Thanks for stopping by and commenting.

No matter what any study says about the re-default rate on a loan modification, I think your point is well taken —

Each individual situation is just that — individual!

There are many situations where budgeting skills are not the problem (for reasons similar to the one you listed above) and in upcoming posts, we will be sharing some of those individual situations.

Justin

Thanks for your insights!

I personally have spent plenty of time in the classroom learning from super-smart folks such as yourself (BYU MBA ’99) and after having worked with the general public for a number of years regarding financial matters…

When you say:

“This program is NOT the so-called Financial Literacy initiative that simply disseminates “information” and takes forever to complete, but rather it is a program that will help the Borrower “understand” how to manage money in the shortest possible time and avoid the pitfalls that have previously caused financial distress.”

I can assure you that the majority of the American public could benefit from a few financial literacy lessons – AND – whatever else it would entail to help the Borrower “understand” how to manage money as well as avoid the pitfalls that have previously caused financial distress.

If anyone has the credentials to get Treasury Secretary Geithner to listen to them… maybe you do?

Justin

PS I currently am keeping tabs on a small handful of individuals who are attempting to get their loan modified – and plan on sharing their stories over time. Stay tuned for individual stories that will highlight many of your points — or so I think.

There is talk of loan modification to help solve the mortgage foreclosure problem. This is fine, except for one simple fact. The borrower will still be in the position to try keeping current on the modified mortgage. Based upon past research studies and the latest OCC stats, we can expect a high rate of Re-Default because we are overlooking the “2 Ton Elephant in the Room.” Everyone is ignoring the fact that the borrower need guidance to overcome his “Financial Ignorance”.

The economic plan, in effect, places the US government (taxpayers) as bearing the loss if things don’t go as intended. The growing concern is that these losses will materialize with defaults and re-defaults. There is also concern about the 2nd Wave of Foreclosures involving the “Toxic” Mortgages and the projected 8 million foreclosures expected over the next four years.

There is a lack of confidence on the part of the banks to be willing to lend to consumers and small businesses, and there is a lack of confidence in consumers and small businesses that they will be able to pay it back.

Consumers, borrowers, and small business owners lack the ability to make sound and informed financial decisions. It can be argued that the borrower’s lack of knowledge in financial management was the primary cause of the Subprime Mortgage Crisis which precipitated the Credit Crunch and our current economic woes.

It seems that the key to a solution of this crisis IS THE BORROWER!

Many recognize that the contributing factor to most of our economic problems is the consumer’s lack of financial understanding. He is like a “Boat without a Paddle” when it comes to managing money and making money choices. Everyone is betting that the borrower will default and foreclosures will follow. The high rate of foreclosure and Re-Default should have been expected because the borrower has no concept of managing money.

Loan modifications or any other form of bailout will not save these borrowers. These measures will fail because the borrower is still financially ignorant. Note that even with loan mods the Re-default rate is 60% within 6-8 months.

Let’s finally address the real issue which requires developing a program of “Immediate and Specific Financial Guidance” to help the Borrower understand how to manage his financial affairs.

The Borrower is in desperate need of “Financial Guidance” in this complex economic environment that requires “informed” financial decision-making. The Subprime Mortgage Crisis, out-of-control consumer spending and credit card usage, and the spike in foreclosures and bankruptcies provide evidence of that fact.

We must develop a program of “Immediate and Specific Financial Guidance” that will help the Borrower “naturally” be able to make the monthly mortgage payment. This program is NOT the so-called Financial Literacy initiative that simply disseminates “information” and takes forever to complete, but rather it is a program that will help the Borrower “understand” how to manage money in the shortest possible time and avoid the pitfalls that have previously caused financial
distress.

As the Borrower is successfully guided to avoid default, the financial and housing markets will respond favorably. The result will be a reversal of the downward trend in the valuation of the “troubled assets”.

If we are successful, we can turn this crisis “all around” and stimulate the economy “naturally” rather than by “bailout” which does not guarantee success.

Instead of the expected losses, the US government (taxpayers) will benefit from the unexpected gains that will result as these investments grow in value.

Samuel D. Bornstein
Professor of Accounting & Taxation
Kean University, School of Business, Union, NJ
Tel: (732) 493 – 4799
Email: bornsteinsong@aol.com

Thanks for stopping by and leaving a comment.

This is not the first time that I have heard these stories about people attempting to get their loan modified – good luck and please keep us posted on your success.

Justin