Tuesday, February 06, 2007

The headline reads "A Fight Over the Fine Print" but could just as easily have read "Idiots Don't Read Loan papers, Want Courts to Order Do-Over"...

The idiots, oops, homeowners "realized to their horror that the $191,000 loan ... was an adjustable rate mortgage" and find themselves now owing more than they did when they took out the loan.

Why do I think the idiots, oops, homeowners, are idiots? Because anyone who does what they did are idiots.

They thought the teaser 1.95% mortgage rate was fixed for five years... and didn't bother to confirm by actually reading and paying attention to the loan documents. They borrowed hundreds of thousands of dollars and didn't bother to read the papers that accompany each and every mortgage. Once they realized their predicament, they could have re-refinanced the loan into a fixed rate mortgage, but got penny-wise, dollar-stupid and failed to do so because they didn't want to pay the refinancing penalty. They made things even worse for themselves by paying only the minimum required, even though doing so created 'negative amortization' whereby the accrued but unpaid interest is added to the loan balance, leaving such people owing more on their mortgage as they go along.

And we're idiots if we let people like this escape responsibility for their own stupidity. They entered into the contract, nobody forced a gun to their heads and made them sign. Nobody made them get rid of their 5.75% fixed rate mortgage (which, by the way, is what I have) to chase the (temporarily) lower payments of an adjustable rate mortgage. Nobody forced them to make things worse for themselves by making only the minimum payments and not refinancing once they finally realized what the terms of their mortgage were.

And we'll end up paying. Just as shoplifters force retail stores to charge us all a little extra for every product we buy, so too do banks have to charge us a bit extra on our mortgages to cover themselves for the losses they take when idiots like these get the courts to nullify their loans. I don't mind paying a rate based on the bank's expectation of my being able to repay the loan... but I sure hate having to pay extra because the banks look to their paying customers to make up for losses made on loans to idiots such as this... who could pay, but choose not to.

Look, while it seems like we're doing people a favor by telling them they aren't responsible for the consequences of their own actions, we're not doing ourselves any good. Society needs to hold people accountable for the good and bad they do. People need to be able to reap the benefits that come from doing good... and they need to suffer when their choices turn out to be less than optimal.

Kid's don't pay attention in class? They need to flunk. People want to build houses in hurricane territory? They need to pay the price when their house gets blown down. People don't take care of themselves? Then they don't get society rushing in to take care of them. People make bad investments? They need to lose their money. And when they enter into contracts without bothering to read the details? They need to deal with it themselves, without society rushing in to pat them on the back and tell them it's not their fault.... because, in the end, it is their fault.