Negative amortization and the wrath of God

The Revd Dr Ian Paisley made the following contribution to Tuesday’s debate in the Commons on the government’s rescue plan:

“I know there are many beliefs in this house and my belief in God is well known. But I trust that our whole nation will turn in repentance and cry to God for an intervention so that the calamity will not come on our children and the babes in the cots.”

Now, I’m no fan of Ian Paisley, but what I found interesting was the response that his statement attracted from secular commentators. Not that they took it seriously – heavens, no! – but nor could they quite manage to laugh it off entirely. The BBC and the Guardian’s sketchwriters both resorted to nervous chuckles along the lines of “Well, it might just work”.

Which brings us to an alarming post by Charles Arthur about the next shock that will be hitting the mortgage market in 2010. You really need to read that post, and I’m not going to attempt to summarise Arthur’s argument here. What I found eye-opening was the reference to “negative amortization mortgages”, a concept of which I had not previously been aware. Arthur quotes this Credit Suisse report which describes these mortgages as follows:

The “big brother” of interest-only mortgages is the negative amortization mortgage, which in recent years has gained popularity. The neg-am mortgage, which is often used synonymously with “option ARM”, provides homebuyers with an extra payment option each month. In addition to paying the fully amortized payment or just interest costs, an option ARM actually allows borrowers to make a “minimum” payment that is less than interest costs.

In other words, unlike a repayment mortgage (where you pay all the interest and some of the capital each month) or an interest-only mortgage (where you pay all the interest but none of the capital each month), a neg-am mortgage involves paying only some of the interest, with the rest being added to the principal. So you owe more at the end of the month than you did at the beginning. (Can you say “death spiral”? Knew you could.)

The problem with negative amortization mortgages is that “while the subprime bomb has exploded, the option-ARM still hasn’t”. By 2010, these mortgages will be coming up for rate resets, and borrowers will face monthly increases of up to 40%. And as we now know, if one person can’t pay their mortgage, that’s a problem for that person – but if 10 million people can’t pay their mortgage, that’s a problem for all of us.

Which is where Ian Paisley comes in. What Dr Paisley did was to raise the discomfiting thought that the “calamity” we now face may be God’s judgment upon our society; that the proper response to the credit crunch may not be recapitalisation but repentance.

So, is the credit crunch a manifestation of the wrath of God? I’m inclined to say no. Rather, it was the previous behaviour of the financial system – the untrammelled covetousness and greed – that was itself a manifestation of God’s wrath on our society.

This can be seen from Romans 1:18-32, in which the dynamic described by Paul is one in which people, in turning away from God, “became futile in their thinking, and their senseless minds were darkened”. God’s response to this is then summed up in the solemn words at the beginning of verse 24: “Therefore God gave them up…”. Rather than restraining their behaviour, he gave people up to the worse excesses of their own desires.

Paul’s focus in Romans 1 is on sexual sins, but the same principles apply to sins of greed and covetousness. What better example could there be of the madness that has taken hold of us in the past few years than mortgages in which the monthly payments don’t even cover the interest; in which spiralling debts and negative equity are not a sad consequence of the loan going wrong, but are an integral feature of the loan itself? It’s hard to think of a better example of “futile thinking” and “senseless minds”.

The wrath of God is often misunderstood as God “zapping” a few people for their bad behaviour (like the Gary Larson cartoon which depicts God pressing the “SMITE” button on his computer as he watches some hapless person walk underneath a suspended grand piano). Romans 1, however, shows us that the bad behaviour of some is a manifestation of God’s wrath upon all.

In other words, negative amortization mortgages are not something that attract God’s wrath: they are God’s wrath. And as Ann Pettifor argued in yesterday’s Guardian, they (and the other manifestations of financial insanity that are now dragging us down) are the culmination in a centuries’-long process, one tolerated and even encouraged by the church, of transforming usury from a sin into the foundation of our entire economic system.

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3 Responses to Negative amortization and the wrath of God

  1. Phil Walker says:

    Ay-men brother! I thought Paisley was more spot-on than anyone else in the House, noting your caveats. Pettifor’s column was super.

    I can remember once, we gave hospitality to a chap—possibly it was a couple, I’m not sure—whose convictions were sufficiently strong that he wouldn’t take a loan to cover buying a house. The way my parents presented this to me carried a tone of mild incomprehension, but I’m beginning to understand why one might take that view. In short, as long as we believe in a “risk-free return”, repentance hasn’t occurred.

  2. Rick Ritchie says:

    There are a couple directions we could go here. One would be to try to suggest that God is only interested in spiritual things or whether people have faith or not. Except Scripture does use terms like “because of these things” suggesting that particular sins really do merit wrath. So if we don’t go that route, we have to figure out what will really bring down wrath.

    Here I think people tend to use their prevailing sense of cultural morality. And it may well take on a political cast. Sexual sins for conservatives, and economic inequality for liberals.

    I did some careful study of portions of Leviticus a couple years back and decided that there were some areas that were not easily characterizable. God cared about the land. He cared about it in ways that sound almost Green. God hated poverty. But it didn’t seem as if almsgiving was the way out of all of it. The Jubilee Laws made sure that people wouldn’t be swindled out of their inheritance forever. That there would always be many landowners was encoded into law.

    When I’ve seen charts showing how much our government owns of the land, I have to wonder if a lot of the high costs aren’t artificially created.

    I don’t doubt that greed plays a large part in what we’re seeing happening. But I think there are other systemic factors that need to be brought up for discussion.

  3. John D says:

    A year or so ago, my father told me about negative amortization (negative mortification?) loans.

    His conclusion: don’t get one.

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