I should have known better. I worked in the credit union industry and spent nearly 20 years educating members about risky mortgages, home equity loans and the importance of thrift.
Even so, in 2006, I joined the vanguard of the foreclosed-upon.
It wasn't the bad loan that did us in; although we did stupidly finance 100% of our home's inflated purchase price with an interest-only first mortgage and a home equity loan. At first, I insisted we apply for a traditional, 30-year fixed mortgage. But even with his six-figure salary and my good credit, we couldn't qualify in California's high-stakes housing game.
I wanted to wait and save up for a down payment, but he needed the tax break. And I'll admit I did want to own a home. He didn't have to twist my arm very hard.
Could we have paid the principal once the interest-only period ended? Could we have outlasted the recession and eventually built up some equity? Possibly, but we'll never know. We split up before that could happen.
Death, disease, divorce and unemployment: These are the ways people lost their homes in the "good ol' days," and that's what happened to me. We hadn't even been in the home one year when we split, and by then the market had already begun its long downhill slide. Despite our home being on a ridge at the end of a cul-de-sac in beautiful San Diego, nobody wanted to buy it, even in a short sale.
The stress of living with an ex took its toll quickly, so I moved out into a rental. My ex moved out too, leaving without providing the bank with his forwarding address. I tried to settle my half of the responsibility, but without any assets to bargain with or any wealthy relatives willing to help, I had little to offer, and the bank foreclosed.
So just as the subprime mortgage bubble blew up, my credit score did too. I had already consolidated to one credit card, but once the default hit, my credit union increased the interest rate by 50%. Thank God that was my only debt.
I made a vow to live a cash-only life. Like I had a choice. But after I lost one American dream, I discovered another. Deciding to live cash only — OK, being forced to live cash only — was the best thing I've ever done.
The first and most rewarding change I made was to turn off cable TV. Not only did I find myself with plenty of time to take on new moneymaking projects and hobbies, I lost the urge to consume as a pastime. Before, when I shopped, I'd wandered aimlessly through the aisles, hypnotized by all the choices and practically drooling from the intoxication of consumption. I purchased things I didn't need or even want.
Once I switched off the "you need more" advertising message and the "what you have isn't good enough" themes on lifestyle channels (and without credit cards to act on those impulses), I regained my consumer clarity. I shop for what I need; I want less.
My ex and I used to travel several times a year, staying in nice hotels and enjoying nights out on the town. Since we split, I haven't taken a vacation. But then again, I don't need one. Without the stress of a mortgage, I've lost the urge to "escape."
I still drive my 1998 Jetta, which I purchased new and financed 100% with a loan that took six years to pay and cost me thousands in interest. It looks dated, but it's still in excellent condition. I don't have a car note, my insurance is only $50 a month and, even after the last increase in DMV registration, I still pay less than $100 a year. Is that worth living without cruise control and a rear window that doesn't roll down? You betcha!
Best of all, without the pressure of a mortgage, I was able to pursue self-employment and parenthood with a new boyfriend who is also committed to a credit-free lifestyle. These days, I work from home while we split time caring for our 4-month old son. Our names aren't on the title of our rental home, but it's clean, cozy and the cost is reasonable.
Do I want to buy another home again? Well, of course. And someday, when the Jetta finally dies and/or my son outgrows the urge to scatter Goldfish crackers from one end of the car to the other, I'll want a new car too.
But this time, I won't finance either one 100%.
Because I learned the lesson we all should have learned since the bubble burst: Credit is useful, but it doesn't equal wealth.
Heather Anderson is the coauthor of "Stealing Homes: How to Survive a Foreclosure and Move On With Your Life." A veteran of the credit union industry, Anderson is a marketing and business development consultant.
Postcards from the recession is an Op-Ed series of on-the-ground reports from throughout Southern California on how the economic downturn has hit individual neighborhoods.