Two recent New York Times articles try mightily to elicit sympathy for borrowers whose bad financial decisions turned out badly.
"Your Money" columnist Ron Lieber asks us to feel the pain of Cortney Munna, a 26-year-old NYU graduate who owes $100,000 for "an interdisciplinary degree in religious and women's studies" that is not quite as lucrative as she expected. Munna "makes $22 an hour working for a photographer" in San Francisco (one of the most expensive cities in the country) and dreads the thought of "slaving away to pay for an education I got for four years and would happily give back," which she says "feels wrong to me." To his credit, Lieber assigns some responsibility for this state of affairs to Munna and her mother, who says:
All I could see was college, and a good college and how proud I was of her. All we needed to do was get this education and get the good job. This is the thing that eats away at me, the naïveté on my part.
But Lieber also wants to blame Citibank (featured in a photo accompanying the column) for "handing over $40,000 to an undergraduate who had already amassed debt well into the five figures." That may turn out to have been a bad business decision, but is it a bank's job to tell a loan applicant what her priorities should be? Citibank made it possible for Munna to realize her dream of attending the college of her choice instead of various less expensive options, and Lieber is saying, in effect, that it should have told her to aim lower. Likewise, he faults NYU's financial aid office for not giving Munna better advice, which would have meant suggesting that she attend a different, cheaper school. Not only is it unrealistic to expect a college to send away a student who is ready to pay full tuition, but at the time Munna and her mother probably would have resented the suggestion.
While Munna is paying the price for her financial folly, the borrowers featured in a story on the front page of Monday's Times have decided that gradually paying off one's debts is for suckers. Alex Pemberton and Susan Reboyras are taking advantage of the long delay between foreclosure and eviction in Florida to live "rent free" in St. Petersburg while spending the money that would have gone toward their mortgage on steak dinners, casino trips, and excursions in their "gas-guzzling airboat." According to the Times, this couple represents a trend:
A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.
"Instead of the house dragging us down, it's become a life raft," says Pemberton. "It's really been a blessing." He and his wife rationalize defaulting on the debt by citing the mortgage company's stupidity in lending them money (emphasis added):
"We could pay the mortgage company way more than the house is worth and starve to death," said Mr. Pemberton, 43. "Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing."
They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations [a business that restores pest-plagued attics], first with print ads, then local television. Word apparently got around, because the business is recovering.
The couple owe $280,000 on the house, where they live with Ms. Reboyras's two daughters, their two dogs and a very round pet raccoon named Roxanne. The house is worth less than half that amount—which they say would be their starting point in future negotiations with their lender.
"If they took the house from us, that's all they would end up getting for it anyway," said Ms. Reboyras, 46.
One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers.
It was a stupid move by their lender, according to Mr. Pemberton. "They went outside their own guidelines on debt to income," he said. "And when they did, they put themselves in jeopardy."
That's one way of looking at it.