While nearly everybody has come to realize that America needs a greater sense of personal responsibility, an increasingly global economy continues to show us that we rise and sink together. Your neighbor's foreclosure can mean your home loses value; some estimates say by as much as 9 percent. While economists debate and lobby for ideologies and government officials set and enact economic policy, a new generation of homeowners will play an equally important role in creating the long-term health of the nation's property values and housing stock.
The Ubiquitous Assignment of Blame
Assigning blame for the foreclosure and housing crises isn't so much locating blame between lending institutions and borrowers, but rather proportioning that blame amongst numerous, guilty parties. Apart from the conflicting ideologies of fiscal responsibility in government, personal fiscal responsibility means eschewing $500 shoes and power tools, especially when purchased with a credit card. In fact, credit card debt and toxic home mortgages are directly connected, as most homeowners with higher credit ratings aren't experiencing the same fees and elevated interest associated with their mortgages. Meanwhile, homeowners with lower credit ratings who were considered "marginally ineligible" to receive a home loan, managed to finance mortgages only through brokers who offered unfavorable terms and who were largely outside existing government regulations.
Indeed, mortgage brokers and lending institutions have systematically offered poor advice to millions of homeowners. Although some pundits have argued that distressed homeowners have no excuse, it must be noted that nearly one in five borrowers—coincidentally the same percentage of mortgages currently "under water"—received inaccurate and/or dishonest information from a mortgage broker, according to a study conducted by the Center for Responsible Lending, a non-profit, non-partisan research and policy organization. By going through a mortgage broker, "In the first year alone, a typical subprime borrower pays over $1,000 more; this cost gap grows to over $5,000 after four-years, and almost $36,000 over a 30-year life of the loan," the CRL study says.
To read the full study: http://www.responsiblelending.org/pdfs/steered-wrong-brokers-borrowers-and-subprime-loans.pdf
Generating Reasonable Mortgages and Loans
So, what can homeowners do other than quitting their day jobs (as so many have already been forced to do) and spending the next six months studying the broken financial system and lending practices? One simple solution is to treat lending institutions and lending officers like home improvement contractors: Get multiple estimates. Of course, for people with a lower credit rating, multiple estimates may mean just different versions of unreasonable loan terms. Rather than saving for a down payment, these prospective home buyers may need to pay down their debt and establish a solid credit rating before taking on a mortgage.
Increased Responsibility Applies to Home Maintenance and Renovation
More than the initial mortgage, personal savings, financial stability, and a solid credit rating are also critical for responsible home maintenance. Paralleling the financial meltdown of home mortgages, homeowners mistakenly believed that luxury home remodels essentially paid for themselves. Before homeowners drop $50,000 on a luxury bathroom remodel, the installation of replacement windows, energy-efficient appliances, and high-performance roofing will help guarantee the long-term financial health of a household. Lower utility bills, like lower gas prices, work as their own economic stimulus.
For an entire generation of homeowners, this advice has come too late, but to think that governmental regulation, banking reform, and stimulus packages will remedy the problem without an increased sense of responsibility from homeowners will only serve to further handicap the future of individual and national wealth.
Keeping families in their homes is an unequivocal priority for the U.S. from both an ethical and an economic perspective, but the quality of that home can't be taken for granted, either. Homeowners who struggle to pay their mortgages are apt to neglect basic home maintenance. A simple roof repair can easily become extensive water damage. A shifting foundation can insidiously cause cracks in drywall and doors and windows to come out of their jambs.
