This morning, my husband blew a gasket.
I heard loud voices coming from outside my house this morning as I was rushing to fill my thermos with coffee for the drive to work. My curiosity was short lived as my husband stormed into the house railing at length after talking to our neighbor Price (Katie's dad, for those who've been around a while). Apparently Price was doing what Price always does – he runs over to our house to brag about something. Normally we patiently let Price share his good news and then he goes away for a few weeks until he has something new to brag about.
This morning, however, there was no way my husband was going to keep his mouth shut at Price's "good news." According to Price, his bank is "working with him to forgive a big chunk of the principal on his mortgage and get him into a lower rate."
Why was my husband so angry at Price's good news?
Price bought his house a month after we bought ours. We actually wanted to buy his house but crunched the numbers and decided that it would be a wiser decision to buy our house instead, which was about $25,000 less.
The money that Price used as a down payment came from an accident he sustained while in the Army. When he bought the house in January 2003, his mortgage was $165,000 – pretty good for a 4,200 square foot house on a road like Peach Street. With 13 children (yes, 13 biological children – his wife doesn't believe in birth control and yes, she knows where babies come from because she is an ob/gyn nurse), nine of whom were living in the house, it was a blessing for them to move into a home and have some room to grow.
Price and his wife refinanced later that same year for $226,400. They used some of the $61,400 they pulled out to make cosmetic changes to the house – then went on cruises, "date nights" and concerts. In January 2005, they pulled out another $40,000. More cruises. More dinners out. As property values soared, they upped the ante in January 2007, refinancing and pulling out another $110,400. Price started to brag about his weekly massages.
Each time they pulled out money, Price would run over to tell us about his new truck, or the next cruise they were going to go on, or how much money he spent partying with his buddies. My husband once asked him if he was concerned that he was pulling every penny of equity out of the house, and Price responded, "I don't care about leaving anything to my children. I am going to live life to the fullest and then sell the house when there isn't any more equity to tap." Mind you, he never takes his children on the cruises or out to dinner. They eat ramen noodles, hot dogs, peanut butter and jelly, and mac and cheese.
Price's mortgage is set to adjust in January. He's been trying for months to get a lender to look at him. But he is swallowed up in credit card debt and his credit scores are low. His last few loans were pushed through using (inflated) stated income – his wife works for a hospital and he, like my husband, has a landscaping business. There is no way he should have qualified for the loans if he 1) told the truth about how much income he made and 2) if the lender actually required proof of his income.
My husband to Price, incredulously: "You mean to tell me that you spent the last five years using your house like an ATM, and now I'M going to have to foot the bill for this?"
Now I have been following the arguments on both sides of the housing rescue proposals. I do believe there are folks who were deceived by unscrupulous lenders. But I do not believe that is the case for most of the people who are overextended. I received my mortgage broker's license in 2003, just as the housing boom was starting to peak, intending to do it as a side job for supplemental income. But I found I couldn't do the business – because people wanted me to put them into loans I knew they wouldn't be able afford after a year. But they didn't want my advice. They wanted that mega house, and I chose to leave the industry knowing that there were plenty of brokers who would get them into that too-good-to-be-true loan.
I have three homes, so I guess that qualifies me as a real estate investor. I put down 10% or more on all of them when I purchased them – money that my husband and I had saved over a period of years. The last home I bought was purchased in early 2004 – just before the home prices became ridiculously out of reach. Just before closing on that house, I was told that a $43 medical charge-off had popped up on my credit report and that the loan would now have to go through as a 3-year ARM instead of a 30-year fixed rate. After running the numbers, we still felt that it was a good business decision and proceeded to close on the loan, knowing that we would need to be sure our credit was in tip-top shape in order to refinance at the end of the three years.
The next several years had their share of challenges. Four months after we bought that home, we discovered that the house had a sinkhole. After a year and a half of wrestling with the insurance company, the sinkhole was fixed. We got the erroneous $43 charge removed my credit report and made sure every bill in our house was paid on time and our debt-to-income ratio was low, which made our credit scores jump. Our mortgage adjusted and we had to pay the additional $400 a month until we were able to get refinanced into a low, 30-year fixed loan – but we didn't complain, because we had prepared for that situation by squirreling away money to cover that increase. (We would have been able to refinance earlier but for the fact that we had tried to sell the house, and the lenders made us wait six months from the date we pulled it off the market.)
We have had three families in the home during that time. Last night, we had to say goodbye to the current tenants, both of whom lost their jobs and had to move in with friends because they had no way to feed their two small children. We knew they were having difficulty making ends meet and tried to help them by lowering their rent to below market value – all the while putting aside money in the likely event that they would have to break their lease and we would have an empty house until we found new tenants.
After weeks like today – my 16-year-old daughter was a passenger in a car accident on Monday and badly hurt her knees (we don't have health insurance – that's a story for another day), my tenants are leaving a house they loved, my husband is constantly sore from the grueling work he does – we often think about how nice it would be to go on a cruise. Or replace our 20-year-old mattress, so that he can get a restful sleep. Our teenage daughters would love to get their clothes at Hollister and Abercrombie like their Boomer-children friends. My oldest daughter watched as all her friends got $300 homecoming dresses and $80 hairdos as recently as last year – she borrowed her dress and I did her hair. We decided not to upgrade to a bigger vehicle, because the car we would have traded in is in great condition and will be paid off in two years. The entire family is conscious about our energy usage, and my teenage daughters can probably discuss the economy and credit better than many Americans.
So... we own three homes. Between them, we have earned more than $324,000 in equity. We had many offers and solicitations to tap into the equity in our homes, but knew that once the advertised teaser rates were up that we wouldn't be able to afford the loan, so we turned them all down. We will go on a vacation – when we can afford to pay for it and not charge it. We will buy that mattress when we have saved the money for it. The girls save the money the get for gifts and babysitting and buy clothes and trinkets when they can... unlike their friends' parents, we don't give them everything they ask for.
When and where do people who work hard and are fiscally responsible get rewarded?
We are not rich. We live within our means. We pay our taxes. (Can I just interject here and rant about the fact that Price does not have to pay his property taxes, which should be around $10,000 a year, because he is "disabled"... yet he lifts weights and runs 7 miles each day and works in one of the most difficult manual labor businesses in Florida – landscaping.)
Price is not the only one in my middle-class neighborhood who has lived foolishly and extravagantly. Is it an age thing? My husband and I are in our 30s. There are many other Boomers in my neighborhood who have done the same thing as Price. Every time the girls came home with a story about one of their friends at school who just got a new Blackberry or Hollister outfit or Louis Vuitton purse, we looked them up in public records and confirmed that their Boomer parents had pulled more money out of their homes.
Is this really true, folks? Are my taxpayer dollars really going to bail out the Prices of the world?
If so, I want out of this country. I want to go somewhere where my family is rewarded for busting our butts and being financially prudent and paying my bills and extending help where we can to people like our tenants. I don't want a golden parachute - I just want people to be held accountable for their decisions, as I am. I don't want to pay for everyone's party when I patiently toiled and waited for the playing field to be leveled after the free money was gone. I am not better than everyone because of the decisions and sacrifices we have made. We never felt that what we were doing was anything more than what people should be doing - working hard, not getting overextended in massive debt.
Or maybe the Price is right... and we were just too stupid to figure out how to game the system.
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