major car repairs and major house repairs urgently done at the same time--with 2 kids still in day care.
The Chief is completely incompetent at handling money. Completely. The trick is to set limits, and to stick to them. He is a very fine man and highly intelligent, but he cannot manage money at all. Nor can he truly learn, because a lot of this dates back to his childhood and very traumatic emotional issues. A young child who is never certain from week to week that he will be given enough money to buy food when away at school is going to associate having spending money with love and security in a way that most Americans simply cannot comprehend. Every Sunday morning he'd get up at 4 AM, and go ask his grandmother for food money. Secretly, because money was so short that her giving it to him was an issue. And he was never sure if he would get enough. (They didn't have a school where he lived, so at the age of about 8 he stayed in another town 8 miles away all week to attend school.)
However, he is intelligent enough and most of all, decent enough to let me set the limits. Whatever money he's got to play with, whatever credit he has, he screws up. He is getting better, but he only is improving because I've got him edged into a box in which he can make mistakes and correct them without it getting him in big trouble and without me being involved at all.
It is not an issue between us because we've fought it out and we can keep to those limits. If anything, the problem has greatly reinforced his trust and his respect for me. In most ways, the Chief is one of the most competent and courageous people I have ever known. But this is his Achilles heel. One of the things that has helped is charity, because he is also one of the most generous people I have ever known and the act of giving away money to take care of people that are in dire need strikes right at the root of his emotional problem.
I think what both you and I have done is be realistic. Asking someone to do something they cannot do is not realistic, and getting angry at them for something they cannot handle is just stupid. In many cases, spending can be an addiction. If it's linked to early emotional issues, it's an addiction that a person will fight with for his or her entire life. If your spouse were a recovered alcoholic, you wouldn't ask your spouse to go to the liquor store and pick you up some wine for your night out with the girls. If your spouse had quit smoking after struggling with it for years, you wouldn't ask your spouse to sit in a bar all night drinking when everyone was smoking. It's the same thing.
The problem need not ruin a relationship if the person with the spending problem is functional and will make agreements, stick to them, and not blame the other person, and if the other person will take over the finances.
If the spender AND the saver can't do that, then usually divorce or separation is the only option.
How is your health and the Chief's health these days? I have not been on the net a lot lately. Busy finishing my book.
In an attenuated form, I'm the same as The Chief, without some of the extremes. My wife is the one with the money smarts.
It can be worked out, but is a hard process for both parties. We got in deep once and it scared the hell out of both of us. Hence the present arrangement.
BTW, this jerk's article is featured in today's NYTimes magazine. My comment: "What an asshole". Both of them...how much longer will the second marriage last?
One of the things my husband did is ask his credit card company (back up card) to lower his limit to $500. Every time they raise it higher than that, he calls back to have them lower it again. I'm really proud of him for doing this.
We have, at this point, almost no debt. I also do not think it is fair to dump a load of guilt on one person for that particular problem unless the person is refusing to try to cope. I have known people whom I admired greatly, but I have never known a person well and not realized that the person has some weaknesses. Maturity is a matter not of being perfect but of controlling one's weaknesses.
In relationships or business partnerships, the essential is not to expect the other people to be what they are not. Marriages are life partnerships, and who does what, and how it's done, are things that have to be negotiated.
Joy - that's pretty much where the Chief is, and I am proud of him too. He's paying off his CC debt right now. I didn't have to say a thing.
As far as your housing choice, I wonder if a lot of people haven't overbought. What you describe is what a lot of people used to do when I was young. Start small, so you don't get in a bind and you don't build up a lot of economic stress and pressure. The things we buy in life should be the things that will serve US WELL, not the things that serve others well. We are not living other people's lives. We are living our own.
Everyone needs some spending money. If a couple tries to cut everything so tightly, they are not being very realistic. First, everyone has times when bills suddenly pile up. If that becomes a crisis, then a person with money vulnerabilities is going to be under immense pressure. That's setting a person and a relationship up for failure.
What struck me about this particular article was that the original plan was utterly unrealistic, and I think they started off doomed. When your choice of vegetables becomes an economic issue, you really have no margin, and a car breakdown, an illness - any one of the thousand and one things that happen in life - will push you over the edge. As both people get frantic, any habits of relieving stress by buying stuff are exaggerated, and the ability to negotiate within the relationship is not there because the stress level is too high.
The boyfriend has a much more realisitic viewpoint of money. He doesn't have a problem with spending it, but he keeps a fairly tight count of what he has and doesn't use credit cards. It can be hard at times, but I am trying to learn from him. I had no idea how emotionally difficult it has been for me to be making all the money decisions on my own. I feel a bit disfunctional. At least I never went as far around the bend as the folks in the article.
I just read the whole thing. Suze Orman will have a heyday when his book comes out. I can see her writing her own book on it, something to the effect: Get a grip, America! Living the Warren Buffett Way. (Simply, Frugally, for those of you who don't know) Hey - maybe WE should write that book!
By the way - it's time for you to start Twittering. YOur posts are being talked about - you should be part of the discussion.
As for Twitter, there is not the foggiest chance that I could ever keep up with it. I have a cell phone, but I keep it turned off and buried safely in my purse.
Life just moves too quickly for me anyway.
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