SPOTLIGHT ARTICLE

Borrowers Need More Education

Source:  Joliet Herald News, August 29, 2007, J.L. Pritchard

     Even as the I-355 extension promises to increase property values, we feel the crunch of the current housing market.  Will County has the fourth highest foreclosure rate in the state, according to RealtyTrac.Inc.  The bankruptcy and closing of mortgage companies put thousands out of work.  The fix is not yet apparent, but the way to prevent it next time is clear:  stronger financial education.

     We save for our retirement, manage health care options, handle credit card debt, and make mortgage choices.

     Thirty years ago, people had pensions at work and only one mortgage option.  With so many decisions, we need mortgage and financial planners, but we must bring more knowledge to the negotiating table.

     Why not just rely on the pros?

     Well, even they cannot foresee everything.  Federal Reserve Chairman Alan Greenspan, the only chairman to serve five terms, oversaw 13 consecutive interest rate cuts after the September 11, 2001 terrorist attacks, ultimately contributing to today's housing decline.  He praised the subprime market in 2004 for its "multitude of products."  Also, you know yourself better than the experts.They can make recommendations, but you control your decisions.

     Consumers get subprime loans for many reasons, mainly a poor credit rating, but also to lower monthly debts and fix the homeowner's credit.

     With improved credit scores, the consumer could then move to a 30-year fixed rate.  Unfortunately, the best predictor of future credit payment is past credit hisotry.  It plays a more important role than having a stable job or good income.  Even with best intentions, many consumers did not change their spending habits.  They had not learned how to manage their finances.

     The subprime mortgage market was equally responsible.  While consumers chose instant gratification, lenders took short-term profits instead of examining the long-term effects.  Homeowners were expected to stay in these mortgages a few years.  Many lenders never checked if their clients could afford a mortgage at higher, adjusted rates.

     Still, the subprime market gives people more homeownershop options.  Already, mortgage requirements are tightening.  This means getting a mortgage may be more difficult.  Prepare yourself and your children for these changes.

     Financial education should be a constant part of a child's life.  Lockport grade schools participate in Junior Achievement, a nonprofit financial education program.  See what programs your school offers.

     Ask your employer to offer training classes on the subject.  There are many great sources on the Web.  Go to www.chicagofed.org, community involvement, for a list of nonprofit organizations that focus on financial education.

     It's up to each of us.  Personal responsibility is at the heart of the subprime mortgage crisis--and its solution.