Tom Purcell, 1/28/2008 [Archive]

Sub-Prime Illiteracy

Sub-Prime Illiteracy

By Tom Purcell

"If only the president had helped me earlier, maybe we wouldn't be in this credit-meltdown mess."

"The president?"

"Haven't you heard? President Bush said, in so many words, that Americans are financial dopes. He signed an executive order to smarten us up."

"Ah, you speak of the President's Advisory Council on Financial Literacy. It's a newly formed group of experts from the private sector who will seek ways to improve financial literacy for all Americans. If folks had more financial sense, we could have avoided the housing bubble."

"You got that right. When I signed for my sub-prime mortgage, I had no idea what I was getting myself into. I didn't even know what 'sub-prime' meant."

"It's a simple concept. Roughly 25 percent of Americans have bad credit or an unstable work history. Such people don't qualify for 'prime' loans -- low-risk loans. Since sub-prime loans are high risk, mortgage lenders charge higher interest rates on them. Such loans are very profitable -- so long as they are paid back."

"That's where I ran into a snag. Though I had a heck of a run before they took my house away from me."

"You're going to have to explain."

"A few years back a real-estate agent talked me into buying a gorgeous home. It was only $500,000!"

"That's a lot of house in most parts of the country."

"It sure was. But I had a problem. There was no way I'd qualify for a loan. The real-estate guy told me to relax -- that he knew people. I think he was eager to get his commission."

"You don't say."

"He set me up with a mortgage guy. The mortgage guy said I could buy the house with no money down -- that he had some kind of adjustable-rate, interest-only, balloon mortgage package that would keep my payments really low. I think he was eager to get his commission on the loan, because he didn't care that I had no job!"

"You had no job! How did you make your payments?"

"Well, since any old fool was able to get a loan and buy a house, housing values skyrocketed. As they skyrocketed, people made money. That caused more fools to jump in, which drove values even higher. I was able to tap the rapidly rising equity in my home by taking out another loan."

"You took out a home-equity loan to pay your mortgage!"

"Sure. I also used it to buy some nice furniture. You can't throw parties in a beautiful house like mine was if it isn't furnished right. But pretty soon the party was over."

"What happened?"

"Well, people like me began defaulting on their loans. As interest rates went up and the gimmicks were pulled away, people's mortgage payments were suddenly higher than they could afford -- they began losing their homes. At the same time, mortgage lenders got picky about who they lent money to -- fewer people qualified to buy homes."

"An ugly combination that caused housing values to go down as quickly as they went up."

"You got that right. My home was suddenly worth tens of thousands less than I paid for it. The home equity people stopped giving me money. I lost everything. I currently reside with my mother."

"But you've learned from your mistakes?"

"My mistakes? I was taken advantage of by savvy business types who exploited me for their own gain. They should have told me I couldn't afford that house -- that a bubble was forming and that my house wasn't really worth very much. I'm going to sue all of them."

"But weren't you taught basic economics and critical thinking in high school? When you buy a home, you are assuming the risk. Since you made bad decision, then, aren't you the one most to blame?"

"The president is to blame. If he had formed a government-sponsored financial-literacy council earlier, it could have showed people like me how to think -- it could have protected us from tricky real-estate and mortgage people and other confusing financial stuff."

"Maybe you should sue the president, too."

"Now there's a thought."

Tom Purcell is a humor columnist nationally syndicated exclusively by Cagle Cartoons. For comments to Tom, please email him at Purcell@caglecartoons.com.

RESTRICTIONS: 'Tom Purcell's column may not be reprinted in general circulation print media in Pennsylvania's Allegheny, Beaver, Butler, and Westmoreland Counties. It may appear only in the Pittsburgh Tribune-Review and its sister publications."

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