Tuesday, February 3, 2009

Losing My Humanity In the Economic Crisis

"You don’t deserve a loan modification," I thought to myself as my friend confided to me that she is currently seeking loan modifications for two of her Vegas properties that are underwater.

As I’m thinking this, I’m disgusted with myself. How can I wish ill upon someone and still call her a friend?


Back in 2004, many of my friends and colleagues were gloating and bragging about the skyrocketing value of their properties. (The median home price at the time was $580,674. And this wasn't even the peak!)

I listened enviously how their real estate investments were effortlessly doubling and tripling in value. Everyone seemed to own a goose that laid golden eggs. Everyone, but me.

One co-worker advised me, "Shtinky, you need to buy yourself a property – ANY property. It may not be your ideal property but when the value goes up, just keep trading up."

Shtinky: “I can’t afford it with my student loan payments.” (Note how I've conveniently omitted the fact that I was totally drowning in $38k+ credit card debt.)

Co-Worker #1: “Yes you can! Just talk to my broker. He’s got so many amazing mortgages he can offer you. You can get a mortgage where your monthly payments will be around where your rent payments are! And besides, you’ll get tax deductions and you can pay off your student loans with your mortgage!!”

Shtinky: “Thanks, but no thanks. I'm barely making ends meet.” (Actually, at the time, my expenditures exceeded my income.)

Co-Worker #1: “Suit yourself. But just remember, the longer you wait, the more likely you’re gonna get priced out of the market forever.”

Shtinky: “Story of my life.”

The peer pressure was relentless.

My friend, referenced earlier, bought couple of investment properties in Las Vegas during this period – a single family home and a 1 BR condo. My friend said, “Shtinky. The real estate boat is passing you by! You need to buy something ASAP!”

Shtinky: “I know, I know. I just can’t afford it. Besides, I don’t have money for a down payment.”

Friend: “You don’t need any! And if you do, just take money out of your 401k and use it as a down payment. That’s what I did and look at me! I’m buying my THIRD property and I have renters lined up. My investment is paying for itself! How cool is that?”

Shtinky: “My 401k is my ONLY asset. I’m not going to tap it. I’m gonna guard it with my life.”

Friend: “You’re never going to get anywhere renting. You have to take risks to make money, Shtinky.”


And there's the rub. My friend was preaching to me about how I needed to take risks in real estate. But it's now abundantly clear that my friend had no clue as to what those risks were. As a matter of fact, it appears that the only "risks" my friend is willing to accept are the upside potentials. And that's not risk-taking.

On the one hand, I find it galling that my friend would even think about asking for loan modifications on her investment properties. On the other hand, I hope everything works out for my friend. But I know I'll be livid if she gets her loans modified. Why should her investments be re-priced when my 401k assets remain decimated?

I hate these conflicting thoughts that continuously churn in my gut during this financial crisis. It’s self-defeating and it’s ugly. I hate the fact that I'm stewing in sour grapes and my thoughts are turning against my own friends.

I accept that fact that there are going to be winners and losers in this whole bail-out discussion. Fairness is going to take a backseat to stemming foreclosures and stabilizing the market.

In the end, the game will be rigged and I'm losing faith in our market system. But worst of all, I fear I'm losing the most basic component of humanity -- compassion. And that's my biggest loss in this economic crisis.


Sallie's Niece said...

I hear you on the mixed feelings. It's hard to feel sorry for people who essentially are to blame for the economic crisis. Just be glad you don't have her problem.

444 said...

I'm right there with you!

We've been renting all this time. We heard, "Get the biggest house you can" etc. etc. ad nauseum. We didn't get any house.

Our assets have been severely hurt and I don't have a lot of sympathy for those who thought their asset (real estate) could never be hurt, wanting a bail-out of some sort. I try not to be bitter, but there's no bail-out for me. I have to start all over from scratch because thems the breaks.

JACLYN said...

I understand your feelings completely and feel the same towards people behaving like that. It's true that they wanted the gamble with only the positive result.

chacha said...

I love your blog, btw, anyway, this whole loan modification thing is a bugger.

I think it's necessary for some folks, but, honestly, your friend shouldn't be allowed to get it for investment properties, in my opinion.

I am underwater, at the moment, here in North County, and we put down more than 10% back in '07, and I am sure they wouldn't give us a modification because we can continue to make the payments without hardship. It isn't really fair, but it's life.

Sharon Rose said...

Hi there-No wonder your feelings are all over the place with such conflicting opinions going about. I would listen to your own instincts, don't be pressured by anyone and do what suits you. Good luck for 2009 my dear.

paranoidasteroid said...

This is understandable - I feel that way too, sometimes. I just try to remember that all of the stress these people are going through & that I avoided. Your friends were stupid (sorry, there's really no other word for it), but I'd bet they are suffering more than you see.

It sucks to feel like you were responsible and will wind up paying to save other people, but ultimately, you are better off than all these people.

And whenever I worry about "gettin' mine," I just remind myself that this is how we got into the mess in the first place.

Anonymous said...

I totally understand. I was renting when my friends bought houses with money they didn't have. I was jealous at the time. Not so much now.

Anonymous said...

Tell me about it Shtinky! last several years all my firneds got nicer, bigger houses except us because mr. finance insisted it was not a wise move.It turned out exactly how he said. Hmmm you know what I dont feel really sorry for people who could not afford their house but bout it anywaaays,

The Lost Goat said...

I'm ready to go kick her ass now, and I don't even know the lady:) Seriously, there's no saying "I told you so" but I wish the media would focus more on who is really going to profit from these policies (speculators like your friend) and not the 1% of people who are so dumb that they didn't read their loan agreement and now are going to lose their house when their rate resets. (Actually, I find it hard to feel sorry for them as well. Maybe I am just heartless.)

Shtinkykat said...

I guess I should clarify that I'm not against loan modifications for primary residences. People who bought homes at the height of the market for their primary residences (like Cha Cha) were victims of bad timing and most possibly, predatory lending practices. And, in expensive areas (like S. California), the hybrid loans are really the only way most people can get their foot in the door. In these instance, I believe the public interest of stemming foreclosures and keeping people in their homes outweighs any other arguments, including that of fairness and equity.
But what I am angry about are people who rampantly speculated on real estate (like my friend) and who artificially inflated home prices to the point of unaffordability for the rest of us. I really hate to say this, but investment properties need to be foreclosed upon if the buyer can no longer afford the mortgage. Loan modifications shouldn't be granted to investment properties, period.

GI Jane said...

I bought at the height of the market in 2004 with an 80/20 5 year ARM. It was my primary residence at the time. I thought it would appreciate by time I was ready to move. My plan was for the proceeds to pay off my student loan. Of course, that did not work out. It actually depreciated for $10k below of what I paid for it. I also had to pay $3k in taxes. I moved in 2007 and finally sold it Nov 2008 for $10k less than I purchased it, along w/realtor fee $7k and etc...A very painful lesson to learn.

jpkittie said...

I am with you too on the mixed feelings - when people make obvious bad decisions... sometimes I want to hear of failure... I know - horrible, right...

I bet right now you are super happy that you 'passed' when you couldn't afford it!!!

Ms. MoneyChat said...

i agree, investment properties should not qualify for loan modifications.

secondly, i understand the mixed feelings. i too have an ongoing internal battle. perhaps it's just me, but i don't think we're losing compassion. the mixed feelings are definitely justified. you and i are paying for the speculation, greed, lack of knowledge, or whatever the underlying cause was so we have a "right" to have mixed emotions about how things are shaking out. yep, we do.

Miss M said...

I don't know that they'll offer loan mods or bailouts on investment properties, I would hope not. Like your friend a lot of uneducated people speculated in real estate. If she had got in early to the LV market she would have done OK, houses were dirt cheap around 2000 (friend of a friend bought a brand new house for $100k). I don't want a loan mod per se, just a fixed rate loan. But I'm too financially responsible to get bailed out, Mr M and I were talking about the absurdity of it all. I'd have to stop making payments just to get someone to listen. It's OK to not agree with your friend, you don't have to see eye to eye on everything. She'll learn her lesson and you can be there to help her move on after the forclosure, bankruptcy ...

FruGal said...

I also get frustrated seeing all the risk-takers get bailed out, while the savers suffer. Not that I think they deserve what they get when things go bad, but... sometimes they deserve what they get!
yes, I am evil.

K-money said...

I bought my primary residence in California after the peak but before things really tanked so I am a lot underwater. I would love to refi at today's rates but because I can afford my payments and have great credit and no other debt but negative equity I am out of luck. I think there should be some effort to keep even some of the stupider people in their primary homes, but investment property? No way!

Fabulously Broke said...

Renting? It's getting a bad rap for no reason, and is smarter than buying a home in some cases (not all) :)