Archive for the 'Uncategorized' Category

Date: May 12th, 2006, Filed under Uncategorized

Christianity Today has an interesting article titled The Debt Slayers, covering the varying Christian anti-debt drives that are starting to show up in greater numbers. I’ve been saying for years that the local churches will likely see an influx in new and returning attenders based solely on the number of families who have followed the advice of the experts of finance, but now realize that many of these experts have been wrong. Is it your accountant’s just to solely do your taxes? I always figured out accountant’s responsibility is to give you good financial advice on your overall financial situation — and warn you when you’re overextending your budget or putting yourself in grave danger. How is it that the average accountant doesn’t realize that increases in the prices of houses and stock markets is not a sign that you are gaining value? I’m starting to believe that most of the CPA industry is focused solely on making tougher tax code so that they can focus more on taxes, and less on sound financial management for their clients.

Kirstin Downey from the Washington Post believes that Basics, not luxuries, is to blame for high debt. She says that the cost of health care, housing and education are the biggest problems facing the average American. I believe this is partially true, but I also believe that those costs have skyrocketed as our governments have taken more and more control of all 3 areas in our lives. The more that government moves to regulate a given market or economy, the more red tape we have to go through and the less efficient that market can be. Government grows as it regulates a given market, and when that market fails, it regulates more to try to fix what they broke. When you break your arm riding your bicycle too quickly, do you go out and try to ride it even faster using only your good arm? When both arms are broken, do you go out and buy a motorcycle to break your previous speed record? It seems this is how government operates, and once the power is transfered from the individual to the masses, there is no way to go backwards once the taste of power is passed on to the politicians.

The Oxford Press has an article on Georgia leading the nation in foreclosures. Rather than lay blame on home buyers over-extending themselves and taking on ridiculous financial risks and responsibilities, the article seems to blame employers for not providing disability or unemployment assistant, and it blames the loan industry for taking advantage of the foreclosure system. Why would bank want to loan a homeowner money only to take over the home and be burdened with trying to sell it? The blame lies solely on homeoners not living within their means, and attempting to buy something as an investment that normally depreciates over time. No new laws or regulations will fix this problem until homeowners understand that a big home does not guarantee financial stability or a better life — the happiest people that I know are those who live in homes most of us would consider tiny shacks. Their finances are much more stable without a mortgage, and the costs to maintain a smaller home are much easier to cover during the rough times life brings us.

WLNS News says that it is the economy causing more home foreclosures, but the disregard that the foreclosures are caused by homeowners who don’t consider the long term. People get fired. Markets change. Other countries provide services and products more efficiently than we do. When you put 33% of your gross income on the line for 30-37 years, you’re taking a huge risk in believing that life will always be stable and that your income will always increase. It is always wise to imagine losing your job and your ability to work for 2 years, and set your savings and expenditures to assume this scenario. 2 years of savings, minimum, should be more than enough time to sell your home and rent, while accepting a job well beneath what you used to do. Just as horse-shoers and gaslamp-lighters had to move on to new jobs, so do many Americans every year. Look at your current job and ask yourself if you will be as efficient and as inexpensive as others around the world, and see if your job could be easily replaced by someone working over the Internet. If that is the case, don’t assume you’ll have an increasing income for the rest of your life.

If you look at KGO’s article titled Home Foreclosures Up As Mortgage Rates Climb, we see their reasons for an increase in foreclosures:

# People stretched themselves financially to get into homes using adjustable rate mortgages, interest-only mortgages and more exotic loan products.

People were greedy and egotistical and wanted more than they could handle. These same people will cost me part of my income in order to fix their irresponsibilities.

# Banks relaxed lending standards to make it easier for people to purchase homes; however, for some of those homeowners, once they have an unexpected financial hardship, such as medical bills, a lost job or necessary car repairs, they stop making mortgage payments.

Banks were given a huge influx of cash from the Federal Reserve, with almost no responsibility required in backing up the loans properly. In a 100% gold reserve banking system without an FDIC, banks would look much more closely at loan applications to see if they’re risks or not. Today’s banks have little to worry about, why should we be surprised that they’d accept huge profits today with almost no downside risk tomorrow?

# Many homeowners put little to no money down when they bought their homes and currently have little or even no equity in their home and thus nothing to fall back on. And in some cases, these homeowners then took out home equity loans or lines of credit and now owe even more.

And yet I will have to pay for their lack of responsibility.

# Homeowners have relied on the recent double-digit increases in home prices to build up equity in their home instead of paying down more in principal. As housing prices increase more slowly, many homeowners will not be able to rely on high home values to cover their debt loads.

Houses should not be appreciating investments, especially considering property taxes, maintenance, insurance and increased supply of new homes in the country. Anyone who truly believed their house could make them a profit deserves to reap what they’ve sown. My home is a depreciating consumer good, just like a toaster, a car or clothing. I fully expect it to be worthless in 100 years, maybe even 50.

The good news is that the property bubble is bringing some reality to some buildings. There is a huge amount of old, dilapidated properties that can’t be torn down because some local or state committee has branded it historic. Rather than allow the market to replace these ancient run-down properties, they force the owners to keep them exactly as they were. In one case, owners in foreclosure can’t even sell a historic building, and they wonder what they should do. What they should do is realize that these historic development committes have created a system where a building deemed historic is more of a burden than an investment. I believe if people want to keep an old building around, they should pool their own income to save it rather than passing laws to make the building impossible to maintain and make it impossible to replace. I will not be surprised to see more of these historic buildings enter foreclosure as time goes on.

Discuss this article at the housing bubble forum.

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Date: May 10th, 2006, Filed under Uncategorized

I’ve firmly believed that Christians, Jews and Muslims should be very careful when bringing debt into their lives. All 3 faiths share many beliefs in their holy books, books which condemn the debtor as a slave to the loaner.

I’m not a pastor, nor a Bible scholar, but I have read all 3 holy books and I’ve repeatedly been shocked to read passages that reaffirm the problems with loans. In all 3 books we repeatedly see God warning us about usury, or the charging of interest towards a debt we owe.

How should a Christian buy a home if not through a loan? That is a common question many of my friends and peers have asked me. For me, it is obvious that the housing bubble has been created by our own government’s destruction of currency, completely against Biblical warnings. We’re supposed to only deal with just weights and just measures (gold and silver are mentioned repeatedly). We’re not supposed to resort to alchemy to try to create money that previously didn’t exist. The Federal Reserve does neither of these things and yet we put our faith in it to provide us with fair money.

We see in Deuteronomy 15:1-3 (NLT):

1 “At the end of every seventh year you must cancel the debts of everyone who owes you money.2 This is how it must be done. Everyone must cancel the loans they have made to their fellow Israelites. They must not demand payment from their neighbors or relatives, for the LORD’s time of release has arrived.3 This release from debt, however, applies only to your fellow Israelites—not to the foreigners living among you.

It seems acceptable to enter a loan as long as the period is at maximum 7 years. Most mortgages pay more in interest in the first 7 years than actual principal, so for more home owners, a home can not be owned in 7 years.

Yet we see in Deuteronomy 23:20 (NLT):

20 You may charge interest to foreigners, but you may not charge interest to Israelites, so that the LORD your God may bless you in everything you do in the land you are about to enter and occupy.

The charging of interest from one brother to another is condemned here, and taking that into account can show us the possibility of buying a home in 7 years in a Biblically-acceptable loan.

Let’s look at a typical US$250,000 home and the loan that comes with it.

On a typical 10% down 30-year mortgage at 6.5%, a US$250,000 home loan would cost the borrower approximately US$1450 per month. In this common loan, the interest payment per month for the first year is over US$1200 of this amount.

To qualify safely for this loan, one would have to earn US$62,000 per year — not a huge amount if both parents are working. Yet there are ways for a family of 2, before children, to purchase a house on this income without the need for a 30 year mortgage or the paying of interest, at least within a Christian loan.

Saving just 10% to purchase a home doesn’t seem like a real commitment to me. We first have to make sure that the home we want is something God wants us to have — not something we believe we deserve or need. God does not accept vanity, and yet many of our home purchases are done in vain.

In Proverbs 13:11 (NLT):

11 Wealth from get-rich-quick schemes quickly disappears; wealth from hard work grows over time.

Purchasing a huge home without money down, especially in hope of seeing that home work as an investment source, is not Biblically acceptable. We do not need a huge home, nor do we need to be paying a mortgage for 30 years.

When a new married couple is young, the first thing they want to do is strike out on their own, often times entering a mortgage that is beyond their means financially and Biblically. Nothing prevents a new couple from living the way newly married people have lived for thousands of years — with the parents — until they can truly afford a home as dictated by the Word.

Imagine that this young couple does earn US$62,000 gross per year and lives at home. Cutting the cost of the mortgage, utilities and insurance should reap the young couple a savings of US$22,800 per year. In 3 years the couple could easily save one year’s income by living with the parents, or about US$68,400.

In order to purchase the same US$250,000 with no interest over 7 years, we now see that a downpayment of US$68,400 leaves a balance of US$181,600. Buying this home interest free over 7 years requires a monthly payment of US$2160 — well over the original mortgage.

Yet does the couple need the big home? Does the couple want to buy it out of need or out of vanity? Did they pray over the purchase to understand if the purchase is proper or just greed?

In Psalm 27:14 (NLT) we read:

14 Wait patiently for the LORD. Be brave and courageous. Yes, wait patiently for the LORD.

How many couples purchase a house in a rush, so that they don’t lose the home that they’ve fallen in love with? How many times have you bought something at a store or a car dealer because you’ve seen yourself with this item without seeing if the cost will get in the way of serving and loving others?

In Matthew 6:33-34 (NLT):

33 Seek the Kingdom of God* above all else, and live righteously, and he will give you everything you need. 34 “So don’t worry about tomorrow, for tomorrow will bring its own worries. Today’s trouble is enough for today.

It is very important that we pray before making financial decisions. Praying can take away the inner desire to spend without thinking. The problems of today occupy our entire thoughts as we see in the second verse. It is not the long term that is the problem, it is how we are living today.

Saving the US$68,400 and paying the US$1450 per month for 7 years leads us to a home price of US$190,200 — quite a bit below the US$250,000 but still a nice home in many regions. This leaves the family with 23 years of payments to save to help their children make the same purchase themselves. Rather than focusing on helping one’s relatives, though, many focus on helping the bank steer us away from the Word. How much more could you do today if you didn’t focus on 30 years or 40 years of mortgages? How much more could you do tomorrow for your children by cutting back on vanity and being able to help them with a home so that they, too, can help their offspring?

The housing bubble may not be written in stone in the Bible, but the verses that warn about usury (interest) and borrowing seem to me like a warning to the future if we don’t listen.

For many home owners, the day will come that they will realize that vanity, not faith, is what causes these bubbles. Vanity in not holding our government responsible for protecting currency as is their Constitutional requirement. Vanity in ourselves for not trusting God to follow through in supporting our needs, and believing instead that we can do it all ourselves.

Discuss this article at the housing bubble forum.

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