Well DUH, or, Why Bad Mortagages Happened

This video shows the story of Jeff Gray, a man who is going to get kicked out of his home. It’s a nice home, not a McMansion, not a hole in the wall. He originally bought it for $200k. When he got laid off and his wife lost her job and had to take a “significant pay cut”, they refinanced their home.

And got $347,000.

Yeah. You read that right. The mortgage company swooped in, waved their magic wand and said they were making $13k a month (when they were actually making $9k a year), and handed them $347,000. They were supposed to be paying $2500/month from day one, and never made one payment. Well, duh!  It would have been impossible for them to make payments like that.  But whoever created that mortgage for them didn’t care. They just wanted to make big numbers in their book, and the guy didn’t know what he was signing. He just knew if he signed it, they would give him lots of money. In the video, it’s obvious he has no idea what happened to him.

Here’s my conundrum: I’ve been smart with my finances since I got out of college.  (Before then I was a complete idiot, and needed help fixing the disaster that resulted from that.) I paid my debts and loans on time, and they didn’t get reduced for any reason other than me handing someone a check. I still haven’t bought a home because I haven’t felt that buying a home without a down payment is a good idea. I pay my rent every month on time, and have done so for over a decade.

So, how should I feel about Mr. Gray, who has had a free ride for the last 4 years? Should I feel like JP Morgan, who bought this toxic mortgage from some no-name mortgage company that no longer exists, should cut him a deal? If so, what kind of deal? Should his repayments be stretched over a longer period, or should his repayment just be cut to something manageable over 30 years? And honestly, what kind of payments is this guy going to be able to make on $9,000 a year with two kids, anyway? If I do the numbers right, that family’s been living on roughly a $50k a year budget for the last few years – there’s no way they’re going to be able to live on 1/5 of that, and make mortgage payments.

Should I say, “Cut the guy a deal, no one should lose their home”? Or should I say, “you were an idiot, Mr. Gray, suck it up, your life is ruined”?

I guess it comes down to compassion, and tolerance for ignorance (in this case, financial ignorance). And I’m finding the older I get, the less I have of both.