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Mortgage borrowers know that they don't know much

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Reaching out earlier
The survey found that delinquent borrowers are eager to know of their options when they are informed that they actually have options. The mystery is how to convey this information to people who are too anxious, frightened or embarrassed to call their lenders.

Freddie Mac is changing its guidelines to persuade loan servicers to reach out earlier to delinquent borrowers, German says. Maybe people will be more likely to explore their options when they're one month late on their mortgage payments instead of two months late.
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Or maybe some folks will explore more exotic options, such as catching up on late mortgage payments by borrowing against the home's equity. Generally speaking, that would be a dumb thing to do because it would mean swapping low-rate debt for higher-rate debt. But you can't rule out that some people would do such a thing in a moment of desperation after you read "Living With Debt," a report written by Robert Manning, a professor of finance at the Rochester Institute of Technology. Manning, a critic of how debt is marketed to young people, is the author of the book "Credit Card Nation."

Manning's "Living With Debt" report, underwritten by, is ambitious (143 pages plus three appendixes) and covers much more than merely mortgages. The project examines peoples' attitudes about personal finance in six stages of life -- college students, young singles, young families, mature families, empty nesters and seniors.

Equity as comfort blanket
This might be oversimplifying, but Manning found that young singles tend to want to buy a home first, then do long-term financial planning afterward, and they say they will use home equity to bail themselves out of any trouble. Manning quotes a 29-year-old named Jason as saying, "the equity in my house provides a little comfort blanket, and you definitely take that into consideration in your consumption habits."

Translation: Eat, drink and be merry, for tomorrow you may charge it to the home equity line of credit. OK, that's a cheap shot, but there is some truth to it: Manning makes note of what he calls "competitive consumption pressure." People go into debt earlier in life, and they feel pressure to go further into debt to keep up with their peers. For spring break, he says, "people used to drive to Daytona Beach. Now they fly to Cancun, because people have credit cards."

Manning says he was intrigued by the different attitudes that people have about money depending on their stage in life and by how rapid increases in home values have changed people's attitudes about "good" and "bad" debts.

Regardless of age or life stage, consumers are still coming to grips with what Manning calls the democratization of credit -- the introduction of financial products that weren't widely available a generation ago. Examples include piggyback mortgages, home equity loans and home equity lines of credit. Young people aren't disposed to seek their parents' advice about credit, and the parents are just as confused about these new forms of debt as their children are.

Next: "But who should do the educating?"
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