Mapgirl’s Fiscal Challenge

Hat tip to Boston Gal for pointing out an article in USA Today about homeowners who can barely afford their homes.

The person in question is Sydney Lasry of Severn, MD. After doing a public records search and checking Google Maps, I know where this guy lives and I can guess who his employer is. It’s not that hard since the US Government is one of the largest employers in the state of Maryland. (Apologies to Mr. Lasry for using him as an example. I don’t mean this as an attack on him. It’s more to further my understanding of the math surrounding mortgages and the mortgage crisis in America.)

With that in mind and some of the statistics in the article let us do a quick analysis.

1) He’s paying 70% of his gross pay towards housing.
2) His property tax bill is $3,200.00.
3) His insurance bill is $1,100.00
4) His home is $400K.
5) Guess: He works for the Federal government.
6) He is a ’systems engineer’. N.B. I put #5 before #6 for a reason to be explained.
7) The tax rate in his county is 89.1 cents per $100 of assessed value.

Alrighty. I have confirmed, his home’s sale price was $400K. His tax bill is actually closer to $3300, so I will adjust for that. Given 20% down and standard 30-year mortgage at 6.25%, per Bankrate.com’s calculator, his mortgage payment is principal and interest at $1969.80. His monthly escrow and insurance is 274.30 and 91.67 respectively. The total is $2335.77 per month in housing.

If that is 70% of his gross income. He’s making $40,041.80 a year.

Now here’s what does not add up about this at all.

That salary would make him a GS-6 or a GS-7. Now this is where it’s very weird that his title is ’systems engineer’. I am considered a systems engineer, but basically I write Oracle reports, making a very decent salary. My pay grade is more like a GS-11 and higher. But when I search USAJOBS for ’systems engineer’ at GS-6 to GS-12 in his neighborhood, I actually found a listing for an electronics engineer that is GS-5-GS-14, i.e. $33K to $104K a year. What kind of range is that?

So yes, it’s really crazy, but he could be making $40K a year in the DC Metro area as a systems engineer. It’s shocking to me, but I guess that’s what happens when you work as a civil employee.

Moving along, there was an assertion in the comments that even before the rise in his property taxes and insurance, he was paying 60% of his gross income to housing. My analysis shows that a mortgage payment of $1969.80 a month, by itself is 59% of his gross salary.

A lot of this analysis is contingent on the mortgage payment. I played it really conservatively and wrote that his mortgage was as traditional as possible, 20% down, 30 year fixed, reasonable rate. But I think that assumption was wrong. He’s paying PMI. So he probably put down less than 20%. What if he had really crappy credit? I ran the numbers again with a 30-year fixed at 9% and his gross salary is then $50K. Hm. I don’t know that I would have bought a $400K home while making only $50K a year. I mean, I was making about $45K a year when I bought my condo for under $200K. I just didn’t think I could afford a bigger home than that. And the bank didn’t think I could either. They pre-approved me for a mortgage around $190K.

So with that further information, I started running numbers at 5% down payment, same terms and rates as before (30-year fixed at 5%, 6.25%, 7.5% and 9%). The highest salary range I get is almost $60K. Now taking that number and punching into the mortgage affordability calculator, with $40K downpayment, and 5% rate, I see that he can afford a mortgage of $300,794.26. Now I’m starting to think this guy has a creative mortgage. I think he might have an interest-only ARM because I don’t know how he can afford to have this home whatsoever.

Ok. I’m done thinking here. But very fascinating stuff. This guy has a mortgage that he can barely afford right now. If he’s lucky, the assessment will fall and his tax bill is reduced. However, then he’ll be holding the bag on his place because the mortgage might be more than the home is worth. If he really does have an ARM, he’s toast.

I hope he has some roommates, because someone is going to have to pay for the electricity and cable bills around that place. (From what I can tell, his home is quite spacious and could handle a few extra people living there.)