Fear Factor: Is Your Retirement Plan Safe? Mortgage by Randy Newsletter – Sept 2008

Mortgage by Randy

a monthly update to our clients, colleagues, family & friends

by: Randy Mitchelson, September 2008

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In This Issue We Touch On:

CNBC: Irresponsible Cult Thinking?  Fear Factor: Is Your Retirement Plan Safe? 

 

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Financial markets continue to dominate national headlines as summer comes to an end.  As autumn begins there is a lot of uncertainty and fear playing on minds of people who have 401ks and other retirement plans and investments.  It is times like this when emotion, not common sense, drives behaviors of many bewildered people.  There are a lot of advice givers on the airwaves and in print and in that light I wanted to share this experience with you:

 

I saw a television show on CNBC called “Dollar Dilemma”.  The show takes calls and emails from viewers about personal finance topics and a couple of “experts” provide solutions rapid-fire style. Think of it as  Jim Kramer’s Lightning Round but instead of stock picks, we’re talking personal finance topics.  I enjoy these shows because it allows me to a) validate strategies that I recommend to my clients and friends and b) identify conflicting or perilous information provided by the so-called “experts” hired by the show. 

 

One question that was addressed involved whether a homebuyer should put about 80% down payment on their new home purchase or do something else with the money.  To my surprise, the “expert” (who happens to work for a Wall St. investment company) said that it is a “”great time to buy the market” (note: this was BEFORE the market lost about 10% of its value the week of 9/15/08).  Wait a minute…..rewind that….did he really say that?  First of all, without looking at a person’s overall financial picture (income, number of years until retirement, amount of retirement savings, risk tolerance, among others) it is simply irresponsible for anyone, no matter what their experience, to outright recommend (especially to millions of television viewers) that they should jump in to the market.  How self-serving is that?  No one knows if this is a “great time to buy the market”.  For some it is, and for others it isn’t, but without facts, no one can say.

 

There is definitely some value in the information that a television show like this can offer.  However, the viewers must not get caught up in the hype and do some thinking for themselves. The “experts” owe it to their viewers to provide responsible, unemotional advice.

 

The current newsletter and all prior newsletters are archived at our blog space mortgagebyrandy.spaces.live.com.  Bookmark it and share with your friends and family.  You can enter your own comments and feedback as well.  Time for the news…

 

Mortgage Market: Cash Buyers Cashing In On Vacation Properties

Real estate sales in some markets, including right here at home in Lee County, are perking up.  Although the average sale price is down, the number of units sold is on the rise.  Since the mortgage market has not loosened up at all, how are people paying for these properties?  One answer is cash.  For example, in the coastal South Carolina area, the percentage of people financing with a mortgage has gone down from its peak at 82 percent (or 5,494 buyers) during the first half of 2006 to 73 percent (2,341 buyers) during the first half of 2008 (The Sun News, Jessica Foster, 8/7/08).  One advantage of using cash is that people from other countries like Canada are taking advantage of the currency translation against the relatively weaker dollar.  Also, cash buyers can negotiate better pricing with sellers since there’s no uncertainty about qualifying for a mortgage and the closing can happen much sooner.

 

Personal Credit: Increasing and Protecting Your Credit Score Has NEVER Been More Important

In these ever changing financial markets, the value of a high credit score is going up, up, up.  Lending standards are tougher than ever.  People with credit scores above 720 are not experiencing too many issues when they apply for credit.  However, tens of millions of Americans have credit scores below that threshold and it is vital that they take steps to improve their score, even by as little as 10 or 20 points.

 

There are multiple ways to approach this.  First is the do-it-yourself method whereby you pull your own credit report, analyze every detail for possible inaccuracies and then mail dispute letters to the credit bureaus and stay on top of that paper pushing process.  The other extreme is to hire a credit repair company to do a lot of this work for you.  Prices range from the hundreds to the thousands of dollars and there are a number of untrustworthy companies out there that you have to be careful of.  There is also a middle of the road approach where you sign-up for credit monitoring services through your bank, a credit bureau or even Costco and you receive emails every time something changes on your credit. 

 

Personally, I promote the do-it-yourself approach and I coach my clients on how to effectively do this.  This keeps precious money in their pocket.  However, some people just do not want to be bothered and in that case I try to guide them to a reputable and cost-effective service based on what their personal needs are.  No matter what your score, the key is to have a process in place to improve it and then protect it once you achieve the ultimate A+ credit rating.  To get more information on any of these solutions or to have a personalized credit review and action plan created for you, just send an email to randy@mortgagebyrandy.com .

 

Economy & Financial Insights: Fear Factor Takes Hold

We are wrapping up a historically significant month in this country.  The potential downfall of behemoths like Merrill Lynch, Lehman Brothers, Morgan Stanley, AIG, Goldman Sachs, Washington Mutual, among others is dominating the news (did you notice that the devastation in Texas has been relegated to an “also mention” on newscasts?  What do these events and actions taken by our government really mean to you and I at the end of the day?

 

For those people who work at some of these companies (including some subscribers to this newsletter), these events are catastrophic as many jobs are lost during tough economic times and families strained.

 

For those of us watching these events from the sidelines, the impact will be less.  First, some investments in our 401ks, 403bs or other retirement plans will take a hit.  That hurts, but it is not the end of the world, especially if you have decades to go before retirement.  There’s plenty of up years ahead of us to make up for it.  As taxpayers, the impact remains to be seen.  A lot will be determined by who wins the White House.  The fact remains though that the money we pay in taxes is being used in an attempt to stabilize the financial system and even sustain the life of certain companies (like AIG) that in theory would do more harm to us if it were allowed to fail. 

 

 

Question of the Month: How Long Does It Take to Improve My Credit Score?

It only takes a few months to destroy your credit, but it takes much longer to rebuild a credit score.  The answer to this month’s question is “it depends”.  In fact, in some situations, I have advised my clients NOT to pay off a debt since it could cause more harm than good.  Credit scoring is far from cut and dry.  More than 1/3 of your credit score is based on your last 24 month payment history, with heavier statistical weighting given to the most recent 12 months.  If your credit score is 600 and you pay off the remaining $7,000 of your auto loan or lease, do not expect an overnight jump in your score.  First, some creditors take up to 2-3 months to report payment history to the credit bureaus.  Second, if you had one or more 30 day delinquencies within the past 24 months that could hold your score down more than the payoff brings it up.  Another 1/3 of your score is tied to your ratio of debt owed to available credit.  If the $7,000 payoff on that car loan represented a small percentage of your overall debt load then the impact on your score will be compromised.  Projecting the impact on your credit score by an individual action like a payoff can only be done in context of your overall credit profile.  Contact me for a thorough analysis of your credit history (including all three of your credit scores) and a personalized action plan on how to maintain or rebuild your score.

 

Giving Back: Supporting our Communities

Most of us at some time or another receive phone calls from charitable organizations seeking pledges of donations.  It is usually easy to pledge ten or twenty dollars just to get the person off the phone, but do you really know where your money is going?  When someone calls saying they represent disadvantaged children or families of fallen law enforcement, it is hard to ignore the tugging at your heart strings. 

 

Unfortunately, some of these organizations are not what they appear to be on the surface.  For example, here in Lee County, police officers and deputies NEVER solicit for donations over the phone nor does the Sherriff’s Office receive any funds from any other organization that that conducts phone solicitations.  In fact, some of these non-profit organizations use 80% or more of your donation for administrative expenses like SALARIES!  The best organizations are ones that use 10% or less of their funding for administrative purposes.  In other words, 90% or more of your donation goes toward the programs to help the people.  The next time you receive one these calls and you’re not 100% certain about the organization, make no pledge, but ask them to mail you literature so you can research it further.  A lot of times you can find valuable information doing a Google search and in some states, there is online information about the organization and how they spend the money they collect.

 

Supporting our communities through charitable donations is a duty we all have, but at the same time we want to protect ourselves and ensure our donations go to the purpose we intend.  As the holidays approach, be careful!

 

Need volunteers? Do you have a fundraising event upcoming?   Do you have a personal web site where you are raising donations for your cause?  Submit the information to randy@mortgagebyrandy.com by the 5^th day of each month and we will do our best to include your information in the next issue.

 

As we endure the threats of peak hurricane season, we want to remind those of you in the line of fire to take a few minutes to place copies of your most important documents (insurance policies, deed to house, birth certificates, etc) in a “zip lock” storage bag in the event you need to evacuate.  Plan ahead.

 

Randy

 

Mortgage by Randy newsletter, Copyright 2008 Randy Mitchelson.  All Rights Reserved.

 

Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson.  Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.

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You have permission to publish this article electronically or in print as long as the following is included:

 

Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with 15 years experience in financial services.  Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.

 

As a member of National Association of Mortgage Brokers, Randy educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy, accessible at mortgagebyrandy.spaces.live.com. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.

 

He is founder of Estero, Florida based National Web Leads, LLC (www.nationalwebleads.com), an online lead generation service matching consumer finance lenders with customers.   Through their network of partners, National Web Leads, LLC delivers bleeding edge Web 2.0 software solutions such as lead generation platforms and real time desktop widget and mobile reporting tools.

 

Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY.  He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership (www.swfrtp.org) and Strategic Planning Director for The Michelle’s Angels Foundation (www.michellesangels.com).  He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.