JIM LEHRER: Now, NewsHour economics correspondent Paul Solman tells the story of a personal mortgage meltdown. It’s part of his series, “Making Sense.”
PAUL SOLMAN, NewsHour Economics Correspondent: New York Times economics reporter Ed Andrews knows a lot about toxic mortgages.
EDMUND ANDREWS, The New York Times: This was something I wrote in June of ’04, “The Ever More Graspable, And Risky, American Dream.”
PAUL SOLMAN: It turns out Andrews wasn’t just covering that dream; he was living it.
A divorced father of three, Ed was eager for a new lease on life with new bride Patty and her four kids. A huge stretch, he knew: two-thirds of his take-home pay went for alimony and child support. But Andrews could buy this house in Silver Spring, Maryland, for nearly $500,000 with a so-called no-ratio loan.
Today, he faces foreclosure, a tale he tells in “Busted: Life Inside the Great Mortgage Meltdown.” He described what happened in the backyard he’s still hanging onto, for now.
EDMUND ANDREWS: In 2004, which happened to be at a time when I was taking note of, as a journalist, these crazy loans that were becoming very, very widespread, I fell in love.
I fell totally, madly, head-over-heels in love with Patty, the woman who I did marry not long after that, and I, as a result of that, was kind of desperate to find a way to make our lives — you know, start this new chapter in our life.
I quickly found out that it was really much, much easier to buy a house than it was to rent one and, in fact, that I had lenders falling over themselves to lend me the money.
PAUL SOLMAN: Not because you’re the guy at the Times who’s writing about this?
EDMUND ANDREWS: No, no, no. I had two things. I had a very good credit record, at that point, and I was breathing. I mean, that’s basically it.
There was sort of a whole continuum of these scamming loans, so the most familiar one would be the stated income loan, where you state the income, but you don’t document it, but you might document the assets that you have, OK?
And then, if you want to take it down a notch, you state the income and then you state the assets. You don’t document them either, right? And if you go further down the line, which I had to do, you don’t state the income at all.
PAUL SOLMAN: Andrews applied for, and got, a no-ratio loan, in which his $2,500 monthly payments would consume nearly all his take-home pay.
EDMUND ANDREWS: A no-ratio mortgage in which literally I left the income space blank.
PAUL SOLMAN: Therefore, there would be no ratio.
EDMUND ANDREWS: Correct, yes, because there was an issue of my debt-to-income ratio. But if you don't have any income that you're declaring, you have no debt-to-income ratio. Problem solved. Even at the time, I'm going, "I can't believe this. Is this a great country or what?"
PAUL SOLMAN: Andrews was not so crazy, or crazy in love, to think he could pull it off by himself, but if wife, Patty, long a stay-at-home mom, could get a good job, say, $50,000 to $60,000 a year...
PATTY BARREIRO, Wife of Edmund Andrews: I had not worked for a long time, and so I knew that that was going to be a little rough going. I thought it might be easier than it actually was.
EDMUND ANDREWS: After about two years, Patty did get a good job and was earning decent salary, but we had accumulated so much debt by that point that we were in a crisis, a staggering amount of credit card debt on the order of $50,000. And that's where Bob Andrews, the mortgage broker, came to the rescue again by arranging us an even crazier, more surreal mortgage refinancing.
PAUL SOLMAN: And how did that work?
EDMUND ANDREWS: Bob's solution was to borrow more money with a really cruddy, creepy subprime loan, use that money to pay off the credit cards, and then my credit scores, my credit rating would instantly climb up, and in two months, I could flip to a cheaper, more sane loan.
And, meanwhile, you've still got your credit cards. You could run the debt up all over again. Amazingly enough, it worked. It actually worked exactly the way he laid it out.
Meeting the mortgage broker
PAUL SOLMAN: So, that's Bob.
EDMUND ANDREWS: That is Bob, the man who started this whole adventure for me.
PAUL SOLMAN: Via Web chat, Bob Andrews, no relation and now out of the mortgage business, said brokers like him were not their clients' keepers.
BOB ANDREWS, Former Mortgage Broker: I never looked at myself as a person that would limit someone's desires to fulfill their dreams. Ed wasn't wringing his hand, going, "Oh, Bob, if I do this, I do this, you know, I'm scared I won't make it." I don't remember any of those conversations.
PAUL SOLMAN: But didn't you think, "I might be getting this guy into trouble"? I mean, no-ratio loan, you don't even put down what the person is making?
BOB ANDREWS: I am not a certified financial adviser. We don't hold ourselves out for being able to say, "Gee, you're in trouble. I don't believe you have enough income. You're going to bury yourself on this one."
This is not the way the industry works. If this borrower meets these criteria, we grade it this way. If they have all of this and it was not fraudulent, loan's good to go.
PAUL SOLMAN: So Ed's broker was just following the rules of lenders flush with cash. The main rule: don't ask, don't tell.
Ed, already sinking, fell further when Patty got pink-slipped. Financial stress, marital stress. Ed blamed Patty for overspending and under-earning.
PATTY BARREIRO: I felt terrible about that and defensive, you know, a little defensive, so things became contentious for us, and we started fighting.
EDMUND ANDREWS: When I started writing the book and Patty would read passages, she would just recoil and say that I was being unfair, and she'd get angry, but as time went on, it really actually was therapeutic.
'We are all culprits'
PAUL SOLMAN: It's famous that one of the greatest tensions between couples is the financial tension. Maybe they should all write a book.
PATTY BARREIRO: Oh, I don't know if I'd wish this on anybody, really. It's more adventure than I was prepared for, I think.
PAUL SOLMAN: More therapy than you wanted?
PATTY BARREIRO: More therapy than I'd really like, yes, definitely.
PAUL SOLMAN: Back in the yard, Andrews said he hoped the book would provide financial therapy, too.
EDMUND ANDREWS: We are now seven months behind on both the primary mortgage and the second piggyback loan that we've got on the house. And I am in discussions with the primary lender, JPMorgan Chase. You know, I'm trying to see if they'll see their way clear to a loan modification.
PAUL SOLMAN: Would you have written a book that's this disclosive if you weren't desperately in need of money?
EDMUND ANDREWS: I certainly thought that maybe, if I got really lucky, that this book might solve some of my financial woes. And by the way, I beg anybody to buy the book and save my house. I would love that. But I will also say that, as a journalist, I thought that I had a really amazing opportunity here.
PAUL SOLMAN: Who done it? I mean, if this is a detective story, who's the culprit?
EDMUND ANDREWS: In a basic way, we are all culprits. This was, you know, a national phenomenon, a fever that gripped everybody from the, you know, homebuyers and borrowers right up the chain to the very top of Wall Street, to the Fed, in fact.
The Federal Reserve, Greenspan all got lulled into this sense that, you know, homes were the rock of stability and, you know, housing prices never go down, and everybody bought into it.
Mortgage was a 'huge gamble'
PAUL SOLMAN: How could you have fallen for this? I mean, you covered the industry.
EDMUND ANDREWS: I knew it was a huge gamble. It was the biggest gamble of my life; there was no question in my mind. I was praying to God to forgive me for the sins I was about to commit, but, you know, the money was there.
PAUL SOLMAN: Andrews got hundreds of e-mails after "Busted" was excerpted in the Times magazine last week, most sympathetic, some not.
EDMUND ANDREWS: "It's people like you who are dumb and mislead honest people by writing for the New York Times and imitate people with brains. It appears the New York Times is going broke, also. That's because they hire people like you."
PAUL SOLMAN: Good or bad, people are talking. And if talk leads to sales, Ed Andrews might just have written himself out of a financial jam that he of all people should have averted.
On the other hand, he did get the green light every step of the way.