bank loans http://www.wisebread.com/taxonomy/term/5607/all en-US Credit Unions vs. Banks: What's the Difference? http://www.wisebread.com/credit-unions-vs-banks-whats-the-difference <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/credit-unions-vs-banks-whats-the-difference" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000015742269Small2.jpg" alt="Woman with questions" title="Woman with questions" class="imagecache imagecache-250w" width="250" height="130" /></a> </div> </div> </div> <p>If you don't belong to a credit union &mdash; or even if you do &mdash; you may not be aware of the many ways in which they differ from banks. Although banks and credit unions both provide similar services, each offers different types of benefits for account holders and borrowers. Let's take a look at the characteristics of a credit union versus a bank and learn how to determine which one is best for you. (See also: <a href="http://www.wisebread.com/the-benefits-and-drawbacks-of-credit-unions">The Benefits and Drawbacks of Credit Unions</a>)</p> <h2>Credit Unions 101</h2> <p>A credit union is a cooperative financial institution in which individuals pool their money to provide loans and services to other members. In the United States, credit unions are nonprofit entities, and their cooperative structure is designed to ensure fair dealing. Additionally, anyone who belongs to a credit union must first qualify to join under a particular institution's field of membership.</p> <p><strong>Why Join a CU?</strong></p> <p>Because the users and members of the cooperative are the same people, the idea behind credit unions is that they provide services that are tailored to the people who use them, rather than to driving profit for the institution. In addition, each member of a credit union, no matter how small his or her holdings, often has a voting share in the credit union's affairs. This ensures the organization's policies match up with what members really want. In practice, credit unions offer the same services as banks and are subject to federal regulations that are similar to those under which banks operate. However, because of the democratic organization of these institutions, they are often able to offer higher interest rates and lower fees than their corporate peers. Also, because credit unions are smaller &mdash; and often local &mdash; institutions, they may offer more personal customer service.</p> <p><strong>The Downsides to Credit Unions</strong></p> <p>That said, there are also drawbacks to banking with a credit union, which are largely related to these institutions' smaller size. This includes fewer branches and ATMs, as well as a lack of or lower-quality online banking options. In addition, although service at a credit union may be more personal, it will not be as robust as the 24-hour customer service many big banks provide.</p> <h2>The Big Banks</h2> <p>While it's important to compare rates and fees between banks and credit unions when you're looking to take out a loan or open a new account, what banks can provide over credit unions is more...of everything. Banks are often much larger than credit unions, which allows them to offer much more variety to account holders. Generally, a larger chain or national bank will have more loan and account options. Plus, virtually all major banks offer excellent online banking and investment options, and as mentioned previously, a very robust customer service department that can be reached at any time of the day.</p> <h2>Are Credit Unions or Banks Better?</h2> <p>If you're looking for a loan or want to buy a certificate of deposit, it definitely makes sense to shop around and include credit unions in your search. Whether you settle on a bank or a credit union depends on your needs and what you value. For those who are looking for a checking and savings account, a few money market investments and a simple <a title="CitiMortgage Told Me to Default on My Loan" href="http://www.wisebread.com/citimortage-told-me-to-default-on-my-loan-if-i-want-their-help">loan</a> or two, a credit union may suit them just fine. Those with more high-powered portfolios may require the horsepower a bigger bank can provide, like these high-yield savings and money market accounts from <a onClick="_gaq.push(['_trackEvent', 'afclick', 'contenttext', 'bank_capone360']);" target="_blank" href="http://www.wisebread.com/redir/6787875">Capital One 360</a>.</p> <div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This is a guest post from <a href="http://www.newyorkbankingrates.com/">NewYorkBankingRates.com</a>, a site that compares interest rates from New York banks and credit unions to provide residents with the best financial products in the city.</p> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/user/0"></a> of <a href="http://www.wisebread.com/credit-unions-vs-banks-whats-the-difference">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-benefits-and-drawbacks-of-credit-unions">The Benefits and Drawbacks of Credit Unions</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-good-reasons-to-choose-a-credit-union-instead-of-a-bank">9 Good Reasons to Choose a Credit Union Instead of a Bank</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-sales-strategies-your-bank-uses-to-make-money">5 Sales Strategies Your Bank Uses to Make Money</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/capital-one-360-review">Capital One 360: A Competitive Banking Option</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-options-if-youre-underwater-on-your-mortgage">6 Options if You&#039;re Underwater on Your Mortgage</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking bank loans banks credit unions Wed, 31 Aug 2011 09:48:19 +0000 678787 at http://www.wisebread.com Bank-Based Small-Dollar Loans: An Alternative to Payday Loans http://www.wisebread.com/bank-based-small-dollar-loans-an-alternative-to-payday-loans <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/bank-based-small-dollar-loans-an-alternative-to-payday-loans" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/4577211670_38a9067d67.jpg" alt="loans sign" title="loans sign" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Payday loans &mdash; your neighborhood loan shark in a retail box &mdash; have emerged as a hugely profitable underbelly to the banking business.&nbsp;Short-term loans with off-the-scale annual percentage rates that can exceed 500 percent are a growth industry in tough economic times; the industry raked in 42 billion dollars last year. Gary Rivlin, author of <em>From Pawnshops to Poverty, Inc.: How the Working Poor Became Big Business</em>, reports that the United States now supports more payday loan outlets than McDonald&rsquo;s and Burger Kings combined. The FDIC would like to counter the trend with legitimate loan products designed to serve the &ldquo;underbanked&rdquo; lower income sector.</p> <p>A recently concluded Small-Dollar Loan Pilot Program conducted by the FDIC featured loans that offered terms designed to beat those offered by payday sharks. Terms looked like this, according to the <a href="http://www.fdic.gov/smalldollarloans">FDIC website</a>:</p> <table cellspacing="0" cellpadding="0" border="0" width="558"> <tbody> <tr> <td width="258" valign="top"><strong>Product Element</strong></td> <td width="300" valign="top"><strong>Parameters</strong></td> </tr> <tr> <td width="258" valign="top">Amount</td> <td width="300" valign="top">$2,500 or less</td> </tr> <tr> <td width="258" valign="top">Term</td> <td width="300" valign="top">90 days or more</td> </tr> <tr> <td width="258" valign="top">Annual Percentage Rate (APR)</td> <td width="300" valign="top">36 percent or less</td> </tr> <tr> <td width="258" valign="top">Fees</td> <td width="300" valign="top">Low or none; origination and other upfront fees plus interest charged equate to APR of 36 percent or less</td> </tr> <tr> <td width="258" valign="top">Underwriting</td> <td width="300" valign="top">Streamlined with proof of identity, address, and income, and a credit report to determine loan amount and repayment ability; loan decision within 24 hours</td> </tr> <tr> <td width="258" valign="top">Optional Features</td> <td width="300" valign="top">Mandatory savings and financial education</td> </tr> </tbody> </table> <p>The 2-year pilot program involving <a href="http://www.fdic.gov/bank/analytical/quarterly/2010_vol4_2/FDIC_Quarterly_Vol4No2_SmallDollar.pdf">28 banks</a> expired in 2009. The trick now is to find a bank that will make a small-dollar loan based on this template. Big banks like Wells Fargo have not signed on to the program, preferring to stick with more lucrative &mdash; and less consumer-friendly &mdash; cash advance programs with APRs up to 120 percent.</p> <p>Most small-dollar loans are for amounts in the range of $500 to $1,000 for periods of one year. Under the pilot program, banks used a small percentage of the loan proceeds to start a mandatory savings account that could not be accessed until the loan was nearly paid off. The idea behind this practice was to help the borrower start an emergency savings account to reduce the need for future loans.</p> <p>To find a small-dollar bank lender in your area, check your local listings for small regional or community banks, ask for the loan desk, and request the loan profile using the information in the chart above. But if you can&rsquo;t find a bank in your area that offers a small-dollar loan program, don&rsquo;t be too surprised. Bank-originated small-dollar loans may be an idea whose time has not yet come.</p> <h3>FDIC Touts the Baltimore Model</h3> <p>FDIC staffers point with pride to a regional consortium of banks in Baltimore that joined forces with a nonprofit, Neighborhood Housing Services of Baltimore (NHS), to allow loan origination to be handled by the nonprofit instead of the banks.</p> <p>&ldquo;The interesting thing about this particular program is that it is a loan pool so several different institutions &mdash; credit unions, big banks, and small area banks are all partners in this program,&rdquo; said FDIC staffer Joan Lok.</p> <p>Eligibility for the <a href="http://www.nhsbaltimore.org/borrow_save.shtml">Borrow and Save Program</a> requires an income at or below 80 percent of the Area Median Income (AMI) and a pay stub. Other restrictions apply. Charles Martin, Regional CRA (Community Reinvestment Act) Manager at one of the participating banks, M&amp;T Bank, calls the program &ldquo;a successful pilot project&rdquo; but says that in order for the program to catch on elsewhere, &ldquo;It needs an experienced nonprofit partner and a wise regulatory partner.&rdquo; He said the fact that NHS was already experienced at making loans was crucial to the success of the program.</p> <p>Credit scores were not considered in the pilot program, but when asked if that would continue to be the case, Mr. Martin offered, &ldquo;We&rsquo;re looking at that.&rdquo; In lieu of a reliance on credit scores the Baltimore model required borrowers to take a financial literacy class &mdash; a feature of the program considered essential by Mr. Martin.</p> <p>Art Torres of Neighborhood Housing Services of Baltimore, said, &ldquo;What we are really looking at is the payment histories, not the credit score <i>per se</i>.&nbsp;When we looked at clients who had run into problems, and looked at their credit scores, we found that the credit scores were not predictive of their performance.&rdquo;</p> <p>According to Luke Reynolds of the FDIC, the agency does not know how many banks have begun to offer the program. He pointed out that while the pilot program involved 28 banks, other banks offered similar programs under their own initiative. Of those that did participate in the pilot, &ldquo;Overwhelmingly, the institutions said they were going to continue offering affordable small-dollar loans,&rdquo; said Mr. Reynolds.</p> <h3>Credit Unions to the Rescue?</h3> <p>If you can&rsquo;t find a bank that offers small-dollar loans, you might try your local credit union. The issue here is to find one you are eligible to join. One credit union, Diversified Credit Union of Minneapolis, Minnesota, offers a personal loan program that will make a one-year $1,000 loan with a top interest rate of 18 percent upon opening a new account with a savings deposit of $10 and no checking account requirement.&nbsp;&ldquo;Due to state regulations, we can&rsquo;t do anything over 18 percent,&rdquo; said Dave Emmeck, a loan manager at Diversified, &ldquo;most of these loans are from the 9.9 to the 12.9 percent range.&rdquo;</p> <p>Would-be borrowers must possess a credit score of 525 &mdash; admittedly low, but still better than some customers might have. And some young people have no credit score at all. According to Emmeck, people in a no- or low-score predicament can still get a loan if they can find a co-signer.</p> <h3>A Tentative Step in the Right Direction</h3> <p>Clearly, the FDIC pilot program was a step in the right direction and was by all observable measures a successful program, but whether or not widespread adoption of the model will follow is open to question.</p> <p>Torres said, &ldquo;For it to catch on the regulators are going to have to give CRA credit for these programs. Otherwise, the banks can make more money elsewhere.&rdquo;</p> <p>The Community Reinvestment Act was designed to encourage banks to meet the needs of all segments of their communities, particularly low-income customers. It is hard to see, for example, how Wells Fargo&rsquo;s cash advance program, with an APR of 120 percent, boosts its CRA standing.</p> <p>FDIC Chair Sheila Bair is on record in support of the small-dollar loan program, saying, &quot;It is my hope that, over the next few years, responsibly priced small-dollar loans will become a staple offering among our nation's banks.&quot;</p> <p>Hey, Wells Fargo and Bank of America, are you guys listening?</p> <div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This is a guest post by Steve Klingaman, a nonprofit development consultant and nonfiction writer living in Minneapolis. Read more by Steve:</p> <ul> <li><a href="http://open.salon.com/blog/steve_klingaman/2010/03/24/four_things_about_health_care_reform">Four Things About Health Care Reform</a></li> <li><a href="http://open.salon.com/blog/steve_klingaman/2010/02/11/2010_year_of_the_roth_ira_conversion">2010: Year of the Roth IRA Conversion</a></li> <li><a href="http://open.salon.com/blog/steve_klingaman/2009/07/30/finally_student_loan_debt_relief_arrives_for_many">Finally! Student Loan Debt Relief Arrives for Many</a></li> </ul> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/steve-klingaman">Steve Klingaman</a> of <a href="http://www.wisebread.com/bank-based-small-dollar-loans-an-alternative-to-payday-loans">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/us-banks-and-the-tokyo-drift">U.S. Banks and the Tokyo Drift</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-options-if-youre-underwater-on-your-mortgage">6 Options if You&#039;re Underwater on Your Mortgage</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-switch-banks">How to Switch Banks</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/credit-unions-vs-banks-whats-the-difference">Credit Unions vs. Banks: What&#039;s the Difference?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-bitcoin-still-a-thing">Is Bitcoin Still a Thing?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Financial News bank loans FDIC payday loan Mon, 08 Nov 2010 14:00:06 +0000 Steve Klingaman 280001 at http://www.wisebread.com U.S. Banks and the Tokyo Drift http://www.wisebread.com/us-banks-and-the-tokyo-drift <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/us-banks-and-the-tokyo-drift" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/3134995846_f6b734b24c.jpg" alt="yen" title="yen" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>You already know the story, but perhaps it may happen again. It's <em>that</em> familiar.</p> <p>A nation reeling from popped real estate and financial collapse mopes through a recession and struggles with a crisis of confidence, its president making pledges that everything will be okay.</p> <p>It sounds like a broken record, doesn't it?</p> <p>Well, except I'm talking about Japan and the president in question is not Barack Obama but Junichiro Koizumi, and the year in question was 2001, not 2010.</p> <p>But it <em>is</em> 2010, and parallels to <a href="http://www.aei.org/outlook/27568">Japanese banking</a> in the 1990s and our banks in the &quot;oughts&quot; now abound.</p> <p>Four words: bad loans and deflation risk.</p> <p>That's five words, but it's important to note that recently, U.S. banks such as BB&amp;T and Sun Trust both set up special panels to explore potential exposure to <a href="http://www.reuters.com/article/idUKTRE69B2AU20101012">deflation</a>.</p> <p>Deflation is the general decrease in the price level of goods and services across the board, usually due to a systemic downturn and the resulting desperate effort to cut prices to compete. Deflation also sometimes results from monetary policy that overdoes it in an effort to avoid inflation. Ironic, isn't it?</p> <p>According to <em>Reuters:</em></p> <blockquote><p>BB&amp;T ran its books through a stress test to gauge the bank's performance in a scenario in which there is deflation for the next 10 years, as part of the bank's own internal projections of various economic scenarios, Chief Financial Officer Daryl Bible said.&quot;</p> </blockquote> <h3>Why does Japan in the 1990s keeps coming up?</h3> <p>At the outset of the U.S. crisis in early 2008, the American Enterprise Institute examined Japan's lost decade, about which the think tank says that an &quot;economic cycle driven by a collapse in the market for an asset &mdash; such as land or housing &mdash; to which the banking system is heavily exposed is a dangerous beast.&quot;</p> <p>That &quot;dangerous beast&quot; was Japan 20 years ago and it ended just 10 years ago. That dangerous beast could also loom here in the U.S. today. The common denominator: bad bank loans were, by and large, the culprit.</p> <p>As the Reuters piece points out, Japanese banks discovered what is now known as the &quot;lost decade&quot;; deflation means that loan collateral values decline, exacerbating already under-performing loans.</p> <p>The article goes on to say:</p> <blockquote><p>Loans may become more likely to fail, as borrowers tire of paying high rates of interest to finance assets that are worth much less than they had been previously. A second credit crisis could emerge.&quot;</p> </blockquote> <p>If regional powerhouse U.S. banks such as Sun Trust and BB&amp;T &mdash; both of which received TARP money and both of which are present in areas hit by rising foreclosures &mdash; are either thinking about or hedging against deflation, then it's only a matter of time before cheap money and sluggish economic growth increases the possibility of making widespread deflation an actual reality.</p> <p>Indeed, the risk of continued deterioration of already bad loans continue to scare U.S. banks, which have a danger of falling further into hock on outstanding loans to say nothing of the continued &quot;<a href="http://www.npr.org/blogs/money/2010/10/07/130408926/quantitative-easing-explained">quantitative easing</a>&quot; at the U.S. Federal Reserve and currently low Treasury yield curves.</p> <p>Who better to explain what might happen than Bank of Tokyo-Mitsubishi UFJ, Japan's largest bank and &quot;lost decade&ndash;bad loan&quot; poster child?</p> <p>According to a <a href="http://www.bloomberg.com/news/2010-07-22/treasury-curve-to-flatten-on-economic-lost-decade-mitsubishi-ufj-says.html">Bloomberg</a> piece earlier this summer, the bank's proprietary trading chief <a target="_blank" title="Search News" href="http://search.bloomberg.com/search?q=Kenichi%20Imai&amp;site=wnews&amp;client=wnews&amp;proxystylesheet=wnews&amp;output=xml_no_dtd&amp;ie=UTF-8&amp;oe=UTF-8&amp;filter=p&amp;getfields=wnnis&amp;sort=date:D:S:d1&amp;partialfields=-wnnis:NOAVSYND&amp;lr=-lang_ja">Kenichi Imai</a> had this to say:</p> <blockquote><p>With the effect of government stimulus measures wearing off, the U.S. economy may face a prolonged soft patch, rather than a double bottom.&quot;</p> </blockquote> <p>Soft Patch? Opposite of a hard patch? Flaccid? Sounds maybe a little bit, I don't know...deflated, even.</p> <p>Let's hope not.</p> <p>As Bill Isaac, chairman of LECG Global Financial Services and a former FDIC chairman, points out, deflation is not good given that U.S. banks are still assessing non-performing and under-performing loans and testing their balance sheets against deflationary scenarios.</p> <p>Think you've heard this already? Just wait.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/us-banks-and-the-tokyo-drift">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/bank-based-small-dollar-loans-an-alternative-to-payday-loans">Bank-Based Small-Dollar Loans: An Alternative to Payday Loans</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-options-if-youre-underwater-on-your-mortgage">6 Options if You&#039;re Underwater on Your Mortgage</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-countries-where-banks-pay-crazy-interest-rates">10 Countries Where Banks Pay Crazy Interest Rates</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/credit-unions-vs-banks-whats-the-difference">Credit Unions vs. Banks: What&#039;s the Difference?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-switch-banks">How to Switch Banks</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Financial News bank loans banking strategies currency rates deflation dollar value housing market international japan yen Thu, 21 Oct 2010 12:00:10 +0000 Jabulani Leffall 266327 at http://www.wisebread.com CitiMortgage Told Me to Default on My Loan http://www.wisebread.com/citimortage-told-me-to-default-on-my-loan-if-i-want-their-help <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/citimortage-told-me-to-default-on-my-loan-if-i-want-their-help" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/Final.png" alt="Final Notice" title="Final Notice" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Only in the completely screwed-up world of the lending industry would this be a logical and serious piece of advice. But that&rsquo;s basically what I was told after calling CitiMortgage to ask about help with my home loan.</p> <p>Like roughly 25% of homeowners in the USA, I find myself owing more for the house than it&rsquo;s worth. Now, before I get people screaming at me for biting off more than I could chew, that&rsquo;s not the case at all. We did everything right: bought a modest home within our means, didn't cash in on equity (when the house had equity) by refinancing, never missed a mortgage payment, ever. And now, some seven and a half years later, our modest little home, which we have completely grown out of, has an even more modest value. It&rsquo;s lost 25% of it&rsquo;s value in fact, and we now owe more than it&rsquo;s worth.</p> <p>We can&rsquo;t rent the home out without losing serious cash every month. That&rsquo;s because we would have to charge rent based on what the house is worth. And that would leave us roughly $500 a month out of pocket on the mortgage.</p> <p>We can&rsquo;t sell without taking a serious chunk of money with us to the closing table. We&rsquo;re talking $20k-$30k, which is money we don&rsquo;t have to spare. Not many people do these days. But if we did, would we want to completely wipe out our savings on a piece of property we were leaving behind?</p> <p>We can&rsquo;t just stop paying and walk away. Trust me, I&rsquo;ve never had a bad debt in my life, so I don&rsquo;t want to start now. I was seriously considering it though. But in Colorado, the financial institution has every right to come after you for any money they lose on a property that&rsquo;s been foreclosed on. We could not only lose our savings, but our cars, possessions, and everything else. This is called a deficiency judgment. Some states have it, some don&rsquo;t. Mine has it, so it&rsquo;s impossible for me to walk away from this money pit of a home without suffering some huge consequences.</p> <p>What about a short sale then? Well, it&rsquo;s possible, but there are issues with that too. Short sales are notoriously difficult to arrange. We&rsquo;d have to put our home on the market and get an offer. And after that, we&rsquo;d have to hope the lender accepts the offer. If they don&rsquo;t, we have to start again. This could take months or years. And the whole time, we&rsquo;re sinking money into a house that continues to lose value.</p> <p>The whole &ldquo;buy property, it&rsquo;s a guaranteed investment&rdquo; mantra is now just hot air. But what do we do? We&rsquo;ve seriously outgrown the home, one which we bought as a single couple and now have two children. With no basement and a garage that&rsquo;s bursting with stuff, we continue to give things away to charity, or just throw things out. Even with a regular spring clean, we're just running out of space.</p> <p>We decided to turn to CitiMortgage and see if they could help us. After all, a recent article about Bank Of America gave us hope. They&rsquo;re now helping people like me out by <a href="http://www.housingwatch.com/2010/03/24/bofa-to-reduce-mortgage-principal">reducing the principal owed on the property</a>! That&rsquo;s right, they&rsquo;re actually slashing money off the books.</p> <p>Anyway, I went to CitiMortgage.com and filled out the form in the <a href="https://www.citimortgage.com/Mortgage/Home.do?page=homeowner_assistance&amp;td=id19131500|1">homeowner assistance section</a>.</p> <p>I was delighted to see that, after putting in my information, we were indeed eligible for some help. I just had to submit some proof of earnings, which was no trouble at all. I then got a call from CitiMortgage a few days later, asking me to call them back and talk to a counselor! Excellent, I could see a glimmer of light at the end of a long tunnel.</p> <p>Then, the games of phone tag began. I called, was put on hold for 10 minutes, and the line went dead. I got a call back asking to call again. I did. I was put on hold for 10 minutes, then the line went dead. Argh!</p> <p>I was not happy.</p> <p>The third time I called, I finally got through to someone. As it turns out, there was actually no counselor assigned to me at all. No one was sitting behind a desk, filled with great information and some paperwork that could help me out. No, as it turns out, there really wasn&rsquo;t much they could do, or rather, were willing to do for me.</p> <p>&ldquo;I was told I had a counselor,&rdquo; I said.</p> <p>The customer service rep, who clearly had no interest in me or my predicament, told me that no one was assigned to me and there&rsquo;s really nothing they can do right now.</p> <p>&ldquo;What about this Bank Of America program that&rsquo;s out there right now, helping people who are upside down on their mortgage?&rdquo; I asked. &ldquo;Do you have plans to help in that way?&rdquo;</p> <p>&ldquo;No&rdquo; was the cold and curt reply.</p> <p>I did a quick calculation in my head and realized I had given CitiMortgage over $100,000 in interest over the last 7 and a half years. Actually, way more than that. And all I had to show for it was a house that requires many thousands more dollars just to walk away from. If I had dropped $100,000 at a casino, I would be getting the red carpet treatment. If I dropped 100,000 bones on a new car, the salesmen would be breaking their backs bending over to help. But CitiMortgage? Sorry, no dice. Which I find odd, because my tax money, and yours, went to CitiMortgage in the form of billions of dollars of stimulus money. They received 1 billion dollars from the government, and their parent company CitiCorp got a whopping 45 billion dollars!</p> <p>&ldquo;Is there ANYTHING you can do to help me?&rdquo; I asked. I had read earlier that <a href="http://www.articlesbase.com/mortgage-articles/new-citimortgage-refinance-and-modification-options-from-obamas-stimulus-1457853.html">CitiMortage was supposed to be helping homeowners who are underwater</a>, so I knew there must be something they could do.</p> <p>And that&rsquo;s when this salient piece of advice came over the telephone.</p> <p>&ldquo;We can&rsquo;t help you unless you have defaulted on the loan for 90 days&rdquo; was the almost robotic reply.</p> <p>Wait, did I hear that right? Is this lady telling me to stop paying my mortgage? Isn&rsquo;t that some strange advice? I double-checked.</p> <p>&ldquo;Are you telling me that there&rsquo;s nothing you can do to help me out until I actually stop paying you?&rdquo;</p> <p>&ldquo;Yes&rdquo; she said, &ldquo;but even if you default there&rsquo;s no real guarantee we can assist you.&rdquo;</p> <p>&ldquo;So, I could wreck my credit, have debt collectors calling day and night, risk being kicked out, and it could all be for nothing anyway?&rdquo; I asked.</p> <p>&ldquo;Yes.&rdquo;</p> <p>So, that&rsquo;s where I stand today, and I suspect many of you are in the same boat. Why, why, why would any financial institution want their customers to stop paying them? Why will they only help bad customers? Why is defaulting the only way to get help? Why are good payers being treated poorly, and people who can&rsquo;t pay getting the royal treatment?</p> <p>I&rsquo;m now finding myself in a position I never, ever thought I would be in. I&rsquo;m considering just stopping the payments and putting the money in the bank. I figure the worst that can happen is that I just have to pay that money back to CitiMortgage at some point, but in the meantime it can sit and collect interest for me.</p> <p>If anyone out there works for CitiMortgage, or a similar lender, please let us all know why you won&rsquo;t help people unless they stop paying you. And why the bailout money you received isn&rsquo;t helping the loyal customers as well as the poor payers?</p> <p>I, for one, am just completely thrown by this whole situation. And, for the time being, I may be living in my small house and tripping over my things, but at least I&rsquo;ll be doing it for free. Hey, not my suggestion. It was CitiMortgage&rsquo;s idea.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/citimortage-told-me-to-default-on-my-loan-if-i-want-their-help">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-options-if-youre-underwater-on-your-mortgage">6 Options if You&#039;re Underwater on Your Mortgage</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-check-if-your-mortgage-statement-is-correct">How to check if your mortgage statement is correct</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-we-all-just-stop-paying-the-mortgage">Should We All Just Stop Paying the Mortgage?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/buy-the-same-house-twice-for-less-than-buying-it-once">Buy the Same House Twice for Less Than Buying It Once</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/countrywide-tried-to-steal-my-parents-money-how-you-can-avoid-being-a-victim-of-mortgage-servicing-f">Countrywide tried to steal my parents&#039; money - How you can avoid being a victim of mortgage servicing fraud</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Consumer Affairs Real Estate and Housing bailout bank loans mortgage Mon, 29 Mar 2010 13:00:03 +0000 Paul Michael 6093 at http://www.wisebread.com 6 Options if You're Underwater on Your Mortgage http://www.wisebread.com/six-options-if-youre-underwater-on-your-mortgage <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/six-options-if-youre-underwater-on-your-mortgage" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/462067234_2995b74107_z.jpg" alt="house underwater" title="house underwater" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Of all the changes you might make to live more cheaply, the most fundamental is finding a cheaper place to live. Sadly, it's an option that's largely closed to people who are underwater on their mortgages. Unless they have cash to cover the difference between what their house will sell for and what they owe, they're pretty much stuck. Here are six options for people in that situation. (See also: <a title="How to Check if Your Mortgage Statement is Correct" href="http://www.wisebread.com/how-to-check-if-your-mortgage-statement-is-correct">How to Check if Your Mortgage Statement is Correct</a>)</p> <p>Except for option No. 1, you'll definitely want to get legal advice well in advance of actually doing any of these. Situations differ and the rules are different in different states. In particular, the option to just &quot;walk away&quot; from a mortgage is not available in every state! There are tax consequences to doing that, and to several of the other possibilities. A consultation with a lawyer could save you tens of thousands of dollars.</p> <p>With that proviso, here are the options I could come up with:</p> <h2>1. Suck it up.</h2> <p>If your house still serves as shelter and you can still afford it, there's no particular reason that you can't just go on living in it, pretty much without regard to its <a your="" house="" is="" really="" href="http://www.wisebread.com/what-your-house-is-really-worth">value</a> versus what you owe on the mortgage.</p> <p>This may be the most expensive option: You can't take advantage of the cost savings of moving to a cheaper place, plus you're putting significant amounts of capital into an <a title="Your Equity Was Always Imaginary" href="http://www.wisebread.com/your-equity-was-always-imaginary">investment that might never give you a good return</a>. Still, as long as you can make the payments, this is probably the default option, and it's not necessarily a bad one. Eventually &mdash; no matter what happens to the real estate market &mdash; you'll be above water on the mortgage. (In fact, eventually you'll pay off the mortgage and own the house free and clear.)</p> <h2>2. Rent it out.</h2> <p>If you can rent the house for enough to <a title="So You Want to Be a Landlord: How Do You Actually Make Money?" href="http://www.wisebread.com/so-you-want-to-be-a-landlord-part-ii-how-do-you-actually-make-money">cover the expenses of ownership</a>, then you can move into a less expensive place and live there. In fact, even if the rent doesn't quite cover the costs, you can still come out ahead if you can find a place to live that's cheaper (and reliable tenants).</p> <p>Less drastic than that, you could rent out a room. That could make staying in the house as economical as moving someplace cheaper. In fact, there's no need to stop at renting out just one room &mdash; if you have a big house, you could potentially rent out two or three. At the far extreme, you could move into the basement and then rent out the whole rest of the house to another family. Not what you had in mind when you bought it, but perhaps better than losing the place to foreclosure.</p> <h2>3. Short sale.</h2> <p>This is where you get the bank's permission to sell the house for less than the balance due on the mortgage. Sometimes the bank will settle for the sale price and wipe out the debt. Other times they still expect you to pay part or even all of the difference &mdash; the balance due is just converted into an unsecured loan. Even in the latter case, you at least owe a lot less money. (Of course, you also have no place to live.)</p> <p>This is one case where you really have to check with a lawyer. If the bank forgives any of the loan, the IRS may treat that amount as taxable income.</p> <h2>4. Renegotiate the mortgage.</h2> <p>This covers a lot of ground. If your lender agrees, pretty much all the terms of your mortgage are negotiable &mdash; the interest rate, the number of payments, even the balance due.</p> <p>The federal government is pushing several different plans to adjust the terms on mortgages to make them affordable. One that I've read about involves moving the rate down to <a href="http://www.wisebread.com/redir/mortgagerates">market rates</a> and then adjusting the balance down to no more than 85% of the house's current value. That might make the house affordable to keep. It might just make it affordable to sell.</p> <p>If there was a temporary problem in making payments (due to something like illness or unemployment) that has now been solved, it may be possible to roll all the missed payments into the balance and start fresh.</p> <h2>5. Walk away.</h2> <p>In some places, mortgages are often made on a non-recourse basis &mdash; that is, the bank can take your house, but can't come after you for any balance due on your mortgage. (Check with a lawyer! This is not true everywhere &mdash; and even places where it is often true it isn't always true.)</p> <p>Often better than literally just walking away is to negotiate what's called a deed-in-lieu, where the bank agrees to take the deed and forgive the balance owed on the mortgage.</p> <p>The way to do this is to:</p> <ol> <li>Offer the bank a deed-in-lieu.</li> <li>Stop making payments.</li> <li>Continue to live in the house.</li> </ol> <p>This gives you a certain amount of leverage, because taking your offer saves the bank the trouble of foreclosing (and the risk that you'll trash the house the day before they foreclose). It also (since you're living rent-free until the bank ether agrees or forecloses) gives you a chance to save up some money. (Save it in a different bank!) That's going to be important: You're going to need it to find another place to live, and your access to credit is going to be limited for quite some time if you try this option.</p> <h2>6. Bankruptcy.</h2> <p>Especially if a lot of your assets are in retirement plans (which you generally get to keep), <a title="Bankruptcy is a Good Thing" href="http://www.wisebread.com/bankruptcy-is-a-good-thing">bankruptcy</a> is one option for households with an untenable cost structure.</p> <p>Yet again, check with a lawyer. There are certain things that you get to keep in a bankruptcy, but they vary from state to state. Making the right moves before a bankruptcy filing can save you thousands of dollars. For example, the tools of your trade are usually protected, so you wouldn't want to sell them before the bankruptcy filing &mdash; you'd be turning a protected asset into something that's up for grabs.</p> <p>Those are the options that I can think of, for people who are underwater on their mortgage, but who would like to consider the option of cutting their expenses by <a title="Renting is Cheaper" href="http://www.wisebread.com/renting-is-cheaper">living someplace cheaper</a>. Maybe one or another will turn out to be the right move for you.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/six-options-if-youre-underwater-on-your-mortgage">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-should-consider-an-adjustable-rate-mortgage">Why You Should Consider an Adjustable-Rate Mortgage</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/citimortage-told-me-to-default-on-my-loan-if-i-want-their-help">CitiMortgage Told Me to Default on My Loan</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/yes-you-need-home-title-insurance-heres-why">Yes, You Need Home Title Insurance — Here&#039;s Why</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-alternative-housing-options-you-can-afford">5 Alternative Housing Options You Can Afford</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Real Estate and Housing bank loans mortgages Mon, 26 Jan 2009 15:31:10 +0000 Philip Brewer 2775 at http://www.wisebread.com Running the numbers on the bigger car: what’s your cost and is it worth it? http://www.wisebread.com/running-the-numbers-on-the-bigger-car-what-s-your-cost-and-is-it-worth-it <p><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/car_keys_with_cash_0.jpg" alt="Car Keys with Cash" title="Car Keys with Cash" width="446" height="297" align="top" /></span></font></span></p> <p><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">I got to ride in a new car, complete with satellite radio and new car smell, yesterday. Prompted by high gas prices, my friend traded in her SUV for a mid-size sedan. Equipped with capabilities to haul camping gear, bicycles, and perhaps kayaks, the vehicle was nonetheless deemed unsuitable for a jaunt to the mountains (hard to handle on those endlessly curving roads) or to the water park (the interior might get wet). </span><span style="font-size: 10pt; font-family: Verdana"> </span></font></span></p> <p><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Until just recently, people (my friends included) most likely have thought I was either not so bright or way too broke for anything besides my straight-drive Toyota Corolla. I have continually found this befuddling as many of my friends lived through the gas crisis of the 70s (you may have studied it in history class but if you haven’t, please know that gas was rationed right here in the United States of America) and seem at least vaguely aware of global warming. I’d like to claim a purely environment platform but here’s my rationale: I hate to spend money when I don’t have to. </span><span style="font-size: 10pt; font-family: Verdana"> </span></font></span></p> <p><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Okay, let’s do the math: <span> </span></span><span style="font-size: 10pt; font-family: Verdana"> </span></font></span></p> <p><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Ford Explorer </span></font></span></p> <ul> <li><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Cost: $26,105</span></font></span></li> <li><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Monthly Payment: $525.58 (60-month, 7.7% loan, calculate it yourself using the PMT-Payment function in Excel or go to <a href="http://www.bankrate.com/">www.bankrate.com</a>)</span></font></span></li> <li><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Fuel cost per month: $195.75 (estimate per <a href="http://www.edmunds.com/">www.edmunds.com</a>) </span><span style="font-size: 10pt; font-family: Verdana"> </span></font></span></li> </ul> <p><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Toyota</span><span style="font-size: 10pt; font-family: Verdana"> Corolla</span></font></span></p> <ul> <li><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Cost: $15,350</span></font></span></li> <li><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Monthly Payment: $309.04</span></font></span></li> <li><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">Fuel cost per month: $96.67</span><span style="font-size: 10pt; font-family: Verdana"> </span></font></span></li> </ul> <p><span style="font-family: Verdana"><font size="3"><span style="font-size: 10pt; font-family: Verdana">The monthly difference ($315.62) is called the utility cost and you need to decide whether the increased pleasure is worth the expense. But know that if you buy the Corolla, invest the difference in the stock market (and earn 10% annually), then at the end of five years, you will be $24,644.36 richer (I used the FV-Future Value function in Excel). </span><span style="font-size: 10pt; font-family: Verdana"> </span> </font></span><span style="font-family: Verdana"><font size="3"><br /> <p style="margin: 0in 0in 0pt" class="MsoNormal"><span style="font-size: 10pt; font-family: Verdana">Hmm… you could even pay cash for your next car. </span></p> <p></font></span></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/running-the-numbers-on-the-bigger-car-what-s-your-cost-and-is-it-worth-it">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-the-high-cost-of-cheap-gas-hurts-you">This Is How the High Cost of Cheap Gas Hurts You</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/it-bear-repeating-driving-slower-saves-you-money">It Bears Repeating - Driving Slower Saves Money</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/save-money-on-gas-free-ebook">Save money on gas + free ebook</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-used-car-salesman-reveals-dirty-tricks-and-how-to-beat-them">A Used Car Salesman Reveals Dirty Tricks (and How to Beat Them)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-your-new-tires-really-6-year-old-ticking-time-bombs">Are your new tires really 6-year old ticking time-bombs?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Cars and Transportation bank loans Cars financial calculations gas gas prices SUVs Mon, 21 May 2007 19:17:25 +0000 Julie Rains 668 at http://www.wisebread.com