Mortgage Foreclosures -- Another Example Of What's Going On

Don sent me this link. It says it all about the mortgage foreclosure mess.

Maybe Minnesota and North Dakota Scandinavians think differently than East Coast non-Scandinavians, but still. Here's the example Bloomberg provides:

Sombo Hilton, office manager for a non-profit that promotes homeownership in Baltimore, said she lost her $250,000 house to foreclosure earlier this month. She bought the property, located about 6.5 miles outside of the city, with no money down in 2008, she said. She was making $33,000 a year working for Habitat for Humanity at the time.

“With my income and my credit, I shouldn’t have been able to buy the house,” Hilton said. “I realize that now that I work for a housing organization. If I knew what I know now, I would’ve never bought the house.” 

Bloomberg does us a disservice by not telling us how many mortgage payments Sombo actually made starting back in 2008.

Let's think about this. Let's say it was a 2%, 40-year loan.

0.02 x 250,000 = $5,000 for the first year / 12 months = $400

$250,000/432 months = $500

So, monthly payments started at about $1,000 before we even get to a) property taxes; and, b) cost of home ownership (utility bills, cable television). Ya think another $300/month?

With an income of $33,000, Sombo is not paying any income taxes, and probably not paying for health insurance, so much of that $33,000 is net, let's say $2,500/month.

Living  6.5 miles from Baltimore, Sombo obviously needed a car, probably $500/month (car, gasoline, registration, insurance).

So, expenses: house, about $1,300/month; car, about $500/month -- we are getting close to $2,000/month in just two items: house and car, and haven't even considered food and clothes.

My hunch is she was having trouble with the mortgage payments one year into the loan and then new mortgage terms kicked in, a higher interest rate perhaps, most likely after 5 years, and already under water, she simply quit paying the $1,000/month mortgage.

Or it's possible she quit making monthly payments four years ago and it's taken this long for her "to lose the house." From what I have read, one can live in "one's home" mortgage-free for several years while stonewalling the foreclosure process.

But this is the key quote from Sombo:

"With my income and my credit, I shouldn’t have been able to buy the house."

Obviously, she will go back and sue the lending institution for suckering her into buying a house she could not afford.