Monthly Archives: October 2009

Spooky Money Stories

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The following guest post was submitted by Kevin, web content writer for Resqdebt.com. For more helpful tips on how to save money and stay out of debt, visit Resqdebt’s website at www.resqdebt.com.

The best ghost stories are typically made by a compelling history. A ghost isn’t that exciting unless there is a macabre reason that they feel the obsessive need to remain. While often these stories are tales of love gone wrong or other natural disasters, sometimes money, debt, and bankruptcy are known to play a role.

With Halloween approaching, it can be interesting and fun to look at how money troubles, debt, and bankruptcy find their way into several well-known tales of hauntings. Following are three prominent haunting that prove that debt does live beyond the grave.

Lemp Mansion – The Lemp Mansion is the one-time residence of the family that founded the Lemp Brewery dynasty, one of the first and largest St. Louis brewhouses in the 19th Century. Lemp beer became a staple around the world. Over the next century, a chain of suicides, a mysterious death and other events ensued in the house. Once Prohibition hit, the business headed to bankruptcy. After restoration, visitors have reported strange sounds, locking and unlocking doors, candles lighting on their own, a beer glass flying off the bar, and figures appearing and disappearing.  Among them is a lady dressed in lavender, allegedly one of the departed Lemps still walking about the home. Did we mention the legend that persists of a “monkey-faced boy” who was kept in the attic for a time? No. Well, you can see there’s more to the story.

Nakagusuku Castle Ruins – Okinawa is a ground zero for ghosts – an island where buildings are left unfinished after construction rattles the nerves of unknown spirits, according to the military newspaper Stars and Stripes. In 1975, an Okinawan businessman decided to build a hotel-casino resort near the Nakagusuku Castle Ruins. Local monks warned him that he was building too close to a cave with restless spirits. During construction, several workers died, and the rest of the spooked builders eventually walked off the project cold. Construction stopped, the businessman went bankrupt and ended up in an insane asylum. How’s that for a real-life Halloween ending?

Black Hope Curse – Allegedly the inspiration for the movie Poltergeist. Residents of the Newport subdivision in Crosby, Texas, allegedly had “strange experiences” in the early 1980s after discovering their suburban homes were allegedly built on top of an old cemetery for slaves.  The phantoms allegedly helped drive one family to bankruptcy, or so it is claimed. But money problems were preferable to some of the other spooky things and reported strange deaths that happened to the families of the residents. Or so the story goes. Or at least as it is told on various websites dedicated to hauntings.

By the way, if your house is haunted and you are trying to sell it, that can be a financial blessing or a curse. Not a lot of people want to live in a haunted house. However, if you can find the right type of buyer who is looking for a haunted house, then it’s a plus, since haunted houses are not exactly easy to find. However, in some states, the law requires the sellers reveal if a house is haunted. So be aware of the laws of your state.

The Stranahan House: The Stranahan House was built in 1906 for Frank Stranahan. He married Ivy Cromartie and used his newly acquired wealth to build her a home whose charm and beauty would endure into the 21st century. However, Stranahan died on June 23, 1929 but his life story had a sad end. Legend tells that he committed suicide after having sunk into financial ruin in 1927 when he lost most of his wealth and holdings in the aftermath of a devastating hurricane. As many as six family members have also died in the house. The ghost of Frank Stranahan is still in residence at the home he built with such loving care. Reports of strange apparitions and ghostly noises have come from rattle staff members. The ghost of Ivy Cromartie Stranahan, who died in an upstairs bedroom in 1971, was also reported to appear accompanied by the strong scent of an antique fragrance. The uneasy ghost of her father, Augustus Cromartie, who died in that same bedroom year before, is reported to make his presence known on occasion. Other ghostly residents include Ivy’s brother and sister and the apparition of an Indian servant girl seen outside the rear of the building.

The Family Budget Boot Camp

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For those missing my usual Thursday roundup, I want to share a bit of news. Instead of working up a weekly roundup post, I spent the last couple days working with the folks at Parenting.com to help a special project.

This morning I submitted a guest post in support of their Family Budget Boot Camp. It was tough to settle on addressing my post to one individual family, but I related most to Lori, a single mom struggling to get her finances, and her career, on track after a divorce.

As I mentioned in the post, I was raised by a single mother, so I am familiar with the financial struggles that go along with raising children on your own. My mom did an amazing job of juggling a career and being a present parent, and I have no doubt Lori will do the same.

Hope you’ll take a moment to visit the Family Budget Boot Camp site to read my post, and learn more about the families involved. I’d even suggest adding a word or two of encouragement, or sharing some money-saving tips, in the comments at Parenting.com.

My post: Guest Blogger, Frugal Dad, on the Financial Challenges of a Single Parent

Thanks to the folks at Parenting.com for inviting me to contribute!

The End of Universal Default

Posted on by  at  6:00 am
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The following guest post was submitted by Kevin, web content writer for Resqdebt.com. For more helpful tips on how to save money and stay out of debt, visit Resqdebt’s website at www.resqdebt.com.

There have been few more controversial credit card practices than the one known as Universal Default. With the arrival of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, it is soon expected to be a thing of the past.

The elimination of universal default is one of the most important provisions of the sweeping federal legislation, signed in May and going into effect in stages through next August, that is expected to change the face of the credit industry, probably including ways that we do not yet expect.

What Is Universal Default?

Universal default provisions, often buried in credit card contract gobbledygook, have allowed the credit card companies to charge cardholders more interest for late payments that had nothing to do with that specific account. Simply put, this common provision has allowed the credit card companies to increase the interest rate when a consumer fails to make a payment on another unrelated account, be it another credit card account or some other type of credit account. Like a phone bill. Or a water bill.

The CARD Act would limit increases in interest rates to “a specific, material violation of the card agreement by the issuer,” according to a Senate Committee report on the bill. It also requires credit issuers to lower penalty rates after six months if the cardholder meets his obligations.

The dollar amounts involved in Universal Default can be significant. The finance website The Motley Fool calculated that an $8,000 balance could see an increase of $1,200 per year with an interest rate rise of 15 to 30 percent. If you are on the border of being able or not being able to pay your credit card bills, the default provision can make the difference, particularly when compounded over several cards.

Advocates of the universal default provisions would say that they are accepting the reality of a consumer’s overall credit profile. If a person fails to make a payment on another account, it could indicate that they will have a more difficult time making a payment on the subject credit card account when the time comes. Therefore the increase in interest rates can discourage further borrowing that cannot be met with payment. In addition, it keeps more reliable cardholders from having to pick up as much of the tab if in fact that person eventually defaults on the balance.

Critics of Universal Default, however, point out that having multiple creditors simultaneously raising the interest rates and charging the consumer more can create a credit card death spiral that would not have existed without the universal default provisions. In addition, they have questioned the fairness of altering a contract when the contract has not been violated. It is perfectly reasonable to think that a person can miss a payment on one card for a variety of reasons and still make the regular payments on another.

Is Universal Default really dead, or will credit card companies figure out other ways to accomplish the same goals? Only time will tell.

Economically Shopping For Christmas Toys

Posted on by  at  6:00 am
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The following guest post was contributed by Christine Howell who frequently writes about Online Degree Programs and college related topics for Online College Guru, an online college directory and comparison website.

With the holidays quickly approaching, parents are starting to feel the pressure rise. The kids still expect to see a variety of gifts under that tree. However, with the recent economic upset, more parents than ever are experiencing serious stress in their family budgets. The good news is that you can have a nice holiday season without breaking the bank by learning the tricks that enable you to shop economically for Christmas toys. By making a plan and sticking with it, you may find that it isn’t as hard as you thought.

Keep It Simple

Kids can only soak in so much fun before it gets overwhelming and you are wasting your money. Three gifts per child is a very doable number and is plenty enough to keep most kids happy. Many parents categorize these gifts into something that their child can wear, something that is educational and one toy that is just pure fun. Don’t waste your Christmas budget on cheap fillers or things like socks. If they need socks, buy them, but confine the Christmas gifts to just a few high impact items. This is actually usually harder for the parents. While the kids are fairly adaptable and barely notice these types of changes, the parents feel social pressures to do more. Breathe deep! This will be great for both you and your kids.

Start Early

When you get the scope of holiday shopping under control, you can start to plan your strategy. One of the most economical ways to shop for Christmas toys is to start early. Set aside a certain amount of your budget each month and have it available when you happen to see a great price. For example, office stores have their major sales at back to school time in September, so if you’re child is really wanting a camera or MP3 player, check then. Don’t forget to browse through all the after Thanksgiving sales as well. Even if you don’t like to brave the crowds, you can get many of the same prices by shopping online instead.

You Don’t Have to Give to Everyone

While it can be fairly simple to shape your own child’s attitudes and the traditions that your family celebrates, the expectations of extended family and friends can really thwart those efforts and affect your budget. Don’t be afraid to take people off your list that you don’t feel a personal connection to. For families that you really want to recognize as special in your life, consider giving one gift that the whole family can enjoy. This could be something like an unusual board game. Food is also a big hit. Make a cookie basket or some homemade bread and jam. Finally, don’t be afraid to open a dialogue with your family. In all likelihood, you are not the only one shopping on a budget this year and your more frugal suggestions will likely be appreciated.

Focus on Quality

Any parent who has ever shopped for Christmas gifts for children knows the annoyance caused by a gift that breaks a few days after being opened. In simple terms, buying poor quality gifts is a waste of your money. Resist the urge wrap a bunch of cheap toys just for the impact. Buying a few quality toys that will last for years is much more economical.

Take Advantage of the After Season Sales

If you haven’t had the chance to do a lot of these things this year, don’t despair. You can get a great head start by shopping the after Christmas sales. Many of holiday decorations and toy sets are deeply discounted, often as much as fifty percent or more in the week after Christmas. Stock up and get a head start of next year.

Dale Siegel Shares the New Rules for Mortgages

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I was recently fortunate enough to have the opportunity to interview Dale Siegel, author of The New Rules for Mortgages. We exchanged emails in a Q&A format on the subject of mortgages, the housing market, etc. Here are her responses to my questions.

Lending Guidelines

Frugal Dad: Lenders used to operate under a 28/36 mortgage-to-income/debt-to-income ratio when calculating maximum mortgage eligibility. How has the housing bubble affected those ratios for lenders?

Dale: Lenders use ratios as guidelines for qualifying a borrower for a mortgage. It is the total housing expense divided by gross monthly income and then total housing expenses plus all monthly debt divided by gross monthly income. Depending on which lender you go to, the typical ratio that lenders work with can range from 28/36 to 33/41.

Before the implosion of the mortgage industry, many lenders would push ratios upwards of 65% of the borrower’s gross (before taxes) monthly income, using compensating factors such as good credit or low loan to value. There were also products such as no income and no ratio loans which would eliminate the calculation all together and a borrower could mortgage multiple amounts of monthly income- and are behind the eight ball now!

Ratios are a guidance tool for the lender to calculate what they think a borrower should take out. However, the true number comes from the borrower themselves.  Use the mortgage amount the lender tells you you qualify for and really analyze it based on what you know about your own finances.  Make lists of your monthly income and expenses, create a 5 year plan and see what larges expenses might be coming up in the short term and think about things in life that can mess up your plans. Only the actual borrower knows what they can comfortably afford for a housing expense without compromising too much. Remember, the lender does not take into consideration things such as food, clothing and summer camp-but you should-and you can’t have it all.

Down Payments

Frugal Dad: How much (%) should homeowners aim to put down on a mortgage to secure the most favorable terms?

Dale: Down payments should be as large as you can manage: no money or little down mortgages are history-except for the FHA. Two years ago, you could get the same interest rate with 5% as you could with 25% down. Now, the lenders use a matrix consisting of FICO score and loan to value to calculate the interest rate. So, the better your FICO score, the lower your interest rate and the more equity you have in a home the lower your interest rate.

Many lenders will not allow loans over 80% now and it is harder to get PMI (Private Mortgage Insurance) for those loans. The lenders charge higher rates for scores over 620 and for loan to values over 60%. So if your credit score is 640 and you are putting down 20% your rate will be much higher than the guy that has a 720 FICO score and is putting down 30%. This is the way all lenders work now and they all go off of the same chart. So, one bank will not be better than another in this instance. What the borrower needs to understand is how the lender calculates their interest rate and they have the right to ask for the actual computation used.

FICO Scores

Frugal Dad: To qualify for the best mortgage rates, what credit score range should home buyers aim to be in?

Dale: The credit score is more important than ever now, because the lenders go off of the pricing matrix and there are no longer compensating factors used to cover a bad credit score. The score is what it is with no deviation in pricing the mortgage interest rate. As said, the lenders would do a loan with a FICO score of 500 if the borrower had other things going for them such as low loan to value, little debt or a lot of assets in the bank after the closing. Now, those things do not matter.

Most lenders will not take a loan with a FICO score under 620 and the new “good” score is currently 720. So, if your score is not over 720 you can still get a loan, as long it is not under 620-you will simply pay a higher rate. Of course there are lenders out there that will budge on that, but be careful which promises you follow.

Shopping for a Mortgage

Frugal Dad: Where is the best place to shop a mortgage for first-time home buyers? Current bank? Mortgage broker? Online?

Dale: The other day I was misquoted in the Tribune as saying do not use a mortgage broker to shop for a loan. I received hate mail from a bunch of Texas mortgage brokers and had to convince them that, being a mortgage broker myself, I did not specifically say that. What I did say was that the consumer needs to take responsibility for themselves and shop for a loan with the best interest rate themselves. I truly believe that no one is too busy, too important or too dumb to put their financial future in the hands of one person and must always be checking the information provided to them. (Think if Bernie Madoff was also providing mortgages to his chosen clients.)

When shopping for a loan, one should never use the internet as more than an educational tool. The internet is a fabulous world for loan terminology and mortgage calculators, but why would you get a mortgage from a provider that you found in cyberspace? Companies such as Lending Tree, Quicken Loans and others, are more so lead generating companies for the mortgage industry rather than direct providers. Remember free credit reports and loan qualifications come with a price tag. This price being your information is being sold to a loan officer somewhere that will hound you to get your mortgage through them.

So, now that I have told you where you should not get a loan, where should you go to get a mortgage? There are the commercial banks, such as Bank of America, Wells Fargo and the like. They are great big institutions which have lots of loans to choose from and competitive interest rates. What they also have are departmentalized loan processing systems and voicemail. So, if you have the patience to call around, shop for a rate and deal with many different people through the loan process then a large bank would be for you. Next, we have the smaller regional community banks known as savings and loans. They work just like the big banks do, but you might get more personalized service. Again, shop around and ask a lot of questions.

Third party mortgage providers are mortgage bankers and brokers-like me. Having assisted with over 65% of all mortgages obtained over the past five years, they were a big part of the real estate boom and bust that we have seen.  These companies are not the direct lenders and simply provide a service of assisting the consumer with getting a mortgage with hopefully the lowest interest rate. Their job is to shop your loan and work with you and all the parties involved from beginning to end. For this, they receive a fee from the lender your mortgage ultimately goes to. It is a win-win for all if you are working with a professional and honest broker.

The fact is that no matter what institution you get your loan from it is the loan officer you choose that should be the big decision. I believe it does not matter where I work, whether a bank or a self employed mortgage broker. It is my experience, stability and integrity that makes me a good loan officer. A consumer should choose carefully who they want to use based on a series of questions and how the loan officer handles that conversation. Think of the initial conversation with a potential loan officer as a first date. If it does not go well, why go out on a second date? There are a lot of fish in the sea!

Paying Off a Mortgage Early

Frugal Dad: We frugal people like the idea of living without a mortgage. What are your thoughts on paying off a mortgage early?

Dale: Frugal living in my book, means living within, or below your means. It means not buying that 56-inch flat panel and paying it off over time, not driving the expensive car because they offered you 0% interest rate on a 60 month loan and not going out to dinner every night of the week. Frugal living means thinking before you spend money on something you need or already have, being able to save every month and having a reserve fund on hand in case you lose your job or have an unforeseen expense.

Living mortgage free is more of a luxury for those frugal followers. Since most people cannot buy a home without a mortgage and there is a tax benefit for writing off the mortgage interest, it is not such a bad thing. In other words don’t feel that you need to buy a home for cash, pay off your mortgage as quickly as your credit card or keep renting if you cannot afford to buy a home.

Assuming one can afford the mortgage payments, I love to suggest accelerating them. One extra mortgage payment per year knocks a 30 year mortgage down to approximately 24 years and a few months. One extra payment can be made as adding 1/12 of the monthly payment to each month, paying one total extra payment to the lender each year or making a ½ payment every two weeks. Anyway you do it, it adds up to a total of 13 payments a year. The saving in interest is approximately 1/3 of the total interest for the life of the loan. Knocking off this much interest equates to lowering your effective interest rate by almost 2%! This is a huge savings for the borrower and paying it off early is a gigantic satisfaction.

Any way you want to look at it; homeownership is a luxury and is not meant for all. The American Dream is a dream not an entitlement.  A home is typically the largest single asset one owns and should fit nicely into the entire financial picture. Remember the whole is only a sum of the parts and this part should not be too big as to swallow up everything else. With times the way they are today, the consumer should be much more vigilant, diligent and responsible in their homeownership and mortgage selection. Moving forward, there were lessons to be learned by all and hopefully we will not forget what happened in the past when making future decisions.

End of interview.

I’d like to thank Dale for taking the time to answer my mortgage questions, and I wish her much success with her book. In fact, she was nice enough to send me a copy of her book, which I’ll be reviewing here at Frugal Dad in the next couple weeks.

More About Dale

siegel

Dale Robyn Siegel is a licensed attorney in New York and owner of Circle Mortgage Group, a boutique mortgage broker in White Plains, New York. She is an adjunct professor at Baruch College as well as NYU Schack Institute of Real Estate.

Dale has been speaking to the public and teaching real estate professionals about mortgage finance for the past ten years. You can learn more about The New Rules for Mortgages at TheNewRulesforMortgages.com, and you can purchase a copy at Amazon.com or visit her virtual book tour.