Mortgage crisis? "uuh, sure"

After having my explanation turned down in class for "lack of time" (I know what you're really thinking), I was told to "post it on the blog". So that's what I'm doing. I'll try to keep it as witty, entertaining, yet educational (that's right) as I can.



Hopefully we all know by now that we are in a global economic recession. If you don't know this, get out from under your rock (to follow the commonly used expression I have heard) and go on the internet (or blag-o-sphere, the "hip" people say, so I'm told). Online newspapers, social networking sites (mine anyways), even Youtube feature hints of this. Yes, Youtube (that's the video thing, right?). You might have noticed the sudden increase of "find your credit score here" ads. Well that's because people have started to care since the recession. But first, I'll explain what a credit score is in the first place.

You're still reading this! Wow! Keep it up! Please! So, credit scores are the bank's way to see if you're a good customer to give credit to. It's based on quite a few factors about how you use your credit and pay for it. The few that I know are the number of credit cards you have (the more, the lower your score, and the lower your score, the less apetizing a target you are to them), how much you use your cards (not too much, not too little), and.. okay that's all that I can remember. So basically, the higher your credit score, the more likely you are to get a loan from the bank. Scores have range from 300-850, the Canadian average being somewhere around 678. It is said that 620 is the minimum score needed to get a good (or "prime") loan from the bank.


Now, if you had a credit score below that, you would be a sub-prime customer (get it? Good loans are prime, so sub-prime is below that. Yeah.). But banks decided that they don't care how good your credit score is, and that they still want your money. And so sub-prime loans were created. As freaky and complex as they seem, they're pretty much just higher-interest loans, although delivered in unusual ways. Here something I found that might clear it up:

"There isn't a hard-and-fast rule on what makes a loan subprime. But generally they are riskier than regular mortgages because lenders are more willing to bend traditional underwriting standards to accommodate borrowers. Besides having a lower credit score, borrowers might wind up with a subprime loan if the mortgage was considered risky for other reasons -- such as borrowing a higher percentage of income or home value than normal, or borrowing without documenting income or assets. The resulting interest rates tend to be substantially higher than for conventional mortgages."

--some dude/tte (yep, here we don't discriminate) from The Wall Street Journal. See the full article here. Okay, I was hoping to hyperlink that and make it seem cool. Apparently I can't do that. Here's the slightly less stylish URL:
http://online.wsj.com/article/SB119662974358911035.html

So yes, the rumours are true: Banks want your money. Really bad. So much that they even give people with good, even great, credit scores sub-prime loans. Apparently, in 2000 41% of all sub-prime loans were given to prime customers. By 2005, it had gone up to 55%, and in 2006, 61% of sub-prime loan receivers were prime customers. That's not to say that sub-prime customers got prime loans instead. They got sub-prime loans too.

So now we're all buried in debt, and people were/are afraid to get mortgages because of insanely high interest rates; although they didn't know that they were getting sub-prime loans. See? It pays to be financially literate! So ultimately: A housing crisis.

So join the movement to teach people to read their financial reports. I apologize for the bad grammar and lame jokes, but I hope they were fun to laugh at anyway. But you made it through! And I'm proud of you for that (that's not creepy at all..). Follow us please (by clicking the "follow" button in the top right corner)!

Postpone bankruptcy. Become Financially literate!

First post! ~ Financial illiteracy

Okay, so, after reading our blog title, you're all probably thinking something along the lines of, "what are these people doing?! Blogging about financial issues for fun...? What's wrong with teenagers these days?! Definitely NOT following this blog!". In fact, after telling my friends about it, the best response that they could come up with was "..." and "uh... cool? *cough* you're nerdy *cough*" An yeah, I have to admit (sorry Dan) that this does in fact sound very, VERY nerdy, boring, dweebish and whatnot. But that doesn't mean it has to be. Man, that sounds philosophical. Being financially literate is actually really important in today's society and honestly, the most successful people in life are all financially literate; for example, Steve Jobs, Rhianna, Oprah, Harper, Michael Phelps, Obama, and Ronaldinho, just to list a few. They're all financially literate. Life changing realization right there.

So now, hopefully, you're probably wondering what exactly 'financially literacy' is. Basically, in plain English, it's just the ability to understand money matters. Woah. Doesn't sound all that complicated hey? That's just like credit cards and paying for lunch you had at McDonald's today isn't it? And yes, you're right! But to some extent. As Dan points out in his blogs, there's also some pretty complicated things associated with financial literacy (APR? Huh???). And you could probably care less about that kind of stuff. I see your mouse inching towards the back button. But these are very important things that you will need to know about down the road! So, if you want to be successful in life, follow this blog!!!

So, that's all I have to say for now. Just going to point out that this is a service learning project (we don't do this sort of stuff for fun... JK!) and ultimately we're trying to not only raise awareness on the issue of financial illiteracy, but to persuade the school regional school board to make financial classes mandatory (or at least have an that option for people who are interested) in schools as well.

So It Begins

Do you know where interest on your debit card comes from? What's APR? Do you know how mortgages work? Do you know what your credit score is? Millions of people in the world have no idea how to manage their own finances, and who knows, maybe you’re one of them. But clearly we need to stop letting kids out of school without such important knowledge.

The economy itself is completely relying on consumers like us. Every jump up, every drop down, almost all of it is caused by us. But millions, maybe billions of people don’t know how the economy works, or what a good decision would be with regards to even the most trivial-seeming of tasks, taking out a loan from the bank. We need to stop this.

Its not that people are not intelligent enough to manage their own money, far from it. You only need a grade 5 math education to learn most of it. Its the fact that schools are not teaching us what we need to know TO SURVIVE. Financial illiteracy is as bad as regular illiteracy, maybe worse! Imagine if you couldn’t read this description in the first place? A hard time you’d have in the world, that’s for sure.

So this is what we’m going to write about here (financial illiteracy, and how to stop it). Please subscribe (or whatever it is that people do on these so-called ‘blogs’), and help stop the surge of financial confusion in the world.

So let's end this post with a statistic, and hopefully you'll become interested enough to continue viewing these topics.

" * Only three states mandate a full semester of personal finance education in high school;

* 17 states cram personal finance lessons into other other subjects (math, social studies, etc.);

* And a whopping 30 states teach students nothing -- nada, zip -- about finances in school."

-The Motley Fool, Inc.

So please read on, and spread the word!