The other day I was talking to someone I know — we’ll call her Anne* — who is a hardcore Republican. She firmly believes that the Republican party still stands for individual rights and responsibilities. Anne believes that laws protecting consumers are not needed because companies will do the right thing and people should be able to think for themselves. In other words, if it seems too good to be true, it probably is and you shouldn’t be taken in. She believes that there shouldn’t be laws to protect people from scams because it is just your own damn fault you got into the mess in the first place.
However; on this particular day, Anne was telling me about her son — Mitchell*, who purchased a home that was overpriced a few years ago with a three year ARM. Mitchell is like millions of Americans who have recently purchased overpriced homes using a low interest rate ARM. He needs to refinance, except here’s the catch. Mitchell refinanced not very long ago and was convinced that using the equity in his home to pay off some bills would be a smart thing to do. Plus, the interest rate went even lower, so he borrowed another $20,000* on his $200,000* home.
Guess what? Mitchell’s home has now been valued at $175,000 and he owes — on a three year ARM — $195,000. He can’t refinance to get out from underneath the ARM because no reputable bank will loan you $195,000 on a home worth $175,000. The ARM is coming up soon and his interest rate — from what I’ve been told — is going to skyrocket, making his monthly payment jump too high for him to pay.
So, I say “Gee, that’s too bad. I guess he should’ve thought about the situation he was in and made a better decision. He certainly shouldn’t have taken out a second ARM when he refinanced.” I mean, we’re a country where individuals need to take responsibility for their lives. I didn’t buy a home that was overpriced. I didn’t take out an ARM — and when I refinanced, I didn’t borrow more than I thought my home was worth — EVEN THOUGH the mortgage lender kept saying my home was worth X and didn’t I want to borrow more money.
Anne’s response is that the mortgage lender should be put in jail and there should be laws against this sort of thing. The government should step in and help Mitchell save his home.
Isn’t that hypocrisy? If I had called Anne and told her the above sob story about someone she didn’t know, she’d be saying, well, that’s too bad, but Mitchell’s an idiot and should lose his home. Might teach him a lesson.
But, since Mitchell’s Anne’s son, the government needs to step in and save him from his own stupidity.
Now, I don’t really know what to think about the current housing market crash. I think something needs to be done because if everyone defaults on their loans, we’re going to have a much larger issue than Mitchell losing his home. There’s a lot of Mitchell’s out there. I, also, think why don’t we teach this stuff in school? When we’re teaching Algebra, why aren’t we teaching kids how to read loan papers? Would it be too hard to teach kids real world applications for their thought processes? Something theyr’e really going to use in life? Because I don’t know about you, but I still haven’t used Algebra. I could’ve used some help when making decisions about my refi.
Getting back to the original issue, I know it is really too much to ask and it happens on both sides of the political spectrum, but I just wish we didn’t have so many hypocrites in our nation.
* – I’m using assumed names and changing information that would allow people to know who these people are for their privacy. The numbers aren’t exact either, but you get the general idea.