The Subprime Meltdown From The Perspective Of A Housing Counselor

The Washington Post has a really interesting article about a housing counselor in the D.C. area who saw the subprime meltdown first hand.

Coppedge saw it coming in slow motion. Around this time last year, she was mostly dealing with renters who were behind on payments. Rarely did she counsel at-risk homeowners. When she did, they were usually suffering a one-time setback such as job loss.

“Then in midsummer, we felt the tide turning,” Coppedge said. “People started trickling in. First they came in to express concern about their loans and gathered information. Then by September, everything picked up speed and suddenly people were telling us they were behind on their mortgages.”

Many of those people had taken out adjustable-rate loans. Some used them to buy homes they otherwise could not afford when prices soared in 2005 and 2006. Others were constantly refinancing to pull cash out of their homes.

These loans were usually subprime mortgages, typically made to people with blemished credit. But they were in no way limited to low-income borrowers, said Coppedge, whose recent clients typically earn $60,000 to $110,000 a year.

“People from all walks are getting hit by this,” Coppedge said.

Meanwhile, the word over at the Credit Slips blog is that the Bush mortgage rate freeze will mainly help lobbyists for the banking industry avoid a particularly distasteful bankruptcy bill that is currently being kicked around in congress.

Local Home Foreclosures on the Rise [Washington Post]
The Sandbag Plan [Credit Slips]
(Photo:Spidra Webster)

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  1. spinachdip says:

    Paul Krugman takes a pretty dim view of the Paulson plan as well: [www.nytimes.com]

    As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.” Given the Bush record, that should come as no surprise.

    …Mr. Paulson’s plan – or, to use its official name, the Hope Now Alliance plan – is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending.

    …Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value – which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away.

    And what about people with good credit who were misled into bad mortgage deals, who should have been steered to loans with better terms? They get nothing: the Paulson plan specifically excludes borrowers with good credit scores. In fact, the plan actually provides an incentive for some people to miss debt payments, because that would make them look like bad credit risks and eligible for relief.

    Now, Mr. Paulson’s attempt to help investors, while doing little or nothing for distressed and defrauded borrowers, might make sense if his plan would reduce investor losses enough to seriously improve the overall financial situation.

    But only a small fraction of subprime borrowers will qualify for relief, and many of these borrowers will eventually face foreclosure anyway. So the plan is unlikely to reduce overall mortgage-related losses by more than a few percent, at most – not enough to make any real difference to financial stability.

  2. Trai_Dep says:

    LOVE Paul Krugman. He makes the whole paper worth reading.

  3. RvLeshrac says:

    I love how people are always ‘led’ to making bad decisions. I’m not big on the conservative ‘People are responsible for every single thing that ever happens to them’ mantra, but people do need to take responsibility for crap like this.

    No one sat these people down and held them hostage, forcing them to make mind-blowingly stupid financial decisions. That’s their signature on the dotted line. If they were too stupid to grasp that buying a house they couldn’t afford in 1,000 years of payments was a bad idea, they should get what’s coming to them.

    The people I have sympathy for are the ones who are being hit with ridiculously stupid rates on the ARM, and the people who have suffered problems like losing their jobs. That said, people who are sitting on ARMs and can afford the normal payments, those who have kept current, *can* still refinance under more palatable terms. None of these finance companies are going to nail you to the cross with an ARM when they can still make money off you on a more traditional mortgage, but you have to be willing to sit down and have a frank discussion with them.

    Unfortunately, most of these people have too much pride to admit that they now can’t afford the payments, and fall into a downward spiral. You can’t wait until you’ve hit rock-bottom before you ask for help, you need to ask your financer for help early on.

    As always, they’re in the business of making money, not helping you – but they’re going to be far more willing to help you out and lose a little money now if they understand that the other option is losing nearly all of the money later.

  4. chili_dog says:

    @RvLeshrac: “the conservative ‘People are responsible for every single thing that ever happens to them’ mantra,”.

    You’re thinking of the Libertarians. True conservatives believe that there is a time and place for government input and controls, just not in every facet of daily life.

  5. pinkbunnyslippers says:

    The thing I take issue with in this particular article is that this is a housing counselor in DC. Sure, some of her clients pull in $60-$110k a year, but $60k in the DC area is barely enough upon which to survive. Coupled with the fact that the average CONDO prices here, even out in the suburbs 40 miles west of the city, were priced in the $325k-$375k range (now they’re a bit more reasonable, comparatively speaking), well of course they’re going to fall behind on their mortgage payments.

    I don’t deny that portions of the mortgage industry have been shadier than a palm tree in the past couple of years, but the subprime “meltdown” is thanks in part to a lot of people who should not have been buying homes. This isn’t ALL the mortgage brokers’ fault…

  6. socalrob of the 24 and a half century says:

    @RvLeshrac:
    IT will probably all be blamed on video games, like everything else is. I can see it now:

    “The homeowner was a fan of the sims and his Sims family had a nice house and he wanted one to. So he took out a loan, but he was unable to pay. He was a good man, a family man, very quiet, we don’t know why he would take out a mortgage, only crazy people take out mortgages…”

    Yeah…

  7. Caswell says:

    @chili_dog:

    Typically that time and place is when investors and corporations are due for a harsh reality check brought about by poor business practices.

    Unless you’re speaking of true conservatives, who have far more in common with libertarians than they do the past decade’s crop of neoconservatives.

  8. kimsama says:

    @pinkbunnyslippers: Thank you, I was going to say the same thing. 60K in DC is nothing — in NoVa, a family can qualify for rental assistance on like 56K a year. So clearly, 60K is not a high enough salary for people in the DC region to be buying a house, without a lot of sacrificing or extra-job-getting.

    When you work for a nonprofit and the people you ride the bus with who make less than you (haha, is that possible when you work for a nonprofit in DC?) are talking about the big houses they just bought, something is wrong. It doesn’t surprise me at all that lots of people in the region are being hit hard.

  9. JimiSlew says:

    Not surprised it is hitting ppl making 60-100+k a year. These same people bought 500k houses in my area with little money down and thought it was a good idea. Either that or everyone in my area earns 200+ a year b/c the houses are still going for 500k…

  10. BustedWheel says:

    I am tired of hearing about bail outs. Yes I understand that there was mis-dealings and maybe even corruption at the brokers office, better luck next time.

    I know this has been beat to death, but they did this to themselves.
    Why did they think that what they could afford then would change so drastically by the time the mortgage reset.

    Not a real estate expert by any sense of the word, but even I knew that the good times to be had in real estate could not last forever. Those who forget history are condemned to repeat it.

    I do want to say thanks though, for bringng the rediciouslly inflated prices in my neighborhood back down to earth. Now I can buy the house that I both want and can afford.

  11. HRHKingFriday says:

    @pinkbunnyslippers: I survived on 40k quite comfortably, in a close suburb. Granted I was renting and have no kids. But I also didn’t go out for 100 dollar dinners and stock up on fake LV purses.

  12. HRHKingFriday says:

    @BustedWheel: So true. We didn’t allow the market to correct itself, we just demanded more and more new homes and were unwilling to rent for a year or two to have it level off. Sometimes I wonder if we have any more intelligence than a bunch of lemmings.

  13. econobiker says:

    Yeah, ARM stink. Me and my ex-wife had our first home purchase (in 2002) was with an 80%/20% conventional/HELOC. The HELOC had an Adustable Rate which ***just by reading the fine print*** on the documents provided, I could see would be adjustable after three years. I did the math of adding the HELOC percentage rate to 10% (just for the estimate) and figured that I would be womped if it went adjustable. Refinanced a year later under just my credit (hers was iffy) into a full 100% conventional 30 year loan. Even with the burn of extra fees I knew I would be better off than with an adjustable rate.

    In the end it didn’t matter as we got divorced but she was a noodle head and insisted on keeping the home so I was more than happy to quit claim it so she could refinance it into her name (her iffy credit issues having fallen off her record in the year prior and her having a great paying job by then) and I wouldn’t have to deal with paying a rea estate agent to sell it. Plus no equity in it anyhow….

  14. pinkbunnyslippers says:

    @HRHKingFriday: Just curious – did you have roomies? I remember when I first moved to NoVA I was pulling in 40k and lived pretty decently, but it was tough living alone with the burden of all the bills solely upon my shoulders.

  15. RagingBoehner says:

    Did anyone else notice they spelled residential wrong in the window above?

    If that’s not a red flag I don’t know what is

  16. chili_dog says:

    @Caswell: Yep.

  17. HRHKingFriday says:

    @pinkbunnyslippers: Nope- I was in a very small one bedroom in Alexandria. I was paying around 1000, but I think thats because it was about a 1/2 mile walk to the metro (free shuttle though). I also didn’t have cable (OTA works for me) and used open wireless networks. My apt didn’t cover any bills, so something had to give.

    Oh, and 40k was after taxes, so I was spending about a third of my paycheck on living expenses. I guess thats not great, but I’m really proud I made it in such an expensive city.

  18. pinkbunnyslippers says:

    @RagingBoehner: LOL – you’re totally right. I missed that!

    @HRHKingFriday: Oh okay – well 40 after taxes is one thing…and you should be proud – that’s a fine accomplishment, especially in this city!

  19. Erwos says:

    You can live very comfortably in or near DC on 60k. Rents are high, but they aren’t _that_ outrageous. If you move even a little bit out of there and are able to use the metro to commute, it’s even easier.

  20. samzuckerman says:

    Hello folks, I’m a writer with the San Francisco Chronicle and would like to interview people in the Bay Area who have faced or soon will face an upward reset of an adjustable-rate mortgage. I’d like to talk on the record about how the extra money going to monthly mortgage payments affects the household budget and spending habits. If you’re willing to use your real name and appear in the newspaper, e-mail me at szuckerman@sfchronicle.com. Thanks