October 13th, 2011
Banks have been gambling with your money, but a new piece of legislation is trying to stop them.
It’s called the Volcker Rule, named for economist and former U.S. Federal Reserve Chairman Paul Volcker. The rule, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, restricts banks from making certain investments that do not benefit their customers, also known as speculative investments.
Many economists, especially Volcker himself, argue that these speculative investments, which include risky mortgage-backed securities, helped fuel the credit crisis of 2008. After being appointed as the chair of the President’s Economic Advisory Board in February 2009, Volcker began working with the board to advise the administration on economic recovery concerns. The Volcker Rule is a part of that work.
August 18th, 2011
If anybody knows how to weather the storms of financial crisis, it’s Amy Gatliff.
When she was young, her family lived on a school bus while her father built the family home. When the home was livable, they moved in. The house lacked indoor plumbing, so the family had to get creative. “When it came time for a bath, we kids would stand on the side porch steps in our underclothes for Mom to wash us down,” Amy describes.
August 4th, 2011
How do you bounce back from a foreclosure and bankruptcy?
That’s what we asked Brandiann Portillo, a 27-year-old stay at home mom. She’s come a long way, and shared her story with Credit Karma.
March 15th, 2011
When you’re in dire straits with a home foreclosure notification in hand and no means to pay your mortgage, you might have another way out, MSNBC reports.
Filing for bankruptcy may allow you to keep your home if the court can work out a payment plan with the lenders. But does that mean bankruptcy is best for you?
June 2nd, 2010
September 30th, 2009
There is a new trend developing due to the sagging housing economy where a homeowner who is underwater with their home, acquires a new bargain priced home and then walks away from the overvalued property. This practice, known as “Buying and Bailing,” has been a hot topic for homeowners looking for an escape route from paying a mortgage on a home that has lost significant value.
It sounds too good to be true; mortgage rates are still very low and you’ll be able to get a great deal on a home which is more affordable than your current home. More real estate and mortgage brokers are becoming familiar with the ins and outs of these transactions and are more than willing to coach you through this type of endeavor. However, accomplishing this in reality is difficult, you will need to be able to afford a new down payment as well as support both loans in order to qualify for the loan on the second home. Some consumers have set up a short sale, put the home in a spouse’s name or told the bank that they plan on renting out the first home as work around to help qualify for the second loan.
This type of exit strategy will only work in markets where the home values have dropped considerably. At first glance this may appear as a miracle from above, but consumers need to understand the repercussions of a buy and bail. Specifically, their credit score will be battered once they start missing mortgage payments which will ultimately end in foreclosure. Once they have a foreclosure on their credit report they won’t be able to get a Fannie Mae loan for up to four years. Additionally, anything requiring a credit check like insurance, new credit cards, employment screening will present your past misdeeds and likely affect pricing of other financial products or even cost you a job.
No one really knows how much this will affect consumers’ credit as this is the first time homeowners have made this type of risky and possibly illegal maneuver. One thing is for sure, consumers attempting a buy and bail will always have a looming uncertainty around if a lender or worse the police may come after them. At minimum, lenders can put a lien on the new property; as well as sue for fraud if you misrepresented yourself on your loan application. Many are rolling the dice that most lenders are severely understaffed and hoping their situation may get lost in the shuffle and never be addressed.
Predictably, lenders are calling this practice unethical, deceptive and fraudulent. They are quickly looking at ways to close this loophole to reduce future risks in their portfolios. For many it’s comical to hear the lenders call something “deceptive” when only a few years ago, they were creating variable rate mortgages with complex minimum payments and negative amortization, as well as 100% financing programs that contributed to the housing collapse. Regardless, lenders are now adopting stricter underwriting conditions when evaluating new purchase loans for borrowers with existing home mortgages including producing an executed lease agreement or requiring documented income to verify the consumer will be able to support both mortgages. Both of these are precautions to help weed out Buy and Bailer’s before they take ownership of that second property.
Buying and Bailing may be a way out for those who have the means to pull off such a complicated transaction and simply get lucky that lenders are understaffed and unable to properly follow up, but it requires a perfect storm of having the funds on hand, adequate employment/income to satisfy the underwriting, and a family member or spouse that can assist in securing the second home by being the primary applicant. Realistically, while this option does provide a viable, albeit difficult escape route for some, it’s very questionable of its legal and the long term ramifications are unknown at best.
July 21st, 2009
The same financial institutions whose rising credit card interest rates and fees heap debt upon debt on cardholders are now extending an olive branch with HelpWithMyCredit.org. But can consumers trust this helping hand, or are consumers just fooling themselves with more of the credit card companies’ tricks of the trade?
A coalition of credit card Issuers and payments networks—Citigroup, Discover Financial Services, Capital One Financial, Bank of America, Visa, and Mastercard—launched HelpWithMyCredit.com in February as a resource to educate and assist consumers struggling with credit card debt.
The website is a collaborative effort by these companies to guide consumers to specialized customer care representatives within each of the Issuers, or introduce them to accredited credit counseling agencies. The goal is to get consumers in contact with the Issuers and talking directly to a representative about their specific credit issues so they can access information on how to best manage their current credit situation.
HelpWithMyCredit.org provides some worthy tools and rich content, including:
- A toll free number, (866)941-1030, connects you with operators who can provide you with information on how to contact your specific card Issuer and a credit counseling agency, depending on the consumer’s unique issues and questions.
- HelpWithMyCredit.org will pick up the tab of your first credit counseling visit at a participating credit agency.
- A credit card payment calculator helps consumers determines how much they need to pay each month or how many months it will take to pay off a credit balance.
- Advice for cardholders on tips for managing credit and how-to guides for reading your credit cards statements
The Bad and the Ugly
Though good for consumer financial literacy and all-around awareness of credit card management, the site has been called “self-serving” and “deceptive” by the media because the alliance of these financial institutions isn’t just to help you—it’s advantageous to them as well.
Bankruptcy causes the Issuers to have to charge off the entire credit balance of your cards; however, if they are able to get you into an internal program or a credit counseling program, it’s likely they will be able to recoup 40% or more of the outstanding balance.
Interestingly enough, some of the sponsored credit counseling agencies are not approved by the U.S Department of Justice Trustee due to lack of fulfilling credit counseling requirements for bankruptcy. Participating in a credit counseling program means the agency has control of the terms and conditions of your account and can place them outside the standard rules and regulations of the credit card industry, and thus continue debt collection at their discretion. Also, the credit counseling agencies are paid on a percentage basis of the payments they are able to procure from the consumer.
So with all the money the coalition and its affiliates stand to gain from cooperative consumers, its questionable whose interests are in mind.
HelpWithMyCredit.org–A Final Verdict
For all the hype and the pleasantries of these Issuers uniting for the good of the consumer, it isn’t apparent yet just how good it actually is for the consumer. It could be a much-needed push those drowsing in debt to finally take the first step, or it could be a wolf in sheep’s clothing that preys on people’s debt problems to further entangle them with issuers and agencies.
According to compete.com, HelpWithMyCredit.org only had just over 14,000 unique visitors and there are no numbers to tell how many of those visitors actually reduced their debt thanks to the coalition. It does advocate consumer financial literacy, but beware—the financial institutions backing the site have their own interests in mind beyond alleviating your debt.
December 18th, 2008
For most people, the thing that launches them into credit trouble in the first place is an unexpected financial emergency. Individuals who pay their bills on time, people who use credit cards wisely and people who always keep up with their mortgages can suddenly be thrown into a complete financial crisis when a surprise strikes them. Here are ten ways that you can prepare for and handle financial emergencies.
1 – Plan ahead in order to make a difference.
Start a savings and make provisions for whatever may occur. You should put a portion of every pay check into a savings account.
2 – Expect the unexpected so that you may plan and prepare accordingly.
You should be prepared for every scenario. Plan for the worst, so that you can handle anything that may come your way.
3 – Pay yourself first rather than waiting until the end of the month to put money into your savings.
Putting the money into savings now will ensure you do not spend it easily through out the month. Otherwise, you may not be able to save when the time comes.
4 – Increase your income if you are having trouble paying your expenses.
This may entail finding a better job, or supplanting your income through another job. You may also be entitled to a raise at your current job.
5 – Sell off some assets to accrue extra income if you are having trouble paying your expenses.
This can be as small as a garage sale or as large as selling one of two cars. Having stuff is pointless if you are unable to pay for rent or utilities.
6 – Borrow against your home if you absolutely have to, so that you can pay off emergency expenses without allowing them to overwhelm you and put you further into debt.
The equity in your home should be used as a last resort, as you are putting your home at risk. It is your largest asset, however, so it can be helpful for a tight spot.
7 – Call on friends and relatives to see if you can get some financial assistance in your time of need.
Those close to you can provide the assistance you need. Everyone is connected and those close to you would help you; you would help them if the situation were reversed.
8 – Defer your retirement contributions, funneling the money toward a more important cause such as an emergency expense instead.
If you are unable to proceed in the now, planning for the future is worthless.
9 – Seek professional help if you cannot find any other way to deal with the emergency expense without putting yourself into debt.
There are experts out there who are specially trained just for this purpose. Do not ignore this important resource.
10 – Declare bankruptcy if there is no other option available for you to overcome the obstacles created by a financial emergency.
Bankruptcy is a government provided way to get out of debt and start anew, although it carries with it a stigma which will be hard to shake off of your credit report.
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December 9th, 2008
The worst negative record that you can possibly have on your credit report is a bankruptcy. The impact that a bankruptcy has can last for many years, as this negative mark on your credit report can last for as long as a decade. You may not be able to get approved for credit or a loan at all during the first few years after you have filed for bankruptcy, because it has a very large and very negative impact on your perceived capability to repay an obligation.
Despite the negative impact that bankruptcy has on your credit, it is still an option to consider if you find yourself in very serious debt that you cannot seem to get yourself out of. If you are living from one paycheck to the next and have no way of paying off old debts, then bankruptcy is an option that it may be worthwhile to look at. Your credit rating is definitely going to be in ruin while you recover from your bankruptcy, but it will also allow for you to finally dig yourself out of what is a certainly overwhelming hole, reestablishing good credit over time. At the same time, filing for bankruptcy can stop collection agencies from calling and harassing you, and can stop other debt related problems from plaguing your life as well.
However, you need to realize that bankruptcy is not an easy way out of your debt, or a quick fix either. The procedure associated with filing for bankruptcy can be truly emotionally draining for many years. Following a bankruptcy, you will be ineligible for loans, credit cards and many other types of credit. There will also be additional restrictions that you need to adhere to. You could also face rejection when it comes to finding a job, because employers are legally allowed to check your credit when they decide whether or not to hire you.
Before you decide to file for bankruptcy, it is vital that you sit down and discuss your situation with credit counselors working with reputable counseling organizations. They have the experience needed to advise you on steps that you can take to fix your situation, as there may be alternatives to bankruptcy that you can try before you completely destroy your credit report in favor of a fresh start. If bankruptcy truly is the only option, then they will tell you this, and will advise you on how to go through the process.
Bankruptcy can be a depressing process but it can give you the chance to begin again with a fresh credit report and without the debt burden that you had before. You should begin improving your credit health now, and continue even after filing bankruptcy. As you cultivate healthy money management habits like saving and budgeting, you will find it easier to keep yourself from going into debt again.
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