April Fool’s DayIncome Tax Day My Brother’s Birthday National Frog Month National Autism Month No Housework Day International Guitar Month . . . and more!
It’s also Financial Literacy Month. Even with 2 days left, it’s worth it to take a minute and get a little education. (And it still counts even if you wait until May!)
Every couple years, Jump$tart Coalition issues a "personal finance" exam to high school seniors. The test highlights the importance of personal financial literacy among America's youth and comes at an especially important juncture.In the last test, 12th graders answered 48.3% correct on average and posted the lowest scores since Jump$tart first issued the test in 1996.
On a recent Saturday afternoon I tuned in to National Public Radio and ran into one of my old favorites: This American Life. Any regular NPR listener knows this show is one of the most engaging programs every invented, with quirky takes on the thoughts that run through all of our minds but most of us dismiss the second after they arise. Thoughts like "How long does it take to boil a 3 pound ostrich egg?" and "What is the statistical probability I will meet my match in life?" OK, maybe these things don't run through your mind everyday, but when tracking interest rates and economic news all day, they are welcome diversions in mine.
The majority of the program was devoted to economic team Alex Blumberg and Adam Davidson, who in 39 minutes presented one of the best explanations of the current financial crisis anyone could hope for -- the big picture basics, touching on everything from how a bank balance sheet works to the practical and political challenges facing every government recovery plan.
The best part? They got economic experts and banking analysts to speak plain English about why we are where we are.
The conversation focuses on the banking system, and covers the two basic options for confronting today's crisis: buying up toxic assets to remove them from bank balance sheets, or injecting new capital to offset the losses incurred by banks continuing to hold bad assets. Because pricing these assets has been nearly impossible given their complexity, the first option could be tremendously costly to taxpayers, transferring huge losses from the banks to the rest of us. The second option involves the taxpayers taking an equity stake in the banks themselves, amounting to nationalization of the banking system.
Both options are controversial. The problem, say analysts, is less a technical one and more a political one. Neither option has been fully embraced, and the debate rages on as the government straddles the fence.
A third option - letting the banks fail and the system work itself out - is even less tenable. Fed Chairman Ben Bernanke, testifying before Congress, observed that "If we let the banking system fail, no one would talk about the Great Depression anymore, because this will be so much worse."
In the end, it seems the damage is done. According to Columbia Business School Professor David Beim, "What is happening to us is something that goes way beyond toxic assets in banks, it's something that has little to do with the mechanics of mortgage securitization or ethics on Wall Street or anything else. . . The problem is us. We have over borrowed." It seems all that is left is sorting out the winners from the losers.
You may not feel much better after listening, but you will have a decidedly clearer picture of what has often been a murky pool of news, numbers and analysis to even the most well informed business readers.
Can you say "We're so sorry" 160 times? And do it again a million times over?
That's exactly what one credit bureau promised last week.
In the largest class action settlement in US history, credit reporting giant TransUnion agreed to a preliminary settlement in Chicago federal court Wednesday that would provide 160 million Americans free access to their credit scores and six months of credit monitoring with no strings attached.
"This is astonishing," said Ken McEldowney, executive director of Consumer Action, a national advocacy group based in San Francisco. "It's everything we tell consumers that they need to find out if they have problems with their credit. They are getting information on how to improve it and information about whether they are creditworthy," said McEldowney.
The settlement entitles consumers to six months of a TransUnion monitoring service-the one I use myself-that allows them access to information in their credit reports as well as their current scores at any time.
And for those of us who love being lazy, it even notifies subscribers by email of significant changes to their files, including reports of late payments or accounts opened in their names. TransUnion normally sells the service for $59.75 or more-meaning the settlement is worth as much as $10 billion.
How did borrowers get so lucky? Plaintiffs in the case alleged that anyone who had a credit file maintained by TransUnion (nearly half the U.S. population) were inundated with junk mail from marketers who bought data from the credit reporting giant. Federal law prohibits the sale of a person's private credit information except under certain circumstances, such as when he or she has applied for a loan. The plaintiffs argued TransUnion crossed the line in the sale of private information.
The settlement represents a big opportunity to both borrowers and TransUnion. By filing a claim under the lawsuit, eligible plaintiffs receive 6 to 9 months of free access to one of the industry's premier credit monitoring services. TransUnion offers a wide range of credit monitoring and educational resources.
The settlement represents a boon to TransUnion in that the company does not admit to any wrongdoing and at the same time offers a free trial to 160 million potential customers. Six months is more than enough time to get a handle on your credit profile, and it's likely that after a free trial lasting 6 to 9 months, many will continue to subscribe to the company's service.
Anyone who had any type of loan account between January 1987 and last Wednesday (and there must be some sort of prize for anyone who does not fit in that category!) is eligible to file a claim under the settlement. Claims can be filed starting June 16th at the settlement web site www.listclassaction.com or by calling 866-416-3470.
Guess What Number Could Doom Your Loan Now (Hint: It's Not Your Credit Score)
"I'm thinking of a number . . ."
Unless you've been living under a rock for the past 10 years, you've seen the ubiquitous FreeCredit.com commercial featuring a too-smart-for-his-own-good looking guy in a director's chair and those 5 famous words.
In fact, I apologize if you've somehow finally succeeded in banishing this annoying phrase from your mind only to be reminded again by this post.
As annoying as this guy was, the commercial helped wake America up to the importance of the mysterious 3 digit number known as your credit score. Without the right number, your chances of qualifying for favorable interest rates-or qualifying for a mortgage at all-are often doomed from the start.
These days, however, there is a new number wreaking havoc with borrower's attempts at obtaining mortgage financing. And unlike the credit score, there is virtually nothing borrowers can do to change it when it doesn't come in at the right level.
The new number killing otherwise successful loan applications today? Appraisal value.
Several factors, all a function of the collapse of the mortgage market and subsequent declining home sales, have converged to give appraisal value an increasingly prominent role in loan approvals:
Declining markets
A new "declining market" designation has meant tighter lending guidelines for certain properties, reducing the maximum loan-to-value allowed on a given loan by as much as 5%. A loan originally approved for $285,000 on a $300,000 property in a declining market is now limited to $270,000-a $15,000 reduction in funds available to the borrower.
Tougher appraisal review
Appraisal reviews by lenders have resulted in greater scrutiny of appraisal reports. After reviewing an appraisal, the lender's market review "experts" often order values to be reduced by tens of thousands of dollars before approving a loan. A recent legal settlement regarding mortgage broker-appraiser relationships will place even further restrictions on appraisal practices.
Foreclosure and short sales
Perhaps most important has been the rise in housing inventories, foreclosures and short sales. Slow sales and increased supply places downward pressure on home prices, while below-market sales resulting from foreclosure and short sale prices compound the pressure.
While it is illegal for loan officers to consult with or advise appraisers concerning home valuation, some lenders are setting up "valuation desks" independent of their appraiser to conduct preliminary searches of recent comparable sales data before ordering an appraisal. By considering whether recent comparable sales figures are likely to support the value needed for a loan to work, borrowers can better determine whether it's worth it to order and pay for an appraisal for a property that may come up short in value.
Short of picking up and moving a house to a neighborhood that is retaining its values, there is little a borrower can do to compensate for the new threat to qualifying.
But judging from the number of borrowers stopped in their tracks by unfavorable appraisal values, the grating memory "I'm thinking of a number" conjures may help keep expectations realistic, and could even help save a few hundred dollars when the numbers don't add up.
There's a mortgage ad running on Chicago area radio stations that seems to be aimed at credit-challenged borrowers with limited cash. The guy with the "perfect" mortgage suggests that even these borrowers can still get a mortgage. His "secret" weapon?
The FHA mortgage. It's an oldie, but a goodie.
The truth is no one is going to get a mortgage without sufficient credit and adequate financial resources. But despite all the news about tighter guidelines and higher downpayment requirements, borrowers with so-so credit and limited cash can still qualify. The key is a clean (not perfect) credit history, solid employment and some skin in the deal (like 3% skin).
Click herefor a look at an old standard that's popular with all the cool kidsagain.
According to the FBI's 2007 Mortgage Fraud Report, more than 46,000 cases of suspected mortgage fraud were reported last year. This led to bank losses exceeding $813 million.
If you're looking for reasons why mortgage underwriting is measurably more difficult in 2008 -- add "mortgage fraud" to the list. Lenders now perform extra scrutiny on each home loan application to protect against additional losses on all levels.
Mortgage fraud is a federal crime and exists in two basic varieties:
Fraud for Housing -- Misrepresentation by a mortgage applicant for purposes of buying a home, usually related to income, assets, or debts. The applicant intends to repay the loan as agreed.
Fraud for Profit -- Coordinated misrepresentations by a group of people related to applicants, appraisals, loan documents and relationships between buyer and seller. The applicant does not intend to repay the loan as agreed.
Although both are illegal, Fraud for Profit is most concerning to law enforcement officials and mortgage lenders. That's because Fraud for Profit tends to incorporate multiple loans for multiple homes in a single neighborhood.
In other words, the bank's potential loss is larger with Fraud for Profit schemes.
The photo above (from the FBI report) is from a Fraud for Profit home appraisal. It indicated that the "recently renovated condominium" included Brazilian hardwood, granite countertops, and a value of $275,000.
Clearly, this is untrue.
Despite increasing 31 percent, mortgage fraud growth slowed in 2007 as law enforcement agencies and mortgage lenders increased their efforts to identify and arrest perpetrators.
If you were to stop what you were doing and give yourself 10 seconds to list everything in your wallet or purse, what would be on your list?
Cash, driver's license, credit cards, debit cards, membership ID, a receipt or two and a subway card -- that's my list.
If after making your list, you actually emptied your purse or wallet in front of you, would there be more than you expected? An unpaid bill with your address and account number on it? A credit card receipt with your card number on it? An expired ID you haven't used in months?
With one in four US households falling victim to identity theft in the last five years (FTC)--many of us are walking around with ticking time bombs in our own back pockets.
Author "Fox" of the Squawkfox blog emptied her purse recently and found she had already lit the fuse. The result of her exercise was "Ten Things You Should Never Carry in a Purse or Wallet" to avoid identity theft. Besides the obvious social security card, passport and birth certificates, some surprising items also made the list: business cards, flash drives, checkbooks and even condoms!
In addition to Fox's post, Truecredit.com and MyFICO.com offer excellent resources for protecting yourself from identity theft--from simple common sense practices to identity theft insurance.
Are you toting more than the bare necessities? Do yourself a favor and purge the purse of risky business.
When real estate news is reported on television or in the papers, it's usually told as a national story. Unfortunately, stories like these aren't helpful for everyday Americans because real estate is not a national market.
Real estate is local.
The graph above was used by Fed Chairman Ben Bernanke in a speech to Columbia Business School earlier this week. Using data from conforming mortgage fundings, it shows the change in home prices from year-to-year on a county level.
Any county not in red increased in value.
In other words, contrary to what reporters tell us, real estate is retaining its value just fine nationwide. Aside from a few counties and states, most areas appreciated.
Graphics like this put important real estate issues in perspective. Home values may falling precipitously in some areas, but those neighborhoods represent just a fraction of the country overall.
Four times annually, the Federal Reserve surveys 84 different banks about general banking conditions.
One of the survey questions asks about current mortgage lending standards and whether they are loosening or tightening.
The chart at right is from the April 2008 survey and it illustrates what we already know: It's getting tougher and tougher to get approved for a home loan.
Some of the areas in which mortgage guidelines are tightening are well-known:
More thorough income documentation
Higher credit score requirements
More "money in the bank" post-closing
Some areas are less well-known:
More scrutiny of prior delinquencies
Strict review of appraised values
Overall, getting a mortgage approval from a bank is more difficult than in months past and the tightening trend is expected to continue throughout the rest of the credit cycle.
No "class" of buyers is immune, either -- not even the "prime" ones. Home prices may fall going forward but stricter mortgage guidelines means that fewer home buyers will be able to take advantage.
If you're unsure about your credit profile, check with your loan officer to see how additional restrictions could impact your ability to purchase (and finance!) a home.
The Federal Reserve announced yet another rate cut of .25% to the Federal Funds Rate last week -- its 7th since September 2007. University of Chicago Economist and Nobel-laureate Milton Friedman had a favorite way of describing what the Federal Reserve did on Wednesday. He called it the Fool in the Shower, and it goes like this:
When the fool turns on the shower, the water is very cold. So, he turns on the hot water. Only the hot water doesn't come on right away so he turns it on full blast. Before long, the water gets very hot, very fast and scalds him. Reflexively, he dials back the heat only to find that he's too cold again.
By cutting its key rate by only .25%, the Fed may be signaling its desire to "test the water" -- waiting to see the impact of prior rate cuts and fiscal stimulus actions. With energy prices at record levels and the dollar at historic lows, the Fed wants to balance the risk of slower economic growth with the need to prevent higher future inflation.
Despite the news, what matters most is not what the Fed does but what the Fed says, particularly about inflation.
The key point from a mortgage perspective is to remember an often overlooked fact:
The Federal Reserve does not directly control mortgage rates.
With rates at their lowest in years and home prices declining, there are still many opportunities for buyers and borrowers. Contact your personal mortgage advisor for a quick and easy review of your current mortgage and capture for yourself what today's market has to offer.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
The majority of the program was devoted to economic team Alex Blumberg and Adam Davidson, who in 39 minutes presented one of the best explanations of the current financial crisis anyone could hope for -- the big picture basics, touching on everything from how a bank balance sheet works to the practical and political challenges facing every government recovery plan.
The truth is no one is going to get a mortgage without sufficient credit and adequate financial resources. But despite all the news about tighter guidelines and higher downpayment requirements, borrowers with so-so credit and limited cash can still qualify. The key is a clean (not perfect) credit history, solid employment and some skin in the deal (like 3% skin).
The chart at right is from the 
When the fool turns on the shower, the water is very cold. So, he turns on the hot water. Only the hot water doesn't come on right away so he turns it on full blast. Before long, the water gets very hot, very fast and scalds him. Reflexively, he dials back the heat only to find that he's too cold again.
;)
;)
