August 24, 2007 – Sub-Prime Debt From A Ground Zero Perspective

I have a friend named Annie. She is a single mother with two kids and a serious problem with her house. She is about to lose it.

She ran up her two credit cards and made her payments late. And so her interest rate went from (an already usurious IMHO) 16 percent to 32 percent. So in effect she couldn’t ever pay it off making the minimum payment each month which, if she was lucky, is the best she could do. This is real; I saw the statements from Mastercard and Visa myself. She bought a car she couldn’t afford, but hey she needed something to drive, right? And something dependable too, not some crappy ol’ hoopty, as we call ‘em here in Detroit. She has a job and kids and other responsibilities and so dependable transportation is a must.

When you get jammed up like this, very soon the bill collectors start calling. And calling and calling. At home, at work, at your parents and relatives, and on your cell phone. And these calls are unrelenting, and needless to say, embarrassing.

She was pouring her heart out to my girlfriend and me one night when she was over at the house for a barbecue. “WTF am I gonna do man? I just can’t stand this anymore,” she said to us finally.

My best advice: Make a deal, go bankrupt, or hire a lawyer to negotiate with your debtors, but whatever you do, DON’T get a second mortgage loan against your house. Don’t. Just don’t. Easy and simple though this solution seemed, I strongly advised against it. Annie’s house note, taxes, and utilities were about the only bills that she did keep up with. And which was smart too. So far so good.

The reasoning behind what I said to her was this; Visa and MC can call you constantly, embarrass and humiliate you, and generally make your life miserable. And Ford Credit can and will take you car away, but at least you’ll have a roof over your head. A place to live for her and her kids is the priority here. The other debt she could deal with later. Visa, MC, and Ford Credit can all make your life miserable, embarrass you, ruin your “credit reputation” (i.e., your credit report and FICO score), but in the grand scheme of things in this life, it’s worth it all to persevere through such a predicament than it is to lose your homestead.

But she did it anyhow. And things were fine, for a while. She got the money and paid Visa and MC off in full and then she cancelled the accounts. She paid off her car too. But then she got laid off for a while and got behind on both mortgages. And now she’s being foreclosed on. Which is exactly what I was afraid would happen.

If she had done as I suggested she’d still be getting calls from bill collectors and had her car repo’ed and be reduced to public transportation and a hoopty, but still, she’d have had a place to live, a refuge, a nest, whatever you wanna call it; A safe, secure place to be that she owned, and a good springboard for getting her financial situation back in order. But that possibility is gone now. Visa and MC and Ford Credit don’t mind though. They already have their money.

I hope that she really likes that car, and that it’s in good shape. Because after shipping her kids off to their father (and changing schools and having to put up with a bitchy step mom to boot), she’s gonna have to live in it for a while.

I am not gonna make the expected rant here against the usurious sub-prime loan business that some of you are no doubt anticipating at this point. No, the fault lies with Annie and her bad choices. And boy howdy is she gonna pay for those choices, too. And the consequences for her and her children are going to be felt for a long while.

I hope anyone reading this benefits somehow from this cautionary tale I’ve laid out here.

sub-prime_debt, forclosure, debt