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What does Obama’s State of the Union Mean for Me and for My Financial Situation?

Obama has expressed the importance of our country coming together and making the effort to better the current financial and economic situation.  He called in state governors and city mayors, vowing to hold them accountable for every dollar they receive from the federal government.  He used his State of the Union address this past Tuesday to reiterate the importance of every individual moving forward; more importantly, he explained how his plan will work to help everyday Americans.

The message the White House has been sending this past month has been that today is the day that change has come.  Tuesday’s speech was no different.  We need to change our ways as people when it comes to spending, lending, and borrowing. More importantly, President Obama told congress that today was the day they have to stop putting off reform.  In order to better understand the situation, we have to realize how we got to this point.  Congress allowed banks to exercise past lending practices and to push bad loans Reform was put off.   Discussions about Healthcare and Educational reform was put off for the next year and for the next administration

As the leader of this next administration, Obama has given us access to a website, recovery.gov, as a place to go and follow exactly where every tax dollar is being spent.

The importance of credit in our economy has never been so visible.  Obama said if credit isn’t flowing, then the process of recovery we must go through twill not begin.  If people cannot get loans then they cannot buy homes or cars. Aspiring students will not be able to apply for student loans.  If credit is not freed, stores cannot stock their shelves and sales cannot be made.  If lending is not opened up, then businesses cannot make payroll and people get laid off.  So banks stop lending to individuals and each other and eventually credit dries up.

We need to put an end to this destructive cycle and restore confidence and lending.  President Obama has laid out a three part plan to do this.  The first part of the plan comes in the form of the new lending fund, the largest effort ever made to increase lending to the following people: auto loans for consumers, business loans for entrepreneurs, and education loans for students.  The second part of Obama’s plan is a housing program to help responsible home owners lower their monthly payments and refinance their mortgage.  The third part of the plan aims to restore money and confidence to the banking system.

From the top, this plan looks like an effort on all fronts to encourage lending, the true question is just how much will this cost us over time?

“Loan Modification Specialists” – Are They the Same Sub Prime Mortgage Brokers?

I can hear them crawling out of the woodworks again.  Just like a pest, they smell the lure of the quick money.  Just when you thought the days of the sub prime mortgage broker were over, they are beginning to resurface upon hearing about Obama’s new housing plan.  Even before Obama’s housing plan was announced a few days ago, sub prime brokers began planting their seeds in the television and radio ads along with numerous sites on the Internet.  More and more these website are appearing on a daily basis.

When this financial crisis began to escalate last year, I started to see many more debt settlement companies pop up.  Are these former debt settlement agencies now the loan modification brokers?  It appears that these backroom brokers may be back again, ready to prey on the SAME unfortunate individuals whose upside down mortgages they brokered.

In my first post, I mentioned that one my goals for this blog is to help prevent people from falling victim to the same lending practices that put our economy in the situation it is in today.   Well, here is my first attempt to offer protection in the form of knowledge.

When loan modification first revealed itself, it was sort of hush hush.  Congress was slow to wrap its hands fully around loan modification; as a result it continued, while the majority of the public had no idea.  Advertisements offering “Foreclosure Prevention” and “Foreclosure Avoidance” began to gradually appear.  As banks stepped forward and announced their plans to allow certain mortgages to be modified, more loan modification companies started to appear.

Some of these early loan modification brokers had their clients pay up front costs to renegotiate their mortgages, doing little to nothing to help their clients.  Some ended up being scams, robbing the home owner of the fronted cash.  Even though your bank rewrites the loan terms, the bank still has to outsource the work on a loan, as each case can take up to 12 hours to review.

I guess we will have to see how it all plays out as more and more banks announce that they will modify existing mortgage terms.  I am curious to see how Obama’s new housing plan will protect and deal with the loan modification brokers and business as a whole.

How can you protect yourself?

1.  Always request to see all proposals before agreeing to anything.  This will save you in the long run when rates and terms magically “change.”

2.  Know your home value. Being honest and sharing the exact home value with the lender will save you both time. The lender can only provide you an honest solution if you give them an accurate value.

3.  Know your financial situation.  Be honest about your income.  Always know where your credit stands.  Sign up for credit monitoring or for identity theft protection to make sure companies are not pulling your credit without your knowledge or against your will.  Too many hard pulls by the lender can ultimately change and lower your credit score.

4.  As long as you have you have the right numbers, know your financial situation, and are being cautious with your social security number, it is OK to shop around.  Knowing your options is key for getting the best possible deal.  .

Obama’s Housing Plan – Stopping the Foreclosure rate

The President’s housing plan could not have been announced at a better time. Obama’s stimulus plan was just signed into law and the stock market fell close to its lowest point in over 6 and a half years!  The Fed also said the unemployment rate could jump to as high as 8.8% in the next year.   We need more from the administration to fix the worst financial crisis in nearly 80 years.

Many questions still surround the announcement of the plan.  Is the housing plan the additional boost we need?  Will it allocate enough money to truly fix the foreclosure rate?  Will this three-part plan really save close to 9 million American homeowners?

What Obama’s Housing Plan Does

  • Makes it easier to refinance: the plan changes the guidelines that used to give people only 80% of the home’s value; the new plan now gives people the ability to borrow up to 105% of their home’s value.
  • Gives the lenders reason to modify the loans: the government will take on part of the loss the lenders would face if they refinanced. This will affect the home owner’s debt to income ratio. The goal is to get this ratio to below 31%, with the government paying part of the difference.
  • Maintains Credit Flow: the treasury and Federal Reserve will continue to buy mortgage backed securities. This will maintain liquidity, ultimately freeing up capital and credit.

The short and long term objectives of this housing plan seem clear.  Bringing down the interest rates of mortgages through loan modification will put more money in the hands of millions of consumers.  Given this governmental aide, it is important that the citizens of America acknowledge that we too play a role in the solution.  This is where our President called on us to change our ways.  This is why he said “the party is over.”

We have to take it upon ourselves to be sure that we are smarter with how we now use the money we save from the mortgages.  Yes, people will buy more with the extra money, activity that we need to boost our economy.  Hopefully they will have learned from past mistakes and will begin to put the money away.  We need to change our ways a as whole.  This in turn will also help our economy get back on its feet.

Peer to Peer lending – Where Did it Go?

Peer to peer lending is now all but gone; however, for a while, peer to peer lending was the last resort for many in getting a loan.  Since banks began reducing the number of loans and stopped taking new applicants, peer to peer lending communities were often times the last place to go.  One of these communities, Prosper.com, has changed the language on their application page.  It now reads “We are unable to fund your loan at this time. However, Prosper has agreements with trusted partners who will work with you to determine if you can get a loan. If you would like to proceed please fill in the application below.”

So what happened to peer to peer lending?  Well, the government basically came in and said individual people cannot judge whether or not to lend other people money.  I find this both upsetting and amusing.  I was involved in one of these peer to peer lending communities, both as a lender and as a borrower.  I thought I was a great judge of who to lend money to! If I had an issue or concern, I could always ask the borrower.  I used a loan that I received from a peer to peer lending community shortly after college to consolidate my debts into a lower rate.  I am a big fan of the entire experience-from setting up my profile and loan request, to navigating the bidding process-all the way to funding.  I received a fixed rate loan, unlike the credit cards, that I planned to pay it off in three years time, unlike the credit cards.

The more and more I look around the web, the less and less places I find that enable consumers to go and get loans.  Credit cards are disappearing left and right.  Straight up unsecured personal loans are all but gone. Peer to peer lending was the last stop for most people, and now that is gone.  With regulators finally getting involved, I guess it was inevitable.

Banks say they are lending again-it’s just that most people are scared to apply.  I have actually heard otherwise from the lending community.  Banks are just forced to be picker with the criteria of their borrowers.  It looks like pay day loans and their dangerous pitfalls are all that is left for most American borrowers who are desperate for money.

What can you do if you are in these tough situations?  Before making any move you should always know where your credit stands.  You can always sign up for a free online credit report if money is tight.  If you find out your credit is in bad condition you are going to have trouble trying to get a loan.  Debt management help may be your last resort.  Be sure to compare the companies and programs that are out there as some specialize in debt settlement, credit counseling, and bankruptcy.

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