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July 17th, 2012
03:36 PM ET

Letters to the President #1275: 'Buying What You Can Afford'

Reporter's Note: President Obama has spoken often about the long, slow road to economic recovery. Today I’m writing about at least one pitfall that lurks along the way.

Dear Mr. President,

Not so many years ago when my wife and I were eager, young, first time home buyers, we were given a choice. Sitting down with Old Man Potter (or someone like that from the bank) we were offered either a fixed rate or an adjustable rate mortgage.

Now, we were not particularly versed in the ways of such things. Neither of us had been trained in high finance or business. We did not come from families in which Bulls and Bears stalked or CEO’s were a common fixture. In short, our chief tool in this negotiation was common sense.

And common sense told us two things. A fixed rate was reliable. No matter how much it may cost at the outset, it was never going to change. We could build a budget around our housing expenses, and aside from changes in the cost of maintenance, taxation, or insurance, we could use that budget as a cornerstone of our household finances until the cows came home. (The cows, btw, have yet to appear. I should look into that.)

The second option, however, was a much more dicey matter. The idea of a mortgage that would rise and dip with the unrestrained wildness of a crop duster seemed like a very, very, very bad idea; if only because it would make it impossible to truly predict what bills we would be facing. It seemed like such an obviously bad idea, we could not help but ask, “Who on earth would want such a thing?”

Old Man Potter’s response said volumes. “People who want that low, early payment, because otherwise they can’t afford to buy.”

“In other words,” my wife said, “people who probably shouldn’t be buying a house anyway because their finances won’t support it?”

I realize there are exceptions, and for some people those adjustable rates were not only a workable idea, but maybe even a good one. However, it just struck us then, and still does, that such a plan was patently unwise for most folks. And this, I suspect, is another unpinning of our current financial woes as a nation. We’ve bought too deeply into the notion that it is ok to dive off the debt cliff when we really want something. Debt is a useful tool. Without it, few of us would have houses; and many could not even get cars. But debt that is assumed rashly because of unrealistic optimism about the economy…whether on a macro or micro scale…can be calamitous. That is a lesson our nation has learned the hard way through the mortgage crisis. I just hope we don’t have to learn it again as we struggle to recover.

I trust all is well with you. Your campaign certainly seems to be throwing heavy punches! Call if you can.

Regards,
Tom

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