The Panic Sisters are in the air – in more ways than one. The plane has finally left the ground and they are on their way. Both of the sisters, Delores and Melinda, were hoping that when they left the ground they would also leave behind a few of their worries – but the worries seem to be clinging to the plane, much like that demon in that sci-fi movie that came out a long time ago. Melinda shivers just thinking about it, it was the one by that King fellow and had the girl with the spina bifida and no mouth.
Delores and Melinda are married to Joe and Al. Delores and Melinda, despite popular and passing belief, are neither twins nor are they even sisters. They are just long-time friends. Friends that share so many things that yes, they have taken on the same appearance. Although (hard to believe) Delores is the more nervous of the two.
Delores is in a panicked state right now and Melinda is trying to comfort her. They have decided to take this trip together to try to find some order in the panic and see if maybe they can find a way to save Delores from her demise.
Delores is on the verge of losing everything she has – maybe. An outsider would pause here; brow furrowed and wonder, “How can there be a question about whether or not you are going to lose everything?” Well, she is not really in danger of losing it all – yet – but she is in danger of her life undergoing an enormous change, one she is not sure she quite understands.
Both Delores (and Joe) and Melinda (and Al) have decent lives. They are neither well off nor poor. Delores-Joe-Melinda-Al all have careers that they have worked at most of their lives. I won’t reveal ages, but all four have discovered that in recent years there is a slight thickening around the middle that grows during winter and takes longer and longer to get rid of in the summer. Joe and Al have reached the point where they have stopped trying the latest hair regrowth tonics. Joe has accepted his disappearing hairline. Al began shaving his head and grew a goatee that he obsesses on as if it was his private topiary and main attraction.
All four have houses that carry mortgages, nothing extreme. None of the four has children. They drive nice, but not new cars. Take vacations, but not extravagant adventures and have a minimal savings for retirement. Most of which, takes the form of investments.
During the course of the last two years, Delores and Joe have had to repair the roof on the house, perform some major repairs to their car and opted to do some landscaping. The latter was a bit more expensive than either was comfortable with, but in realizing they needed to stay home more to save money (and to avoid terrorist bombs) both thought it was worthwhile to invest in beautifying the property to make it more of a place one would like to spend time. The roof repair required borrowing against the mortgage, that is how they got the money for the landscaping as well, it didn’t add too much to the rates to tack on several thousands to the loan and they spread the payments over the next 15 years. That means the house and the loan on the house would both be repaid before they retired. The car repair hurt a bit, most of that had to come out of their immediate savings although some was tacked on to the loan but it was damage that could be recovered from since they both work. Overall, Delores and Joe went from owing just over $4k a month to $4,450 a month. Not too, too bad, a little bit more of a stretch but nothing that would bring the house down and repairing the car was a necessity because they still owed on it. The repairs had to be done for it to retain a trade in value and it was just about time to get a new car anyway. They also bundled in (at their banker’s suggestion) an extra $5k into the loan as “nest money.” Just a little extra, unneeded funds for emergencies.
Delores and Joe have a good credit rating. Part of their security is the knowledge that should they need funds, they can be approved in a matter of minutes. They have equity in the house, credit limits, and businesses clamor for their accounts. They pay their bills on time. They are viewed as “sure risks.” No one would hesitate to give them a loan or extend them credit.
Then…Joe was laid off. Not really laid off, but downsized because of the economy. He has been out of work for months. Although he has been bringing in unemployment benefits, they were far less than what his income used to be and the benefits are getting ready to run out. Delores’ salary is not enough to meet the bills. Their investments have taken a hit too, but these things always go up and down. Both are confident that the economy will recover in the next year or so and they just have to find a way to hang on until then.
When they went to the bank to take a loan out against the mortgage to get through, they were surprised by the reaction they got from Barbara, their personal loan officer. Usually, they sailed in and out with all the necessary paperwork and the money arrived shortly after and life went on.
This time, Barbara hemmed and hawed.
The problem, she said, is that over the course of the past few years they had made some decisions (and some with the bank) that increased the load of debt they were carrying. They did this without putting a plan into place to repay the increased debt, which normally wasn’t a problem because their debt to expected income ratio was close enough to cover the minimum payments. Even if the bank saw that they had little chance of paying it off in their lifetimes, the property value and their other investments promised that their estates would pay off the balance and even it all out. Now, because of the previous loans, unexpected debts and the loss of income – that debt to income ratio has fallen below the level that made the bank comfortable. ‘This doesn’t mean, ‘ she was quick to explain, ‘that we see you as a poor risk or are turning you down, it’s just that certain options need to be explored and decided on.’
They could balance out that ratio by raising the amount that they were allowed to borrow by refinancing the mortgage. In other words, by redefining with the bank the amount they would be allowed to be in debt and still assure the bank that they would make the minimum payments. Or – they could stay at the debt level they were allowed now and try to pay it down and live within their means. The mortgage and other debts they carried, Barbara explained, added up to a total amount of debt that they were allowed and still be perceived as being able to pay it off. The bank was questioning whether to allow that amount to be raised since they didn’t seem to have a means in place to guarantee they could pay off a higher debt. Yet, Barbara said not looking up from her papers, you both have such good credit ratings it may be a risk the Bank is willing to take.
Delores and Joe were shocked. They hadn’t thought that their spending or borrowing throughout the year would add up to this kind of total perception of their reliability. They just did what needed to be done and the money was always available to be borrowed in the moment (with the understanding it would be paid back). The new minimum payments they would be responsible for were beyond their budget even they could see that. The problem both were aware of is that without a new loan, the existing minimum payments on everything they owed were now beyond what they were bringing in. Something would have to give.
For now, they could just pay interest on all their loans. The car and the house were the most important, but that put some other payments at risk and Delores frowned as it hit her that her treasured credit rating, the Father Christmas of discounts and vacations, would disappear. She wondered if this is what her accountant had been talking about when it came to “financial planning.” She and Joe had rather assumed that just meant for retirement. As long as everything was paid off before they were retired, they were supposed to be good. Both she and Joe “got” that one of the things Barbara was telling them was that if their credit rating became even slightly damaged, chances of them getting a loan against the house in the future would be slim. But what if something came up? What if they needed that money?
If they agreed to take on more debt that would also increase their capacity to borrow against it – like a rainy day fund that only existed if you need it – then they had to find some way to guarantee that they could repay it. Delores was calculating in her head, now she was beginning to understand how all of this really worked.
They may owe $345,000 on the house, but that also meant they had the ability to borrow an additional $100,000 should they need it (as long as their payments were in good order). I mean, that is how she and Joe had felt comfortable spending what they spent in the past year, they knew if they needed to borrow money it was there. If they could refinance the mortgage, they could get the money now to pay off what was needed and also “gain the right” to borrow up to $160,000 more – should the need arise of course.
None of this seemed real. I mean, she and Joe owed over $600, 000 on paper, it’s not like anyone really felt that they owed that much or expected them to suddenly be able to pay back that much – it was just a series of monthly payments, as long as the monthly payments were kept in check everything was good, wasn’t it?
(to be continued)
c.2011. Cassandra Tribe. All Rights Reserved.