There is an African Proverb that states, After a bedtime story, a small boy asks his father “Why does the lion always die at the end of the story?” The father replies “It will always be that way until the lion begins to write the story.” The organizational entities in our nation are hunters and we as consumers are the lions. The “Hunter and the Lion” is a concept that stresses economic empowerment by realizing that corporations have an incentive to present things in a way to represent their financial best-interest, not ours. We should strive to write our own economic story.

There is no question that foreclosures on homes are occurring at an alarming rate. There are, as always, many economic variables that have led to this scenario. One such variable is adjustable rate mortgages. A few years ago, interest rates were at an all-time low. That made the loans on home purchase very affordable. When those rates began to rise with the natural tide of the business cycle, so did the mortgage payments of unsuspecting homeowners.

Here is a way for us to analyze the incentives of the hunter, I mean, the banking industry to protect ourselves from dying economically at the end of the story. As a financial planner, I have come in contact with several home purchases during the 1990′s and during this decade. In comparing both time periods, I noticed an interesting phenomenon.

In the 1990′s, the economy was booming as a result of the impact of the technology industry. So, check out how the pricing structure was set up back then. When you borrow money for a house, you have two choices with the loan. You can either select a fixed or an adjustable rate. The fixed rate stays the same for the life of the loan. The adjustable, on the other hand, changes along with market interest rates. In the 90′s, fixed rates were priced less than adjustable. As an example, fixed rates could be priced at 8% and adjustable at 10%

With that pricing structure in place, the borrower has a built-in incentive to select a fixed rate. The key to hunter/lionism is to view things from the perspective of the firm. When the economy is good, interest rates tend to be very high. So, the bank benefits if they lock us into a rate that does not change BECAUSE the rate is high.

This decade, the economy has struggled. Therefore, interest rates for the most part, have been relatively low. At one point between 2001 and 2003, the federal government reduced rates 14 times, 8 times in one calendar year. By the way, that 8 time decrease was the most in one year in the history of the United States.

So now this decade, every time I deal with a mortgage, the pricing structure is mysteriously different. In fact, it is the exact opposite. Adjustable rates are now priced lower than fixed rates. As an example, fixed rates could be priced at 7% and adjustable at 5%.

With that pricing structure in place, the borrower has a built-in incentive to select an adjustable interest rate. Again, the key to hunter/lionism is to view things from the perspective of the firm. When the economy is bad, interest rates tend to be very low. So, the bank benefits if they lock us into a rate that does change, BECAUSE the rate is low. If you add to this analysis, the fact that housing prices have increased dramatically over the last 10 years, you can see that the impact of a rate change on a person’s payment can be quite substantial.

So, how do we apply this perspective to solid financial decision-making? When it comes to our mortgage decision-making, rather than focus on what strategy we should take (lion), we should instead focus on what the lender (hunter) wants us to do. Doing this for housing, and every other purchase we make, allows us the opportunity to write our own economic story.

Dr. Craig Bythewood earned his Bachelor of Business Administration at Howard University, majoring in Finance. Subsequently attending the University of Florida where he received his doctorate in finance at the age of 26. Craig is a full-time professor of Finance and Economics at Florida Southern College. He is a consultant, seminar speaker (thehunterandthelion.com), and a financial planner. Dr. Bythewood’s consulting experiences have included Hewlett Packard, JPMorgan Chase and the State of Florida. He also served as the Financial Education Director for the Tampa Bay Buccaneers