Monday, February 25, 2008

Reality comes knocking... people who thought the "sub-prime" mortage mess had nothing to do with them learn otherwise. Thanks to falling home values nationwide, they probably owe more than their house can be sold for if they've bought anytime in the last 6-8 years or so. That means when tuition time comes calling, there's no more equity to borrow.

Homeowners Losing Equity Lines:
As House Values Fall, Some Banks Withdraw Credit

By Dina ElBoghdady Washington Post Staff Writer
Saturday, February 23, 2008; Page A01

..."I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins ."I was near tears. We needed this credit line to get us through some tough times."

Several of the nation's largest lenders, along with smaller ones, are shutting off access to home equity lines in areas where home values are declining. It's an unusually aggressive move as the industry grapples with fallout from the mortgage crisis that began unfolding last year...

..."Nearly all the top home equity lenders I know of are doing this or considering doing this," said Joe Belew, president of the Consumer Bankers Association, which represents some of the nation's largest home equity lenders...

...USAA Federal Savings Bank froze or reduced credit lines...and will not reconsider its decisions until "real estate values improve substantially," the company said in a statement. Bank of America is starting to do the same and is contacting some borrowers, said Terry Francisco, a bank spokesman...

...Last year, 34 percent of borrowers said they used their home equity lines to pay off other debt and 29 percent used them for home renovation, according to a survey of lenders by BenchMark Consulting International. Another 31 percent used them to pay for other things, such as medical bills, weddings or vacations...

...Five months ago, the Ellicott City house was appraised at $560,000; the lender says it is now worth $469,100.

"I told them, 'You guys are wrong,'" Nancy Corazzi said. "They said, 'Sorry, this is what we're doing in the entire area.'" Corazzi said she was blindsided by what's happened. "I didn't know they could do that. I thought I was too smart to have something like this happen to me."

As does everyone else.

So, class. How are we going to pay for private school tuition now? Or weddings? Some tough choices are going to have to be made here. Money is not going to fall from the sky. There isn't enough charity in the whole frum world to pay for everyone's private school tuition and weddings - or the unorthodox world, for that matter.

That just leaves living within our immediate means, class, because loans for intangibles are no longer going to be available. A bank can't repossess your wedding, or your education. Your house is probably already in hock for more than it's worth, or will be worth for a decade or more to come. So credit is a dead end. Living beyond our means is a dead end. The fantasy of something for nothing is over.

So we're going to have to make some hard choices - first and foremost, we have to admit to ourselves that our standard of living is going to be lower than it has been.

Private school tuition is probably the one item that is going to choke most family budgets, leaving few choices: public school or unpaid homeschool cooperatives. Simple weddings with few guests. Young men are going to have to get off their duffs and support their families with whatever menial job they can find. Unnecessary expenses are going to have to be dropped - and "unnecessary" is going to have to be defined realistically, not in "keeping up with the Goldsteins" fashion.

A dose of humble pie, class. A big one. That is what we need. Whether we will take it or not remains to be seen. I'm betting not.


Garnel Ironheart said...

She's baaaaaaaaack!

Only once again, I agree with you. But my house is paid off and I live in a small community where tuition and shul rental fees are a quarter to half of the bigger "holier" community in the next metropolitan area over.

The only problem with your post is the stubborness of people and the willingness to cheat. People would rather court bankruptcy than not keep up with the Jonesteins. They would rather lie on taxes and do whatever they can (cf. recent Spinka rebbe troubles) than put their kids in a regular school and pay for cheaper after school help. And this will come home to roost on them, hard.

Me, I learned from my folks that debt is bad and to live within my means. I guess I'm not so frum.

Ahavah said...

Well, I can assure you that a place that is usually considered very hot will freeze over before most frum people will put their kids in public schools...and the Rabbis don't like the idea of homeschool cooperatives because they lose control of the indoctrination process that way (not to mention the loss of getting jobs for all their useless unskilled relatives at the schools).

I do see a trend toward trying to scale down weddings - but it's not going fast enough.

You're not wrong about people's denial and willingness to use whatever "means" they can dredge up for the "good ends" of excessively frum yiddishkeit. But even that is not going to be enough. There is going to have to be a painful re-ordering or priorities, which the UO Rabbis will fight to the death, literally, because they have built their little fiefdoms on re-defining "real" Judaism more and more narrowly and if a wave of tolerance and cooperation developed, they'd lose their little power bases they built by claiming everyone not doing the stringency-du-jour was living in intolerable sin and condemnation.

It's really, really hard to back oneself out of such a tight corner - people will go bankrupt trying not to be on the "wrong" side of some Rav or some communitie's "standards," no matter how outlandish they are.

I'm glad we're out of that rat race. I don't have much hope that too many other people will get out before they're bankrupt and homeless.