Archive for December, 2008

Banks and credit cards have been unable to extend credit to consumers throughout the credit crisis. Previously, they were able to offer credit by selling off the loans they’d already made. When investors stopped buying the consumer debt due to the increased risks of doing so, consumer credit lending basically came to a standstill.

The Federal Reserve and Treasury Department announced a plan on December 2 that’s designed to inject $800 billion into the US economy. The addition of this new “bailout” is not a sign that the first $700 billion bailout of banks and Wall Street has failed, according to Treasury Secretary Henry Paulson, but an additional measure to more directly help the owners of securities that are backed by credit card debt, auto loans, student loans and small business loans. The Federal Reserve Bank of New York will lend $200 billion from the $800 billion TALF (Term Asset-Backed Securities Loan Facility) initiative, and the Treasury Department will put in another $20 billion from the original $700 billion bailout.

The TALF does differ in one major way from the other initiatives from the Treasury Department and Federal Reserve: It might finally help consumers. The goal of it is to free up more money to flow to consumers as banks begin lending money again. If this plan works, investors who are interested in buying loans bundled together into securities will have money available to do so; the banks will then have money available to lend profitably again, which gives consumers access to credit sources. So while the new initiative won’t put money directly into your bank account, it should make it possible for you to get approved for credit once again.

When traveling with your laptop, be careful for a scam set up to steal it at airport security checkpoints.

Here’s how the con works:

A group of thieves try to get between you and your laptop at airport security — at the metal detector. One of the grifters will get in front of you, while another who has already passed through security waits on the inside. You put your laptop conveyor to pass it through the X-ray scanner, and the con man in front of you makes sure to set off the metal detector on purpose. He puts on a good show, making sure to take plenty of time and cause enough confusion to delay you and distract people. In the meantime, your laptop comes out of the conveyor, and it sits there untouched and probably out of your view.

The second thief is waiting for it to arrive and simply picks it up and walks away. No security person on the inside typically knows or cares who owns the items coming through. To make the scheme even harder to detect, the thief on the inside might even make a quiet hand-off, so a third grifter ends up with your laptop.

So be careful at airport security, and try to keep an eye on your laptop. Even the Federal Aviation Authority (FAA) has issued warnings about this.

Once they have your laptop, plus all the other goodies in your bag, not only can they resell the electronics, they, or whomever they sell it to, can hack into it and probably find loads of valuable personal information.

For some unhappy couples, the unfortunate timing of the collapse of their marriage during a slumping economy has left them in a kind of marital purgatory, neither together nor apart, but somewhere in between.

A recent Associated Press story reported on the growing number of divorced couples who’ve chosen to continue living under the same roof indefinitely, not because they want to, but because they can’t sell their house.

Judges and divorce attorneys have noticed the trend most especially in those states hard hit by foreclosures. Now, spats about who gets the master bedroom have replaced arguments over finances after a divorce or splitting the chores. Living in marital limbo can also lead to awkward moments when one part of a divorced couple starts dating again.

Sometimes, a couple that’s headed for divorce has second thoughts after realizing how costly divorce will be, despite the head-shaking disapproval of friends or family. In one case, a spouse moved out of the house after a divorce but moved back in with her ex after running out of money.

Who knows? Maybe family therapists will hail the recession as a blessing in disguise if it prods battling spouses to give it just one more shot.

If things turned sour in your marriage, could you ever imagine your spouse staying on ⎯ as a roommate?

You should be aware that no-limit credit cards, like some American Express cards, may have a detrimental effect on your credit score. It may be counter-intuitive that people who have the credit standing to qualify for, let’s say, an Amex Gold or Platinum would ever see a credit score lowered simply for holding the card.

Here’s what can happen: Your credit score is determined in part by the difference between the credit limit on your cards and the balances you carry (also known as “credit utilization”). Virtually all credit card issuers report your credit limit to the credit bureaus, and this is used in the calculation of your score.

The problem is that a no-limit credit card company has to report some value as the “limit” to the credit reporting companies. If card issuer reports an arbitrary limit that happens to be low while also reporting what you spend (and you spend a lot), you could seeing a lower credit score because of it. The difference between your credit limit and the “balance” could be very small (which is bad for your credit score).

Many consumer advocates believe that the best thing for the no-limit card issuers to report is your highest-ever balance as your actual credit limit. Unfortunately, it seems like this doesn’t always happen, and the unsuspecting consumer may have a lower credit score than might otherwise seem fair.

The only thing you can do is get your credit report and see what the card issuer is reporting. If it looks like they’re doing this to you, call customer service to complain.

Last month, the number crunchers at Merrill Lynch released their risk analysis of more than 60 national economies to identify the least vulnerable global economies ⎯ and the most vulnerable.

Guess what? We made the list. Just not the one you might have hoped for.

“Over-leveraged financial systems, too much external debt and rotten balance of payments positions have put many of the world’s developed economies at greater risk than the emerging ones,” a Smart Money writer explained.

Most at Risk
Australia
Switzerland
Korea
Romania
Hungary
Sweden
Bulgaria
Euro Area
UK
US

And here, in the eyes of Merrill Lynch economists, are the world’s safest economies:

Least at Risk
Nigeria
Mexico
Philippines
Colombia
Egypt
Oman
Indonesia
Peru
China
Russia

A mushrooming federal deficit and continued bank bailouts can’t help. President-elect Barack Obama has already made it clear that restoring economic vitality has to come before any focus on reining in the federal deficit.

But the ballooning deficit could have other repercussions. According to a Bloomberg report, investors abroad may demand more compensation for providing loans to the U.S. government. And while the bailouts show that the U.S. government isn’t going to sit idly by, they also magnify the fragile nature of our financial system.

Says Nobel Prize-winning economist Joseph Stiglitz, “Over the past decade, the nation has been borrowing massively abroad ⎯ some $739 billion in 2007 alone. And it is easy to see why: With the government running up huge debts, and with Americans’ household savings close to zero, there was nowhere else to turn. America has been living on borrowed money and borrowed time, and the day of reckoning had to come.… We’ve had to go begging to the sovereign wealth funds ⎯ the excess wealth that other governments have accumulated and can invest outside their borders. We recoil at the idea of our government running a bank. But we seem to accept the notion of foreign governments owning a major share in some of our iconic American banks, institutions that are critical to our economy.”

Clearly, Stiglitz is not one to mince words. But while we’re all uber-focused on getting our financial households in order, it’s become obvious that those running our country need to do the same.

How can we sort out this mess?

If someone steals or misuses your Social Security number (SSN), which is issued by the Social Security Administration (SSA), does the SSA ever get involved in investigating the crime?

The answer is no. The SSA does not investigate ID theft, and they have no authority or budget to do so. So it’s a waste of time to contact them (unless your card was stolen and you need a replacement).

Now, if you’re a victim of Social Security benefit fraud or benefit checks are being stolen, that is in their jurisdiction and they will likely investigate. The part of the SSA that would get involved in that is the Office of the Inspector General (OIG).

If your Social Security card was lost or stolen, you should get a replacement. It can take quite a bit of time, so don’t wait until you need the card to take the step. The SSA website has instructions to help you out.

Now you may be wondering who will or should investigate your identity theft. The answer is “it depends.” But you can and should report it to the local law enforcement authorities where you live or where the crime happened. The local police really should take a report and make at least an attempt to investigate. But if they don’t, you can try the sheriff or state police.

I came across an article the other that I found very disturbing. It’s a piece, written by Nick Turse for TomDispatch.com, about some particularly extreme reactions to foreclosures by homeowners across the country. He searched through a variety of local news websites nationwide and found a whole lot of stories about people committing suicide in response to being foreclosed (and/or threatening others when the authorities came to evict them). Some of these folks just didn’t want to leave their homes, others were angry about being evicted, and still others were trying to help their survivors pay the bills by allowing them to cash in their life insurance policies.

I don’t know the rule, but I’m pretty sure insurance companies can and will void a life insurance policy if the insured commits suicide, although policies, regulations, and laws may vary from state to state. (Heath Ledger’s estate is apparently suing his life insurance company for not paying his daughter $10 million because the company claims that his death from a drug overdose this past January may have been a suicide.)

In any event, I’m certainly not advocating suicide as a means to solving a financial problem (just so we’re clear). I do recommend keeping an eye on loved ones or friends who may be in danger of losing their homes, though. If suicidal tendencies were easy to spot, there’d be fewer suicide attempts (or so I like to think), so be sure to listen with a keen ear when you talk with someone close to you who’s in a difficult position with their mortgage or some other financial situation. If you hear any comments that sound a little suicidal or self-destructive in any way, don’t just dismiss them as a joke or a throw-away line.

While we’re on the subject: How would you recommend coping with foreclosure? What would you do if you found yourself in danger of being evicted?

Over one-third of American’s who purchased homes in the last five years are discovering that their home’s value is less than the mortgage. Real estate used to be considered a no-brainer investment. You’d purchase a house, and it would continue to increase in value over time — but right now, for many homeowners it just isn’t the case. People are finding themselves with homes that have decreased in value or a mortgage higher than what the home is worth. In other words, even if you could find a buyer for your home, you’re not going to get what you owe for it.

What can you do if you’ve got an underwater mortgage? If you’re able to keep up with your payments, you should probably do nothing at all except sit tight and make your payments! Looking to sell your home when you not only cannot turn a profit, but can’t even get what you owe, is not the best move.

On the other hand, if you’re struggling to keep up with your mortgage payments and other financial obligations, what are your options to avoid foreclosure? Selling the home for less than you owe results in more financial distress, but there are a few options you may not be aware of.

Contact your lender

Most people who fall into financial problems avoid mail and phone calls from their mortgage lenders. This is probably the worst thing you can do. If the lender believes you can make the payment and you’re just not paying it, they have no choice but to send you a foreclosure notice after a few months of skipping the payment. On the other hand, if you talk to them about the situation they may be able to offer you alternative options that allow you to keep your home.

In fact, lenders would prefer to help borrowers keep their homes rather than foreclose on them. An estimated $60,000 or more is spent by banks on every home that enters foreclosure, not to mention over a year and a half of time to resolve the situation. Talk to your lender — 90% of homeowners in financial distress who work out a new payment arrangement with their mortgage lenders are able to turn their situation around within 18 months and keep their home.

Avoiding foreclosure

The options your lender may offer you when your home’s value is less than the mortgage and you’re having trouble keeping up with your mortgage payments include:

• Partial reinstatement. The back balance owed is divided over a period of 12 months or so, then added into your regular payment until it’s caught up.

• Short-term forbearance. You may go without having to make a payment for about three months, which should give you a chance to get caught up financially. In some cases, the lender might reduce your payment for six months, with the difference in what was owed then added into monthly payments for a year following the short-term forbearance to get caught up.

• Long-term forbearance. In some situations, you might qualify to skip payments for four to 12 months, with a new payment arrangement created at the end of the specified period of time.

• Loan modification/refinance. Sometimes the lender will create a permanent change in one or more of your loan’s original terms. You may receive a lower interest rate or longer repayment terms in order to make your monthly payment more affordable for your new financial situation.

Remember: It pays to discuss your mortgage problems with your lender. After all, the home you save may be your own.

You’re certainly aware that your Social Security number (SSN) is one of the leading ways your identity can be stolen. If it is stolen, it can cause you enormous headaches. The thief can use the SSN to open new credit cards in your name, get mobile phones or utility service, or commit bank fraud.

Clearly, you should avoid giving out your SSN unless it is absolutely necessary. Think about how many people have your SSN or have access to it. Family, roommates, every doctor or dentist you have seen, every employer you have ever had, insurance companies — even video stores sometimes require it for membership.

If you can limit the number of people who have your SSN, you can reduce your risk. The easiest way to protect your SSN is to never carry your card and to lock it away along with any papers that have your SSN printed on it.

You’re often asked for your SSN, but how do you know if it’s truly necessary to provide it? Well, outside of taxes or government benefits, it’s not always easy to know when providing a SSN is required rather than voluntary.

If someone asks for your Social Security number, pause for a moment to consider whether they really need it. Here are five questions you can ask the person who requested it.

1. Is my SSN absolutely necessary and, if so, why?
2. For what purpose will it be used?
3. Will you store it in a safe place?
4. Is there a law that requires you to get my SSN?
5. What happens if I don’t give it to you?

Something else to keep in mind: Often, when you’re told that your SSN is “required,” the business only wants it in case you don’t pay your bills. That makes it easy to track you down. They can provide it to a collection agency — which you want to avoid. They tend to not be very friendly.

The number of at-risk banks on the FDIC’s watch list shot up to 171 institutions as of September 30, 2008, the end of the third quarter.

While the FDIC doesn’t disclose the names of at-risk banks, FDIC Chairwoman Sheila Bair blamed weak third-quarter earnings for insured banks (the weakest since 1990); significantly higher loan losses, mostly concentrated in residential mortgages and construction and development loans; and the fact that nearly one in four banks reported a net loss for the third quarter, more than double the number reporting unprofitability a year ago.

Thus far in 2008, 22 banks have failed, including nine banks that went under in the third quarter.

The contagion may be spreading. “Smaller banks … those with assets of under $1 billion … are beginning to show stress similar to the industry as a whole. Still, capital levels among these banks remain higher than the industry average,” Bair said.

Bair ended her November 25 press conference on a positive note: “… [E]ven amid these adverse conditions, most banks remain well-capitalized, profitable and sound.”

Are you feeling as positive?