Boston Gal's Open Wallet

When I read your post on this, the first thing I thought about was a book I read called "Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke." One of the authors, Elizabeth Warren, is cited in the article. The second thing I thought is that this couple could never have afforded the house. They only put $10k down, less than 1%. Kids cost money. If both parents work, of course they'd have to pay for quality child care (duh?). Just think how many working class (and even single parent) families are managing on much less than six figures.

 

Yes, it does seem like this couple rushed in and tried to have it all very fast without first really thinking about what they were doing.

I would want to ask how much they spent on the wedding. My suspicion is the low down payment amount for the house likely came on the heels of a big pricey wedding. Then the house then the two kids. My point being that in a few short years they upped their expenses at an incredible rate and likely neither had any kind of corresponding jump in income.

Thanks for highlighting the Elizabeth Warren book anonymous, it is a very good read: The Two-Income Trap

 

A Sub Zero refrigerator is far from middle class.

I put most of the responsibility on the wife's shoulders. Ryan would've been just 24 when they were married...whereas she was 33. I'd have expected her to have some idea of what kids in daycare costs by that point, because she'd have heard her friends griping about it! $3000 still sounds like an unreal sum, but they do live in a ritzier neighborhood and so the daycare is probably fancier to match.

 

How do the mistakes made by this couple equate to the middle class is disappearing?

They would be living a very comfortable middle class lifestyle had they made more financially intelligence decisions.

We are supposed to have sympathy for them? How so?

A 27 year old couple decide to spend $640,000 on house? When they are only earning combined about $160K a year. What do they expect? I am sure they also succumbed to all the trappings a house of that caliber comes with.

Sure... BLAME the disappearing middle class, anyone and everyone but yourself.

I have zero sympathy.

Time for them to get REALISTIC with what they truly afford. Trim back, budget, cut costs, and stop trying to live on a champagne budget with a budwieser wallet.

Really people! We are supposed to feel sorry for them? HOW SO?!?!

 

I can understand the shock of daycare costs for the first child -- you anticipate it being expensive, but it's really astonishing how costly it is! But by that point they were already in the massively enormous house, so saying "We just can't afford another child" would have been the adult thing to do.

 

Pricey house-
Two kids in rapid succession-
only 10 K down-
Massive mixups by mortgage company-
I have very little sympathy for this couple.

 

Oh, I love some comments on the Gal's blog and I mostly agree. Like the couple profiled, we also have two children and daycare has kicked our butts, yet even at the highest amount it was $1400 a month for a toddler and a pre-schooler. Those programs were quality, professional care, and more expensive than the no-name, no license daycare.

We know we have three more years of daycare for our youngest child and that money will start to flow again as my elder child ages into 1st grade and we pay off a car. We knew this going in. Oh, and our kids are adopted, another expensive of our family life, but totally worth it.

-Sarah

 

My first impressions were $80k for a dental hygienist?, then I looked closer and realized the pricy area they are living in. I would have to agree that their house is not a middle class house with a sub-zero refrigerator etc. She should've breast-fed longer, but that's a moot point b/c it's impossible to go back now once you go ahead with formula and who's to say breastfeeding even worked for her in the first place. I do find it a little hard to believe she can't find formula at a Sam's Club for cheaper though. I think a can of formula there is $20 and lasted a couple weeks for us.

Grocery bill- well can't begrudge them that. It looks like they eat pretty healthy. 3k for childcare a month *is* staggering. They might have to put their children in a home daycare rather than a center, or with grandparents or something. I think they can still make it work but I haven't seen all their bills either. I can see how something like this could happen though.

 

Also, I find the so-called "predatory lending" in this case rather mysterious. They had a fixed-rate loan and maybe they thought that meant that their monthly costs would never adjust upwards. In my 30 years of being a homeowner, I can't remember how many times my various mortgages have adjusted due to the county revaluing my house for tax purposes and the cost of my home owner's insurance going up. Who knows if the mortgage company tried to bilk them, made a dreadful mistake, or merely had to readjust their escrow for some other, rather benign reason?

All in all, I can't for the life of me imagine this YOUNG man signing on the line for a wife, an expensive house, a fancy fridge, two kids, and 70 hours per week in one fell swoop. I've got a son the age this kid was when he got married and moved too fast to get too much, and I would be fit to be tied if I witnessed my kid do the same.

Where's the fire, people? Why do you need to have EVERYthing in the first five minutes of marriage? That fantastic school system doesn't count for much if you lose the house before the kids start kindergarten.

 

I live very close to their town. A $640K home 3.5 years ago means they likely got a McMansion. We have a very nice, 4 br, 1.5 ba home that is worth $390K now--and is more than enough for any growing family. Even at the height of the housing bubble, in 2005, nice homes were easily available in the $375-$450K range, which would be 2.5 to 3 times their combined salary--a reasonable ratio.

$3K for child care for a toddler and an infant is about what you'd pay at one of the nicer day care centers here. However, for an average of $2K/month they could hire a live-in au pair and get 45 hours/week of child care. And the au pair would clean up after the kids, do the kids' laundry, clean their rooms, cook for them, etc. and they'd get individual attention.

Anyone who considers getting pregnant in the nicer Boston-area towns knows exactly how ripping expensive housing and child care can be--so I consider these people financial doofuses, NOT victims.

 

Mortgage companies do not "make a mistake" about your monthly payment. Either that $500 increase was written into the contract, or it is fraud. If the former, then shame on them for not reading the contract. If the latter, pursue justice!

It is difficult to work up sympathy for folks who walked this path. The math doesn't lie...

 

I think one of the lessons of this story is not to trust your bank, learn to use an amortization calculator and look at your tax statements.

I verify my credit union statement for my mortgage against the amortization calculator every month.

Seriously this takes less than 5 minutes a month.

Look at the headaches this could have helped to prevent.

 

Many aspects about this story grate on me, especially how the couple feigned responsibility for their situation. Come on, only putting $10K down on a house of that price shows that you most likely can't afford it. They could have easily bought a townhouse in that area for much less and moved when the kids approached school age.

However, I'm equally peeved at how this story was reported. You don't need to be Mike Wallace to ask probing questions such as "How exactly did the mortgage company miscalculate your monthly payment?", "Have you consulted an attorney if indeed the mortgage company?", and "Do you feel that you're at fault for any of this?" That's Journalism 101. Then again, I doubt that NPR would cover a story in that fashion.

 

Then again, I doubt that NPR would cover a story in that fashion.

Bingo!

 

Whew I don't get it. How is $150k/year middle class? How is buying a $640k McMansion middle class? How is spending $3k/month on child care middle class?

I'm GLAD the "middle class" is shrinking if it's come to stuff like this. Let's go back to people buying stuff they can afford and not having this massive entitlement complex that middle class means a huge house in an exclusive neighborhood, luxury day care, private schools, fancy cars, etc. What kind of middle class is that??

 

b.g.:

it would not be a fun marriage if one of the couple's kids married one of the kids in this family.

- s.b.

 

It says so much about our current economic problems that their first idea for a solution is "bankruptcy!", not downsizing. Even further, it doesn't seem like bankruptcy will be much of a help for this family. Sure, they'll lose the CC debt, but they're still stuck with a totally unsustainable mortgage and daycare costs. And I believe being in bankruptcy would disqualify them from most of the mortgage handout plans that are being bandied about by our great leaders.

 

I wonder if they can find less expensive, quality child care. For a family of 4, $180 a month for food seems very reasonable. I have no idea what they can do about the house. They can't "downsize" from that. They really are in a tough position.

Reading this article pretty much reinforces my feelings that one should think long and hard about major purchases, like a house. Also, birth control is a wonderful, wonderful thing and I wish more people would use it. Seriously.

 

Boy, there are some very hostile comments here. Couple clearly over-bought their housing, but the $3000 on child care is very understandable to me. Yes, there are cheaper childcare options, but even the cheapest is usually around $1000 per child per month. Part of the reason costs go up is because of inflexible schedules. I don't know about the featured couple, but I pay well over $3k on child care per month because I have a erratic and very child-unfriendly schedule (as does my husband) meaning we spend extra dollars to make sure we can have coverage at any given moment.

Of course, there is always a solution for all these featured families that MSM never talks about. All of these people who are upside down on their mortgages always have a choice: they can sell their homes for well below what they owe, and then move into a cheap rental while paying down the remaining mortgage (on a house they no longer own). It's not so different from all of us who've lost $ in the stock market recently, except its a guaranteed loss going forward, as opposed to what is generally a backwards looking risk of loss.

For example, this couple could probably sell their McMansion for $500k, move into a $1500/mth apartment, and make the additional $1000/month payment to pay off the $120-$140k house debt. They just won't have a house at the end to show for their payments.

It is still a travesty though. It is the same lenders who created these complex payment options that can have you going from mid $1000 per month to $5000 per month in 5 years that lobbied for Congress to make bankruptcy more difficult to claim (discharge bankruptcy is extremely hard to get nowadays. You have to have below poverty wages, or else you have to file for reorganization bankruptcy, which just means you might get a slight write-down, but are still on the hook for the majority of your debts). Both sides of the equation were greedy and irresponsible, and it is the savers of the US that will end up paying for it.

 

Since a couple of people have mentioned the food bill - that $180 is per week, not month. So this family of four is spending $9,360 per year or $780 per month on food.

To me this seems high when you consider that two of the four are very small children. But with both parents working, I can only assume they rely on a lot of packaged or "quick" food which is much more expensive than cooking from scratch and having a well thought out planned weekly menu (with leftovers packaged as lunches for the adults).

 

This statement cracks me up:

-- The real estate bubble, predatory lending, and rising prices are all to blame. But arguably, so are the Payne's choices. --

The author is conceding that people's choices JUST MIGHT have something to do with their problems. What a novel idea.

 

While I think this family over extended themselves, and I generally fall on the side of blaming the people with the bad choices, I think a lot of this is the fault of the escrow company, and some bad choices of the family. First off the escrow company screwed up the property taxes and did not take out the right amount. That happens all the time here in Indiana, as many as 10% a year have improperly taken out the proper tax payments. It is due to the way our taxes are figured. So, adding $900 a month is .. okay .. it happens. Well guess what, PMI is 10% of their mortgage. They only put a little over 1.5% down, thus they are going to have PMI. Well their PMI is screwed up as well due to the fact their escrow was screwed up. That might take the $500 dollars.

So lets see .. They make 12.5k a month, 9.25k if we assume 25% is taken out of their paychecks for taxes, SS, etc. So with the numbers they have shown, they are spending 9.18k a month (food, mortgage, child care, etc.) So that is under their take home numbers. Limit the food, and you can save some more. Yeah, it might be tough, but dang, you are not over extended that much. I don't know the CC debt, but that is their breaking point. Cut them up and pay them down slowly. As best you can. I assume it was a lot of the medical bills from having two kids, but again, they must have known this was coming. Conceiving is well known procedure, and kids are known to be expensive.

Oh well. I can see this article showing how banks make mistakes and things like PMI and escrow (which is why I NEVER escrow insurance and taxes) as a cautionary tale. This family is right on the border of the acceptable border of what they should have afforded to buy. Usually banks don't want a mortgage to be more than 4 times your income. I think they should have saved more and put more down, but they are not that bad off for their income positioning. It is just their other choices which have put them into straights.

 

"They bought it three and a half years ago for $640,000 "

Biggest mistake. Making $150k a year should be able to afford $450k home at best.

They bought too much house

 

Well, the extra $1400 a month in taxes, etc. may have been the final nail in the coffin ... but they were well on their way to the poorhouse before that happened.

How much do you take home on $150,000 a year? My DH makes $117,000 a year and brings home about $5200 a every 4 weeks after taxes, healthcare, maxing out 401(K) and all of those other things. I wouldn't think that they would have more than $7500 a month to work with ... but, they probably aren't maxing out 401(k)'s ... so maybe $8,000-8500 a month?

$4000 for mortgage (before the extra $1400), $3000 for childcare ... that leaves $1500 a month for everything else like food, gas, clothing, car insurance, car payments, unexpected doctor's visit, utilities, random things that DO go wrong with your home and need to be fixed. That is just CRAZY!

I mean, I imagine just basic utilities (gas and electric) run them AT LEAST $300 a month on average. There is no way this family doesn't have a cell phone. Diapers are costing them at least $100 a month. I could go on, but it is pretty easy to see how this family can't possibly live with a $4000 a month mortgage payment as long as they are paying $3000 for childcare (and probably even if they weren't paying for childcare).

I really don't see how even Elizabeth Warren can't find fault with this family (except to save her face on the whole two incomes is a trap cottage industry). There was no job loss, no health crisis ... just plain old living beyond their means.

Isn't it bad for cops to have so much debt? Doesn't it make them more vulnerable to bribes and such ... or have I just been watching too many episodes Law and Order????

 

This couple must be the type who just go forward, do whatever they want, and trust that in the end it will all work out. Because everyone else is doing it right? If "they" can have the big house, the kids, the cars, the LIFE WE WANT, we must be able to have it as well.

They obviously never sat down and did the math at any point. Or if they did, they knowingly decided to live with a thin margin of saving. Likely living paycheck to paycheck. Since the extra payments caused the credit card debt to balloon, that to me says they were just scraping by before.

Perhaps they hoped to limp along until the children started school. Again, they have no idea that after school child care is very expensive as well.

The extra payments have just sped up this whole process, they were headed to this revelation about their unaffordable life anyway. In a way they are lucky, it could have been a job loss or a medical problem that revealed the problem instead.

 

I wonder if they could drop daycare all together if Dad stopped working over time? He works midnight to 8am. If she could start work at 9, and he could sleep when she gets home from work...

OK, they'd never see each other and the marriage would suffer, but I'm surprised this wasn't mentioned. All the towns seems to be cutting their budgets, including police, so his ability to get 70 hours a week is iffy moving forward.

 

Amy K,

Police officers arrest people. When those people go to court, arresting officers also must show up in court. Court takes place Monday - Friday from 8 - 4. An officer working 70 hours a week is probably making a lot of arrests. The officer cannot bring his 1 and 2 year old children along. Also, criminals are not usually very considerate that an officer is near the end of his shift and must go home to watch his children. So, being scheduled to be off shift at 8am and actually being off shift at 8am are two entirely different matters.

As to budget cuts, crime does not stop due to budget cuts. Crime does not send an announcement as to when it will happen so that schedules can be adjusted accordingly. Police overtime isn't at all the same thing as say...working overtime at Macy's because of the holiday shopping season.

 

A very interesting personal finance article...

http://articles.moneycentral.msn.com/Investing/HomeMortgageSavings/help-were-lousy-at-money-decisions.aspx

 

I was unable to find your email address. Thought would let you know abt this interesting article.

http://articles.moneycentral.msn.com/Investing/HomeMortgageSavings/help-were-lousy-at-money-decisions.aspx