Tuesday, June 23, 2009

The Sub-Prime Rich

One of the details in a story about the death of Ed McMahon at age 86 concerned his financial difficulties:

In 2007, he fell and broke his neck and as a result of not being able to work, he defaulted on mortgage payments on his Hollywood mansion.

Say what?

Having a 4.8 million dollar mortgage (according to Wiki) in your 80s, a mortgage so big that it requires earning a quarter million a year at age 84 just to pay the "rent" [*], is not my idea of planning for retirement. Our plan is to pay off our house well before retirement age so our "rent" is less than $200 a month.

Apparently Ed McMahon did not have (or likely could not afford) disability insurance to cover his mortgage should he be unable to work and pay his bills. Was he counting on winning the lottery, or the American Family Publishers subscription prize drawing he used to pitch to elderly folks along with everyone else?

It actually doesn't surprise me that much to discover that someone like McMahon was living in a sub-prime mansion. That circumstance might not fit the story some want to create about defaulted loans, but it fits what I am seeing in my town. Locally, there have been several large foreclosure auctions advertised in the paper for properties worth millions. In one case, it wasn't a poor black family that spent several million of someone else's dollars on a large development consisting of rental housing and then never even pay the property taxes on it. One wonders what those real estate developers did with the rent they collected.

[*] Footnote:
That would be just the interest on a 5.2% loan, which is probably an underestimate, so you still have to add in property taxes and insurance.

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