By K. Quinn Kyler, Guest Author

PROVO, UT | 3 April 2008 | As many Americans attempt to throw in the towel, mortgage lenders race and even dive to catch it before it hits the ground. Why is the idea of abandonment of personal obligation so saturated in society as a solution to a problem? Banks are having a hard time understanding why so many are giving up and mailing in the keys to their home as opposed to trying to find a solution.

Why is this? What has happened to that ideal people once called the American Dream? It used to be said that the United States of America was a place to go where one can go to work hard, make a living, own a home, have unlimited opportunity, and live a life of freedom. Today as the so-called mortgage crisis spreads across our nation, people have this misconception that as they receive their late payment notice that idealized American Dream becomes something unattainable and remains a dream. This couldn’t be further from the truth. The American Dream still lives on.

There are many reasons for the increasing number of foreclosures, but all of those reasons can be boiled down into two points: mismanagement of debt by the consumer and mismanagement of risk by the bank. Both the consumer and the bank need to own up to the decisions that were made. Noelle Knox in her USA Today article makes mention of the many efforts being made by the lending companies, but people are not responding.

Key Points:

• Though there are those who have truly fallen on hard times and cannot make their mortgage payments, bankers are discovering that people have created a myriad of rationalizations for not paying their mortgage and not contacting their lenders.

“Everybody’s grandmother is dying. Everybody’s kid is having surgery,” Goodman says [as reported in Knox's news article]. “I’d rather somebody say, ‘We mismanaged our debt. This is what we make, and this is what we can afford.’”

• Rather, people see their situation as an opportunity to live for “free” as they wait for the bank to foreclose. If the loan is upside-down, people don’t think that they should have to pay their loan.

“‘If you buy a car and it depreciates,’ Goodman says, ‘you don’t expect the automobile dealer to write off your loan. There’s a sense of entitlement (among homeowners) that is just unbelievable.’”

• Some think that the lender is unable or unwilling to help them. People are afraid that contacting their lender will only speed up the foreclosure process.
• Many are looking for simple ways out of their obligations. Knox reported that the Homeownership Preservation Foundation receives 4,000 calls per day, not from people looking to receive credit counseling, but to find financial relief. People want to be saved, not be responsible for their own choices.
• Lenders are trying anything they can to have rational communication with their borrowers. People are avoiding the banks’ every attempt to make contact.

“Martin Goodman, president of Residential Capital in San Diego, sends his delinquent borrowers a $5 Starbucks gift certificate, along with documents that explain how his company can help them restructure their loans and avoid foreclosure. His response rate is only 10%.”

• Still, banks are very willing to work with people. They do not want to foreclose. Mortgage lenders want to do everything in their power to help its borrowers fulfill their financial obligations.

Conclusion:

As people learn that there is hope, that lenders are willing to work with them, and that it may be possible to keep their home through the various programs that the banks are implementing, they will be less hasty to give up.

So many people choose to be victims of circumstance. They refuse to see the effects that their own choices have on their lives. The moment someone chooses to be accountable that person becomes free . . . not free from consequence, but free to change his or her life and live their American Dream.

Action Steps:

1. Be accountable for your previous decisions. Don’t run; sit down with your spouse and discuss your finances, including monthly financial statements.
2. Contact your lender; don’t talk to the first person that answers the phone; ask for the “loss mitigation” department.
3. If the first person you talk to doesn’t know how to help, keep calling back.
4. Since the bank does NOT want your house back, be honest with yourself and your lender. If you made a mistake in the home you purchased or in the home equity loan you took out, then discuss possible selling options with your bank. Foreclosure is the last option you want to explore.
5. Share this article with those you know who are struggling.
6. Gain a basic understanding of your personal credit score by reading Seven Steps to a 720 Credit Score by Philip X. Trione and Jocelyn Baker. This will help you make informed decisions that will positively affect your credit.

MRFC Principles: (3, 4,)

Resource(s):

Knox, Noelle. “Mortgage lenders see more borrowers give up” USA Today, March 14, 2008

K. Quinn Kyler is a student at Brigham Young University. He is studying Entrepreneurship and Spanish Translation as a double major. He loves advocating for freedom and liberty, and teaches the proper role of government whenever the opportunity presents itself. He currently lives in Utah County, but still calls Denver home.