Sunday, November 13, 2011

Carl Richards Writes in the New York Times About His Personal Financial Debacle

Why Listen to Carl Richards?  Well Here is the Title

How a Financial Pro Lost His House

The New York Times employees full time professional reporters, which seems only right.  However they have recently published a report by a gentleman named Carl Richards, who recounts in graphic details how he lost his home.  Mr. Richards was living in Las Vegas, the hottest real estate market in the U. S. during the first decade of the 21st century.  Here are some of the things he did.

For his house in Vegas

Mr. Richards Buys His Dream Nightmare House

I felt we could afford around $350,000. We called a real estate agent named Mitch, who had signs on all the bus stops: Talk to Mitch! He picked us up in a gold Jaguar, and suddenly we were looking at houses that listed at $500,000 or more.

And he bought it this way

We borrowed 100 percent of the purchase price. In fact, I was told I could borrow even more if I wanted. I had perfect credit and a solid income that was growing.

And then, to make things even better (or worse)

In late 2004, a year after buying the house, we refinanced our mortgage with World Savings Bank, which later ended up in the hands of Wells Fargo, using one of the pick-a-payment loans that let you choose your own payment each month.

We picked the lowest possible payment, the one that added to our balance each month instead of subtracting from it. And we added a line of credit with Wells Fargo.

In financial talk this is negative amortization.  Each month the payments don’t even cover the interest, so the principal balance grows.  It is one of the dumbest things a person can do.  It results in this.

We spent the summer of 2009 living in my in-laws’ basement in Salt Lake City, while I tried to stabilize my financial planning business. By that fall, I was convinced we had to move back permanently to save the business. But that meant we faced the question of what to do about the house.

By then, we owed over $200,000 more than our original loan balance.

Well anyone can figure out the rest of the story.  But in case anyone was wondering, no, there is no mention of Barney Frank (D, Ma) who is widely blamed by Conservatives for causing the housing crisis and no mention of how liberals forced Mr. Richards into this problem.  So don’t expect his story to be taken up by Conservatives who want that fantasy explanation.

As for Mr. Richards, one reason why his story is interesting is this.

I’m a financial adviser. I get paid to help people make smart financial choices, and I speak and write about personal finance issues for this publication and others. My first book comes out in January, “The Behavior Gap:
Simple Ways
to Stop Doing Dumb Things With Money” (Portfolio, a Penguin imprint).

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