Why are people so stupid???

[Kristen]

One of the personal finance blogs I subscribe to linked to this post, and the story of this (http://allfinancialmatters.com/2008/01/21/stupidity-got-us-into-this-mortgage-mess/) couple astounded me. "The mortgage company approved us for X number of dollars, so we thought we could afford it." Really??? You think the mortgage company knows all the ins and outs of all your expenses, and knows all your spending habits? And even if they did, would you trust them? I know I wouldn't trust my creditors to know how much I could spend. All of them, mortgage companies included, routinely offer me more credit than I can handle. I won't even begin to talk about the ridiculous credit lines credit card companies offer me. I could buy several vehicles on the credit limits I have, and Steve and I are not high-income people.

On another note, if I had $2000 left per month after paying my mortgage, I not only would be ok, I would be rolling in money. After tithing, Steve's income is usually not much more than $2000 per month before we pay our mortagage! :o I'm thinkin' that this couple maybe hasn't done EVERYTHING they could to save their house...drastic things like driving used cars and eating at home. ;)

[Kristi]

Yeah I don't think they have been really trying to sace. Our monthly mortgage payment is pretty high ($1375) and we certainly don't have that much left after that not $2000. It really doesn't sound like they thought about it at all before they jumped into it..

[ColleenC]

Wow I would love to have $2000 left over after we pay our rent and bills. We drive used cars and eat at home alot LOL

It's more like people just don't want to accept the responsibility so they put in on the bank.

[Danielle]

$2000 after the mortgage or after the bills as well? I guess it would depend on what their other mandatory expenses were. $2000 would not pay our childcare, student loans, utilities, gas to get to work etc.

[freebiemom]

Give me $2,000 after mortgage is paid and I'll be one happy gal! I've never understood people that aren't honest with themselves about their finances and who continue to live above their means. Especially when they make the kind of money this couple did! I'd love to have their income!

[Jejune]

We'd be OK with $2000 post rent, but I'd rather have more of a cushion, personally. I don't know that people are so much stupid as really, really naive. And often willfully so. You want something badly enough, you blind yourself to reality. It's a shame when that becomes a crutch or an excuse, though.

[Kristen]

Well, stupid means slow to understand, so perhaps naieve is a better term. Willful naievete seems stupid to me, though! LOL

And yeah, I agree on the excuse thing. This seems like a bunch of blame-shifting to me. Steve and I got in over our heads with this house...the payment is too high for our income, and we didn't count the cost carefully enough. The thing is, though, we're not blaming our lender. It's our own fault for not being careful enough, and so we're living with the consequences of that. It's no one's fault but our own.

Also, I would LOVE to have more of a cushion than $2000, but as it stands, I'd consider it quite a boon to have anywhere close to $2000 after paying the mortgage! LOL

[Christine]

After we pay our mortgage, we still need about $2000 to pay our BILLS (yeah, not good). We're working towards lowering that debt but it's HARD. My guess would be that the type of person who is willing to take on a mortgage because someone else said they qualified is the type of person who would bury their head in the sand and not face reality period. I've seen people lose everything because their eyes are bigger than their budget.

[Renita]

This is why I have a hard time supporting the government's plan to "bailout" these homeowners who are in foreclosure. It took us 2 years to buy a house - we did extensive research on our spending habits, our income, what we could TRULY afford without going in over our head. We were being realistic about our price range and not living in a fantasy land. With that being said, we went through SIX realtors because the first 5 pushed houses on us that were at least $50K higher than our asking price. I don't think many people will have the patience to work with 6 different realtors. They have no one to blame but themselves.

[gr8mommy]

This is why I have a hard time supporting the government's plan to "bailout" these homeowners who are in foreclosure. It took us 2 years to buy a house - we did extensive research on our spending habits, our income, what we could TRULY afford without going in over our head. We were being realistic about our price range and not living in a fantasy land. With that being said, we went through SIX realtors because the first 5 pushed houses on us that were at least $50K higher than our asking price. I don't think many people will have the patience to work with 6 different realtors. They have no one to blame but themselves.


:thumbsup don't even get me started on those who did no-money-down, interest only mortgages...

[wendygrace]

We were that naive but we also opened our eyes and do not blame the lendor. We were the idiots and we'll lie in what we made. $2000 after mortgage is about our expenses but that's cuz we were also naive enough to hike up a huge cc debt instead of talking with the hospital, et al, about how to pay for Michael's medical bills and find ways to curb our eating out while he was in the hospital for six months. We've learned a lot by now, five years later, but we're still paying for our stupidity.

[boosmama]

well coming from the having 2000 left over after the mortgage..

and we still are pretty close payday to payday, so i guess it can happen

[Beka]

Well first off I'd say I'm glad british financial sites/blogs are more helpful and less eager to use other peoples down fall to praise up our own responsible nature... I'm pretty certain that couple is feeling bad enough, probably scared to answer the phone, hiding when the door knocks and probably robbing Peter to pay Paul on a weekly basis as they face losing their home reguardless with the internet tearing them apart stating how much better they'd do in their situation.

I think the key thing to remember here is life changes for people- for me reading that the key thing that stood out was the fact they have a young baby, kids bring about huge financial change and suddenly what was managable pre-baby becomes "tight" when you decide to keep the "surprise bundle" you're expecting, you plan, you make do, you know things will be a stretch and you get by then comes a big hike in interest rates and suddenly tight becomes unmanagable and you borrow more, thinking the interest will drop soon and the promotion will come at work, childcare costs will drop when X goes to school- you do what needs be to stay afloat until one day there are no more routes to try.

I don't know about in America but here in my town $550 would only buy a VERY basic family home if you wanted 3 bedrooms - which, to be honest, most people buying a home intending it to be a family one will opt for to avoid moving at baby #2.

Yes they should have gone for help but debt is a really shameful thing that does the oddest of things to the most normal people, you become withdrawn, refuse to talk to people convinced there will be chastisment (which judging by the reaction of many is a perfectly logical assumption- when everyone around you flames about debt it's hard to believe professionals won't do the same) and from there problems spiral because they feel stigmatised into hiding it

Yes it's easy to sit back and say $2000 is an awful lot of money after mortgage paid but not everyone has only mortgage as a big debt or expense. Also when a person enters the cycle of debt it becomes harder and harder to refinance with reasonable, reputable companies so although there is the theory of rate shopping, balance transfer etc those doors close when you are actual in debt and are no longer options.

[hillsturner]

It took us 17 years to finally buy a house. My husband thought we could save enough to pay cash...hahaha. Of course, we moved ALOT during those years so buying a house was not always an option. We knew nothing about it except we wanted a fixed interest rate and a manageable monthly payment. We got both and even if Scot lost his job we could both work at the Exxon and still be able to pay our bills. We also have never bought a new car and eat at home always. I think the last time we went out to dinner was two years ago. It's so much easier to live within your means and not have any debt other than a mortgage. All the money left over is then either for savings or paying down the mortgage. So many times, though, people do not learn financial skills at a young age and then make huge mistakes.

[Christine]

Thank you Beka. Very well said.

I was a little taken aback by some of the responses and that's why I made the comment about us having $2000 in bills plus mortgage a month. We're in that tight spiral of debt and it's HARD to pull out. Really hard.

Dave's sister used to give us grief and complain about how we must be doing well because Dave earned more than her husband. Well, we weren't getting child support like she was, so actually had less income. We also had more expenses. You have no idea what another person's financial situation is until you've walked in their shoes. I've made a lot of mistakes and I'm paying for them right now. It's not right to say what you would do if you haven't actually been faced with losing everything.

[Danielle]

I agree Christine. Everyone's situation is unique. We all started out with different talents and skills and we all have faced very different odds along the way. Dollar figures are not a good indication of how "well off" someone is.

[boosmama]

very well said christine and danielle.

[freebiemom]

You ladies have a point that it's not right to talk about others when you don't know the whole situation. However, I still stand by what I said because I know that DH & I have worked hard to not get in over our heads when it comes to our finances and I honestly don't understand how people can simply buy and buy without ever thinking about how they're going to pay for all they want. It's one thing when you fall on hard times and have to use credit cards to buy food for your kids or to keep the heat on for them, and it's another to simply use your credit cards just to buy what you want because you want it. Sorry if I don't have the sympathy for folks like that.

[gr8mommy]

You ladies have a point that it's not right to talk about others when you don't know the whole situation. However, I still stand by what I said because I know that DH & I have worked hard to not get in over our heads when it comes to our finances and I honestly don't understand how people can simply buy and buy without ever thinking about how they're going to pay for all they want. It's one thing when you fall on hard times and have to use credit cards to buy food for your kids or to keep the heat on for them, and it's another to simply use your credit cards just to buy what you want because you want it. Sorry if I don't have the sympathy for folks like that.


Well said, freebiemom.

[Danielle]

It's one thing when you fall on hard times and have to use credit cards to buy food for your kids or to keep the heat on for them, and it's another to simply use your credit cards just to buy what you want because you want it.

And my point would be that unless you know which of these brought someone to the situation they're in, you should perhaps reserve judgment.

[Jo]

In this current mortgage crisis situation some people bought houses without really thinking. Certainly, the rocky economy is affecting people though job loss, pay cuts and other situations that are beyond their control. So while they may have sensibly chosen a mortgage situation that worked for them, even the most careful planning can only stretch for so long without the same income.

On the other hand, their were plenty of people who made poor choices in order to own a house. I am not about to blame that all on predatory lenders when people should be responsible for knowing what they are signing on for. Many of these people buried their heads in the sands when it same to understanding interest only loans or ARM's. I have far less sympathy for them.

As for the article mentioned, I am really having trouble feeling sorry for someone who actually thought that if the mortgage company gave them the loan that they could afford it. These people are the only ones who could actually know what they could afford based on their lifestyle.

[gr8mommy]

And my point would be that unless you know which of these brought someone to the situation they're in, you should perhaps reserve judgment.

Why? Our tax dollars are what is going to wind up bailing people out, mark my words. If I'm paying, I'm saying.

[Beka]

Am I missing something in that article because throughout that, other than the parts people had commented on when quoting the article, no where did it state they were being bailed out by the government- it states they're losing their home, not accepting a government subsidy to keep it.

[Danielle]

Really, I'm just curious how many of us would end up being "stupid" if interest rates went to over 20% as they have in the past? You can't plan for every circumstance including job loss, illness etc. My point is that you cannot paint everyone who gets into financial difficulty with the same brush, any one of us could find ourselves there, regardless of how "smart" and "well off" we may feel we are.

I actually agree that we should not bail people out who find themselves with a mortgage that's over their heads. I just don't think we should be calling them names and making them feel worse than they already feel.

[Beka]

Exactly Danielle- i don't believe there should be a mass hand out to help those who willingly took on homeloans they couldn't cope with when interest rates hiked either, I do however believe people deserve a little compassion and understanding in what is a bloody awful process to go through, especially for kids. I was 4 when my parents had their home foreclosed on and I still remember now what 12 months of living in cars, in a tent, on peoples lounge floors was like!

[boosmama]

i didnt think i read anywhere the government was bailing them out either??

as far as i understood, and im may be wrong...but these hosues get foreclosed on them and the bank sells them, not that the government runs to their side to help them pay for it.

[gr8mommy]

Well, a bailout is exactly what the politicians have been talking about; those outside the US may not be up on that though.

[Danielle]

I have heard that Denise (Canadian news has an enormous amount of American content). Like I said, I don't agree with the bailouts but I still don't see the need to bash everyone who encounters financial difficulty and insinuate that they're stupid because they haven't made the financial choices, or had the same financial or situational or educational advantages you (in the global "you" sense) have had.

[Jo]

Really, I'm just curious how many of us would end up being "stupid" if interest rates went to over 20% as they have in the past? You can't plan for every circumstance including job loss, illness etc. My point is that you cannot paint everyone who gets into financial difficulty with the same brush, any one of us could find ourselves there, regardless of how "smart" and "well off" we may feel we are.

I actually agree that we should not bail people out who find themselves with a mortgage that's over their heads. I just don't think we should be calling them names and making them feel worse than they already feel.

But when they bought their home, interest rates were not at 20%. They probably bought during the boom and got incredibly low interest rates. They chose to assume an ARM. If they had done a fixed rate mortgage at the time, they would never have to worry about the interest rates. I bet that even though they refinanced their interest rates are higher now because they probably hurt their credit by making a bad decision.

If people don't want to have their financial situation commented on, then they should not make it public.

[gr8mommy]

I still don't see the need to bash everyone who encounters financial difficulty and insinuate that they're stupid because they haven't made the financial choices, or had the same financial or situational or educational advantages you (in the global "you" sense) have had.

I'm not bashing anyone for encountering financial difficulty---I'm bashing them for gambling and then complaining and wanting a handout when they lost. The house always wins.

And yes, I do think someone who signs for a loan and doesn't understand the terms is stupid, sorry. If you don't understand what you're signing, find someone to explain it to you---preferably one that won't benefit by keeping you ignorant.

[Danielle]

But when they bought their home, interest rates were not at 20%. They probably bought during the boom and got incredibly low interest rates. They chose to assume an ARM. If they had done a fixed rate mortgage at the time, they would never have to worry about the interest rates.

Yeah, that was my point.
See, here most people are losing their homes because they bought when the interest rates were low and now they have to re-finance at a higher rate (we have to re-finance here every 5 years even at a fixed rate, not sure what you do there). I see that as poor long term planning and maybe naivety but not necessarily stupidity (really not a fan of that word actually).

Honestly, my annoyance was not directed towards the criticism of the people losing their homes but with the comments about how everyone should be able to live on X amount of money and those who can't are irresponsible.

[Jo]

That would suck to have to do that every 5 years! Here if you get a 30 year fixed rate...that is your rate for 30 years for example. Many people did ARM's which have fixed rate for a certain period and then become adjustable rates and that is why they are in trouble now.

Actually we have an ARM on our house in Virginia. But it is a 10 year ARM so we are fixed for the first 10 years. We felt that gave us plenty of time to decide what to do. We are currently trying to decide it we should go ahead an refinance now with the current low interest rates since we won't be able to sell anytime soon. Sales in that county are in the crapper and we are lucky to have tenants to cover the mortgage. But the difference is that we went into the deal with our eyes wide open. While we could have have gotten an even lower rate with a 5 year ARM, we felt that did not give us enough time to work out what we wanted to do and we would be in trouble.

[Danielle]

Wow, that would be great to lock in the rate for that long! We have an ARM but we can lock it in at any time if the rates go above what the fixed rate was when we got our mortgage.

[Kristen]

$2000 after the mortgage or after the bills as well? I guess it would depend on what their other mandatory expenses were. $2000 would not pay our childcare, student loans, utilities, gas to get to work etc.

That is true...I wasn't factoring in childcare, and other work-related expenses. Some of the income that they have isn't really profit from the second job...it has to go to pay expenses related to not having someone stay at home. I'm in an unusual situation where my income is pretty much all profit because I stay at home and I have free childcare.

And Christine, yeah, I wasn't counting debt into the picture either. :o We don't have any debt other than our house and our HELOC...if we had car payments and credit card debt, we would be sunk, and it would be really super hard to get out.

So, I'll stand by my statement regarding the stupidity of assuming the loan company knows how much you can afford, but I'll amend my statement about having $2000 after taxes. I can say that if WE had $2000 left after taxes and mortgage, we would be doing really well(much better than we are now, for sure!), and if we weren't, it would be due to a lack of frugality and a lack of living within our means. We'd be stupid to be doing poorly with that much money in our situation.

And I can still say that I don't feel particularly sorry for the couple in question over them having only $2000 left after taxes. They should have taken their other expenses into account when they were considering whether or not they could afford to buy this home. It doesn't sound like they suddenly came upon hard times...it sounds like they blindly believed what the mortgage company told them, and signed on the dotted line without really thinking about it.

[Kristen]

I don't know about in America but here in my town $550 would only buy a VERY basic family home if you wanted 3 bedrooms - which, to be honest, most people buying a home intending it to be a family one will opt for to avoid moving at baby #2.

Denise would know...she's a jersey girl, after all! :D What say you, Denise? Is $550 a modest, entry-level home in Jersey?

I live in a relatively high-priced area(we're by three major cities), and you can get quite a decent home(and even a very luxurious townhome, with a garage and hardwood floors and so on) for far less than $550K.

[Jejune]

You can get quite a decent home around here for $550k, and we're in one of the most high priced areas in the country. You wouldn't get something super fancy, but you could definitely get a small two bedroom for that price.

[gr8mommy]

Denise would know...she's a jersey girl, after all! :D What say you, Denise? Is $550 a modest, entry-level home in Jersey?

I live in a relatively high-priced area(we're by three major cities), and you can get quite a decent home(and even a very luxurious townhome, with a garage and hardwood floors and so on) for far less than $550K.

Depends greatly on where you are. That is standard entry level fixer upper anywhere in driving distance to NYC. Our very modest, 3 (sort of) bedroom (one is very tiny--8x6, the other doesn't really qualify as a bedroom because it doesn't have a closet) would list for around $469K, and we're considered a 'blue collar' town with lower prices than the surrounding communities. Nowhere in my county can you find anything for less than $300K. Further to the west (out toward the Pennsylvania border) houses begin around $230K. The only 'cheap' housing is in the cities, Paterson, Passaic, Newark. But no one wants to live there, as it is not safe.

It is similar in South Jersey---the Philly suburbs are quite pricey, as are some of the shore towns. Further inland is a little less.

[Kristen]

Yikes, Denise. Much as I love you, I'm certainly not moving to Jersey! LOL

[elin]

The gov't bailout is really just giving people a chance to refinance to a fixed market-level interest rate with no costs to converting the loan.

Frankly, I do in part blame lenders, who do their best to talk people into taking more loan than they can afford. We've had lenders who do that, and who are not at all frank about what that means for a monthly payment.

Also, I blame an education system that leaves many people unable to do the calculations themselves, thus leaving them at the mercy of the lender. We need to teach people some life skills math, so that they understand how to figure loan payments, tips, price per unit at the grocery.

[gr8mommy]

Yikes, Denise. Much as I love you, I'm certainly not moving to Jersey! LOL


If I wasn't born here, I wouldn't want to live here either! LOL

[bloombaby]

We do have about $2000 left of our income after paying the mortgage, but that doesn't include our other bills and DAYcare costs.... ANd we don't eat out often, but extravagent things nor drive NEW or big SUV/cars. DH has an Aveo and I drive an 2001 Ford Focus....

WE were approved for over $150,000 for our house, and mortgaged a $74,000 house... and it's still a struggle every month after paying car payments, house bills and day care.