One thing I have picked up on the Zillow discussion boards is that there is a huge amount of resentment towards consumers who bought into the frenzied 'must act now! prices are skyrocketing, don't get left behind!' marketing ploys. Some of that anger is not misplaced- after all, without the all-too-willing consumer, we would not be in the pickle we are in!
I met people along my winding road in the business who absolutely, positively were abusing the privilege of owning a home. People cashed-out their equity once a year to 'consolidate' their debt. From 2002 to 2005, people refinanced as many as 5 times 'chasing' the lowest rate and adding thousands to their loan balance each time, not to mention the new car, or the new boat.
As a rule, consumers are not smart. We are not supposed to be. If we were smart, snazzy advertising and 'bright shiny objects' would have little affect on us. Let's build up our defenses so that the next time we are all brought into the 'money money money- get it while it lasts' fiesta, we can walk away unscathed!
Here's a few ways we can ensure that this mess we find ourselves in doesn't happen again.
1) Cut up your credit cards. I'm just as guilty as anyone of buying something on credit- Idiocy, and this practice should be as limited as possible. If you have very little debt, there won't be a 'rush' to consolidate next time housing prices go up. Many, many people had 30-60k in credit card debt, and felt that refinancing was the 'magic pill' to help them out of trouble. That didn't end well, did it?
2) Don't EVER go by what a loan officer or real estate agent tells you that you can 'afford'. Don't go by underwriting guidelines, go by what is comfortable for YOU to pay. If you make $5000 a month, but take home $2300 and have a lot of unreported expenses- a $300 phone bill, $600 month bill for your electricity (all those hot tubbies add up!), $45 jelly of the month club bill etc, you have much less money to work with. If someone says you qualify for $1800/month, it is up to YOU to determine whether or not that is accurate and doable. No one knows your exact financial situation better than you!
3) Read your loan documents. Even if your attorney says 'everything's fine!', you still must read them. If you refinance your home, you have 3 days (and more if you close before a weekend) to review your documents with a fine-tooth comb. DO IT. If you have questions, ask. Come onto the Mortgage Discussion Boards and ask for free advice, from people who have no 'stake' in whether you close or not. If you are purchasing, ask for your loan documents in advance, or take your time at your closing. If you feel rushed, tell your attorney, agent and whoever else is there to relax. If they are not answering your questions, walk away from the table. Sellers these days are willing to work with people, so tell them you want to buy the house, but need more time. Find a new lender and a new attorney if necessary. Is this overboard? Perhaps. But I can't tell you how many people signed on the dotted line because they felt they 'had' to. What were they signing? Pre-payment penalty riders, mortgages for loans they did NOT even apply for, you name it!
4) Don't get greedy. I'd say one of the biggest reason we are in this situation is the old 'keeping up with the Joneses' phenomenon. Your neighbor buys a hot-tub, so you do. Your cousin goes to Cabo, so you do. Living within our means has never been especially easy, but if we aren't going to be taken advantage of again, and if we feel any remorse at all for where we are right now, we must get beyond this immature behavior. If you cannot afford something, don't buy it. Just because Chase or CITI or whoever sends you a credit card with a $15k limit doesn't mean you have to take it and use it.
Whether you want to blame the banks, the brokers, the real estate agents, or the consumers, one thing IS absolutely true- WITHOUT the willing consumer, there is no 'frenzy', there is no 'over-inflation', there is no 'market collapse'. So, let's avoid it next time, shall we?
Jennifer Monastero
Citizens Community Bank
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