Auto insurance companies can raise your rates on your auto loans without informing you ahead of time. This has been a practice that federal regulation has done nothing about. The Fair Credit Reporting Act requires most companies to send a letter called a "notice of adverse action" to the consumer if the consumer was penalized due to a low credit score.
A group of consumers sued insurance giants Safeco and Geico and won based on this unfair practice. The case appealed all the way up to the Supreme Court was recently reversed.
Now the reasoning for reversal really leaves you scratching your head. Justice David Souters' reasoning was that it created too much “junk mail.” He did admit it was a loophole in the system. However, he stated that the cost of closing the loophole was way too high.
So, our Supreme Court is protecting us from junk mail and allowing auto insurance companies to get away with raising rates on insurance based on some obscure credit scoring system? The cost for making it a fair system is too high? Who is it to high for?
It is a good thing that the Supreme Court is there to protect the insurance industry. It would be a shame for the industry to be forced to make a little less money sending out those “junk mail” notices to make the system work better for the consumer.
They did allow for a system to where a certain group of people would be notified. However, the system is determined and controlled by the insurance industry. Thus, this is more of a smoke and mirrors fix.
Why would it be beneficial for consumers to know about the credit scoring? First, consumers should know the benchmark. A consumer should know that insurance rates would come down if credit scores were below a certain level. Second, many credit scores are low simply due to error. Statistics would show that a high percentage of consumers have enough mistakes on their credit reports to adversely effect their credit scores.
Politics are a way of life. Blatant politics are another story. When the reasoning for reversing a case that would help consumers was based on a “junk mail” problem, something else is obviously going on.
Friday, September 28, 2007
Thursday, September 27, 2007
Handling a Debt Collector on Debt That Isn’t Yours
A few years ago I had Dean Malone on my show to discuss dealing with debt collector harassment. After finishing up that day, I went home. The minute I walked in, the telephone rang. Believe it or not, it was a debt collector. The debt collector was attempting to collect a debt on my wife that she didn’t even owe. How did we know? The debt was for an electricity company in Kansas City. She has never lived in Kansas City.
Now if that happens to you, there is a tendency to just blow it off. You know the debt is not yours. However, there is an important process you need to go through to make sure that this doesn’t turn into a big problem down the road.
Step 1 Attempt to get all of the information possible about the alleged debt, along with the name and address of the debt collector. In the process, keep your cool and don’t let the debt collector rattle you.
Step 2 Check your credit report and make sure that there is no entry. The chances are pretty good that there will not be an entry because more than likely they will not have a social security number.
Step 3 If it is on your credit report, you need to dispute the item with the credit reporting agency, offering as much proof as possible. It is also a good idea to provide your social security number and other identifying information.
Step 4 Send the debt collector a cease and desist letter.
Step 5 Monitor your credit reports.
What are the dangers of ignoring a mistaken debt collection?
The debt collector could continue to attempt to collect against you, take you to arbitration, and win a judgment against you. Once a judgment has been secured, it is tough to get it reversed. There are actual court cases cited where this happened.
Now if that happens to you, there is a tendency to just blow it off. You know the debt is not yours. However, there is an important process you need to go through to make sure that this doesn’t turn into a big problem down the road.
Step 1 Attempt to get all of the information possible about the alleged debt, along with the name and address of the debt collector. In the process, keep your cool and don’t let the debt collector rattle you.
Step 2 Check your credit report and make sure that there is no entry. The chances are pretty good that there will not be an entry because more than likely they will not have a social security number.
Step 3 If it is on your credit report, you need to dispute the item with the credit reporting agency, offering as much proof as possible. It is also a good idea to provide your social security number and other identifying information.
Step 4 Send the debt collector a cease and desist letter.
Step 5 Monitor your credit reports.
What are the dangers of ignoring a mistaken debt collection?
The debt collector could continue to attempt to collect against you, take you to arbitration, and win a judgment against you. Once a judgment has been secured, it is tough to get it reversed. There are actual court cases cited where this happened.
Wednesday, September 26, 2007
Finally, Texas Legislatures Give Consumers the Silver Bullet Against Identity Theft
The Texas Legislature really got something right. Due to the increased threat of identity theft, they passed a law that gives Texas consumers the greatest possible protection against identity theft.
The Federal Law allows for consumers to freeze their credit files in the event that they have become a victim of identity theft. It is the equivalent of putting a lock on your credit reports. The consumer has to “un-freeze” the credit reports in order to gain access. A lender cannot check your credit with a credit freeze in place.
Thus, traditional identity theft is almost impossible.
The Federal Law states that the consumer has to present a police report in order for this to take place.
State legislatures are allowed to change the law in their state. Thus far, 34 other states have found the Federal Legislation on identity theft ridiculous because everyone should have the right without cause to lock up their credit reports and keep them private.
Now, Texas has passed this very consumer friendly provision. In Texas, you can now place a credit freeze on all 3 credit reports and prevent anyone from checking your credit. If you need to apply for credit, you would simply “un-freeze” the reports.
This has to be done individually with all 3 credit reporting agencies. What is the downside? It does take away the ability to buy something on credit at a moment’s notice. However, that is not such a bad thing. There is also a cost associated with this process. You might pay up to $10 for locking and unlocking your credit file.
Does that mean that by freezing your credit, identity theft cannot happen? As advanced as ID thieves are in stealing identities, I would never assume that it could not happen. I would still have your credit monitored by a good credit monitoring company such as http://www.truecredit.com/.
The Federal Law allows for consumers to freeze their credit files in the event that they have become a victim of identity theft. It is the equivalent of putting a lock on your credit reports. The consumer has to “un-freeze” the credit reports in order to gain access. A lender cannot check your credit with a credit freeze in place.
Thus, traditional identity theft is almost impossible.
The Federal Law states that the consumer has to present a police report in order for this to take place.
State legislatures are allowed to change the law in their state. Thus far, 34 other states have found the Federal Legislation on identity theft ridiculous because everyone should have the right without cause to lock up their credit reports and keep them private.
Now, Texas has passed this very consumer friendly provision. In Texas, you can now place a credit freeze on all 3 credit reports and prevent anyone from checking your credit. If you need to apply for credit, you would simply “un-freeze” the reports.
This has to be done individually with all 3 credit reporting agencies. What is the downside? It does take away the ability to buy something on credit at a moment’s notice. However, that is not such a bad thing. There is also a cost associated with this process. You might pay up to $10 for locking and unlocking your credit file.
Does that mean that by freezing your credit, identity theft cannot happen? As advanced as ID thieves are in stealing identities, I would never assume that it could not happen. I would still have your credit monitored by a good credit monitoring company such as http://www.truecredit.com/.
Friday, September 21, 2007
Be Careful About Penny Stock Scams
I had Tom Anderson, Associate Editor of Kiplinger Personal Finance Magazine, on the show to talk about penny stock scams. I am sure that you have seen the e-mails about the next great stock and how you need to invest today. These stock promoters are taking it to a different venue. They are advertising in the New York Times, USA Today, etc. By doing so, they get a certain level of credibility.
The objective of these promoters is to promote the hype about these stocks. By doing so, this drives the price of the stock up. Then, they turn around and sell their shares at these high prices. As a result, the stock falls. I had Tom on in June to talk about Guangzhou Global Telecom. Irresponsible advertising drove this stock up. The hype was that this was the next great telecom story out of China. Since June, the stock is down -74%.
Taking a closer look, you will find that these stocks are nothing as marketed. So here is the bottom line. First, just live by a modified old saying – “If it is too good to be true, do your homework.” Thoroughly research anything before acting. Go to http://www.sec.gov/ and research the stock. Second, if I knew the secret to making millions or I knew the next big thing, I wouldn’t tell anyone. Once you tell everyone, the secret is out and ceases to work.
Here is a link to the article.
The objective of these promoters is to promote the hype about these stocks. By doing so, this drives the price of the stock up. Then, they turn around and sell their shares at these high prices. As a result, the stock falls. I had Tom on in June to talk about Guangzhou Global Telecom. Irresponsible advertising drove this stock up. The hype was that this was the next great telecom story out of China. Since June, the stock is down -74%.
Taking a closer look, you will find that these stocks are nothing as marketed. So here is the bottom line. First, just live by a modified old saying – “If it is too good to be true, do your homework.” Thoroughly research anything before acting. Go to http://www.sec.gov/ and research the stock. Second, if I knew the secret to making millions or I knew the next big thing, I wouldn’t tell anyone. Once you tell everyone, the secret is out and ceases to work.
Here is a link to the article.
Wednesday, September 19, 2007
Universities Sell Out Their Students to Credit Card Companies
A recent study reported by CNN states that the average credit card balance of those students polled was $18,800.00. This is a staggering amount of debt for students just trying to start out.
How does this happen? Well just look to the universities who support these credit card companies and you will get the number.
Consider these annual revenues that colleges make off of arrangements with credit card companies:
University of Tennessee - $ 10 million a year with Chase
Ohio State – estimated $ 20 million a year through credit card arrangements
In turn for these big profits, “universities are pursuing these sweetheart deals with credit card companies, and offering up premiere marketing locations and student names and addresses for a big profit,” says Robert Manning, Director of the Center for Consumer Financial Services at the Rochester Institute of Technology.
Credit card companies want to sign up people. They in turn want to charge big fees for doing so. They want the college students to rack up big amounts of debt. In most cases, they give the student way more credit limit then the student can financially support. These cards come with huge fees and high interest rates. So, they came up with this ingenious idea.
Let’s pay college campuses millions of dollars to allow us to use the university name on the credit card and maybe a picture of the administration building or mascot. This gives the student the feeling that they are doing this through the school and that the school would take care of them. In order for the credit card companies to pay these huge kickbacks to the colleges, they charge enormous fees to the student. It is a typical credit card trap.
The universities who need the revenue stream put their students at risk by allowing the vultures onto the college campuses to look for prey.
The universities and credit card companies say that they are providing a win/win for the college student. It is more like a conflict of interest by universities and college alumni associations who often negotiate these deals selling their souls.
How does this happen? Well just look to the universities who support these credit card companies and you will get the number.
Consider these annual revenues that colleges make off of arrangements with credit card companies:
University of Tennessee - $ 10 million a year with Chase
Ohio State – estimated $ 20 million a year through credit card arrangements
In turn for these big profits, “universities are pursuing these sweetheart deals with credit card companies, and offering up premiere marketing locations and student names and addresses for a big profit,” says Robert Manning, Director of the Center for Consumer Financial Services at the Rochester Institute of Technology.
Credit card companies want to sign up people. They in turn want to charge big fees for doing so. They want the college students to rack up big amounts of debt. In most cases, they give the student way more credit limit then the student can financially support. These cards come with huge fees and high interest rates. So, they came up with this ingenious idea.
Let’s pay college campuses millions of dollars to allow us to use the university name on the credit card and maybe a picture of the administration building or mascot. This gives the student the feeling that they are doing this through the school and that the school would take care of them. In order for the credit card companies to pay these huge kickbacks to the colleges, they charge enormous fees to the student. It is a typical credit card trap.
The universities who need the revenue stream put their students at risk by allowing the vultures onto the college campuses to look for prey.
The universities and credit card companies say that they are providing a win/win for the college student. It is more like a conflict of interest by universities and college alumni associations who often negotiate these deals selling their souls.
LifeLock Aggressively Advertising – Know the Truth Behind the Product
LifeLock is at it again with his aggressive advertising on cable television. In the middle of what looks like downtown New York or one of the major metropolitan cities, CEO Todd Davis stands in front of a van with his social security number plastered on it and screams it out over a microphone.
He is free to give out his social security number because he is not concerned about identity theft. His service guarantees that his identity will never be stolen. Now he wants you to sign up with his service so that you will get the same advantage. He even gives you a million dollar guarantee.
What is the catch? Quite simply he is taking advantage of a law that was put into effect by Congress that allows any consumer to place a fraud alert on their credit report. A fraud alert is a 90 day lock put on a credit file that will prevent any attempts by an unauthorized individual to steal a person’s credit.
If a fraud alert is on a credit file, authorization has to be obtained by the consumer for access. Thus, an identity thief cannot get credit when a fraud alert is in effect.
Every 90 days, LifeLock will renew that fraud alert on your behalf.
So, what is my issue with this service? First, this is something that you can do for yourself every 90 days. Why pay someone monthly for 4 calls a year that you can make yourself? That is my issue from a practical standpoint.
From an ethical standpoint, there is a much bigger issue. The law clearly states that a fraud alert is to be issued only if the consumer SUSPECTS he or she has been a victim of an identity theft. Funny, that is not in the advertisement anywhere. Todd David is randomly issuing fraud alerts for consumers who do not suspect that they are identity theft victims.
Here is what the law says so to back up this claim:
"Upon the direct request of a consumer, or an individual acting on behalf of or as a personal representative of a consumer, who asserts in good faith (bold for emphasis) a suspicion that the consumer has been or is about to become a victim of fraud or related crime… "
Technically, a very broad interpretation of the law is that this applies because we are all "about to become a victim of fraud" at some time. We are always at risk. I don't think that was the intent of the law. If you lose your wallet, you are in a situation where you might become a victim. You are not in danger just because you get up in the morning and walk outside the house and get into your car.
Lifelock does include in their terms and conditions that you are signing up for this service under the assumption that you might become a victim of identity theft. Just like most offers in the credit industry, the details are not in the marketing program but buried in the fine print.
So, you need to know that basically you might be paying LifeLock to misrepresent you to the credit reporting agencies. This is no different then the other businesses in the credit industry that use smoke and mirror marketing to sell their product. Whether it is rent a credit score, consumer credit counseling, etc. they are all marketing the same way.
He is free to give out his social security number because he is not concerned about identity theft. His service guarantees that his identity will never be stolen. Now he wants you to sign up with his service so that you will get the same advantage. He even gives you a million dollar guarantee.
What is the catch? Quite simply he is taking advantage of a law that was put into effect by Congress that allows any consumer to place a fraud alert on their credit report. A fraud alert is a 90 day lock put on a credit file that will prevent any attempts by an unauthorized individual to steal a person’s credit.
If a fraud alert is on a credit file, authorization has to be obtained by the consumer for access. Thus, an identity thief cannot get credit when a fraud alert is in effect.
Every 90 days, LifeLock will renew that fraud alert on your behalf.
So, what is my issue with this service? First, this is something that you can do for yourself every 90 days. Why pay someone monthly for 4 calls a year that you can make yourself? That is my issue from a practical standpoint.
From an ethical standpoint, there is a much bigger issue. The law clearly states that a fraud alert is to be issued only if the consumer SUSPECTS he or she has been a victim of an identity theft. Funny, that is not in the advertisement anywhere. Todd David is randomly issuing fraud alerts for consumers who do not suspect that they are identity theft victims.
Here is what the law says so to back up this claim:
"Upon the direct request of a consumer, or an individual acting on behalf of or as a personal representative of a consumer, who asserts in good faith (bold for emphasis) a suspicion that the consumer has been or is about to become a victim of fraud or related crime… "
Technically, a very broad interpretation of the law is that this applies because we are all "about to become a victim of fraud" at some time. We are always at risk. I don't think that was the intent of the law. If you lose your wallet, you are in a situation where you might become a victim. You are not in danger just because you get up in the morning and walk outside the house and get into your car.
Lifelock does include in their terms and conditions that you are signing up for this service under the assumption that you might become a victim of identity theft. Just like most offers in the credit industry, the details are not in the marketing program but buried in the fine print.
So, you need to know that basically you might be paying LifeLock to misrepresent you to the credit reporting agencies. This is no different then the other businesses in the credit industry that use smoke and mirror marketing to sell their product. Whether it is rent a credit score, consumer credit counseling, etc. they are all marketing the same way.
Monday, September 17, 2007
A Contract is a Contract!
What does it really mean when you sign on the dotted line? Whether it is a monthly membership to a health club or the signature on a mortgage, it means obligation. So what happens when you walk away from a contract?
There is a tendency to think “Oh, it is just a lease” or “This is just a gym membership” or even “I can just give this car back and the problem will go away.” Anytime you sign your name on the dotted line, you are obligated to pay a certain amount of money for a certain of time. Any attempts to get out of that will result in big problems. The bottom line is that the company that has your signature - your promise to pay.
Here are some things to consider:
1) Be realistic and know that you have to pay – there is no way out of a contract unless the company wants to give you a free pass.
2) Don’t make assumptions. Assumptions are our way of rationalizing away reality. Just because you voluntarily give a car back doesn’t mean that you are going to get out of it.
3) If you can legitimately get out of a contract, document it. Oral agreements don’t work. Get everything in writing.
4) Make sure that you have a good system in place where no mistakes can happen – those payments need to be made like clockwork.
It is so important to have a good system in place. One mistake or false assumption will potentially ruin your credit and send you to a debt collector.
There is a tendency to think “Oh, it is just a lease” or “This is just a gym membership” or even “I can just give this car back and the problem will go away.” Anytime you sign your name on the dotted line, you are obligated to pay a certain amount of money for a certain of time. Any attempts to get out of that will result in big problems. The bottom line is that the company that has your signature - your promise to pay.
Here are some things to consider:
1) Be realistic and know that you have to pay – there is no way out of a contract unless the company wants to give you a free pass.
2) Don’t make assumptions. Assumptions are our way of rationalizing away reality. Just because you voluntarily give a car back doesn’t mean that you are going to get out of it.
3) If you can legitimately get out of a contract, document it. Oral agreements don’t work. Get everything in writing.
4) Make sure that you have a good system in place where no mistakes can happen – those payments need to be made like clockwork.
It is so important to have a good system in place. One mistake or false assumption will potentially ruin your credit and send you to a debt collector.
Friday, September 14, 2007
Paying for Christmas in Advance
One of the biggest mistakes that I see people make with their money happens every December. I have to confess I have been one of those people in the past. Does this sound like you? Do you start preparing Christmas lists in December? Are you rushing around buying gifts without much of a budget in mind? Are you taking the time to closely watch your spending during a time when it is easy to overspend? Do you buy presents on credit, rationalizing you will pay for it later? Do you go into shock in January when you get that card statement?
If you answered yes to those questions, we need to talk.
Out of all of the months in the year, December has to be the toughest on the checking account. There are the gifts that you buy for loved ones. There are the unexpected gifts that you have to buy. There are gifts that you have to buy for people in the office or for friends. Then there is the money that is spent on Christmas parties. It all adds up in a big way.
I have found that most are very unprepared for Christmas. As a result, the credit card becomes the convenient solution to lack of preparation. If there is one month that needs some advanced planning, it is December.
So here are some tips to planning for Christmas:
1) Determine how many presents that you have to buy – family, extended family, friends, co-workers, kids’ teachers, etc.
2) Determine how much you are going to spend on each person.
3) Determine any extra expenses that you might incur – Christmas cards, postage, etc.
4) Realistically look at how you are going to pay for it and start saving.
5) Stay disciplined.
If you are not prepared, you create debt. It is that simple. Think about it for a moment. It is Christmas time. There is a lot emotion. We want to buy our loved ones gifts (especially kids). I also think we know deep down inside that we are going to spend more than we have – I call it fantasy budgeting. It is easy to just ignore the problem and use plastic.
This year do things differently. A little planning today and a lot of discipline over the next few months will go a long way.
If you answered yes to those questions, we need to talk.
Out of all of the months in the year, December has to be the toughest on the checking account. There are the gifts that you buy for loved ones. There are the unexpected gifts that you have to buy. There are gifts that you have to buy for people in the office or for friends. Then there is the money that is spent on Christmas parties. It all adds up in a big way.
I have found that most are very unprepared for Christmas. As a result, the credit card becomes the convenient solution to lack of preparation. If there is one month that needs some advanced planning, it is December.
So here are some tips to planning for Christmas:
1) Determine how many presents that you have to buy – family, extended family, friends, co-workers, kids’ teachers, etc.
2) Determine how much you are going to spend on each person.
3) Determine any extra expenses that you might incur – Christmas cards, postage, etc.
4) Realistically look at how you are going to pay for it and start saving.
5) Stay disciplined.
If you are not prepared, you create debt. It is that simple. Think about it for a moment. It is Christmas time. There is a lot emotion. We want to buy our loved ones gifts (especially kids). I also think we know deep down inside that we are going to spend more than we have – I call it fantasy budgeting. It is easy to just ignore the problem and use plastic.
This year do things differently. A little planning today and a lot of discipline over the next few months will go a long way.
Thursday, September 13, 2007
Remembering 9/11
This week we remember the ones who died 6 years in that tragic and senseless terror attack on our country. It is easy to put this out of our minds, being thousands of miles away from where that tragedy took place. It is easy to feel unconnected and without emotion. We are just watching scenes on television. For most of us, we don’t even know anyone personally who lives with the pain of loss from 9/11.
However, 9/11 stands for so much. In the very least, it shows us that life is fragile and that we are not guaranteed tomorrow. It should show us the importance of family and friends and living in the moment. Most importantly, it should be a symbol of the importance of being right in your relationship with God and focusing on His will.
I hope that you will take the time to remember 9/11 and re-commit to what is truly important in your life.
However, 9/11 stands for so much. In the very least, it shows us that life is fragile and that we are not guaranteed tomorrow. It should show us the importance of family and friends and living in the moment. Most importantly, it should be a symbol of the importance of being right in your relationship with God and focusing on His will.
I hope that you will take the time to remember 9/11 and re-commit to what is truly important in your life.
Monday, September 10, 2007
The Danger of Trying to Play "Catch Up" with your Investments
Over the past 15 years I have had countless discussions on risk and investments and have found that the concept of time is misunderstood.
In those discussions about risk, I have had many tell me that they only have a small amount of time before retirement and they need to play “catch up.” So, what is the best way to make up for lost time? You just have to invest aggressively.
You always have the probability (although low) of selecting a high flying investment, making a big fat return, and getting caught back up quickly. Unfortunately, the higher probability is that you take on all of this risk and it ends up in big losses.
Prudent Rule 1 when it comes to investing – Aggressive investments can lose money as fast as they can make money. However, losses from aggressive investments are much tougher to make up. For example, if you lose 50% of your money it will take a 100% gain just to break even.
And history would show that you can easily lose at least 50% in an aggressive investment (see internet and technology stocks 2000 to 2002)
To illustrate this concept of loss versus gain, I went to http://www.morningstar.com/ and took a look at some of the mutual funds that they characterized as aggressive. A good example is a fund that Morningstar classifies as aggressive.
In 1999, this fund returned 291.15%. With that type of return, many investors probably invested in 2000 hoping for the same type of growth. Let’s say that you were behind in obtaining your retirement goals and decided to invest money into this fund right before that big year. You started off with $ 10,000. By the end of 1999, you turned that $ 10,000 into $ 39,115.00.
However as of June 30, 2007, that $ 10,000 would be worth $ 4,828.00.
Now that is an extreme example. However, it does illustrate how dangerous aggressive funds can be and trying to utilize them to get “caught up” for retirement.
Just keep in mind that all investments go through good and bad cycles or time periods. The problem with the aggressive type fund is that the bad cycles have a greater impact on your money than good cycles do on the positive side.
In those discussions about risk, I have had many tell me that they only have a small amount of time before retirement and they need to play “catch up.” So, what is the best way to make up for lost time? You just have to invest aggressively.
You always have the probability (although low) of selecting a high flying investment, making a big fat return, and getting caught back up quickly. Unfortunately, the higher probability is that you take on all of this risk and it ends up in big losses.
Prudent Rule 1 when it comes to investing – Aggressive investments can lose money as fast as they can make money. However, losses from aggressive investments are much tougher to make up. For example, if you lose 50% of your money it will take a 100% gain just to break even.
And history would show that you can easily lose at least 50% in an aggressive investment (see internet and technology stocks 2000 to 2002)
To illustrate this concept of loss versus gain, I went to http://www.morningstar.com/ and took a look at some of the mutual funds that they characterized as aggressive. A good example is a fund that Morningstar classifies as aggressive.
In 1999, this fund returned 291.15%. With that type of return, many investors probably invested in 2000 hoping for the same type of growth. Let’s say that you were behind in obtaining your retirement goals and decided to invest money into this fund right before that big year. You started off with $ 10,000. By the end of 1999, you turned that $ 10,000 into $ 39,115.00.
However as of June 30, 2007, that $ 10,000 would be worth $ 4,828.00.
Now that is an extreme example. However, it does illustrate how dangerous aggressive funds can be and trying to utilize them to get “caught up” for retirement.
Just keep in mind that all investments go through good and bad cycles or time periods. The problem with the aggressive type fund is that the bad cycles have a greater impact on your money than good cycles do on the positive side.
Friday, September 07, 2007
Mr. Irresponsibility
The problem that we are in today is a result (my opinion) of the adjustable rate mortgage (ARM). Alan Greenspan back in 2004 made the comment that people should look into adjustable rate mortgages because they would save money. He basically was encouraging people to take on risky loans.
He was trying to fuel the fire. Adjustable rate mortgages make it much easier for people to buy homes that they cannot afford. The economy definitely benefits from people buying more real estate due to the advantage of the ARM.
Now look at our problem. Today we learn that we had negative job growth in the economy for the past month. In Greenspan's latest quote he states today that our environment looks a lot like 1987 when the stock market crashed.
These comments are very irresponsible on his part.
He was trying to fuel the fire. Adjustable rate mortgages make it much easier for people to buy homes that they cannot afford. The economy definitely benefits from people buying more real estate due to the advantage of the ARM.
Now look at our problem. Today we learn that we had negative job growth in the economy for the past month. In Greenspan's latest quote he states today that our environment looks a lot like 1987 when the stock market crashed.
These comments are very irresponsible on his part.
Thursday, September 06, 2007
Loan Sharking
Loan Shark - someone who lends money at excessive rates of interest; someone who take advantage of the misfortunes of others – see US credit card companies
There is not much of a difference between loan sharks and credit card companies. They both set up unreasonable terms accompanied by high interest rates. They both take advantage of personal misfortune. Loan sharks send out Guido to break your legs. The Credit Card industry uses foul mouth harassing debt collectors. Really, it is the same pain just two different types.
Well Credit Card Companies are looking to take advantage of a hurting segment of the population – sub-prime borrowers. Mintel International Group recently conducted a study and found the following:
Direct mail credit card offers to sub-prime customers in the United States jumped 41% during the first half of this year.
Direct mail offers targeted at customers with the best credit fell more than 13%.
So, it appears that the credit industry is aggressively pursuing people who are classified as having poor credit or sub-prime credit.
The study shows that the fees charged for late payments would exceed the interest rate charges. This fits the mold of the credit industry. They want people who are going to make mistakes so that they can charge higher penalty rates and charge high fees.
Their target market often just makes the minimum payments. Thus, the credit card companies make big money by accepting these minimum payments and charging high interest rates.
Offering credit to sub-prime borrowers is a risky, irresponsible action that prays on those who are in vulnerable situations. Who ever thought that there would be a day that the best customer for a credit card company would be one with the worst credit?
Incidentally, the study cited HSBC, Washington Mutual, and Capital One as some of the main companies practicing this irresponsible lending.
Tuesday, September 04, 2007
There are no good solutions to the Real Estate Crisis
Many of the solutions being offered by Washington and the financial media will do little to solve the real estate bust. Let's look at the root of the problem. The source of the problem is that consumers can no longer afford to make their payment. The low payment that they enjoyed for a period of time has changed to a much higher payment. As a result, many homeowners risk foreclosure because they are falling behind.
Most of these solutions involve helping homeowners stay in their homes by allowing them to qualify for a new fixed rate loan. Unfortunately, it doesn't solve the problem. If the homeowner couldn't make the higher payment on the adjustable rate mortgage, they will not be able to make the payment on the fixed loan. It is the payment that is the problem.
The mortgage industry wrote irresponsible loans to consumers who bought a house based on getting the lowest payment possible. As a result, we are all going to pay for this irresponsibility. This is not a problem that just goes away. This is debt plain and simple. Someone has to pay for it.
I have an idea. Why don't we use some of Greenspan's money that he is receiving for his books that he is writing and his enormous speaking fees he receives? After-all, he was the person on watch when this happened. He was also the one who encouraged people to take out adjustable rate mortgages.
Most of these solutions involve helping homeowners stay in their homes by allowing them to qualify for a new fixed rate loan. Unfortunately, it doesn't solve the problem. If the homeowner couldn't make the higher payment on the adjustable rate mortgage, they will not be able to make the payment on the fixed loan. It is the payment that is the problem.
The mortgage industry wrote irresponsible loans to consumers who bought a house based on getting the lowest payment possible. As a result, we are all going to pay for this irresponsibility. This is not a problem that just goes away. This is debt plain and simple. Someone has to pay for it.
I have an idea. Why don't we use some of Greenspan's money that he is receiving for his books that he is writing and his enormous speaking fees he receives? After-all, he was the person on watch when this happened. He was also the one who encouraged people to take out adjustable rate mortgages.
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