Where will it stop? As I noted on Fox Business Network last week during a segment on the Hillary/Bush housing bailout, the interest-rate freeze was the camel’s nose under the tent. Not content to publish sob stories of short-sighted homeowners who overextended themselves with subprime mortgages, newspapers are now crusading on behalf of other homeowners under water who admit it’s because they just made “bad decisions.”
If this Orange County Register story doesn’t send your blood pressure through the roof and have you shouting “Boo Freaking Hoo!” at the top of your lungs, I don’t know what will. It’s titled “Tapped-out family’s home is at risk: Fullerton grandparents struggle with their home loan’s rising payments.” It begins:
John and Grayce Coffman could lose the Fullerton home they bought in 1977 because they can’t keep up with their mortgage’s rising costs.
The Coffmans, who are unemployed and in their 60s, borrowed $552,300 from Countrywide Financial, the largest U.S. home lender, in the summer of 2005. Despite making about $50,000 in payments since then, they now owe more than $590,000 to Countrywide.
They, like many other consumers during the go-go days of the housing boom, tapped the rising equity in their home. They took out a loan that allowed them to make a low monthly payment, but tacked the unpaid interest onto the loan balance.
Now the Coffmans say they can’t afford the minimum payment of more than $2,000 a month, which has gone up from $1,776 when they first got the loan.
And they certainly can’t make the fully amortized payment of more than $4,500, which would be roughly 80 percent of their income. The Coffmans earn about $5,400 a month from Social Security and government assistance for five of their six adopted grandchildren, according to the Coffmans and their recent bank statements. (One grandchild is now an adult.)
Big lenders like Countrywide have programs to help certain homeowners in distress, and President Bush last week announced a plan to keep some subprime borrowers in their homes. But neither of these plans will help the Coffmans, who don’t have any subprime loans.
Why should other taxpayers be forced to Do Something for this family that admits culpability for their unwise financial choices?
They bought their two-story home for $97,000 in 1977 and have since extracted all the equity gain in it. They’ve cashed out $600,000 in home equity with the help of several lenders, including Countrywide, Washington Mutual, Wells Fargo, and Greenpoint Mortgage Funding.
They spent the money on household bills, an expansion and remodel of their home to make room for the children, and to shore up John Coffman’s struggling radiator repair shop, which was sold in 2005, they said.
After taking out a second mortgage in February from Wells Fargo for $114,855, they now owe about $700,000 on their home, which is worth about the same, according to Zillow.com, a Web site that evaluates a home’s market worth.
There is no equity left to pay for a refinance, and they couldn’t afford payments on any other loan even if they could, the Coffmans say.
“How did it happen? I can’t tell you,” Grayce “Penelope” Coffman, 64, said. “We just made some really bad decisions.”
The newspaper went so far as to contact Countrywide on the family’s behalf to plead for leniency. The article then tries to make the case that the homeowners were duped because loans are “complicated:”
Coffman says she doesn’t remember what Linda Wilson, the loan officer at Countrywide who got them into the loan, said about the loan’s risks when they first got it.
Wilson, however, said she explained everything about how the loan behaves and how payments can change over time.
“They totally understood the loan,” said Wilson, who works in Riverside.
The Coffmans signed a deed of trust that outlined how the interest rate could change over time.
But mortgage broker Altman said borrowers rarely read the fine print, and brokers or loan officers at banks should explain in detail how any loan will behave. He generally only suggests option ARMs to sophisticated borrowers, such as investors in several properties.
“You are talking about a very complicated loan,” Altman said.
Personal responsibility? What’s that?
The Coffmans have about $1,400 in their joint checking and savings accounts, according to their November statements. Grayce Coffman said they have no other savings.
They do have one prospect for future income. Coffman and her brother inherited a property in Palm Springs from an aunt who passed away. They are selling it and will split the profits.
Coffman said she might use the money to pay off the second mortgage from Wells.
“I just don’t know,” she said.
Just a matter of time before Hillary Clinton or John Edwards–or someone in the Bush administration–makes the Coffmans the next poster family for Doing Something about the housing crisis that these people brought on themselves.