Depending on whose figures you want to believe, somewhere between 60 and 70 percent of homes in this country are purchased subject to a mortgage. Mine was. And it wasn't a traditional 20-percent-down, 30-year fixed-rate scheme, either.
Okay, some of the tradition was honored: it was a 30-year fixed-rate scheme, and that rate was 6.25 percent, a tick or two higher than the lowest available at the time, but not at all horrendous. What's more, the package I wangled allowed me to borrow, not the usual 80 percent of the value of the property, but an astonishing to me, anyway 102 percent. This enabled me to cover the closing costs and associated expenses with less than $1000 out of pocket. Out of immediate pocket, anyway.
To qualify for this deal, I had to meet some fairly minimal income and debt requirements, and I was given a thick book on How To Understand Mortgages or some such business. The cardinal rule therein, of course, was "Don't get foreclosed." And by the time they were ready to write me a loan, I had figured more or less how much I thought I could afford, which was about halfway between what I had originally expected to be able to afford and the amount they said they were willing to lend. With this number in mind, I went house-shopping, and wound up with a house about five percent above my self-imposed ceiling price, and a monthly payment that didn't damage the budget too much.
Perhaps I have an advantage, in that when someone says "Do the math," I can generally, well, do the math. But I can't believe it's that much of an advantage: most people have spent at least as much time in school as I have, and have gone through much of the same coursework. Still, not everyone is doing the math, as Dan Melson writes:
When someone tells you that your payment on an $800,000 loan is $2573 per month (and there are many loans even worse than that out there), all it takes is the mathematical ability of a fourth grader, at most, to realize that even if it's interest only, you're only paying 3.8 percent interest and there just aren't any other loans out there anything like that, and maybe there's something going on that you don't understand.
If I'd bought a house for $784,314 (which at 102-percent financing would put me on the hook for 800 grand) under my current terms, I'd expect my payments to be on the far side of $4800, a figure which uncomfortably exceeds my actual income. Under those circumstances, I'd expect to be foreclosed upon if I'd made such a dumb deal, assuming I could find a lender dumb enough, or weaselly enough, to offer it to me. Not everyone, however, grasps this concept. Melson again:
We're all supposed to be adults. One of the things adults are is responsible for their debts. This is one reason why lenders are willing to loan money because there are concrete reasons why it is in the borrower's best interest to pay those loans back. Remove that fact, and you've removed the underpinnings of our entire banking system. If you don't understand the economic consequences of that, at least in broad, have the courts declare you legally incompetent and appoint a guardian. You are not competent for any economic matters. You shouldn't be voting. You probably shouldn't be crossing the street without supervision and assistance.
You're precisely the sort of person, in other words, that Chuck Schumer and the Democrats are looking for as potential
Which is why the best thing we can do about the impending Foreclosure Crisis is to grit our teeth, write our checks, and make damn sure it doesn't happen to us.
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Copyright © 2007 by Charles G. Hill