How someone who makes $15K bought a $700K house

The Washington Post has a story about a single mother of three who made $15,000 a year as a daycare worker who managed in the real estate bubble to buy a house that cost $698,000, only, of course, to lose it. It’s a tale of unbelievable shenanigans on the part of the sellers and lenders, coupled with unbelievable lack of common sense on the part of the buyer. A sample:

The type of financing that had started it all would later come to be known as a liar’s loan because it required no proof of income. Across the country, thousands and thousands of such loans were made. White’s papers cited income of $163,320 a year, even though she says her 2005 income-tax earnings were less than $15,000 and she relied at times on food stamps.

The same papers showed how much she had in her bank account. The total was $14,026, appearing to reflect two deposits made the day before the closing, when a $7,000 check from Zhang’s husband [the seller] was deposited into White’s account at 12:20 p.m., which was one minute after $6,000 in cash was added. . . .

White didn’t dwell on these details at the closing table, and didn’t pay attention to the figures showing that the loan’s adjustable interest rate was starting at 8.6 percent and could rise as high as 15.1 percent after two years.

One after another, White signed papers while waiting for the one she cared most about: her monthly payment. She had not yet been told what it would be.

“Please let this be something I can afford,” she said to herself. She was pretty sure she could afford $2,000. She told herself that if her day-care business did well, perhaps she could afford $2,500. If it was $2,800, she would struggle. Here, now, came reality: $5,635 a month. . . .

For not using a real estate agent, the sellers gave her a 5 percent credit. Some of that was used for closing costs, but about $15,000 came back to White in a check marked “settlement proceeds.”

Added to the $13,000 that had been deposited into her bank account and $11,200 toward the first two mortgage payments, White ended up leaving the closing table with nearly $40,000.

The sellers took away more. After owning the house for 22 1/2 months, Zhang and her husband sold it for $203,000 more than they had paid.

So the buyer paid her mortgage for five months, until the cash she had been given ran out, and then defaulted. She became homeless, whereupon she became eligible for rent subsidies and now has an apartment.

Multiply this, with variations, by many thousands, and this is what brought down our economy.