Monday, August 13, 2007

But I haven't got the money for the mortgage on the cow....

As I've watched "The Market" go bonkers in the aftermath of all those bad mortgages defaulting, a little ditty from my childhood keeps popping into my brain.

"I've come for the money for the mortgage on the cow."

"But I haven't got the money for the mortgage on the cow."

"But you've gotta have the money for the mortgage on the cow."

We would chant this back and forth, acting out the villainous banker and the poor widow-lady. We were familiar with the concept from having laughed at old kinescopes, and, of course, from watching Snidely Whiplash, Tess, and Dudley Doright in action on Rocky and Bullwinkle.

But mostly we didn't have much of a clue about mortgages.

We all either lived in pokey little houses financed by the G.I. Bill. Or in a flat upstairs from our grandmothers.

And our knowledge of banks was mostly taken from movies, and from the little branch banks in the neighborhood where most kids had a passbook account with a few bucks in it.

If our parents borrowed money for the mortgage on the house that didn't come from the G.I. Bill, they no doubt got it at the same little branch bank in the neighborhood.

I knew plenty of kids whose families didn't have much money, but I never heard of anyone getting evicted or foreclosed on. It may have happened, but I'm guessing that most things would've been worked out with the little branch banker.

Ah, the good old days.

Now we have colossal mortgages granted to people with not-so-good-credit and/or to people who get swept away by a naive belief that the real estate market goes in one direction only.

A few years ago, I read an article on variable-rate mortgages with balloon payments at the end. One person interviewed in the article especially stood out. I don't have the exact quote, but it was something along these lines:

Without this type of mortgage, I'd only be able to afford a $500,000 condo. This way I can get a condo worth $650,000.

I wonder where this guy is now. Sitting in a $500,000 condo he paid $650,000 for, hoping that rumored transfer to Sheboygan doesn't happen?

I do know where the couple that was profiled in a recent Boston Globe article by Robert Gavin is sitting, and it ain't pretty.

The couple in the article had signed up for an adjustable-rate mortgage and, as adjustable-rate mortgages have a tendency to do, the adjustable rates got adjusted. This translated into an additional $900 a month. Which the couple didn't have.

Unlike the greedy gut in the prior story who wanted the fancier condo, the Martinellis written about in The Globe are a hard luck case who refinanced their home to do renovations to accommodate their disabled son. Maybe they got  a bit greedy, too. Maybe they decided to over-reach, to go for the dream kitchen or the fancy bathroom while they were at it, but mostly, it seems, the Martinellis were just trying to take care of their kid.

When it was time to pay the money for mortgage on the cow, the Martinellis didn't have it. How many people, in modest circumstances, would have an extra $900 a month?

The Martinellis appealed to their mortgage holder, Chase Finance, in hopes of being able to rework their mortgage.

No dice.

It was not really up to Chase, which was just the bill collector for "an unknown investor" who refused to budge on the terms.

The article points out an interesting fact:

Unlike in the last real estate bust, when local banks and credit unions wrote nearly 80 percent of mortgages in Massachusetts, most home loans issued today pass through a nationwide chain of brokers, lenders, service companies, Wall Street firms, and investors.

While all of this boom in the mortgage industry opened up home ownership to a lot of people who were previously closed out, it also takes the local angle out of things.

Let's face it, it's a lot easier to throw yourself on the mercy of the local banker who sponsors your kid's Little League team than it is on a faceless institution that, in the Martinellis case, was not just faceless but nameless. And "it" may not even be an institution at all. It's more likely to be a security, a mortgage backed bond held by some fund that purchased it with the proviso that prohibits making deals with the likes of the Martinellis.

Fortunately for the Martinellis, the milk of human kindness started flowing from the mortgage-holding entity - or, perhaps, it was the threat of the bad publicity that would attend tossing a family out on the street who would then have to stick their son in a nursing home. In any case, the foreclosure proceedings were halted, the mortgage rate was adjusted back downward, and the Martinelli family will live to see another day in their home.

Maybe the good old days weren't all that good. Maybe the local banker "then" would have turned down the Martinellis and they wouldn't have been able to renovate their home. Or maybe the local banker would have more carefully explained to them what they were getting themselves into, and maybe gotten them to think twice about any not-absolutely-essential renovation choices that a funny-money lender would have encouraged.

What's got to be true is that a local bank cares a lot more about its neighbors, and neighborhood stability, than a hedge fund investor 3,000 miles away.

Sure, a lot of the people getting caught up in these foreclosures got greedy. A lot of them were just plain foolish. And a lot of them probably had no business getting those mortgages to begin with - or mortgages like the mortgages, with all these fine-print kickers that someone desperate to own a home may have overlooked, and that someone desperate to sell the mortgage would have been inclined to gloss over.

Sooner or later, the Grim Repo-man was going to catch up with the people who'd signed on the dotted line with fingers crossed.

You just gotta have the money for the mortgage on the cow.


Mary Schmidt said...

I love watching "House Hunters" and the other such shows. However, I always wince when the young couple ("Bill is working on his phD full-time, and Kelly is a legal secretary") brightly and blithely note their budget isn't a "penny over $500,000" Now, granted some of these nice young (and generally clueless) couples have parents in the background, checkbooks in hand and some of them live in obscenely expensive housing markets...but...but...I can't help but wonder how they're doing these days. Particularly the ones who bought something for half-a-mil with 100% financing and then totally updated the kitchen, built a new bathroom, etc.

I've had friends from Europe ask me why we Americans are so gung ho re "owning a home" - particularly since we're not really "owning" it.

I dunno - maybe we just like big cows.

weenie said...

The mortgage situation is bad in the UK too - many people can't get onto the property ladder because they can't afford mortgages but lenders are enticing people into poor deals which will probably never be paid off. I'm glad I bought a house nearly 10 years ago and have some equity to play around with.

Angela said...

Yes, unfortunately we can see mortgage crisis in many countries. Millions of homeowners face a financial nightmare brought on by a combination of higher interest rates, risky mortgages, bad credit mortgages and a housing market gone cold. The result is likely to be a rising tide of delinquencies and foreclosures, particularly among low-income borrowers, although economists say it's too early to project how severe the situation will be.
Although just a few years ago, adjustable-rate mortgages looked like a solution, not a problem. They made homes seem affordable when wages stagnated as prices soared. They were just the ticket for cash-out refinancings and home equity credit lines that bought cars and swimming pools and paid off credit card debt. But now we can see subsequences.

Ted said...

Thanks for reminding me of the ditty "mortgage on the cow". It was used not only by children but by students!. The one I remember was set in a Chinese context. I really must revive it ! (sorry not to be more serious aboput the present mortgage situation)

the hairy morrisman said...

While googling for the words to "we haven't got the money etc"" I was directed to your blog. I saw this done as a minstral routine at a charity garden party in Kent UK in the 1950,s. It was performed by a group of boy scouts. You failed to mention the finale of the routine. The family son enters, shoots the banker and the company recite the last line. We don't need the money for the mortgage on the cow.