Newsday has been  running a series on the impending doom for many on Long Island as a result of falling property values and mortgage foreclosures.  For many, the problem is painfully real.  But for some of the people interviewed in the Newsday reports, the problem has nothing to do with either value or mortgages.

Consider this example from an article about foreclosures:

The last property of the morning was a house in Freeport. The owner was Alberto Chavez, 77, who had gotten a subprime mortgage a year and a half ago, a $419,000 loan — the full value of the house — that carried an interest rate of 9 percent, leaving a monthly payment of $4,400, according to Chavez’s son, Immar, who lives in the house and attended the auction.

Chavez never made a payment, his son said. Immar Chavez hoped to stop the foreclosure proceeding, explaining that his father had filed for bankruptcy in an online application the night before.

Why would a 77 year old man take out a loan for the full value of his house, requiring a monthly payment of $4,400?  This seems suicidal, yet somebody obvious thought this was a sound financial move.  Of course, when no payments were ever made, foreclosure was to follow.  This smell more like outright fraud by the homeowner than a sympathetic old man.

So here’s the question.  Is Newsday encouraging Mr. Chavez to max out his home, keep the money and have bankruptcy bail him out?  What became of the $419,000 from the mortgage? 

Another example: 

Kari and her husband, Keith, have owned the cape since 2002, when they bought it from her mother’s estate for $301,000. At the time, they had a mortgage payment of $2,100 a month, which they said they could manage.

But after a call from a now-defunct Melville mortgage broker, Global Home Loans and Finance, the Sessas decided to refinance to consolidate their debt. While acknowledging that they made their own mistakes, such as not carefully reading paperwork or bringing an attorney to the closing, they said they thought the mortgage would be one 30-year fixed rate loan.

But instead, they received two loans. One, for about $374,185, had an annual percentage rate, including all fees, adjustments and the total loan cost, of about 9.64 percent. It’s an adjustable loan — starting out at a teaser 6.1 percent rate, but scheduled to adjust in early 2008. The other loan, for $99,000, had a fixed rate of 10.6 percent.

That left them with a new monthly payment of $3,354, about $500 more a month than it would have been with a conventional, 6 percent rate loan.

Welcome to Long Island.  If we add up the numbers, we see that they pulled $473,185 out of their house on the refinance to “consolidate their debt,” apparently accumulated since their purchase from her mother’s estate (which suggests she got at least some of the purchase money back as an heir).  And how did they run up additional debt of $173k in 5 years?  Certainly, they refinanced with a predatory broker.  They admittedly made a mistake by doing so without a lawyer, though it’s unclear how they didn’t realize that they were being given 2 loans instead of one.

If these are the best examples that Newsday can come up with the prove the “mortgage crisis,” then there’s a very real problem.  Both of these examples are about the very human failure of fiscal responsibility.  Accumulating piles of debt is not a human right.  It is not a matter of sympathy.  It’s just foolish, at best, and borderline criminal, at worst.

Everybody on Long Island drives around in a new Mercedes.  Their kids dress in designer clothing and teenage girls all carry Louis Vuitton handbags.  They eat dinner at very expensive restaurants.  And lest you be unaware, they are all very important.  Just ask them.  They’ll tell you.  Every one of them.

This is not intended to belittle those people who suffer from very legitimate problems cause or enhanced by the drop in real estate prices, the market crisis or subprime lending predators.  But it is intended to let all those people who lived like a Saudi prince by maxing out their credit cards and refinancing their homes above their worth and beyond their ability to pay that the bill has come due for spending more than you can afford.

It is irresponsible for a newspaper to suggest that these people are suffering due to extraneous factor.  They may well be suffering, but it is of their own making.  When the were living the happy life, accumulating debt because they assumed that the increased value of their homes would produce generous cash payments whenever needed, they were happy.   Now they are endebted and sad.  And their problems becomes everyone’s problem, as the cost of picking up the pieces of their life is shared by their neighbors.

Newsday got the lesson wrong.  No one is entitled to live beyond their means.  When you spend more than you have, you will eventually crash and burn.  I am sorry that things didn’t work out for these people and I don’t want them to be homeless.  They may well be very nice people.  And I’m sure that there are many people in similar situations who used the money to pay for medical bills instead of new Mercedez Benz’s.  But there are far too many people who made insanely foolish choices and are now in deep trouble.  That’s how it works.

If you really need to know more, watch this video.  It’s pretty clear.  H/T Volokh.