Another step closer to Housing Armaggedon

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<p><a href="http://news.yahoo.com/s/nm/20071028/us_nm/usa_creditcards_debt_dc">news.yahoo.com/s/nm/20071028/us_nm/usa_creditcards_debt_dc</a></p>

<p><strong>Stressed borrowers use plastic to delay default</strong> </p>

<p>This may be Johari Reeves' last chance to catch up on her mortgage payments. The credit cards, she'll worry about later. </p>

<p>"We fell behind (with the mortgage) and twice we agreed to new repayment schedules that didn't work out," said the 31-year-old, a compliance officer at a small bank on Chicago's blue-collar South Side. "<strong>It's been a lot of stress. But this time, if all goes well, we should be able catch up</strong>."</p>

<p>In August 2006, Reeves and her husband bought a $214,000 home with almost no money down, leaving them with a monthly payment of $1,636 -- higher than they planned on, especially with her husband's furniture sales job largely commission-based and business not good due to the U.S. housing slowdown."</p>

<p><strong>An attempt this spring at refinancing with another lender fell through, leaving them behind on payments and struggling.</strong></p>

<p><strong>But as part of her efforts to avoid defaulting on the mortgage, Reeves said she has "maxed out" all her credit cards, spending to the limit on basic needs. "Now all I'm doing is making the minimum monthly payments."</strong></p>

<p>This story is interesting to me for several reasons:</p>

<p>1) The obvious problems that many other homeowners are currently facing</p>

<p>2) The unreasonable hope in Mrs. Reeve's voice speaking for all the desperate homeowners. (Did someone reopen Pandora's Box?)</p>

<p>3) The willingness for people to sacrifice everything to keep a house that they cannot afford and unwillingness to walk away.</p>

<p>4) The increasing impact that the housing market collapse will have on the overall economy. Think about the losses the CC companies and the banks will have to take if people like Mrs. Reeve max out their CCs and then still lose their house. Good work for BK attorneys though.</p>

<p>5) The ineffectiveness of the "renegotiating" tactic that all of the banks, lenders, and politicians are claiming to be the saving grace for everyone.</p>
 
Sadly, out here in Irvine, $1636 a month is what some people pay for property taxes, HOA, and insurance. We're not even talking mortgage yet.



I don't think enough people realize the changes in bankruptcy laws and why maxing out their credit cards to save your house is a BAD idea. It's now much more difficult and much more unlikely to have your debt "forgiven" under bankruptcy. Instead a repayment plan is figured out based on disposable income after IRS calculated living costs.
 
<p>Not to mention the recent changes allowing CC companies to have higher minimum payments and increased fees (i.e. balance transfer fees have no limit now.) Also, one would simply be trading a 6-9 percent loan for a 15-25 percent loan by paying off the house with the CC.</p>
 
Why, oh why, will the same people who are "stretched thin" choose to spend a whole lot of money on Christmas? And yet they will. If some lurker out there wishes to explain this to me, I promise I will listen.
 
Because the vast majority of Americans do not view or post on housing blogs, or read financial sense or save money. They watch their American Idol and their Desperate Housewives. They sit on the phone for hours discussing Britney Spear's lifestyle instead of talking to their kids about school. They drink beer on sundays and watch football all day instead of balancing the checkbook or finalizing an investment strategy. Each of these leisure activites are not bad on their own. The problem is that leisure is our priority. Entertainment and instant gratification trumps savings and future stability
 
Lendingmaesto, I do all you said (the good and bad). There's enough time in a day or in a week to have fun AND do the important stuff you talked about. The problem is that people never learned to manage their finances. I don't understand why poeple come out of school to make money but don't know how to manage it. Let's have a beer and discuss finance!
 
<p>Mmmm beer!! I too enjoy those shows/events.</p>

<p>You are pretty much right on jpm. I am amazed at the lack of financial accountability that is taught. Mortgages aren't even discussed either unless your finance program has a mortgage class as an elective. Much like many fields of study, professors teach both broad and focused finance courses from afar. The subject is studied from the outside in rather than hands-on approach. The parents are obviously to blame as well. Do you think teenagers will learn from their parents erroneous spending ways or fall into the same toxic pit of debt?</p>
 
<p><strong><em>'said the 31-year-old, a compliance officer at a small bank'</em></strong> </p>

<p>Can I pick my jaw up? Correct me if I'm wrong, I don't really care if it's a "small" bank. But it's a BANK. And compliance means compliance which means she's in charge of making sure everybody in the bank follows the rules and the law on an incredibly wide range of financial issues. How in the hell do they not know they can't afford, not one, but two repayment workout attempts and not know that the credit card long shot is likely doomed unless one of them got a big fat raise.</p>

<p>This is a person in the BANK!</p>

<p>That's scary not because of how reflective it is of the average home debtor, but because the person doing it, is the person whose responsible for watching our piggy bank and making sure nobody is doing anything funny with it.</p>
 
<em>Because personal finance isn't taught in school.





</em>and when it is taught in high school or college, usually the course consists of a stock-picking project. the person with the best portfolio gets a good grade. it teaches nothing about personal finance.
 
<p>I don't really think personal finance can be taught in school. Sure the ideas can shown to the students, but I don't think students can truly understand it until they put it into practice in their personal life.</p>

<p>Parents need to be the ones to show their kids how to manage their money from a young age. Its unfortunate thing, because of this bad money habits will be passed on. </p>
 
<p>The following is working for us.</p>

<p>1. The kids get paid for homework and tests. It's lopsided compensation - A's get a lot, B get a little, less than B gets nothing. (Yes, there is the usual turning off of TV and nagging to get homework done, revokation of video games if they don't). Housework is not paid, they are just expected to pitch in to help out the family.</p>

<p>2. When the kids get their money, they are free to blow it on whatever they want.</p>

<p>Here's what usually happens:</p>

<p>1. Kid gets money the first few times, burns a hole in their pocket, they blow it all at once.</p>

<p>2. We go somewhere with cooler things to buy (ex. Costco pizza), youngest kid who just blew all their money already gets upset because they don't have any left to spend - ie. has to eat the piece of brown bread & apple I dragged along to Costco while the other kids eat their pizza.</p>

<p>3. Very, very quickly, youngest kid starts to hold back some money back in reserve in case they see something they really want.</p>

<p>4. Kids start comparing prices in the stores. Often, will refuse to buy candy X at the video store say, because it's $2, that's a ripoff. Will happily buy candy X at Albertsons say for 50 cents instead.</p>

<p>5. Free wheeling captalism. Older kids sold younger kids their Pokemon cards (and took all their money). Got me upset, until I saw the younger ones go to Albertsons and buy a bulk bag of candy for $2 say, then resell it piece by piece to the older ones to turn a hefty profit. All works out I guess :). Sometimes, they are nice to each other, give each other candy for free :).</p>

<p>Now the kids are nagging me to let them start various businesses. Bit tricky though, as not many people want to buy stuff kids make ;).</p>
 
<p>When I was a kid, I received a .50 cent a week allowance. I lived in the country, so there was nothing to spend my money on ! Every couple of weeks, my parents would make a big deal out of bringing me to the bank to deposit my money.....average deposit was probably around $1.50.... It was such a big deal, I actually remember some of the trips and how proud of myself I was ! (actually, how proud THEY made me feel about my savings). I would stand on my tip toes and proudly hand my bank book to the teller....who knew me by first name of course, small town and all. </p>

<p>They pulled the same tricks on me that Anonymous does with her kids....and I had no idea that I was learning valuable lessons. </p>
 
When looked back upon, the credit crunch will be seen as 5% subprime mortgage related and 95% other OTC derivatives.
 
Both of my kids got allowance, both got to observe the parents' spending habits. We made our daughter put half her high school summer and after school earnings away for college. She sitll resents it. She also is convinced that she paid almost all her college--not so.



Our much younger son had the Fla college prepaid bought for him, but then went in the army (his high school grades were terrible), luckily before Iraq, and between the prepaid and the army money, lived in a fairly princely style in college.



Both are very responsible by today's standards. My daugher 38--has paid off her hovel on the outskirts of Boston. She is an architect and plans to knock it down and rebuild. (When I say hovel, I mean hovel, 450 square feet, can't be heated satisfactorily etc.) When she knocks it down, she'll take out a big loan. That won't be for a while because of neighbor's objections. Boston seems to have had little or no correction.



We didn't make a big deal of weekly or monthly saving, we probably should have.



Daughter graduated college owing nothing; son owing $2,000. Both have or will borrow for grad school. All of us occasionally charge too much and then feel guilty and almost pay it off, and then repeat after feeling deprived.



I was once accused by a boss of being the cheapest person he ever met. I said you didn't meet my grandmother. I think this is the sort of thing you learn, for good or ill, from your parents. I have observed in my practice, extravagant children of extravagant parents, but I wonder if anybody has done a study.



I think this overspending is at least partly the fruits of a biological craving to seek status, which includes being fashionable, driving fancy cars etc. To bad the cars don't come with a big sign that says "not paid for".
 
my first summer in college i stuck around campus to take classes and work part time. there was a period between when i paid for classes and books, and when i got my first paycheck from the job i was working, that my bank acct got down to about $7. my friend suggested checking out psych dept newsgroups because there are dozens of new posts each day for experiments seeking paid volunteers. it was easy money. $10 for about 15 minutes of my time. i dont knwo how many of those experiments i participated in.





the med school paid $30 for MRIs but that takes much more time but i wasnt sure i wanted to be exposed to electromagnetic radiation on a constant basis. i still wonder if all those psych experiments caused long-term mental damage though.
 
<em>"I still wonder if all those psych experiments caused long-term mental damage though."





</em>As long as you were not part of Zimbardo's controversial <a href="http://www.prisonexp.org/">Prison Experiment</a> the damage should be minimal.
 
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