Friday, February 29, 2008

Worried About Bank Failures?

Recent economic news has been bleak, and some people are beginning to get nervous about the stability of the banking industry. Even if the worst happens and your bank fails, your deposits will be safe if your bank is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC was created during the Great Depression in response to thousands of bank failures, and it insures deposits in banks and thrift institutions.

Now may be a good time to confirm that your bank is covered by the FDIC. First, look for the FDIC logo at your local branch. If you don't see it, ask the bank, or go to the FDIC's Web site and click on "Bank Find." Here you'll be able to see if the bank carries this guarantee. Even if you are banking with an internet-only bank, they should be listed on the FDIC site. If you want to see how financially "healthy" the institution is, go to

The FDIC limits the type of banking products it insures, and for what amount. Individual deposits, such as checking, savings, CD's and money market accounts, are insured up to $100,000. Joint accounts can be insured up to $200,000. IRAs and Keoghs can be insured up to $250,000. These retirement accounts are considered separate from your individual bank accounts. What is not insured are investments, such as mutual or stock funds. Nor are the contents of your safe deposit box covered. A general rule of thumb is that deposits are insured, investments are not.

If your bank does go under, it will most likely be purchased by a healthy bank. As a depositor, all this usually means is that there is now a new name on your bank statements. Your checks will still be valid and you can still use your ATM card. Even if the worst happens and there is no buyer for the bank, your deposits are covered. Withing 48 hours, the FDIC will issue a check in the amount of your deposits.

However, there are some things that might change. If you have a CD with the failed bank, the new bank may change its terms (interest rate or length). If that happens and you don't like the new terms, you can cash in the CD without penalty. But if you have a loan with the bank, those rates and terms can not change.

The FDIC maintains that, since 1934, no depositor has lost a penny of insured funds as a result of a bank failure. That's a pretty good track record. But you do need to make sure your bank is covered, so take a few minutes and check. It'll be one less thing for you to worry about in these uncertain economic times.

Sunday, February 24, 2008

Tax Rebates Lead to Tax Scams

Scam artists have always looked for inventive ways to separate you from your money. But with the announcement that economic stimulus payments will go out in May, these crooks have shifted into overdrive. Their tools are the phone and the Internet, and their target is you.

Complaints are already surfacing of calls from people posing as employees of the IRS or Social Security Administration. They offer to "directly deposit" your tax refund. But in order to do so, they need some personal information, such as your bank account number or social security number. The result is, instead of the tax refund money going into your account, your savings are removed by the crooks.

Some of these scammers are very aggressive. A woman in Texas told the authorities of a man posing as an IRS agent who called her eight times! There are also reports of people receiving emails supposedly from the IRS instructing them to click on a link where they are to insert personal information. Some emails look like they come directly from the FBI. It does not matter how official these emails look, they are all fake.

Government agencies will NEVER request personal information over the phone or in an email. In order to get your special stimulus rebate, there is no special paperwork to fill out and no phone calls required. All most people have to do is to file their 2007 income tax return.

If you want more information about the tax rebate, go to the official IRS website. If you think you have been contacted by a scammer, the IRS has a special article explaining some of these scams and how to report them.

Friday, February 22, 2008

California Tries to Slow the Effects of the Housing Crisis

California's economy has been hit hard by the housing slump. The decrease in home purchases and increase in foreclosures has had a wide-reaching impact throughout the state, far beyond just those in the real estate industry. In an effort to revitalize the economy, this week, California's Governor, Arnold Schwarzenegger, announced the award of $73 million for 40 affordable housing projects in 26 cities in the state. These funds will be used to help 1,611 California families rent or purchase affordable housing. According to the Governor's office, these projects will create an estimated 5,300 jobs in the state and about $244 million in wages.

Governor Schwarzenegger also announced $5.6 million in federal money to train laid-off mortgage and banking industry workers for jobs in other industries. An estimated 8,400 workers in California's mortgage lending industry have been laid off since July 1. The length and type of training provided will very depending on the skill level of each individual. In a press statement, the Governor said "We applied for this grant because we want to help displaced workers transition to new jobs and the money will go to the counties with the greatest need. We are not just sitting by and waiting for the economy to pick back up. We are taking all the action we can to keep people working and rebuilding California."

Sunday, February 17, 2008

Foreclosure Prevention Act of 2008

Senate Democrats have proposed some new legislation intended to help individuals avoid foreclosure. Called the Foreclosure Prevention Act of 2008, this legislation would contain the following benefits:

1. An increase in pre-foreclosure counseling aimed at helping a half million homeowners find solutions to help them keep their present homes;

2. An increase in the cap on Housing Finance Agency bonds, with the additional money used to fund sub-prime loans and assist first-time home buyers;

3. Improve the disclosures given to borrowers when they purchase a new home as well they refinance their existing home;

4. Change the bankruptcy code to allow some homeowners to keep their homes after declaring bankruptcy;

5. Extend a provision that allows corporations to apply excess net operating losses to tax returns from prior profitable years and receive any applicable refunds; and

6. Allow areas with the highest foreclosure rates access to Community Development Block Grant funds to be used toward purchasing these properties, rehabilitating them if necessary, and renting or re-selling them.

This act is just beginning the legislative process. It has to pass through the House and Senate and then be signed by the President before it will take effect. I'll be sure to keep you updated as it progresses through the legislative channels

Tuesday, February 12, 2008

Would You Send "Jingle Mail"?

There's a new buzz word in real estate - "jingle mail". No, it's not a letter from Santa. It's the sound of lenders receiving the keys to homes on which they hold a mortgage. As housing values plummet, many people find they owe more than their house is worth. If you have a fixed monthly payment that you can afford, you may want to keep making your payments and hope that, in time, the market will recover.

But what if your loan payments are going up and you can no longer afford them? What if, in order to stay current on your mortgage, you have to get behind on other bills? Is it worth it to keep putting money into a house that you can no longer afford and in which you have no equity? Many people are starting to say no and are allowing their homes to go into foreclosure.

Of course there are consequences to foreclosure. The biggest result is the reduction in your credit score. However, credit rating companies point out that the hit you take to your credit due to a foreclosure is less destructive than the one you would take if, by continuing to try and make the monthly payments, you end up in bankruptcy. And with the passage of Mortgage Forgiveness Debt Relief Act of 2007 , even the IRS is making it less painful to default on your home loan.

Foreclosure has always been an option for homeowners who, due to rate increases, job loss, etc., can no longer afford their homes. But lenders are starting to see foreclosure being used by homeowners who can afford their monthly payments. They simply choose not to.

Why would someone choose to go into foreclosure? Let's say you bought your house a few years ago for $500,000. Real estate values in your neighborhood have dropped and now similar homes are selling for $375,000. You could buy another home for $375,000, move in, and walk away from the $500,000 house. Sure your credit is wrecked, but after about 3 years, assuming you kept up on all your other payments, your credit score would recover.

So here's my question to you - when is it OK to just walk away from your debt? Are you shirking your financial responsibilities, or are you making a smart financial decision? Fifty years ago, divorce was often seen as an admission that you were not strong enough to keep a marriage together. Today, most of us are more accepting of divorce as a way for two adults to move on with their lives. Are we seeing the beginnings of a change in attitudes towards foreclosure? Rather than a stigma, will foreclosure simply be seen as a way to better manage one's assets?

What do you think? Send me your comments - I'd really like to know if you think we're on the edge of a change in attitude towards foreclosure.

Monday, February 11, 2008

Don't Turn a Tax Refund into a Rip-Off

It's income tax time, and for many people that means tax refund time. With money tight, these refunds can provide desperately needed cash. So if someone offered to give you your refund now instead of waiting for the IRS to send it, you might jump at the chance. But you would be wiser to run the other way!

Known as "instant refund loans" or "refund anticipation loans", these come-ons offer to loan you the amount of your tax refund (usually up to a maximum of $5,000) within one to two days of filing. But the cost is enormous! According to the Consumer Federation of America and the National Consumer Law Center, for the average refund of just under $2,0000, most borrowers pay an annual percentage rate of 222.5% and some pay as much as 2,000% (yes, you read those numbers correctly)!

But the rip-off doesn't stop there. Remember that this is not your refund, this is a loan against your refund. What if the IRS sends back less than you thought? Maybe you forgot about past-due child support or an unpaid student loan. Too bad. Even if you don't get the amount of the refund you expected to receive, you still owe the loan amount - plus the accruing interest!

The lure of quick cash can be intoxicating. But with electronic filing now available, typically this loan would get you the funds only a week or two earlier than if you waited for the IRS to send it. In an effort to help, the IRS has made electronic filing free to some tax payers. Look at FreeFile on the IRS website to see if you qualify. The site will refer you to a list of vendors that provide this service. But beware! You can bet that some of them have ads offering refund loans. Unless you absolutely cannot wait the extra week or so, don't take the bait. It could easily be the most expensive money you've ever borrowed.

Wednesday, February 6, 2008

MedFICO - Good Credit = Good Healthcare?

You already know that your credit score affects your financial health. But soon it may determine your physical health as well. Fair Isaac, the company that brought you your FICO score, is working with Healthcare Analytics and Tenet Healthcare to create a new MedFICO score. Just as your FICO score tries to predict whether or not you will pay your credit cards and mortgage bills, MedFICO is intended to determine your likelihood of paying your medical bills.

The healthcare industry says the reason this score is needed is to help hospitals decide whether a patient is capable of paying a medical bill, or whether they should write the bill off as uncollectable. Without this prediction, hospitals find it very difficult to balance projected income with expenses.

But consumer advocates have raised some alarms. We already know that there has been identity theft when it comes to our financial credit scores. What assurances do consumers have that there will not be similar problems with our health scores? In addition there is great concern over patient confidentiality. If medical bills become available for other to see, what is to stop an employer from hiring someone based on their medical history? Will hospitals provide different levels of care depending on whether the patient is deemed a good or bad credit risk? And what about simple clerical errors? How will an incorrect score affect the quality of care?

MedFICO's designers counter these concerns by stating that only the medical provider's name and amount owned will be seen on the report. But that does not guarantee the patient's medical history will be secure. For example, if someone has an unpaid bill to the Betty Ford Clinic, would the presumption be made that the individual had a substance abuse problem? If there are monies owned to Sloan Kettering, will some people assume the patient was treated for cancer. These are just some of the many questions this scoring system raises.

MedFICO is still in the development stage, but it may be implemented as early as this summer. I'll be sure to update you as more information becomes available. But you need to know this is on the horizon.

Sunday, February 3, 2008

Trading Houses - I'll Buy Yours if You'll Buy Mine

There is a new trend in real estate. It's called house trading. Here's how it works. You and I live on the same street and really like the neighborhood. But my home is too big now that the kids have moved out, and your family needs room to grow. Or perhaps I live in Florida and just got a new job in Minnesota. You live in Minnesota, have recently retired, and want to move to Florida. Whatever the scenario, the basic concept is simple. I like your house; you like mine. So we swap houses.

This option has grown in popularity because of two reasons. First, as the real estate market has deflated, people have become nervous about buying a new home before their existing home is sold. Imagine the financial nightmare that would occur if you buy my home, but, at the last minute, I don't buy yours. Now you own TWO homes (and two mortgages!). When you swap houses, the homes transfer title at the same time.

The second reason swapping has become popular is because of the internet. There has been a steady growth of internet sites that specialize in home swaps. They started as short-term vacation swaps - come stay in my home in California for two weeks while I live in your New York City condo. As people became more comfortable using the internet, sites were developed that specialize in permanent house trades. Some of these include,, and

As you might suspect, swapping houses is not as simple as "I like your house, you like mine". Usually there is a disparity in value that needs to be addressed. If your place is worth $300,000, but mine is only worth $200,000, then I need to give you my house plus $100,000. In most cases a Realtor is not involved. While this will save money on commissions, it also means you are responsible to make sure you know what you're buying in terms of value, location, condition, etc. And because the pool of available homes is limited, you need to be willing to settle for something other than your dream home.

House swapping may not be for everyone, but it's another choice for people who are having a hard time selling their home. And in times like these, you may want to consider all the options.

Friday, February 1, 2008

Foreclosure Relief Scams

In the past I've written about loan scams (Beware of Mortgage Tree Lending and Beware of Predatory Lenders) and credit repair scams. Recently, a new scam artist has begun to appear - the "forclosure relief expert". Preying on people who are about to lose their home to foreclosure, these thieves are out to steal your home as well as any savings you may still have. Here's how they work.

You are delinquent in your mortgage payments and are afraid that you are going to lose your home. Suddenly, there is an answer to your prayers. You are offered the services of a "foreclosure relief expert". This offer may appear in the form of a letter in the mail, a flyer at your door, or even a knock at the door. Whatever the form, the offer is the same. By following the "expert's" advice, you will be allowed to remain in the home as a renter. This will give you an opportunity to save some money. And once you get your financial house back in order, you can then buy back the home.

So what's really going on? First, your "expert" will introduced you to an "investor". You will be instructed to deed your home over to this "investor". In exchange, he will pay off your loan and you can remain in the house as his tenant. Of course you'll need to pay him rent.

The "investor" then goes and gets a new loan on the property, pulling out as much equity as possible. You keep mailing him your rent until, one day, you receive a notice to vacate the property. It seems your "investor" has taken any of the remaining equity in the home, converted it to cash, and then defaulted on the loan. This leaves you, as the tenant, out on the street.

These thieves are con artists and very good at gaining the trust of people desperate for help. Here are some warning signs that you are being set up:

The offer of help comes out of the blue - it could be in the form of a phone call, letter, or flyer;

The paperwork is complicated and the explanantions are not clear;

You are asked to sign blank documents or forms with false information.

These are sure signs that you are dealing with a crook. There is an excellent video on You Tube that deals with this topic. If you think you have been approached by or are a victum of a credit scam artist, call the Mortgage Fraud Hotline 1-800-4FRAUD8 (1-800-437-2838).

Losing your home is very stressful, but there are legitimate ways to get help. The best place to start is by talking to your lender. Read Economic Hard Times for some suggestions as to your options. Or call the HOPE National Helpline at 888-995-HOPE. They are open 24 hours and provides free assistance.