Responsibility

My kids have asked what the word means, and my best definition is this: Doing the right thing even when it’s hard, or owning the consequences.

Our economy is a wreck, says Mrs. Obvious, and I’m scared. I don’t think a bailout will solve anything. I don’t think punishments will solve anything. And for all I can see, the natural consequences would be painfully suffered by all.

So what do we do? I wish for a way to pull through this without government intervention, considering government intervention may well have contributed to the problem in the first place. Dave Ramsey came up with a three step common sense solution to recommend to our elected officials. What do you think?

Step one? The government offers FHA insurance for all these bad loans, to any mortgage company willing to comply with these conditions: That they’ll re-write rates at a fixed 6%, writing all back payments and late fees into a new no-cost mortgage, waive pre-payment penalties, and ‘go the extra mile’ to work with the seller. And all “golden parachutes” for current and future CEOs are canceled, so if the bank leaders still screw up, they lose. And if the mortgages still go bad and the borrow / lender are forced to short sale, FHA assumes all borrower deficit. Estimated cost: Fifty Billion Dollars.

I have a hard time getting past step one. I don’t know enough about economics to predict whether that $50 billion is accurate or whether this would really help. Fifty billion does sound much better than seven hundred billion. It could well be the best solution on the table. But I still don’t feel comfortable with it.

Why? Because personal responsibility seems to be out of the equation. Despite any bad choices made by banks and the government, we wouldn’t be in this mess if borrowers hadn’t knowingly gone in over their heads. Giving them 6% interest doesn’t magically make anyone willing or even ABLE to send in that check every month — particularly if they were running on interest only payments. And we’ll still be left with a big mess that’s now government insured. Not exactly the conservative fix it wants to be, is it?

That said, I personally understand how people got in that sort of mess in the first place.

A few years back, when the housing market was booming, we tried to get a construction loan to build a large spec home. Not as a get rich quick scheme; we figured once we qualified, my husband would quit his construction job and build this dream as his job instead. We had excellent credit, but our income was iffy — particularly considering his plan to quit. Still, we were just positive that if someone would give us a CHANCE, we’d do well. So someone did give us a chance. We picked a building lot, put thousands down in earnest money, and set about the very difficult work of getting our ducks in a row.

At closing, over the smell of fresh baked cookies (the title company actually had an oven in the building.. how funny is that?) I, the crazy girl who reads every last word on anything she signs, noticed some strange problems on the papers. Assets that didn’t exist. A $40,000 truck. $100,000 in furniture — which, if you’ve ever been to my house, you know is entirely laughable. Whose papers were these anyway, and why were our names on them? We called our broker saying there must have been some mistake. He agreed, there was a mistake, an entirely fixable mistake. And everyone said I should just sign anyway, just initial in the margins, and they’d sort it all out within a few days.

But my spidey sense was on fire, and for once in my life wasn’t a pushover. I figured it was an honest mistake that could be quickly corrected… and that I’d feel more comfortable if it were corrected BEFORE I gave them my Hancock. We still had a few weeks left before our earnest money would be lost. Plenty of time, right?

Imagine my chagrin when we realized the broker was no longer returning calls to us our our Realtor. Or when we found out he’d left the state for a few weeks. We tried to pull together a new mortgage, we tried to get the sellers to extend the deadline. And for the longest time, I tried to not feel like a pile of garbage for throwing away thousands of dollars and a year’s worth of hard work, not to mention my husband’s dream.

Looking at it now, if we’d gone ahead with the loan, our house would have been ready to sell just about the time the housing market started to take a dive. Homes in the same development had huge “FOR SALE” banners on them for ages, in fact they probably still do if they haven’t foreclosed. When figuring out our debt to income ratio, we were counting on a booming market to buffer our weak salaries. If we would have signed those papers, we’d be sunk.

But we didn’t sink, and I don’t think we’re about to, either. We bought a place we could comfortably afford, and now we have a roof over our heads, even though it was literally caving in when I was dragged over the threshold. It’s been a rough few years making the place livable, but regardless of its condition, it IS a place to live, and given what could have been, I can hardly believe my own good fortune.

How will we as a country work things out? I don’t know. I do think its going to take a lot of hard work, faith, and good will… and none of those things can or should be mandated. But responsibility… can that be legislated?

20 thoughts on “Responsibility

  1. It really is creepy Velda. I remember right after Aren was born Rick and I were looking at places in Tooele and he made $600 a month working part time and we were living off student loans, yet we still qualified for a $125,000 loan based on the fact that Rick was going to basic training and "might" get a good job when he got back.

    Luckily my mom talked us out of that one and here we are almost 10 years later and we’re still renting because we had the sense to realize we can’t afford a house payment and all that comes with it.

    I’m babbling about nothing. Probably what I’m trying to say is there is definitely a problem and I have no idea how to fix it.

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  2. It really is creepy Velda. I remember right after Aren was born Rick and I were looking at places in Tooele and he made $600 a month working part time and we were living off student loans, yet we still qualified for a $125,000 loan based on the fact that Rick was going to basic training and "might" get a good job when he got back.

    Luckily my mom talked us out of that one and here we are almost 10 years later and we’re still renting because we had the sense to realize we can’t afford a house payment and all that comes with it.

    I’m babbling about nothing. Probably what I’m trying to say is there is definitely a problem and I have no idea how to fix it.

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  3. Heheh, I’m glad I’m not the only one. In fact I sortof wish certain politicians wouldn’t act like they think they DO know how to fix it, because any real solution is going to take alot of serious thought..

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  4. Heheh, I’m glad I’m not the only one. In fact I sortof wish certain politicians wouldn’t act like they think they DO know how to fix it, because any real solution is going to take alot of serious thought..

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  5. I absolutely agree with the concept of personal responsibility, but I’m not certain I’d place much blame for the overall crisis at the feet of borrowers.

    Yes, borrowers should have used better judgment — but that might be easier said than done. The average person (to my knowledge), receives very little formal training in finance and economics (this could perhaps be addressed by adding a required course to school curricula). When an average person enters the home-buying process, particularly for the first time, it can be confusing and overwhelming — and many people find themselves being "pushed over," (as you mentioned) by lending professionals who assure them that everything is in order.

    Sadly, this is an example of where self-interest and society collide — the average person (especially those who lack education and experience) is inclined to think that the smiling, helpful person sitting across from the desk has the borrowers’ best interests in mind. But this societal expectation that people are trustworthy is too often untrue — the lending party is not there to help the borrower, but to increase the lender’s own wealth.

    With this in mind, consider that the sub-prime mortgage market was built specifically to finance low-income parties. I suggest that the lower end of the income continuum is heavily skewed toward those who lack education and financial expertise. If I’m right, then many of these borrowers would have been ill-equipped to wisely navigate the home-buying experience. Additionally, their judgment may well have been clouded by the euphoria and excitement associated with what may have, for many low-income borrowers, been a first-ever opportunity for home ownership.

    On the other side of the equation sits a professional lending industry that is well-versed in the often arcane rules of the home-buying process. Additionally, these lenders likely do not experience home-loaning euphoria, given that it is a common experience for them. Lending professionals should be well-equipped to discern if a borrower lacks the resources to repay a loan — and should understand that pursuing long-term financial stability (rather than short-term fiscal profits) is ultimately better for everyone involved.

    Should borrowers have exercised more responsibility? Absolutely. Were borrowers equipped to exercise that responsibility? Maybe not. Should lenders have exercised more responsibility? Absolutely. Were lenders equipped to exercise that responsibility? Certainly.

    Regarding the larger credit crisis and accompanying market crash, the blame falls squarely at the feet of industry professionals who should have known better. The risky sub-prime loans (that banks should have known better than to lend in the first place) were packaged and sold as extremely complex instruments (and derivatives thereof). I’ve read many reports indicating that most financial professionals couldn’t even understand these instruments.

    The problem is that while an uneducated, low-income person might reasonably claim ignorance, banking and finance professionals are expected to be (and well-paid to be) experts in fiscal decision making. These experts have no excuse for failing to understand the risks associated with the loans and trades they made.

    I’m intrigued by Ramsey’s suggestion, because it gives a second chance to people who might have genuinely made an honest (if foolish) mistake – and his plan apparently includes safeguards against the same mistakes happening again. As for bailing out businesses who most definitely should have known better? I’m not at all excited about that . . . although I wonder if we’ve allowed the problem to get so big that we may be forced to address it, like it or not.

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  6. I absolutely agree with the concept of personal responsibility, but I’m not certain I’d place much blame for the overall crisis at the feet of borrowers.

    Yes, borrowers should have used better judgment — but that might be easier said than done. The average person (to my knowledge), receives very little formal training in finance and economics (this could perhaps be addressed by adding a required course to school curricula). When an average person enters the home-buying process, particularly for the first time, it can be confusing and overwhelming — and many people find themselves being "pushed over," (as you mentioned) by lending professionals who assure them that everything is in order.

    Sadly, this is an example of where self-interest and society collide — the average person (especially those who lack education and experience) is inclined to think that the smiling, helpful person sitting across from the desk has the borrowers’ best interests in mind. But this societal expectation that people are trustworthy is too often untrue — the lending party is not there to help the borrower, but to increase the lender’s own wealth.

    With this in mind, consider that the sub-prime mortgage market was built specifically to finance low-income parties. I suggest that the lower end of the income continuum is heavily skewed toward those who lack education and financial expertise. If I’m right, then many of these borrowers would have been ill-equipped to wisely navigate the home-buying experience. Additionally, their judgment may well have been clouded by the euphoria and excitement associated with what may have, for many low-income borrowers, been a first-ever opportunity for home ownership.

    On the other side of the equation sits a professional lending industry that is well-versed in the often arcane rules of the home-buying process. Additionally, these lenders likely do not experience home-loaning euphoria, given that it is a common experience for them. Lending professionals should be well-equipped to discern if a borrower lacks the resources to repay a loan — and should understand that pursuing long-term financial stability (rather than short-term fiscal profits) is ultimately better for everyone involved.

    Should borrowers have exercised more responsibility? Absolutely. Were borrowers equipped to exercise that responsibility? Maybe not. Should lenders have exercised more responsibility? Absolutely. Were lenders equipped to exercise that responsibility? Certainly.

    Regarding the larger credit crisis and accompanying market crash, the blame falls squarely at the feet of industry professionals who should have known better. The risky sub-prime loans (that banks should have known better than to lend in the first place) were packaged and sold as extremely complex instruments (and derivatives thereof). I’ve read many reports indicating that most financial professionals couldn’t even understand these instruments.

    The problem is that while an uneducated, low-income person might reasonably claim ignorance, banking and finance professionals are expected to be (and well-paid to be) experts in fiscal decision making. These experts have no excuse for failing to understand the risks associated with the loans and trades they made.

    I’m intrigued by Ramsey’s suggestion, because it gives a second chance to people who might have genuinely made an honest (if foolish) mistake – and his plan apparently includes safeguards against the same mistakes happening again. As for bailing out businesses who most definitely should have known better? I’m not at all excited about that . . . although I wonder if we’ve allowed the problem to get so big that we may be forced to address it, like it or not.

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  7. So then the (somewhat rhetorical) question is: why DIDN’T lenders exercise responsibility? Their job really IS to look after their own pocket books, and part of that job is assuming risk when they underwrite an iffy loan. THEY would have to make up for any responsibility their borrowers lacked.

    Only they didn’t have to be responsibile, because they were able to turn around and sell those loans to someone ELSE who was willing to bear the load…

    So it would seem they’ve been bailed out all along?

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  8. So then the (somewhat rhetorical) question is: why DIDN’T lenders exercise responsibility? Their job really IS to look after their own pocket books, and part of that job is assuming risk when they underwrite an iffy loan. THEY would have to make up for any responsibility their borrowers lacked.

    Only they didn’t have to be responsibile, because they were able to turn around and sell those loans to someone ELSE who was willing to bear the load…

    So it would seem they’ve been bailed out all along?

    Like

  9. I remember when we tried to build that house. I guess the money we lost was tuition for the education we received about the mortgage industry. Mortgage lenders and Realtors are the greedy unethical people who started all of this. Realtors pushed up the housing prices and the lenders eagerly gave people with bad credit the money to pay for them.

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  10. I remember when we tried to build that house. I guess the money we lost was tuition for the education we received about the mortgage industry. Mortgage lenders and Realtors are the greedy unethical people who started all of this. Realtors pushed up the housing prices and the lenders eagerly gave people with bad credit the money to pay for them.

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  11. I wish I knew why lenders behaved irresponsibly — and I wish I knew why other credit professionals would assume the risk for those bad loans. I agree with your assessment that the initial lenders have been bailed out long ago.

    The problem, at this point, is affixing blame to specific people or institutions for specific errors. Those bad loans have been chopped into pieces and passed around so much, it’s hard to know who did what, when.

    This is why I agree with you in principle that it’s a bad idea to be bailing out the businesses. I just wonder if our economy is in such dire straights that we’re now forced, collectively, to do something about it. Mind you, I have serious doubts that the bailout plan they passed was a good idea . . .

    On a related note, you may get a laugh out of this cartoon: http://www.washingtonpost.c… — the kind of halfhearted laugh you get when something would be a lot funnier if it wasn’t so painfully true.

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  12. I wish I knew why lenders behaved irresponsibly — and I wish I knew why other credit professionals would assume the risk for those bad loans. I agree with your assessment that the initial lenders have been bailed out long ago.

    The problem, at this point, is affixing blame to specific people or institutions for specific errors. Those bad loans have been chopped into pieces and passed around so much, it’s hard to know who did what, when.

    This is why I agree with you in principle that it’s a bad idea to be bailing out the businesses. I just wonder if our economy is in such dire straights that we’re now forced, collectively, to do something about it. Mind you, I have serious doubts that the bailout plan they passed was a good idea . . .

    On a related note, you may get a laugh out of this cartoon: http://www.washingtonpost.c… — the kind of halfhearted laugh you get when something would be a lot funnier if it wasn’t so painfully true.

    Like

  13. I like what Jared said about lost money being tuition for an education in finance. That’s pretty much how I learned to get my finances under control, too.

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  14. I like what Jared said about lost money being tuition for an education in finance. That’s pretty much how I learned to get my finances under control, too.

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  15. Yeah, and this education is certainly less expensive than the one we could have had isn’t it? :o)

    We’ll see how this bailout turns out. And in the meantime I dare say I’m tempted to go buy up some cheap stocks.

    Fixed the SNL link too, btw.

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  16. Yeah, and this education is certainly less expensive than the one we could have had isn’t it? :o)

    We’ll see how this bailout turns out. And in the meantime I dare say I’m tempted to go buy up some cheap stocks.

    Fixed the SNL link too, btw.

    Like

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