Tuesday, September 23, 2008

In Defence of the Imprudent

As if sitting in on an end-of-life lunch conference wasn't bad enough (and imagine trying to discreetly work your way through a pasta salad when discussing Terry Schiavo and feeding tubes) I had the joy of sitting next to two self-congratulatory muppets holding forth on the credit crunch.

I did not weigh in, although I may have given my broccoli spears an extra vicious stab or two. It's a refrain I hear too often these days, smug fixed-raters happy to lay the blame for the current financial meltdown squarely at the feet of those 'stupid enough to take the loans in the first place'. People who happily bought their homes five or more years ago that were lucky enough to find properties they could afford without incurring excessive risk.

We are certainly not in this happy group. We did end up buying at the wrong time and with a horror story of a loan. We probably do deserve everything we are likely to get served up to us. I am putting this down in defence of the imprudent, the stupid, the people who made their own beds and are now forced to lie in them. I am writing this so I can get it off my chest without engaging any self-righteous twits the likes of whom I sat next to this afternoon.

If Bridget Jones can have her 'smug marrieds' I can have my 'smug fixed-raters'.

In my (our) defence, we are not stupid. I had heard of negative equity well before the credit crunch. We were faced with a town where real estate was so ludicrously out of our reach that renting was the only option. In the time that we sat quietly, prudently squirreling away our nest egg, the most basic, squalid, 2-bedroom condos sky-rocketed by hundreds of thousands of dollars. Those people we watched take dodgy loans to get a foothold in the market were coming up smelling of roses. Santa Barbara real estate was always a safe bet, there had never been a downturn, if anything only a plateau, way back when the rest of the country took a bath. So we took a chance, because we'd already wasted so much time doing nothing. It was good advice, a sensible decision, and I am terminally sensible. It was the only chance we had.

I still think the decision we made was prudent. If things had gone faster, smoother, we would have been chuffing laughing. We bought an income property with the intent to switch four apartments in to four separately saleable condominiums. Divide and conquer. The City of Santa Barbara worked on our conversion application at a deliberately glacial pace. There were too many hurdles to mention (archeological surveys, sounds surveys, sewer lateral surveys, survey surveys), but we finally did get planning approval and permits issued.

Too late it appears, the financial tide had turned.

We are still in the fortunate position of being able to collect rents. Our position would have been infinitely worse if we'd bought a condo back in 2005. It still leaves us with a nuclear mushroom cloud of a loan, and a hell of a job trying to hang on, but you better believe we're getting creative on that end!! Who knows, you may see creature #2 on Ebay in the near future. At the very least I may be jogging for a 'tax baby' at the end of December.

So while you're busy patting yourselves on the back and applauding your fiscal good sense, perhaps take a moment to consider how much luck played in to your success. We are not all spendthrifts putting 'I want, I must have' things on credit because we feel we are entitled to a lifestyle above what we're prepared to work for. There are plenty of people in this mess, who through job-loss, illness, sky-rocketing interest rates or other unforeseen circumstance are no longer able to afford a basic right -­ a home.

And yes, in the words of Norman Tebbit, we can just get on our bikes. No-one made us live in this rich-man's town. Except it's my husband's home town, where he wanted to stay and raise children, and we tried to make it work. Trust me, nothing can put a strain on a marriage like running in to trouble fulfilling someone else's dream.

I don't blame our mortgage broker, he was only doing what every single loan broker in this town now denies doing; helping people into properties they knew they couldn't afford so that they could at least have a chance at taking a risk. I do blame the mortgage companies for allowing these loans, which caused property values to rise exponentially, and I'm sure they in turn have regulators they would like to slap. And yes, this is a 'correction' and people should be made to pay, capitalism will have it's pound of flesh. I see how unfair it is to take tax-payers monies to bail out those who made bad decisions. But this is bigger than that -­ this is everybody's savings, their pensions, their ability to get a loan to make a better life. This is scary. This is working hard and going backwards. You better believe I will be telling Anna the 'Robert the Bruce and the spider story' over the years to come.

See, this is what happens when I eavesdrop on other people's conversations instead of listening to this month's guest speaker on the topic of 'Advance Directives, How To Die With Dignity'.


Anonymous said...

Oh my goodness . . . I think I could have written something very similar to this! Thanks to the mortgage broker who will never admit is inpropriaties, we bought a house in San Diego in 2003. The market exploded, and while both hubby and I were working hard, money was very tight. After several refinances, we were BEYOND LUCKY to sell our house mere days before the market tanked and even turned a very tiny profit. I always considered home ownership part of the 'American Dream' and what you did when you grew up and got married . . . now it appears you rent until a weathy relative dies and leaves you an inheritance or until you cash out your 401K in the hopes of having your children grow up in a home you own.

ExpatKat said...

Well said Ali!I too am sick of the smug fixed-raters even although if I'd been allowed to, I'd have been one. But no, we were foreigners buying property in the US for the first time. Despite the fact that we were debt free and put 20% down, we were not allowed to have a fixed rate mortgage because we had no credit history here. (At least that's what they said, but with hindsight they were skrewing us!)We were actually a much better bet than most citizens.
The only loan we could get was a 5/1 ARM. We are now trying to refinance into a fixed before our payments balloon. The only good things are a) thank god we didn't take the Jumbo they offered us, b)our contract gives us one chance to refinance within that 5yr period and still continue our amoritization schedule and c) mortgage rates are still historically low.
I really resent getting caught in the crap caused by greedy people at the top of the US financial industry though. I didn't even live in this country when all this started!!

ExpatKat said...

Oh, and I don't even have the right to vote against them in the election, even although it'll be my tax dollars that will see those executives sailing off into the sunset and a golden retirement.
And you think socialism sucks? Don't knock what you haven't tried.

mmennen said...

I would love to hear the Robert the Bruce and the spider story myself - not familiar with that tale ; )

Expat mum said...

I want to know what on earth you were doing listening to anything about dying with dignity.

ExpatKat said...

Sorry, Ali. Didn't mean 'you' as in 'you' but 'you' as in some US citizens.

ExpatKat said...

Oh and yes, what is the Robert The Bruce story? He killed my ancestors! If it wasn't for him, we'd have been the Kings of Scotland.

mama speak said...

I grew up in Northern California. My mom's family moved here when it was still part of Mexico, but it has been unbelievably hard to stay here. My husband and I consider ourselves lucky in the fact that we've been able to purchase homes several times and sell them. Having grown up here the one thing I do know is that Ca is all about Boom and Bust cycles. If you can hold on, you'll be good again soon. Maybe not as soon as you'd like, but it will happen.
Even though our housing cost are beyond ridiculous and we could buy a place in most areas outright, I can't imagine living anywhere else. Besides having family here, the weather is so lovely and we've had the opportunity to make so many very good friends from so many parts of the world.

Keep your fingers crossed, work hard and hang on, it's a bumpy ride, but a good one & when you're done you'll find yourselves stronger for it.

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