By Brenda Showalter, The Republic
bshowalter@threpublic.com
A recent survey of adults 49 found percent of Hoosiers believe they have a fair or poor understanding of financial literacy.
Statistics also show Indiana has a high home ownership rate, ranking ninth in the nation in 2006, and the highest since right after World War II. The two factors played a role in the state having one of the highest home foreclosure rates in the country. Financial counseling is one of the most immediate needs to help reverse the skyrocketing numbers of home foreclosures, according to John Weicher, director of Hudson Institute's Center for Housing and Financial Markets, who spoke at a recent forum on foreclosures in Indianapolis. "Counselors tend to focus primarily on buying a home, since that is the largest financial decision most families ever make," he said. "But they also provide information and advice about keeping a home when the owner gets into financial difficulties." Bill Sultan, president of Momentive Consumer Credit Counseling Service in Indiana, said the surge in home foreclosures in the last year had many causes. Among them were people with poor credit histories being approved for mortgages when they did not have a complete understanding of the long-term expenses. Many in this subprime market were reluctant or embarrassed to ask for help until they became overwhelmed. A help line for those with mortgage and foreclosure questions operated by Momentive received 1,000 calls in 2004 and 2005. The number of calls soared to 4,000 in 2006, Sultan said. "People don't understand the true cost of home ownership," Sultan said. Don't wait Lisa Piercefield, counselor at Momentive's Columbus office, said education is the most important way for consumers to avoid foreclosure, bankruptcy and other financial problems. Some people face unexpected medical or other emergencies, but too many sign a contract without doing their homework. "They often don't read the paperwork and take someone's word," Piercefield said. "Unfortunately, once they sign their name, they are accountable." She added that many of the subprime borrowers agreed to an adjustable-rate mortgage. Rates change drastically
Instead of having a fixed rate and monthly payment, they found their rate change - sometimes drastically. Piercefield saw some loans begin as low as 5 percent and rise to 15 percent, causing monthly payments to jump $500 or more. The early "teaser" rate lured consumers into a loan that quickly became unaffordable, she said. Other borrowers fell victim to predatory lenders who charged high fees or allowed loans without documentation of income. Some lenders even had clauses that penalized homeowners for paying off their mortgages early. Don R. "Randy" Scheidt of Columbus, who owns real estate appraisal offices across the state, said some consumers also took out mortgages for amounts more than their homes were worth. Scheidt believes the unscrupulous practice caused many problems, and that mortgage brokers and others who inflated home values should face legal action. Public awareness State and national efforts are under way to raise public awareness of the foreclosure problem and address what voluntary or regulatory measures can curb future foreclosures. "It's not a quick fix. It won't be cured tomorrow," Piercefield said. "Consumers need to learn early intervention is better than later. Too often they want to run when there are problems." The national survey on financial literacy found consumers are beginning to understand that need. Eight in 10 adults said it is important for financial literacy to be taught so they can make wiser, more informed decisions and to feel financially secure.