There's a story going around on AP and the Wall Street Journal about a family about to lose their house because they can't make the payments. On its face it's a sad story - blind and autistic child, deaf parents - but the details of the story are a bit odd. The parents got their home improved by the Extreme Makeover folks. Their property taxes went up almost 50% (though that shouldn't have been a surprise), but the kicker is that the family says they refinanced their mortgage and the monthly rate nearly doubled from $1200 a month to $2300.
On its face, a tragic story. But something's missing. Why did the mortgage payments go up? Was this an adjustable rate mortgage, or was it the refinancing? And if it was the refinancing, why did they refinance and how did they refinance? The story talks about how the insurance wouldn't pay all of their child's medical needs, so perhaps they took out a home equity loan on the improved post-Extreme-Makeover value of their house (that would be understandable in order to take care of a sick child). But the story doesn't tell us what happened. Even odder, the WSJ says that the mortgage is at 11%. That's insane. How does anyone agree to a mortgage that high? Yes, it sounds like predatory lending. It also sounds like you're a moron if you accept a loan at 11% when the going rate is 6 or 7.
Here's the thick of it:
The Vardons remortgaged the house after the makeover.It sounds like they agreed to an ARM. So they knew what they were getting. They knew their rate could go up and by how much. That doesn't make them evil, and it doesn't make the story less sad, but there seems to be more nuance to these hardship stories than the media is letting on - these don't seem to be cases where people were told their loan was fixed at 5% and it mysteriously doubled to 11% because the mortgage broker lied.
"We didn't have bad spending habits," Judy Vardon said. "My husband got laid off for a time and insurance wouldn't cover Lance's autism therapy and some other things like his vision and special dental work."
The family had debts of $20,000 for the boy's therapy alone.
The mortgage was resold to different companies three times since then and the interest rate on the loan went up to more than 11 percent. Each time the mortgage was sold the interest rate went up.
"Millions of others are experiencing the same thing," said Judy Vardon, who takes care of Lance and doesn't work outside her home.
There are too many things not explained in this story. And if you look closely at a lot of the stories the media is doing on the personal impact of the mortgage crisis, you'll find the same thing over and over again. They never really give us all the details, seemingly out of a desire to make the story juicier (like that ABC story I wrote about a while ago in which they didn't tell you the "poor homeowner" owned a $1.3m home). I'd prefer the actual facts.
