» Let’s Stop Worrying

Let’s Stop Worrying

Let’s Stop Worrying About How We Got In This Mess - And Focus On Fixing It!

By Kevin O’Connell

Homeownership used to be a privilege that was earned by those who had proven their commitment to money management, debt responsibilities, had a stable income, a reasonable work history, and even managed to save money. They were also willing, albeit required at the time, to put some of their money into the purchase so the risk of loss was not just that of the lender. Owning a home provided a sense of pride and a piece of ownership in the neighborhood.

Since we seem to live in a society obsessed with laying blame on someone or a specific group of people for anything that goes wrong, who are we going to blame all this mortgage mess on? Who Cares? Blame Doesn’t Fix It, It Just Delays The Recovery! I think it’s time to park the blame bandwagon and get busy to see what can be done to make qualified buyers homeowners while keeping this from happening again. As long as people are borrowing money to buy houses, there are going to be defaulted loans. There always has been. As consumers, we’ve allowed ourselves to adhere to the idea that we should all live “the good life” whether we can afford it or not. Unfortunately, we base “the good life” on material things that we own, whether we can afford them or not. Get the picture?

I’m not one that sees Homeownership as an automatic right. It’s an opportunity with certain qualities to be proven. Prove them and you earn the right. Frankly there are a lot of people simply not ready for homeownership. Many don’t realize the additional obligations, sacrifices, or the gambles of homeownership. Nevertheless, realistic or not, what we have today is the backlash of foreclosures, an epidemic of property value losses, and no light at the end of the tunnel.

This is not to be interpreted as a reflection of all lenders or all the other business entities involved in the process. There is a significant percentage of loans that are delinquent, in foreclosure, or already foreclosed on that were made to people who legitimately qualified for them. Good lenders, and there are many of them out there, make good loans that subsequently go bad for reasons that can’t be anticipated or legally included in a loan decision. Let’s be clear, there are homeowners out there who for circumstances completely beyond their control end up losing a house to foreclosure. Having seen this on hundreds of occasions, it’s a very difficult, demoralizing, and often embarrassing fact of life.

This misery didn’t just surface in recent months or the past year. This is definitely a man made problem that we can’t take a chance on happening again. There are too many variables to the ability to repay that causes risk for even the most qualified borrowers. I think we should look at the point in the defaulted mortgages repayment schedules where delinquencies most often begin and why they begin.

If the default begins in the first 6 months of the mortgage there’s probably some credence to poor decision making on the part of the lender. What’s the rate of defaults initiated during months 7 – 12? The closer we get to 12 months, the better the chance that something else has at least contributed to a borrower’s ability to repay in addition to a borderline, bad loan to begin with. If we’re looking at months 13 – 18 or longer, it’s pretty safe to assume that it’s not a loan that shouldn’t have been made. Something else has created a repayment problem, not poor underwriting or the original decision making process. Homebuyer education and financial counseling should be required, at least for first time buyers.

If you’re bent on blaming someone or something, blame the system that allowed it to happen for all the wrong reasons. In the mean time lender’s sitting on bailout money rather than making loans is not the answer. Raising borrower requirements to levels that very few can reach is not the answer. Going from anyone getting a loan to no one getting a loan compounds the problem and will not solve it.

admin | March 10, 2010 9:09 PM

2 Comments

By Reagan, March 16, 2010 @ 7:35 PM

My daughter and son-in-law got in over their heads and are now in forclosure. Somehow some finance company loaned them the money to buy a quarter of a million dollar home which they knew from the beginning they could never make the payments. So, for about 2 years they struggled to make payments (not on time) until finally they just quit and moved out. They had a 80/20 loan so they didn’t have anything invested. It was easy to walk away. I believe that putting more money down encourages you to maintain the home and pay the mortgage. You have more to lose than just the house.
By Donna, March 18, 2010 @ 8:05 AM

This is just one symptom of the epidemic that is rampant in our society. It’s the Gotta Have It Now disease. We can’t save and wait for anything. Just got married? Gotta have a new house. Just had a baby? Gotta get a bigger car. Having a stressful week at work? Gotta go on a cruise. What happened to making goals, planning & doing this thing called saving your money? We think that it’s our givn right as Americans to get whatever we want, whenever we want it. That just ain’t so!