Real Estate Investing

Several days ago - before I disappeared for part of the week to attend my oldest daughter’s summer orientation for college - I caught this article from the New York Times and bookmarked it for readers here at Banks.com.   Financial writer Edmund Andrews wrote a riveting, heart-wrenching story about his personal credit crisis through a mortgage catastrophe.

Mr. Andrews found himself in a situation where he wanted to buy a home but because he was paying alimony and child support - and because his fiancee wasn’t yet working - he needed one of those *special* loans that dominated the 2005-06 buying years.

I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me.

Mr. Andrews first found himself moving toward a “stated income” loan where he could declare what his income was with no paycheck receipts or tax returns produced as evidence of his earnings.   However, he quickly learned that his name was still on the mortgage being paid by his ex-wife so this plan put his debt to income ratio over the limit.

Bob didn’t get flustered. If Plan A didn’t work, he would simply move down another step on the ladder of credibility. Instead of “stating” my income without documenting it, I would take out a “no ratio” mortgage and not state my income at all. For the price of a slightly higher interest rate, American Home would verify my assets, but that was it. Because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money.

Years later the family financial situation is sinking.  Mr. Andrews managed to save his marriage with his new bride, but they are bracing themselves for either foreclosure - or maybe they’ll be able to work with the lender to refinance.  For now they wait.  It’s been eight months since he made a mortgage payment.  Eight months without knowing what will happen would be torturous to me.  I can’t imagine how he and millions of others are feeling right now.

Go read Mr. Andrews full story.