Wednesday, April 2, 2008

Bernanke speaks on U.S. Recession

This morning I had the opportunity to listen to Fed Chairmen Ben Bernanke speak on the Bear Stearns "bail out", the current Housing condition, and the potential for U.S. Recession. First, let me say, Mr. Bernanke does appear as though he genuinely is looking out for the best interests of the U.S. Economy and consumer. With that said, I have been reading stories on the CNN Money website from Americans who are struggling to make ends meet. This may seem every bit the norm, as there have always been classes of people (upper, middle, and lower), but I do believe that the struggles of so many Americans goes far beyond a normal level. My question is what can be done about these troubles.

There are two sets of thoughts:

1) Those struggling made bad decisions (their own uneducated decisions) that brought them to their current situation.

2) Those struggling are victims of circumstance and unfortunate misgivings that have landed them in a situation of which they are no longer in control.

Both sets of thoughts put the blame in two places, either on the person or on external factors. The housing turn down, for most, was likely an external factor. Many people, and I have heard countless stories from my work as a Mortgage Loan Originator, believed they have/had equity in the house that, on paper, is no longer there. The problems with this arise when they chose a Mortgage that may not have been explained properly or chose cheaper payments now in leiu of sound financial decision making. The other side of the housing turn down occurred when people wanted what they couldn't afford to actually pay off, and in the meantime were given a loan that allowed them to make payments while continuing to lose in the process. ARM's, Interest Only, Negative-Amortization loans, etc. All programs that if not used properly can have a profound impact on one's financial future.

I subscribe to a great Real Estate blog by Steve Belt at Realty Executives in Scottsdale, Arizona. His blog is Yesterday, he wrote an article about the mindset of the public and their ideas about housing. I believe he said it best when he said, "...a home is: a place the average person lives in for 5 years, making memories." You see, we all look for great deals and hope to someday have enough financial security to retire comfortably. However, we are viewing homes, not as places to live and dream, but as a place to invest and make money. Sure, there are people who are very successful at buying and selling homes for profit, but it is their job. They wouldn't understand the inner workings of Apple, or Tax Accounting, or our legal system. And, if they stepped into those arenas they may find themselves to be unsuccessful in those ventures, unless they devoted their time and resources to being great at those specific occupations.

So here is the bottom line, be in control of your finances. Don't go based off of what you can't control but what you can. A home, for sure, is an investment, but not at a price you can't afford or aren't willing to sacrifice for in order to keep. Be educated and intelligent about your decision to buy the house and when you found your home and can afford it, then make the purchase and live in your home to enjoy it.

With that said, let me go back to the start of the article and Mr. Bernanke. He stated that the housing crisis is in the center of the current economic situation and a big part of the problem. Unfortunately, he offered little as to what the Fed may do to help struggling Americans.
  • Should stuggling Americans be helped in this crises, should tax-payer money be used to bail out those who can't make payments and face foreclosure, should those who are more fortunate or were responsible be made to foot the bill to fix this situation?
  • Can blame be placed on the purchasers of mortgage backed securities, the broker shops who supplied bad loans to people in rough spots, or the investors who were looking to make a quick buck?
  • Lastly, can we find a way to fix or regulate the industry in a fashion that will prevent the same problems from occurring again?

I am not sure there is a definitive answer and the debate is ongoing as to what should be done. I do believe it starts with educating the average American about the mortgage process and finding ways to give guidance to those who are seeking it. It starts with education and continues from there. I would be thrilled to know your thoughts on this issue and how you believe we can begin to mend the issues and prevent them from happening again.

Make it a great day

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