The MSM Teaches the Wrong Mortgage Lesson

(H/T to Michelle Malkin) The San Francisco Chronicle has this piece in today's edition.

Foreclosed family’s last goodbye to home

Joann Gardner sat forlornly on her living room floor, waiting for the final step in her home’s foreclosure process. The lender’s representative was due any moment to give her “cash for keys,” a transaction in which she would deliver her family home vacant in exchange for an incentive payment.

“I’m glad it’s done,” Gardner said wearily. “I just want to sit down and have some Hennessy.”Only days earlier, the house had been jammed with boxes and bags holding the worldly goods her family had accumulated during 54 years in the cramped Oakland bungalow.

Now it was entirely empty, the possessions in storage or donated to the Salvation Army. Gardner’s elderly parents, both suffering from dementia and other ailments, had moved a week earlier to a local board-and-care home whose cost would be covered by their Social Security and pension checks. Gardner, who has been her parents’ full-time care provider for the past 18 months, planned to move in with her boyfriend in Vallejo and look for a job, perhaps something at Costco.

The piece reads like a typical sob story and it is intended to pull at the heart strings of the reader. The reader is ultimately supposed to side and sympathisize with the borrowers, the Gardners. This is too bad because buried way at the end of the piece is what should have been the focus of the piece.

Joann’s parents, Johnnie Gardner, 87, and Estelle, 88, bought the two-bedroom in the Sobrante Park neighborhood in 1954 for $11,500. His salary as an electrician at the Oakland naval shipyard allowed them to make the payments.

But in recent years, Joann and her brother refinanced it several times for increasingly larger amounts.The final refinance at the end of 2006 left the family owing $454,000. The monthly payments of $3,362 exceeded the household income of $3,144.

What happened to the money from all the refinances?Gardner can’t quite say. Some went to paying off credit cards; some was eaten up in huge loan fees. What is clear is that the family has not made a mortgage payment since December 2006.

What happened to the Gardners is typical of what became systemic in mortgages. It is in large part responsible for the mess we are in. Much like many Americans the Gardners used their home as a personal piggy bank. In order to maintain a lifestyle that was likely already unaffordable, they went through a series of cash out refinances. In other words, every so often, they would use the equity in their home to pull out more cash. For the Gardners this became chronic.

I know this because they inherited this home from their parents and their parents only owed $11,500 on it. The final loan amount was just over $450,000. The Gardners went through a sophisticated game of robbing Peter to pay Paul. This could be done as long as property value was going up. The problem is that they began with a lifestyle that was likely unaffordable. By taking out bigger and bigger loans to maintain their lifestyle they were ultimately doing nothing more than playing a ponzi scheme on themselves.

The bigger the loans got the less affordable it became. In order to make it affordable they took out an even bigger loan and used the cash to pay off bills and their new loan. Of course, this new loan wasn't ever affordable in their budget. Once the cash ran out they went for a new loan. That's how an $11,500 loan ballooned to $450,000.

This was an unfortunately common occurrence as many folks used the equity in their homes to sustain an unaffordable lifestyle. That of course is the ultimate lesson here. I have nothing against the Gardners and there are few things worse in life than foreclosure. Still, this article had an opportunity to focus on the right lesson of good budgeting, and instead it continued with the standard MSM victimization and sympathy for the poor borrowers. The simple fact is that the Gardners were irresponsible and the right lesson is to point out how they were. The Chronicle missed a perfect opportunity to point out the dangers of irresponsible borrowing, and that is a shame.