Edmund Andrews is like millions of other Americans who are in deep financial trouble. In 2004, he bought a house he couldn’t afford with one of the many subprime loans that flooded the market during the housing boom of 2002 to 2007. He was already in financial straits thanks to a divorce; half of his take-home pay was going to child support and alimony. But a new marriage meant a fresh start, so without providing any income information, Andrews got a mortgage for half a million dollars.
Sound familiar? It should because it’s one of many sob stories that help explain the downfall of the U.S. housing market.
But there’s one big difference between Edmund Andrews and other homeowners who are in danger of defaulting on their mortgage. He is a 16-year veteran economics reporter for the New York Times whose job it is to report on U.S. financial policy and mind the Federal Reserve. He’d written early-warning stories about the easy availability of reckless mortgages when money was flowing into the United States from overseas. At that time, Wall Street was buying bundled subprime mortgages that promised high yields with little risk as long as the housing market kept rising. As a result, lenders were giving loans to people who could not afford them.
Andrews knew this. He knew enough, arguably, to be suspect of the many players in the housing financial system—investment bankers, rating agencies, lenders, mortgage brokers—who would heavily contribute to the collapse of the U.S. economy. If anyone should have been wary of a too-good-to-be-true mortgage, it was Andrews.
In his new book, Busted: Life Inside the Great Mortgage Meltdown, Andrews chronicles how he was seduced into taking out a mortgage he couldn’t afford and investigates all the parties who played a part in offering loans to millions who aren’t at all sure they will ever pay them back. [Read an excerpt from the book.] When Andrews spoke with AARP Bulletin Today about his book, he and his new wife were eight months behind on their mortgage, awash in credit card debt and struggling with how to handle their self-inflicted financial mess.
Q. A lender gave you money even when you disclosed your financial situation?
A. Yes, in 2004, I had fallen in love with Patty, we were looking around for a place to live and we both needed some space because we both had kids. I had mortgage lenders falling over themselves to lend money to me because I had a pretty good credit rating. They didn’t care about any of the details of my finances. So after looking around at rental apartments and houses, I found it was almost cheaper and easier to buy a house for half a million dollars despite my circumstances.
Q. But you knew better. You wrote warning stories about these subprime mortgages. Why didn’t you resist?
A. Our theory was Patty would be able to earn enough to make up the difference. All my paycheck would go to mortgage. We were overly optimistic over how much Patty could earn because she’d been a stay-at-home mom for the past 20 years and was moving from Los Angeles to Washington, D.C. It was magical thinking.
Q. Are borrowers like you responsible for the downfall of the housing market?
A. Well, if you’re asking should the borrower take responsibility for bad judgment or even just pure folly, yes, the blame lies with the borrower. Unless you were truly manipulated or defrauded, which was the case with some people, you have to take responsibility for your own decisions. I do. I’m not blaming the banks for this.