Mortgage Crisis Redux?

Roshawn Watson

Those who thought that subprime mortgage mess was over may be in for quite the shock. Although mortgage lending criteria have become more stringent along with the credit crunch, this unfortunately is not enough to prevent the greedy and ethically-challenged from tainting the real estate market. Shady investors are now engaging in the some of the same speculation and deceit that was responsible for this real estate crunch in the first place.

Image credit: bahia0019

Mortgage Fraud is Skyrocketing

Fraud has become so rampant lately. According to the FBI, mortgage fraud has doubled since 2007. Sadly, the culprits are not always crooks from afar but can range from friends lying on their mortgage application to criminals bamboozling millions from their companies and clients. Because of the increased scrutiny of loan applications by lenders, speculators are lying about their incomes and employment on mortgage applications to snap up distressed properties as investments. These buyers are banking on the value of the properties returning, so they can make a profit. As we know, this dangerous strategy can fail if you don't know what you are doing and don't have adequate resources to carry the property if recovery takes longer than you think. Additionally, home prices do not always go up, especially in the short term.

Opportunist with Legitimate Loans Can Still Be Scam Artists

Of course, not everyone cashing in on the mortgage crash is fraudulently qualifying for loans they cannot afford. This is a fabulous time to snap up some real estate deals. If you can ethically qualify for a conventional mortgage and are financially in the position to buy, then you can really save a ton on interest and on the purchase prices in many cases. We definitely need some home buyers and legitimate real estate investors. However, there are some who have adequate financial solvency who still bear blame. Consider a new firm called PennyMac headed by Stanford L. Kurland. Apparently, PennyMac is doing quite well by purchasing severely discounted, distressed properties for fractions of what they are worth and then unloading them for hefty profits. There's nothing wrong with making money, but it is not a coincidence that Kurland is the former president of failed mortgage giant Countrywide Financial. Indeed, several employees of PennyMac are former executives from Countrywide Financial. Countrywide's parent company recently paid upward of $8 billion in settlements for Countrywide's pushing of home buyers into loans they could not afford. In other cases, some firms commit overt fraud by deceiving home owners into forking over hundreds to thousands of dollars to save their homes from foreclosure. Note, sometimes this means that the homeowners will turn over their equity. Nonetheless, often the homeowners still end up in foreclosure and more financially devastated than before the firm "helped" them.

Speculation can hurt recovery

Fortunately, recent data shows that the housing market is starting to recover. According to the National Association of Realtors, June marked the third consecutive month that sales of previously occupied home rose. It is also encouraging that the inventory of foreclosures is finally shrinking. However, one threat to this recovery is speculation. President Obama has pledged to put an end to an economy "built on reckless speculation [and] inflated home prices." Speculation can be damaging in that it can diminish the legitimacy of the real estate prices (i.e. can create housing bubbles). This is important because at some palpable level, this economic downturn has ultimately resulted from a crisis of confidence anyway. When consumer confidence is down, we're less likely to purchase because of concern that the prices are elevated artificially and that the economy is bad. Accordingly, speculation-driven price increases in real estate can convolute economic recovery.

As we turn this chapter in our economy, it is prudent to not repeat the same mistakes that contributed to or exacerbated this mess in the first place.

Lastly, if you like this post, please subscribe (upper right-hand corner); You will RECEIVE My eBOOK; also, support this post and Propel it, Stumble it, and tag it on Delicious.

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Uncommon Money News (Vol. 67)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

I would like to thank the Carnival of Financial Planning my post the Rich Get Poorer. It was hosted at the Living Almost Large.

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your help so much! Thanks.

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Uncommon Money News (Vol. 66)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

I would like to thank the Carnival of Financial Planning and Carnival of Twenty Something Finances for including my posts the Rich Get Poorer and Colleges Pimping Their Students. Hooray, Colleges Pimping Their Students got an Editor's Pick. It was hosted at the Dividend Tree and Rolloverusa, respectively.

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your help so much! Thanks.

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Outrageous Law Transfers Parents' Debt To YOU

By: Roshawn Watson

With few exceptions, such as a divorce decree, you are not legally liable for debts you have not personally signed for or agreed to pay. There is an inherent sense of fairness to this principle: your finances cannot be obligated to pay for something without your consent (except perhaps to the taxman or to your dependents). However, an archaic law in Pennsylvania is being enforced to make adult children to pay for their parents' debts.

image credit: somethingstartedcrazy

A Disturbing Law In Hands of Ambitious Lawyers

Zealous lawyers in Pennsylvania representing nursing homes and hospitals are creatively applying a little-known law dating back to Elizabethan England that requires families to take care of each other financially. The law is known as "support of indigents," and it can force adult children to pay their parents' health-care costs. Nonetheless, the purpose of this law is to shift the financial responsibility of care of loved ones to their families in the event that the loved ones cannot pay. On the surface, some would ask what is the problem with sharing in your parent's financial burden? There are few that would that the argue that the intent of the law wasn't noble. However, I guess it is easy to be self-righteous with other's people money. There is a big difference to voluntarily helping out versus being forced to pay because there are judgments against you.

A Noble Law, but the Devil is in the Details

Additionally, there are several problems with applying the law today. First, the law simply doesn't appear to take into account the distinction between whether the parents can afford to pay but are refusing payment and parents who are broke and cannot pay. Of course, not everyone has financial integrity, and there have been situations where parents who have the means to pay their bills have elected not to for various reasons. In some cases, the cause of nonpayment is due to financial irresponsibility while in other cases, nonpayment is caused by mishandling of their finances. You may ask, why not sue the parents if they can pay, but it is not that simple. Unlike wages, pension and social security income cannot be garnished. A second problem is that the law doesn't appear to consider estrangement. For example, in some cases children have had little to no contact with their parents for years. Being sued to bear someones financial burdens probably won't hasten that family reconciliation either. A third issue with applying the law is that some children are financially unable to pay the debts themselves. Being saddled with debt when you aren't thriving yourself only precipitates your own downfall. A fourth problem with this law is that now debt can survive death. Consider that if someone dies with $200,000 in medical expenses and is unable to pay, that debt would be normally be discharged in most states. That's because, the person's estate would have to stand good for the $200,000. If the estate cannot cover that $200,000, the debt would not have to be paid. However, if the medical institutions can now attach that debt to surviving relatives, that debt survives that person's death and can potentially ruin their families lives.

In addition to the aforementioned problems, the law brings up other considerations. For example, there are obviously serious issues with the constitutionality of forcing someone to pay for a debt that they had no choice in creating. For example, would the family have chosen nursing home A that costs four times more than nursing home B if they had known that they were paying the bill? Often when you bear the financial burden, your opinion must be considered. One can only imagine the implications on one's care if family members are now concerned about protecting themselves from lawsuits and liens while caring for a loved one. There could be a real conflict of interest. Another question is whether Pennsylvania state law supersedes other states? Apparently, some Pennsylvania lawyers think so and have brought lawsuits against adult children living outside of Pennsylvania for the medical expenses of their parents residing in Pennsylvania. Needless to say, there are several appeals on the books, and often these cases end in settlements.

Given all these challenges, I think this law fell out of practice for good reason. Hopefully, the enforcement of this outdated law doesn't give families yet one more reason to stay apart, especially while a parent is having medical challenges. The noble intentions of the framers of this law doesn't negate the fact that the law is ill-suited for our present-day American society. As alluded to earlier, this law actually predates America. However, it didn't work then, and it doesn't work now.

Lastly, if you like this post, please subscribe (upper right-hand corner); You will RECEIVE My eBOOK; also, support this post and Propel it, Stumble it, and tag it on Delicious.

Uncommon Money News (Vol. 65)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

I would like to thank the Carnival of Financial Planning and Carnival of Twenty Something Finances for including my post the Rich Get Poorer. It was hosted at the Skilled Investor and Kanjoh, respectively.

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your help so much! Thanks.

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Colleges Pimping Their Students

Colleges Pimping Their Students

By: Roshawn Watson

Students go to universities to gain an education, to discover their interests, to network, and to pursue degrees in their chosen fields of study. It should be a time to focus on academics and perhaps to have some fun. However, students are increasingly being targeted by predatory credit card lenders. Moreover, instead of safeguarding our students, universities and their alumni associations have elected to assist these card-issuing banks in exchange for additional revenue.

Some Universities in Bed Credit-Card Companies

Recently, BusinessWeek has uncovered over two dozen secret contracts between card-issuing banks and public universities. The main offense is universities are selling students' personal information, typically to the highest bidding credit-card companies. This allows for the card-issuing banks to target their marketing campaigns to students. For example, the Ohio State alumni association worked out a seven-year, multimillion dollar deal with MBNA where the association provided the bank with email addresses, home addresses, and phone numbers for their 55,000 undergraduates. Under the contract, the card company was allowed to send at least 5 direct-mail marketing campaigns each year and contact students at least three times by phone each year.

These campaigns result in a very raw deal for students, who are often already saddled with tens of thousands worth of student loan debt. Students are particularly vulnerable to late fees and other penalties, given their limited income and experience with handling their own finances. For example, data from Florida State University suggests that their undergraduate students were about four times as likely as alumni to be delinquent on their MBNA credit-card bills in the two quarters in 2005 for which records were made available.

Oh the Money
The financial incentives for universities to participate in some of these deals are so lucrative that many universities blatantly disregard their fiduciary responsibility to students. Some card-issuing banks are willing to pay universities tens of millions to participate. For example, consider the following university-card company deals.

• Florida State's $10.7 million, seven-year MBNA contract allows "marketing to all students" and at least six direct-mail and telemarketing campaigns a year.
• University of Michigan's alumni association contract with Bank of America is worth $25.5 million over 11 years.
• University of Tennessee signed a pact with Chase worth $10 million.

Conflict of Interest

In some cases, universities directly benefit from students indebtedness in addition to benefiting from the selling of their students' personal information. For instance, the a contract between Washington State University and MBNA yielded the school $3 a year for each student account and 0.4% of all sales charged to student cards.

The annual bonuses would be between $50,000 to $100,000, based on the number of new accounts opened and the average outstanding balance held on the high-interest cards: the more debt students carried, the more revenue the alumni association would get.

Such financial alliances create disturbing conflicts of interest. The very university personnel who are entrusted with protecting our students have not only chosen to align themselves with companies that profit off of ensnaring students in debt, but the schools themselves also profit directly from students' indebtedness. Thus, there is a direct conflict between students' best interests and the financial well-being of the schools. It's no wonder why schools are willing to endorse bad deals for students. Consider that the University of Iowa's alumni association sent a credit-card mailer to students in May 2007, announcing in large bold letters "outstanding financial benefits for students," including a 4.9% interest rate. "Don't miss this unique opportunity to show your University of Iowa pride, while you enjoy truly outstanding credit card benefits and services." The marketing letter was signed by Vince Nelson, alumni president. It was only Iowa students who read the accompanying paperwork who found that the 4.9% rate lasted only six months (teaser-rate) before leaping to 18.24%, a common technique in the credit-card industry.

The University of Iowa's alumni association received about $1 million a year from card issuer MBNA, accounting for one-fourth of the organization's operating budget. Similarly, the University of Delaware's alumni group receives about $300,000 a year--more than 90% of its revenues--for delivering student contact information to BofA.

Where's The Outrage

There should be outrage and public outcry for our students' sake. Ed Mierzwinski said it best... "It is unethical for schools to allow a sophisticated industry to have access to their students, [who] have graduated from high school without any financial education or literacy....The playing field is grossly uneven."

Somehow the message has to get out that it is not okay for universities and their alumni associations to exploit the vulnerable for financial gain.

It was only after negative local press coverage that Iowa stopped providing student information to MBNA last November.

These contracts between universities and card companies are cloaked in secrecy, even in public schools, where open contract laws typically mandate transparency. It is clear that we cannot trust universities and their alumni associations to do the right thing for students. Although the non-disclosure makes scrutinizing these relationships very difficult, we must continue apply public pressure for transparency. Otherwise, the next student whose information they're selling may be the child of someone we know ourselves.

Lastly, if you like this post, please subscribe (upper right-hand corner); You will RECEIVE My eBOOK; also, support this post and Propel it, Stumble it, and tag it on Delicious.

Michael Jackson Was Still Rich

By: Roshawn Watson

Michael Jackson has been plagued by rumors of financial difficulties for years, yet Jackson has always maintained (when he did comment) that the rumors were untrue. Make no mistake, it does appear that he owed hundreds of millions of dollars at the time of his death. This is believed to be largely due to his lavish lifestyle. However, he still was not broke. Due to some wise business decisions (e.g. purchasing the Beatles music catalog) and maintaining certain rights to his own extensive catalog, Michael Jackson appears to have assets exceeding his debts by nearly $240 million. By almost anyone's estimates, that means Michael Jackson was still rich albeit cash poor.

Additionally, his last week record sales broke Billboard Chart History and surpassed those of new releases of both Black Eye Peas and teen sensations the Jonas Brothers. His albums occupied 9 out of 10 of the top spots in the Pop Music Catalog Chart. This definitely suggests the strength of his brand as the King of Pop, as nothing like this has every happened in Billboard history. Several retailers have reported having trouble keeping his merchandise on the shelf since his untimely passing.

One interesting spin on the value of Michael Jackson's brand comes from the Harvard Business blog. Their article poses the simple but interesting question, "why can't a resource as scarce as the King of Pop capture more value." Believe it or not, it suggests that at $25 million a year, we grossly underpaid Michael Jackson given that he was one of the world's greatest entertainers.

Uncommon Money News (Vol 64)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your help so much! Thanks.

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