Are They Really Surprised By This?

Family buys a home for around $450,000, much more than they can likely afford. They apparently purchased using a "sub-prime" loan. Sub prime loans in case you haven't figured this out yet is where you have the miraculous ability to buy a $500,000 home while only making $80,000 a year because they give you a five year (or whatever) mortgage at 3% and allow you to only make interest payments. After five years the idea is that A) you'll be making more money and/or B) housing prices will increase allowing you to refinance and actually make money. Another option is an "APR" variable-rate that was unusually low to begin with, but climbed drastically the first chance the mortgage company could raise it to where the market really is.

Does nobody else see the illogic-ness™ in this? Fault the purchaser. Even I knew better straight out of high-school when people were telling me to get an adjustable-rate mortgage when rates were very low - the only direction those adjustments can go is up!

So now, suddenly the family finds they can't afford a real mortgage payment on their house. Their employment status hasn't changed, and amazingly the payments are still due to the evil mortgage company.

Rather than default and go into foreclosure, the family finally finds a buyer for their drastically overpriced house. Unfortunately the next buyer isn't as stupid as the first and will only offer $220,000 for the house. The homeowner accepts the purchase price and then turns to the bank saying...

Yeah, I know I owe you $300,000 secured to this property, but I'm going to sell the property for $220,000 (less real-estate commissions of $13,200.) So "here, Mr. Lender who paid the last owner over $300,000 for this house based on my word I'd pay you back - you can take $206,800 for your trouble and we'll call it even, k? Let's just forget about the extra $93,200."

Um... no?

Surprisingly, CitiMortgage said "Ok, but you still owe us $40,000 and we'll be nice and let you pay it over the next 20 years."

Wait, the mortgage company just offered to take a $53,200 loss - MORE than they are asking the homeowner to bear - and the homeowner is upset by this? That's an amazingly good deal! The mortgage company could have demanded the entire remaining balance of the mortgage, but instead offered to basically split it down the middle.

Evil mortgage company? Where's the personal responsibility of the homeowner?