HOME BUYER SMARTS SHOULD BE TAUGHT IN HIGH SCHOOL
By Judith Calogero
CEO, New York Housing Conference
How many foreclosures could have been averted if buyers were educated in homeownership finance and understood what they were getting into? One of the bitterest lessons we are learning from the sub-prime mortgage crisis is that many families who lose their homes through foreclosure feel ambushed when the legal papers arrive at their soon-to-be-lost doorsteps…and they don’t yet understand that they are about to lose far more than their homes. They get a crash course in personal finance, but it’s far too late.
Why weren’t they taught earlier? Now homeless, foreclosure victims in today’s market also find themselves liable for the tens of thousands of “underwater” dollars owed between what their lenders receive in a foreclosure sale and the unpaid balance on their mortgage. Plus legal fees, penalties – the list goes on. At worst, bankruptcy will loom – a virtual death sentence for their financial future--negating any hope of ever buying, much less insuring, another home.
If they had been taught, in high school, about preparing for homeownership and the realities of financial planning, their disaster may have been averted. Perhaps then, their purchase would have been -- and should have been -- put off. The risks may have been evident earlier in the buying process. But personal risk is often swept aside in the pursuit of the American Dream—which during the mortgage free-for-all seemed within reach, even for people living at the margins.
Foreclosure victims learn only after the fact that their credit ratings will be destroyed and the harassing, threatening phone calls from debt collectors will persist for years and years as they attempt to dig out. Many will wonder why they suddenly can’t get store credit to buy a replacement for a home appliance they left behind.
Having a grasp of the full costs of homeownership comes from a knowledge base of personal and real estate finance, financial literacy, if you will. Yet, this vital subject is all but absent from school curricula. My informal research into New York State public high school curricula revealed, for example, that Holley Senior High School in Orleans County had a home economics curriculum that devoted only two weeks – just 10 teaching hours! – to the subject of home buying. Sadly, that is probably more than most high schools offer because the quantity of instruction on homeownership literacy is a local instructional decision.
Anecdotally, a high school honor student in New York City, the daughter of a co-worker, knows about her cell phone bills, but the concept of co-op maintenance payments is totally alien. She asked, “Mom, “$1,500, is that for the year?” It’s safe to assume that mortgages, points, adjustable interest rates, interest only loans, and appraised value have never been entered into a high school curriculum. Also, is it ever too early to be told how emergency medical bills, car repairs and other big ticket, unforeseen expenses can have a crucial impact on the monthly income and pay out of household cash flow?
Our public high schools are required to teach economics, but the subject is far too broad. The formal high school instruction on financial literacy involves “. . . how the United States and other societies develop economic systems and associated institutions to allocate scarce resources; how major decision-making units function in the United States and other national economies. . . .” All good, and to be sure, many high schools offer cursory instruction on personal finance and budget planning.
But a cursory nod to economics cannot possibly impart enough knowledge to help our children plan for their financial futures, much less give them the skills to question the assurances of a mortgage agent or real estate broker who promises that household income will easily carry the costs of ownership. And, it’s usually not until closing that a home buyer receives the mortgage agent’s “good faith” estimate of monthly costs that include taxes, interest, fire and flood insurance, municipal sewer and garbage collection fees, and private mortgage insurance premiums to protect the lender, not the buyer.
With hope, many families in mortgage default today will be rescued by federal emergency efforts to restructure their mortgage loans and work out solutions with servicers to prevent foreclosures, but many victims have already faced the inevitable. In any event, all of the victims will suffer permanent credit damage and aftereffects beyond their worst nightmares. This makes the best case for achieving financial literacy in high school.
