My Blog

Have you been following the mortgage crisis?  Everyday seems to bring new stories in the media about the state of the economy in general and the mortgage market in particular.  A web site dedicated to tracking the failure of mortgage operations reports 262 well established companies have shut down.

2 of my former employers are on the list.

What happened?  In simple terms, credit was too easy to get.  Borrowers that should have been renting a small apartment were given the chance to buy a big beautiful home.  The loan approval was based on a very optimistic analysis of their financial and credit condition which assumed and prayed that no change would ever occur to the borrowers.  No job loss, no additional debt, and no increase in their other spending needs.

The banks were relying on the strength of the real estate market to bail them out of any potential problems.  Appreciation would provide the cushion in the unlikely event of a crash.

On the service, this was a fairly reasonable assumption.  The economy was enjoying year after year of record market growth and real estate appreciation.  My own home doubled in value in just under 4 years.  But you can't base important policies on wishful thinking.

The entire real estate and mortgage market can be described as a wheel where each point on the circumference relies on the strength of the spoke supporting it for its continued stability.  Unfortunately, the credit component of the mortgage spoke was at its core unstable and collapsed.  This caused the entire circle to become unstable and today we have a terribly bent and wobbly wheel.

The resulting increase in delinquent mortgages, lead to increased rates as lenders tried to compensate for the losses.  Increased rates mean borrowers could no afford as much so sales prices had to drop.  Dropping sales prices mean less equity protection and increased losses to lenders.  Borrowers were now unable to refinance their home and unwilling to pay on a $300k mortgage fora home valued at $250k.  I could go on and on with this list but you get the idea, one thing leads to another and so on...

The damage has been done.  But now what?  Credit is amazingly difficult to get right now.  Values continue to fall and foreclosures continue to increase.  Hopefully the bottom will be reached soon and the market will slowly recover over the next several years.

Sorry for the long delay since my last blog.

Thanks to all of you that noticed it has been a while.

I have not blogged for a several weeks for 2 main reasons. First, my website host has had a problem with the blog system so every time I tried to blog I received an error message, and second, my life has been hectic these last few weeks with an injured father-in-law and traveling. The family schedule has been turned around and blogging was far from my top priority.

Thankfully, things have settled down significantly and I can return to my blog.

My next blog will discuss contingency offers and some of the pros and cons swirling about this very common practice in real estate.

Stay Tuned.

According to the Federal Trade Commission, identity theft complaints are broken down as follows:

• About 50% reported that a credit card was opened in their name
• 25% reported that the thief established new telephone, cellular, or another service in their name
• 16% reported that a bank account was opened in their name, or unauthorized withdrawals had been made from their account
• 9% reported that the thief obtained a loan in their name
• 8% reported that the thief obtained a fraudulent document such as a driver's license

Below are just a few recent facts and statistics about credit fraud and identity theft.

"More than 27 million Americans have been victims of identity theft in the last five years.... To deal with the problem, consumers reported nearly $5 billion in out-of-pocket expenses."
-The New York Times

"Stealing someone's identity to acquire -- and use -- new credit cards has become one of the most popular white-collar crimes today, according to fraud investigators from across the country."
-Knight Ridder/Tribune Business News

"This year alone more than 500,000 Americans will be robbed of their identities…with more than $4 billion stolen in their names."
-CBSnews.com

"In one notorious case of identity theft, the US Department of Justice reported that the criminal incurred over $100,000 of credit card debt, obtained a federal home loan, and bought homes, motorcycles, and hand guns in the victim's name all the while calling his victim to taunt him."
-US Department of Justice Web site

"The number of identity thefts in the U.S. has skyrocketed during the past 15 months."
-CNN.com

"According to a convicted ID thief in Denver, CO, "On a good day I could make $5,000 in cash and another $7,000 to $8,000 in merchandise..."
-CBSnews.com

"A recent report on identity theft warned that there is likely to be "mass victimization" of consumers within the next two years. The report said consumers should be extra careful to monitor all their financial transactions for unexplained account activity, withdrawals, or fund transfers."
-The Gartner Group, a technology research group

"Every 79 seconds, a thief steals someone's identity, opens accounts in the victim's name and goes on a buying spree."
-CBSnews.com

"Experts report that a victim can spend anywhere from six months to two years recovering from identity theft."
-CNNfn.com

"Most people don't find out they have been a victim of a stolen identity until they are turned down for a loan or credit card. A copy of their credit report explaining the denial may unveil weeks or months of fraud."
-CNNfn.com

Identity theft is becoming a huge problem.  Just one incident can ruin the credit you've worked so hard to earn. The problem is so big, insurance companies are even beginning to offer Identity Theft Insurance to help protect you in the event someone uses your name and information without your consent.  Check back in a few weeks as I'll have more information on this type of insurance in a future blog.  For now, I can offer a few tips on protecting yourself.

1. Don't give out financial information such as checking account or credit card account numbers, especially if you did not originate the contact.

2. Report lost or stolen checks immediately.

3. Be on the lookout and report any suspicious phone inquiries such as those asking to confirm your information to verify a statement or award a prize.

4. Closely guard you ATM and credit cards.  PINs and receipts should be kept separate.

5. Invest in a shredder!  Shred all personal information.  Make sure nothing with your name gets thrown in the garbage without being shredded.

6. Invest in a safe!  A $300 safe is large enough to protect important information and valuables.

7. Never put outgoing mail in anything other than an official Postal Service collection box.

8. Keep your eye out for monthly bills.  You should train yourself to know if a monthly bill is a week late.  If its late, call the company and find out where it is.  Better yet, convert to e-billing wherever possible.

9. If your bill includes questionable items don't ignore them.  Instead investigate them immediately to head off any potential fraud.   (My Mom & Dad were once charged for a firehose from a fire department supplier in Florida.)

10. Periodically check your credit report.  You are entitled to a free copy of your credit report once per year.  If married, each of you should check your individual credit and spread it out so one person checks every 6 months.  If you find an error or problem deal with it immediately.

If you have any questions or would like to discuss this further, please give me a call.

The traditional causes of foreclosure, even before there was subprime lending, were job loss, divorce and major medical expenses.

Guess what, today these are still the primary causes.  The latest national foreclosure data show that foreclosures have not been concentrated in places where real estate bubbles have supposedly been popping, but rather in places where local economies have stagnated — the Gulf of Mexico (hurricane) and the industrial Midwest (domestic auto industry).

These do not automatically point to subprime lending as the leading cause of foreclosure problems, since the vast majority of subprime borrowers have been making their payments. Indeed, fewer than 15 percent of borrowers in this most risky group have even been delinquent on a payment, much less defaulted.

Subprime loans provided a very valuable benefit to thousands of americans everyday.  Loans are neutral, neither good nor bad as each serves a very specific purpose and financial goal.  The trick is to find an advisor that wants to match your goals and financial needs with the loan product perfect for your situation and not perfect for their commission.

Did you ever wonder about the word "Mortgage"?  What is a mortgage?        A mortgage is a pledge of property as security for the repayment of a loan.

The entomology of the word tells us that it means, literally, death pledge: “mort” is French for "dead" (and is pronounced “mor”), and “gage” is an old word that means "pledge." The explanation for this could be that if a person defaults on a mortgage, he ends up losing the property and it becomes, in effect, dead to him.