By Lee Graczyk
MnSF member

You probably didn’t realize that your parents quoted Shakespeare when they admonished you to “Never a borrower nor lender be.” Shakespeare was fond of having his characters use soliloquy. In Hamlet, Lord Polonius delivers a soliloquy on how to live a proper life, starting with the now famous, “Never a borrower nor lender be...”

It isn’t too much of a stretch to believe Bear Stearns and second and sub-prime mortgage holders are wishing they had heeded Polonius’ advice. All are sitting on titanic mortgages and now the bill has come due.

The so-called bubble has burst and the previously intoxicating effervescence of the housing market has now given way to the dull headache of the morning after.

Economist Robert E. Lucas once wrote, “How does one acquire knowledge about reality by working in one’s office with pen and paper?” (Econometrica, March 1993.) “Pen and paper models can tell us much about what is going on in the economy, but this does not deny that it is beneficial to look out the window and observe what is really happening.”

And in the harsh light of the morning after, if you happen to look out the window in some of our neighborhoods, you’re likely to see for sale signs, foreclosure signs, and signs that houses are abandoned or empty.

Even if you didn’t wake up with a headache this morning and these signs did not appear outside your window, they are likely to be coming to your neighborhood soon. You, too, could find your fortunes tossed in a storm of rising foreclosures as the value of your home drops because foreclosures impact non-foreclosure property values.

According to Deutsche Bank Securities Inc., “There is an average one percentage decrease in a home’s value for each foreclosure that takes place within a one-eighth-mile radius of your home.”

A recent article by Jim Buchta in the Minneapolis StarTribune points out that the “average median price of homes sold in the Twin Cities metro area during February dropped 12.5 percent,” offering another sobering note to our previous intoxication.

Being housebound for seniors used to mean being confined to the house. Now, in addition to that, it means being confined by the house. If a senior has come to that time in their life when it’s necessary to make a move they will obviously have to sell at a lower price. That assumes they will be able to sell their house at all.

The decision to bail out Bear Stearns has been made. The question is, “will there be a bailout of consumers?”

Putting our parents’ admonishment aside for the moment, consider this: Nationally, according to Moody’s Economy.com, “without help 3.5 million owners could lose their homes in the next two and half years. That’s the equivalent of every family in North Dakota, South Dakota, Delaware, Hawaii, Idaho, Montana, Nebraska, New Mexico and Wyoming losing their homes.”

• Congressional legislation addressing the nation’s housing crisis (S2636, HR3221).
• Legislation overhauling the Federal Housing Administration (S2338, HR1852).