My Personal Credit Crisis

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=1&em=&pagewanted=all

by cake • 17 years ago

185 201 17 years ago

nytimes.com

jzachary4• 17 years ago

I'm pretty sure I'll ignore E. Andrews' economics columns from now on.

rcoder2• 17 years ago

Knowledge of macroeconomics != personal spending discipline

jzachary4• 17 years ago

Ok, but knowledge of sub-prime lending == personal spending discipline, or it should. He writes about sub-prime loans and other "financial innovations", yet he fell for them hook-line-sinker. If you know what's going on in the world, you should know how you fit and how to maneuver within it.

barrkel• 17 years ago

macroeconomics is about as much a science as astrology.

gaius6• 17 years ago

Yet another smug boomer with an overinflated sense of entitlement.

rcoder2• 17 years ago

> Yet another smug boomer with an overinflated sense of entitlement...

...who, to be fair, made a very public "mea culpa" about his failures in personal judgment when faced with the possibility of buying a house he couldn't really afford.

I don't necessarily think this article was all that appropriate for HN, but I did think it was a compelling piece, because of the insight it offered into how even otherwise-rational people could make bad decisions about credit.

krschultz4• 17 years ago

$220 a month for internet, TV, phone. Cancel that in a heartbeat.

And how stupid can his wife be if she is still buying all this stuff?

These are the people who should be foreclosed on and never get a loan again. Open that house up for someone responsible

gaius6• 17 years ago

Exactly. $700 at J Crew when they were already up to their necks in it!? We're all suffering because of people like this. Baby boomers have screwed everything up, at last they're sharing some of the pain.

zacharypinter• 17 years ago

Small correction: "$220 cable/telephone/Internet bill for the past two months"

Looks like $220 is not per month, but rather for two months. Still, I agree they should cut down on their monthly expenses.

invisible2• 17 years ago

My phone, TV, internet is roughly $170 per month for just me alone. Nothing super special: Digital cable+Internet ~ 120, cell phone ~ 50.

pg• 17 years ago

I think you are being unduly harsh to the poor guy. Smug is the last thing he seems.

mattculbreth• 17 years ago

Kudos to this dude for providing all of the details, almost all of which are embarrassing to him. That probably wasn't easy.

He also names names on companies that "helped" him.

jonknee3• 17 years ago

... He's trying to sell a book which makes it quite a bit easier.

yummyfajitas2• 17 years ago

I didn't realize that "Patty" was a company.

bena• 17 years ago

Is this what they are teaching in economics? That $2777/mo can magically cover a $470,000 mortgage.

No wonder we are in this mess.

"At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane."

Apparently at this time in history too, we just found a way to hide it for a while.

HSO8• 17 years ago

Actually, this is precisely what they are not teaching in economics: That people are weak, stupid, and make mistakes. Instead it teaches that they are informed, rational decision-makers who carefully weigh their options and choose the one that maximizes "expected utility". Schmoo! This is why we are in this mess!

aneesh2• 17 years ago

> "But with her take-home income averaging only about $2,400 a month, we didn’t make enough to cover our bills because my take-home pay was going straight to the mortgage."

What the heck are you buying if $2,400 per month can't cover your expenses after the mortgage payment is taken care of?

sethg2• 17 years ago

$4,000 a month in alimony and child support.

I'm glad my wife has promised that I'll only leave this marriage feet-first.

ETA: whoops, I missed the part saying those were automatically deducted. Downmod me.

jonknee3• 17 years ago

That was taken out of his salary before he got it, the rest was going to the mortgage.

aneesh2• 17 years ago

His salary covered the child support/alimony, as well as the mortgage.

granular2• 17 years ago

> I'm glad my wife has promised that ...

I'm sorry to have to be the one to tell you this, but those promises fly out the window as soon as times get tough.

No matter what you think she thinks of you, when the kids come and times get tough, she will look at you and weigh having you around vs. having automatic custody of the kids + child support + alimony.

amalcon• 17 years ago

Loan payments, most likely. Too much money in car loans, credit cards, and the like are traps that too many people fall into. I personally cannot fathom why anyone would willingly take out a loan to buy a car that was not their first (used cars are not that expensive if you're willing to save for a few years), or why anyone would use a credit card without knowing they have the money to pay it immediately, but I do know that people do this.

They also had two kids. Kids are expensive; they genuinely require new clothing every year, lots of doctor visits, etc. Of course, if you're not too proud for it, you can get a lot of this stuff from friends and family with older children, but it's still expensive.

Periodic• 17 years ago

He said what she refused to cut back on, food, clothes, kids.

My reaction when I had some financial trouble recently was to quickly to cut back on food purchases and evaluate moving to a smaller house. However, fortunately I still have a positive cash flow.

I was surprised when he mentioned paying over $100 for cable/internet with all these money problems. If it were me, that would be the first thing to go and I'd move back to $5/mo dial-up.

Sounds to me like they were able to avoid any big costs (like house repairs), but their brains couldn't really understand the cost of recurring payments on so many small things.

lief792• 17 years ago

As for the car loan: low interest rate, upcoming wedding, upcoming house purchase. If the money isn't needed, we can always pay off the loan.

More accurately, I wasn't going to argue with my fiancee over it, and she didn't want me to pay for it before we were married. She was worried about the reliability of her current car (I'd guess mostly needlessly), but since she is a social worker occasionally moving kids around and visiting rough areas, I don't blame her for that part.

I paid cash for a 1 year old vehicle 6 years ago.

gojomo• 17 years ago

That $2400 has to cover two adults and two live-at-home young children: all utilities, food, transport, education, property maintenance, out-of-pocket medical, and entertainment. (They each also have older children who, despite not living at home and the alimony, might need some support.)

earl4• 17 years ago

Aneesh: it's really not that hard. For two adults and three kids that is not much money for food, utilities (particularly heating + ac), internet, two cell phones, transport, clothes, pets and the inevitable accidents life throws at you, eg $35 to go to the doctor plus $50 for medicine for even simple illnesses. Don't mock them until you've tried it, particularly given how expensive groceries are on the E coast. My data point is that when I moved from WI to NYC my grocery bill for purchasing basically identical food rose by 130%.

sethg2• 17 years ago

I think the author's first mistake was not in taking out the subprime loan, but in entering a marriage without some kind of mutual understanding of how to manage the household finances.

One of the first things my wife and I did, after getting married (possibly even before), was to set up a budget, including line items for how much money each of us could spend without being questioned by the other.

gaius6• 17 years ago

He also displayed a lack of financial acumen in his first marriage...

unexpected2• 17 years ago

this brings up an interesting point. Would you make your wife sign a pre-nuptial agreement before getting married?

I often see people who have gotten divorced sign a pre-nup, but people I've spoken with around my age group (20-25) seem to be adamantly opposed to a pre-nup.

biohacker422• 17 years ago

Well written personal account of financial trouble, but I don't think this is HN material.

tjic5• 17 years ago

40 upvotes in 2 hours - I think HN has spoken.

biohacker422• 17 years ago

So it has and I regret it.

It was a long personal emotional article for a general audience.

It wasn't about technology, entrepreneurship, science, or anything besides the personal and emotional journey into financial foolery.

I think HN used to be more narrowly focused, but perhaps I'm just imagining things.

cake• 17 years ago

I was expecting reactions such as yours.

I think this article belongs to HN because it's about a smart expert in his field who failed hard because of irrational decisions he made :

It questions expertise we acquire thanks to our education and experience. Can you be smart enough to avoid stupid decisions other people do despite being an expert and not them ? The answer seems to be that it's not an absolute truth. That's one lesson he underlines.

I can relate to this (and a lot of people here too) because I'm becoming an expert (as in "focused") in web development.

I find it deeper than you describe it, having several approaches possible.

Finally it's very well written and entertaining too ;-)

dataman85• 17 years ago

As someone not familiar with divorce laws and alimony, I was shocked to read that he has to pay $4k every month for child support. That makes a $120K salary almost a $50 - 60K salary after taking into account progressive taxation.

unexpected2• 17 years ago

Yes, i found this incredible. My question though was- why was his new wife not receiving any alimony? She, by all accounts had younger kids as well.

Seems like he needed a better divorce attorney.

tjic5• 17 years ago

> why was his new wife not receiving any alimony?

You mean "child support".

Alimony is a payment directly to the ex-spouse, for the ex-spouse's enjoyment / benefit.

randallsquared11• 17 years ago

It could be that her ex-husband made so little that the added money wasn't relevant, and the author chose not to bring him into it. That seems reasonable to me.

bwd4• 17 years ago

The duration of alimony is probably very dependent on the state. One example that I am aware of is that alimony is typically paid for half the duration of the marriage. If his new wife is beyond that period, then she may only be receiving child support.

patrickg-zill• 17 years ago

If my understanding is correct, the $4K is paid after taxes and the ex-wife pays no taxes on the money received. That is, he is going to pay $48K per year in child support but has to earn maybe $70K pre tax.

bwd4• 17 years ago

Not correct, the taxes are actually paid by the receiver and not the payer. If the receiver is in a lower tax bracket, then they pay taxes at that rate. This is basically all factored in to the process of setting alimony by the courts, so pretax and post-tax don't really make any sense here unless the tax brackets are different. Note, IANAL or an accountant.

derekj• 17 years ago

Wow. I live in the Midwest so housing is dirt cheap compared to other places, but half a million dollars for ANY house seems insane to me, let alone this "small" one he's talking about. I don't have any sympathy for him.

I also don't understand how he could have "near perfect" credit score when he had thousands and thousands of dollars of debt with massive interest rates.

Just goes to show that your income doesn't make a whole lot of difference if you can't control your spending. I pay all my bills and save about 10% of my income making $40k a year. And I really do have a near perfect credit score.

earl4• 17 years ago

Seriously, you do understand the concept of different costs of living, right? Your astonishment at paying $0.5MM for a house is irrelevant; that's the going rate and probably cheaper than renting in that area.

randallsquared11• 17 years ago

I live in an area very close to there (still in the DC metro) which has houses which go for 400K and up, and yet I pay just over $1200 in rent. Renting and buying are often out of sync with each other, for whatever reason (in east Alabama a few years ago, it was the other way around; you could easily buy for less than rent).

billswift3• 17 years ago

The cost of a home varies a lot more between metro areas than rent does. Similar rentals vary about 4x between the most expensive and least expensive metro areas; home prices vary more than 10x between the most and least expensive metro areas. (Both vary even more between particularly expensive and inexpensive neighborhoods - the numbers are metro area averages).

jimbokun• 17 years ago

"that's the going rate"

Didn't the "going rate" turn out to be dumb and unsustainable for the nation as a whole?

lief792• 17 years ago

The same house and yard that my aunt can't sell in central Illinois for $50,000 would be worth a good 200,000 - 250,000 in the area I'm currently looking in (Philly suburbs) and more then the $400,000 or so that my fiancee's brother paid for his place about an hour South of NYC. The .5 acres of land alone would probably be worth more then $400,000 there.

Credit scores will stay perfect as long as they are paid off. Greater debt with no faults creates better FICO numbers.

Notorious_PWN5• 17 years ago

My blood pressure went way up when I found out how brutally he is being raped by the alimony system. He'd be better off in a technical field where skills matter more than reputation; he could change his identity.

Assets earned during the marriage are earned by the couple and should be equitably split, but child support should be no more than 1/2 the minimum cost of raising a child (of course, if the father's not a prick, he'll contribute much more; but the govt. should not require him to) and alimony should not exist.

jibiki5• 17 years ago

> child support should be no more than 1/2 the minimum cost of raising a child

Am I a horrible sexist if I disagree with this?

gaius6• 17 years ago

I'm afraid so. How often do the courts grant the father custody? If the mother can't support herself and them, then they should go to the father, end of. But for some mysterious reason that almost never happens...

Notorious_PWN5• 17 years ago

Not sexist, but you're wrong.

Child support should represent the minimum acceptable contribution of the non-custodial parent (father, in the vast majority of cases) to the child's welfare. Should he contribute a lot more, in cash, gifts, and college support? Absolutely. I would. However, the government shouldn't require him to do so, and the spending should be at his discretion. Right now, that freedom is completely taken away. The custodial parent should not be getting a huge check and the freedom to spend the money however she wants. If I end up having a kid with a wife who divorces me to live it up with an illiterate biker, those CS payments damn better be going to the kid's college, not her beau's lottery-ticket budget.

It's a bizarre inconsistency. Parents can stay married and financially neglect their children. They can make $300k combined per year and still refuse to pay for their kids' college. Yet, if they divorce, the one parent who rarely sees the kids (usually father) is forced not to pay up merely to the minimum level of decency, but far beyond that if he's "rich" like the article's author.

cjbos2• 17 years ago

I think $4k a month isn't overboard for 3 teenage boys, especially if you factor in school & health care. As for the Alimony, it depends, if the wife had stayed at home for the past 21 years to raise the children and has no skills/experience to fall back on to support them herself, then yeah, he needs to support her as well as pay the full cost of raising his sons.

Notorious_PWN5• 17 years ago

I think $4k a month isn't overboard for 3 teenage boys, especially if you factor in school & health care.

Health coverage should really be provided by the government, but that's a separate issue. Also, individual health insurance on teenage boys is going to be cheap: closer to $150 per month than $1000/month.

School is provided by the government, for 12 years. College, on the other hand, is ridiculously expensive, but if the government isn't forcing married couples to pay for it (I know some $100-300k couples who paid nothing) it doesn't have a leg to stand on in forcing divorced parents to pay for it.

earl4• 17 years ago

Yes -- but he should be left with $2777 per month to live on? You basically can't live on that sum of money on the east coast unless you want to live a collegiate existence.

randallsquared11• 17 years ago

Sort of the "one good deed requires another" system, there? :)

Chocobean6• 17 years ago

I think it's a sad state of affairs in divorce courts and that fathers usually get the short end of the stick, too

But I don't understand why cjbos is getting downmodded for making a valid argument that $4k isn't that much money to raise a 4-person family.

IF the author points out that his ex-wife is now re-married, or is working and bringing home more than $4k blah blah blah, then yes, evil witch, bad system. But let's not jump to judgment here, guys, especially when the author himself hasn't vilify this woman.

joeyo• 17 years ago

My understanding is that alimony is quite distinct from child support. Rather it is payments made directly to a former spouse and harks back to a time when women had no way to support themselves after a divorce (they could not work and probably had little chance of remarriage). So the idea was that the alimony would continue to support them as if they were still married.

I have no idea why it still exists, however.

krschultz4• 17 years ago

worse is when you are paying alimony to a remarried wife. (Note, I do not do this so I may be wrong, but I've heard horror stories).

enjo• 17 years ago

More confusing is that this guy is claiming that his alimony payments are more than 2/3 of his take-home income. I think he meant child-support.

yummyfajitas2• 17 years ago

Actually, child support is also payments made directly to a former spouse. While in principle it said to be for support of the children, there is no requirement that it be used for such purpose (let alone an enforcement mechanism).

bokonist2• 17 years ago

The injustice is when the court strips the father of custody and then forces him to pay child support. Child support should only be required if the father voluntarily renounces custody. Otherwise, custody should be split equally and no child support should be owed by either party.

Also, everyone would be better off if these contingencies were all written into contract before marriage/child birth. It would save everyone a lot pain. Unfortunately, the judicial system has gradually replaced our great tradition of contract law with arbitrary rule by judges, much to the loss of everyone.

ivankirigin3• 17 years ago

Nothing says "I love you" like a prenup. There is a very good reason why they aren't that common.

asciilifeform10• 17 years ago

> how brutally he is being raped by the alimony system

What I don't understand is how we almost never hear of such people packing up and moving to some country which is hostile to US interests, or simply has weak record-keeping and is thus friendly to those who want to leave their past behind. Are all such countries mournful hellholes to live in? Surely not.

Seriously, if I were ever sentenced to the perpetual confiscation of over half of my income, I would run off - doesn't matter much where to. Perhaps the Somalian pirates - or North Korea - are hiring? I also recall once reading that France will not extradite a French citizen - perhaps you can become one? (They might still allow American debt collectors to find you, however. Does anyone know?) Seriously, just about any life is better than being a part-time slave, which is what such extortion amounts to.

seanc• 17 years ago

A) You're thinking of the Foreign Legion. Go look it up. A few years of military service and you're in.

B) When you get married you're making a very serious promise to share everything and build a life together. The state provided default contract for a marriage is very clear about the separation terms up front. If you don't like them, then negotiate a pre-nup with your spouse.

Good luck.

tjic5• 17 years ago

> What I don't understand is how we almost never hear of such people packing up and moving to some country which is hostile to US interests

http://roissy.wordpress.com/2009/05/15/hero/

quellhorst2• 17 years ago

I would argue that he is a full-time slave. Part of his time goes to pay for his previous marriage, the other part for taxes, and the final part to the banking system.

menloparkbum3• 17 years ago

Guys who seriously consider moving to somalia or north korea to avoid alimony payments usually don't have to worry about getting married in the first place. It's hard to meet a spouse in your parents' basement.

zmimon2• 17 years ago

> My blood pressure went way up when I found out how brutally he is being raped by the alimony system

Agree. I was really impressed that he managed not to express any bitterness towards his ex-wife in the article. That says a lot about his character.

Tichy2• 17 years ago

I must admit the attitude of his new spouse also made my blood pressure rise.

newblog• 17 years ago

reminds me of this video: http://www.youtube.com/watch?v=Ubsd-tWYmZw

blhack• 17 years ago

Wow...

I had never seen that before, and honestly thought it was a warning about predatory lending...the person on the phone "you can do this" sounds like a drug dealer "just one hit".

...wow.

raphar• 17 years ago

How is it the couple didn't learn anything about finance and financial crisis while studying in Argentina????????

btw: I'm from Argentina.

weegee• 17 years ago

it just shocks me when normally intelligent people get into some sort of dream state and think they are entitled to something they clearly cannot afford. I make more than $2777 or whatever take-home pay this guy had after his alimony payments, and my wife and I live in a one bedroom condo we bought for $130k, and our mortgage is a little less than the same size apartment in the city we live in would cost. but this guy shot himself in the foot and bought a house that was clearly more than he could afford, and that is just basic math. if he had been honest with himself, and done the math, he wouldn't have gone broke. glad he is doing well with the book though.

nazgulnarsil2• 17 years ago

why do people get married and have kids when the statistics say that neither makes people happy?

dangoldin• 17 years ago

My answer would be that statistics work for a population but not the individual case. I feel that getting married and having kids would make me happier - I'm sure others feel the same regardless of what statistics say.

nazgulnarsil2• 17 years ago

of course. but that doesn't mean we should ignore it when a large number of people admit that they did X and it didn't make them any happier.

cpr• 17 years ago

Who says that happiness is the goal in life?

Happiness is an occasional side-effect of living a good life, but it'll come and go.

philwelch• 17 years ago

Because people are products of evolution.

shard• 17 years ago

- A sense of purpose - Fulfillment - Biological drive - Life goals - Companionship - Love - To make the people you care about happy

Based on success statistics, startups probably don't make a majority of entrepreneurs happy either. But they still do it.

indiejade2• 17 years ago

We sent in an offer of $460,000 and one day later got our answer: the sellers accepted.

The better way to think about the injustice of this story is to realize that his Realtor & Co. earned at least $27,600 (Six percent of the $460,000) for less than a day's worth of work.

Bob called back the next morning. “Your credit scores are almost perfect,” he said happily. “Based on your income, you can qualify for a mortgage of about $500,000.”

Translation as to what Bob was really thinking: "Based on your credit score, I can earn about $30,000 today, without blinking."

Realtors are the evil behind the mortgage meltdown. If this article doesn't make it obvious, I don't know what does.

Chocobean6• 17 years ago

They do provide valid services though: driving you and your family to and from many showings, talking to the owner/owner's Realtor, take care of the legal mumble jumble, provide info on the house's previous owner records, previous sale pries, insight into school districts, commute hours, community by-laws..etc.

House-hunting is certainly NOT less than a day's worth of work. If they end up not buying from him, all this time spent on working their profile earns him exactly $0. The goods that he sells are his time: time that he can't spend with another customer simultaneously.

Bob was an evil realtor; evil [profession] are evil. That's all.

MaysonL• 17 years ago

Bob wasn't his real estate agent, he was his mortgage broker. (He may well have made 30K off the deals, though, anyway).

Empact2• 17 years ago

If this bothers you (it does me), you should look at Redfin.com. They do realty for 1% each, rather than 3%, and can afford to because they do much of their work online.

HSO8• 17 years ago

"for less than a day's worth of work"

Look, if Google earns x cents on a click from you, does it earn it on "less than a second's work"? It does not, because someone had to take the risk to acquire the necessary skills and contacts/reputation over a long period of time, had to set up an office and legal forms, had to acquire a rolodex, etc etc. There is a lot of risk involved. THe fact that the transaction itself, if sufficiently isolated, takes place in a blink so much as doesn't matter!

In fact, our system works such that people are not paid based on their (highly subjective) work effort but on result. Result in terms of what other people are willing to pay for your services. If you go down the slippery slope of "fairness" in pay based on effort, you will end up in pure, almost literal communism -- everything owned by the community, nothing for yourself, because there is no basis for judging effort from outside. Effort doesn't count, results do.

indiejade2• 17 years ago

This is not sound logic. Did you get everybody in your real estate office to sign up for a YCNews account and upvote this comment?

The mortgage problem is resultant, largely, because of lack of information between buyers and sellers. Note that I didn't say lack of information between a homebuyer's Realtor and the seller's broker. In economics, we learn about the concepts of buyer's surplus and seller's surplus. In real estate, there is this third entity (usually colluding brokers, agents, etc.) eating away, often entirely consuming all potential surplus. Why else would this mortgage meltdown have happened?

People make decisions based on information presented to them. Mortgage brokers and their Realtor friends go out of their way to throw up as many brick walls and make the process as overwhelming and confusing as possible. If you're a Realtor, you surely are aware of the antitrust case against the National Association of Realtors:

http://www.usdoj.gov/atr/cases/nar.htm/

Home buyers are usually required to sign STACKS of papers during closing. During this process, they rarely notice that one most important to the Realtor & Co which is the one they slip in there that states the "percent" that the Realtors are making and the "percent" that the brokers are making in the deal; this number is NOT mandated by any laws, but Realtors and Co. always give homebuyers the impression that it is; after all, all the other papers they're signing are supposed to be for their "protection". After all who would hire a Realtor who didn't claim to "be working for you"?

They talk dollars when it comes to house prices and percents when it comes to what they're making in the deal. This is evil, deceptive practice and it should be illegal.

I think most rational people would think twice about taking out a loan to pay five or six figures to somebody who calls shuttling around in an SUV and counting their riches "work".

I'm not even remotely "communist" as you seem to be implying; I simply think that this "rolodex" argument you're making is beyond outdated in the 21st Century.

After all, your risk-reward argument only makes sense if there's competition. And if you'll look over the DOJ case I linked to above, you will see that the National Association of Realtors does everything in its power to restrain competition.

Need more evidence? Watch the video:

http://themermaidtavern.blogspot.com/2009/02/realtors-are-ev...

aswanson4• 17 years ago

In 1995 dollars:

http://findarticles.com/p/articles/mi_m1355/is_n5_v89/ai_178...

DougBTX• 17 years ago

Weird, that article stops half way and starts talking about a magazine "Ebony South Africa". And "page 2" is a list of links.

aswanson4• 17 years ago

Yeah, really strange.

Tichy2• 17 years ago

Why did it never occur to them to just sell the house? That is what puzzles me most (among other things). It seems that having your own house is so important as a status symbol that all other concerns are minuscule in comparison?

Also, what happens if the bank you borrowed the money from goes bankrupt? Is there a chance they will just get to keep the house, because nobody will ever come round to claim the money? If so, it wouldn't be so bad after all...

nradov• 17 years ago

When a bank (or other lender) goes bankrupt its creditors seize the assets, which include mortgages. So if you don't pay then the note holder will eventually foreclose. But occasionally the paperwork gets lost or screwed up and that delays the process. I've heard stories of deadbeats going a couple years without paying before finally being evicted.

abalashov• 17 years ago

My guess is by the point that sort of thing would have been a desirable remedy in their minds, property values had declined enough (especially in an area where housing was particularly inflated) that selling wasn't an option without owing money.

amitry• 17 years ago

This guy need Dave Ramsey! http://www.daveramsey.com/

nathanwdavis• 17 years ago

Wow, this article speaks more about the ruin caused by split marriages than anything else. Definitely motivation to stay in love and on the same page with my wife.

jzachary4• 17 years ago

Turns out he didn't tell the part of the story about his wife's bankruptcies: http://kottke.org/09/05/economics-reporter-gets-caught-in-mo....

My Personal Credit Crisis

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