Living in borrowed times
Realtor Notebook
By Teresa Boardman, Wednesday, October 8, 2008.
I am writing this today from Main Street America, the very same street that we have heard about on the news as the $700 billion financial rescue package was being discussed. I can almost see the street from my desk, but not quite.
It is lined with trees and brick buildings with shops in them. There are several restaurants, some bars, coffee shops and antique shops. The business owners I have talked to tell me that business is slow, it has been for months, and will continue to be slow in the coming months.
Our country is in the midst of an economic catastrophe, fueled by huge amounts of consumer debt that cannot be paid back to the financial institutions that lent the money. I know this is an oversimplification, but it gets at the heart of the problem. If borrowers cannot pay back the loans, the banks that lent the money are in jeopardy of insolvency, which puts our global economic system at risk.
The Republicans blame the Democrats, who blame the Republicans, and we all blame the lenders. They lent money to people who could not pay it back. There were subprime loans, no-doc loans, interest-only loans, exotic loans and no-down-payment loans, as well as widespread mortgage fraud.
There are a lot of people in this country who are financially overextended. Our national government is overextended to the tune of $10 trillion. We are nation of borrowers. For some, it starts with student loans. They seem to be the gateway loans that kick off a future of borrowing for cars and houses and using credit cards to buy everything else.
Americans are in debt before they are old enough to legally drink. The credit industry has a role in all of this, as they mail credit-card applications to children, but they would be out of business if people did not want to borrow money.
Not everyone who has a credit card has too much credit-card debt and not everyone with a mortgage -- even a subprime mortgage -- is in foreclosure or will be in foreclosure. Some students graduate with little or no debt.
Borrowers have some responsibility for the loans that cannot be paid back. Borrowers do not always use credit responsibly. Some may have stretched a bit and bought houses they could not afford just because they wanted the house.
There are people who do not know how to manage money or use credit. They need to be educated. It is a shame the bailout bill did not include an educational component for consumers.
For every ad I see about getting a home mortgage at a "low, low rate" there should be a public service message about the dangers of abusing credit. As borrowers we need to make our own decisions instead of borrowing the largest amount the lender will allow.
Mortgages are not a bad thing and neither are credit cards or car loans if they are used properly. The people who live on Main Street are not going to be bailed out if they make a mistake. Even those who are not carrying a lot of debt are just one layoff or medical emergency away from financial oblivion, with no bailout in sight.
Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog.
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Submitted by Lenn Harley on October 9, 2008 - 3:32am.
We could start with basic budget and credit management courses in public schools. Children graduate from high school never having had any instruction in personal finance.
Then, when they enroll in college, they get an application for a credit card, with no income.
The average American is over their head in debt before they are 20 years old and then they spend the rest of their life in that condition.
Parents hide their financial condition from their children. Where is a child to learn personal financing?
Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com
Submitted by Dru Bloomfield on October 9, 2008 - 4:12am.
My son is in a Special Education program, and teens with special needs are being taught basic financing and budgeting. It's a shame that it's not a nationwide school curriculum. I sure could have used it at that age!
Dru Bloomfield
John Hall & Associates
Blog: www.AtHomeInScottsdale.com
Submitted by chis eliopoulos on October 9, 2008 - 5:26am.
Money subjects have to be taught at school and I mean starting as soon as a kid goes there.
Credit has to be explained and fully understood before one stars using it.
We are a consuming society and credit has become a culture all by it self.
What we are seen today has nothing to do with the politics or banks as much (in my opinion)with the common understanding of what success is in our society.
We think that we have problems and we do, but all these problems you are seen today, are child's play compare to our biggest problem, the one that if is not corrected within the next 3-4 years will make us a third world country.The problem is EDUCATION.
Submitted by Emmanuel Scanlan on October 9, 2008 - 5:35am.
When I was a child it was considered the parents responsibility to teach their children fiscal responsibility. The schools did help some with various programs and spot lessons that doubled as education of the financial systems and government as well as basic financial management.
When I was 6 years old I was shoveling snow, delivering leaflets, mowing lawns, etc. My first bank account came at age 7 and was a "Christmas Club" account which had the purpose of teaching children how to save and manage money.
My Father was a GREAT man and Father and made sure we understood the value of money. Being the ninth of eleven children we still had everything we needed and had to work for what we wanted. My Mother also taught us various lessons in financial responsibility.
One of my fondest memories of my Father was when we would ask for another pair of jeans, above what we needed. His response was "Now boy, how many pairs of jeans can you wear at one time?". That was our cue to work harder to buy that extra pair of jeans, the money for the movie tickets, etc.
What has happened to family values today? They were the cornerstone for teaching children how to be responsible adults.
PS Inspection & Property Services LLC
www.psinspection.com
Knowledge is power, but sharing knowledge brings peace!
Submitted by Lynn Wilber on October 9, 2008 - 5:59am.
Lynn H. Wilber, GRI, e-PRO
Broker-Assoicate - Downing Frye Realty, Inc. - Naples, FL
www.NaplesWave.com
www.NaplesWave.com/NaplesBlog
Teresa,
You wrote, "The Democrats blame the Republicans and the Republicans blame the Democrats and we all blame the bank who made bad loans." Hey! What about some of the blame going to Realtors®? Buyer qualification means qualifying the Buyer about what they want in a home and how much they can afford. A professional Realtor® should be able to understand and explain different types of loans to their buyers. For years I have told Buyers, just because a lender may say you can afford a gazillion dollar mortgage, you might not want to spend that much money. I want them to be happy that they own a home and I sold it to them. I do not want them to curse me every month they pay their mortgage.
There is truth to the statement that young people do not know how to manage money or their spending. I have been in this business long enough that I have sold homes to children of past clients. Would it surprise you if I told you that most apples do not fall far from the tree? Today if a young person wants to buy with no money down, they will have to enlist and serve in our armed service to be able to take advantage of their V.A. benefits.
Realtors® TALK to the people you want to sell a home. Learn and understand the pluses and minuses of different loans. Realize that putting a person in the wrong loan may bring you a commission check but it will cost you thousands in referral business.
Submitted by janet allen on October 9, 2008 - 6:42am.
Why is the TARP money not used to keep those who are considering foreclosure or in a short sale situation to be refinanced at the original loan amount. The interest only mortgage would be for a period of 50+ years with an initial rate of say 5% then increasing by 1% every 5 years. This would allow homeowners to stay in their homes and not dump their property on the market. It would also keep house prices more stable and perhaps envigorate it. Anyone who has short sold their property or foreclosed should have to wait 10 years, before they could qualify for a mortgage again. The rate for those loans would be at 1%+ higher than those who did not foreclose or short sell.
Submitted by Teresa Boardman on October 9, 2008 - 8:25am.
Lynn - I guess my experience as a realtor has been different. I have always advised my buyers but in the end they do what they want to.
Submitted by RK Ruthman on October 9, 2008 - 9:44am.
As I stated in Inman Post Panic Misses Main Street:
"I believe we have been given an opportunity to have the ability to spend more of what we don't have. We won't be able to pay it back because there will be lost jobs..."
Submitted by Peter Vekselman on October 9, 2008 - 10:10am.
Teresa:
There is plenty of blame to go around here, but pointing fingers does not do anything to solve the problems.
I totally agree, debt starts way too early in life. There is no training going on in the schools or at home, because there are many parents in debt themselves and are poor role models for the kids. I agree the apple does not fall far from the tree.
Here is what I firmly believe...we must take responsibility for our own actions period. No one is going to do it for us. That may seem like tough talk during tough times, but I too remember the old days where our parents held us accountable and put us in our place when we needed to be there. We have totally lost this concept in today's world. Kids rule the roost and even the spending in many households.
Peter Vekselman
www.coachingbypeter.com
"Your Real Estate Investment Coach"
Submitted by Eliese Pivarnik on October 9, 2008 - 12:07pm.
Don't forget the media with shows like Cribs, The OC, etc. that are targeting young people with glamorization of material things.
Or the government who rolls out rebate checks and reminds Americans that it is their patriotic duty to spend.
Or the parents who whip out the credit cards to sustain an artificially high standard of living for themselves and their families.
Or advertising which has been embedded into tv shows and movies so that you can't watch anything without being subliminally lead to a store.
It's a whole lot more complicated than teaching a class in high school when the moment a student leaves they are constantly reminded to spend, spend, spend.
Steamboat Springs Real Estate Blog
Submitted by Ben Nicolas on October 9, 2008 - 3:08pm.
The way I see it the naivety and foolishness of both Wall Street and Main Street could only be reigned in by an economic event of this magnitude. How can any responsible homeowner or investor buy a home for a resonable price when there are complete and utter fools paying non-sensical prices? Unless people get foreclosed on and lose their property what is going to teach them that they shouldn't overextend themselves? Unless banks go out of business for lending too easily and not having proper underwriting standards what would ever make them change their ways? People in this country have been living in a dream world for too long. We need to learn how to live a more frugal lifestyle and be more conscientious with regards to conserving resources and consumption. We're not going to suddenly turn into a 3rd world country but most Americans (especially the ones who have never spent significant time outside of the country) need a sharp reduction in what we believe we are entitled to. Home values need to correspond to actual incomes, spending budgets need to be less than tax revenue. As much as everyone wants to make our economic woes seem so complicated I think its all really pretty simple...
Submitted by Peter J. Pike on October 10, 2008 - 7:36am.
I have been working with way too many clients over the last several months who are in severe financial straits. One thing that I keep reminding them of is that they have to stop judging themselves by what they have, rather, they need to judge themselves by who they are. Having to give up material things, does not make anyone a bad person. Recognizing that they can still put food on the table, clothes on their family's back and a roof over their heads, helps to put everything into perspective. Yes, we are going to have to undergo a radical shift in our American lifestyle. But, even with this shift, most of us will still be living far better than 95% of the other people on this planet. We should be very thankful.
Submitted by Michael Lange Associate Broker & Cheron Lange GRI on October 20, 2008 - 10:07am.
You know, I always find it amazing how individuals become over extended. I spent the greater part of the Spring at my son's school teaching and volunteering for Junior Achievement. This is a wonderful organization that teaches the kids day to day responsibilities right down to opening up a checking account, budgeting and paying there own bills. Now I have to say majority of the kids did not get it...but after a few months and seeing alot of paper you could see the light come on. Times have changed from my day to today and as we were taught as children, pay with cash, if you don't have the cash you can't get it. Lifestyle in today's society will change, it's got to change!
Cheron Lange
http:blog.letourfamilyhelpyours.com