Are Defaulting Homeowners All That Sympathetic?

I know I’m supposed to sympathize with the woman in this story today in the Washington Post, but I’m having trouble going all the way. The gist: She bought a house in 2005, and was foreclosed on last March. But the devil is in the details:

  • In 2005 she looked at one house and bought it
  • She paid $430k, more than triple what the house sold for only a year earlier
  • She paid more than $5k above asking
  • She agree to a loan that would require her and her husband to pay more than 70% of their monthly income on mortgage payments
  • She signed papers in English she didn’t understand, including one that said she was married to someone she didn’t know
  • She sought no-one’s financial advice
  • Her agent was a Mary Kay salesperson

On a personal level this is a tragedy, and there seems little doubt her agent committed fraud, but it is closer to farce. I mean, c’mon: This is someone who couldn’t speak the language, and yet got no advice when making the biggest financial decision of her life. She had to know she was taking immense financial risks (numbers are numbers, whether in Spanish or English), but did nothing to ameliorate her obvious risks, and is now being presented as a victim.

Sorry — and this may make me a bad man — but I have trouble with the idea. This is someone who strapped themselves to the wing of a plane because a Fuller Brush salesperson told them that when they jumped in a few minutes up at 8,000 feet they’d learn how to fly.


  1. Paul, I could not agree more. We see these stories every day and the common theme is that people bought houses with mortgage payments significantly higher than the rents they were paying and somehow thought everything would be OK.
    There was certainly fraud here, but as you so clearly present, much of the blame falls on her.
    Also, she’s been here 9 years, speaks no English, and now sits in her apartment watching Spanish soap operas while jobless? Who’s paying her rent?

  2. Do you feel more sympathetic for the mortgage provider (or the subsequent owner now stuck with the default) in this case?
    What I don’t understand is why if both sides of the transaction are idiots, the fed only bails out the lenders. Why not split the difference?

  3. In my experience the buyers were not mislead by the lenders. Instead the buyers were completely blinded by their own greed. Everyone else they knew put $5K down and flipped their house for a $400K profit, why shouldn’t they do the same? Of course the lenders were happy to fulfill this greed need. Who needs to work when your house appreciates $200,000/yr?
    Were the people who bought the NASDAQ at 5,000 duped by their brokers or did they have visions of NASDAQ 10,000 in their eyes?
    I almost fell for the infinitely inflating house price and I knew better. Several times I was called an idiot to my face for not buying houses. Now guess who is laughing.
    You can’t bail out the buyers. If we start letting the buyers off easy 2M people will stop paying their mortgages and that will be the end of the financial system.

  4. The whole darn thing is a cluster-fu**.
    Buyers who bought the houses were stupid and greedy. Mortgage brokers who sold the mortgages were stupid and greedy. Brokers who repackaged the debt were stupid and greedy. And the ultimate buyers’ agents were stupid and greedy.
    The problem here is that the above mentioned news article is written by a reporter… and reporters (generally) write what people want to hear. So the mass media audience out there wants to play the victim again and hear stories about victims.
    Those of us among the thinking few shake our heads at the entire lot of participants in this mess… but those who protested before the fit hit the shan were shunned, ridiculed, and called perma-bear. How can rational thought win against such a hollow argument when seemingly *everyone* is too busy being greedy and stupid?
    Oh, and stupid is a relative term. With all the bailouts floating around, the buyer, seller, mortgage broker, broker, and ultimate pension fund agent may all be able to walk away with more than they ever rationally deserved… in which case they all exhibit a strange genius for gaming the system to their own advantage despite the rest of us stiffs.

  5. Completely agree. If someone is stupid and doesn’t do his/her research, he/she will get punished for it. I can say this because it has happened to me before many times, although never to this extent.
    All participants in the housing bubble got screwed in some way unless they got out before it burst.

  6. We have a similar problem here in Australia (although far less severe, and it is due to interest rate rises rather than a housing collapse). Home “owners” (and I use this term loosely, seeing as most of them probably have less than 10% equity) are blaming the government for the rate rises and subsequent foreclosure, instead of themselves for buying way out of their range. Don’t blame others if you are too greedy and uneducated to make a financially responsible decision.

  7. Victums are rarely sympathetic, and the victums of fraud are more than likely to be fools.
    But the key point is that we demand higher standards from institutions than we do from individuals. The industry took advantage of that idiot and millions of others. They did so methodically and intentionally. They backed off all the control systems who’s purpose is to protect the incompetent from such sharks.
    They progressively created a climate of social proof that such behavior wasn’t just acceptible but failing to play into the game was stupid. They methodically created incentive structures through out the debt suply chain rich in moral hazard, not by mistake but with intention.
    There is nothing ethical about taking advantage of idiots. Focusing on the idiots who got caught up the industry’s innovative scheme diverts attention from the heart of the matter. Don’t you think?

  8. Absolutely agree.
    What’s even scarier is the 6-month moratorium on foreclosures and 5-year interest rate freeze that Hillary is advocating. Can you imagine on whose shoulders that huge economic burden would fall? Disciplined people who don’t buy houses they can’t afford and pay off their credit card bills.
    I don’t see how the largest economy in the world can continue to grow if people are not held accountable for their actions and proper risk/reward/punishment mechanisms are not kept in place.
    Obama takes a much more intelligent, reasonable stance on economic (and most other) issues.

  9. People like the home buyer in this post may not deserve to own a home (though to be fair perhaps they were afraid that if they waited and saved responsibly home prices would rise faster than their savings, and the home would be even further out of reach), but the people who really get punished are the ones in that neighborhood who own their homes outright and didn’t sell. They still have a house, but their block is now full of empty houses that attract criminals and rats. The bank probably can’t put the neighbors’ houses on the market all at once, except maybe to speculators who aren’t going to live there. It’s a nightmare for certain people who were perfectly responsible. It also makes rents go up because the people kicked out of their home will now be competing for rental housing. While I don’t know all the details I suspect Hillary’s plan was motivated more by effects on whole neighborhoods rather than individual buyers.
    We’re left with a bad set of choices. The banks took stupid risks knowing that the government would probably bail them out in the worst case scenario. If banks collapse like dominoes, everybody gets hit hard – especially people saving to buy a home. If there’s a sector the government has to help if it screws up, it should be subject to reasonable regulations designed to prevent foreseeable screw-ups like this.

  10. Paul –
    Good for you for speaking your mind. No, you’re not a bad man. A lot of people overextended themselves and now they’re paying for it. There are a lot of real tragedies in the mix, but there are also a lot of examples of people who acted irresponsibly. The media rarely differentiates.

  11. Due diligence,where have you gone?

  12. Failure to punish greed goes against nature, religion and civilized thinking. There are fundamental differences between taking an educated risk in pursuit of a reasonable reward, and greedily following the lemmings who, for no reason other than hope, believe that they are immune from falling over the cliff. The difficult question here is how far must they be allowed to fall in order to be adequately punished, yet still able to survive. They should have no expectation of resuming at the same level as when they took the risk(s). The rules of gambling are simple — Never gamble more than you’re willing to lose.

  13. David Washington, Pierre, SD says:

    I’m completely against bailouts for anyone or any organization.
    Why should I be forced to pay at least $300,000 for some poor quality crackerbox ‘towne home’ (i.e. apartment) build with the poorest quality materials by cheap labor illegal and untrained aliens? The kicker? Both the workers and the employers pay no taxes for these wages!!
    What happened to the cost savings that one always hears is passed onto consumers when companies use cheap illegal labor?
    By the way, Chinese labor qualifies as illegal labor when measured by any standard of human decency.