This weekend I was going over a clients bank statements to find some additional income to get her a better rate when I noticed something that didn't make any sense. I noticed that each month she transferred money from her savings to her checking to meet the shortfall in her income, yet she had late payments. When I first got her as a client I refinanced her debts, getting rid of most of them, and giving her the savings account to make up the difference until she could either earn more money, get a better interest rate, cut her overhead or all of the above. Why then did she have late payments? The astonishing answer was she had been afraid to use to much of her savings/reserves and was trying to manager her money better.
Have I seen this before ? Hundreds of times. People will sit with equity in their house and skimp and save and pay late and continue to bury themselves when the life saver is hanging on the wall. It has to stop. Hugh Hewitt made me aware of a law that we should all pay attention to, the law of holes. It's number one rule is "first stop digging". This rule now hangs on the wall in my office so I can remind myself of it. It's a law that enough people either haven't discovered it or don't grasp the meaning. You have to quit making it worse before you can make it better. It's as simple as that but my young client hasn't grasped it and hundreds, if not thousands haven't either. Why?
FEAR! Just plain fear keeps making it worse. People who end up in foreclosure have warning after warning before they even get the letter that says if they don't get current they are going into foreclosure and they just don't act. I actually had a business man who I had refinanced giving him a new first mortgage to help clean up his credit. Sometime later he called and said he needed more cash and I got him a private second mortgage that would come due when his first mortgage was going to reset. Apparently he had some problems and without calling me he let his first mortgage go into foreclosure, but was still paying the second. Huh! The second holder called me and I was dumb founded as to what went on. I did find out later that the borrower had great respect for the individual who held the second and couldn't allow himself to be late, so while he was going down the path toward losing his house he kept paying on the second mortgage. Again I ask why?
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.