

An Open Letter to my Two Mortgage Companies - rstan251
http://blog.stealthmode.com/2009/02/06/an-open-letter-to-my-two-mortgage-companies/

======
TomOfTTB
I’m sorry but this woman makes me angry. A lot of it is my background. I grew
up living in Government funded housing and eating thanks only to the welfare
system. That, combined with working my way up to the point that I now have
money as an adult, makes me see financial matters differently than others
around here.

I accept that.

But give me a break. Boo Hoo, her house is only worth $700,000 now. She spent
nearly $50,000 upgrading it and now its worth less. Oh the Horror.

I get that it hurts when you have to go down a step in your standard of
living. I’m not entirely unsympathetic. But there are millions working to have
a place to live at all. So I can’t spare much sympathy for this woman.

Short sell the house, find a place you can afford and shut the hell up.
Getting kicked out of your $700,000 house is not the end of the world

~~~
timr
What infuriates me most about this situation is the implicit presumption that
she deserves the home because she got there first. She took out the biggest
loan, therefore she deserves the property now, and we should forgive her debts
so that she can stay.

I'm sure that Half Moon Bay would be a nice place to live. Personally, I'd
like a bit of land on the Colorado front range -- maybe something next to a
creek, with a view of a beautiful valley. The difference between this woman
and myself, is that I _know_ that I can't afford it. So I think of my dream
property, and work a little harder, save a little more, and hope that someday
I'll be able to buy something that approximates what I desire.

Apparently, this woman missed that memo. She went out, took a series of
ridiculous loans, and now she's the "owner" of a bit of property that she
never had any reasonable ability to afford. And now that it's all gone pear
shaped, she thinks that she should be allowed to stay.

Well, that's nonsense. There are thousands of other people just like me, who
have been saving and living responsibly for years to afford the things that
these lunatics bid up into the stratosphere by taking out massive debts. Now
is the time for irresponsible people to suffer, and for the things that they
"purchased" to come down in value to levels that the market of reasonable
people can support. We shouldn't rescue this woman simply because she was
willing to take out the biggest loan in 2006 -- and right now, that's her only
argument.

~~~
mst
I'm not exactly sure that's what she's saying. What she's saying is that she
is, not to put too fine a point on it, fucked, and that if the banks foreclose
they're likely to lose more money than if they try and work with her to render
her situations less fucked.

Not so long back, a client of ours ran into major trouble. They were left with
two options - pay suppliers a percentage and then sell what was left, or put
the company into bankruptcy and let the creditors work out who to pay what.

We decided that a guaranteed percentage now and the continued goodwill of the
people we'd worked with was a better deal than an undetermined amount at an
undetermined later date - so we dealt (more accurately, our MD did; I don't
really get involved in that side of things).

So far as I'm concerned, the interesting question here is not whether or not
she's an idiot, it's whether or not she's correct that providing the financing
she needs would be a net win for her banks over foreclosing on the mortgage. I
don't know enough myself to have any basis to make that call, but what's
currently infuriating -me- is the fact most of the comments seem more
interested in attacking the OP rather than discussing the financials :)

~~~
timr
I think it would be perfectly acceptable for the banks to allow her to
continue to rent the house, until a new buyer can be found at a lower price.
But yes, that's about all the charity I'm willing to extend to someone who
made bad decisions, and now wants to profit from them.

------
brk
Am I the only one utterly shocked by the fact that this woman is supposed to
be some sort of small business mentor?

From the front page of their site: "Companies that are accepted into the
Stealthmode Partners portfolio receive coaching, consulting, and connections
to the people and resources they need to reach success."

I really don't think this person is in a position to be handing out advice and
counseling.

My wife and I have 2 properties, our regular house and a lake house in a nice
community on Winnipesaukee. In both cases when we purchased these properties
we "qualified" for far larger loans than what we actually took out. We did
some "worst case scenario" math to make sure if one of us lost an income we
wouldn't end up crying on the Interwebs about the unfairness of the world. We
also made sure to put enough down that if we had to we could unload the
properties fairly quickly (yeah, it would be a huge loss, but we wouldn't get
backed into a financial corner).

Personally, I have no sympathy for this person or the majority of other people
in this situation. ESPECIALLY when you consider that, like many of us, she
should have lived through the whole .com boom/bust and had some inkling of how
things can turn on a dime.

I'd like to ask for the government to magically remortgage my properties for
what they're now worth, except that through some logical forethought and
planning my properties are worth much more than the loan amount.

------
SystemOut
She's looking for a handout. The sense of entitlement of some people in this
country is sickening.

"I want to ask you to re-finance my mortgage at the current value of my house
at a 4.2% rate, like everyone in Congress is suggesting."

Oh, come on. That's ridiculous. Basically, everyone that didn't go out and
upgrade or buy a big house gets shafted because those that bought big houses
would get bailed out to the tune of the current market value and at a rate way
below market value for their loan? That's just foolish and sends the wrong
message.

I bought a house in the San Francisco Bay Area in the east bay for about 450k
in 2001. The house is still pretty well above water but I have that thing on a
fixed rate loan at 5.5%. I've managed to pay off a decent chunk of the house
as well because I stayed conservative. And because I decided to stay put and
not upgrade even though money was cheap I would basically be told to piss off
because I did the right thing. No, no, no.

Luckily she has it wrong anyways. The law being tossed around would only be
for people in bankruptcy if I read it correctly but then again it changes
every day.

I really hope none of what she is hoping for comes to pass. And if, for some
reason there was a relief bill passed, there should be some sort of payback
clause in it where they government would be entitled to a portion of any
"profit" on the house when values start to rise again and the person sells it.
Think of the way affordable housing works where the buyer can't sell it at
"market rate" - they are only entitled to a certain amount of appreciation
each year. They can even add in credits for capital improvements so the owner
still has incentive to maintain the house vs. letting it go into disrepair.

------
pragmatic
I, at first, wanted to join in the bashing.

I scrimped and saved and paid off my home mortgage in about 6 years. I do
coding/teaching/projects on the side and used it to pay off all my student
loans and mortgages.

I think, much like the rest of you, that this person is a fool.

However, I have another angle. I used to work at a large bank. I have many
friends who still work at the same large bank. Loans were set to fall below 5%
(mostly commercial, mortgages are a different story).

However, this bank will not loan below 5%. Why? Because that what's the bank
was forced to take from the government.

Yes, the government forced the 10 largest banks to take money at 5%. This in
turn caused the banks (at least the one I have inside info on) to set their
lowest rates of 5%. This caused major problems with their computer loan
systems b/c their were set to follow prime/LIBOR etc. My friends had to tell a
lot of upset customers that their loans would not be falling below 5%.

So the banks will not/cannot loan at below 5%, like this person is asking, b/c
the gov't has gotten involved.

Now loans (commercial) and mortgages don't have the some source of funding
(yet) but gov't intervention is pending in the mortgage market.

Now the new president/congress has promised to do something about it. How will
they screw up the mortgage market? We will find out in the next few months.

------
drsnyder
I understand the longing to be close to family, but unless her yearly income
is somewhere around 200K, she shouldn't have bought the house. I'm basing that
on 20% down, and a mortgage of about 3x income ((730 * 0.8) / 3). I'm not sure
where it comes from, but this has been the historical guideline for
affordability.

~~~
zain
I'm not sure where you're getting your 3x income numbers from, but they're
simply ludicrous. With a mortgage of 3x your income, your mortgage will be
less than 20% of your salary. For example, with an $85000/yr income, you earn
about $5300 post-tax per month, and your mortgage payment is only $1350. If
you consider home owning to be important to you, surely you can afford paying
more than that for your mortgage.

Furthermore, it is impossible to find a home in the bay area for under
$600,000. I'm certain that those starter homes are not being occupied by high
net-worth individuals with $200,000/yr salaries.

I have been told that your monthly payments should not be more than 45% of
your monthly household post-tax income. That comes out to a mortgage that can
be about 5x your income. With those numbers, the lady in the article should've
had a household (her + her husband) income of about $150,000/yr.

I'm a recent buyer of a $625,000 home with a $85,000/yr salary and I have no
problems keeping up with my payments and establishing an emergency fund.

~~~
timr
He's right. The traditional guideline is that you should pay about 30% of your
net income on housing. You're right that the bay area is "different", but that
doesn't mean it's different in a reasonable way. Most people really can't
afford to own property here, by traditional standards.

Also, I'd like to point out that this woman took out an _interest-only_ loan
for the bulk of her debt, skimped on the deposit, and secured with another
loan. Even if we use your standard (45% of net income), there's no way that
she could afford the property.

------
mattmaroon
I do hope that in the event that banks start renegotiating mortgages at
current market values (i.e. in the event government forces/pays them to) that
the borrower does get their credit wiped out. They deserve it.

"I put 10% down and got a 5-year interest-only mortgage for about $576,000 and
a HELOC at prime +2 for the remainder, about $154,000."

AKA, I'm a financial moron and don't deserve credit.

------
timcederman
68 and only able to put 10% down on a house and now about to face foreclosure?
What have you been doing with your money all your life?

This is ripe to be picked up on burbed.com.

------
HeyLaughingBoy
Why are you people being such pricks?

This has nothing to do with how much the house costs, or where it is. Would
you feel diffferently if it were a $80k house and she had worked for 10 years
for the downpayment? There's nothing special about an 80/20 mortgage except
that it's "traditional" and a lot of people get hung up on tradition.

The bottom line is that she could afford the house when she bought it and she
had a goal of paying it off completely when her deals went through. Then the
bottom dropped out of the economy and now she's screwed. This affects high net
work individuals just as it affects those struggling to get by. You can live
within your means for decades and still be wiped out in weeks. Short selling
it solves nothing since she will still owe the bank the original amount. In
her situation, if the bank won't negotiate and she can't come up with the
money the only solution that makes sense is foreclosure. The bank would truly
be stupid to let this happen: it's basically cutting off their nose to spite
their face.

The level of smugness around here is incomprehensible!

~~~
dmix
I'm sure the fact her house is so expensive brought a bias to many of the
comments. But the main flaw everyone is pointing out is that she believes she
_deserves_ to be helped out, instead of taking personal responsibility in
order to solve the problem.

She believes its not her fault she can't afford to maintain her lifestyle, so
the banks and government (and ultimately the tax payers) should be helping
her. There's nothing smug about attacking her lack of justification of why she
deserves to be helped at other peoples expense.

~~~
HeyLaughingBoy
Notice that she only believes that she deserves to be helped simply because
the banks are being helped. I can understand her frustration: if I couldn't
pay my mortgage because I lost my job and couldn't find work and at the same
time I saw banks being bailed out with my tax dollars, I'd sure expect some
help too.

------
old-gregg
Hold on a second, are you implying that TARP money, i.e. the cash I had earned
and paid in taxes, should be used to rescue "unhappy and frustrated" credit-
loving consumers like yourself, who just happen to love his $750K Arizona (!)
house so-o-o-o much that I'm supposed to feel sympathetic for you?

Since apparently I am paying for this mess along with millions of other young
working professionals, foreclosures is what we want. Yes, foreclosures and 3x
reduction in real estate prices, because our economy doesn't pay salaries that
let us save up $750K for a house in the middle of nowhere.

Your "investment" should be up for sale for $350K and you should be rebuilding
your credit while living in an apartment.

And please leave banks out of it. They only gave you what you asked them for.

------
tc
If she's waiting for Congress to help her, then she's really in trouble.

------
gne1963
What would happen if she stopped paying on the HELOC for now until her
personal business conditions improve.

It is in second position, certainly would not help her credit score, but might
offer some short term relief without worry of losing the house?

------
eli
If you don't need to sell your house, and you're happily living in it, does it
really matter how much someone would be willing to pay you for it?

(I know, I know, you can take equity out of the house, but still, am I missing
something?)

~~~
nostrademons
It sounds like he's no longer able to pay the mortgage because his business
has fallen off a cliff. Customers that were willing to part with their money
in good economic times have disappeared in bad economic times.

It'd be really easy to blame him for taking out a mortgage he can't afford,
but this is what happens in recessions. While the money supply is being
inflated, some investments that are marginal (like his business, apparently)
seem pretty attractive. When the money supply starts contracting, they
suddenly get squeezed out of existence - which forces them to default on their
debts, which further contracts the money supply. Financially, the right thing
for this guy to do is to let the bank foreclose, but in the short run that'll
make things worse for everyone else.

------
andrewhyde
Francine has spent thousands of hours volunteering and building up the
community around her (most likely above some higher paid contracts).

I'm not really talking about the situation (which sucks, and is happening more
than we think, and yes, is bringing down major pillars in tech communities)
but am thinking about how this impacts us all.

