Monday, March 31, 2008

One Decision

Never gamble what you can't afford to lose.
— Traditional gambers' axiom

One of the things I've tried to convey in all the writing I've done at It's Your Money is that sometimes, all it takes is one bad decision to bring the roof down.

CNN/Money: "From $70k to Food Bank"

As we see in the CNN article, when that "one bad decision" has to do with your mortgage, you're pretty much doomed. Signing on to a dubious mortgage and assuming that things will "work themselves out" as a matter of course gets folks into a world of hurt.

In the article above, Ms. Guerrero (the focus of the story) found herself in that exact neighborhood — 101 World of Hurt Way, if you will. As a single mom with two kids, a $70k annual income, and a modest mortgage, she would probably have been okay ... if.

But that "if" didn't happen.

Here's the "if" that did: Change "modest mortgage" to a $2,500-per-month, interest-only variety, and throw in a job loss. Now you've got fireworks.

What we aren't told is whether or not Ms. Guerrero took on that mortgage while she was still married. A second income to help make those payments would be ... well, vital. Obviously.

Still, here is my humble opinion: With or without a second income, that mortgage should've never even been an option.

It's easy to say in hindsight, but Ms. Guerrero — married or not at the time — was insane to take on an obligation like that. And the bank, as best I can tell, was insane for writing the note.

Good thing real estate only goes up. (The premise this whole mess was built on, of course.)


Daryl Brock, the executive director of Second Harvest Food Bank in California's San Bernardino and Riverside counties, said his organization supplies food to more than 400 charities in metro Los Angeles, from homeless shelters to soup kitchens to an array of food banks. While the majority of people they help are working poor families, he said they have seen some major changes.

In the last 12 to 18 months, Brock said, the agencies he supplies have begun seeing more middle-class families coming to their doors.

"Our agencies have said there is an increasing number of people coming to them for help," Brock told CNN by phone. "Their impression was that these were not people they normally would have seen before. They seemed to be better dressed. They seemed to have better cars and yet they seemed to be in crisis mode."

Courtesy, I'm sure, of can't-miss real-estate purchases and the ever-popular Home ATM.

What makes Ms. Guerrero's mortgage particularly gruesome is that Ms. Guerrero was herself a loan processor. Talk about drinking the Kool-Aid.

A former loan processor, Guerrero knows all about that [subprime meltdown], although so far she has been able keep her house.

She used her tax refund to help pay many of her bills for the first two months, but now that money's gone.

She says she's now in a middle-class "no-man's-land."

"It just happened so fast. It happened in a matter of — what — two months," she said.

Yep. That's what happens when you have a $2,500 mortgage payment and your job — which itself was dependent upon a real-estate bubble continuing to inflate — goes bye-bye.

Whocudanode, indeed.

She's eager to get back to work and to hold onto her home until the market turns.

Ah, Californians. Ever the optimists. I wonder what happens if the market hasn't turned before her I/O loan recasts?

I'm certain that none of this — bubble going pop, job loss, and so on — was even a consideration on the day Ms. Guerrero closed on her home. But it should have been.

Rather than "Expect the best, but plan for the worst," what I see here was "Plan for the best because nothing bad ever happens with California real estate."

One more case of Life doling out a mighty harsh backhand.

Labels: , ,

— Posted by Michael @ 9:15 AM


heh. and here I thought I was being a harsh bastard to these money-tards.


The system didn't let her down. She's estranged, not divorced. She likely has too much in assets to qualify for assistance. Maybe she might want to work on pulling her marriage back together.


Thanks for your great post ,

Tracy Ho

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]