Stupid is as Stupid does – A true story.
..or Why Poor People Stay Poor, the sequel…
…or Why the banking industry hasn’t learned their lesson yet…
Here’s the deal – Several years ago a couple whom I know bought a house for approximately $35,000 in the south end of Peoria. It’s not a great place, but it’s a home and is proportionate to their income. After refinancing to help pay off credit cards and a loan on a used car, they now owe nearly $50,000 on their initial $35,000 investment.
Fast forward to today – the same couple wants to move to a small town which is almost an hour away from where the husband works (wife does not work.)Â This will not only cost a ton of dough in gas, but neither of their two cars will survive the daily trip back and forth, which means at least one and possibly two new (or slightly used) cars are in their future.
The house which they were eying was on the market for $80,000. They were approved by a bank for a loan up to $75,000. They placed a bid for $65,000 which was accepted.
Now they’re looking at a $65,000 mortgage, on top of their current upside-down (meaning you owe more than what your place is worth) $50,000 mortgage of a house which is only worth $30,000 tops plus at least one new car. Simple math says they will be paying two mortgages adding up to $115,000 for two houses worth no more than $95,000, plus a car or two, not to mention property taxes.
What the hell is wrong with these people and why would a bank give them a loan, especially at this point in the game? Aren’t these the sort of practices that got the banks in trouble in the first place?
October 30th, 2008 at 5:43 am
Are you sure that they went to a bank? Try maybe the credit union or another finance company. Credit unions don’t have the same rules as your banks do. Have you looked at CEFCU repo lot in East Peoria lately? Looks like a used car lot to me.
October 30th, 2008 at 8:10 am
Anybody that carries two mortgages has bigger nads than I do. I couldn’t do it, not even in the best of economic times. You never know when your house will sell, you may be holding on to it for months and months.
October 30th, 2008 at 8:42 am
Cameron: Read the title to this post… I don’t think nads had anything to do with this.
October 30th, 2008 at 5:50 pm
CEFCU is under the same lending regs as banks. It’s not always the fault of the lending institution that people default on their loans, you know.
October 30th, 2008 at 6:17 pm
I understand that, but in this environment, you would think they would look a bit closer at their financial situation. The only advice I have to give to this family is I hope they know a good bankruptcy lawyer.
October 30th, 2008 at 6:30 pm
It’s much harder getting a loan these days. Financing a car is harder and Houses. I dont believe this at all. I think these people “you know” are blowing smoke up your well you know.
October 30th, 2008 at 7:14 pm
PI — Sorry; my comment was directed at Yooper Girl. I should have specified.
November 5th, 2008 at 9:52 pm
The financial entity that lent the money most likely quickly passed (sold) the mortgage to Fannie or Freddie; that is after they took their profits. Eventually taxpayers will be paying for all this private and political greed.