My local Marin paper recently ran a story that showed paralyzing stupidity on the part of both a bank and an individual couple. The law favors the bank, which was insanely greedy and stupid, so Occupy Marin is stepping up to help the couple, which was also insanely greedy and stupid. I feel for a couple that might be homeless, but this is truly a “plague on both your houses” situation.
The story started a few years ago when the bank and the couple got together to be as dumb as vast collection of posts:
Graybill, a contractor and cabinet maker, said he and his wife, an interior designer, lost their home due to two home equity loans they took out. He said the loans were issued by World Savings, which at the time held the mortgage on their house. World Savings was bought by Wachovia in 2006, and Wells Fargo merged with Wachovia at the end of 2008.
Graybill said that with the encouragement of a World Savings employee they took out a second equity loan of $600,000 — even though the house had most recently been appraised for just $243,000. Graybill said the World Savings employee lied on the loan application indicating that the couple had two new cars and $100,000 in home furnishings, which they didn’t have. The loan featured an adjustable interest rate and balloon payments.
“We were foolish. We shouldn’t have borrowed the money,” Graybill said. “We shouldn’t have used our home as a checkbook.
“My parents grew up in the Depression and they never would have done what we did,” Graybill said. “My wife and I, like so many others, were betting that things would continue to get better and we would be able to turn the situation around.”
The above set of facts raises two questions: What in the world were Graybill and his wife doing taking out a loan that was more than twice the value of the house? And what in the world was a bank doing issuing a loan that was more than twice the value of the house?
The lender, having successfully instituted foreclosure proceedings, is now trying to evict the couple. That it has the legal right to do so does not make any better its original stupid decision. The property is still worth way less than the outstanding debt, so the lender is still in the hole. Meanwhile (and this is why the story hit the news), Occupy Marin is trying to force the bank to stop eviction proceedings, allowing the debtors to keep their home. Considering that these people took out the world’s dumbest mortgage, I don’t see that they deserve that kind of favorable treatment.
Ever since the housing market collapsed, both sides of the political aisle have been criticizing the banks’ greed. Loans such as this one certainly lend credence to that line of thinking. Of course, Congress created this nightmare when it forced banks to give bad loans so that “everyone” could own a home. Once the banks got a system in place for giving bad loans and then immediately selling them, it had an incentive to create and sell as many bad loans as possible. That doesn’t excuse these deleterious bank practices, but it explains them.
But what’s the individual’s excuse? Why in the world would people burden themselves with debt that they cannot possibly pay off? These people admitted that they used their house as a check book. Well, fine. That’s a decision you’re allowed to make, but should you be able to come back later crying that your decision was a stupid one, so now the world has to support you?
Honestly, when I read stories such as this one, I see red. I get angry at government policies that encourage profligate banking practices; I get angry at banks that use those same policies to justify almost criminal banking decisions; and I get angry at individuals who make foolish financial decisions and then expect the world to bail them out.
Sadly, at the end of the day, the politicians keep pandering and destroying, while the banks and the borrowers get rescued as always by the American taxpayers. Which leaves one thing hanging: when the taxpayers run out of money, who’s going to rescue them? Germany? I don’t think so.
Romney is proving to be a predictably bland candidate but honest-to-God, it would be so wonderful to have our chief executive officer be someone who understands finances at both a theoretical and practical level.