…Damned if they don’t. I’ve seen a couple articles recently about banks capping home equity lines of credit. I can see how people might be upset, especially if they have a tuition bill or tax bill they need to pay soon and had planned to use the line. But banks have been accused of lending too much money, and now they’re reacting to the losses from that. I suspect they don’t have the time and manpower to go through every HELOC on their books and evaluate each house in a reasonable time frame. Much simpler to cut off everyone, and then re-evaluate folks when they complain. If I were a shareholder I would completely approve. No sense in wasting all that time, just evaluate the ones that want to use the line.
Archive for April, 2008
Damned if they do…
Tuesday, April 15th, 2008Maybe an upside?
Tuesday, April 15th, 2008I saw an article in the NYTimes that said credit cards have reduced their direct mail. This is a loss for folks who do a lot of 0% chasing and also I suppose for the Post Office, but a win for the rest of us. I have opted out of unsolicited credit card offers (directions on how can be found here) but I still get a lot of junk from my existing companies. A reduction in that will save me the gas I use when my recycling boxes get full. For people still getting unsolicited offers, a reduction will reduce the chances of someone stealing one and applying in their name. And for folks who have trouble with willpower, it will reduce the temptation.
Mintel found that fewer pieces had gone out in February, the last month for which figures were available, than in any month since April 2004.
There is day-to-day news that we’re bordering on recession, said Lisa Hronek, an analyst at Mintel. “They may be scaling back in response to their target audience just not being there any more, or not as willing to take on new debt.”
Also, they may just be getting picky, since I suspect that there will be a rise in bankruptcies to follow the rise in foreclosures. People used to be able to pay off credit card debt with a home equity loan, but those are hard to get now and existing lines of credit are being capped by nervous lenders.
Boom or Bust?
Monday, April 14th, 2008A recent Pew Research survey says that Americans feel like they’re stuck and not moving forward.
Americans feel stuck in their tracks. A majority of survey respondents say that in the past five years, they either haven’t moved forward in life (25%) or have fallen backwards (31%). This is the most downbeat short-term assessment of personal progress in nearly half a century of polling by the Pew Research Center and the Gallup organization.
I think the housing mess is contributing to this, as is recent inflation. I suspect if you asked this question two years ago the answer would be different. People view losses as such a negative thing, for example if your house was valued at 100K when you bought it, rose to 180K and then fell to 120K, you feel much worse than if your house started at 100K, went to 110K and then to 120K. You end up at the same spot but it feels bad to have something and lose it.
Personally I feel stuck, but that is due to choices I’ve made, not outside forces. I chose to drop the hours I work, and stay with my job when my company was sold. I’m not sure that dropping my hours was a bad thing, but the point of dropping them was to spend the time fixing up the house I bought, and I’m still not done doing that. Staying with the company was not necessarily a bad choice at the beginning, but it became obvious a while ago that I should be leaving. So right now I’m stagnant in job duties and wages. Five years ago I was working full time and making more, though I was in a more expensive area, so net-worth wise I’m ahead now. But there are changes I need to make, and I’ve been putting them off. So today I’m getting back in the game, sending out resumes and such. Hopefully I can find something more interesting than what I’m doing now.
Reason #573 Against Buying an Old House
Sunday, April 13th, 2008Reason #573 To not buy an old house: Getting new plumbing work inspected will end up costing you a zillion dollars in electrical work.
FHA Bailout Needed
Thursday, April 10th, 2008Recently I was reading an article in the NYTimes about the FHA and some of its woes.
The Bush administration and Democratic leaders in Congress are counting on the Federal Housing Administration to rescue hundreds of thousands of homeowners from foreclosure by helping them refinance from risky subprime loans to stable government-backed mortgages.
But the F.H.A., the government agency that insures home loans for many first-time, minority and lower-income buyers, is grappling with financial woes of its own.
The agency faces a deficit next (fiscal) year, due to the “seller financed down payment” program.
Under the program, a home seller arranges to cover the buyer’s down payment — using financial help from a nonprofit company — but typically adds that sum or more to the total cost of the house. The arrangement has been particularly attractive to financially struggling buyers and to owners in depressed housing markets, according to Congressional officials.
In 2000, such mortgages made up less than 2 percent of F.H.A.-insured loans, officials say. By 2007, statistics show, they accounted for 35 percent of F.H.A. loans.
Housing officials say these mortgages have foreclosure rates two to three times those of others, leaving the agency reeling from the losses.
If the program continues without any changes, Congressional officials say, the F.H.A. would face a $1.4 billion shortfall in fiscal 2009. This would mean that Congress — and American taxpayers — would have to subsidize the F.H.A. for the first time.
Sounds like this is not the best time to be dumping a bunch of new loans on the FHA, when it’s facing a 1.4 billion dollar shortfall next year. The taxpayers are going to end up paying for the housing mess, either directly through taxes for things like the FHA, or indrectly due to letting mortgage businesses fail and the market (holding everyones 401ks) crash.
Article: What job woes mean to you
Wednesday, April 9th, 2008CNN Money’s #1 Issue is America’s Money. How nice of them. But it’s an American publication about money, so I guess it’s not that much of a surprise. A recent article highlights what the declining economy might mean to you. Personally I love the article mostly for the first picture, but the text is useful too.
The basic outline is that even if your job is safe, raises are smaller to non-exsistent and inflation is outpacing what raises people do get. The Fed cutting rates to attempt to stave off a recession means that imported goods (and everything is made in China these days) are more expensive.
Some sectors are losing jobs, home prices are falling, Wall Street is going nuts (in a bad way), and everyone is putting off discretionary purchases. So it looks like it’s going to get worse before it gets better.
So fatten up your emergency fund, work on that side-business or passive income, and hunker down to ride out the storm.
Simple Solution to the Mortgage Problem
Tuesday, April 8th, 2008The current problem mostly seems to be folks getting into mortgages they don’t understand, especially the adjustable part. The solution? Make it more financially rewarding for lenders to make sure borrowers understand their mortgage, and less financially rewarding to hide the info.
Note: this is only a solution going forward, it doesn’t really help people who already have a mortgage.
We require schools to test kids to see if they’re learning. Some states have exams for graduation. The SATs test your readiness for college. Now, none of these test are perfect, but they at least point people in the right direction.
So I’m proposing a test for borrowers. At the closing, some impartial representative (the escrow person?) administers a quiz for the borrowers. Each person on the loan must pass the test separately. It will have a set of questions with multiple choice or yes/no answers. I think multiple choice is better than fill-in since most people won’t know the exact answer but should know within a few dollars.
- What will your monthly payment be next month?
- …next year?
- …two years from now?
- Does your payment include taxes?
- If not, how much are they?
- How many years is your loan?
- What is the interest rate on your loan?
- Is your loan fixed or adjustable?
- If adjustable, when and by how much?
- Is it a balloon?
- If so, when and how much?
If the borrower can’t answer, the lender pays a fine and the house doesn’t close (so they don’t get their loan). Mortgage brokers would also get penalized. I think both the individual (the loan officer or mortgage broker) and the company should get fined. So now it’s in their best interest to teach the borrowers all of these things, and repeat them until the borrowers really will remember them.
Airline Woes
Sunday, April 6th, 2008Three airlines have gone out of business, or at least declared bankruptcy and stopped flying which is the same from the customer’s point of view, in the last week or two. Skybus was the latest on Friday. But you’d never know it looking at the NYTimes. If you search, you can find a couple 1-paragraph items from the AP, but nothing written by staff. I thought maybe that meant they were preparing some big article, maybe for the Sunday magazine, but no. So what gives? NYTimes, are these just airlines flown by the little people? If they had first class sections you would mention them?
Just another case of the Man keeping the Man down
Friday, April 4th, 2008Slate has an article comparing the underclass to the overclass, basically saying the super-rich and poor are very similar. It’s an amusing read, although I think they’re stretching some things to make it fit the story.
In the underclass, unmarried, young fathers don’t take responsibility for their children. In the overclass, twice-married, middle-aged Wall Street daddies don’t own up to the consequences of their insane financial miscues. Wall Street titans are almost incapable of seeing the problem with taking nine-figure payouts in years in which their stocks plummet.
[...]
In his book The Age of Abundance
, libertarian author Brink Lindsey boils down the difference between the desperately poor and the blissfully rich to an ability to focus on the long term. “Members of the underclass operate within such narrow time horizons and circles of trust that their lives are plagued by chronic chaos and dysfunction,” he says. By contrast, elites are well-organized long-term thinkers. Riiiiight. “Modern Wall Street is a system,” says Charles Morris—a former Chase banker and author of The Trillion Dollar Meltdown
Critics point to a pervasive sense of victimhood in the underclass. But listen to what Bear Stearns CEO Alan Schwartz told the troops after his firm succumbed to wounds that were almost entirely self-inflicted. “We here are a collective victim of violence,” he said. Yep, just another case of the Man keeping the Man down.
Paul O’Neill got out just in time
Friday, April 4th, 2008The NYTimes has an interview with Paul O’Neill, former treasury secretary. Worth reading just for the tone. I did have to check that it wasn’t an April Fool’s joke.
Do you think it was appropriate for the Federal Reserve to lend a helping hand to Bear Stearns and save a private investment company from its own bad decisions? I would say they didn’t save Bear Stearns. They saved the financial system from a panic collapse. I reject the notion that they helped Bear Stearns. Bear Stearns was destroyed.
No it wasn’t. It was purchased by JPMorgan, which will keep it alive. They’re going to keep the book alive. But the institution of Bear Stearns has been destroyed. They’ve gone from $158 to $2 of equity. It’s wallpaper. It’s not even good wallpaper. It’s butcher paper.
He has a great analogy explaining why no one can get a mortgage when only a small percentage are defaulting.
If you have 10 bottles of water, and one bottle had poison in it, and you didn’t know which one, you probably wouldn’t drink out of any of the 10 bottles; that’s basically what we’ve got there.
And that about sums up the whole crisis.