Friday, June 13th, 2008
News networks across the country have given considerable attention to the unprecedented number of bankruptcy filings throughout the nation. Once sprawling communities like Orange County California have some of the largest numbers of bankruptcy filings per capita. The real estate market in this area as in many parts of the country has come to a complete stop. No new development is taking place and the local economic outlook in Southern California as a whole is not improving mostly due to the price per gallon of gasoline, which is one of the highest in the country.
Souther California is one of the hardest hit regions in the country for personal bankruptcy filings, this is highly credited to the over valuation of real estate property during 2001 through 2005 and the sub-prime loans that funded the majority of these properties. The number of people filing for personal bankruptcy, compared to last year are up 90% for LA county, 125% for Riverside county and a staggering 150% for Orange County.
The state of Colorado has seen a rise of 35% since last year, and again it is home owners with high interest mortgage loans that make up over 60% of the bankruptcy cases.
Things are due to get worse according to economic experts, who predict no relief will be seen until two to three years from now. Because gas prices are gradually increasing each day, the cost of commodities and other consumer products have kept up with the price, adding further strain on the already heavily burdened communities of consumers across the country.
Overall the entire country is currently seeing a rise of 50% since last year. It is expected that by the end of 2008, we will see a total number of over one million personal bankruptcy cases which will continue throughout 2009.
Our economy is susceptible to many different factors, including external factors like the overall world economy. A contributor to the price of oil is none other than China. The country has emerged economically demanding more gas, food and quality of life. The once low waged workers are currently climbing the ladders economically and this new demand is now plugged to the main line of distribution for commodities like oil, wheat, and sugar.
It doesn’t matter how much money exists in any one region, it is the demand for these goods that drives up inflation.
So the economic state of the US, which is already affected by the real estate melt down, can expect to see higher prices for commodities and further escapes from debts through bankruptcy filings. Again no solid plan is in place to overcome this, any plan brought forth by the political parties are nothing more than pandering attempts.
Save what you can and invest in hard assets, paper assets will be worthless soon.
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Tuesday, April 22nd, 2008
Back in 2002 when I bought my condo, there were no obvious signs to me that what was going on in the mortgage market were the beginning stages of the current subprime crisis. I knew I was making the right decision to buy a place while I could still afford one and I saw how property values jumped significantly in the next two years. However, all along I had this feeling that this rapid growth of the market could not be normal and that it could not possibly benefit everyone. I also figured that at some point I would have to sell my condo and I would most likely want to sell it at fair market and maybe just a tad more.
Would someone really be willing to pay me double the price of what I paid for it a couple years ago? This really puzzled me, and even though I thought it would be great to make that much money, I couldn’t help to feel a little concerned for whoever ended up buying my condo. Would they finance with sub-prime or conventional loans? How will they manage such a large monthly payment? Will they continue to enjoy the market growth like I did?
It can’t grow forever, what goes up must in deed come down, and that’s what we’re witnessing here. It’s a nose dive of a decline for the housing market and it really is difficult to watch. The same thing goes for the stock market, there’s usually a period of aggressive growth that must eventually fix itself. I trade very moderately in the stock market so I keep up with it, but it’s definitely not a huge worry for me.
Though the housing market, which everyone is part of in one way or another, is now suffering from a subprime mortgage crisis, which in turn has an impact on the overall economic growth. As more mortgages default, there’s less confidence in buying homes, and we’re ending up with a surplus of homes across the country, causing a very dramatic decline in new home construction and prices of homes. All of this builds the downward pressure that weighs on the overall growth.
Interest rates on a number of subprime and ARM loans are due to go up through 2008. However, to the benefit of home owners who may be finding themselves on the brink of bankruptcy, the US treasury, backed by US legislators, is enabling the deferment of interest adjustments in order to begin working towards stimulating the economy and re-establishing confidence in consumers and financial markets.
To begin a resolution to the subprime crisis, one of the measures that can be taken in the future through legislation is to limit the numbers of different financial products that revolve around these types of loans and to force revisiting the metrics to qualify consumers for these types of loans. Salaries will need to keep up with inflation and unemployment needs to stay low. Finally, the housing market’s steady decline needs to be interrupted as soon as possible, but this won’t be possible without more aggressive efforts from the US treasury and the government.
Meanwhile, if you’re finding yourself in the same situation that millions of homeowners are in right now, where you’re not making your mortgage payment and considering bankruptcy. You need to know that there maybe alternatives available to you, banks and mortgage lenders are starting to resort to offering their customers loan modifications and or encouraging a short sale. Read more about loan modifications and other free resources here, it may be just what you need to save your home.
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Saturday, April 5th, 2008
Living paycheck to paycheck
Do you deposit money in your savings account regularly? If you had an emergency now, do you have an emergency fund that can help you get through for at least 3 months? Even when we’re doing well and the economy is prosperous, we can’t consistently answer yes to these questions because we just love to spend.
In my post about “things you should never do with money” I mentioned that we as consumers have many distractions and our attention is often diverted to the popular trends causing our “want list” to grow. It really is a matter of discipline and a willingness to break bad habits. No one likes to be pessimistic about their own finances and some do not even like to talk about them with their spouse or relatives. But denying yourself the reality of your situation will only worsen the outlook of your future.
Throughout the country more and more people are living paycheck to paycheck, and there are of course circumstances in which you simply do not have any control over this because of other larger and more serious debts that are sometimes acquired through unforeseen events. But for the spendaholics, you do have some control over what you get into debt for and that’s where you would need to begin to fix your bad spending habits.
Economize on everything
Take a look around your home and try to think about what in that house you’re still paying for. Obviously your furniture is a necessity, but what purchases did you make that are not really that practical and yet you impulsively bought. Perhaps that fancy mirror above your fire place, or that decorative set of vases you couldn’t resist. These are all impulse buys, and you probably have more on your list that you eyed last time you were at the mall.
Outside of these impulse buys, which you need to stop doing, there maybe other things that you consume that you don’t really need. Do you pay for premium channels? You may want to consider bringing your cable service to a more basic level. Do you have every little feature the phone company offers on your phone service? How often do you use them and do you really think they’re beneficial? How about just cutting the land line out completely and using your cell phone instead?
Do you really need a low deductible on your car insurance? Many people think it’s a good idea to have a low deductible, when they have had a good driving record almost all their lives. If you’re a responsible driver, you should not be worried about this. Your insurance company is going to encourage this because they make more from you this way. It’s a good seller and a lot of people are doing it benefiting mostly their insurance companies.
Does your credit card company contact you often to offer you savings programs? They will tell you that if you buy through their programs you can save enormously when using your credit card. The program of course costs $29 a month charged to your credit card. Don’t take the bait, it’s all another way for them to make money off of you. You’re better off cutting coupons for savings. As a matter of fact stop using your credit card as much and use it only for things you need when you’re out of cash. Everyone sometimes forgets that that’s what credit cards are for and not to buy the latest gadget you just have to have.
To some people having a social life is everything and this means going out to dinner with friends, going to public places for drinks and company, it’s all fine and great, but how often do you this? If you’re out every weekend “socializing” in public places more than likely you’re shelling out $50 to $100 dollars a night depending on where you life. If after paying your bills, you use whatever you have left of your paycheck to party, you’ve got some serious deficits building up.
Utility bills are always up and down and it’s hard to regulate especially if you have a large family, so cutting down on utilities can be tough, but if you concentrate on regularly cutting down on everything above your paychecks should start making their way into your savings account more often.
What other services do you subscribe to that you hardly ever use? This includes magazine and newspaper subscriptions, newsletters etc. Make it a priority to start growing your savings account balance. If it’s difficult for you to break the habits, try increasing your contributions into your 401k, IRA or sponsored savings account, that way you only have enough to spend on bills you must pay.
Whatever approach you choose is fine as long as you begin sending more of your paycheck into an account where it will serve you better in the future, and as long as you begin now.
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Wednesday, April 2nd, 2008
Sometime the decisions we make that can negatively impact our financial future are not always obvious, there are too many entities working against our better judgment when it comes to how we handle our own money. I’m talking about commercial entities and the popular trends we pay so much attention to, that contribute to the ever growing “want list“ that we often mistake for the “need list”. I’m gathering a list of general things called “things you should never do with money”, there are many, and this is the first in a series of several future posts. These are some of the things we tend to give into that eventually get us into trouble:
1. Don’t sign up for another credit card when you’re maxed out - This should be a red flag for any credit card company processing your application that you’re not living within your means and you spend more than you should. Will that stop them from processing your application? Probably not. As long as you have good credit and you make your payments on time, even if it’s only the minimum due, there’s no indication to them that you’re a risk. But is this a sound financial decision for you? If you’ve maxed out your current credit card, you need to stop and look back at the purchases you have made and honestly determine if these are needs or wants. If you get another credit card, what’s to stop your from maxing it out also and ending up with now two cards to pay off?
2. Don’t borrow against your home - Here’s another example of a really bad decision in which lenders are happy to help you dig your own hole. A “HELOC” (Home Equity Line of Credit) is, in my opinion, the worst product ever put out in the financial world. Why? Two reasons, these loans always carry adjustable rates and you’re only required to pay the interest. If you MUST borrow against your home, what you should be asking for is a Home Equity Loan, on which you do pay the principal balance every time you make a payment. With a HELOC you’re only required, and 99% of the time inclined, to pay only the interest of the loan. When do you actually pay the balance? If you max out that line of credit and your balance is $50,000 when will you be able to pay this balance in full? When you sell your house would be one way, but if you’re not selling your house or if market conditions end up putting you upside down, how will you come up with the money to pay this off when it is due in full?
3. Don’t borrow against your retirement account - Depending on your plan, sometimes there are few restrictions for borrowing or withdrawing money, and there’s usually a lot of flexibility for you to do so. Some 401K or savings plans will allow you to withdraw certain amounts of money and you don’t always have to prove hardship. Why do this if you’re not in real need? It’s all impulse. You’ll probably say to yourself “it’s my money anyways”. Well…. yes and no. It’s also the government’s money and that’s a huge liability. The money that’s in your 401k or savings plan is pre-tax money, meaning it gets deducted from your pay before taxes, so taxes will apply when that money is withdrawn. Not only that, but there’s usually a penalty associated with early withdrawals, so if you borrow $5000, the IRS will automatically take 20% or $1000, plus any penalties the savings plan may carry. So if you’re not in real need, don’t mess with this account.
4. Don’t invest in things you know nothing about - There are so many products out there about making money by starting your own business or making money online. Look, a lot of people make a decent living by running their own business and doing business online. But it’s not supposed to be easy and it’s not supposed to be fun as it is often emphasized. It is a lot of hard work. Sure it can be enjoyable and rewarding but fun and easy it is not. Many of these programs almost always over emphasize earning potential with exaggerated figures, but if you visit the advertised website you often find that the program is not at all described and you have nothing to go by other than to enter your personal info for someone to call you later. They will often sell you general information on how to start a business but won’t concisely explain the how to. They also offer coaching programs with phony guarantees, which are expensive so think carefully before signing up. You could end up spending a lot of money for something you could easily research on your own.
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Thursday, March 20th, 2008
Foreclosure is the process in which a lender takes possession of the financed property for lack of payment, with the intention of selling the property to satisfy the defaulted loan. The foreclosure process is ugly and it will leave a mark. By law all lenders must provide sufficient written notices to home owners before starting the process, and what’s considered sufficient will vary per state as well. When the bank’s notices of non-payment go unanswered is when foreclosure comes knocking on your door.
What options do you have?
You could qualify for special forbearance if you have lost your job or your cost of living has changed significantly or you’re experiencing any other financial situation that puts pressure on your ability to pay your mortgage. This is something you’ll have to approach your lender about and you must provide proof of your hardship to qualify.
There is something called a loan modification, which means that the original terms of the loan can be renegotiated and adjusted to fit your new financial situation. Again this will be up to your lender to approve. Lenders are not always sympathetic or understanding so you may need help getting through to them on this option and for that you should check out the free foreclosure help post where I discuss a really good source where you may be able to find the help you need.
The short sale foreclosure is when you try selling the property at a severely discounted price in order to make the sale transaction as quick as possible. If you have equity built up on your home you most likely will lose most if not all of it. You’ll need to hire a good Realtor who’s experienced in these types of sales to help you accomplish this. Most importantly however is that you get your lender to agree to this since it will in most cases mean that the loan balance on the property will also have to be discounted for you to proceed with the sale, meaning the lender loses money as well. Both parties must be in agreement before this can take place.
Another option, is a Deed-in-lieu-of foreclosure, where you voluntarily surrender the property to the lender. This obviously does not help you keep your house, it’s an option you can use when you know you can’t fight it anymore and must give up your home. For the lender to accept this option, you must have tried to sell the house and have attempted other options as well without success. This option can sometimes be beneficial to both lender and borrower, since it immediately releases the borrower from all responsibilities of the defaulted loan and for the lender it can avoid the timely and often costly procedure of foreclosing.
Things to beware about:
Once the lender files a foreclosure notice, this becomes public record. A lot of people access these records often with the purpose of contacting home owners to buy their homes and help them save it.
You must understand that there are people and businesses who make a living off of foreclosures. You’ll probably be approached and contacted by people who say they can help and some of these calls are legitimate but you need to be aware that they’re in for a profit that will most likely leave you short changed.
Since you may be in a desperate situation and you know you can’t save your home, you may be trying hard to save your credit, and often people agree to a deal that may be a temporary fix but are not necessarily good for them in the long run. Some of the most common scams out there are “equity skimming” and entities that post as “counseling agencies”.
Equity skimming consists of you doing a deed transfer of your property to someone who promises to help by selling the property quickly, the often will have you vacate as soon as possible and then they will rent the property to collect payments from that while they process a line of credit on your home then never being heard from again. Unfortunately signing the deed over to someone else will not release you from the responsibility of the loan.
Counseling agencies can sometimes help, but some will do nothing more than collect payments from you. Often times the services they offer are things you can do yourself. You should always deal with your lender directly and when that proves difficult then do research for a legitimate company that can negotiate for you.
It’s difficult to think clearly when foreclosure comes knocking so take some time to think clearly and realize first whether fighting to keep your home is worth the effort. If you feel it is and you want to convince your lender to give you a chance and require professional help, then start by researching companies at the Better Business Bureau and search for “foreclosure consultants”. You’ll get results for agencies who are registered with the BBB and many others who are not. So you want to start with the ones that have a record you can look over.
Last resort
When all else fails, which can happen if your lender is completely unwilling to work with you, you can always go for the last resort, bankruptcy. This is also going to require significant effort on your part to get ready and prepare your documents and contact the right attorney to represent you. Bankruptcy has a more severe effect so it’s important that you take the time to understand what it is, what it does, how to prepare and what to expect. Take some time to read about chapter 7 and chapter 13 since these are going to be the most relevant to someone in a position where they could lose their home.
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