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Money

The www.FedPrimeRate.com Personal Finance Blog and Magazine

Wednesday, October 25, 2023

www.FedPrimeRate.com: Emergency! Can I Borrow Your Phone SCAM

www.FedPrimeRate.com: Emergency! Can I Borrow Your Phone SCAM...



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www.FedPrimeRate.com: Banking SCAM ALERT, Part 1

 www.FedPrimeRate.com: Banking SCAM ALERT, Part 1



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Monday, October 24, 2022

SCAM ALERT: How to Avoid Banking And Other Trending Scams; Know The Red Flags

SCAM ALERT: How to Avoid Banking And Other Trending Scams; Know The Red Flags
From the good folks at Bank of America:

Be Aware Of A Trending Zelle® Payment Scam

Beware of scammers impersonating banks and fraud departments. By spoofing legitimate phone numbers to call or text you, the requests can be very convincing. While Bank of America may send you a text to validate unusual activity, we will never contact you to request that you send money using Zelle® to anyone, including yourself or to share a code to resolve fraud.

Here's What Happens:

  • You receive a text that looks like a Bank of America suspicious activity alert.

  • If you respond to the text, you've engaged the scammer and will receive a call from a number that appears to be from a bank.

  • The “representative” or scammer will offer to help stop the alleged fraud by asking you to send money to yourself with Zelle®.

  • Then, they ask you for a one time code you just received from a bank. If you give them that code, they will use it to enroll their bank account with Zelle® using your email or phone number.

  • The scammer now has the ability to receive your money in their account.


Being vigilant is your first line of defense; here's how to help stay protected:

  • Don't be pressured to act immediately — this is what scammers want you to do.

  • Don't trust caller ID — it's not always who it says it is.

  • Don't share codes based on a call you receive.


To learn more, watch this educational video layer from Zelle®

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Know The Scams That May Follow A Natural Disaster

Watch out for fake contractors. Following a disaster, unlicensed contractors will canvas the impacted areas promising to get clean up or repairs done quickly. They may ask for payment up front and not show up to do the work, or have you sign a contract that redirects insurance payouts to them and not you.

  • Do your research; get multiple quotes for comparison, and make sure the contractors are licensed.

  • Use caution if you're pressured to pay up front for the job or sign over the insurance claim. Contractors may try to offer special deals that seem too good to be true.

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CLICK HERE for much more from this
highly informative Bank of America article.

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#SCAMS #SCAMMERS #FRAUD #ZELLE #BofA #SCAMALERT #NEWSCAMALERT #REDFLAGS #SCAMAVOIDANCE #AVOIDSCAMS #FedPrimeRate #PHONESCAMS #EMAILSCAMS #TEXTSCAMS #BANKOFAMERICA #PHISHING #PHISHINGSCAMS #BANKSCAMS #BANKS #BANKINGSCAMS


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Wednesday, December 22, 2021

Best Egg "Pre-Approved" Loan Offer: Why Not Say "Pre-Qualified?"

Best Egg Pre-Approved Loan Offer

Best Egg Pre-Approved Loan Offer

After all these years, I can't believe that lenders are still allowed to use this language:

"Pre-Approved"

I'm old, and I've done plenty of borrowing in my time, so I know that the phrase "you're pre-approved" is a very unethical trick lenders use to make you think that your financial background has already been vetted, and your loan application is virtually guaranteed to get a green light. I know better.

But what about the young, first-time borrower with a limited or nonexistent credit history?  They see the "pre-approved" hook, they apply, they get turned down, and the lender ends up getting something very valuable: all of the rejected borrower's most sensitive, identifying information (name, address, Social Security number, age, etc.) Not good.  Not good at all.

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OK, so here's an explainer of a mortgage "pre–approval letter," by the good folks at TheMortgageReports.com:

"...Having a pre–approval letter gives your offer a lot more clout, because the seller has solid evidence you’re qualified for a loan to purchase the home.

Realtors generally prefer a pre–approval letter over a pre–qualification letter, because a pre–approval has been vetted to prove your eligibility.

Note: getting “pre–qualified” is different from getting a pre–approval.”

Both terms mean a lender is likely willing to loan you a certain amount of money. But Realtors generally prefer a pre–approval letter over a pre–qualification letter.

That’s because pre–qualification letters are not verified. They’re just an estimate of your budget based on a few questions.

A pre–approval letter, on the other hand, has been vetted against your credit report, bank statements, W2s, and so on. It’s an actual offer from a mortgage company to lend to you – not just an estimate.

You are NOT required to stick with the lender you use for pre–approval when you get your final mortgage. You can always choose a different lender if you find a better deal..."

And this is exactly what ALL banks should do: use the term "pre–qualified" instead of "pre-approved," and include a detailed explanation of what it means, not in tiny, eye-straining text and the end of the last page, but in bold, and right next to the first use of the term.  Amen.

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Monday, July 19, 2021

Quantitative Easing Explained

 Quantitative Easing Explained:






How Quantitative Easing Works

How Quantitative Easing Works

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Monday, December 16, 2019

New Breed of Banks

New Breed of Banks; a segment by the exceptional folks at Nightly Business Report (NBR.) "Tech companies, big and small, are getting into the banking business...":




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Thursday, October 16, 2014

Former Fed Chair Ben Bernanke Gets Rejected When He Tries to Refinance His Mortgage

Former Fed Boss Ben Bernanke
Former Fed Boss Ben Bernanke
Former Fed Boss Ben Bernanke recently told a crowd that his application to refinance his mortgage was declined.

I bet that one got lots of chuckles, but I think I understand why he did this.

You see, Uncle Ben already refinanced twice before, in 2009 and 2011.

Rates are still extremely favorable right now, but if he jumped into refi #3 today, it would only shave a few basis points (a fraction of a percentage point) off his rate.

Now, considering the closing costs, how possibly  could it be a worthwhile thing to do?


So my theory?  Uncle Ben is trying to send a very clear message to America's banks: Loosen up those lending standards!

If Dr. Benanke, a guy who makes $250,000 per speech, and has a $1M book deal, can't refi, then what hope is there for the rest of us with great income, great credit and who are perfectly deserving of a favorable loan?


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Monday, November 15, 2010

New Credit Card Rules

New Credit Card RulesConsumers are now familiar with the Credit Card Accountability Responsibility and Disclosure Act of 2009 or CARD and how it protects borrowers against unfair interest rate hikes and other exorbitant credit card fees. However, most consumers are not aware that the Federal Reserve enacted new rules for credit card companies on February 22, 2010 to ensure that consumer rights outlined in the CARD Act of 2009 are truly protected. As the regulatory agency of America’s banks, the Federal Reserve has to police the banks to make sure that they don’t try to exploit potential loopholes in legislation and thereby exploit consumers.

The February 2010 regulations enacted by the Federal Reserve provide the following protections to credit card consumers:

Credit card companies must tell you how long it will take to pay off your balance. Now your monthly credit card bill must include a breakdown of how long it will take to pay off your balance if you only make the minimum payments as well as what you would need to pay each month in order to pay off your balance in three years.

No interest rate increases for the first year. Credit card companies can no longer increase your rate for the first 12 months after you open an account, EXCEPT IF:

  • Your card has a variable interest rate tied to an index.
  • There is an introductory rate, but it must be in place for at least 6 months.
  • You are over 60 days late in paying your bill.
  • You violate a payment arrangement agreement.

You MUST be notified when they plan to increase your rate or other fees. Your credit card company is now required to give you 45 days written notice before they can

  • Increase your interest rate;
  • Change fees that apply to your account
  • Make any significant changes to the credit contract terms.

If you do not agree to the new terms you now have 45 days to cancel your card before the changes are put into effect. However, if you do choose to cancel your card your credit card company may close your account and increase your monthly payment, with certain limitations.

Your credit card company DOES NOT have to give you 45-day written notice if:

  • You have a variable interest rate tied to an index and the index goes up.
  • Your introductory rate expires.
  • You violate a payment arrangement agreement and you experience a rate increase as a consequence.

Increased interest rates can only be applied to new charges. If after 12 months your interest rate is increased it cannot be applied to a balance accrued before the rate increase itself.

Restrictions on over-the-limit transactions. You must now opt-in to allow transactions above your credit limit to be processed; otherwise the charges must be denied. If you do not opt-in and your credit card company allows your card to be charged above your credit limit, you cannot be charged an over-the-limit fee. Also, if you do go over your limit you can only be charged one over-the-limit fee per billing cycle, and you can opt-out at any time.

Payments must be directed to highest interest balances first. If you make more than the minimum payment, the difference must be applied to the balance with the highest interest rate, with one exception:

When you owe a balance on a deferred interest plan, the credit card company may give you the option to apply payment in excess of the minimum balance to the deferred interest balance before other balances. Otherwise, for two billing cycles prior to the end of the deferred interest period, your entire payment must be applied to the deferred interest-rate balance first.

No double-cycle billing. Interest charges can only be applied on balances in the current billing cycle.

Standard payment dates and times. Your credit card bill must be mailed or delivered at least 21 days before your payment is due. Furthermore,

  • Your due date must be the same date each month
  • Payments must be accepted until 5 p.m. on the due date.
  • If your payment due date falls on a weekend or holiday you will have until the following business day to pay.

New caps on high-fee cards. If a card comes with fees such as an annual fee or application fee, those fees cannot total more than 25% of the credit limit. The 25% cap does not, however, apply to penalty fees.

Protections for underage consumers. Applicants under the age of 21 must prove that they have the income to pay their balances or they must have a cosigner in order to open a credit card account. Also, if an underage cardholder wishes to increase their credit limit and they have a cosigner, the cosigner must agree in writing to the limit increase.

The Fed also announced in October 2010 that it would amend Regulation Z, the regulations implementing the statutes of the Truth In Lending Act, in order to stop certain predatory practices enacted by credit card companies in attempts to maneuver around the CARD Act rules and earlier Federal Reserve regulations. The amendments will clarify matters of compliance for card issuers on the following:

Promotional programs that waive interest charges for a specified period of time. Reduced interest rate promotions are subject to the same protections as promotions that employ a reduced interest rate for a specified period. Credit card companies have recently used a ‘bait and switch’ approach to certain reduced rate offers, not disclosing that the promotion rules would allow them to revoke the benefit at any time.

Fees charged before a credit card account is opened. Application fees and other fees that are paid before a credit card account is opened are covered by the same limitations as fees charged during the 12 months after the account is opened to further avoid predatory lending practices.

Proof of ability to pay must be proven for the cardholder as an individual, not household income. Predatory lenders often issue cards to individuals who do not truly have the ability to maintain their accounts based on household income or other income credits, locking these consumers into a debt trap.

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Tuesday, January 05, 2010

Move Your Money

Came across a great video clip from the folks @ MoveYourMoney.info. Clip features scenes from one of the greatest American films of all time -- It's A Wonderful Life -- and it really helps to make their message as compelling and convincing as possible. I was going to describe the clip here, but I think I'll just post a quote from the final seconds of the four-minute movie instead:

"...If you leave your money with the big banks, they will use it to pay lobbyists to keep Congress from fixing the system..."
Yup.

Here's the clip:

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Thursday, July 23, 2009

Citi® Raises My Interest Rate from 8.24% to 14.99%

As a consumer with an 800+ FICO® credit score, I find it very vexing when a credit card bank raises my interest rate to that more suited to a subprime borrower, or someone with a limited or nonexistent credit profile. This has happened with a number of my consumer credit card accounts since the credit crisis peaked last year. In each case, I've opted out of the rate increase, which resulted in each account being closed by the bank.

Though I have the option to opt out of the latest assault on my credit -- an APR increase on my Citi® Dividend Platinum Select card -- I'm not going to. That's because this card has a relatively high credit limit, so closing this account would cause my FICO credit score to drop considerably. Keeping it open will not be a problem, as I haven't carried a balance on this card in years.

Change of Terms Notice

Since I will be accepting the change of terms. My APR will increase from 8.24% variable (Prime + 4.99%) to 14.99% variable (Prime + 8.99%, with a minimum of 14.99%) at the beginning of next month. In other words, in reality, my APR will rise to Prime + 11.74%! Simply outrageous for someone with my credit history. So why didn't Citi just note the change as Prime + 11.74% in the literature they sent me? Very good question. Perhaps it's because they know how uGlY it looks?

I'm betting that two years from now, when the Fed will be raising short-term rates to tame runaway inflation, the rate on this card will be close to 20%, if not higher. Just have a look at where the U.S. Prime Rate was at its most recent high: 8.25% from mid-2006 through September 2007.

8.25% + 11.74% = 19.99%.

Even more telling, let's plug in the median U.S. Prime Rate:

8.75% + 11.74% = 20.49%.

Yikes! Ouch! Just looking a those numbers makes me cringe.

Ok, so here is the reason I was given for the rate increase:

"...In this economic environment in order to continue to provide consumers with access to credit, we have had to adjust our pricing..."
Actually, the way I see it, the rate increase has more to do with the really bad mistakes Citigroup made during the recent housing/credit boom than it does with this recession we're in. Of course, the banks that messed up want consumers and taxpayers to pay for their mistakes, while top executives continue to take home massive bonuses. Seems to be the new American way of doing business on Wall Street.

Citi's excuse is not so bad, however, when compared to the one Advanta gave me when they closed my business credit card account. That bank actually tried to paint me as a credit risk despite my high credit score, perfect payment record and my habit of paying at least three times the minimum amount due each month. Advanta has a lot of small business owners very angry, and I think that lawsuits and settlements are only just beginning for that company.

Ok, here's another quote from the change of terms notice:

"...If you opt out of these changes, you may use your account under the current terms until the end of your current membership year or the expiration date on your card, whichever is later..."
This is actually a much better policy than I've seen with other credit card banks. With other banks, when I opted out of rate increases, the bank either closed my account right away, or closed it within 30 days of my opting out. So, I will give some kudos to Citi for giving customers time to pay down their debt before jacking up their APR.

As soon as I am done posting this blog entry, I will take my Citi® Dividend Platinum Select card out of my wallet, blindfold it, march it down to my crosscut shredder, give it its last cigarette and destroy it. I'll keep a record of the card's details, of course, just in case.

I'm actually grateful that banks like Citi exist. Why? Because my income varies so wildly that my credit union won't give me a credit card, despite my stellar credit rating. So, yeah, I like to complain when they're up to no good, but these banks actually play a vital role in providing credit to folks with undulating income, like me.

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Sunday, March 29, 2009

Recession Worries: Bad for Teeth; Boon to Dentists

Recession Worries: Bad for Teeth - Boon to DentistsSix days ago, I woke to find pain in my jaw, on the right-hand side near the temple. The pain wasn't so severe that I couldn't work or think (yes, I've known that kind of mouth pain in the past), but it was annoying. I was worried about the cause. Could it be Tetanus (also known as lockjaw)? Or maybe I was grinding my teeth in my sleep? I'd never had a problem with nocturnal teeth grinding, but to me it seemed the most likely cause.

I decided to try my own fix. In bed, and close to dreamland, I got into the habit of extending my tongue so that it formed a barrier between my upper and lower gnashers. There was little change after a day, but two days later the pain was almost completely gone, and my tongue suffered no ill effects. Today I woke to find that my jaw was 100% back to normal.

I'm thankful that the pain has been eradicated, but now, once again, I'm worried about the cause. I'm 99% certain that it's this recession. I've been worried about my income, bills and responsibilities for some months now, and I think the anxiety is starting to take it's toll on my unconscious mind. Am I getting enough rest? I feel like I am, but I'd need to go to a sleep center to know for sure.

Then, earlier today, I listened to a great episode of my favorite NPR radio show This American Life. Today's show was called "Scenes From a Recession." The show begins with a segment about how this recession has been a boon to dentists. Nocturnal teeth grinding is up, resulting in chipped and worn out teeth. I was sorry to hear about the teeth, but it was nice to know that I'm not alone.

This recession episode also features a great piece detailing, in documentary form, the closing of a failed bank (if you're wondering which bank, it's this one.) Good stuff.

And that's not all: there's also a fascinating piece covering the final days of a Circuit City store, and it includes the kind of detailed coverage I've come to admire -- no love -- about This American Life (FYI: Circuit City no longer exists.) I found this particular story compelling, because I always thought the service at Circuit City was beyond terrible, and most of my friends didn't agreed with me.

If you missed it, the episode will be available (at the story link above) as a free MP3 download within a few days. Highly recommended.

Of course, if I'm wrong and it is Tetanus, I'll blog about it at this blog, from my hospital bed! But I think I'm OK. If the pain comes back I'll look into getting a teeth grinding guard later this week.

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Friday, February 20, 2009

The Helping Families Save Their Homes in Bankruptcy Act of 2009

The Helping Families Save Their Homes in Bankruptcy Act of 2009A couple of years ago, the mother of my child moved out of the townhouse where I still live (and rent) and moved into a coop nearby. It was (and still is) my opinion that it's never a good idea to buy a home when you have no cash in the bank, but she did it anyway. I had cash, but not enough to make me feel comfortable about buying a nice home in a decent neighborhood, and put 20% or more down. I decided to continue renting, even though I could have qualified (easily) for an ALT-A mortgage. I felt that it was the right move: continue renting for a few more years, then buy a really great home when I had enough cash in the bank.

The mother of my child is struggling now, and she may have to file for bankruptcy protection. H. R. 200, the Helping Families Save Their Homes in Bankruptcy Act of 2009, is a bill that, if enacted into law, would empower bankruptcy judges to modify the terms of a mortgage in bankruptcy court. A bankruptcy judge would be able to lower both the principal and the interest rate on a mortgage loan. A lot of American see this bill as an unfair helping hand for homeowners who bought a home they really couldn't afford. Here is how John Conyers, Jr., the bill's main sponsor, explains it,

"...The legislation before us today would grant bankruptcy courts the ability to modify the terms of a home mortgage in a chapter 13 bankruptcy to bring them closer in line with the value of the home in a depressed real estate market.

For families in dire distress, this is a much-needed reform. And considering the realistic alternatives, it is fair – to all concerned.

I have been working on this legislation – on a bipartisan, bicameral basis – for nearly two years, because I believe it represents one of the most tangible steps we can take to limit the fallout from the real estate depression sweeping the nation.

While bankruptcy reform may not provide all of the answers to this crisis, surely it provides a common-sense and practical approach to helping stop the spiral of home foreclosures – which are not helping anyone.

To those who say we should continue to hold up this legislation while we seek to encourage voluntary mortgage loan modifications, outside of bankruptcy, I would point out that the evidence has shown that such modifications don’t work.

For one thing, most of the servicers who control the mortgage loans are not even legally permitted to agree to voluntary modifications.

And even when they can agree, their financial incentives are stacked in the direction of foreclosure.

As a result, the much-vaunted “Hope for Homeowners” program, which went into effect last October with the goal of helping hundreds of thousands of distressed homeowners, has processed less than 400 applications to date.

To those who claim that this legislation will only end up harming consumers by increasing the cost of credit, I would respectfully suggest that they are not taking account of the track record of the modern-day Bankruptcy Code, and have perhaps not kept up with the latest changes we will be making to the bill today..."

"...Finally, to those who argue that this legislation constitutes some form of “moral hazard” that will encourage reckless borrowing in the future, I would simply ask them to come to Detroit.

Detroit has had more than 100,000 foreclosures over the last three years. And they are continuing at the rate of 126 each day. We have block after block of “for sale” and foreclosure signs – feeding off each other, driving down home values, uprooting families, decimating communities – and causing local tax revenue that pays for police and firefighters to plummet.

We don’t have the luxury of worrying about theoretical future moral lessons; we need to stop the actual bleeding today. And the same is true in Ohio. And in California, and Florida, and Nevada, and Massachusetts, and Arizona – and in countless communities all across the country.

If we can spend 700 billion dollars to bail out the brokers on Wall Street, it seems the very least we can do is allow working families, willing to repay their debts as best they can, under court supervision, the dignity of being able to stay in their home..."

It's all pretty convincing, until you reach the part about increasing the cost of credit. I'm not an economist, but it's clear to me that this bill would increase the cost of credit, making it harder for responsible borrowers to buy a home. Mr. Conyers is not being realistic. When a bank prices a loan, the primary factor is risk. Giving bankruptcy judges the power to modify mortgages would obviously make loans riskier, which would in turn drive up interest rates.

Mr. Conyers then tries to dismiss the moral hazard issue like it's some theoretical nonsense. He doesn't seem to get that, for responsible borrowers, it's an issue of fairness . Mr. Conyers, it seems, doesn't mind rewarding the irresponsible. H.R. 200 would legitimize reckless borrowing at the highest possible level by condoning it in the United States Code.

And now for the counter. George Mason University law professor Todd Zywicki wrote an extremely poignant article about this issue in the Wall Street Journal:

"...The nation faces a foreclosure crisis of historic proportions, and there is an understandable desire on the part of the federal government to "do something" to help. House Judiciary Chairman John Conyers's bill, which is moving swiftly through Congress (and companion legislation introduced by Sen. Richard Durbin) would allow bankruptcy judges to modify home mortgages by reducing both the interest rate and principal amount on the loan. This would be a profound mistake.

Mortgage modification would indeed provide a windfall for some troubled homeowners -- but its costs will be borne by aspiring future homeowners, and by any American who uses credit of any kind, from car loans to credit cards. The ripple effects could further roil America's consumer credit markets.

In the first place, mortgage costs will rise. If bankruptcy judges can rewrite mortgage loans after they are made, it will increase the risk of mortgage lending at the time they are made. Increased risk increases the overall cost of lending, which in turn will require future borrowers to pay higher interest rates and upfront costs, such as higher down payments and points. This is illustrated by a recent example: In 2005, Congress eliminated the power of bankruptcy judges to modify auto loans. A recent staff report by the Federal Reserve Bank of New York estimated a 265 basis-point reduction on average in auto loan terms as a result of the reform.

Allowing mortgage modification in bankruptcy also could unleash a torrent of bankruptcies. To gain a sense of the potential size of the problem, consider that about 800,000 American families filed for bankruptcy in 2007. Rising unemployment and the weakening economy pushed the number near one million in 2008. But by recent count, some five million homeowners are currently delinquent on their mortgages and some 12 million to 15 million homeowners owe more on their mortgages than the home is worth. If even a fraction of those homeowners file for bankruptcy to reduce their interest rates or strip down their principal amounts to the value of their homes, we could see an unprecedented surge in filings, overwhelming the bankruptcy system.

Finally, a bankruptcy proceeding sweeps in all of the filer's other debts, including credit cards, car loans, unpaid medical bills, etc. This means that a surge in new bankruptcy filings, brought about by a judge's power to modify mortgages, could destabilize the market for all other types of consumer credit.

There are other problems. A bankruptcy judge's power to reset interest rates and strip down principal to the value of the property sets up a dynamic that will fail to help many needy homeowners, and also reward bankruptcy abuse.

Consider that the pending legislation requires the judge to set the interest rate at the prime rate plus "a reasonable premium for risk." Question: What is a reasonable risk premium for an already risky subprime borrower who has filed for bankruptcy and is getting the equivalent of a new loan with nothing down?

In a competitive market, such a mortgage would likely fetch a double-digit interest rate -- comparable to the rate they already have. Thus, the bankruptcy plan would offer either no relief at all to a subprime borrower, or the bankruptcy judge would set the interest rate at a submarket rate, apparently violating the premise of the statute and piling further harm on the lender.

More worrisome is the opportunity for abuse.

Imagine the following situation: A few years ago a borrower took out a $300,000 loan with nothing down to buy a new house. The house rises in value to $400,000, at which time he refinances or takes out a home-equity loan to buy a big-screen TV and expensive vacations. He still has no equity in the house.

The house subsequently falls in value to $250,000, at which point the borrower files for bankruptcy, the mortgage principal is written down, and the homeowner keeps all the goodies purchased with the home-equity loan. Several years from now, however, the house appreciates in value back to $300,000 or more -- at which point the homeowner sells the house for a tidy profit.

Nothing in Mr. Conyers's proposed legislation would prevent this scenario from occurring. To modify a mortgage, a borrower would have to enter a Chapter 13 repayment plan for five years. If the homeowner sells his house while he is still in bankruptcy, the mortgage lender can recapture some of any appreciation in its value on a sliding scale -- 80% the first year, 60% the second, 40% the third, and 20% the fourth. After that, however, any appreciation in the value of the house goes into the debtor's pocket.

This dynamic creates obvious opportunities for borrowers to file for bankruptcy to strip down the value of their property in anticipation of rising real-estate markets down the road. At the very least, Congress should extend the time period for allowing lenders to recapture home appreciation beyond five years.

Mortgage modifications during bankruptcy will almost certainly increase the losses of mortgage lenders -- and this may further freeze credit markets. The reason is that when mortgage-backed securities were created, they provided no allocation of how losses were to be assessed in the event that Congress would do something inconceivable, such as permitting modification of home mortgages in bankruptcy. According to a Standard & Poor's study, most mortgage-backed securities provide that bankruptcy losses (at least above a certain initial carve-out) should be assessed pro rata across all tranches of securities holders. Given the likelihood of an explosion of bankruptcy filings and mortgage losses through bankruptcy, these pro rata sharing provisions likely will be triggered. Thus, the holders of the most senior, lowest-risk tranches would be assessed losses on the same basis as the most junior, riskiest tranches.

The implications of this are obvious and potentially severe: The uncertainty will exacerbate the already existing uncertainty in the financial system, further freezing credit markets.

If Congress wants to deal with the rising number of foreclosures, it should not create a new mess by converting the mortgage crisis into a bankruptcy crisis. Doing so will open the door to a host of unintended consequences that will further freeze credit markets, raise interest rates for new home buyers, and spread the mortgage contagion to other types of consumer credit. Congress needs to reject this plan and look for better solutions..."

Sorry, but I just had to quote the whole thing. I didn't want to dilute the power of the article by leaving anything out.

I've been watching the credit crisis very closely since it began, and I think Todd Zywicki is right on all points.

I found myself cheering as I watched CNBC's Rick Santelli tell it like it is:




Yes, calling misguided homebuyers "losers" on national television was indelicate. Mr. Santelli could have been a bit more diplomatic in his tirade, but no one should hold that slip of the tongue against him. When you're fired up, sometimes the wrong word slips out. Happens to the best of us.

So, what does H.R. 200 do for folks like me who made responsible, housing-related decisions when others did whatever they wanted? What does it do for those responsible borrowers who put 20% down and bought the right-sized house, and who now owe more on their mortgage than their home is worth? Nothing. Lots of decent Americans are getting very hot under the collar about the government's fixes for the economic crisis. Lots of hard working, responsible Americans have been gnashing their teeth as careless mortgage borrowers and Wall Street banks get generous bailouts, while they get...well, they get to sit in their underwater homes and watch.

The American Recovery and Reinvestment Act of 2009, which was recently signed into law by President Obama does offer some help for those who may be looking to buy soon. That help comes in the form of a homebuyer tax credit:

"...$8,000 credit for all homes bought between 1/1/2009 and 12/1/2009 and repayment provision repealed for homes purchased in 2009 and held more than three years..."

The Senate wanted a $15,000 tax credit. It's a shame they didn't get their way.

The new law also contain these provisions:

  • $2 billion to help communities purchase and repair foreclosed housing
  • $200 million for helping rural Americans buy homes

Hmmm...Maybe it's just me, but these numbers seem kinda' wimpy considering the scale of the entire package. At the core of this nation's economic woes is a major housing crisis, so I think the spending in this arena should be as aggressive as possible. Lawmakers should make sure that people like me have all the help we need to go into a distressed neighborhood, buy a foreclosed home on the cheap and fix it up. Without the boldest possible action, I fear that the housing crisis will still be with us 2 years from now.

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If the mother of my child ends up loosing her home, my daughter always the option of moving back with me. I recently fixed her up her room with a desktop computer I put together with mostly salvaged parts from other PC's.

Foreclosed homeowners can move back to renting. What's wrong with that? There's nothing wrong with renting!

I think the big question is: do we, as Americans, want to be a nation of Sullenbergers or a nation of Sulemans? There's a great WSJ article by Peggy Noonan here.

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Friday, November 28, 2008

This Is A “Fill In The Blanks” Financial Crisis. Now It’s Time To Fill In Your Blanks.

The Great BailoutIn the following article, we invite you to just fill in the blanks where you see parentheses. Fill in each blank with any old Bank and see what you get:

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Banks Have Their Backs Covered. Who’s Got Yours?

On [just pick a date], the Federal Reserve, the US Treasury, the US President, and Congress agreed to give [Big Name Bank] 300 [Billions or Trillions, take your pick] Dollars in tax payer money, so [Big Name Bank] could buy [Bank About to Fail] for 1 Billion. For those who didn’t know, [Bank About to Fail], one of Wall Streets largest and best known investment bank was bankrupt. [Bank About to Fail] owed more debt than it had in value. Sounds familiar. Kinda' sounds like many people in Foreclosure. Actually, it also sounds like many homeowners not in foreclosure, who have a mortgage loan greater than the value of their home. Just like many ordinary people who have more debt than cash. But I digress. [Bank About to Fail] was in financial trouble because they were worth nothing on paper. So we heard in the news “[Bank About to Fail] must be saved.” Why? “Because if [Bank About to Fail] went under than the whole financial system could have fallen apart. “COULD HAVE”. The stock market “would have” plunged. Big investors “would have” lost lot’s of money. There “would have” been a world crises.

Now let’s think about their bailout logic, one more time. This is my take:

First: [Bank About to Fail] was about to file for bankruptcy because…THEY WERE REALLY BANKRUPT!!.

Second: The Federal Reserve, the US Treasury, the US President, and Congress determined that if [Bank About to Fail] does fail we will have a World Wide Financial Crises.

Third: The Federal Reserve, the US Treasury, the US President, and Congress “saves the day” by essentially GIVING [Big Name Bank] [Billions or Trillions, take your pick] of DOLLARS OF TAXPAYER MONEY so [Big Name Bank] could buy [Bank about to Fail] for 1 BILLION.

Fourth: The Federal Reserve, the US Treasury, the US President, Congress, [Big Name Bank], [Bank About to Fail] and All the Kings Men shake hands, hug, pat each other on the back, exclaim “JOB WELL DONE” b/c the WORLD DID NOT DESCEND INTO FINANCIAL CHAOS.

Do you see what just happened? What does it mean?

No# 1 : There are certain people and businesses TOO IMPORTANT to let go Bankrupt even WHEN BANKRUPT.

No# 2 : The Federal Reserve, the US Treasury, the US President, and Congress DO NOT NEED YOUR PERMISSION to give taxpayer money away to a BANKRUPT BUSINESS.

No# 3 : The Threat of a World Wide Financial Crises is a REALLY GOOD EXCUSE.

No# 4 : It doesn’t take a genius to figure out WHO GOT ALL THE MONEY.

No# 5 : The employees of [Bank about to Fail], who saw the value of their IRA’s or pensions drop because their [Bank about to Fail’s] stock tanked, WATCHED their MONEY they PAY IN TAXES given to…Well let’s say it WAS not given to them to SAVE THEIR IRA’s or PENSIONS.

Truth be told, it is entirely possible that had [Bank about to Fail] actually failed, there would have been a financial crises. It is equally true that if [Bank about to Fail] actually failed, there would NOT have been a financial crises. As is everything in life that could have been, WE WILL NEVER KNOW.

So the rules are made and when things get BAD there is only one Sheriff in town and that Sheriff has friends to protect.

This is history repeating itself over and over. DO FOR YOUR FRIENDS AS YOU WOULD DO FOR YOURSELF. There are those who claim that the bail out of [Bank about to Fail] created a “moral hazard” because [EVERY SINGLE BANK] will take even more risks and ask for even more bailouts because the Federal Reserve, the US Treasury, the US President, and Congress will cover their behind.

And cover their behind they have. For the first time in history, the Federal Reserve allowed Wall Street Investment banks to borrow money from the Fed at a discount (window). For the first time in history, investment banks can become commercial banks. For the first time in history, the Federal Reserve, the US Treasury, the US President, and Congress can hand out TRILLIONS OF DOLLARS of YOUR MONEY without telling YOU where it is going.

It doesn’t end there, the Federal Reserve, the US Treasury, the US President, and Congress gave [Big Name Banks] Treasury Bills (your money) in exchange for [Big Name Banks] worthless collateralized paper. YOUR MONEY FOR BAD PAPER. The paper that consists of collateral debt obligations, sub-prime mortgage backed securities, alt-a mortgage backed securities, credit card backed securities, auto loan backed securities…and the BAD PAPER list goes on and on and on…..

It all boils down to one thing. When it all hits the fan, the BIG NAME BANKS’ Peoples get together, handle their business and do what is necessary to keep their stuff together.

The question for you is “Will Your Peoples Come together, When it starts to get BAD”. It’s time to fill in your blanks.

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Thursday, September 11, 2008

The Convenience of a Check Card and a Loan Shark All Rolled Into One

loan sharkPerhaps this has happened to you. You go to buy something at the store. It's been a busy week, so you haven't been watching your bank balance as closely as you should. The cashier rings you up. You swipe your check card and the cashier says, “It didn't go through. Do you have another card?” What happened? A check card draws money from your checking account, so your balance must have dipped too low to pay for your purchases. It happens.

Well... not anymore, it doesn't.

I switched my checking account to Bank of America a few years ago when I refinanced my adjustable rate mortgage into a home equity line. Back then, my credit was solid and it seemed like it would be easier to have my checking account within easy reach of my second mortgage and my Bank of America credit card. And like my other bank, Bank of America sent me a check card so I could make purchases with the ease of a credit card, minus all those pesky finance charges.

The first time I received an overdraft fee, I didn't think much about it. When you buy gas, the charge doesn't always show up right away and if you forget to keep track of your pending charges, sooner or later you're going to overdraw the account, especially if you're living paycheck to paycheck. The fee was hefty, but it was a small price to pay to make sure my charges were covered. Bank of America would have commended me for my attitude.

Then things started getting tight between paychecks, with more and more checks and charges floating around, and I started getting negative balance numbers that looked strangely plump. I thought maybe someone over the internet had stolen my account number, but the charges were all mine. In fact, I'd made several of them that same day. Twenty dollars here, six dollars there, twelve dollars somewhere else... and even though the balance must have been precariously low when I made the first of the three transactions, I was sure that the other transactions should have been declined. Furthermore, the fact that those two had gone through after the account dipped below zero meant that Bank of America had assessed another $70 in overdraft fees.

If I went to an ATM and tried to withdraw the same amount of money, Bank of America would have checked the balance and said, No dice. If I used my check card, on the other hand, it would authorize the charge regardless of whether or not I had money in my checking account. What mad, tortured logic was this? I could understand having to pay a fee when one too many floating charges collided because I hadn't been keeping a balanced checkbook. What I couldn't understand was how transactions kept getting approved after my account dipped below zero. It didn't make any sense.

My first credit card was a Capital One gold card, offered to me when I was still in high school. It had a $2000 dollar limit back then, and I can remember the exact moment that I reached that limit because the cashier handed it back to me and said, “It was declined, sir.” I'd gone over the limit and couldn't use the card any more. There was an over-the-limit fee and everything. I don't recall how far I'd gone over the limit, but it didn't take more than a single payment to get me back to $2000. One thing I remember very clearly was calling to ask Capital One whether I would be assessed another fee if the finance charges pushed the balance back over the limit. The customer service rep told me, “No, as long as you don't make any charges while you're over the limit, there won't be any more over-the-limit fees.”

It seemed logical to me. If I was to be penalized for using the card when my available balance was too low, that was fair, but if the credit card company could stack fees on top of each other until I got another over-the-limit fee, that was ridiculous. What Bank of America was doing with my check card charges seemed equally ridiculous.

In a single month, Bank of America charged me $350 in overdraft fees, spread out over ten separate charges. Many of these charges should have been declined in the first place, but I was noticing something else. Bank of America had an ugly habit of clearing charges in order from largest to smallest, often draining the account with the first charge and causing multiple overdrafts when clearing them in order would have overdrawn on only the largest transaction. This policy was the source of class action lawsuit against Nationsbank, which became Bank of America, that was settled in 1999. Since then, they've been informing new account-holders of the policy per the settlement agreement, but I don't recall being told about the policy by the manager who set up my account. I'm sure it's in the stack of papers he gave me to sign, or in the folder full of pamphlets I didn't have time to read after the account was processed.

The check clearing policy, however underhanded, is now an industry standard. Most banks will clear your largest checks first, claiming that this is “for your own good.” You want your mortgage payment to go through, don't you? What they don't say is that the three or four smaller transactions after the mortgage payment will go through as well, to the tune of $140.

From the Bank of America website:

Though the Bank of America Visa Check Card is accepted nearly anywhere VISA Cards are accepted, it's not a Credit Card and it's not tied to a line of credit.


Fair enough, but if it's not really a credit card, why do so many transactions go through after you overdraw your account, sometimes days after your account has fallen to a negative balance?

Bank of America explains their methodology:

We charge an overdraft fee when we pay a check or other withdrawal even though you don't have enough available funds in your account to cover these transactions.

In some circumstances, Bank of America may choose not to pay the check or other withdrawal. In this case, we will return it to the payee as unpaid, and may charge an Insufficient Funds Fee.


So, if they decide to pay the charge that should have been declined, they assess a fee. If they decide not to pay the charge, they also assess a fee. That's a pretty profitable arrangement. How exactly do they decide whether or not to pay a fee? Is it even possible to drop so far into negative numbers that your check card will be declined?

A few months ago, I found out the limits of Bank of America's largess when a series of overdrafts and the accompanying fees brought my account balance hundreds of dollars into the negatives. Knowing that the paycheck that would be direct deposited would be eaten up by the negative balance, I had no choice but to keep using the card to buy food and gas, each time watching yet another $35 fee join the transaction. $50 in gas? Let's just call it gas and a short term loan. A $35 fee for every purchase would be criminal if it was actually a finance charge, something akin to what a loan shark might charge, but I didn't have any choice if I wanted to gas up my car to go to work.

It seemed like they were willing to pay on anything as long as they could attach another overdraft fee, so I took one final look at my balance, $-643 and change, and I paid my electric bill. To my astonishment, the transaction was actually approved. I really hadn't expected it to work. A few days later, Bank of America changed its mind about this act of extreme generosity and canceled payment, charging me both the original overdraft charge, as well as the returned item fee.

Remember that thing I mentioned about their “biggest items first” policy, and how it was for my own good? I didn't use the card any more after that, but I forgot about a monthly membership charge that automatically debits the checking account in the amount of $9.96. That charge went through AFTER they declined to pay the debit to the electric company, and it was approved and paid, with the standard $35 overdraft fee tacked on, of course.

The policy of letting transactions go through even after an account's available balance reads $0.00 has become standard in the industry, and it's not even limited to check cards any more. My wife used a SunTrust debit card to buy about $50 worth of groceries last night, entered the PIN number at the Publix register, received approval and went home thinking that the charge was covered by money in the account, only to find a negative balance in the morning and a returned check fee.

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Wednesday, December 19, 2007

The Fed's Plan for Dealing with The Mortgage Problem

The Federal Reserve has released it's plan on how to tackle the problems in the American mortgage industry. Here's how I feel about certain bullet points from the Fed's press release:

  • Creditors would be prohibited from engaging in a pattern or practice of extending credit without considering borrowers’ ability to repay the loan.

  • Creditors would be required to verify the income and assets they rely upon in making a loan.

It's a real shame that Alt-A mortgages were abused. I was hoping this financing option would be available to me when I'm ready to buy, since I am self-employed and have undulating income. The way it looks now, ALT-A loans may eventually disappear from the market forever.

FYI: With stated income mortgages, you provide the lender with your social security number so that they can check your credit score, but the lender doesn't require hard proof of income, like a 2 years of tax returns or payment stubs. A stated income home loan is a type of Alt-A mortgage.

  • Prepayment penalties would only be permitted if certain conditions are met, including the condition that no penalty will apply for at least sixty days before any possible payment increase.

Weak! The Fed should simply ban all mortgage prepayment penalties and be done with them. This is one (of many) reason why I like credit unions much more than banks: a federally chartered credit union cannot charge prepayment penalties, ever. The Federal Credit Union Act of 1934 prohibits federally chartered credit unions from assessing prepayment penalties of any type on any loan.

A credit union is a financial institution that's owned by its members. When compared to credit unions, banks tend to offer more services, and they tend approve loans and credit card applications more readily. But credit unions almost always have better interest rates on loans, better yields on savings and certificates of deposit, and reasonable fee schedules. Also, with credit unions, the terms and conditions attached to loans and credit cards are invariably more consumer-friendly.

I like the idea of benefiting from both worlds: I keep my savings in a credit union, and my business checking account with a large bank.

  • Lenders would be prohibited from compensating mortgage brokers by making payments known as “yield-spread premiums” unless the broker previously entered into a written agreement with the consumer disclosing the broker’s total compensation and other facts. A yield spread premium is the fee paid by a lender to a broker for higher-rate loans. The consumer’s written agreement with the broker must occur before the consumer applies for the loan or pays any fees.
This will definitely help. During the height of the mortgage origination frenzy, mortgage brokers would target subprime borrowers with loans that would likely go into foreclosure, so as to make big money with premium spreads.

  • Creditors and mortgage brokers would be prohibited from coercing a real estate appraiser to misstate a home’s value
Fraudulent appraisals were a big part of the problem, and lots of guilty appraisers won't be prosecuted due to lack of evidence. This proposed rule would certainly help to keep appraisers honest.

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