Will the number of parents who take out second mortgages on their homes to fund the incarceration of their children drop?
A lot of these schools offer financing through private lenders who are surely securing their loans with second and third mortgages ... but things have dramatically changed in the home lending market and lots of folks are finding themselves close to losing their homes because of bad loans.
Just curious how this situation will effect the enrollment of kids in these programs given the current problem with parents being unable to refinance their homes which has been the preferred method. Where will they get the money?
When I was in my programs back in 86-90 I can tell you that 70% at least of the girls came from Southern California. After that came Northern California in at 20%. The last 10% were from random places.
Southern California's home prices haven't dropped that much, some areas not at all. So, I'm assuming most parents still have enough equity in there homes to be able to send their kids away. As far as qualifying for the loan, that's a whole different story. Northern California (Silicon Valley) has taken no hit whatsoever (besides not getting multiple offers). Now in the Sacramento Valley, we are seeing foreclosures all around us.
If you go to myspace, and look up all the different program groups now you'll find these kids were coming from all around the country in the last 10 years. What some of these mortgage companies did, (and all you program haters will love this) they had appraisers going out to these homes and appraising them for much more then what they were worth (the loan officers would tell them the number they needed it to come in at), so they could loan them the extra $40,000 to send their kid away. Putting these home owners/parents into Adjustable Rate Mortgages 2/28 (30 year loans 2 years fixed interest making the rate very low making it barely affordable), then after that, it would adjust pretty dramatically, usually 2% after that 2 year period was up! After that, every 6 months as much as 1%! Then usually there was something in there about a 3 year prepayment penalty, usually a very hefty amount, negotiable if they refinanced with that same company that screwed them the 1st time. But, unfortunately they have no more equity to make it work. So, now they have to except the rising interest rates. Or, just let the home be foreclosed upon thus screwing up their credit for 7 years. Then, the parents have the government on their ass because the money they took out, the government then taxes them on that. So, by the time the kids are out usually the home they left, is not the home they come back to. That's also why kids are getting pulled early from programs these days.
Basically, what I am trying to say is yes. There will be a dramatic drop in program enrollments. You won't see a lot of kids coming from the middle of the country anymore. Right now, there is probably a lot of parents that are extremely stressed about their financial positions they are currently in. That means either they deeply regret sending their kids, or they blame their kids for being such brats, and putting them into this financial situation?
I also think that is why you are seeing a lot more lawsuits these days too. I'm not talking about from the kids who were abused. I am talking about from the dissatisfied parents, and it gets so bad as to where the parents convince the kids to join them in the whole process of suing the programs.
You will see quite a few programs closing in the next year. I estimate at least 30%. I'm talking private schools. If I were an owner of a smaller school, I would be selling while I still showed a profit. But, the larger ones will remain because they have the money to stay afloat. But, they are no dummies, they are smart business men, and they too will downsize, and trim the extra fat.
