CNBC has a new show called “On the Money with Carmen Wong Ulrich” and I recently saw a segment that drove me nuts. Click here to see the video.
Here’s a summary:
- They send one kid to private school ($14,000/yr currently), the 2nd will be in kindergarten next year
- Mom stays at home
- Mom can start working 2 days a week next year when youngest goes to private school
- Their mortgage rate will adjust… in 2011
- Their house has no equity so they were thinking about doing a short sale to reduce their monthly expenses
While it isn’t 100% clear in the segment, it sounds like their original idea was to negotiate a short sale on the house to get rid of that expense. Carmen explains that they have to live somewhere so that isn’t a good idea, but she misses the opportunity to make a great point. A debt is a personal obligation and your inconvenience is not an excuse to walk away from that obligation.
These homeowners are not alone… I’ve heard many stories such as this. People who took out loans and promised to pay them back with the terms provided are now deciding that if they cannot still live at the level of lifestyle they did before, that the best thing to do is screw the bank by doing a short sale or foreclosure. While at the end of the segment the homeowners were discussing other options, I’m disappointed that Carmen didn’t take a second to give them and her viewers a reality check.
There are many people that simply have no other option than a short sale or foreclosure, but there are many more that do have an option and are simply using this as the least painful solution. What this does to the rest of us is increase the costs of our future borrowing. Banks have to make a profit over the long term, so if their profit is destroyed by people taking advantage of the situation, then they will simply increase their fees in the future to compensate or the federal government will come in and rescue them. Either way it ends up costing the rest of us.
I wish there was a way to shame the people that are doing this as a matter of convenience while not shaming the people who do a short sale or go through foreclosure as a matter of necessity. If your mortgage were still given by your local banker down the street, the guy you go to church with, see at the grocery store, and schedule play dates with your children, you wouldn’t see this nearly as much. The fact that so many loans are made by faceless entities on the other side of the country or globe makes it a lot easier to take advantage of them and sleep with a clear conscience.
