Another Voice / Foreclosure crisis
Judith Calogero: Home buyer smarts should be taught in high school
How many foreclosures could have been averted if buyers were educated in homeownership finance and understood what they were getting into?
One of the bitter lessons of the sub-prime mortgage crisis is that many families in foreclosure feel ambushed when the legal papers arrive—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 too late.
Why weren’t they taught earlier? In today’s market, foreclosure victims also find themselves liable for the thousands of “underwater” dollars owed between what their lenders receive in a foreclosure sale and the unpaid balance on their mortgage. Bankruptcy may loom — a virtual death sentence for their financial future. Foreclosure victims learn only after the fact that their credit ratings will be destroyed and the harassing phone calls from debt collectors will persist for years.
If they had been taught in high school about preparing for homeownership, their disaster may have been averted. Perhaps then, their purchase would 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.
Having a grasp of the full costs of homeownership comes from a knowledge base of personal and real estate finance. Yet, financial literacy is all but absent from school curricula. My informal research into public high school curricula revealed, for example, that Holley Senior High School in Orleans County had a home economics curriculum. It devoted just 10 teaching hours to home buying. Sadly, that is probably more than most high schools offer.
Our public high schools are required to teach economics, but the subject is far too broad. A cursory nod to economics cannot possibly impart enough knowledge to help our children plan for their financial futures. It will not impart the basic skills to question the assurances of a real estate broker who promises that household income will easily carry the costs of ownership.
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 that protect the lender, not the buyer.
Many families in mortgage default today will be rescued by emergency efforts to restructure their loans, but many victims have already faced the inevitable. In any event, all will suffer credit damage and aftereffects beyond their worst nightmares. This makes the best case for achieving financial literacy in high school.
Judith Calogero is CEO of the New York Housing Conference. She was commissioner of the State Department of Housing and Community Renewal during the Pataki administration.
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