
My Personal Credit Crisis - cake
http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=1&em=&pagewanted=all
======
indiejade
_We sent in an offer of $460,000 and one day later got our answer: the sellers
accepted._

The better way to think about the injustice of this story is to realize that
his Realtor & Co. earned at least $27,600 (Six percent of the $460,000) for
less than a day's worth of work.

 _Bob called back the next morning. “Your credit scores are almost perfect,”
he said happily. “Based on your income, you can qualify for a mortgage of
about $500,000.”_

Translation as to what Bob was really thinking: "Based on _your_ credit score,
_I_ can earn about $30,000 today, without blinking."

Realtors are the evil behind the mortgage meltdown. If this article doesn't
make it obvious, I don't know what does.

~~~
HSO
"for less than a day's worth of work"

Look, if Google earns x cents on a click from you, does it earn it on "less
than a second's work"? It does not, because someone had to take the risk to
acquire the necessary skills and contacts/reputation over a long period of
time, had to set up an office and legal forms, had to acquire a rolodex, etc
etc. There is a lot of risk involved. THe fact that the transaction itself, if
sufficiently isolated, takes place in a blink so much as doesn't matter!

In fact, our system works such that people are not paid based on their (highly
subjective) work effort but on result. Result in terms of what other people
are willing to pay for your services. If you go down the slippery slope of
"fairness" in pay based on effort, you will end up in pure, almost literal
communism -- everything owned by the community, nothing for yourself, because
there is no basis for judging effort from outside. Effort doesn't count,
results do.

~~~
indiejade
This is not sound logic. Did you get everybody in your real estate office to
sign up for a YCNews account and upvote this comment?

The mortgage problem is resultant, largely, because of lack of information
between buyers and sellers. Note that I didn't say lack of information between
a homebuyer's Realtor and the seller's broker. In economics, we learn about
the concepts of _buyer's surplus_ and _seller's surplus_. In real estate,
there is this third entity (usually colluding brokers, agents, etc.) eating
away, often entirely consuming all potential surplus. Why else would this
mortgage meltdown have happened?

People make decisions based on information presented to them. Mortgage brokers
and their Realtor friends go _out of their way_ to throw up as many brick
walls and make the process as overwhelming and confusing as possible. If
you're a Realtor, you surely are aware of the antitrust case against the
National Association of Realtors:

<http://www.usdoj.gov/atr/cases/nar.htm/>

Home buyers are usually required to sign STACKS of papers during closing.
During this process, they rarely notice that one _most important to the
Realtor & Co_ which is the one they slip in there that states the "percent"
that the Realtors are making and the "percent" that the brokers are making in
the deal; this number is NOT mandated by any laws, but Realtors and Co. always
give homebuyers the impression that it is; after all, all the other papers
they're signing are supposed to be for their "protection". After all who would
hire a Realtor who didn't claim to "be working for you"?

They talk dollars when it comes to house prices and percents when it comes to
what _they're_ making in the deal. This is evil, deceptive practice and it
should be illegal.

I think most rational people would think twice about taking out a loan to pay
five or six figures to somebody who calls shuttling around in an SUV and
counting their riches "work".

I'm not even remotely "communist" as you seem to be implying; I simply think
that this "rolodex" argument you're making is beyond outdated in the 21st
Century.

After all, your risk-reward argument only makes sense _if_ there's
competition. And if you'll look over the DOJ case I linked to above, you will
see that the National Association of Realtors does everything in its power to
restrain competition.

Need more evidence? Watch the video:

[http://themermaidtavern.blogspot.com/2009/02/realtors-are-
ev...](http://themermaidtavern.blogspot.com/2009/02/realtors-are-evil.html)

~~~
HSO
Your suggestion is off base.

As for the rest of your comment, please read my comment again. It says nothing
about realtors about whom I know too little to say much. It is concerned with
the meme that people seem to earn money "on a day's worth of work". I think it
is in the same category as that investors earn money only by "skimming off"
other people's "productive work". The transaction is only one moment in a long
chain of preparation and risk. Whether it takes place over a second or a month
does not matter. To make another outdated reference to the last century,
Michael Jordan didn't earn his millions by winning this or that particular
game for his team. It was years and years of preparation and taking the risk
of ending up like the other 99.99 percent of ballplayers, i.e. with little
money to show for his efforts.

The only job I can immediately think of which could fit the description of
lots of money for very little work is that of Jamal's contestant in Slumdog
Millionaire ;) And even there you can argue it is a long chain and that the
money is earned through attracting the attention of many people.

------
sethg
I think the author's first mistake was not in taking out the subprime loan,
but in entering a marriage without some kind of mutual understanding of how to
manage the household finances.

One of the _first_ things my wife and I did, after getting married (possibly
even before), was to set up a budget, including line items for how much money
each of us could spend without being questioned by the other.

~~~
gaius
He also displayed a lack of financial acumen in his first marriage...

~~~
unexpected
this brings up an interesting point. Would you make your wife sign a pre-
nuptial agreement before getting married?

I often see people who have gotten divorced sign a pre-nup, but people I've
spoken with around my age group (20-25) seem to be adamantly opposed to a pre-
nup.

~~~
Chocobean
I don't know about you, but as a young female of the 20-25 group, if my
husband made me sign a pre-nup before the wedding, it will pretty well signal
the end of the relationship. It will be interpreted as a sign of "if you don't
trust me with everything, i can't trust you with anything."

20-somethings believe in "life long marriage".

~~~
jrockway
I'm a guy in the same age group as you, and I totally agree. If I didn't trust
my (hypothetical) wife absolutely, I would never marry her. When I decide to
marry someone, I am not going to treat her like a security or an asset or some
other financial instrument -- she's a _human being_. I think the concept of a
pre-nup is evil and derogatory, even given the state of the current legal
system. (I don't agree with the "the guy always gets fucked" BS either; my
parents are divorced, and my dad got off just fine. He didn't even have a very
good lawyer.)

I think, basically, people make dumb decisions when they should make smart
ones. Buying a house, getting married, writing a book, etc. are not things
that you can rush because you really want to get them done. They take time.
The people that get screwed when doing these things didn't invest enough time.

~~~
berntb
I'm not certain I disagree here, but you can make an argument that you're
optimistic.

>> When I decide to marry someone, I am not going to treat her like a security
or an asset or some other financial instrument -- she's a human being

Historically, what has failed most often? Securities or human beings?

I'd bet on humans.

A friend's friend got problems a decade ago -- wife left him, his company
crashed etc. A while later, he was diagnosed with whiplash (I think, could
have been mild brain damage) from a traffic accident. He probably can't work
hard again, but has managed to build quite a good life.

I can tell you that I had (amongst other effects) something like personality
changes when I had a painless tooth infection for quite a while.

Things like that are probably more common than we think.

Even if you could guarantee your emotional state for years to come, I doubt
you can plan for changes like that. Usually, we tend to think of people as too
static.

Fan of Catalyst, by the way.

~~~
jrockway
_Even if you could guarantee your emotional state for years to come, I doubt
you can plan for changes like that. Usually, we tend to think of people as too
static._

Sure. But is it a good idea to protect yourself from an unlikely event in the
future at the expense of hurting your partner right now?

------
mattculbreth
Kudos to this dude for providing all of the details, almost all of which are
embarrassing to him. That probably wasn't easy.

He also names names on companies that "helped" him.

~~~
jonknee
... He's trying to sell a book which makes it quite a bit easier.

------
dataman85
As someone not familiar with divorce laws and alimony, I was shocked to read
that he has to pay $4k every month for child support. That makes a $120K
salary almost a $50 - 60K salary after taking into account progressive
taxation.

~~~
unexpected
Yes, i found this incredible. My question though was- why was his new wife not
receiving any alimony? She, by all accounts had younger kids as well.

Seems like he needed a better divorce attorney.

~~~
tjic
> why was his new wife not receiving any alimony?

You mean "child support".

Alimony is a payment directly to the ex-spouse, for the ex-spouse's enjoyment
/ benefit.

~~~
furyg3
eeeeh, "enjoyment / benefit" is sometimes true but not always.

Sometimes in a relationship both parties agree that it is best if one party
(usually the mother) puts aside her career in pursuit of raising the children.
This party is at a disadvantage after a divorce, and in some cases it may be
reasonable to compensate for it.

Ideally this should be a tiered system when payments wind down over time (but
usually isn't).

------
aneesh
> "But with her take-home income averaging only about $2,400 a month, we
> didn’t make enough to cover our bills because my take-home pay was going
> straight to the mortgage."

What the heck are you buying if $2,400 per month can't cover your expenses
_after the mortgage payment is taken care of_?

~~~
sethg
$4,000 a month in alimony and child support.

I'm glad my wife has promised that I'll only leave this marriage feet-first.

 _ETA: whoops, I missed the part saying those were automatically deducted.
Downmod me._

~~~
granular
> I'm glad my wife has promised that ...

I'm sorry to have to be the one to tell you this, but those promises fly out
the window as soon as times get tough.

No matter what you think she thinks of you, when the kids come and times get
tough, she will look at you and weigh having you around vs. having automatic
custody of the kids + child support + alimony.

------
bena
Is this what they are teaching in economics? That $2777/mo can magically cover
a $470,000 mortgage.

No wonder we are in this mess.

"At any other time in history, the idea of someone like me borrowing more than
$400,000 would have seemed insane."

Apparently at this time in history too, we just found a way to hide it for a
while.

~~~
HSO
Actually, this is precisely what they are not teaching in economics: That
people are weak, stupid, and make mistakes. Instead it teaches that they are
informed, rational decision-makers who carefully weigh their options and
choose the one that maximizes "expected utility". Schmoo! This is why we are
in this mess!

------
raphar
How is it the couple didn't learn anything about finance and financial crisis
while studying in Argentina????????

btw: I'm from Argentina.

------
nathanwdavis
Wow, this article speaks more about the ruin caused by split marriages than
anything else. Definitely motivation to stay in love and on the same page with
my wife.

------
gaius
Yet another smug boomer with an overinflated sense of entitlement.

~~~
krschultz
$220 a month for internet, TV, phone. Cancel that in a heartbeat.

And how stupid can his wife be if she is still buying all this stuff?

These are the people who _should_ be foreclosed on and never get a loan again.
Open that house up for someone responsible

~~~
invisible
My phone, TV, internet is roughly $170 per month for just me alone. Nothing
super special: Digital cable+Internet ~ 120, cell phone ~ 50.

------
jzachary
I'm pretty sure I'll ignore E. Andrews' economics columns from now on.

~~~
rcoder
Knowledge of macroeconomics != personal spending discipline

~~~
jzachary
Ok, but knowledge of sub-prime lending == personal spending discipline, or it
should. He writes about sub-prime loans and other "financial innovations", yet
he fell for them hook-line-sinker. If you know what's going on in the world,
you should know how you fit and how to maneuver within it.

~~~
nostrademons
There is a very big difference between knowing something and being able to act
on it. By reading this forum, you undoubtedly know a whole a lot about
entrepreneurship. Are you rich yet?

~~~
jzachary
I don't write articles on entrepreneurship and technology startups, either, if
that is what you are trying to say. I don't purport to be an expert on
entrepreneurship through articles from an authoritative sources like the NY
Times. It's a matter of credibility when someone who supposedly understands
how a system works falls victim to that system by his/her own actions or
greed. If PG did a startup tomorrow, attracted funding, and then burned
through it by buying Aeron chairs and Nerf toys, how much would you believe in
his credibility as a writer then? I would be a bit more cautious.

~~~
nostrademons
Would you believe Evan Williams when he writes about startups? He did his "10
rules for webstartups" (<http://evhead.com/2005/11/ten-rules-for-web-
startups.asp>) and then broke all of them with Odeo, which, not surprisingly,
failed.

------
Tichy
Why did it never occur to them to just sell the house? That is what puzzles me
most (among other things). It seems that having your own house is so important
as a status symbol that all other concerns are minuscule in comparison?

Also, what happens if the bank you borrowed the money from goes bankrupt? Is
there a chance they will just get to keep the house, because nobody will ever
come round to claim the money? If so, it wouldn't be so bad after all...

~~~
nradov
When a bank (or other lender) goes bankrupt its creditors seize the assets,
which include mortgages. So if you don't pay then the note holder will
eventually foreclose. But occasionally the paperwork gets lost or screwed up
and that delays the process. I've heard stories of deadbeats going a couple
years without paying before finally being evicted.

------
newblog
reminds me of this video: <http://www.youtube.com/watch?v=Ubsd-tWYmZw>

~~~
blhack
Wow...

I had never seen that before, and honestly thought it was a warning about
predatory lending...the person on the phone "you can do this" sounds like a
drug dealer "just one hit".

...wow.

------
derekj
Wow. I live in the Midwest so housing is dirt cheap compared to other places,
but half a million dollars for ANY house seems insane to me, let alone this
"small" one he's talking about. I don't have any sympathy for him.

I also don't understand how he could have "near perfect" credit score when he
had thousands and thousands of dollars of debt with massive interest rates.

Just goes to show that your income doesn't make a whole lot of difference if
you can't control your spending. I pay all my bills and save about 10% of my
income making $40k a year. And I really do have a near perfect credit score.

~~~
earl
Seriously, you do understand the concept of different costs of living, right?
Your astonishment at paying $0.5MM for a house is irrelevant; that's the going
rate and probably cheaper than renting in that area.

~~~
randallsquared
I live in an area very close to there (still in the DC metro) which has houses
which go for 400K and up, and yet I pay just over $1200 in rent. Renting and
buying are often out of sync with each other, for whatever reason (in east
Alabama a few years ago, it was the other way around; you could easily buy for
less than rent).

~~~
earl
You pay $1200 for rent for yourself; or yourself plus a significant other; or
for yourself, significant other, and three children?

~~~
randallsquared
Just me, but it's easy to find a three bedroom apt for less than $2000 around
here.

However, after looking on Zillow, I find things have either changed
considerably in the last year or I misremember, since I can see a bunch of
places for well under $400K around here, now. So, never mind.

------
jzachary
Turns out he didn't tell the part of the story about his wife's bankruptcies:
[http://kottke.org/09/05/economics-reporter-gets-caught-in-
mo...](http://kottke.org/09/05/economics-reporter-gets-caught-in-mortgage-
bubble).

------
biohacker42
Well written personal account of financial trouble, but I don't think this is
HN material.

~~~
tjic
40 upvotes in 2 hours - I think HN has spoken.

~~~
biohacker42
So it has and I regret it.

It was a long personal emotional article for a general audience.

It wasn't about technology, entrepreneurship, science, or anything besides the
personal and emotional journey into financial foolery.

I think HN used to be more narrowly focused, but perhaps I'm just imagining
things.

~~~
iron_ball
You're right. On <http://news.ycombinator.com/classic> it's only 3rd.

------
aswanson
In 1995 dollars:

[http://findarticles.com/p/articles/mi_m1355/is_n5_v89/ai_178...](http://findarticles.com/p/articles/mi_m1355/is_n5_v89/ai_17829604/)

~~~
DougBTX
Weird, that article stops half way and starts talking about a magazine "Ebony
South Africa". And "page 2" is a list of links.

~~~
aswanson
Yeah, really strange.

------
amitry
This guy need Dave Ramsey! <http://www.daveramsey.com/>

------
nazgulnarsil
why do people get married and have kids when the statistics say that neither
makes people happy?

~~~
dangoldin
My answer would be that statistics work for a population but not the
individual case. I feel that getting married and having kids would make me
happier - I'm sure others feel the same regardless of what statistics say.

~~~
nazgulnarsil
of course. but that doesn't mean we should ignore it when a large number of
people admit that they did X and it didn't make them any happier.

------
Notorious_PWN
My blood pressure went way up when I found out how brutally he is being raped
by the alimony system. He'd be better off in a technical field where skills
matter more than reputation; he could change his identity.

Assets earned during the marriage are earned by the couple and should be
equitably split, but child support should be no more than 1/2 the minimum cost
of raising a child (of course, if the father's not a prick, he'll contribute
much more; but the govt. should not require him to) and alimony should not
exist.

~~~
asciilifeform
> how brutally he is being raped by the alimony system

What I don't understand is how we almost never hear of such people packing up
and moving to some country which is hostile to US interests, or simply has
weak record-keeping and is thus friendly to those who want to leave their past
behind. Are all such countries mournful hellholes to live in? Surely not.

Seriously, if I were ever sentenced to the perpetual confiscation of over half
of my income, I would run off - doesn't matter much where to. Perhaps the
Somalian pirates - or North Korea - are hiring? I also recall once reading
that France will not extradite a French citizen - perhaps you can become one?
(They might still allow American debt collectors to find you, however. Does
anyone know?) Seriously, just about any life is better than being a part-time
slave, which is what such extortion amounts to.

~~~
quellhorst
I would argue that he is a full-time slave. Part of his time goes to pay for
his previous marriage, the other part for taxes, and the final part to the
banking system.

~~~
HSO
Funny how the notion of simply paying back your debt becomes "enslavement" by
the "banking system" in the minds of people these days. t's as ridiculous as a
fat person blaming the food companies to make it easy to overeat. The author
of the article is commendable for avoiding these loaded terms and blaming
himself rather than circumstances or even other people. It's a trite phrase
but still true that responsibility and prudence is the flipside of freedom and
risk-taking.

~~~
quellhorst
Oh, but if you get a loan at 10% or 15% interest and are late on a different
loan you can get a universal default where your rate is doubled to 20 or 30%.
Also the credit card companies have successfully lobbied the government to
make it harder for consumers to erase these debts with bankruptcy.

------
weegee
it just shocks me when normally intelligent people get into some sort of dream
state and think they are entitled to something they clearly cannot afford. I
make more than $2777 or whatever take-home pay this guy had after his alimony
payments, and my wife and I live in a one bedroom condo we bought for $130k,
and our mortgage is a little less than the same size apartment in the city we
live in would cost. but this guy shot himself in the foot and bought a house
that was clearly more than he could afford, and that is just basic math. if he
had been honest with himself, and done the math, he wouldn't have gone broke.
glad he is doing well with the book though.

