Maxed Out: Hard Times, Easy Credit. James Scurlock D.
Читать онлайн книгу.
of these loans rests on a simple principle: property values will only go up. My friend’s client, for example, is betting that her condo will appreciate fast enough so that the equity she accumulates can be cashed out to make her future mortgage payments. Of course, cashing out the equity means that her total mortgage payment will have to get larger. She’ll be surfing decades from now, and that’s if everything goes according to plan. If the condo doesn’t appreciate in the double digits, or if interest rates rise, or if she can’t find a real roommate with real money, or if she decides to eat or put gas in her car, she’ll drown very, very quickly.
Officially, more than half of the new mortgages in California are some variety of interest-only loan and the average down payment has fallen from 20 percent to around 3. This means that the notion of home equity—the percentage of your property that actually belongs to you, as opposed to the bank—no longer exists for most new homebuyers. My friend tells me that nearly all of his clients are getting interest-only loans and estimates that 85 percent of them “have to” misrepresent their income. Similarly, in the UK, around 30 percent of mortgages taken out today are interest-only mortgages, compared with only 12 percent in June 2003. He assures me that the banks know this is happening. After all, with home prices increasing so rapidly in California, lying is the only way that most people can afford to buy a home. Does he understand that this will help no one, least of all the desperate souls being approved to assume thirty-year liabilities? Does he understand that these amateurs are surfing a tsunami?
According to the Federal Reserve, 12 percent of young families—those whose head of household is 35 to 44 years of age—were more than two months behind on their debts in 2004, twice the percentage from 2001. It’s worth noting that, in 2004, home prices were booming. By 2007, will that number have doubled once more?9
The next afternoon, Beth offers to take me to the site where she and her husband are building their dream home. As we get in the Mercedes, talk again turns to how blessed she is. She has three girls whom she worries about spoiling. She owns her own business. She has a personal trainer. She is happily married to a man who also works in the real estate business—for a master plan called Alliante, which sounds suspiciously like the car that was supposed to make Cadillac hip. Her daughters are in Catholic school even though she says that the public schools in Vegas are terrific. (I think she has to say that.)
She and her husband recently sold their 4,500-square-foot house for close to a million dollars, doubling their money in a few years. They will move into the new 11,000-square-foot dream home in April, which reminds her of the roofing dilemma. She interrupts our conversation to call her husband from the car, meaning that I finally get to observe Beth sell something. She goes in quietly, as though she herself has not made up her mind yet, as though she is also weighing the pros and cons. But then she starts leaning toward the tile, thinking out loud. After all, tile looks nicer than concrete. And the large homes in Seven Hills are mostly doing tile. They can fold it into their construction loan (and tile will automatically increase the resale value of the house; that’s the real beauty of it: it’s kind of free in a sense, really) and the difference in monthly payment won’t be noticeable—well, everything is relative. When she hangs up, I ask her if she’s already thinking about flipping. “If I can make a profit,” she replies, “why not?”
When I finally meet Beth’s husband, a soft-spoken man who drives a matching Mercedes, he asks me if Beth has told me about the new house. When I reply in the affirmative, he mumbles, “Crazy.”
The home is little more than foundation and framing, but one can just begin to imagine angles, textures, places for windows and doors. In front of us, the sun is setting. The desert glows in rapturous oranges, yellows, and auburns through the beams. At night the air in Vegas turns cool and the desert can seem like paradise. Beth and her husband walk amid the sawdust and discarded soda cans and fast-food wrappers. They point at different areas, imagining rooms. I overhear Beth say something about how excited the girls are, but I know that it’s their mother who is most excited. She is living the American Dream. More important, she has apparently sold her husband on the tile roof.
Later, Beth will try to explain her own mortgage product to me. The bank calls it “loan to value” because it bases the loan amount not on the value of the land or even the land and the cost of the house, but on the value of the house after it is built. Beth calls it “a very ingenious way to get people to keep building expensive homes.” The result is that Beth was able to borrow far more than she could have with a traditional loan. Of course, the future value of a mansion that hasn’t been built yet in the middle of the desert, and in the midst of a speculative real estate bubble, is more than a little subjective. “I’m very lucky they had that loan,” Beth gushes, as though this were all an utter coincidence, the stars aligning to make her dreams come true, “though if that interest rate goes up by the time we move in, I might not be able to afford the house anymore.”
She giggles at the absurdity for a moment, but I catch a glint of hope in her eye—the glint of a speculator—before she adds, “I guess if you look like you make money, eventually you will, you know.”
1In the UK, all the major supermarket chains offer financial products such as insurance and pension plans. Most offer direct banking through exclusive partnerships with major banks, e.g. Sainsbury’s/Bank of Scotland and Tesco/Royal Bank of Scotland.
2Okay, most of these jobs also require a high school diploma or equivalent.
3The banks get a commission from the insurer, or, in many cases, an affiliated company collects the premiums. Less than half of these premiums typically go to paying claims, versus one hundred percent for most forms of insurance.
4See addenda to “Terms and Conditions.”
5In March 2006, USA Today reported that 40 percent of home sales were for second homes, the vast majority of which were purchased as investments.
6Perhaps by furnishing the house, or maintaining the house, or, God forbid, paying the mortgage with cash advances.
7This is not the case in the UK.
8This is later confirmed on an episode of The Suze Orman Show. Suze says that lowering your credit card limits automatically lowers your credit score.
9Again, the UK is no different, although the problem appears to be growing at a slower rate. There, around 280,000 mortgages are one month or more in arrears. That represents an increase of 4 percent from the same period one year ago.
“In the land of the blind, the one-eyed man is king.”
- Anonymous
Dee Hock didn’t invent the credit card. He did something far more important: He believed in it. Really believed. Believed that it had the potential to free human beings from rules and regulations (Hock’s definition of hell). Believed that it would thwart the ability of large financial institutions to impose uniform standards because every bank, no matter how small or how large, would have access to the most powerful brand ever created. Believed that a tiny plastic card with a magnetic stripe could become the store of value, linking every human being with his or her wealth instantly. Believed that, in doing so with nothing but electronic signals racing through his computers from one bank to another, the credit card would create its own currency so universal that the dollar, the yen, and the British pound would all be made obsolete. Finally, he believed that the organization he created, Visa International, would save the world. How? By, in a typically new-agey rhetorical flourish, “allowing spontaneous interconnection into an equitable, enduring, twenty-first-century society in harmony with the human spirit and the biosphere.”
Of course, none of these beliefs came true. The credit card has shackled individuals, imposed uniformity, destroyed value (i.e., savings) at an unprecedented rate, and, so far at least, has replaced neither the pound, the yen, or the dollar. And credit cards (with Visa at the forefront) have arguably been the most powerful force behind