Fiscal Darwinism

I'm not going to profess that I'm some sort of financial giant, but it's hard to feel bad for someone in this position.

In the suburbs of Dallas, Bridget Edwards comes home to uncertainty every day. She and her husband, James, are four months behind on their mortgage.

“It's been just like a roller coaster,” Bridget says. “Our payments have been just up and down.”

Up and down, from $1,300 a month to more than $2,000.

The reason?

“We have an adjustable-rate mortgage,” she explains. “I really didn't know it would change like this.”

What did you think? It's an adjustable-rate mortgage, and interest rates have only been going UP!

Incredibly that's the mortgage on a $129,000 home.

To be sure, they don't give the terms of that loan. Is it a 5 year ARM? a 10 or a 15 or 30 years?

For grins, I ran a $129,000 mortgage for a 5/1 ARM.

It looks like the highest national 5/1 ARM rate is 7.2%.

Starting at 7.2%, and forcasting a 1% / year adjustment for 15 years, their payments are between $1,200 and $1,400.

So I have to ask "what are they doing?"

Maybe they were taken for a ride, but considering that the purchase of a home is the single largest investment you can make, don't you think they would have researched and thought about it?

“The reason homeowners have been buying properties that are probably beyond their means, is that they haven't been looking at what the house costs,” says Rick Sharga with RealtyTrac, which maintains a database of foreclosed properties. “They've been looking at what the monthly payment was.”

That’s something the Edwardses admit — and now regret.

“I am sad. I'm angry. I'm confused,” says Bridget Edwards.

“I love this house,” James Edwards says.

So it wasn't a ride. That this is a story boggles the mind.

People living beyond their means? In related news, sticking a fork in your eye really hurts.

Economics and Markets Posted by AlexC at May 27, 2006 2:32 PM