Despite signs that the real estate market is bottoming out, millions of homeowners are likely to find themselves in worse shape within the next two years.

Nearly half of the nation’s 52 million mortgage borrowers will have negative equity by the end of the first quarter of 2011, up from the 14 million at the end of this year’s first quarter, according to estimates in an Aug. 5 report by Deutsche Bank. With so many borrowers “underwater” — or owing more on their mortgages than their homes are worth — the risk is high that they’ll default and their homes will go into foreclosure, says Mark Zandi, the chief economist at Moody’s Economy.com. (Moody’s Economy.com estimates that 17.5 million mortgage borrowers will be underwater by early 2010.)

Negative equity is the product of several factors. The most significant weight is the broad and persistent decline in home values. A Zillow.com index of home values fell 12.1% year-over-year during the second quarter, resulting in a total drop of 22.3% since the market peaked in mid-2006, according to an Aug. 11 report by the online real estate marketplace. Many buyers who bought their homes around the peak with a 20% down payment have lost that dollar amount.

“The continued decline of U.S. home prices will contribute to rapidly rising rates of negative equity,” Karen Weaver, a Deutsche Bank research analyst, wrote in the report. “The most obvious implication is for mortgage defaults.”

Current homeowners, or those shopping for a home and who are concerned that they’ll end up underwater, should consider how long they expect to live in their homes. Being underwater doesn’t affect homeowners unless they plan to sell, Zandi says.

Individuals who are staying put for at least the next five to seven years will likely recoup the lost value of their home, says Amy Bohutinsky, a Zillow.com spokeswoman. In addition, homeowners should refrain from borrowing against their mortgages, she says.

Those who find themselves underwater can turn to the federal Making Home Affordable plan, which can help you refinance or do a loan modification. You’ll have to meet the eligibility requirements listed here.

Whether you’re at risk for falling behind may have more to do with the economy and your neighborhood than your job, your credit or your income. Here are four warning signs that you’re heading underwater.

Foreclosures in your neighborhood

The quickest way to end up underwater is to live in a neighborhood that’s plagued by foreclosures.

When one home on your block goes into foreclosure, your home’s value drops by 1%, Zandi says. But that isn’t a one-to-one relationship. If two homes on a block go into foreclosure, your home’s value will drop by more than 2%.

You can find neighborhood foreclosure listings at MSN Real Estate.

Homes lingering on the market

When “For Sale” signs linger in a neighborhood for three or more months, that may mean buyers and sellers can’t agree on a price. In that environment, homes are unlikely to sell unless the sellers lower their asking prices.

“The time on the market is always a good barometer of demand for homes and for the price homes are transacting at,” Zandi says. “The longer it appears that neighbors are taking to sell their home the more likely it is they’re not getting the price they want and that prices are falling.”

Compare the time it took for homes to sell in your neighborhood three years ago versus today; if it’s taking weeks or months longer to sell, the prices homes can fetch are dropping, Zandi says.

MSN Real Estate’s home valuation tool includes time-on-market information.

Increasing unemployment

In most cases, the cities where homes have lost the most value during the past year also possess the highest unemployment rates.

Homes in Merced, Calif., have lost 40.2% of their value year-over-year, the biggest loss of home values in the nation, according to Zillow.com. The city’s unemployment rate is the fourth-worst among 372 metropolitan areas at 17.6%, according to July data from the Labor Department. El Centro, Calif., where home values plunged 37.6% year-over-year (the second-biggest drop in the country), has the worst unemployment rate at 30.2%.

Individuals living in areas battered by high unemployment are likely to see their home values drop further, especially if they live in areas dependent on dwindling industries — like Central Valley, Calif., and the mortgage lending business or Detroit and the auto industry, Zandi says.

Homes in disrepair

Dented siding, peeling paint and broken porches could be signs that neighbors are having trouble making ends meet and can no longer pay to take care of their homes, Zandi says. Or they may have gotten an appraisal and discovered their homes have dropped in value and are no longer worth the cost of repairs. As the condition of homes in your neighborhood worsens, home values almost inevitably drop.

“The mere fact that they’re not investing in their homes will affect you too,” Zandi says.

What underwater borrowers have in common

Risky mortgages: Some 77% of option-ARM borrowers and 50% of subprime mortgage borrowers were estimated to be underwater as of the first quarter of 2009, according to the Deutsche Bank report. With option-ARMs, borrowers could make minimum monthly payments that didn’t even cover the loan’s interest. As the market declined, these balances grew. With subprime mortgages, borrowers often had poor credit scores and little documentation of their financial situation. In both cases, borrowers often ended up with a large mortgage relative to the house’s price.

Date of purchase: Individuals who bought their homes between 2003 and 2008 are at risk of being underwater because they bought while prices were rising, Zandi says. The risk is greatest for those who bought in 2005 and 2006, as the market approached its peak.

Excessive borrowing: Many individuals borrowed against their homes during the bubble by taking out second mortgages or tapping into home equity lines of credit or home equity loans. This borrowing left their homes with less equity to weather the drop in home values.

Home’s location: The areas that have been hit the hardest by plunging home values include the “sand states” of Arizona, California, Florida and Nevada because they brought the most speculation, easy credit and overbuilding during the bubble, Zandi says. Also hurt: the states where unemployment is especially high and manufacturing jobs have been eliminated like Michigan, Ohio and Indiana, Zandi says.

This article was reported by AnnaMaria Andriotis for SmartMoney.

What underwater borrowers have in common

Risky mortgages: Some 77% of option-ARM borrowers and 50% of subprime mortgage borrowers were estimated to be underwater as of the first quarter of 2009, according to the Deutsche Bank report. With option-ARMs, borrowers could make minimum monthly payments that didn’t even cover the loan’s interest. As the market declined, these balances grew. With subprime mortgages, borrowers often had poor credit scores and little documentation of their financial situation. In both cases, borrowers often ended up with a large mortgage relative to the house’s price.

Date of purchase: Individuals who bought their homes between 2003 and 2008 are at risk of being underwater because they bought while prices were rising, Zandi says. The risk is greatest for those who bought in 2005 and 2006, as the market approached its peak.

Excessive borrowing: Many individuals borrowed against their homes during the bubble by taking out second mortgages or tapping into home equity lines of credit or home equity loans. This borrowing left their homes with less equity to weather the drop in home values.

Home’s location: The areas that have been hit the hardest by plunging home values include the “sand states” of Arizona, California, Florida and Nevada because they brought the most speculation, easy credit and overbuilding during the bubble, Zandi says. Also hurt: the states where unemployment is especially high and manufacturing jobs have been eliminated like Michigan, Ohio and Indiana, Zandi says.

This article was reported by AnnaMaria Andriotis for SmartMoney.

For your FREE Credit Repair Consultation please contact THD Credit!

Jason Hayden
THD Credit Consulting
jason.hayden@thdcreditconsulting.com
323.515.3382

Let me tell you a story.

Once upon a time, there was a world-famous photographer. She earned a seven-figure salary from a top magazine in addition to the tens of thousands her photographs and books commanded.

Now, according to a lawsuit filed in New York last month, she is being sued for $24 million she had borrowed and, evidently, cannot repay. She is in jeopardy of losing her homes and even the rights to her own art, decades of work.

This is the true story of Annie Leibovitz, one of the most successful photographers in history.

It’s unwise, I know, to generalize too much from any one person’s predicament, especially an extreme one like Leibovitz’s. But there’s still far too much evidence that many ordinary women are handicapped when it comes to money. And it’s not a price we can afford to pay.

The female financial gap

A survey (.pdf file) released last month by Financial Finesse, an employee-benefits company, is one example:

• Only a third of women say they pay their credit cards in full each month, whereas two-thirds of men do.
• About 74% of women say they pay their bills on time each month, compared with 90% of men.
• Only half of women say they spend less than they earn each month, compared with 71% of men.
• Only a third of women, compared with half of men, say they have an emergency fund sufficient to pay their bills for a few months.

Now, who knows how accurate this survey is. It’s based on 3,500 men and women nationwide who wanted to take a financial education class, provided by Financial Finesse, and filled out the company’s online questionnaire. It’s self-selecting and self-reported.

Still, I’d wager that respondents were trying to appear somewhat financially adept and cast their answers on the rosier side of reality.

Or let’s say they didn’t and were trying to be as truthful as possible. Either way, the results for the women are pathetic, especially when you consider that most respondents earned between $60,000 and $75,000 a year.

Income is no guarantee of money smarts, I know (see poor Ms. Leibovitz above). But if the more financially successful women are still lagging behind in basic financial management, that worries me.

No, I’m more than worried. I’m furious.

It starts early

After reading the above study, I went looking for a clearer picture — from someone, anyone — of women’s financial status circa 2009.

I’ll spare you the regression analyses and give you the CliffsNotes version of my research (which is still in progress):

• Women aren’t taking themselves seriously as financial people.
• Women’s lack of financial skills and acumen is putting them in deep financial danger — in the short and long term.

And it starts early: Recent surveys of teenagers by Charles Schwab and Capital One find that even in high school, girls are not as financially confident as boys.

That lack of skills and confidence hinders women as they mature: Young men are almost twice as likely as young women to have individual retirement accounts or other investment accounts — 21% of men versus 13% of women, according to a 2009 Schwab survey of 23- to 28-year-old adults.

It gets worse

The point isn’t to slam women for being dumb (or dumber than men, which is dubious). The point is that their lack of day-to-day money skills and planning is likely to add up to profound deficits over time:

• Less than half of today’s working women have access to a pension or retirement savings plan through their jobs. That’s according to a June report by the Women’s Institute for a Secure Retirement, a research and policy group in Washington, D.C.
• Of those who have access to a retirement plan, 72% of female heads of households participate in their plan, compared with 80% of eligible men, according to a survey of 5,000 401k plan participants in 2007 by the Employee Benefits Research Institute.
• And women who contributed to their 401k plans earned an average of only $57,000, compared with an average of $84,000 for men, according to a study by Hewitt Associates, a global human-resources company.

What does this all amount to? Let’s just say that millions of women are on a collision course with poverty.

The combination of shortsighted spending and saving habits, plus generally lower salaries and less time in the work force (because of child rearing), means that many women’s retirement benefits end up being about one-quarter the size of men’s, according to the National Center for Women and Retirement Research. (Read more in “Why women fall behind in retirement.”)

Nearly a third of women (29%) who are 65 and older are single and living close to the poverty line, according to the Social Security Administration.

Apparently, women aren’t connecting the dots between their money habits now and where they are likely to end up in 10, 20, 30 or 40 years.

What will you do?

Clearly there are societal factors that need to change (equal pay for equal work would be nice).

But in the meantime, my fellow countrywomen, our financial well-being rests in our own hands. What are you going to do about it? A few ideas:

• Join the Women in Red message board. The Women in Red motto — “Financial sanity through community” — works. Together, women learn to save, pay off debt (more than $4 million and counting) and tackle daily money problems in order to create enduring financial stability.

• Talk about money. Talk about spending, about saving, about how you want the future to unfold. Don’t be afraid to ask questions.

• Take small steps. Rome wasn’t built in a day, and my own financial journey has taken thousands of steps over the years. Keep moving.
• Learn. There are hundreds of financial resources — Web sites, blogs, books — many of them written in plain English. A new favorite of mine (short and easy to digest): money tips from DailyWorth.

Above all, get to know yourself as a financial person, and take that person seriously — her fears, dreams and needs. If there’s a money block in your way, get yourself a chisel (or a small grenade) and blast it out of your path.

You can’t afford not to.

By MP Dunleavey

For your FREE Credit Repair Consultation please contact THD Credit!

Jason Hayden
THD Credit Consulting
jason.hayden@thdcreditconsulting.com
323.515.3382

“Even the most responsible borrowers slip up sometimes.”

Maybe a utility bill went unpaid after you moved and the missed payment went into collections. Or perhaps there are unpaid library fines or parking tickets in collections that are hanging onto your credit history and affecting your FICO credit score, which is widely used.

With the newest version of the FICO credit-scoring system, however, minor delinquencies are now overlooked in calculating creditworthiness.

Under the updated scoring model, called FICO 08, small missed payments lingering in collections with original amounts of $100 or less will no longer do damage to your credit score.

Consumers also are less likely to be penalized for any single delinquency if it occurred two or more years ago — and if their credit history is otherwise unblemished, says FICO (formerly Fair Isaac), which developed the FICO scoring system.

“There’s more flexibility with missing a payment,” said Careen Foster, the director of global scoring product management for FICO. “If you have a more habitual pattern of paying accounts late . . . you’re more likely to get penalized for that.”

If a consumer’s credit usage is high, that will be more likely to hurt his or her score with FICO 08. But getting close to your credit-card limits — even if you always pay on time — is penalized in some way in every FICO score, not only the recent edition, Foster said.

The new system has been available at all three credit bureaus — Experian, TransUnion and Equifax — since last month.

The changes were made to provide lenders with a better risk assessment of borrowers, said John Ulzheimer, the president of consumer education for Credit.com, a consumer education and advocacy site. FICO decided that one small library fine didn’t really predict whether a consumer was likely to default, for example.

With the changes, individuals who pose a low credit risk will probably see their scores rise a bit, and those who are high risk could see their scores drop, he adds.

FICO 08 also addresses “piggybacking,” a practice used by credit-repair companies to help people improve their scores, Ulzheimer said. In piggybacking, an individual pays to become an authorized user on a stranger’s account. The account holder gets paid for allowing the person to be associated with the account, and the new authorized user is able to improve his or her credit score.

“It was a practice to . . . misrepresent what your credit looks like to your bank,” Foster said.

FICO 08 aims to single out individuals who are named as authorized sources through deceptive means, Ulzheimer said. Those people won’t see their credit scores rise as a result. But the scores of legitimate authorized users will be treated as they always have been.

Not all lenders use the model

Borrowers shouldn’t expect their credit to be graded by this new scale on every loan application. Not all lenders have adopted the new model, though more than 400 lenders are using or testing FICO 08, the company said.

In a statement, Equifax said, “Currently, many lenders and businesses are validating the new score within their systems, and adoption will vary by financial institution based on business requirements and market need.”

Many credit-card companies, auto lenders, regional banks and credit unions may have already adopted FICO 08, Ulzheimer said. But for mortgages, lenders doing traditional conforming loans backed by Freddie Mac and Fannie Mae likely haven’t made the move yet, he said. That’s because they’re waiting for Freddie and Fannie to approve its use. Freddie Mac and Fannie Mae “are essentially the lender . . . they’re the ones that set the underwriting criteria,” he said.

Ulzheimer said he expects Freddie and Fannie to adopt FICO 08 by the end of the year. Fannie declined to comment on FICO 08; Freddie wasn’t able to provide a comment prior to publication.

Be proactive about your credit

While FICO 08 will help consumers’ credit scores in some cases, people still should take steps to improve their credit. Granted, it’s impossible for consumers to calculate their FICO scores themselves, said Rodney Anderson, of Rodney Anderson Lending Services in Plano, Texas.

“It’s almost like the Coca-Cola formula. No one has access to the Coca-Cola formula, no one has access to the FICO formula,” he said.

But by being proactive, you can start to work toward a higher score, something that will serve you well every time you apply for a loan.

Some suggestions:

• Monitor your credit reports and correct errors. Don’t just look for negative events on your record; also examine your credit limits to make sure they’re accurate. Credit limits that appear lower on the report than they actually are have the potential to hurt your score, Anderson said.
• Pay bills on time and keep card balances low. Your payment history, and the amount you owe on your accounts as a ratio of the amount of credit you have access to, are important components of your score, Foster said. FICO 08 is more sensitive to high credit usage, and consumers may see a lower score if their reported balance on one or more cards is near the account’s limit.
• Take on new credit only when you need it. Some credit cards come with great offers, including a percentage off your bill if you sign up at the cash register. If you accept, make sure you’re getting a big enough benefit to make it worthwhile — taking on additional credit could end up dinging your score, Foster said.

This article was reported by Amy Hoak for MarketWatch.

Published Sept. 4, 2009

1. Don’t buy if you can’t stay put.

If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner – even in a rising market. When prices are falling, it’s an even worse proposition.

2. Start by shoring up your credit.

Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.

3. Aim for a home you can really afford.

The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you’ll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.

4. If you can’t put down the usual 20 percent, you may still qualify for a loan.

There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price.

5. Buy in a district with good schools.

In most areas, this advice applies even if you don’t have school-age children. Reason: When it comes time to sell, you’ll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values.

6. Get professional help.

Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.

7. Choose carefully between points and rate.

When picking a mortgage, you usually have the option of paying additional points — a portion of the interest that you pay at closing — in exchange for a lower interest rate. If you stay in the house for a long time — say three to five years or more — it’s usually a better deal to take the points. The lower interest rate will save you more in the long run.

8. Before house hunting, get pre-approved.

Getting pre-approved will you save yourself the grief of looking at houses you can’t afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.

9. Do your homework before bidding.

Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that’s about eight to 10 percent lower than what the seller is asking.

10. Hire a home inspector.

Sure, your lender will require a home appraisal anyway. But that’s just the bank’s way of determining whether the house is worth the price you’ve agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.

Article Source – CNN Money

A new bill would prohibit employers from using credit reports in hiring decisions

This sounds like a cycle of pure misery: First, you get laid off. Then, you’re one of the 4.4 million Americans who in June saw their job searches stretch out six months or more. The bills keep rolling in—car payment, house payment, medical bills—and your credit card balance is ballooning. You interview for a job and you’re one of the top candidates, but a late-stage credit check has the employer going with another hire. The bottom line: You need a job to improve your financial situation, but your finances are now hurting your ability to get a job.

A House bill introduced earlier this month aims to prevent such a situation. The Equal Employment for All Act would prohibit employers from using the details of a consumer credit report in making hiring decisions, with exceptions for financial firms and government agencies, as well as jobs requiring certain security clearances. The legislation follows efforts by some states to sharply limit employers’ ability to consider a person’s creditworthiness in hiring.

While credit checks historically were used to screen applicants for financial and government jobs, the practice has spread. More than 40 percent of employers run credit checks on job candidates, according to some research. Rep. Steve Cohen, who introduced the bill, points to a report that a third of workers making less than $45,000 a year have poor credit scores linked to bankruptcies, loan delinquencies, divorce, medical problems, or unemployment. The bill would give “some of our most vulnerable, ‘credit challenged’ citizens—students, recent college graduates, low-income families, senior citizens, and minorities—the opportunity to begin rebuilding their credit history by obtaining a job,” Cohen says.

Most employers who run credit checks do not receive details like account numbers—and they do not see the individual’s credit score. They also tend to look for specific red flags—for example, trouble paying maxed-out department store credit cards, as opposed to late payments on medical bills, says Matthew Levine, vice president of Checkpast, a Dallas-based pre-employment screening firm.

There are existing safeguards on the credit screening process. The Fair Credit Reporting Act—which the new bill would modify—requires employers to notify candidates that a credit check may be involved in the hiring process, and candidates must authorize the credit checks. It also requires employers who, based on the report, would refuse a new hire (or, say, deny a promotion) to give workers a copy of the credit report and notify them of the company’s plans. Individuals then may dispute the accuracy of the information in the report, as many credit reports contain errors.

Critics of the new legislation argue that, because of its limited exemptions, it would prohibit employers in nonfinancial firms from checking out the credit history of employees who would be performing a financial function—a manager of a retail store, for example, or a call center employee who handles credit card numbers. Smaller businesses tend to be especially vulnerable to employee fraud—as many as a third of business bankruptcies are because of employee theft, according to one study.

The idea that some companies would run a credit check because they see a candidate’s ability to organize personal finances as an indicator of aptitude in handling the company’s seems to cause the most agitation among the bill’s supporters. “We just think that how you handle credit is not something from which you can necessarily deduce how you’ll be on the job, and it’s an unfair reason to tell a person they can’t have a job,” says Linda Sherry, director of national priorities at Consumer Action, a nonprofit advocacy group. In a recession, as many lose “the income to protect themselves,” paying bills can become a challenge even for responsible consumers, Sherry says.

Some in the employment screening industry actually agree with Sherry on this point. The argument that “if you can’t handle your own finances, how can you handle ours?” is countered by the fact that “people’s personal lives can easily take a wrong turn for reasons not of their making—it doesn’t mean they can’t handle employers’ books,” says Les Rosen, president of Employment Screening Resources, a provider of background and screening checks. And Rosen says he believes hiring managers themselves are increasingly sensitive to the limited value of credit checks and generally target checks to candidates for positions that involve access to cash.

When the new credit card laws officially start today, millions of Americans will see a host of improvements on their accounts; unfortunately, many have already begun to see higher interest rates. Anticipating the changes, many credit card companies have spent the last few months rushing to raise raise rates before the first changes take effect.

In the past few months, credit card companies have been racing to raise interest rates on millions of credit card holders. People with cards from American Express (AXP), JP Morgan Chase (JPM), Citigroup (C), Discover (DFS), Capital One (COF) and others have been reporting increases even if they’ve never made a late payment and have excellent credit scores. At this point, it looks like all cardholders who carry balances from month to month will see their credit card costs increase.

In the past, by the time cardholders learned of a rate increase, there often wasn’t much time to protest. Even if they chose to do so, they only had two options: paying off the account or locking in the current rate by agreeing to close the account. For many struggling to meet bills after a job loss or other emergency, neither of these options were viable.

Another change has been in minimum payments. JP Morgan Chase just changed the rules on people carrying balances of $5,000 or more. Rather than being required to pay 2.5 percent of their balances each month, cardholders must now pay five percent.

For people who have lost their jobs, rapid interest rate increases and minimum payment changes put even more strain on their budget and will push them even faster toward bankruptcy. Individual bankruptcies are up 36 percent as of April 2009 versus April 2008.

Unsurprisingly, these credit card changes have accelerated cardholder default rates. Bank of America reports the highest default rate at 13.8 percent. Others, including Chase, Citigroup, Capital One, Discover and American Express report default rates between 8 percent and 10 percent.

Many credit card issuers are getting rid of fixed rate cards completely and instead offering variable rate cards set to an index. That way they don’t have to send notices at all. As the index rate goes up, so does the credit card rate. This method enables them to avoid the protections in the new law.

Now that the first changes have gone into effect, credit card companies are looking for ways to avoid the law changes that take effect in February 2010. These include:

* A ban on marketing to students under age 21 unless their parent co-signs or the credit card company has proof that the student earns enough money to pay the bill.

* If there is a an interest rate hike, it cannot be applied to an existing balance.

* If a card has balances at a variety of rates, payment must apply to the portion with the highest rate first.

* Many credit card companies charge fees if users go over their limits. Under the new law, card companies must allow customers to opt out of this practice.

* Double cycle billing will be banned. This is a practice by which credit card companies would use their customers’ average daily balance from the current and previous month to calculate finance charges.

Changes to gift cards will take effect next summer. One change will be that gift cards must be good for at least five years; right now many expire after one year or less. Also, there will be limits on the fees that can be charged on dormant or inactive gift cards.

Also, as the credit companies’ latest account changes demonstrate, cardholders can expect to see more fees added on to their accounts. For example, some cards are starting to charge a fee to reinstate rewards points if customers are late on a bill, and it seems likely that they’ll find other fee innovations before the new law takes effect in February 2010.

While CARD my help some consumers, it would have been far more useful if its provisions were enforced immediately upon passage. When it gave the credit card companies so much lead time, Congress also gave them the opportunity to figure out ways around the changes before the bill took effect. Ultimately, with higher fees and interest rates pushing more customers in default, everyone loses — including the credit companies.

There’s an easy and fairly painless measure the U.S. could take to begin their reform.

Fannie Mae and Freddie Mac shouldn’t be allowed to languish in Uncle Sam’s arms. But as the anniversary of their seizure by the government approaches, the $5.4 trillion mortgage giants remain the biggest black holes in the financial firmament.

Lawmakers seem content to allow the two companies to slowly expand. That’s a shame — forcing them to wind down their portfolios of mortgage-backed securities (MBS) would be a good first step toward eventually deflating them.

The Obama administration won’t release its recommendations for the companies until February. This gives it time to wage battles in areas ranging from climate change to healthcare. These issues are already drawing heavily on the president’s political capital.

That may leave little appetite to tackle the government sponsored enterprises (GSEs), especially given their popularity among some lawmakers and their increasingly dominant role in the mortgage market. The United States has already committed up to $400 billion to cover the firms’ losses, providing enough of a cushion to tempt politicians to let the issue slide.

The problem arises from the companies’ dual roles. They have a public policy mandate to boost lending to the housing market. And they are supposed to reward shareholders. The conflict between these two goals caused the companies to nearly collapse.

The GSE’s principal business of guaranteeing mortgages caused economic distortions that helped fuel the housing boom. As private mortgage lenders pulled in their horns, the GSEs’ share of the market grew from under 50% to around 80% by the end of last year, despite the fact that their aggregate portfolios have only increased by about 3% since their conservatorship.

Their success is the sticking point. Society benefits from the efficiency and lower costs derived from the standardization of mortgage pools, which allows them to be easily securitized. The GSEs scale this advantage up significantly. Fannie (FNM, Fortune 500) alone has $2.8 trillion of guarantees on MBS.

On the other hand, the guarantees have unintended consequences. Since investors always reckoned the government stood behind the GSEs, mortgage rates fell below appropriate risk-adjusted market rates. This acted as a subsidy for home buyers at the expense of other taxpayers and contributed to the housing bubble.

Solving this problem without throwing the mortgage market into disarray will be difficult. Winding the GSEs down, or splitting them into smaller firms without government backing would get rid of the subsidy, but could reduce the benefits they brings to the MBS market. In any case, this would be a difficult sell politically due to the firms’ dominant positions. Fannie guaranteed more than half the mortgages for new single-family homes in the second quarter.

Policymakers aren’t helpless. They can initially target the GSE’s portfolios of MBS. Fannie alone holds more than $800 billion worth. The figure has grown at an annualized rate of 6% in the year to date.

The MBS holdings are an arbitrage that benefited the GSEs’ shareholders at the expense of taxpayers. Their quasi-governmental status means they could borrow more cheaply than others and plow the money into higher-yielding MBS. The resulting profits went to shareholders.

Moreover, the GSEs successfully lobbied to be able to hold low levels of capital against their investments, boosting returns. This also gave them little margin for error. Since the government now runs the show, there’s little reason these holdings can’t be wound down, although this would have to be done gradually.

True, the GSEs can act as mortgage buyers of last resort during crises, when the mortgage markets would otherwise seize. Yet Fannie didn’t significantly shrink its portfolio of MBS during the easy money years between 2002 and mid-2007. Also, their purchases — as distinct from their guarantees — during this period probably didn’t have much of an effect on mortgage rates, since they represented a relatively small part of the overall market.

Moreover, when housing markets crashed, the direct mortgage portfolios left Fannie and Freddie (FRE, Fortune 500) saddled with avoidable losses. These are now taxpayer’s problem. A quick way to avoid exacerbating this privatization of gains and socialization of losses would be to ban the GSEs from buying more MBS and force them to run off their portfolios. Then the government can turn to the more nettlesome issue of their guarantees.

By Robert Cyran, breakingviews.com
August 31, 2009: 4:40 PM ET

For your FREE Credit Repair Consultation please contact THD Credit!

Jason Hayden
THD Credit Consulting
jason.hayden@thdcreditconsulting.com
323.515.3382

If your credit card’s monthly minimum payment is starting to look more like your old balance or you’re not answering the phone for fear of another call from a creditor, it’s time to take drastic action. As thousands of Americans are finding out during this recession, personal debt can become a nightmare. The costs—both financial and emotional—make it tough to face the reality of just how bad the situation might be. But the sooner you face the problem, the sooner you can get back to even. U.S. News asked Mitchell Allen, author of A Survival Guide t o Debt: How to Overcome Tough Times & Restore Your Financial Health, to discuss how to take those first steps in dealing with out-of-control debt.

1. Understand your debt; cut your spending.  It’s the first, most obvious, and ultimately the most important step in getting back into the black. Most people can pull out a pay stub confidently and list exactly what they’re bringing in each month. What gets murky is the spending. So make a personal balance sheet. That’s your income compared with your spending, including housing, utilities, transportation, food, clothing, entertainment, insurance costs, and any other sort of regular outlay you can pin down. Remember to include the costs of servicing debt you already have. Allen says it’s often small expenditures—eating out, your morning coffee—that make the difference for people on the edge. Spending $10 a day on lunch can add up to more than $400 a month for a household if two people are eating out. If you’re living paycheck to paycheck, it’s enough to push you over a financial cliff. See what you can cut. “As we get through the lists, people often find a pretty big surplus,” he says.

2. Manage your debt the right way.  If you can’t deal with debt just by tightening your belt, there are several options to consider immediately when putting together a debt management plan.

• Credit counseling: Get started

Nonprofit debt management companies are popular options for creating a plan to repay debts and halt harassment from creditors. Debt is consolidated into a single monthly payment, often with a lower interest rate, and ongoing damage to your credit score will begin to reverse as long as you make payments on time. Allen recommends Money Management International, a Houston-based firm that’s the nation’s largest nonprofit counseling service. He says other reputable counselors can be found through the National Foundation for Credit Counseling (NFCC) and the Association of Independent Consumer Credit Counseling Agencies (AICCCA). A couple of caveats when entering into a debt management plan with a counselor: Keep an eye on monthly fees, and make sure your credit counselor has relationships with all of your credit card lenders so that your entire debt is represented in the plan.

• Debt settlement companies: They’re an option, but not a great one.

Debt settlement companies are a controversial tool for deeply troubled borrowers, especially those with hefty credit card debt. These for-profit firms agree, for often hefty fees, to try to negotiate a lower debt balance with your creditors. Creditors are willing to work with debt settlement firms because getting partial payments from customers is a better option than customers filing bankruptcy, in which case the creditors would likely get nothing. The problem is, debt settlement firms have a less-than-sterling reputation, and if creditors decide to sue you, the settlement firm isn’t legally obliged to represent you in court. Allen recommends that you request documentation from other settlements to make sure the company you choose has a solid track record.

• Home equity loans: Don’t do it.

Taking a loan out against the value of your home was a popular option during the housing boom. But using home equity to pay off credit cards, for example, isn’t the safest way back to fiscal health. Allen warns that home equity loans simply replace unsecured debt (credit cards) with secured debt (your house). If you can’t repay a home equity loan, it gives another creditor (in addition to your mortgage lender) the legal right to take your home. “The negative consequences of not making those payments are such that it’s a poor decision for people to take a home equity loan to pay off credit card debt,” he says.

3. Talk to creditors. Before you go to someone else to help manage your debt, remember that there are steps you can take by yourself to get control of the situation. The first step is opening up communication with your creditors. Acknowledge and take responsibility for your debt. If you meet creditors halfway, they’ll be more willing to work with you, Allen says. His advice: Be as specific as possible about why you can’t pay. The death of a spouse or divorce, loss of income, medical expenses, or other unexpected outlays are the main reasons people fall into debt, and the more creditors know, the easier it is to outline the available options. Also, reinforce your intention to pay, and say specifically that you are trying to avoid bankruptcy—that alone lets creditors know that there’s a chance they aren’t going to be paid at all, and it should motivate them to offer solutions.

Then, ask for help. Remember: Times are tough for banks, credit card companies, and mortgage lenders right now. Lower interest rates, payment plans or extensions, or even changing the total amount you own on your loan have become more common as the economy and finance sector suffer. Some credit card companies even offer hardship plans, including forgiveness of some part of the total debt. For example, some offer “60/60″ plans that allow you to pay 60 percent of the balance over 60 months, Allen says.

Another key tip: As the process continues, document, document, document. Log phone calls and keep an organized file of bills, notices, and a copy of your personal balance sheet (mentioned above) handy. Lastly, follow through: If you commit to a payment, make it on time and in full. “People are scared to answer the phone when creditors call. They won’t answer the phone or open the letters. It’s entirely the wrong thing to do,” Allen says. “If you communicate with these people, you can work it out.”

Also, there’s a flip side to communicating with creditors: What if they’re harassing you? In that case, Allen says, you have rights, too. If you feel a collection agent is being abusive, speak to a supervisor and keep detailed records of times and frequency of calls and the names of agents you speak with. You can also request that creditors not call you at work. Thanks to the Fair Debt Collection Practices Act, you can file a complaint with the Federal Trade Commission if harassment persists. “People are shocked to learn they have some power. You can tell people they have to stop calling you,” Allen says.

4. The last option: bankruptcy. If you’re truly drowning in debt, bankruptcy may be the only option. If it’s clear that paying back debt will be almost impossible, the first step, Allen says, is to get some legal help. Although hiring a lawyer is never cheap, finding a professional who has handled bankruptcies for people with similar financial profiles to yours is worth the cost. He or she will be able to steer you through the types of bankruptcy (usually Chapter 13 or Chapter 7) that work for you. “It’s a last resort, but in many ways, it’s the most powerful tool available if you’re in serious financial trouble,” Allen says. “Bankruptcy is not for everybody, but it can give you a fresh start if you make the changes necessary in your life so it doesn’t happen again.”

5. Stay positive. There’s an emotional component to getting through tough times. Dealing with debt is never easy, and the stress can affect your family, your work, and your mental health. Allen says the most important thing to remember is that the situation isn’t hopeless, and that by taking some of the steps above, financial recovery can happen over time. In the meantime, he says, it’s best to keep financial strain as separate as possible from the rest of your life. “People need to realize they are not their debt. They need to separate their net worth from their self worth,” he says. “People don’t realize they have options, and stress because of their debt is really ruining their lives.”

Lita Epstein

UBS (UBS) data won’t be the only data used to find tax cheats. Thanks to a report by the Treasury Inspector General for Tax Administration (TIGTA), called “Mortgage Interest Data Could Be Used to Pursue More Nonfilers and Underreporters,” the IRS plans to start looking at how it can use Form 1098 mortgage interest statements to catch tax dodgers.

TIGTA auditors found that many people pay significant levels of mortgage interest, yet they are not filing tax returns or filing returns indicating that their income is not sufficient to cover their mortgage obligations and basic living expenses. The report recommended that the IRS explore the possibility of making greater use of data from mortgage interest statements to pursue tax evaders.

Almost all of us are fond of overspending! We buy things we don’t really need. Once we see something that catches our eyes, we automatically buy it – often without even thinking if we still have money or not.

People usually do this in order to please themselves. And lots of them have their own credit cards as a reserve once they run out of cash. They tend to spend a large amount of money in order to serve their caprices or to make them feel better about themselves. Unfortunately, this never really works, and it causes more damage than it cures.

Almost everybody has a credit file, maintained by a credit reference agency. Many people have bad credit facts on their files, such as defaults and bad payment history. This means that when these people apply for credit, such as loans, mortgages, credit cards, car finance or even for a simple bank account, they may be turned away.

Sometimes these people are not even aware of their credit information and credit files, which cause them to have a bad credit.

Having bad credit can adversely affect every aspect of your life. A low credit score means severe financial limitations and difficulties. As if this is not enough, you will also have handfuls of credit councilors and other so called money managers trying to take even more from you with their debt consolidation plans that promise to “cut your payments in half”, “save you thousands”, or our personal favorite – “get you out of debt with the click of a mouse”.

If only our computer mouse had the debt relief magic that those bad credit spam emails promise. Although getting out of debt can’t be done with a click of a mouse button, it’s probably not as difficult as you think.

If you are in this kind of predicament, it is imperative for your financial stability that you do everything you can to repair it.

Now, you might be thinking exactly what is bad credit repair?

“Bad Credit repair” is a common term often used to describe a systematic process of rehabilitating an individual’s creditworthiness, or financial credit reputation.

It is a process that you can carry out yourself, and sometimes the steps you can take are simple. However many people find credit repair a difficult and discouraging procedure.

This process is usually initiated by obtaining copies of your credit report, reviewing the credit report for errors, omissions, and misleading information, and requesting corrections to such information by means of a formal dispute.

If you are worrying too much about your credit, conquer that feeling! No matter how bad your credit is, you can take the following steps to make it better:

1. Pay all of your bills on time. Decide if you have the income to meet all of your obligations. Remember, late payments (payments that are 30 days late or more) have a negative effect on your credit rating.

2. Lessen the number of credit cards that you have. This will reduce the tendency to overspend. Contact your creditors about your plan and close your other accounts.

3. Avoid bankruptcies. Bankruptcy may not the end of the world but it will be with you for years. It will stay in your credit report for at least years and hamper your ability to get credit in the future.

4. Request in writing that your creditors reduce the credit limits on your accounts to lower your amount of available credit.

5. Monitor results and stick to your plan. Review your file every few months to make sure that any errors that you have disputed have been corrected. After a period of time inquiries will no longer count against you provided you haven’t been applying for credit.

These steps can help anywone with bad credit. If you are in that situation, don’t be troubled. Bad credit can almost always be improved or corrected. JUST:

• avoid overspending
• establish a realistic budget
• get out of debt now
• build a financial cushion
• read and understand your credit report
• get mistakes on your credit report fixed
• get positive information added to your credit report
• negotiate with creditors

Set up your plan and stick with it!

Article Source: http://www.ArticleGeek.com – Free Website Content

For your FREE Credit Repair Consultation please contact THD Credit!

Jason Hayden
THD Credit Consulting
jason.hayden@thdcreditconsulting.com
323.515.3382