Financing A New Condo Purchase? Don’t Call ING
October 29th, 2008“How can I save your money”, answered the ING customer service rep. I responded and said, “By giving me a good rate on a home loan with low closing costs.” He uttered a fake courtesy laugh in return. I did the same.
I’ve been planning to call ING since a bright orange postcard arrived in the mail a few days ago marketing the popular Orange Mortgage. Low closing costs and a 5.25% rate sounded pretty good, and since I’m in the market for a new place, I thought I would check it out. I’ve always been impressed by ING’s customer service and the ease of doing business with them as well, so I was interested to experience first-hand how things have changed in their lending division given the current state of the credit markets. It didn’t take long to see that they too have become like everyone else.
I’m serious. Have you talked to anyone at a bank lately? It’s like talking to a bunch of zombies! Everyone is wound up so tight they have completely forgotten how to actually take care of a good customer, listen to what you say, and try to meet your needs. You would think that if anyone could hold onto the customer-centric approach, it would be ING. But alas, tightened underwriting standards and the fact that they are just plain scared of any risk have forced them to become internally focused. I can certainly understand why, but it’s still a shame.
So, if you’re in the market to finance the purchase of a new condo, don’t even bother calling ING. They won’t care if you’ve been a long-time customer with excellent credit history, solid credentials, and a big chunk of cash to make a down payment. All they will care about is following the new underwriting standards by the book, which require at least a 55% down payment on new-construction condos. That’s right, the maximum loan they can offer is a measly 45% of the purchase price. In regards to the estimated closing costs, they weren’t that low either. So, my search for a lender who actually wants to “lend” continues, and ING has lost the opportunity to make a great deal of money off someone who has never made a late payment in his life.
Have you had difficulties securing a loan lately? We would love to hear about your experience, so send us an email at creditcents@creditnet.com, or post a reply below.
Posted By: Joshua Heckathorn | Comments (0)Arbitrage Strategy for HELOCs
October 24th, 2008
Real estate values continue to do a big cannonball in the deep end, and some lenders are trimming their exposure to home equity by shutting down idle lines of credit on their books. If you’re lucky, you may receive a nicely written letter in the mail explaining how you haven’t drawn against your line in quite some time, so the bank wants to give you the opportunity to close the HELOC before the agreement permits.
How thoughtful, right?
They want it to sound like they’re doing something nice for you, but it really has nothing at all to do with you or what the original agreement states. They’re just hoping you won’t have the time to sit down and write a letter back within 14 days so they can terminate the HELOC at will. But at least they gave you a chance. Other banks may send zero correspondence before shutting it down. The bottom line – they want the exposure off their books.
If you currently have a HELOC that hasn’t been shut down yet, perhaps it’s a good time to think about how you can safely use it before the bank attempts to snatch it away? There are certainly some risky ways you can use home equity to invest in stocks or real estate, which have the “potential” to provide a high yield. However, I wouldn’t suggest you take that risk in this market, unless you have some serious investment skills and plenty of reserve cash to bail you out in an emergency. It’s generally never a good idea to gamble with your home. But if you want to get some of the cash in your hands, avoid letting your HELOC get terminated without notice, and invest it safely for a small return, then try this simple arbitrage method.
Best Arbitrage Strategy
The prime rate is currently 4.5%, which means your HELOC’s interest rate is probably less than 5%. You should be able to easily locate your current rate by looking at your last bank statement or checking your account online. The next step is to apply for a 0% balance transfer credit card that should provide you with a reasonable credit limit. Let’s say $15,000.
Now, it’s time to spend a few minutes shopping around for the best place to park cash these days. For example, take a look at an I Savings Bond, which provides a return of 4.84% if purchased before November. Using your HELOC, you could purchase $5,000 in I-Bonds, and then take advantage of your new 0% balance transfer card by using it to pay off the HELOC. For the next 12 months you will enjoy a low-risk investment returning 4.8%, and your HELOC will no longer be considered inactive by the bank. At the end of 12 months, cash out of the I-Bond, pay off the balance on your 0% credit card, and pocket the difference. Voila – you have made money without using any of your own actual cash. Of course, your total profits will depend on how much money you’re willing to move around and what kind of fees you’ll have to pay. I just chose $5,000 to keep it simple.
If anyone has a personal experience applying this strategy, I would love to hear about it! Post a reply or send us an email at creditcents@creditnet.com.
Posted By: Joshua Heckathorn | Comments (6)What the Sam Hill is a Credit Default Swap?
October 19th, 2008
If you’re paying attention at all to our current economic crisis, then you’ve probably heard the term “credit default swap (CDS)” enough to at least make you wonder what it is. Most recently, credit default swaps played a vital role in the federal government’s decision to bail out AIG, since they determined that a huge chain of failures across the international financial system might occur if AIG were to fail and default on the swaps it sold. Must be a big deal, right? They are. The market is estimated to be worth approximately $55 trillion, which is more than double the size of the US stock market.
So what the Sam Hill is a credit default swap anyway? Unless you just happen to be a finance junky or an investment professional who needs to clearly understand the complexities of the CDS market, I wouldn’t waste your time trying to grasp anything more than the basic concept of how they work. If that’s what you want, then here’s the most basic explanation you will find anywhere.
A credit default swap is simply a contract between a buyer and a seller. The seller is providing insurance to the buyer that he will be made whole in the event financial investments fail. The seller is willing to do this because she collects nice fees in return and expects that most of the time the investment will not fail. On the other hand, the buyer wants to enter into the contract to protect his investment at a reasonable price.
Sounds like basic insurance right? Well, it’s not. In fact, the inventors of credit default swaps were very cautious to never call it that because if it were insurance, it would by definition be highly regulated. So they called it a “swap”, which by definition is completely unregulated by the federal government. This lack of regulation has resulted in sellers not posting enough collateral to support their potential future obligations, so try to imagine what would happen if insurance companies insured risks they really didn’t have enough money to insure? If a bunch of claims were all received at once, they would just end up closing shop and going out of business.
There you go. That’s a credit default swap in the most simplistic of terms. Things get quite a bit more complex from this point on, so the key point to remember is that the credit default market is best compared to an under-collateralized and unregulated insurance market. If you understand this concept now, congratulations! You likely know more about credit default swaps than 99% of the general public.
Posted By: Joshua Heckathorn | Comments (0)Don’t Panic – We Will Make It!
October 12th, 2008
Market down over 36% from last October, unemployment rising, and uncertainty everywhere we look. You don’t need me to say it, but we are in a “Bear Market”. What about the 700 billion dollar bailout and the .50% rate cut? Wasn’t that supposed to save us? It appears as if nothing is working and the market will continue to spiral down into the abyss. This is another classic sign of a bear market. People simply loose hope and continue to sell everything until there is no one left that wants to sell. I understand these are scary times. I, like everyone else in the market, have lost a lot of money. However, I remain optimistic, and so should you.
The main reason I am so optimistic is that on average the market drops 35% during a recession. As of last week we are down around 36%. We could and probably will drop more, but last week’s action got us closer to the bottom much quicker than I had imagined. You see, I believe the market goes up over time. Unfortunately, the media is doing its best to make us think differently. Markets are also forward looking, and they tend to go up well before the end of the recession. I don’t know when the recession will end, but I do know the market will go up before it is over.
The other reason I am optimistic is because the government is no longer ignoring the problem. The bailout, rate cuts, and insuring money markets amongst other things indicate the government will not let this problem turn into a full-blown depression. However, these remedies take time. Rate cuts take around nine months to have an effect, and the bailout plan will also take time to work. The market is sick, and sometimes the flu lasts longer than we would like. The government and the fed are providing the needed medicine, and it will work. I believe the bailout was necessary and that in the end it will be much less costly than the alternative of doing nothing. This is in stark contrast to the great depression when the fed actually raised rates, the FDIC didn’t exist, and we didn’t have as much practice averting this type of crisis.
The market will turn, and each day it goes down brings us that much closer to the bottom. My advice is to add more money if you can, make sure you’re diversified, and don’t panic. We will make it through.
Posted By: Matthew Shriber | Comments (0)FDIC Limit of 100K or 250K – Who Cares?
October 3rd, 2008
The more I listen to Obama, McCain, and the Senate talk about how increasing the insurance ceiling to $250,000 will in some magical way help with the financial crisis we are experiencing, the more I want to seriously vomit. I’m not saying it’s necessarily a bad thing to raise the Federal Deposit Insurance Corporation (FDIC) limit. It hasn’t been raised from $100,000 for a long time, so perhaps it’s time. But why can’t people just see through the smoke and realize that this is purely a political move? They are clearly using it as a way to gain more support for the bailout plan while they pat themselves on the back for caring so much about helping out the American public.
What is Really Going On
Ask a smart friend who truly understands financial markets and institutions, and they will likely tell you that the increase will have little or no effect on the failing credit markets we are dealing with now. Yes, some small businesses and individuals may feel better about putting their cash in the bank, but if they are rational investors they will already have their money spread out across various banks or accounts within the same bank. The cost of protecting yourself at $100,000 is so low and so easy to do, why wouldn’t you?
The fact is less than 2 percent of the American population makes more than $250,000 per year, and according to the U.S. Department of Commerce, the personal savings rate is hovering just under 3 percent of “disposable personal income.” So, for those who have saved enough cash and desire to park it all at the local bank in their checking account, get prepared to do a little celebration jig. For the vast majority of the population that doesn’t – or who have their money in online investment and savings accounts – I suggest you look past the political smoke and focus on the real issues at hand.
Posted By: Joshua Heckathorn | Comments (2)
