Two divorces, a new partner, and the great mortgage meltdown
Here’s a telling family angle on the Great Mortgage Meltdown in the United States: two divorced people get together and start up a new household in a very expensive house while he is paying more than half his take-home pay in alimony and child-support and she hasn’t even got a job. But the bank says, “No Problem!” -- or, at least, none that we can’t get around.
The irony of it is that he, Edmund L. Andrews, is an economics reporter for the New York Times and has even written “early-warning articles in 2004 about the spike in go-go mortgages” and knew “a lot about the curveballs that the economy can throw at us.”
But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons...
As for me, I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love. It was August 2004, just as the mortgage party was getting really good. I was 48 years old and eager to start a new chapter in my life with Patricia Barreiro, who was then my fiancée.
Patty discovered a small but stately brick home in a leafy, kid-filled neighborhood in Silver Spring, Md. We sent in an offer of $460,000 and one day later got our answer: the sellers accepted. I felt both amazed and exhilarated, convinced that the stars had aligned for us. I loved the house as soon as I saw it. It was one block from a school and a park. My boys would be within a 15-minute drive, and it would be easy for them to come over and stay whenever they wanted.
The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane.
His real estate agent puts him onto a loans officer at the American Home Mortgage Corporation and…
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.”
What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.
“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”
So Edmund and Patty got their nice house -- and entered a financial nightmare. Andrews has written a book about it: Busted: Life Inside the Great Mortgage Meltdown, which will be published next month by W.W. Norton and from which the Times article is adapted. Fortunately for him, the bank that wound up holding their mortgage, JP Morgan Chase, was in more trouble than he was by the end of last year.
Eight months after my last payment to the bank, I am still waiting for the ax to fall.
The whole country will likely end up helping to bail him and his new wife out of a debt incurred because of two divorces and a remarriage.If the book sells well, that should help.
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