Posted By RichC on May 17, 2009
Interestingly those people who knew and were aware of the conditions that lead to the economic meltdown still fell prey to being swallowed by wanting more than they could afford. In a brutally honest New York Times article, Edmund Andrews shares his story.
If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know 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. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.
Mr. Andrews starts a new family with a second wife, he buys too much house and stretched his budget in an attempt to cover alimony. He gets a no-doc mortgage, maxes out his credit cards and is eventually unable to make ends meet.
Unfortunately the only option that Mr. Andrews sees, is his new found buddy Bob, the mortgage broker. He pins his hope that “Bob” can help him out of his money problems by consolidating his debt into a new, even bigger adjustable rate mortgage that could potentially hit rates of 11.5%:
I felt foolish, ashamed and angry as I confessed to Bob [mortgage broker]. Why had I been trying to live a lifestyle that I couldn’t afford? Why had I tried to keep up the image of a conventional suburban family man, when nothing about my situation was conventional? How could I have glossed over the fact that we had been spending about $3,000 more than we were earning, month after month after month?How could a person who wrote about economics for a living fall into the kind of credit-card trap that consumer groups had warned about for years?
The paperwork was so confusing that I was never exactly sure who was paying what. I hazily understood that I was paying most of the fees, one way or another, but I couldn’t figure out how, and I couldn’t see any better alternatives. After it was all over, I figured we had paid about $5,800 in fees to Bob’s mortgage company and the settlement company, on top of the sales commission that came out in higher interest rates every month.