Getting Tired of the ARM Sob Stories

Filed in archive Housing on October 24, 2007

I woke up this morning to a National Public Radio story about the ongoing mortgage crisis, especially those "subprime" borrowers who are in danger of foreclosure. On the radio I could hear protestors outside the offices of Countrywide Financial, complaining about... well, I'm not sure.

If I understand correctly, these people want Countrywide to lower their mortgage rates so they can afford to stay in their homes. Countrywide is trying to do it in many cases, because they lose more money on a foreclosure than if they decrease the interest rate.

Here's my question: why isn't anyone lowering MY mortgage rate?

These people casting Countrywide as the evildoer are the same people who took out adjustable rate mortgages (ARMs) so they could get a lower interest rate for a few years.

(If you don't know, an ARM usually gives you a low interest rate for an initial period, then your rate gets adjusted based on a rate index. If interest rates go up, your interest rate goes up, and your mortgage payment goes up. if they go down, your rate stays lower, and your mortgage payment may even go down.)

Now, when it's time for the rate to be adjusted and interest rates have gone up, they're angry that the deal didn't work out the way they planned. In their heads, they were going to get a lowered interest rate and then either sell their homes or refinance when the ARM's initial period was over. They based their purchase and their mortgage on the bet that things would be rosy in the future. Instead, interest rates went up and home values went down. And they think it's Countrywide's fault (or whoever lent them the money in the first place).

This is no defense of mortgage companies, many of which lent money to people they shouldn't have, people who really didn't have the money to deal with the situation if things went south. I have no sympathy for Countrywide if they have to make rate concessions that hurt their profitability. They're culpable, and they should have to bear some consequences. But I'm sick of hearing the sob stories of these people facing foreclosure. They made a bet and they lost. And now they want to blame someone else and have special concessions made for them. And these stories seem to want us to feel sorry for them.

But I don't. I feel bad that they might lose their houses. But those of us who took the safe way and got fixed-rate mortgages that cost a little more initially but locked in a rate we could afford are supposed to feel bad for people who took a big gamble and lost? I can't do it. It's like feeling sorry for a person who loses in Vegas and then protests outside the casino, claiming to not know that the casino would take his/her money if they lost the game.

I'm not heartless. I realize that some of these people were probably fairly poor and/or uneducated and heard only the upside of the ARM and not the potential downsides. (Although I know a few educated, upper middle class people in the same situation.) They saw the dream of home ownership in their grasp, and went for it, even though they didn't understand all the fine print. Many of us have made financial mistakes where we assumed the fine print was just legal mumbo-jumbo; it happens. I'm just not going to spend my time crying for people who are going to get their mortgage rates lowered while mine stays the same.

And I'd appreciate it if NPR would stop giving them air time and go back to telling us ad nauseum about how bad the war in Iraq is going.