The Foreclosure Process

October 21, 2008 · Posted in Mortgages · Comments Off 

If you are faced with the dismal prospect of losing your home, you will want to take any action necessary to keep yourself from becoming homeless. To fight a foreclosure, it is vital to understand how the process works. As the process of foreclosure varies from state to state, homeowners need to be aware of not only how the process works, but also the timeline involved. When you are more familiar with the process, you can make a better decision on how to stop your foreclosure.

The first time you miss a mortgage payment by just a day, the foreclosure timeline begins, although no penalties are incurred. You will be given 16 – 30 days to make your payment. A late charge is added at this time, and you will most likely receive a phone call from the lender inquiring as to why the payment is late.

After 16 days, you will have a late fee added to your payment. If you have still not made the payment after 30 days, you will be considered in default. This means that you are really late on this payment now, and if you don’t pay it soon, the lender is going to take your home away from you. Depending on your lender, you will either be allowed to make the late payment in installments or you will be ordered to make the payment in full immediately. In certain states, once you are 60 days late, a filing of Notice of Default will be made. However, between 45 to 60 days, you will receive a “breach” letter which explains the terms of the mortgage in writing. This also gives you 30 days to resolve it. You can expect to hear from your lender daily during this time. You may be offered some payment options. If you are, you should take them.

Days 60 to 90 will bring you a notice of default. There will also be collection fees added to the already existing late fees. The loan will be handed over to the lender’s legal department, where documents will be sent to a local attorney to begin foreclosure. If things are still not resolved by 150 to 415 days, there will be a Notice of Trustee Sale filed. This means your home will be scheduled to be sold.

A foreclosure is a legal process and guidelines are set that must be met. After the case is turned over to the local attorney, there must be a public notice of the foreclosure placed in the local papers. As the homeowner, you have every right to try to stop this process. If you haven’t done so prior to this, now is definitely the time to seek the advice of your own attorney.

In the last part of the process, some states have laws that allow you the chance to buy your property if you can. By this time, though, you will most likely have been made to vacate your home by the local sheriff’s department, if you have not been able to make up the payments.

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Rent-to-Own: Blessing or Trap?

October 16, 2008 · Posted in Personal Finance · 1 Comment 

Most people hit a point in time where they truly need something such as new furniture or appliances, yet just don’t have the money to pay for them. Their credit may also not be the best it could be either. This is usually when they flock to the nearest rent-to-own store. They know that, here, they can get whatever they need by making that first weekly or monthly payment, and signing a contract in which they agree to pay this same amount weekly or monthly for a certain length of time. They can also leave the store with the items they need that very day, or have it delivered within 24 hours.

It all sounds so very simple, doesn’t it? In many ways it IS very simple. However, in other ways, it can be a huge trap. When you enter the rent-to-own store you may be in such a desperate situation that you don’t even bother to read the fine print on your contract. You are probably also not looking at the highly inflated interest rate you are paying to “rent” your new refrigerator or living room suite. All you see is that you can pay an affordable amount of money and walk out the door with what you need. This interest rate DOES add up, too. You usually end up paying 2 – 3 times higher the amount than you would have if you had purchased it elsewhere outright.

The good thing about these programs, though, is that people CAN get what they need immediately, even with bad credit. This is a life saver to many who simply cannot have the things they need in the time frame they need it. In addition, you will have monthly or weekly payments that you can budget for. So there are no unpleasant surprises. However, if you miss a payment with these stores, you can expect a phone call the day it becomes past due. You will also have late fees added to the past due payment. If you default on your payment too many times in a row, the account manager will show up at your door with the store truck to take back the merchandise. This means you will lose all the money you have paid into it.

The rent-to-own stores have both good points and bad points. But if you are truly in a situation where this is your only answer, you can make it work for you. You can budget your payment, and even double up on them when possible. Once you have completed the contract, your item will become yours. You may have paid more money than you should have, but at least you were able to get what you needed when you needed it.

How to Improve Your Credit Rating Fast

October 5, 2008 · Posted in Credit · Comments Off 

All potential lenders, landlords and employers seem to require a credit report before going any further with your loan, apartment application, or job interview. This report shows them exactly what your credit score is, and will alert them to how good or bad your money managing skills are. It also tells these people you really want to impress if you are reliable or not with repaying any debts.

For better or worse, your credit score is the one thing that will follow you all of your adult life. It will make a difference as to whether or not you get the car loan you really want. It will be the thing that makes it possible to be living in a cool apartment, or sends you back to your parents’ basement. A high credit score will put you in that sporty car you crave, or in that apartment where you can invite your friends with pride. Banks will be beating down your door to loan you money.

There is, however, the other side of the story. If you have a below average or poor credit rating, you will be counting change and hitting up your friends or relatives for money to pay large deposits and down payments. Otherwise, you will have no place to live, and no car to drive. However, it’s not all hopeless. There are several ways to pull your credit rating up to an acceptable rating.

All of your financial information will affect your credit score, be it positive or negative. Some of the information will have more an affect than others. When you are trying to make your credit score better, remember to start with the negative factors.

The first thing you need to do is start making any payments you owe on time. All payments are reported to the credit agencies regularly. Your credit score can improve within as little as 3 months just bypaying your bills on time.

Getting a copy of your credit report and reviewing it carefully for accuracy is also very important. Sometimes you will find that a creditor has reported you for late payments when you have been making your payments on time. This means you will need to take the time to write a letter to the credit agency to dispute this report, requesting that a correction is made on your credit. Having proof of this will help make this correction take place quickly. If you only have your word for this, it will take much longer.

Open a savings account and keep at least $500 in it. This will help to improve your credit rating. That balance will give you collateral for a personal loan. A bank loan can raise your credit rating faster than anything else.

If your credit rating is particularly dismal, you need to understand that there is not a quick fix. It took you years to reach this point, and it won’t be repaired overnight. But don’t let this discourage you. Instead, look for the light at the end of the tunnel, which should start appearing within 3 months of your improvement actions.

What is the FDIC for?

October 3, 2008 · Posted in Banks · 1 Comment 

It would likely be safe to assume that almost everyone in the United States has seen the “Member FDIC” signs that are displayed at banking institutions. Even if you don’t have a bank account yourself, you have still probably seen one at least once in your lifetime thus far. The signs are as common in America as hot dogs and apple pie. However, something being extremely common does not mean it is also understood by everyone. If you’re one of those people unsure of what exactly the FDIC is or what it does, read on to find out.

The FDIC stands for “The Federal Deposit Insurance Corporation.” It exists to provide insurance for nearly every banking institution, as well as savings and loan institution. It automatically protects individuals and businesses alike, for up to $100,000, in the event of bank failure. In the case of retirement funds, the FDIC insures up to $250,000. This basically means that if your bank goes the way of the dinosaurs, your money is guaranteed to be safe up to those listed limits. By your bank displaying those “Member FDIC” signs, they are letting you know that they are compliant with the FDIC, so you can feel more confident about letting them handle your money.

As with anything, there are some restrictions, of course. The FDIC does not cover absolutely everything, so certain situations will render the insurance coverage null. The coverage extends to more standard banking procedures, such as checking accounts and savings accounts. It will also cover Money Market Deposit Accounts if yours is one that you can write a small number of checks on a month and Certificates of Deposit that take time to reach maturity.

On the flip side, the FDIC will not cover Treasury bills or other investments backed by the United States government, stocks, bonds or mutual funds. It will not protect your annuity or insurance items, like those for your home or vehicle. Any mistakes made by your bank itself are instead usually covered by their own insurance policies, which is handy because the FDIC doesn’t have those under its protective umbrella. Likewise for any fraud committed by bank personnel.

So, to sum it up: the Federal Deposit Insurance Corporation is an organization that provides you with a means of protecting and recovering losses you may accrue in the event of bank failure, and next time you see one of those “Member FDIC” signs, you’ll know exactly what it means.

Finance in the News: Bear Stearns

October 2, 2008 · Posted in Banks, Finance · Comments Off 

Before its recent collapse this year (2008), The Bear Stearns Companies, Inc. was one of the largest securities trading and brokerage firms and one of the largest global investment banks in the world. The main areas of business that Bear Stearns covered were the following: capital markets (fixed income, equities, investment banking), wealth management, and global clearing services.

Bear Stearns was founded in 1923 as an equity trading house, with five hundred thousand dollars in capital, by Robert Stearns, Joseph Bear and Harold Mayer. The company made it through the stock market crash of 1929 without having to lay off any employees. In 1933, it opened its first Chicago branch office, and in 1955, it opened the doors of its first international office in Amsterdam.

Bear Stearns became a publically traded company in 1985, counting individuals as well as corporations and governments as clients, with services including mergers and acquisitions, trading and research, foreign exchange, futures sales and trading, asset management, corporate finance, and more. It offered global clearing to broker dealers, broker clients and other professional traders, as well as securities lending, through its Bear Stearns Securities Corp. branch. Collectively, Bear Stearns was named the seventh largest securities firm in the world in terms of total capital in 2005, and in 2006, had a total capital of somewhere around $66 billion and total assets in the neighborhood of $350 billion.

By March of 2008, though, it was in big trouble. Bear Stearns became involved with the Community Reinvestment Act in 1997. These CRA loans were given to people that would otherwise be considered unworthy of credit in an effort to “end discrimination.” This was the beginning of what would eventually lead to Bear Stearns involvement in the 2007 subprime mortgage crisis and its subsequent demise. In July of 2007, two subprime hedge funds had lost nearly all of their value. Lawsuits filed on behalf of investors against Bear Stearns quickly followed, and two former managers of the failed hedge funds were arrested in June of 2008, facing criminal charges of misleading investors about the risks of investing in subprime markets.

In March of 2008, the Federal Reserve Bank of New York in conjunction with JPMorgan Chase provided an emergency loan to Bear Stearns in an attempt to prevent a market crash from the company becoming insolvent. Two days later, Bear Stearns signed a merger agreement with JPMorgan Chase at $2 a share (less than 10 percent of market value), which prompted a class action lawsuit filed on behalf of shareholders. In response, the offer was adjust to $10 a share, and on May 29th of 2008, the sale to JPMorgan Chase was approved.

What is Subprime Lending?

October 1, 2008 · Posted in Finance · Comments Off 

With the current economic crisis the United States is experiencing, there is a lot of talk about subprime lending practices, with specific attention on subprime mortgage lending. The term is fairly new and has been promoted via its use in the media. It refers to lending that financial institutions do that carries more risk than A-paper lending. Subprime lending is also sometimes called B-paper, near prime, second chance lending, or nonprime, and usually carries much higher interest rates than other loans do.

Subprime lending practices are found within a variety of different credit situations, including home mortgages, credit cards and vehicle loans. Lending is considered subprime when it does not conform to Fannie Mae or Freddie Mac guidelines for loan issuance. A loan may not meet Fannie Mae and Freddie Mac guidelines for several reasons, like the credit status of the borrower, job and income history of the borrower, the ratio of income to mortgage payment. The term subprime can also be applied to bank loans taken for properties that can’t sell on the primary market, including such loans as can’t be given to certain people that are self-employed, or certain investment properties.

Due to the mounting economic crisis, our attention has been drawn to practices in subprime lending, which some consider to be predatory. Allegations include lenders targeting borrowers that did not understand exactly what they were signing up for, and lenders targeting borrowers that could not realistically meet the terms of their loans. A borrower with poor credit history may not meet the Fannie Mae or Freddie Mac guidelines and standards, and therefore feel as if a subprime loan is their only option, regardless of the prohibitive terms or costs that come with it – hence “second chance” as a moniker, alluding to the idea that you could redeem your credit score with this new loan. Unfortunately, subprime loans often leave much less room for any financial difficulties the borrower may experience in future, and this can lead to high rates of defaulting on payments and foreclosures on properties.

Supporters of subprime lending maintain that it is a good thing that allows people access to the market that may not otherwise qualify to have credit extended to them – but one must bear in mind that if you don’t qualify via conventional means, it’s likely for a good reason, and turning to a subprime loan with high rates puts your finances at even more risk should you become unable to make your payments, and can easily put you in way over your head.

Finance in the News: Freddie Mac

September 30, 2008 · Posted in Finance · Comments Off 

Freddie Mac is the nickname given to the Federal Home Loan Mortgage Company (FHLMC). Created in 1970, Freddie Mac was a government sponsored enterprise (GSE) authorized to make loans and loan guarantees by the United States federal government. Prior to 1968, the secondary mortgage market in the US had been monopolized by the Federal National Mortgage Association (otherwise known as Fannie Mae). Fannie Mae was a government organization at the time, and in order to end Fannie Mae’s monopoly, Freddie Mac was made a private corporation. “Freddie Mac” as a nickname is sort of a creative application of the acronym for the organization’s name, and was adopted officially because it’s much easier to use.

Freddie Mac was created to expand the secondary market for mortgages in the United States. It bought mortgages on the secondary market, and then pooled them and sold them on the open market to investors as mortgage backed securities. This market increases the amount of money available to use for mortgage lending, and it also increases the amount of money available for the purchase of new homes.

The primary way Freddie Mac makes money is by charging a guarantee fee on those loans that it has purchased and turned into mortgage backed security bonds (MBS). Purchasers of MBS from Freddie Mac let Freddie Mac keep the fee in exchange for assuming the credit risk. Basically, in exchange for Freddie Mac’s guarantee that the interest as well as the principal on the loan will be paid back regardless of whether or not the borrower actually pays the loan back. During the subprime mortgage crisis of 2007, this method landed Freddie Mac in dire straits.

In 2008, in a move that’s been hailed as “one of the most sweeping government interventions in private financial markets in decades,” the Federal Housing Finance Agency (FHFA) put Freddie Mac, along with Fannie Mae, under the conservatorship of the FHFA. The initial investment in this federal takeover has the Treasury contracted to acquire $1 billion in Freddie Mac senior preferred stock, paying at the rate of 10% per year. The total investment can rise and cap off at $100 billion.

Those owning Freddie Mac debt can end up protected as a result of the takeover, along with the Asian banks that had increased their holdings in these bonds. Home loan interest rates may also go down, but shares of Freddie Mac stock as of September 8th, 2008 were only worth about one dollar USD.

Finance in the News: Fannie Mae

September 30, 2008 · Posted in Finance · Comments Off 

Fannie Mae is the nickname given to the Federal National Mortgage Association (FNMA). As a US publically traded government sponsored enterprise (GSE), Fannie Mae was a stockholder owned corporation that was authorized to make loans and loan guarantees. Founded as a government agency in 1938 as part of Roosevelt’s New Deal, Fannie Mae provided liquidity for mortgage originators – in other words, Fannie Mae enabled commercial banks, savings and loans, mortgage companies, state and local housing agencies and credit unions to have the funds to lend to people looking to purchase a home – and was the leading participant in the secondary mortgage market in the United States.

Fannie Mae held a virtual monopoly on this market for the next 30 years after its creation, until Freddie Mac was created to help break that monopoly in 1970. In 1968, Fannie Mae also ceased to be on federal books, as it was converted to a private corporation. Any government issued mortgages it held at that time were transferred over to the new Government National Mortgage Association (also known as Ginnie Mae).

Fannie Mae works by buying loans from mortgage originators like banks and mortgage firms. It then repackages the loans, converting them to mortgage backed securities (MBS) and then sells them on the secondary mortgage market. It guarantees that both the principal and interest will be paid to investors, regardless of whether or not the borrower repays the loan. Fannie Mae also can hold those purchased mortgages for its own portfolio. Fannie Mae itself receives no federal government aid directly, though it has been widely believed to be backed by the United States government, however implicitly. This idea would eventually be put to the test, and judging from events, appears to bear out.

By 2008, Fannie Mae guaranteed or owned about half of the $12 trillion mortgage market in the United States, along with the Federal Home Loan Mortgage Corporation (also known as Freddie Mac). This put Fannie Mae in a position to be greatly affected by the subprime mortgage crisis the country began experiencing in 2007, which eventually led to the federal takeover of Fannie Mae and Freddie Mac in September of 2008. On September 7, 2008, the Federal Housing Finance Agency (FHFA) took conservatorship of both Fannie Mae and Freddie Mac. The FHFA has said there are no current plans to liquidate the company, but the authority the Treasury has to give funds to either corporation to keep them solvent is limited by laws governing how much debt the entire federal government is allowed to commit to.

United States Bank Failures: Is My Money Safe?

September 29, 2008 · Posted in Banks, Money · Comments Off 

With the economic crisis the United States is experiencing right now, and the growing number of bank failures and seizures because of it, you are likely concerned about your money – and rightly so. The average consumer, however, does not need to worry yet about losing what’s in their checking account. Shareholders and bondholders may face problems, but your savings account is protected by the FDIC, and here is why:
FDIC stands for “The Federal Deposit Insurance Corporation.” It exists to provide insurance for nearly every banking institution, as well as savings and loan institution. The FDIC automatically protects individuals and businesses alike, for up to $100,000, in the event of bank failure. In the case of your retirement funds, the FDIC insures up to $250,000. This basically means that if your bank goes the way of the dinosaurs like Washington Mutual or IndyMac Bancorp have done so recently, your money is guaranteed to be safe up to those listed limits.

As with anything, there are some restrictions to this, of course. The FDIC does not cover absolutely everything, and so certain financial situations will render the insurance coverage null. The coverage extends to the more standard banking procedures, such as checking accounts and savings accounts. It will also cover Money Market Deposit Accounts if yours is one that you can write a small number of checks on a month and Certificates of Deposit that take time to reach maturity.

On the flip side, the FDIC will not cover Treasury bills or other investments backed by the United States government, stocks, bonds or mutual funds. It will not protect your annuity or insurance items, like those for your home or vehicle. Any mistakes made by your bank itself are instead usually covered by their own insurance policies, which is handy because the FDIC doesn’t have those under its protective umbrella, and the same is also true for any fraud committed by bank personnel.

So, to sum it all up: the Federal Deposit Insurance Corporation is an organization that provides you with a means of protecting and recovering losses you may accrue in the event of bank failure. Most depositors with accounts at Washington Mutual and IndyMac will be okay, and most depositors with other banks will be okay, as well, should their banks also fail, but you must absolutely check with your own institutions to be sure, and be careful!

Finance in the News: Financial Failures of September, 2008

September 29, 2008 · Posted in Finance · Comments Off 

The month of September 2008 has seen dramatic and sometimes shocking upheavals in the United States economy that have had profound effects on the economies of other countries across the world. These upheavals include the failure of the United States’ largest savings bank and the federal bailout of a major American insurance corporation. What follows is a short summary outlining 3 of the most major of these:

  1. Lehman Brothers Holdings Inc. – A global financial services firm that deals in investment banking, fixed income and equity sales, trading and research, private banking and equity, and investment management, and one of the primary dealers in the United States Treasury securities market, Lehman Brothers filed for Chapter 11 bankruptcy on September 15th, 2008, marking the largest bankruptcy filing in United States history with a record $613 billion dollars of debt.
  2. American International Group, Inc. – AIG, a major American insurance corporation based in New York City, with headquarters located across the globe, suffered a massive liquidity crisis on September 16th, 2008 due to the downgrade of its credit rating. This prompted AIG to request a loan from the United States Federal Reserve (the Fed) to prevent the company’s complete collapse, which the Fed granted, marking the largest bailout the government has made of a private company in history (though smaller than the takeovers of Fannie Mae and Freddie Mac a week previous, it was not the same kind of deal).
  3. Washington Mutual – The largest savings and loan in the United States, Washington Mutual, was seized by federal regulators on September 25th, 2008, and an emergency sale was brokered to JP Morgan Chase for virtually all of WaMu. The remainder will be operated by the United States government. This is by far the largest bank failure in United States history, and while some shareholders and bondholders will be wiped out, the average customer is protected up to $100,000 by the FDIC.

These are just three of the large failures experienced during the month of September in this economic crisis, and it is important to note that AIG was bailed out by the government because it was so intricately entangled with the rest of the financial system of the US, whereas WaMu and Lehman Brothers were allowed to collapse because the ramifications of that collapse more affected those involved with these private companies than it would the fate of the financial system as a whole.

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