Monday, April 03, 2006

USA Today has a story about people who are struggling to keep up with payments on adjustable-rate mortgages. The story quotes a researcher from First American Real Estate Solutions who believes that as many as one million buyers could lose their homes over the next five years because they won't be able to make higher payments.

As I was reading some of the tales of woe in this story, it occurred to me that there are similarities between this problem and the Iraq debacle.

Think of the homeowners in these stories as President Bush -- not really processing the details, yet inclined to believe that in life things tend to work out. Think of the people who sold the loans to these homeowners as the neocons, or Ahmed Chalabi -- people willing to say or do anything to make the sale.

For 45 years, Robert and Lorraine Brown have lived in their ranch-style home in Florissant, Mo. ...

When they refinanced their home two years ago to pay off some bills, Robert, now 78, was working as a deliveryman. But his employer went out of business last April. Now he and Lorraine, 72, a retired nurse, are both seeking work. The rate on their mortgage has jumped from 7% to 10.5%.

"We were having a hard time meeting bills at the time we refinanced. It seems once you get behind, you do desperate things to catch up, and you never do," says Lorraine, trying to hold back tears. "At the time of the loan, they tell you, 'Well, it may go up, but it's probably going to go down.' You want it to be so, so you believe it."


When Paul and Sandra Wilson moved from California, where they couldn't afford to buy a home, to Georgia in May 2004, they bought a house with an interest-only loan. But Paul, 52, has had a tough time finding work, and they lost most of their savings in a business venture. They refinanced to an ARM with a lower rate but one that reset every six months and that charges a $20,000 penalty if they refinance within three years.

The loan broker "convinced us that it was in our best interest, and in most likelihood within six months our financial situation would turn around and we were going to look at selling," says Sandra, 53, a former law enforcement officer who is disabled.

In less than a year, their loan payment jumped from $2,275 to more than $2,800. The couple filed for bankruptcy and will lose their home next month. "This was our fourth home," Sandra says. "It's not as if we weren't aware, but we'd never had an adjustable-rate mortgage before."


Susan Cambero ... got into trouble after she took out an equity line of credit on her home in Lilburn, Ga., to pay off her car and other bills. As a single mother with total income of $38,000 a year, including child support, she never would have been able to qualify for the $57,000 line of credit from a conservative lender. That line of credit, when added to the balance on her fixed-rate mortgage, totaled $10,000 more than her home was worth.

The monthly payments for the equity line have more than doubled in four years, to about $400. (She also has a $700-a-month mortgage and hefty credit card bills.) "I can pay it, but I have nothing left over to eat," says Cambero, a contract analyst for a computer company. "I'm going to lose my house."

"You want it to be so, so you believe it." "It's not as if we weren't aware." Those could be the words of mid-level Bushies who used to be true believers but now understand what the hell they've gotten themselves into.

I feel bad for these homeowners, but they all took on risky loans with very little to fall back on; they're a bit like Bush sending the bare minimum number of troops to Iraq, with no plan for looting or the insurgency.

There's a big moral difference, of course: From 401(k)s to mortgages to telephone calling plans, Americans are expected to make more and more complex financial choices. Life was easier for the middle class a generation or two ago -- you had a fixed-rate mortgage, you had a pension, you had Ma Bell. Today, you need to understand much more in order to master your own financial life.

If you're president, however, there's no excuse: It's your job to master complex details. It always was.

I suppose an inclination to optimism is part of what's made America successful. But we can't tolerate an excess of it in our leaders -- we can't have a president who's utterly incapable of assessing risk. And in our day-to-day lives we need to rein in hucksters, if only to save us from our optimistic selves.

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