Archive for October, 2009
Has The Stock Market Gotten Too High Too Fast?
The Dow Jones Industrial Average has finally clawed its way back to the 10,000 point mark, a level that has not been seen since long before the current financial crisis. So with the benchmark index reaching new heights does this mean we’re finally out of the woods and can breathe easy once again? Or is this a false spike that will only lead to another downturn?
Leading economists and analysts are mixed in their outlook, but there is plenty of evidence to suggest continuing storm clouds up ahead. While the stock market may be celebrating, the larger economy still has a long way to go.
Here’s a few things to look out for:
- Unemployment is still worsening. When the national unemployment rate goes above 10% (which is already has in many states) will this further contract consumer spending? In the U.S. consumer spending still acount for 70% of GDP. In the U.K. that figure is only 65% of GDP, so perhaps we still have a ways to go down.
- The specter of inflation. The U.S. has $50 trillion (yes, trillion) in unfunded liabilities. Many analysts fear this will lead to significant inflation in the next three years.
- What about innovation? The credit crunch has most impacted small businesses and entrepreneurs, the seat of innovation in the U.S. The number of patents files has been declining, not a good sign for America’s future innovation.
So if the stock market rally isn’t indicative of the weakness in the broader economy, what’s causing it? Many argue that we’re simply seeing the effect of massive government spending. When that spending stops will the economy be able to pick up the slack?
Solutions for Being Upside Down on a Car Loan
Posted by admin in Cars, Credit and Debt on October 20, 2009
If you are upside down on a car loan you’re probably scared and a little freaked out, but fear not – lots of other consumers are in your shoes. Being upside down on a car loan simply means you owe more on the loan than the car is worth.
Given how quickly cars depreciate, it’s not difficult to get upside down in a variety of situations. Many consumers get to this point and don’t even realize it until they try to sell or trade in their car and discover that their loan balance far exceeds the value of the car.
Owing more than your car is worth is not necessarily a problem if you plan to keep the car throughout the period of your loan. But if you need to sell or trade it in, you’ll need to deal with the loan. Here are few options for what to do if you are upside down on a car loan:
Roll your old loan into a new car purchase. Some car dealers will allow you add the unpaid principal of your old car loan into the loan for a new car. You would, in effect, be paying off two loans. As you can imagine, this gets expensive and is not recommended, but if you have no other options then it may be worth exploring.
Refinance your car loan. While many people refinance home loans, not as many know that you can do the same for car loans. If you bought your car a few years ago you might find that interest rates now are much lower and you can save on your monthly payments. Just be sure that your current auto lender allows prepayment of your loan.
Make extra payments. You can pay down your car loan fairly quickly by making larger payments each month, but be sure that your lender has agreed that extra payments will go to pay down the principal owed.
Use a home equity loan to pay off your car loan. If you have access to a home equity line of credit, you can probably pay off your entire car loan at once. The advantage is that you immediately get yourself out from being upside down on your car loan and have 100% ownership. Repaying a home equity loan can also have tax benefits, so check with your accountant.
Existing Loan Modification Rules Are Not Enough
Posted by admin in Mortgages, Real Estate on October 7, 2009
According to a recent study, state laws requiring mortgage companies to talk to homeowners before starting the foreclosure process are not working. The National Consumer Law Center, which looked at loan modification laws in 14 states, said the measures have failed to protect homeowners because they lack any sanctions for banks that don’t comply.
“There is as yet no data to confirm that foreclosure-mediation programs anywhere have led to a substantial number of affordable and sustainable loan modification programs,” the report stated. The laws on the books have the potential to help borrowers, but they lack the same bank accountability as the voluntary federal program.
For example, in California, the state law says mortgager providers cannot begin foreclosure until 30 days after they have contacted the delinquent homeowner to explore options for the borrower to avoid foreclosure. The law went into effect in September 2008 and had the immediate effect of slowing down the foreclosure process. However, the number of foreclosures in California has now returned to its previous levels.
To improve the state programs, the report suggested several changes including requiring banks to disclose to homeowners the cost of foreclosure versus the cost of loan modification; imposing sanctions on lenders that do not negotiate in good faith; and requiring proof of who actually owns the loan. The report recommends that banks certify compliance with a mediator o court before being allowed to proceed on foreclosure.