There have been hundreds of posts about the current crisis of massive foreclosures. Most of them focus on firmly pointing and shaking a finger at one of the parties of the real estate transaction.
I love watching the TV show, "House" on Fox. I appreciate the way he handles problems. He attacks them logically and methodically. What would he do here? Well, he certainly wouldn't waste time complaining. He wouldn't devote any of his time or resources to whining about how this could have been avoided. He would have his team working on ways to fix the problem.
We all know that mortgage brokers were offering risky loans. These loans were being offered by lenders that set those risky guidelines. Those guidelines were set by the amount of risk the wall street investors would take. It's an old story that we all know quite well by now.
So, what would Dr. Gregory House do? Differential Diagnosis! Time to get our whiteboards and black markers out. Let's list the possible causes.
Mortgage brokers? Let's get rid of them! Wait a minute. That doesn't solve anything. The same loan products will be available to the consumer, they just won't have easy access to a mortgage professional. That doesn't help anybody. Besides, the market is correcting and those risky loans are no longer available anyway.
Lenders? Well, the market is taking care of them. Subprime lenders are almost extinct. Prime lenders are adjusting their program offerings to match the new level of acceptable risk. Higher credit scores and higher down payments are now needed.
Investors? The market is going to dictate what they do. Mortgages are a less desirable investment, so the lenders have been forced to change their programs to make their product more attractive.
What we have learned is that it doesn't help to blame and remove any of these individual parties. So, as "House" would wonder, what would cause all of these problems? Anybody?
Let's look at the big picture. It all comes down to risk. Lenders took large risks and only now realize that they misread borrower's ability to repay. What about the borrowers? What if borrowers were less risky? What if they managed their credit efficiently and made smart decisions? What if they knew how to shop for a mortgage and what loan would satisfy their needs?
I'm having one of those epiphany moments where the answer becomes clear. Quick! Start treatment right away. One-hundred CC's of borrower education, stat!
The government is going to waste a lot of time trying to "fix" the mortgage problems. Let's divert our attention to educating the American public. Let's show people how to create and stick to a budget. Let's show them how to choose a credit card and how to shop a car loan and mortgage. Let's show them how credit reporting works and how to use the bureaus' rules to their advantage.
It will take some major overhauling, but we need to add these subjects to public education at the high school level. We can't stop there. The wound is too deep. We also need to educate America's adult population. Government funding can help us mortgage and real estate professionals set up free classes.
These are deep fundamental changes, but they will heal the patient. We can focus on the problem, or we can focus on the solution. What will we end up doing, and what affect will it have on our future?