Mortgage Thoughts

Ever since Well Read Hostess turned me on to the Living Oprah blog, I've been hooked and she's been in my Google Reader feed. She's been exceptionally helpful in pointing me to and away from shows of interest since she lives in Chicago and gets to see the shows hours earlier than everyone else. And while I think she was nuts to do this for an entire year, it's a fun place to obsess over someone that I have found few friends with whom to obsess over. (My friends either work and don't TiVo her or aren't interested, for the most part, or we catch her on different days.) I tend to prefer her fluff shows; having watched since way, way, way before she was Who She Is Now it's hard not to feel a bit responsible for her success. (Actually, it was my dad, who called her "Ofra," who came home every day and turned on the TV to see her. He was the NAACP liaison for the school district where he worked, and when she went national, her show was all the rage. My dad was never one to miss a trend, so he tuned in as well and got hooked, pulling in my mother and me as well.) So while some people don't like her now that she's got more money than God, I feel like I was part of that and am entitled to share in the fun stuff she's found to do with her kajillions. She has brought me hours and years of entertainment. I begrudge her nothing. But I don't feel like I have to do everything she says, either.

So, for those of you who haven't been sucked in to LO by WRH, or NPR, or the New York Times, all of whom have highlighted her blog, LO is watching the show every (blessed) day, reading the magazine, and following all orders of Oprah--so every time she says "You MUST do this"--LO does it, at whatever financial or personal expense. (It may not surprise you that one of her jobs is as a performance artist, if my understanding is correct.)

Last Friday, Oprah had on two financial experts--Suze Orman, who is her go-to gal, and also a guy from CNN, I think, Ali Velshi, who does a "Financial Crisis 101" powerpoint. His presentation was good--very simple, and very comprehensive, and filled in a couple of gaps for me. Though he did the clearest job I've heard yet of explaining how we got here, he still left me wondering where the $700B is coming from and what exactly it will be able to solve. But I'm not sure that was his point.

One of his points, though, was starting with "Annie" American (get it? Any American? Yeah, whatever.) Annie started the mess, in his view, by taking out a mortgage she couldn't pay back. Might have been a balloon, might have been some other risky scheme, but the point is, she's defaulting, and she's not alone; there are millions of Annies out there. (Who, by the way, were brilliantly spoofed in the SNL skit on Saturday with the brilliant Kristen Wiig playing Nancy Pelosi introducing "victims" of the mortgage crisis on C-SPAN.)

Then Suze came out and she took personal offense at his characterization of Annie as the problem. Suze squarely places the blame on the banks, who told people they could take out bigger loans than were prudent, based purely on greed. If she were a lion, she would have been roaring and munching on his gazelle leg by the time she was done, even while she took pains to say she agreed 100% with everything else he'd said.

Of course the audience agreed. And while SNL and CNN dude are right; there were lots of predatory borrowers out there too, I tend to land on the side of Suze.

When we bought our house in 2000, there was no mortgage crisis yet. Some of the tricky things were starting to come in but hadn't reached the proportions of the last few years. We knew what we wanted: four bedrooms, in this town, in this school district. A fireplace would have been nice. A deck would have been terrific. A basement where my husband didn't bang his forehead trying to get to the washing machine was important. And while we were pulling in two salaries at the time, we wanted a mortgage we could swing on one mortgage if we had kids.

Happily, there is a great real estate market in our town and two absolutely trustworthy real estate agencies in town. (Again, locals, this was 2000.) And the agent we picked steered us to a local bank--really local, as in only seven branches--for our mortgage. We had a certain amount to put down, which was fraught with emotion--it was the account from all my life events--my first communion money, confirmation money, graduation money--and my husband's legacy from his grandfather--that were comprising our down payment. And we were very honest about our intentions for our house and our future. And, really, we were nervous that we wouldn't qualify for enough for the house we wanted.

When we sat down with the mortgage broker, she told us that in running the numbers, we were not only qualified for the mortgage we wanted, but for one over $200,000 more than that. Let that settle in a minute: TWO HUNDRED THOUSAND MORE. Good credit and clean living made us look good to the banks I guess. And I know I looked like a cartoon when she said that--I could feel my eyes bulging out as she gave us that number.

She quickly reassured us that she would never, ever, at this stage of our lives, encourage us to take a mortgage that large. She explained that she told us that only because we had been so nervous about qualifying for what we needed, and to reassure us that with closing costs or anything else, another $2000 or $5000 or even $10000 in the mortgage wouldn't scuttle the deal on the bank's end. And she wrote us a mortgage for exactly what we wanted.

And we were reassured, and relieved, and really, almost giddy that it would work. But even with our very conservative money positions, and well-thought-out and multiple calculations on what we could spend, and what we wanted to spend, hearing that there was all that "extra" money out there makes your brain take crazy leaps. Like "maybe we could afford one of those gorgeous Victorians instead of our split level." Or "Cool! Let's get a bigger mortgage and do the $80,000 of upgrades that would make it PERFECT!" Or "Wow, real estate is such a good investment--maybe we should really get a place with a bigger plot."

But we didn't do any of those things.

And I know we were lucky to not be Annie. That our bank was as conservative as we were (they still hold our mortgage, for example) and did NOT encourage us to go crazy. That we had thought through so many things (this could be a starter home, if we discovered we really loved DIY projects and lovingly tending a lawn, or a long-term home, if we discovered we did not; that it was comfortable for us two, or up to three kids joining us). And that we had loving and sensible parents advising us through all our thinking.

Lots of people were missing one or more of those things. They got a bank eager to see a huge mortgage as a win-win. Who, as Suze said, heard the bank say they were approved for $X and felt like that was what they should take--or even feel stupid for taking anything less than $X. And as the real estate market took off almost 10 minutes after we bought our house (we joked--though not incorrectly--that we got the last house under a big break point in our town), it was hard not to wonder if maybe we shouldn't have stretched just a little bit more. But instead we put our stretch in to an every-two-weeks payment schedule, so our thirty year mortgage will be done in 23 years. We've put little bits here and there towards the principal (which our bank encourages, by way of not having any penalties for doing so). And while the times are still scary out there, we're feeling comfortable with what we've done.

Have we managed this perfectly? Absolutely not. I'm totally sure we should have renegotiated our mortgage when rates were rock bottom. But at the time, due to complicated circumstances I don't feel like discussing here, we needed the tax discount for the interest payments, and by the time we didn't need that anymore, the rates were on their way back up. And we still have only done one of the major upgrades we wanted to; the list from when we moved in looks almost the same as it did in 2000, though we would have done lots with more money in the mortgage or in a home equity loan.

But overall, when I hear stories of families who didn't read fine print carefully, or didn't have family members who are lawyers to look out for them, or who ran in to a predatory lender they thought was someone they could trust, or borrowed from a bank that didn't want them to take out as much as they did but knew they'd lose the mortgage sale otherwise, I'm grateful again for the ethical and wonderful people we worked with. And I wish there were more of them out there.