Saturday, October 4, 2008

Confessions of a Sub-Primer

I am a contributor to the sub-prime fiasco.

So much blame for the current economic crisis is placed on the shoulders of the mortgages made to people with less than stellar credit desperate to buy homes they could not afford. The rising rate of defaults on these so-called predator loans, it is explained, has shaken confidence around the world, and the entire economic system is on the verge of collapse.

This bail-out package has been rushed so quickly—desperately—to vote, one wonders if taking just a little more time might uncover better solutions. If, in fact, failed mortgages are at the root, why are we not looking at supporting those mortgages instead of bailing out the “evil” men who made them? This answer seems just as poor a decision as the one that made me sign that mortgage in the first place.

In the super-charged economy of pre 911, when contractors had all the work they wanted and not enough labor to get it done, I rushed along, putting unqualified people in place, making mistakes that tumbled my company into serious debt. Unwilling to face bankruptcy, over-confident that money alone would cure the shortfall, equity in my home seemed the best way to rescue my company, the men, and our families we were feeding.

My own credit had been destroyed in the decions to pay bills late instead of borrowing. Taking advantage of “No doc” loans available, we used my wife’s name, supported by my unproven income.

The interest rate was an affordable 6.5% for 3 years. The processor agreed enthusiastically that I could rebuild my credit and refinance by then, and rates were holding steady anyway, unlikely to rise. I even checked the index rate that would trigger an adjustment and was again re-assured.

So with hope and optimism in ourselves and our commitment to work hard, and in desperation to bail out a business on the verge of collapse that could turn profitable on the very next project, we met with the courier, and my wife signed the papers. What I did not see in the pages of fine, fine print--rushed through and signed in under 20 minutes—was that the link had enough points over the index to guarantee adjustment upwards.

It angers me to hear commentators speak with scorn of the people who made such decisions. We, The People, who are leading desperate lives to pay these mortgages of 12% are just as much “Main Street” as the citizen asked to pay for the bailout. In fact, we have to pay the mortgage and our taxes.
I chose this option when it was a rate I could afford, but as payments have risen more than $1,000 a month—money that goes entirely to the profits of the lender--my back has been slowly, painfully broken.

The demise of my business, the dissolution of my marriage, the search for a new career cannot be blamed on the sub-prime mortgage fiasco. The desperation to solve the financial problems was an imposing factor. I am fortunate to be able to sell my house and get out from under this pain. I know there are others in neighborhoods who have lost all value and are forced to just walk away.

Perhaps there could be a solution that simply adjusts these mortgages back to the original affordable rates, and supports those unable to pay that. People remain in their homes (perhaps other marriages can be saved), lenders see fair and modest returns, and confidence is restored.

Very simple, yes. But like a frightened child, I am listening carefully to the arguments and reassurances of our President and Congressionals sitting around the kitchen table late into the night. They want to leverage the perceived equity in our government’s home, and it sounds eerily familiar.
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laughngrl said...

Your story says so much more that the pundits and their theories do (and it's written with heart). I think I heard an economist on the radio with a similar idea: allow all home owners to refinance to a reasonable rate (something like %5.25). As you said, so simple.

Anonymous said...

Kip, to be honest, I think that where we are globally at the moment would have occured anyway, even if the sh*t hadn't hit the fan with the sub prime lending in the U.S.

We noticed it in the Bank where I work months & months before the sub prime mortgage fiasco.

What the solutions are, I don't know. The bail out seems a quick fix and whether it will work, remains to be seen.

persistentillusion said...

No, I completely agree with you. Bank of America jacked the interest rate on some people's credit cards to 24%!!!!

What the hell?

I don't begrudge a business able to make a profit, but these companies are using their power of authority and absolute market domination to EXCESSIVELY rend a profit until the mortgage or credit card holder just throws up their hands and files bankruptcy.

Then these companies have the AUDACITY to turn around and talk about how the American people are 'irresponsible' and don't deserve a mortgage bailout. THEN they turn around and demand one for themselves.

It's disgusting, absolutely disgusting. Did you know credit card companies hires psychologists to help them determine how best to get people to sign up for the next offer, a different card, etc?

The fact that they go to COLLEGE CAMPUSES to trap the next unsuspecting generation of potential debt-consumers is sickening. And, of course, the fact that if you are in school you probably aren't working a job - or at least a full-time job.

They purposefully, with great determination did everything they could to rope people into their debt-culture.

The whole thing is ridiculous.

Laurie said...

I agree that the credit card companies and other financial companies, along with everyone else is out to make a buck. I'm out to make a buck, aren't you? The problem comes when we get our selves in a place of desperation where we are will to roll the dice with our futures. I use credit cards but pay them off every month. SO for me, it doesn't matter what their interest rate is. Just like they consult a psychologist to better the odds of you wanting their card, I'm sure Kip cleaned his house and made it look inviting so people would want to buy it and burger joints paint their shop with certain colors that stir your appetite. The point is not that are taking advantage of us but that we fall for it. We need to educate ourselves and take responsibility for our lives. Sometimes we get sucked in because we are only human and do get desperate at times. But we really need to venture into these things with a very conservative attitude and protect ourselves from the wolves. They are in more than just the credit and mortgage industries.

I too hope the bail out works and wondered about Kips idea as maybe a better solution. I'm so sorry Kip that you were a victim of this situation. But you will rise above it being a stronger, wiser person in spite of it. Sometimes it seems though the lessons learned are not worth the price of the class.

persistentillusion said...

"along with everyone else is out to make a buck. I'm out to make a buck, aren't you?"

Laurie, I'm going to have to disagree with you. I am not willing to make an unfair or unreasonable buck at anyone else's expense. A 14% rate hike because someone pays a day late on another credit card is atrocious.

Fortunately, this isn't me, but that doesn't mean I'm willing to ignore it. There were irresponsible folks on both sides of the issue, but at the same time I detest the tactics that credit card companies use to perpetuate a debt economy. They aren't above-board and they aren't reasonable.

Kip de Moll said...

Hee hee, I thought I might stir up a little controversy!

Personal responsibility plays into the fact, for me, that I was acting desperately and did choose to take that loan and the 6 credit cards after (Hayden, I'm paying 30%!), but the established companies did take advanatage of the situation by offering these "sucker" rates, then pumping them up. All I've wanted to do all the way along is pay my bills. I have taken risks and the desperation to succeed has hurt me terribly. Citiresidential is making out quite nicely on it, because I am paying the $2,000 interest each month.

I'm just afraid the desperation that got me into trouble is the same panic that rushed this $700 billion into law.

As a society, we do need to better pay our way and be patient when we can't afford something we want.

Lane said...

Kip- you're onto something very important here! Keep writing about this. Nobody is making the "main street" clear or real. You are personifying it. This is sellable writing and is much needed to help get us out of the collective, tangled mess.

And even deeper is the exploration into the psycho/spiritual WHYS of this. You can go down into that murky soup - what made you so frantic to sign those loans, get that cash"??? How does that relate to others - who are those others??

you have the courage, wit, sincerity and writing skills to make the leap from personal to the univeral.

you go, guy!!

Laurie said...

Hayden, I didn't say I was out to make an unreasonable buck. I am an ethical person. While you believe that the credit card companies are making an unreasonable buck, they are within the laws. A 14% rate hike because someone pays a day late on another credit card is atrocious yes, but it is legal. An I would be willing to bet it was listed in the agreement that you signed when you signed up for the card. If they said they were going to raise the rate for late payment, why did you think they would not? Is it fair? No. But if life was fair I would be skinnier and prettier. Life isn't fair. And you don't want life to be fair really. That would be boring and would not allow for individual differences and efforts.
Credit card companies can raise their rate on interest up to a limit just like the oil companies can raise the price of gas, apartment houses can raise the rate of rent and the grocery store can raise the price of bread. It is legal. My part in it is that I have the right to choose not to participate. By not participating, the value of their product or service goes down and then the price.

I am not into being dishonest. I am an honest business person. But I also know to set myself up for success by knowing what is allowed by credit card companies. That way I take advantage of them and not the other way around. I get cash back and never pay interest by paying the entire bill every month on time.

A lot of times if you threaten to drop the card, they will wave interest charges and other things to keep your business. You might give it a try.

persistentillusion said...

Laurie, first of all you are working under several false assumptions. The first being that I am a participant in the credit card debt economy. I am not.

Secondly, that I would accept "life isn't fair" as a justifiable reason to not be angered by the looting of our collective wallets.

There are lots of things that 'aren't fair', but to chalk it up that 'life isn't fair' is not a mindset that I hold. So, in this instance, I don't use credit cards. I also support the passing of a "credit bill of rights" for those who do have credit cards.

Your comment, essentially, amounts to "tough sh*t, that's life". Well, I don't believe in standing by when abuses are perpetrated against anyone. Ever.