“Everything is Negotiable…”
By Larry Doyle on December 23, 2008 at 7:15 AM in Current Affairs
At “Central Station” the other day, a loyal reader thought it may be useful to write about the implications of defaulting on a mortgage. Certainly nobody wants to default on a mortgage but given the dynamics of our current housing market and economy, delinquencies and defaults are simple realities.
In thinking through this topic, it struck me that it may be just as beneficial to address what to do before defaulting as it is to know what happens after defaulting.
First and foremost, given the economic environment there should be no sense of shame or embarrassment in a deteriorating financial condition. That said, as one of my earliest mentors taught me “people in finance typically do not have problems with losses but they have big problems with surprises”. How does that piece of wisdom apply to today’s deteriorating housing market and rising foreclosures?
IMO, I would strongly encourage any individual who is feeling a degree of financial stress with their mortgage payments in the context of their overall financial budget to visit the bank/broker who gave you the mortgage.
In doing so, I would bring an overview of your monthly budget, including taxes, food, utilities, insurance, etc. The more comprehensive you can be the better.
Perhaps you may think that you do not need to do that or want to do that and you can struggle through another month. Perhaps you are also digging yourself into a deeper hole.
I am all for people meeting their obligations and I detest those who knowingly abuse the system. In the middle of those extremes, however, are a great number of people who are doing everything possible to keep their home and manage their finances.
You may think that in visiting the bank who wrote your mortgage that you are strictly dealing with an enormous entity bogged down with piles of red tape. I would offer that in this market and this economy, “everything’s negotiable”. Rest assured the last thing the bank wants is for another mortgage to default.
Additionally, the likely first piece of government assistance to come from the Obama administration is capital to help homeowners in foreclosure or approaching foreclosure. I expect that that assistance will incorporate some degree of mortgage principal reduction.
I would definitely broach the topic of principal reduction after laying out your budget. The worst that the bank can do is say no. If that is their response you will have been on record as having been proactive in the process and that can’t hurt you if in fact you end up actually defaulting.
On that note, I do caution that there seems to be a cottage industry developing to handle mortgage defaults and foreclosures. While it would be irresponsible of me to impugn an entire industry, I was struck by a number of sites that adervtised how they could seemingly perform miracles. My initial line of thinking was that these may very well be the same people who put people into exceedingly costly mortgages in the first place. Please be very careful in whom you engage at this juncture.
Additionally, if in fact you default on a mortgage you need to fully understand that your credit score will take a serious hit and that the cost of future credit/loans will likely be significantly higher if in fact you can get a loan at all. Aside from the impact on your credit score, there will likely be tax implications as well. I would encourage you to talk to an accountant or tax preparation service well in advance to learn about these implications.
Again, please understand that I am not a professional financial planner and that the opinions here are strictly my own.
These topics are challenging as is the economy. I do like the concept that “everything’s negotiable.” I hope that if in fact you find yourself in this position that you find that my approach outlined here is ultimately the equivalent of “an ounce of prevention is worth a pound of cure.”
LD
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I just watched the numbers on this default problem – they are at a 28% higher than usual rate – I believe they said that was the last quarter compared to “tradional rates” over the last few decades.
So what is utterly CLEAR, is the whole deal is so overblown – and the real reason there is such turmoil is the bigshots have been lying so long Enron isn’t loooking so bad right now.
Since so much value in the market was pure fluffed up hype- just like the news, and everything else nowadays, when the hype bubble burst and the stark nakedness of REALITY came to the fore – my gawd the panic ensued, and made it all worse.
The panic is still present, and as we see, this whole scenario is cleaning out the TRASH – like mr 50 billion dollar ponzi himself – and if anyone suggested before that broke that mr respect holy high roller of NasDaq and the “MASTER” was neck deep in lies and ponzi scheming – the whole wall street street would have rallied in his defense.
So, the answer is – so many liars and con artists, so many scamming turds with a good reputation, so many criminals legalized by law – and so many more even beyond the out of control laxness slammed into the law, the bottom is going to be a long way down.
If it doesn’t SLAM the liars and cheaters hard enough, nothing will change.
Of course the bailout makes sure nothing will change, and it will only be more of the very same, with very little to no reform, accompanied by new and shadier scamming ( like converting your xxxx to an “investment bank” ) to grab more free tax dollars or fraudulent prop ups and exhorbitant stealings and taking of the cream off the top.
28% more home foreclosures thabn usual just IS NOT the gignatic disaster it is played as.
They did the same thing with bankruptcy reports, then changed the law with the total raging hype.
I’m not surprised though, it was very interesting to see OJ given up to 33 years for “kidnapping + ” while the experts explained he “demanded people move across the room” and movement makes the kidnapping charge valid- then endless numbers screamed vengeance while their lips said justice was finally done. It made it clear to me that pitchforks, torches, and a crowd of insane townspeople are still very, very important nowadays.
If 28% more defaults than usual, not 28% of all homes (there is a GIGANTIC difference – take a math class hyping kookball artists for pete sakes * yes I know your type does not actually know the differemce, but you’re an expert in the field and educated properly – even if a math flunky and liar because of it ) – can destroy the world economy – why then Dorothy and Toto really do exist. Santa too. Jack Frost. The tooth fairy.
What’s really troubling is that we now have the Bankster/Fat Daddy Bail-U-Out Alliance. Ike warned about the military-industrial complex, I guess he didn’t see our Financial Bosses on the horizon.
Yes, it’s outrageous that the first bailout actually had controls on a lot of this, but the one that got passed on Thursday had no controls or accountability at all.
LD, was there report from HUD recently that some renegoitiated loans are defaulting? And how many folks that are in real trouble have decent enough credit rating to qualify?
get fit: Your comment reminds me that the house across the street from ours in FL defaulted (a huge million dollar job) and it was immediately bought for a rock bottom price, then, a short time later the purchaser defaulted and the bank now has the house back on the market (probably for an even lower price). We bought a house in a very carefully planned, unique community. I never thought we would have a rash of foreclosures in our town, but we are.
Other houses in our neighborhood are going through “short sales” where a buyer offers a price that is “short” of the mortgage and then the bank has to “forgive” the difference. I guess the bank agrees to keep from losing the property altogether. Realtors in our community are actually advertising short sales as the way to go. Of course, all this is lowering the value of our house, even though we have a traditional mortgage, 20% downpayment and never missed a payment. At this point we’ve decided to just keep that house and live in FL when we retire. The market will never recover enough in our lifetime to make a profit.
Getfit….Two points.
1. There have been a very small number of loans that have actually been modified. Why is that? Simply because, given the securitization model that prevailed, the majority of mortgages, and other consumer loans, ended up being pooled into securities. The trustees and mortgage servicers for those securitizations are contractually obligated to perform certain roles in handling the stream of cash flows that come from mortgage holders and that are sent through to mortgage investors.
If and when those obligations are amended then more mortgages will likely be able to be modified. I would expect the next administration to address this point very early on in their administration adn that the courts would pass a ruling allowing for some sort of increased loan modification.
The hidden cost in that is that future investors will either not purchases or will price in the risk of a loan modification. Both of those impacts would be in the form of higher mortgage rates. That is a future headache, though, and we have plenty of other issues to adddress now. It would be irresponsible to enter into this process without understanding that, though.
To the second point, yes, almost 55% of the loans that have been modified have redefaulted for the very simple reason that the homeowners have increasingly negative equity. Thus, they feel it is not worth or can not continue to make payments.
I would expect some osrt of principal reduction on the horizon. That was one of the points I was trying to address in this piece.
Hope this helps you in gaining a better understanding of the dynamics involved here.
NAR would not allow that to happen.
That would destroy their business model, and their primary inducement for luring the noncreditworthy consumer into buying more house than they can afford. (NAR = National Association of REaltors). Their sales tactics successfully planted fear in the minds of the consumer (as well as nurtured whatever latent greed was present). BUY NOW OR BE PRICED OUT FOREVER…does anyone recall that pitch? I believe they still have ads on the radio telling the world that NOW IS THE BEST TIME TO BUY A HOME.
When a powerful business lobby’s raison d’etre is devoted to keeping home purchase price at a high level, I wouldn’t look for any MEANINGFUL principal reduction, if any.
Not to mention the free marketeers will let out a howl heard from coast to coast. There still is enough GOP representation in Congress to throw a monkey wrench into new administration’s plans.
I’ve been listening all morning to different talking heads asking what have the banks done with the money? I also just heard that Toyota reported their first lost in 70 years. Yet, me who have paid my bills on time with a 780 credit score and little debt was told that I needed a 25% down payment for a new car by Toyota Financial Services.
Even though I had a Avalon to trade in or sell, they wanted additional funds. I have concluded that we will all be driving old cars, living in forclosed boarded homes. Don’t let me get into my condo investor foreclosure problem. The Banks Suck!!!
I keep hearing that. Banks aren’t giving out the money.
The money was supposed to be leant out, but it’s not. But if they flooded the market with imaginary government funds, we would have massive inflation. But if they don’t lend out the money, they are screwing themselves and us. But they told us if credit could ease things would unstick. You ask them questions and they won’t tell you.
I don’t know what’s happening anymore. I have to make sense of these things. I do know the bubble has burst.
XAX…I feel your frustration and believe that there are multitudes who have the same frustration. To that end, I am trying to shed some light on it here at NQ.
I hope that you are able to gain a little better understanding of this mess through reading my posts.
Additionally we have launched a “Central Station” forum where you can ask questions. i will offer insights and certainly our loyal followers have plenty of interesting insights as well.
Hope this all helps.
It’s Alice in Wonderland. I was negotiating a line of credit renewal with our bank when the tsunami hit. Our multi-million dollar company, which has an excellent record and only requires short periods of bridge financing was told that it could get a line that was less than half of our previous paid-off line. The kicker? We had to buy a CD that was equivalent to the offered line.
Let’s see – we loan the bank the money for them to loan back to us and pay them interest to do it. What kind of moron would offer a deal like that? The same kind that loaned out money to people who couldn’t pay it back. I have lost all faith in banks – and I had precious little to start with.
Ellen…I have heard this story ad nauseum. Not knowing whether your bank is a major money center bank, a regional bank or a local community bank, I believe that more and more people and companies are having better luck getting credit from smaller institutions that are not typically overburdened with bad credits, bad assets, and a bloated cost structure.
If you do find a smaller bank that can help you, I would look for more than one relationship.
Thanks for sharing your experience. Best of luck.
(dear) LD, your theme ‘everything is negotiable’ is a good one, but your approach to the example in relations to mortgages and the potential for default is very poor. You are working from the positions that have profited you over the years (and profited most people who profit from pressurizing others).
Everything is negotiable, yes go visit the banker I agree, but ask the banker a simple request. Say you want to make your mortgage ‘Assumable.’ Hey, is that little change in terms so difficult? Hey agree that the ‘Assumor’ be approved by the banker, who cares.
The thing is that if someone has a problem paying a mortgage, they should consider selling. They should find a buyer or two and take them to the bank with them. Have them assume the mortgage or write a new mortgage – whatever.
Everything is negotiable. Stop the need for unnecessary fees for appraisals and surveys, inspections including termite and the rest. Stop wasting the buyer’s money on things that the buyers don’t need to buy – except if they don’t know how to do their own research.
Sell the property – to the banker – but sell it. With the profit buy a shovel or a rake and start digging holes for drainage or raking leaves to create compost bins.
Lark,
It does seem that more often than not, we are in agreement in principle but perhaps differ slightly on approach.
I do very much appreciate your thoughts and ideas that you share here. Thanks very much.
Can anyone advise on Credit Card debt?
If it’s either pay the mortgage or pay off cards, the mortgage will get paid, but what alternatives are there to eventually paying off CC debt?
(Other than bankruptcy)
It’s criminal how Credit Card Co’s ( American Express) refuse to stop the clock on the outrageous interest charges -making it impossible to pay them down ( even with requests from debt managements agency’s )
Will they eventually settle for the actual amount owed before default? Or will they insist on payment of piled on interest charges?
I hear some hopeful things from time to time about how credit card rules are being changed by the Fed or about potential future changes when the new Congress convenes. Revisions such as they can’t change the interest rate on existing debt (only new purchases) and not being able to raise your rate if you default on another card etc have been mentioned.
However, a couple of days ago, I heard on TV that American Express are sending letters to card holders telling them that other customers who shop at the same establishments that they do have a high rate of default. This seems like a threat of some sort, but the piece didn’t spell out if they should cease shopping there or what. This seems incredibly nervy and outrageous on the part of American Express. Just hope that the new Congress has the cojones to address all of these ridiculous practices.
The sad thing is that Congress wanted to pass a moratorium on credit card debt tied to income taxes. It sounded like a good plan, but the Republicans in Congress defeated it.
David, pay the mortgage!! Go to a credit counseling service in your town and ask them to help. They will call the CC companies and negotiate a reasonable payment for you. If not, file bankruptcy and then they will get nothing. You have to have a roof over your head. CC companies started jacking rates up on good paying customers to pay for all those cc they gave to people who had shitty credit, some not even legal citizens. I am not paying for the poor decisions of greedy cc companies.
I agree with wodiej. I did that. It takes time and your credit will take a hit especially since Amex, in particular, does not like to negotiate with those agencies. But it will happen. But if the situation isn’t that great, your credit score might no be all that fantastic right now, and since you already have a house, I think you can get by with a lousy score for a few years.
You’ll get between a 30%-45% decrease in your debt settlements depending on the amount and the agency. The negative: terrible credit score. The positive: you learn how to function without credit.
BUT be aware that the amount of the reduction will be subject to taxation, as the IRS considers it “income” – go figure. Go through Consumer Credit Counseling Svcs or another REAL nonprofit. Do your homework about how much of your payment will actually be paying down the debt. Remember, if it sounds too good to be true, IT IS.
Be patient – it takes time, but it CAN be done, and you’ll be on a MUCH better footing afterward, lousy score or not (because you’ll learn to live within your means and pay cash. This will help you better deal with economic adversity. Good Luck!
GREAT COLOR!!! Thanks for sharing it!!
allimom99, well said.
Hope you have have a Happy Holiday in your neck of the woods.
BUT be aware that the amount of the reduction will be subject to taxation, as the IRS considers it “income” – go figure. Go through Consumer Credit Counseling Svcs or another REAL nonprofit. Do your homework about how much of your payment will actually be paying down the debt. Remember, if it sounds too good to be true, IT IS.
Be patient – it takes time, but it CAN be done, and you’ll be on a MUCH better footing afterward, lousy score or not (because you’ll learn to live within your means and pay cash.) This will help you better deal with economic adversity. Good Luck!
David, can you take advantage of one of those
credit card offers where you switch your balance from an old card to a new one? They advertise
zero percentage interest rates for a certain amount of time with a new card. It looks like you probably have to pay a fee based on how much your balance is, but wouldn’t that shore off the thieves for a bit? Or have they already tagged you credit rate and won’t give you the offer? Possibly worth looking into.
Also, I thought they had all those places that offered to help people with credit card debt get
a better deal. They advertise them as being a free service– so they are probably run someway in conjunction with the credit card cos themselves… but credit card people want to get what money they can… and not be left with no return.
NTZ…I am very leery of these organizations. Please be careful in engaging them as their business model strikes me as “borrow more”. I am more of the opinion that “when you are in a hole, stop digging”.
David,
I do like some of the ideas proposed by our loyal followers. I am of the opinion that the mortgage comes first. In regard to the cc debt, I would offer the following:
1. are there ways to grow your income? not knowing your housing situation, I do knwo that some peopel have takken to “renting rooms” although I know that that can present a whole separate set of issues.
2. wherever and however you can cut expenses…
3. are there assets that you have that can be sold…
4. I would be reluctant to borrow more money to pay off existing debt as I think that may exacerbate the situation.
I wish you all the best. I hope that we can continue to provide helpful insights here at NQ.
Didn’t the revision of the bankruptcy laws (supported by Joe Biden, the Senator from MBNA) make credit card debt virtually undischargeable to most wage earners, and turned most bankruptcies into payment plans rather than actual debt relief ?
Rob…I need to do a little homework on this.
If anybody has any insights, please share.
Thanks.
Colleges or universities with international students are a good source if you decide to take in roomers. Many international students want to live with American host families (to practice English, save money, etc.). The school officials usually make good liaisons (regarding costs, house rules, etc.). It might be worth a try to supplement income. Good luck!
Margo….
Thanks for that color. Much appreciated.
People helping people!!
Headline “Everything is negotiable”
wrongo!
(wondering if that was the point?)
reading on
ok maybe in the big finance world it is but not in my little corner (this is turning in to the FIRST time I’ve been relieved to be a pauper in these uncertain times)
Paupers have nothing to gamble, nothing to lose.
Living from one hospital visit to the next. (pour moi)
And glad I am in America if I have to be anywhere with my condition. No other country would treat me so decent.
And trust me that’s not saying a whole lot except for ONCE
I am not affected (yet) by the housing market or the market in general.
I have some sympathy for those that lost a lot but my sympathy is running low (for many).
They’ll just have to learn how us poor people manage things. It’s called juggling. LOL
oh yea
Merry Christmas – the light show is free!
Dawnelle: this economy has made me think that people living in older, traditional neighborhoods are probably in a better situation than people with homes in new developments. We have two homes in new developments. We are fine (except that we now could not sell either of these houses no matter what) but there are houses defaulting all around us. I think in established neighborhoods most people have lived there for years and probably lots of people have their homes paid off. Of course, even in those places, people now cannot sell their house no matter how much they need to (like if they need to move for a job, etc.) the whole think stinks and heads should roll.
My husband’s accountant recently told him a story about a builder who’s afraid of falling behind on his mortgage. After contacting the bank, he was told to call back after falling 90 (I believe it was 90) days behind on his payments, so he would qualify for one of the government programs. I’m not certain if that story is representative of what other financial institutions would say, but it wouldn’t surprise me if that is the case (especially if there are governmental programs which only kick in after payments are delinquent for a specified number of days). Obviously, falling 60 to 90 days behind would put the homeowner in dire straights.
It would be interesting to know what type of responses homeowners are getting from their lending institutions when they attempt to renegotiate the terms of their loans.
Renegotiating the loan: let me tell you…
It’s really hard. It’s almost impossible through a bank, and they want big money in closing costs, etc. We went through our credit union in September and it went quite well. The disappointing thing was that our home’s appraised value had dropped, but it was still worth renegotiating. We have friend, however, who are having a terrible time renegotiating with their banks or mortgage companies.
credit unions are better to deal with. I am not having any financial problems right now but I am moving all my business over to the one I have my car loan at.
Tek,
Thanks for sharing. Great color on utilizing credit unions for refinancing purposes.
“BAIL EM OUT! ????
Hell, back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it. They failed and it closed. Now we are trusting the economy of our country and our banking system to the same nit-wits who couldn’t make money running a whore house and selling whiskey!”
THANK YOU
I was on Ford’s website yesterday, to my knowledge the only domestic automaker not needing the bailout.
They had their Business Plan to the US Senate Banking committee online. Can you imagine, where is the logic in a manufacturer having to present a business plan to a collection of incompetent crooks?
aka your federal government.
When TF has Chris Dodds ever successfully run or managed a business?
Penn Red….I agree. Alan Mullaly, the CEO of Ford, has distinguished himself throughout this process and over the course of the last few years. I hope Ford not only survives but thrives as they have made lots of tough decisions and have managed their business better than the others.
LOL!!
Hmmmm…When Owners of Retail Malls or Hotels default…Will they get a BAILOUT…likely NOT.
Good article LD as usual…thanks…
LD – The guest host on Squawk Box commented that he thought the banks were clearing up paper and would start lending in 2009. What is your assessment of the paper held by the investors. The talk was mark to market was killing them. However there was some value if they could find a market.
Has that changed much with the Fed buying F/F paper? With the TARP funds are some of these private institutions writing this off to make the balance sheets more clear?
My understanding the redefault after loan modification is comming in at 40% after 6 months. Also some of the loan modifications are not working because the people have to verify the income statements on the original loan was verifyiable. They are not responding because of that question. So the stated income for the no doc loans must have been shakey.
When you were a mortgage broker, were you a originator or buyer. It would be interesting to hear what your world was. When did the shakyness of the ratings and the subprime/altA stuff start to show up for you?
Fiscal…Some of the highly leveraged “toxic” paper is starting to move, albeit slowly. Again, the market as a whole and the banks specifically need time to generate earnings which are trhen used to write down assets and inventory. Regrettably, as the time ticks by, the writedowns and losses grow as business activity further slows. It is a vicious process. That said, soem institutions are buying some of these investments which is truly what needs to happen. The assets need to move from the banks books to private investors.
The problem with the mark to market is that it is similar to the Japanese style approach of the 90s in which they never recognized losses and the institutions were propped up.
My world for my first 15yrs on Wall St. was as an institutional trader of mortgage-backed securities. I “made markets” and committed capital in the buying and selling of these securities. It was a very healthy and thriving biz which provided capital to the secondary mortgage market.
For the laswt 8yrs 1998-2006 I was an institutional salesman and then National Sales Manager for these products. I left my last shop in 2006. In the early part of this century there were clear indications of abusive practices in the mortgage lending process. They were addressed but not fully cleaned up. The rating agencies were way behind the curve and that really started to show up just as I was leaving the street in early 2006.
All this said, it would be ridiculous to pain everybody on Wall St. with a broad brush. Like most industries, the overwhelming number of people are highly ethical.
Oh, one hopeful thing is that Hillary is figuring out how to fix the economy from her position as SOS. I think Bill is probably working with her because, as someone mentioned yesterday, Chelsea appears to be running the Clinton Foundation.
Thank you for your words of wisdom. ALWAYS appreciated.
this is excellent advice but people also need to be aware that if the bank is willing to work with them on their mortgage. They should make every effort to make some kind of payment for the sake of having a roof over their head and do without some things they don’t really need. Say like cell phones, nail salons, magazine subscriptions, cable, shrimp and steak and dining out. These are hard times and not only are the jobless hurting, those who are working are hurting too. We are also dealing w high prices not to mention tax dollars going to bail out alot of banks, jobless etc.
Wodiej….words of wisdom that are deeply appreciated. Thanks for sharing in the dialogue.
I am in forclosure on my primary residense because I was caught in the Auction Rate Securities scandal (if you want to have a good nausea check that one out…) The bank has offered us 2 weeks ago a 7% renegotiation of our loan with an upfront fee payment of more than $2,000. That Well’s Fargo response to helping us. They put us in foreclosure so there is no way we could get any loan anywhere else and then they massacre us with high interest and fees galore.
And gess what we signed on the dotted line. No choice. We’ll probably default again in 3 months…And start the story all over again.
French….In regard to the Auction Rate situation, I do know that a number of institutions made massive settlements on these securities. Not knowing whom you purchased these securities through, (and perhaps you have had more discussions and anxiety than you could have ever possibly imagined) you may want to share with your broker that virtually every bank on Wall St. including JP Morgan, UBS, Bank of America, Merrill Lynch, Deutsche Bank made settlements with their clients. I do know that some regional banks and regional brokers did not make settlements.
I empathise with your dealings with Wells Fargo but I wonder how they may respond if you broached the topic of “principal reduction” and stated that you are hearing that the FDIC and the Obama administration are discussing that concept. I would not expect that they would give you any immediate satisfaction but it may be worth lobbing it in for discussion purposes.
Another point that was raised by another reader is the idea of finding a person at WF with whom you can develop a rapport or relationship to work on your behalf. In that manner, you are not always dealing with whomever answers the phone and getting the runaround.
I wish you all the best. Thanks for sharing!!
I would always try dealing with your bank as an option. I’ve noticed if you get a decent human being in any organization or business, you stand a semi-decent chance of getting what you need. Don’t just walk in cold to your bank, find out who the most reasonable, decent person is who works at the level you need to address. Make a personal contact with them and deal with them throughout. If other people need to be brought into the equation, ask that this person still be your main contact.
If you walk in cold and get an officious jerk (and they are so plentiful) you will be frustrated and probably stymied in your attempt to fix the problem.
Find a good person to deal with and even if your situation can’t be helped by them, they can probably come up with some further ideas that might help you.
NTZ….Great advice. I always like the approach of finding somebody who is willing to “take ownership” of your issue so that the runaround is minimized if not eliminated.
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How Bernie “Madoff” with $50 Billion
Breaking News that Fund Operator (a French name I believe but I missed it)Found Dead in NYC….
For those who missed our Sunday Night Radio Show we had on John Moynihan, LJ’s partner and an expert in forensic accounting and money laundering on from 8:40 until 9pm. He spoke about Bernie and this massive fraud. Well worth a listen.
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Great ideas about dealing with credit and mortgages. I don’t know if it is as pertinent now as when we bought our house in the mid l980s but we saved a lot of money by prepaying our principal. Interest rates were over 10% then. I thought it might be interesting if you could discuss currency fluctuations. Why is the dollar so weak now? Is it advisable for people to hold assets in foreign curency. I know there must be other people like me who have foreign contacts and have some dealings with overseas markets.
Lizzy,
Your idea about paying down principal is a tried and true method of paying down debt, building increased equity, and gaining more financial flexibility.
That said, at this juncture, with a mortgage being the only writeoff that one has nad given where mortgage rates are vs rates for municipal bonds it may actually be worth refinancing one’s mortgage into a 30yr fixed rate at 5-5.25% get the writedown and use the money to invest in a quality municipal bond fund or municipal bond issue. Obviously you need to understand the risks involved in the municipal bonds (interest rate risk, credit risk)/ if you can find a fund or bonds that effectively match your liability (that being your mortgage) vs the asset (that being the municipal bond) then it may very well be worth it to take that approach.
In regard to the currency, we have addressed this point in some previous columns as well as on our radio show this past Sunday. I do believe that our follwoing is growing and not knowing if you are a new reader/follower or not, let me make the following points:
1. Currency valuations are a function of a nation’s interest rate level and interest rate policy along with a nations’s balance of trade. Given that the federal reserve jsut lowered our fed Funds rate to a range of 0 to .25% nad we have a massive trade imbalance, our U.S. dollar is fairly weak, especially vs the Japanese yen. It is close to a 13yr low vs the yen. The dollar vs the Euro was much weaker this Spring/Summer but then strengthened earlier this fall beofre getitng hit hard since the fed cut that funds rate.
The big concern for our dollar revolves aroudn the massive bailouts, the Fed statement that they will leave the fed Funds rate in this range for an extended period and the fact that our trade imbalance is not likely to improve anytime soon.
There was a fabnulous article in last Saturday’s Wall St. Journal Weekend section by a James grant about the perils of a very weak dollar. It is worth getting.
The immediate play vs the weak dolalr has been a strengthening in gold. Some market savants are increasing their stake in gold bullion. I think that may be a little much for avergae investors but buying an ETF that is focused on gold is one to play this theme. While the U.S. dollar is weakening,the yen has strengthened because a lot of investors were short the yen to purchase other foreign denominated assets and now are forced to unwind those trades and buy the yen back.
I think that it is prudent to have a degree (perhaps 5-20%)of foreign exposure in any portfolio.
Additionally if you are concerned about dollar weakness leading to increased inflation, it woudl be prudent to buy TIPS (Treasury Inflation Protected Securities) which pay abase rate and then are indexed to inflation.
lastly buying an ETF that is indexed to commodities (hard assets) can be a play to protect vs a weak dollar.
Hope these insights help.
Lizzy,
Not knowing where you are located I though you may appreciate this article about community banks in tomorrow’s WSJ.
http://online.wsj.com/article/SB123007970447031843.html
Hope you can access it.
Good luck!!
I dfefaulted on my mortgage. I didn’t want to but the bank really left me no choice. I know there will be credit repurcussions, but I simply could not pay what they expected, and since I feel like they illegally added thousands of dollars onto my mortgate, I wouldn’t have kept the house if I could have afforded it. Believe it or not all of the foreclosures are not the stupid consumers who bought way over their income. And not all ban kers want to work anything out.
I boughta house that was weel within my ability to pay. I had a fixed rate, 20 year mnortgage with 15 years left on it. The bank changed my payment from $769/month to $1225/month due to what they called escrow overages. They refused to discuss this with me and refused to provide an accounting. The bank had set my payment and the bank deducted my payment every month from my checking account. I was never even one day late. Insurance and taxes were included in the payment. So, I cannot understand how I got an overage.
Anyway, just so you know. I lost my home of 15 years, through no fault of my own, and I am better off. I know I could have and probably should have fought to keep it, if I could afford a lawyer. I couldn’t. But I have been increasingly depressed for almost a year fighting with the bank and waiting for some help from Congress. Help didn’t come. I don’t believe Congress is going to do a damned thing to help people who are losing their homes.
And I am just so tired.
I have a daughter in college and a son in high school and I need to spend my life taking care of them. Obsessing over that house was destroying my family. That house is not worth my family. We will be okay. I’ve managed to survive some pretty bad shit in my life and I can handle this. And if I can’t borrow money that’s fine with me. I won’t buy anything I can’t afford. I don’t owe anyone anything at this point. I have a good job and I know how to live within my means.
We live 40 miles closer to work now. We rent a pretty nice house in a nice neighborhood. My son is in a better school and his grandma is right down the road. We’ve never lived in a city before (my son has never lived in any other house)and it is kind of a shock, but tonight for the first time in my life, I was ordered pizza delivered to my house. They do not deliver if you live way out in the country.
I am pretty strong and I do not like giving up, but I do not feel like I made a mistake. I did what I had to do.
Apishapa….
Thanks very much for sharing your experience. You do sound very strong and I hope that that strength continues to lead you and your family in 2009.
Thanks all for the great advice.
I will say this to you LD.
This IS my field and just over the last few weeks the new FED and State Rules and Regulations put in place can severely penalize anyone giving advise specifically to a mortgage holder unless you hold a valid Broker’s License or a Mortgage Loan Originator’s License in your state and are registered with the national organization, The NMLS.
Just sayin.. Some of the things you’ve written are inaccurate and could be misleading to someone in trouble. I’m not posting this to upstage you in any way. Just letting you know the change in regulations is law and will hold people responsible for their actions if they are not licensed to do so.
Tellurian,
I just caught your comment and appreciate your color.
How is it that I or anybody else who may be writing in general terms to an unspecified audience can be subject to industry rules.
Additionally for my own edification, what have I written that is inaccurate.
If you can share this with me and as a result with our entire audience then our mission, that of further educating people about money and finance, will be promoted.
Thanks very much.
Tellurian,
Additionally, how is this exchange any different than somebody saying, “I’m no lawyer but I think you may want to ….”
We are selling nothing, charging nothing, merely providing a forum to openly and honestly exchange ideas. I don’t see how that can possibly be regulated.
If we were selling something, directing business, or charging fees for advice, obviously that is a horse of a different color.
Tellurian,
Additionally, how is this exchange any different than somebody saying, “I’m no lawyer but I think you may want to ….”
We are selling nothing, charging nothing, merely providing a forum to openly and honestly exchange ideas. I don’t see how that can possibly be regulated.
If we were selling something, directing business, or charging fees for advice, obviously that is a horse of a different color.
I look at this as strictly a public service.
[...] known as a “Mortgage Cram Down” (highlighted here at NQ on both December 23rd, “Everything’s Negotiable“, and January 1st, “What’s a Mortgage [...]