How NY Times economics reporter earning $120K fell 8 months delinquent on his mortgage

Fascinating story by New York Times economics reporter Edmund Andrews on how he fell eight months behind (and counting) on his mortgage. It illustrates the financial vortex millions of Americans have been sucked into by financial firms that jack up interest rates and fees on those who have trouble paying their bills. And it shows just how happily mortgage lenders were throwing money at anyone with a pulse.

His troubles began when he took out a mortgage he couldn’t afford because he was paying $48,000 of his $120,000 salary in alimony to his former wife. The bank didn’t mind lending him close to $500,000 based on his credit score and verification of assets. He did a “no ratio” mortgage that didn’t require that he even state his income. For all the bank knew, he could have had no income.

After a while, Andrews' insufficient income caught up with his excessively large mortgage and he got sucked into the financial Bermuda Triangle:

Neither [my wife nor I] was paying attention to how easy our bank had made it to build up debt. The key was the overdraft protection — more accurately described as “bounced-check loans.” Every time I overdrew my checking account by even a few dollars, the bank would tap my MasterCard for $100, helpfully deposit the cash in my account and charge me $10 for the privilege.

Patty and I were now unwittingly tapping into our credit line at a terrifying pace: $5 overdrawn because of school supplies for Patty’s daughter Emily — $100 from the MasterCard. Fifteen bucks over because of gasoline? Another $100 from the MasterCard. Groceries for $305? No problem! Uncle MasterCard would front us $400.

Our debt spiraled up faster than I had ever dreamed possible. Chase Bank had cold-called me to offer a “platinum” card with no interest charges for the first six months. I took them up on it and shifted $3,000 in debt from my old card onto the new Chase card. But instead of paying down the balance before the interest charges began, I let it balloon to $6,000. Chase had sent us blank checks that we could use to either pay bills or give ourselves cash advances. I dismissed them as a cheap trick to lure dimwits into borrowing more money. In March, I grabbed one of the checks and used it to pay down $1,000 on my more expensive credit card.

I felt like a crack addict calling up my dealer. It was April 2006, and I had just reached Bob Andrews, our once and future mortgage broker, on his cellphone…

“Bob, we’re dying over here,” I wailed. “I can’t even explain how it happened, but we’ve got these unbelievable credit-card bills, and the minimum payments add up to almost $1,100 a month. There’s no way we can keep that up.”

I had months and months of credit-card bills spread across the dining-room table, and I quickly confessed the full horror of what they contained. We were approaching $50,000 in credit-card debt alone, and it was amazing how fast and how deeply we had dug ourselves in.

Posted by James on Thursday, May 14, 2009