Wednesday, February 4, 2009

The Fortuity of My Stupidity

Yesterday I ranted about my friend who rampantly speculated on real estate investments and is now seeking a bail out. I'm angry and self-righteous... and a big fat hypocrite since it could've easily been me.

I found a spreadsheet that I created in 2006. It shows the loan principal at $400,000, 7% APR for term of 360 months, and estimated monthly payments of $2,604. The spreadsheet also indicates: "Total estimated tax deductions $770/month. Net mortgage payment $1,834. Difference from rent $600+. Can reduce 401k contributions 50%."

When I created the spreadsheet, I thought that a $400,000 mortgage would be "affordable". This is proof-positive that I too was caught up in the real estate bubble euphoria.

What stopped me from buying a $400,000 property, though, was my own financial irresponsible past. I never bothered to see whether I qualified for a mortgage since I (correctly) suspected my FICO score was bad. I also suffered from a negative cash-flow due to a $150k debt including student loans, credit cards and a car loan.

I figured I would wait a few months until my financial picture improved. Well... Without a budget and a debt reduction plan, my financial picture never really improved, thereby depriving me of ANY realistic opportunity to buy a house during the market run up. As we all too painfully know, the housing market peaked in 2006 and the bottom fell out.

In essence, my irresponsible past effectively prevented me from making a further calamitous financial decision. If I was even a wee bit more financially secure in 2006, I could be straddled with real estate that's seriously underwater right now.

Saved by the fortuity of my stupidity. Go figure.

I need to be kicked off my moral high horse in this economic crisis since I too clearly drank the Kool-Aid of easy credit. It was neither prudence nor thrift that allowed me to avoid the terrible real estate conundrum many are currently facing.

There are no easy solutions in this economic crisis and I probably will never be a direct beneficiary of the bail-out plans contemplated. But I need to put away the thoughts of, "What's in it for me?" Hand wringing jealousy is counter-productive, divisive and corrosive. I need to remind myself that there is no "us vs. them" in this crisis. We all created this mess and we're all in it together.

But... It's still hard not be a sour grape.


DogAteMyFinances said...

I totally relate to this. If I hadn't left grad school with over 100K in student loans, who knows what I would have done? At least my student loans didn't drop 30% in value.

MoneyMateKate said...

I don't think that makes you a hypocrit at all. In fact, I can't think of a better qualification for getting a mortgage than "Must have made a significant financial mistake in the past". Think about it...this housing market is probably the first significant money mistake most people have made. It's like they're all learning a lesson at the same time and at the expense of everyone else.

Sharon Rose said...

Hi there-I'm a believer in whats meant to be and it seems like it was meant for you not to undertake any extra debt, which at that time sounds like not the right thing for you.

paranoidasteroid said...

Actually, it doesn't make you a hypocrite. You took a look at your situation and understood that you had problems (even if you thought you wouldn't qualify, not that it wouldn't be prudent). There are plenty of people who knew they had problems and didn't care. There was a whole slew of mortgages where the companies didn't even verify earnings or assets/debt. People making $30K lied and said they made $100K. One woman qualified for a mortgage where the payment was $100 less than her monthly income!

It's hard to not feel sort of bitter. But you put it much more eloquently than I did yesterday - we're all in this together.

Miss M said...

You dodged a bullet! I wish I could go back in time and un-buy my house. I don't think you are a hypocrite regardless, your co-worker bought multiple properties without understanding real estate investing. At most you were looking at buying a place to live in, it's different. Even people caught up in the crisis like me probably won't get helped out, we're not irresponsible enough :)