Why you need an Emergency Fund...

[Joan.of.the.Arch]

Unless California administers the food stamp program differently than other states, then it is also not true the the woman would be turned down for foodstamps due to owning a house as she said. You can be turned down for food stamps for too much income or too many assets. I have no idea if they consider retirement accounts as assets when qualifying you for foodstamps, but I bet they do. One is also supposed to report jewelry one owns, and if she mentions the tiffany bracelet and goes on camera wearing jewelry, then I imagine she did have some jewelry assets. If she was honest in reporting it, that alone could disqualify her.

If she would happen to come to savingadvice,com, I would say she is a good candidate to recommend selling off some household items on ebay to raise a little money for food & gasoline money.

I also did not like the reporter saying that in such a short time the woman had lost her middle class life. To me she looks to be still surrounded with all kinds of middle class trappings, Coach bag and all. Sell 'em, sell that white elephant of a house and get out of there to something, oh, about 1/8 the size. Yeah it's sad to lose so much material stuff, but foodstamps were not going to save all that anyway. A new job and a new digs will be what it takes.

Oh yeah, Some rainy day savings were certainly needed!

[Caoineag]

[QUOTE=Merch;159026]...She was a loan processor (70k for a clerk seems a little high to me) who thought an IO that is adjusting up was a good idea. Nice...QUOTE]

Actually that is on the low side for a loan processor. Those "clerks" are the ones that help underwriting do their jobs by making sure conditions get met. If you have a bad loan processor, your loan doesn't get closed on time.

The interest only payment is insane. No one should sign up for those. But I am rather interested in the disappearing husband. Losing two incomes at once is really hard on any house's finances.

Obviously a good argument for a large emergency fund. A 6 month emergency fund would have made a huge difference for this household.

[kork13]

Just for my own understanding, what exactly is meant by an 'interest only' payment? Basically that you pay all of the interest upfront at the start of your loan? I know that many companies, like for car loans, set the payment schedule to do similarly to this, where the first pmt is 70% interest, 30% principal, 20th is about 50/50, 59th is about 5% interest, 95% principal. But this sounds different... is there actually any benefit to the owner by doing an interest-only loan like that? If not, why do it?

[tripods68]

This is what's wrong when couples buy "more" than what they could afford. They are in so much in debt, its hard to save. She can't stay in the house for long especially when the unemployment check runs out.

[noppenbd]

Just for my own understanding, what exactly is meant by an 'interest only' payment? Basically that you pay all of the interest upfront at the start of your loan? I know that many companies, like for car loans, set the payment schedule to do similarly to this, where the first pmt is 70% interest, 30% principal, 20th is about 50/50, 59th is about 5% interest, 95% principal. But this sounds different... is there actually any benefit to the owner by doing an interest-only loan like that? If not, why do it?

No, that is a standard front-loaded loan. An interest-only is where the buyer only pays the accumulated interest each month, so none of the payment goes towards principal. No equity is built up by paying the mortgage. There is usually a balloon payment due at some point down the line (principal due in full) so the expectation is that a sale or refi will occur before then. During the boom days of real estate this was pooh-poohed since the rising value of the home created equity without any work by the mortgage holder. Of course it works the other direction just as well.

The interest only loans were sold as a way to afford more house with the same payment. A lot of them give you the option to pay on the principal if you want. But of course what did most people do? Buy more house than they could afford and were barely able to make the interest only portion of the payment.

[disneysteve]

Another problem with IO and ARM is that the lenders started approving people if they could afford the initial payment even if they couldn't afford the later payments after the principal was due or the rate adjusted. People just assumed they could sell or refi before that happened.

[ThriftoRama]

My only guess is that $70k a year doesn't go very far in California, especially if you have kids? Just a thought.

[tbc32]

These kind of articles are great because we can learn from them and not make the same mistakes.

[Seeker]

Certainly a good reminder...

of course, um, this is California, but I have no idea why you would buy a house like that on that income. ???????? Oh my. I mean obviously she could have found something more modest/affordable. Look at that house!

I know plenty of people making those kind of payments with no other choice. But she clearly lives in a more affordable part of the state. Those are some pretty nice digs. (I mean our relatives have $3k mortgage payments for condos, and due to the lack of affordable rents. That is very different from her story).

Just looks like another subprime mortgage mess to me. $2500 month? interest-only? Yikes!! This is the problem here. I am not sure how far an emergency fund would have stretched in this case.

There is no justifying that house payment on that income. Particularly not on an interest-only payment.

I wouldn't assume she bought that house with 2 incomes. It looks like the same-old, same-old. Of course, if she did, then when was it going to occur to her that she can no longer afford it?

She would not have been accepted for that mortgage payment on her income alone. Just not possible. Her husband's income was included in the purchase of this house.

Altadena, CA is not a "rich" community and there are very very few places where you can get a 3 bedroom house with less than a 600k mortgage. She's in LA County, not Orange County... or any of the costal communities which are much more expensive. Look at the cars on the street in that video -- the cargo van and the other are both older models.

Foreclosures are the worst in this state now out of all the states. Layoffs are also becoming more and more common as the economy slows.

Yes, I do not disagree that an interest only mortgage is NEVER a good idea -- it's never something that any financial cognizant person should agree to.

But we do not know their situation.... when they bought the house could have also impacted this decision. If they were expecting the cost to go up (instead of down), then they probably planned to refinance when the higher worth of the house would mean a lower costs.

Yes, her house and this family is part of this housing crisis we have now. And yes, they should have had a lot of money saved for just such a situation.

There's also no denying that she can sell some stuff, jewelry and maybe even get the little puppy sold or under someone elses care for awhile.

You all are going to be hearing a lot more stories like this, especially with Californian's. There are some pretty confusing things going on right now, and people don't seem to be changing many habits here.

[m3racer]

Ugh! There are too many Americans that are in her situation. This includes my parents, who can't afford their mortgage and are in debt to their necks.

[Seeker]

the lady in this interview came off as a really nice gal

I find it interesting that she knew to take off her expensive items before collecting food at the food pantry , but did not seem to consider selling her items ,
also I did not get that her mom moved in with her and rented out moms house and now it is her(the daughters )income? either this lady owns 2 homes or a better choice would have been to try to unload daughters house and move in with mom

Yeah, Mom rented out her home and Mom is living with daughter and giving her the money from the rental.

Mom is living there and paying rental money in exchange for her one room? Looks like it; while Mom appears to spend more than get, she does gain a closer relationship with her grandchildren while the father is MIA. And Mom gains satisfaction in knowing that she is helping in her daughters time of need.

Assuming Mom's house was large enough, then that probably would have been a good option. I guess it also menas that the children's lives and home might be disrupted again and maybe even means different schooling districts.

But sooner or later this is probably only get worse.

I somewhat hope that hubby returns with a newfound job that can help support this rather dismal situation. But I also am hating the guy in this picture, that leaves the wife/mother and children when things get bad.

This lady definitely needs to get another job, ASAP. And Mom living there helps make that possible too.


---

Also I have no issues with the OP and the comments therein. I just put in my two cents because it seems that the story was completely ignoring the husband side and you were looking at this situation that she had been alone all this time with this major expense that she could NOT have handled alone with 70k of income.

The husband should be paying child support if there was that length of time involved. This would have been a dismal picture as soon as he left (even if she was making 70k).

Yes 70k in California does not go very far. Not for anyone purchasing a house say in the last 10 years.

[Brokemofo]

This is what's wrong when couples buy "above" than what they can't afford. They are in so much in debt, its hard to save. She can't stay in the house for long especially when the unemployment check runs out.

You are correct that couples shouldn't buy "above" what they can afford. However, you don't know that this was the case. You have no idea how much the Husband that left made, and he lost his job too before he bailed on her. If he made $70 k as well and they didn't have a bunch of other bills, maybe that was not too much house. I/O maybe not the right mortgage though.

[Brokemofo]

BTW, there are certainly times when an interest only loan or line makes perfect sense. Maybe not for the aforementioned couple, but many people do I/O loans for various reasons and it makes perfect cents.

[LuxLiving]

I hate this for this family...


Some ideas?? (others may have mentioned these, I've not had time to go thru all the thread.)

1)Garage sale, ebay, consignment stores, Craigslist. Goodbye Tiffancy bracelet & Coach bag!
2) Time for two or three jobs. Doesn't matter where, doing what, she needs to take them. Especially while Granny is there to help.
3)Bankruptcy which in some states stops foreclosure proceedings for a certain amount of time giving her time to regroup.
4)District Attorney's office to go after husband for child support.
5)Short Sale or Deed in Lieu of Foreclosure.
6)Once she either saves her equity or has to walk away, get much lower rent apartment/house there or make a move to a lower cost of living area until she can regroup and get back on her feet.
7)Sale of cars, furniture, etc., that will net some cash to get some wiggle room.

[Troyrb]

I have to say I make well over what she did and there is no way I would ever get a mortgage even close to that much. That is just crazy! I know in these areas starter house go for 300k or more and that is the whole problem with our countries current financial mess. The average wage in these areas hasn't changed much but the cost of house have tripled or more in the last ten years. Something has to give and I think that is what we are seeing now.