At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane. . . As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were "Alt-A customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.By 2008, Andrews and his wife fell behind on mortgage payments, and became subject to foreclosure. Two points:
What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob [Edmund Andrews's loan officer], figured, it was my job to decide whether I could afford it. His job was to make it happen.
"I am here to enable dreams," he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. "Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage -- not mine."
You had to admire this muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. . .
- Bad outcomes don't necessarily imply a flawed or fraudulent process. I sympathize with Andrews. But, Andrews calls it "mortgage madness." And, this being the New York Times, he paints himself as a victim--of greedy bankers:
If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.Got that?--neither duped not hypnotized, but deceived. An economic expert, yet helpless to resist a loan officer trying to help Andrews realize his dream.
But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others -- borrowers, lenders and the Wall Street dealmakers behind them -- I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived. . .
This is Wall Street's fault? Isn't it more like comedian Mort Sahl's famous parody NY Times headline: "World Ends. Nuclear Holocaust. Women and Minorities Hit Hardest"?
- The Times still doesn't fact check. Contrary to the ombudsman's whitewash, something's missing from Andrews' tale. Megan McArdle revealed it in her Atlantic magazine blog:
[Andrews' writing] reads like the story of an American Everyman, easily sucked in to the alluring world of easy credit as he struggled to blend a new family. The terrifying implication is that it could happen to you--to anyone who leads with their heart and not their head.BTW, a comment on another blog says that Andrews' 2004 mortgage was interest-only, and he refinanced twice since--with the attendant costs and taxes.
But en route to that moral, it turns out the story has been tidied up a little. Patty Barreiro, Andrews' wife, has declared bankruptcy twice. The second time was while they were married, a detail that didn't make it into either the book or the excerpt that ran in last Sunday's New York Times Magazine.
Andrews' desire to shield his wife is understandable--hell, laudable. No decent person wants to parade their spouse's financial trouble in front of the world. But this is material information that changes the tenor of his story. Serial bankruptcy is not a creation of the current credit crisis, and it doesn't just happen to anyone, particularly anyone with a six figure salary. . .
Serial bankruptcies can, of course, happen to anyone with enough bad luck. But they usually don't. And when they do, they usually hit people with marginal incomes that leave no margin for error in the budget. . .
Moreover, pesky bad luck isn't really the picture painted by either filing. Rather, Ms. Barreiro seems to have spent most of the last two decades living right up to the edge of her income, and beyond, and then massively defaulting. If you structure your finances so that absolutely everything has to go right, it's hard to blame the mortgage company when you don't quite make it.
Andrews has been admirably open about many of the poor decisions and the wishful thinking that led him deep into debt. Nonetheless, he has laid much of the blame onto irresponsible bankers and mortgage brokers. The missing bankruptcies substantially undermine this basic narrative arc of Andrews' story. Particularly in his book, the bankers are the villains, America's current troubles are the inevitable denouement of their maniacal greed, and the Andrews household stands in for an American public led, by their own greed and longing and hopeful trust, into the money pit.
Although the current confusion is understandable when the mainstream media fails to fact-check liberal presumptions and limits what's "fit to print" to the spectrum from fables to politically convenient half-truths.
(via Instapundit, TimesWatch)