We all assume that having things is the same thing as having wealth. You see someone driving a Mercedes, and assume he or she is wealthy. More often than not, it just means that person has a huge loan payment to make each month. Cash flow is not the same thing as wealth. Wealth means having assets — money in the bank, valuable investments, and things unencumbered by loans. If you owe money on all your things, you just have liabilities.
You can have a lot of things and still own nothing. Like the founder of Michigan Brewing Co., who just filed bankruptcy and listed $3,236 in assets and more than $8,200,000 in liabilities.
Very few people are truly wealthy. You cannot judge a book by its cover, and you cannot judge wealth by the number of things someone has. (via Daniel Gershburg)
MERS, the Mortgage Electronic Registry System, is a legal fiction that—on paper—owns about half the mortgages in the United States. It was created in 1995 as a solution to the problem of slow-moving county property records offices. Banks and investors needed mortgages to move faster, so they registered once with the county in the name of MERS . . . and then basically lost track of the paperwork.
The New York Times explains why, but here’s the gist of it.
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Payoff amount is how much you would actually have to pay to satisfy the debt. It is not the same thing as the current balance that shows up on your statement, but is not necessarily the amount you owe. This is not obvious, but the difference between current balance and payoff amount is crucial when you are ready to pay off a debt.
Current balance means the amount you owe as of the date of the statement. As of the day after the statement, you owe more. In other words, if you are trying to pay off a credit card, and the statement says your balance is $514, you may not be able to bring your balance to zero by writing a check for $514. Instead, you would need to contact the lender to find out your payoff amount.
The payoff amount is really just a more-current balance number. But if you are trying to eliminate a debt, you need to pay it all off. If you just pay the current balance, you may be left with a few cents or dollars left in the account. Over time, that could become more than an irritation; it could become a significant obstacle to eliminating your debt.
So before you pay off a debt, call the lender to find out exactly how much you owe, and how much it will take to pay the debt off, in full.
In Illinois class action complaint (PDF), a homeowner alleges Wells Fargo violated federal regulators’ warnings by reducing credit limits on all accounts in a geographic area without assessing the value of the actual houses.
The homeowner accuses Wells Fargo of using “unreliable or inaccurate analyses” to determine property values—using computer models to predict home values—rather than individually assessing them. Interestingly, while Wells Fargo cut the homeowner’s home equity line of credit in half, it also increased his credit card limit—which had a higher interest rate, of course.
Wells Fargo responded by saying “our controls are based on contractual and regulatory guidelines, and include a fair appeals process. While we are beginning to review the lawsuit, from what we have read so far, it appears to mischaracterize credit controls designed to sustain homeownership.”
Wells Fargo sued over home equity loans | South Florida Business Journal
The Red Tape Chronicles asks whether Obama is “backing the wrong horse” by championing credit card reform while ignoring bankruptcy reform that would allow bankruptcy judges to reduce mortgage loans in bankruptcy—just like they can do for all other debts. Credit card reform is a great thing, of course, but it will have a tiny effect on Americans compared with bankruptcy reform.
Why is bankruptcy reform so important? Currently, consumers who declare Chapter 13 bankruptcy — the kind where debtors repay their loans but get extra time and some debt relief — find themselves before a federal judge who gathers all the debt-holders into a room and forges a compromise payment plan. Credit card firms, personal loan holders — everybody takes a hit, based on what the debtor can realistically pay.
But currently, primary mortgages are exempt from the process. There’s no way to reduce a mortgage loan in bankruptcy. Mind you, mortgages on second homes can be reduced. So can loans for cars, boats investment properties, etc. Primary mortgages stand alone, outside bankruptcy courts.
Maybe bankruptcy reform champion Dick Durbin has an answer: ““And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
Obama picks credit card reform over housing | The Red Tape Chronicles
When shopping for a car, the following statements mark you as a big sucker:
- “I love, love, love this car”
- “I need to get a car by tomorrow”
- “I need a monthly payment of . . .”
- “My trade-in is outside”
- “I don’t know anything about leasing”
- “My credit is a little spotty”
6 things never to tell a car salesman | CNN (via Consumerist)
Tracy Warren was a quality-control consultant for Bear Stearns and other mortgage security purchasers on Wall Street. Her job was to review mortgage loans to determine whether they had merit for investment purposes. (She saw the loans after they were made, but before they were sold to investors and led to the national economy’s crash-and-burn act.)
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More on the HELOC freeze from SmartMoney.com (with a shout out to yours truly).
It is getting time for a complete overhaul of the whole housing market in the US, rather than just messing with edges. Two different stories in the Minneapolis StarTribune this morning illustrate why.
First is the story about all the people applying for Section 8 assistance. Recently about 3,700 people took applications, for one of the 300 voucher to be drawn in a waiting list lottery for housing in Plymouth.
The turnout is a sign of a growing metro-area problem: a shortage of affordable housing. In fact, experts had predicted it. Each time a housing authority opens its Section 8 wait list, applicants overwhelm it.
Experts and housing advocates say the long lines point to a larger crisis in affordable housing: Paychecks have not kept pace with housing costs, and the supply of affordable housing pales in the face of growing demand. In 2006, one in eight Minnesota households was paying half of its income on housing, according to a census analysis by Minnesota Housing Finance Agency. That’s up from one in 15 in 2000. Renters in Minnesota are worse off. In 2006, nearly one in four renters was paying half her income on housing.
Second, we have a story about the trouble and costs of vacant foreclosed houses in the City of Minneapolis. The number of boarded properties has swollen from about 250 in 2005 to more than 800 now.
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