The mortgage crisis in the US has deeper roots than a bank’s lending policy or a borrower’s lack of knowledge of the difference between an ARM and fixed rate mortgage. Certainly ignorance on the part of the buyer plays a role, but I’d lay the blame at the feet of old–fashioned greed, the loan officer’s and the buyer’s, and less obviously, on the fact that when it comes to buying things, most of the time we’re asking the wrong question.
‘Ignorance is bliss’ as the old saying goes, until reality hits us like a locomotive. It’s only after the fact that we realize we’ve been wandering along life’s train tracks drunk on self-indulgence. Whether you blame our lack of self-restraint on society as a whole, or the educational system, or an individual’s parents, or the person’s own willful nature, the result is the same; ignorance is no protection from the vagaries of life or the real estate market either.
Many people who have lost their homes have relied on the representations of loan officers as to what the buyer can afford even when it flies in the face of the buyer’s better judgment (or what would have been our better judgment had we all been less greedy). Often we’ll plead ignorance of that which we should have known had we only been a little more thorough or a little less lazy about doing the research ourselves. “But no one told me!” is a common refrain. Yes, no one told you, and if they had been honest and kind and concerned for your well being, they would have told you, “No” when you began to drool over the latest McMansion or at least gently steered you in the direction of something you actually could afford. I don’t suppose all loan officers are evil; maybe some of them are just enthusiastic and optimistic on behalf of their clients. Maybe they want to believe along with the buyer that more is better, the economy will always be strong, that jobs will always be secure, and the only way one’s fortunes can go is up.
But the fact of the matter is, if your budget allows for a $200,000 home and the loan officer shows you how with a little finagling and creative mathematics they can qualify you for something in the $400,000 range, (and yes, this kind of thing really does happen!) you ought to think twice before getting all starry eyed and signing on the dotted line. Who knows more about your circumstances, your spending habits, the likelihood of poor health or more kids in your future? You or the loan officer? You do, not some stranger whose livelihood depends on the commission he gets for selling you something you don’t really need or can’t really afford.
Am I suggesting that every foreclosure is the result of greed, laziness, or stupidity? No. There are genuine cases of disaster and distress, people who lose their homes in spite of careful research, objective assessment, self-restraint, and realistic optimism. Am I suggesting being dour and miserly, always a glass-half-full kind of guy? No. I tend toward optimism myself, but home-buying is like food, often our eyes are bigger than our stomachs (or pocketbooks as the case may be!)
I suggest we might find it easier to curb our appetite if we stopped asking the wrong question. If the question were “What does one need?” instead of “How much can one afford?” the results might be very different.
“What can I afford?” focuses us narrowly on the fairly shallow consideration of money. In addition, the question catapults us to the upper limit of our capacity to perform leaving no room for the often essential reconsideration of the answer without feelings of failure or inadequacy clouding the issue and deflating our dreams. On the other hand, the question, “What do I really need?” because it requires us to focus first on essentials, our needs, brings to the fore the more substantive questions of what is really important for a good life. It allows for quiet consideration of broader issues and the subsequent victory of restraint. That should be the question. Not what do I wish I had. Not what will impress my family or friends. Not what’s the most luxury I can afford or the height of fashion. But rather, what do I really need? Answering that vital question well makes a more expansive engagement with the rest of one’s life more likely.
Magdalen
© Magdalen Jago
To give you a sense of the ludicrous nature of US housing: in 2004, the square footage of the average house in the US was 2330 sq.ft., in Europe, half that, in Japan, a quarter of that, and in Africa, the average house is 26 times smaller than its US counterpart.*
* Data paraphrased from the National Association of Homebuilders and Worldwatch.
