How a Financial Pro Lost His House

<p>If you like personal finance/mortgage stories - this is a good one.</p>

<p>NYT:</a> How a financial pro lost his house - Business - US business - The New York Times - msnbc.com</p>

<p>The guy is a financial advisor who ended up losing his own house to a short sale. Not a new tale - but he really does a nice job of explaining various choice and decisions along the way - what worked and what was a mistake. It's a very honest assessment of what went wrong. He has a book coming out in January. </p>

<p>I found it interesting in that it is very easy to point fingers and criticize those who have made poor financial decisions in the past few years. He does accept blame - but also points out very common mistakes that he bought into - like the assumption that home prtices would continue to rise.</p>

<p>rockvillemom...thanks for the link....</p>

<p>Interesting article....</p>

<p>I like the psychological aspects of the story...</p>

<p>How people get swept up...</p>

<p>And I like the part where the financial advisor was looking at his family...</p>

<p>Thanks for posting this, it's an interesting read.</p>

<p>The author mentions how he and his wife kept asking each other how their neighbors and friends were able to afford new cars, boats, houses, and other large purchases. They kept feeling that they were somehow missing something, since everyone else seemed to be able to manage to afford a more expensive lifestyle. That reminded me of the book "Green With Envy: A Whole New Way to Look at Financial (Un)happiness", where author Shira Boss actually asks her NYC co-op neighbors exactly how they're able to afford weekend antiquing expeditions and redecorating. Boss argues that the keeping up with the Joneses problem is made worse because we all keep up fronts and don't discuss our personal finances openly. Not that I'd especially want to do that :eek: but it's a good reminder that sometimes a pricier lifestyle is being financed with big loans, inheritance, family gifts, and cashing out retirement funds, and not just with income.</p>

<p>The really interesting point to consider is that financially he did not lose ANYTHING. HE put no money down on the house, he had no skin in the game. Morality & ethics aside, he effectively rented the house and took out extra income in the HELOC & 2nd which financed a lifestyle.</p>

<p>I must admit I don't feel sorry for him the way I might for someone who put 20% down in the crazy market and saw that equity evaporate and worst of all took an ARM which adjusted to a high rate, higher than current rates, but which cannot be refinanced due to the lack of equity.</p>

<p>I'm too tired to reread the link...</p>

<p>but somemom...that is a good point....</p>

<p>this guy was living beyond his means in other areas...</p>

<p>Most financial advisors don't do it for me...and this guy....well...I don't think I would use him... :)</p>

<p>But I like his honesty...</p>

<p>ok...maybe I will reread the story...slowly..</p>

<p>"The market’s continued strength meant we could borrow even more. It was easy. In late 2004, a year after buying the house, we refinanced our mortgage with World Savings Bank, which later ended up in the hands of Wells Fargo, using one of the pick-a-payment loans that let you choose your own payment each month.</p>

<p>We picked the lowest possible payment, the one that added to our balance each month instead of subtracting from it. And we added a line of credit with Wells Fargo.</p>

<p>The extra borrowing power was important, because while my income was growing rapidly it wasn’t enough to support all our expenses. Around that time, I left Merrill Lynch to become an independent financial adviser, so it was easy enough to convince ourselves that we were borrowing to pay for the start-up costs.</p>

<p>There was some truth to that, but we were also borrowing against the house to finance our lifestyle."</p>

<p>So the guy did sell the house for $535,000...in a short sale ...is he responsible for none of the loss?</p>

<p>"We picked the lowest possible payment, the one that added to our balance each month instead of subtracting from it. And we added a line of credit with Wells Fargo."</p>

<p>I hate these loans...</p>

<p>The guy is promoting his book, hence the "story" which is not much of a story.</p>

<p>Somemom nailed it: He bought the house for $575,000 with 100% financing, then took out additional loans + negative amortization he owed $200,000 more than his original loan balance, then sold the house for $531,000 and the banks called it "even" !!</p>

<p>According to my calculations, the banks gifted him to the tune of $244,000. That money was presumably spent during the time they owned the home. There are many sadder stories out there.</p>

<p>Having said all that, I generally am not overly critical of people who got caught up in the "housing prices will go up forever" hype, and the panic of needing to buy immediately before prices go up more. The psychology wasn't all that different in 1980 when we lived in San Francisco, and we were likewise very fortunate timingwise when we bought our home in NJ in 1992.</p>

<p>yeah...I am not going to buy this book...</p>

<p>This guy never had a house to lose. He lost somebody else's house.</p>

<p>yeah.......</p>

<p>
[quote]
I found it interesting in that it is very easy to point fingers and criticize those who have made poor financial decisions in the past few years. He does accept blame - but also points out very common mistakes that he bought into - like the assumption that home prtices would continue to rise.

[/quote]
</p>

<p>You are way too kindhearted, rockvillemom. I don't have any qualms about pointing fingers and criticizing people who behaved like this guy did. He is supposed to be a financial advisor, yet he took out a mortgage for 100% of the purchase price of a home, then continued to accumulate additional debt.</p>

<p>Not everyone behaved that way. </p>

<p>I thought the most interesting part of the article was the story of how he got into the business of dispensing financial advice. He got the job after he confused "securities" with "security", as in security guard. Maybe there is more than the article indicates, but it seems that he has ZERO training or qualifications for his job as a financial advisor.</p>

<p>The article was nauseating. I was going to post it earlier today but I was so appalled I didn't want to get drawn into a discussion about it. But I did anyway.</p>

<p>Great post somemom. I read the article this morning and I wondered why the author was going on and on about the ethical dilemma about not paying his mortgage anymore. I didn't even get what his dilemma was, now I get it. Most people don't walk away from a mortgage because they would lose too much personally but financially the author benefited from the short sale. I guess that is why the bank insists on private mortgage insurance if your down payment is less than 20%.</p>

<p>I am outraged that we collectively are stuck with the $244,000 that this guy spent. Why should any of us buy a book to give him even MORE money? ICK! I'd like the bank to chase him for the $244K he spent rather than calling it even after he took out all the $ & spent it all.</p>

<p>Here's something I found scary. From the article:</p>

<p>"Like most financial stories, this one is personal. It starts with me getting into the financial services industry more or less by accident. I answered an ad in 1995 that I thought was for a job related to “security” (as in security guard) but was in fact related to “securities.” That’s how little I knew about the stock market."</p>

<p>Here's a guy who originally confused "security" with "securities" - and in 4 years he was a certified financial planner working at Merrill Lynch.</p>

<p>Yes...that is scary....</p>

<p>You guys have made some very valid points! You are right - he did not "lose" any money as he put nothing down. And no - I wouldn't buy his book - might borrow it though! I just thought it was a very good summary of the craziness that took place in the housing market - and how it sucked in people at various levels of financial sophistication.</p>

<p>
[quote]
I just thought it was a very good summary of the craziness that took place in the housing market - and how it sucked in people at various levels of financial sophistication.

[/quote]
</p>

<p>Seems to me it was the 'sophisticates' who caused the problem.</p>

<p>Those who just plodded along obeying old-fashioned common sense rules like 'buy less than you think you can afford, pay it off quickly to get out of debt, and then stay out of debt', and 'don't risk more than you can afford to lose' did not contribute to the problem. </p>

<p>Sophistication is over-rated.</p>

<p>"Like most financial stories, this one is personal. It starts with me getting into the financial services industry more or less by accident. I answered an ad in 1995 that I thought was for a job related to “security” (as in security guard) but was in fact related to “securities.” That’s how little I knew about the stock market."</p>

<p>Here's a guy who originally confused "security" with "securities" - and in 4 years he was a certified financial planner working at Merrill Lynch."</p>

<p>This floored me as well.</p>

<p>Like saying " I was a fishmonger and saw an ad searching for Sturgeon, ended up they really wanted a Surgeon. Four years later I'm at the operating table, patients are dying right and left. I still can't figure out what went wrong."</p>

<p>"Like saying " I was a fishmonger and saw an ad searching for Sturgeon, ended up they really wanted a Surgeon. Four years later I'm at the operating table, patients are dying right and left. I still can't figure out what went wrong." </p>

<p>:)</p>

<p>
[quote]
Some of us were overoptimistic; some were ignorant; some were deluded; some were greedy; some just had bad timing

[/quote]
</p>

<p>How do you characterise this guy? A Financial Planner who is ignorant? A greedy person who had bad timing? I think this story tells them all. I will think twice before hire such a person as financial planners.</p>