I generally try to stay away from political commentary on this blog, but I recently read an article in BusinessWeek that I just had to comment on.
The article told a story of a homeowner who has mortgage problems. In this case, the homeowner had an expensive house with a mortgage and then decided to redo her kitchen. The result was that the amount of the mortgage ballooned and when interest rates went up, she was unable to pay. Her bank bank was IndyMac (which the government now controls) and so what they recently did was reduce her mortgage rate to a fixed 4.75% which meant that her monthly payment decreased by 1/3 and that she could now handle the payments.
The story above is extraordinarily frustrating on numerous levels. First, I would call this homeowner irresponsible. Here she dramatically grows her mortgage because she did a discretionary home improvement. At the same time, she financed this with a variable rate mortgage which put her at tremendous risk. She should know better.
The most frustrating part of this story is the end result. This woman decided to do purely discretionary home improvement then made a stupid mortgage choices, and the bank rewards her with a dramatically improved mortgage rate! This seems so wrong on numerous levels.
Here I am toiling away to ensure that I make my mortgage payment every month and my rate is much higher then 4.75%. Is anyone going to give me a rate drop like hers? So, we are rewarding this woman and her poor decisions by giving her a much improved mortgage rate while those of us working hard to make payments see no benefit.
Does this mean that I should cease making mortgage payments and stop working to improve my rate? How much sense does that make? IMO, people in a situation like this women should have to deal with the consequences of her own actions. She made poor decisions and must live with them; it is not our responsibility to bail her out.
What do you think? Am I way off base here? Does anyone else have a different opinion.
Agreed. Maybe I should have over extended myself and bought a mansion, or maybe I should put on a huge addition that I can’t afford. Why not? They’ll give me a lower interest rate and I still get to keep the improvement value benefits when I sell.
Unfortunately, the homeowner isn’t the only one with blame here, even though I think she should lose her house. The stupid lender over extended themselves as well – putting themselves in a position where they cannot afford to have a loan default. Their only option is to be very forgiving.
I hate the fact that taxpayers have to bail out these lenders, but on the other hand – letting them go under to teach them a lesson could be far worse in the long run.
Unfortunately, I dont know that there is a solution that teaches the lessons where they need to be taught, and protects those of us who have lived within our means and now have to pay for those who have not.