Why You Should Care That Your Neighbor Took Out a Toxic Mortgage
If you are a renter or someone who took out a simple 30-year fixed mortgage, it’s not surprising that you might feel like the mortgage crisis is, well, not
Jul 31, 2020153.3K Shares4.1M Views
If you are a renter or someone who took out a simple 30-year fixed mortgage, it’s not surprising that you might feel like the mortgage crisis is, well, not exactly your problem. You’re not the one who got into any sort of messy mortgage. What does a subprime loan have to do with you?
But via Felix Salmon, here’s a look at why toxic mortgages spill overonto us all, courtesy of Mike from Rortybomb:
“„If I was a degenerate crackhead who snuck into your neighborhood and mugged you for $50, the Wall Street Journal Opinion Page would want me thrown in jail. Now imagine that I’m a degenerate crackhead who took out a subprime loan to move next door to you, in an arrangement that I’m likely not going to pay off. I might not even make one payment. If I default you’ll lose 10% of the value of your home from the externality effect. Assuming your home is worth $300,000, there’s a 20% chance I default in 2 years (realistic numbers), and you lose 10%; 300,000*.2*.1 = I’ve just robbed you for $6,000 while the Wall Street Journal Opinion Page cheered me on. And that’s one house – I’ll have a dozen neighbors. Now mind you, the product was great for me – I got to smoke crack indoors, in a house I could never realistically afford, which was a big plus. The subprime lender sold my loan to a pension fund in Denmark for a nice fee. It goes in the win column for us.
Plus, if your crackhead neighbor walks away from the house, and the bank delays foreclosing on it, then you’re sitting there with an abandoned property next door – something that happens all too oftenthese days. That also doesn’t do much for your property values.
All of this also explains why there’s not exactly a groundswell of opinion pressing Congress to bail out homeowners in trouble. Banks, for whatever reason, don’t come across as badly as the crackhead homeowners do when it comes to possible subprime stories like this. And no one wants to be seen as enabling an addict, even if it means their own property values take a hit.
As Mike detailed, there are some pretty good reasons for labeling these mortgages toxic. And none of them offer much consolation to the homeowner next door.
Dexter Cooke
Reviewer
Dexter Cooke is an economist, marketing strategist, and orthopedic surgeon with over 20 years of experience crafting compelling narratives that resonate worldwide.
He holds a Journalism degree from Columbia University, an Economics background from Yale University, and a medical degree with a postdoctoral fellowship in orthopedic medicine from the Medical University of South Carolina.
Dexter’s insights into media, economics, and marketing shine through his prolific contributions to respected publications and advisory roles for influential organizations.
As an orthopedic surgeon specializing in minimally invasive knee replacement surgery and laparoscopic procedures, Dexter prioritizes patient care above all.
Outside his professional pursuits, Dexter enjoys collecting vintage watches, studying ancient civilizations, learning about astronomy, and participating in charity runs.
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