Bank of America Assembles Humpty Dumpty – Mortgage by Randy Newsletter – Oct 2008

Mortgage by Randy

monthly update to our clients, colleagues, family & friends

By: Randy Mitchelson, October 2008

====================================================================================================================== 

 

In This Issue We Touch On:

Bank of America Assembles Humpty Dumpty

Build Your “Fall”-Back Plan

Think Pink 

 

This week we come to you from Washington D.C. – what a place to be right now given the historic events both in the past few months as well as the historic election which faces us in about 2 weeks. This is not a forum for political opinion.  However, there is no question that America’s choice for President will bring a definitive fiscal philosophy to the Oval Office.  Remember, no matter whose ideas inspire you the most, it still takes Congress to turn these ideas into bills for debate and vote.  When I write the next edition of this newsletter we will know who our new President is and our government will finally be purchasing some of the illiquid paper that is clogging the credit system.

 

We had hoped to distribute this month’s newsletter across our new email delivery service.  However, we are not quite ready.  The subscription notice will be arriving in your inbox later this month.

 

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: Bank of America Putting Humpty Dumpty Back Together Again

The mortgage industry is undergoing an infrastructure change.  Deregulation gave rise to a fragmentation or deconstruction of the market.  Every piece of the process was split off into a separate business in order to maximize profit.  Origination (i.e., taking the applications), Processing, Servicing and the assumption of the risk and reward have all been running independently.  For example, a mortgage broker originates loans as their business.  In some cases, brokers outsource processing of the applications to companies that specialize just in processing.  Once a loan closes, the lender then turns it over yet another company to service it (e.g., mail you your monthly statement, etc) and finally, the lender sold bundles of these loans out their back door to investors around the world who then became the bearers of the risk and reward of those loans.  One of the downsides of that structure is that it is difficult to hold any one entity accountable for issues that arise.

 

We are beginning to see the reverse engineering of this process.  Let’s look at Bank of America as an example.  Their acquisition of Countrywide made Bank of America the largest originator and processor in the country.  Also, when Merrill Lynch was acquired recently, that deal included a Merrill Lynch subsidiary called Wilshire Credit which just happens to be the largest mortgage servicer in the country.  Bank of America is becoming the symbol of reconstruction in the mortgage industry. 

 

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

Banks are very conservative with lending money – even to each other – these days.  If your credit score is less than 720, it is likely that you will pay higher interest rates on your credit products if you get approved at all.  There are a number of strategies that can be employed to raise your score in only a few months.  Before you apply for a loan, contact us for a credit analysis and we will build a personalized action plan to help you maximize your score both in the short term and the long run.

 

For our young readers (18-25), there are many temptations offered by credit card companies, like free gifts.  The easy access to credit to pay for pizza gets many into deep debt early in life.  Having credit at a young age is great if you use it correctly.

 

Young professionals and parents (26-39) that grew up using the Internet need to be extra careful about protecting their identity when making online purchases.  There are both do-it-yourself as well as subscription based credit monitoring services available to help you stay on top of your credit.  Many insurance rates are credit based giving another reason to manage your score.

 

Middle-age (40-54) folks have a variety of financial matters on their radar.  Retirement planning, college tuition for kids and second home purchases are few.  A home equity line of credit, if you’re lucky enough to have equity, is a great resource to have in your financial toolbox, but this product is reserved for only those with the highest of credit scores.

 

Early retirees (55+) also want to stay on top of their credit.  In the event of medical emergencies, your strong credit score will allow you to qualify for medical specific financing.  Medical bills sometimes end up as collections on your credit report because the insurance company doesn’t pay the full cost of the service.  Monitor your credit regularly to avoid falling victim to this time wasting inconvenience. 

 

No matter what stage in life you’re in, by following these tips, you’ll always know the score.

 

Economy & Financial Insights: Create Your Personalized ”Fall”- Back Plan

The average U.S. household carries $10,000 to $12,000 in revolving debt and has nine credit card accounts (Jump$start Coalition, 2007).  Open your wallet and take an inventory of the accounts you have open – some of which you may not even use often, like department store cards.  Americans continue to live beyond their means evidenced by negative personal savings in recent years. This is calculated by measuring your personal income minus your outlays.  (Note: The U.S. Department of Commerce releases positive personal savings rates in their reports but the fine print tells you that they DO NOT INCLUDE personal outlays financed through BORROWING on credit cards and other lines of credit).  Example: $4000 income in October minus $3600 in expenses leaves $400 for savings (10%).  However, let’s peel the onion back.  Suppose that in October your car needed repairs that cost $500, but cash is tight so you use the credit card.  Your REAL personal savings rate is now negative ($4000 – $4100) or – 0.1%.  What’s worse is next month your picture might grow worse as you have to pay interest on that credit card.  But our happy go lucky government goes and reports that 10% savings rate number with a small foot note about their formula’s fallacy.

 

The lesson is not about the government, although that is an interesting side note.  The real lesson is to take note of your personal situation.  If it was you who had that $500 repair bill how would you pay for it?  We all need cushion money in a savings account.  Experts will tell us to have 6 months of salary in the bank.  Easier said than done, but let’s use the old adage, how do you eat an elephant?  Answer: one bite at a time.  If you had put just $20 per paycheck into savings for the preceding 12 months and assuming you are paid every two weeks, you would have $520 in savings and be able to pay that unexpected repair bill with your cushion money and not your credit card.  If $20 per paycheck is NOT possible for you, then you need to look at making some sacrifices in your life (temporarily eliminate extra cable channels, pick-up a weekend shift at a retail store, one less trip to Starbucks per week, etc).  But for many of us, $20 per paycheck is doable and if you are fortunate enough to be able to do $25 or $40 or $100, then go for it.  The first time your cushion money SAVES you from an unexpected bill you will be proud of yourself for having the willpower to PAY yourself first!

 

Question of the Month: I Need Money Fast But I Can’t Get a Credit Card – Where Else Can I Turn?

Micro-lending is becoming more popular in this credit crunch economy.  Private lending is helping fill the vacuum.  For example, Prosper is an online marketplace where private borrowers and lenders can meet.  The website is operated by a bank based in Utah.  Prosper requires a minimum credit score of 520 so it’s not for everybody, and there are identity verification processes in place for your security.  You can borrow up to $25,000 and interest rates tend to be in the 9-13% range, somewhat better than a typical credit card.  It costs nothing to sign-up for a prosper account so even if your just curious, there’s no risk to check it out.

 

Giving Back: Supporting our Communities

October is breast cancer awareness month.  It is hard to find a family that hasn’t been touched directly or indirectly by this disease.  This includes our family as well.  Many organizations and individuals are wearing extra pink this month as they promote different fundraiser and awareness events.  Following up on last month’s commentary, please be careful about phone and mail solicitations for donations to toward breast cancer.  There are several “legal” fundraising organizations that use the breast cancer flag to get into your wallet.  Stick to the American Cancer Society or Susan G. Komen Foundation and if possible, make your donations online at their websites.

 

In addition, there are some great gift ideas available from Collectibles Today to give a loved one that is battling or has become a survivor of breast cancer.  There are dozens of choices and with the holidays coming up, you might find a good gift.  A portion of your purchase is contributed to breast cancer research.

 

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.

 

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.

EASY UNSUBSCRIBE from Mortgage by Randy newsletter: send email to randy@mortgagebyrandy.com with UNSUBSCRIBE in the subject line.

__________________________________________________________________________________________________________________________________

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.