The Borrow Smart Chronicles - 401(k) Borrowing to Avoid Foreclosures

Episode 19

Author

Todd Ballenger
March 15, 2024

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"Would you rather be the world’s greatest problem solver, but everyone thinks you’re the worst, or the world’s worst problem solver, but everyone thinks you’re the greatest?”

Warren Buffett (adapted)

This question Warren poses is difficult because it forces us to consider the importance of internal validation of oneself over external perceptions of oneself. Warren used ‘lover’ in place of ‘problem solver’, but the question is the same - what’s more important to you? Would you rather have the ability and know for yourself that you can, or would you be okay with not having the ability (to do something) and living with that fact, BUT the world perceives that you do (have that ability)? I see many people working hard to be perceived as able to do certain acts, yet I often wonder if they would be better off if they invested half that time simply learning to do it. Walt Whitman called it ‘seeming versus being.’

In the Zen tradition, it is said that the magician uses tools, but the mystic IS the tool. This collapses the paradox of the question above - if you become a great problem solver, and you know you are a great problem solver, then doesn’t the external world eventually figure that out? Doesn’t the gap get closed?

Weekly Spotlight: The Problem With Growing Financial Stress

Solving a problem can be difficult the first time you solve it. When presented with a similar problem in the future it’s easier to solve because you have some understanding of the scope of the problem, you’ve solved it before. You could say you are re-solving the problem based on new information, knowledge, and wisdom acquired from the first solution. Since the first time you were presented with a problem, you’ve grown. Ultimately you resolve the problem by it no longer being a problem, OR by acknowledging that the labeling of something as a problem is the problem. Everything that you are presented with is food for your growth to become a better problem solver and eventually let go of the idea of problem itself.

A ‘problem’ that we are seeing arise is the growing problem of financial stress. The gap between the haves and the have-nots is accelerating. This can be a real money issue, and/or it can be a lack of tools to solve those problems, to begin with. I’m a big believer that the mortgage industry, the financial advisor industry, and the real estate industry could work together to help consumers learn how to better manage their finances.

One example of this stress: hardship withdrawals from 401k retirement accounts hit a fresh record. Up 30% on the year and tripling the pre-pandemic rate. 1 in 7 Americans now has a loan against their 401k. Vanguard reported that over 13% of all clients currently have a hardship loan against their 401(k), and in a recent study by the Heartland Group, over 50% of all 401(k) loans last year were ‘to avoid foreclosure’.

If you want to check out more on Financial Literacy, and what we are doing to help download this presentation.

as you can see here, for the first time non-mortgage debt is about to pass the total debt service for all mortgage debt.

a BORROW SMART CONCEPT
Real Estate Sentiment 

Borrow Smart Sentiment - now indicator shows the prior reading ‘dashed line’

How do I create this indicator? I use AI bot to scrape real estate articles each week across the United States. I then use another AI resource to read each article and rank sentiment on a scale of 1 to 10. I then average all those readings for the week.

Sentiment is important - it works to bring market downs

and it works to bring markets up

LIABILITIES
What’s Happening?

higher rates closings on the rise, lower rate debt being paid off

for mortgage to rock and roll, we need inventory and it’s slow to come online

population growth, driven in part by immigration will help drive up housing demand

US overall growing faster than most countries and this is very important

if we are going to see a lift in purchases again

lower rates will also help with new demand

right now sellers are dropping prices still for buyers

residential values are up, but most commercial real estate down

rent is higher almost everywhere

this is the biggest threat to housing values

REAL ESTATE
What’s Happening?

big banks have big exposure

some markets are hotter than others

overall housing prices going up

aliens are focusing their housing searches in lower cost areas

“If there were no self at all we could not even speak of happiness and suffering. Thus the absence of a self contradicts our direct experience. We do exist in some way. But the basis on which a self is imputed does not have the slightest true existence.”

Daila Lama

ASSETS
What’s Happening?

“…professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are the prettiest, nor even those whose average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligence to anticipating what average opinion expects the average opinion to be.” John Maynard Keyes

ChatGPT image of people trying to pick the right person

Investing is becoming more and more a beauty contest where we try to figure out who is the prettiest stock at the ball.

the plan is we get wealthier by quarter

and we have more money to spend to grow the economy

and that means we are also more productive which makes us more money

how much money is a function of where you might be invested

the big investments are thinning out a bit

we have to grow wealth as inflation has taken 70% of our buying power in the last 20 years - money doesn’t hold it’s buying power when more of it is issued

ON BEING HUMAN
What’s Worth Sharing?

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If you know something's going to work, it's not worth working on. It requires no courage. It requires no faith. It requires no skin in the game. Whether you're a spy or a teacher or a spouse or a painter or an abuela or an astronaut or a monk or a barista or a board-game designer, the bits that matter are the bits you make matter by putting yourself on the line for them. The unknown is the foundry where you forge your chips. Everything important is uncertain. Sitting with the discomfort of that uncertainty is the hard part, the wedge that can move the world."

Eliot Peper (H/T James Clear)

DOPAMEMES
And Other Inspirations…

AIdeas
Future Hacks…

We’re launching a new product to make sure you call your clients annually. Designed for Lenders, Realtors and Financial Advisors. You’ll be way more productive with your time. If you’d like to be in our beta group, send me an email. Simply say you’d like to be in our beta and we’ll reach out and get you set up!

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