Funny Money Friday: Lost Mortgage Bailout Proposals

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

Earlier this morning, President Bush announced a plan to help aid Americans struggling with expensive adjustable rate mortgages. Up to 80,000 borrowers would qualify for a special refinance program despite making late payments on their current mortgages. It's unclear exactly how this plan will work; our team is working hard to investigate the details.

General consensus right now predicts that this aid plan will be a mere drop in the bucket. An estimated 2 million mortgage are said to be at risk for foreclosure. At best, this plan would only assist 4% of the borrowers in trouble.

While we wait for more details to emerge, let's speculate wildly about some of the other aid plans that might have been proposed during the early draft stages. It is still Funny Money Friday after all:

• Free $200 subscriptions to ForSaleByOwner.com all around.
• Assign Miss South Carolina as Foreclosure Czar.
• Air drops of "stop foreclosure" books over Florida, Sacramento and Los Vegas.
• Sell US real estate market to China. Half off!
  
• Generating affordable renewable energy by harnessing Jim Cramer's skyrocketing blood pressure.
• 0% interest rates for everyone! What could possibly go wrong?

Feel free to add your own lost bailout ideas in the comments section below.  Have a great Labor Day weekend!

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Are You Prepared for Another Hurricane Katrina?

It's been two years since Hurricane Katrina devastated the gulf coast. New Orleans and its neighbors are still struggling to rebuild. A third of New Orleans resident's haven't yet returned home. Many of those who have returned are still in FEMA trailers.Thousands more were forced in to bankruptcy.

If a major hurricane, earthquake or other disaster hit your area today would you be prepared?

Along with emergency water, flashlights, food and medical supplies, it's important to have a financial kit on hand. This kit should include:

• One or more credit card with a high limit. Having access to credit can help you get hotel rooms or other expensive items during a crisis.
• Emergency savings account. Enough cash to cover your mortgage payment and other living expenses for a few months.
• Creditor contacts. A simple list of contact numbers for your banks, investment companies, credit card issuers and lenders. In a disaster, it's important to communicate with your creditors. They often have relief programs to help.
• Copies of insurance documents. Keep copies of home, auto and other insurance policies with your kit along with some photo records.
• $200 or more in cash. Getting to an ATM in an crisis can be impossible. Having a little cash on hand will help cover unexpected expenses.

A few photocopies and a quick trip to the ATM is really all you need to get started with your emergency financial kit. Go today at lunch!

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Financial e-Rumors: Check Before You Click Send

They show up in my mailbox from well-meaning friends: those emails warning me about the latest danger to my health money or the environment (and some political shenanigans as well).

I don't mean to embarrass the senders (really!), but nine times out of ten (maybe it's ten out of ten) I end up telling them they have been misled by another email rumor that's not true.

I'll prove it by sending them a link to the truth about the email at TruthorFiction.com or Snopes.com.

Here are some financial emails that are still circulating. All are false except one. Do you know which one is true?

1. Hotel key cards contain your personal information and put you at risk for identity theft.
2. Entering your PIN backwards at an ATM will summon police
3. Bank of America has given credit cards to illegal aliens by not requiring a Social Security number.
4. Requesting a cookie recipe results in a $250 non-refundable credit card charge.
5. A credit card bill for $0 creates enormous headaches for the cardholder and his bank.
6. Your cell phone number is about to be released to telemarketers

I am going to make you go to the TruthorFiction.com website to check the answers, but I've made it easy for you by including the links. Go there so you can bookmark the site. Next time, before you forward one of these mass emails, check it out first.

By the way, Creditblogger Emily Davidson quashed one of these e-rumors about pictures of credit cards being taken with a cell phone. You can read about her experiment here.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Who Really Gets Rewarded by Rewards Cards?

No matter how you feel about the credit card industry, you have to give them credit for being extremely smart. They simply don't do things that don't make them big money.

This is especially true when it comes to rewards cards. Cardholders usually feel like they're getting such a great deal when they earn airline mileage rewards, bonus points or cash back for their credit card spending. But these rewards serve a distinct revenue purpose for credit card issuers.

The July issue of The Nilson Report included an article about Visa's sophisticated use of rewards cards. Visa Signature is using analytical models first developed for fraud detection to track spending and assign targeted rewards to over 74 million cardholders. Someone who spends $200 a month at Golfsmith might be rewarded with premium tee times the next month. Someone who goes to Whole Foods everyday might be rewarded with a Sur La Table gift card.

The payoff for these sophisticated rewards? A huge increase in credit card spending:

Average Monthly Spending By Credit Card Type
$465 - Traditional No Rewards Card
$890 - Traditional Rewards Card
$2,214 - Visa Signature (Targeted) Rewards Card

The rationale behind credit card rewards programs are pretty clear! As the article says "The higher the rewards level, the greater the monthly spending." That's great for the credit card issuer; they earn merchant fees even if you pay the balance off in full each month.

Next time you reach for your rewards card, remember who is really being rewarded by your spending.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

Free Travel Accident Insurance- Courtesy of your Credit Card

Your credit card probably offers several free benefits that you may not even be aware of.  One of these benefits is travel accident insurance. Technically known as accidental death and dismemberment insurance, this can prove to be very valuable coverage, and the price is sure right, FREE! Unfortunately, it’s of the sort that no one ever wants to need, so this perk doesn’t get the attention it deserves.

While the details vary (of course!), chances are you already have a credit card that provides somewhere between $100,000 and $1 million in life insurance when you use that card to charge an airplane flight, cruise, train ride, or bus trip (collectively referred to as common carriers). So the next time you’re booking a trip, choose your card carefully!

Talk to a customer service rep if you are confused about the amount of coverage. If you’ll be traveling with the family, find out if each person will get the same travel insurance if you charge the tickets at the same time, to the same card. If not, you may be better off booking each ticket separately. 

While you are on the phone with your card company, be sure to ask about any other free travel related benefits (or any other free benefit for that matter) that you card might offer. Bon voyage!

Are there free benefits that your card(s) offer that you like or dislike? Please let us know!

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com, a website that provides ratings and reviews of over 20,000 credit card offers.

Bad Credit is Worse than Terrorism?

Bad credit is the most serious immediate threat to the economy according to a recent report by the National Association of Business Economics. The country's economists feel that bad credit - especially loan defaults and excessive debt - was a larger near-term concern than terrorism, gas prices, inflation and government spending.

This shift happened very quickly. In March, the study showed that 35% of economists felt that terrorism was the biggest risk. Now only 20% said it was their biggest worry:

"Financial market turmoil has shifted the focus away from terrorism and toward subprime and other credit problems as the most important near-term threats to the U.S. economy," said Carl Tannenbaum, president of NABE and the chief economist at LaSalle Bank/ABN Amro.

Economists did report that they expect the credit crisis to be fairly short lived, under 5 years. Medical care costs and an aging population were cited as the greatest long-term risks. Click here to read the complete report from the Associated Press.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

Anomalies

An anomaly is defined as:

"a deviation from the common rule, type, arrangement, or form."

The anomaly in question is the risk premium that the market assigned to the yield on junk mortgages.  Frankly, this wasn't just a problem with the junk mortgage market. It applied all across the spectrum of securities. The world has been awash with money seeking higher yields and the market just assigned the wrong numbers to risk.

Back when junk corporate bonds were all the rage – remember Michael Milkin? – low rated bonds might have had a yield of 13% when the best corporations paid 7% for their money.  The difference was the premium that the market assigned to the higher potential of defaults on the low rated securities.

Mr. Milkin sold those bonds because he said that the real risk was less than the market said it would be.  Although there were some defaults and losses, if an investor bought enough different issues to spread the risk, he would have made out handsomely compared with his more conservative counterparts.

Theoretically, this should have happened with junk mortgages too.  If the best borrowers were paying 6% for their loans, the risky borrowers should have been paying, say, 10% or maybe even higher. That extra 4% was all risk premium. 

But what happened was that the junk lenders were putting people into loans that might eventually yield 8%. You can see that the market was saying that the risk premium didn't have to be 4%. A 2% premium was OK.  That departure from reality was the anomaly I’m discussing.

What was even worse for investors is that the loans carried a lower rate – I prefer the term sucker rate over teaser rate – one substantially less than the final rate, maybe even less than the 6% rate being paid by the best borrowers.  They had to do this because they would have had a tough time selling that 8% yields to borrowers without disguising them in some way.  Note that the investor got a lower initial yield too. The higher return didn't kick in until the loans reset at the end of 2 or 3 years.  That reset issue is one cause of the current problems.

I will tell you bluntly that the lenders or mortgage brokers told the borrowers not to worry, they would just refinance into a new loan just before the loans reset. They wanted to make another commission so they really did plan on doing it, that is until the melt-down.

So if you are following this, it turns out the junk lenders created loan programs that promised the ultimate investor with higher yield, but the structure was such that the investor wasn't ever going to get the promised higher return. They'd get refinanced and paid off before that happened.  The investor would get to keep the loan during the higher yield period only if conditions were such that the borrowers couldn't refinance them, what we're seeing now. This is a Catch 22 involving billions and billions of dollars.

Of course, we know today that the effective yield should have been substantially higher than the yield that was actually being created by the junk lenders.  That's the opposite of what happened in the junk bond market.

And another strange part is that a lot of the investors' early yield was "eaten up" by paying the loan officers high commissions that were largely paid by the investor in the form of Yield Spread Premiums.

You have to admire the cunning salesmanship of the lenders and Wall Street to pull off a scam like this.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles. Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Funny Money Friday: Bad Investments

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

None of us like to think about our investments losing money. We tend to view our mutual funds, 401(k) and home as being sure-fire money makers. But in our current tumultuous stock market, losses are becoming the realities.

Here's a little tongue-in-cheek investment lesson forwarded to me by a co-worker:

If you had purchased $1000.00 of Nortel stock one year ago, it would now be worth $49.00.

With Enron, you would have had $16.50 left of the original $1000.00.

With WorldCom, you would have had less than $5.00 left.

If you had purchased $1000 of Delta Air Lines stock you would have
$49.00 left.

But, if you had purchased $1,000.00 worth of beer one year ago, drank all the beer, then turned in the cans for the aluminum recycling REFUND, you would have had $214.00.

Based on the above, the best current investment advice is to drink heavily and recycle.

It's called the 401-Keg Plan.

Now that sounds like a strategy I could really research this weekend. Happy Friday!

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

Don't Waste Your Money on Piggybacking Services

When FICO announced that they planned to stop considering authorized user accounts in their credit scoring models, it seemed like we'd seen the last of the piggybacking industry. Many of these credit repair companies closed shop pretty fast, sites were pulled down across the web.

The FICO change was, in fact, designed specifically to put piggybackers out of business. Piggybacking is the practice of selling consumers with bad credit access to healthy, established credit card accounts. Because of a loophole in the credit system, someone with bad credit could buy into an account and see their credit increase fairly dramatically.

Unfortunately, millions of innocent consumers who had legitimately opened authorized user accounts will also be damaged by this FICO change when it starts in September. And FICO is not the only one paying attention to piggybackers. TransUnion's mortgage scoring division developed a way to "sniff" out piggybacked accounts and VantageScores have always ignored authorized user accounts.

However, it looks like there are a couple piggybackers who aren't ready to back down. In a press release today called "Credit Piggybacking Is Unsuccessfully Attacked," one piggybacking company touted that they were not being shut down by these changes to the credit industry:

Using a Robin Hood-like mentality, [company name redacted] is borrowing from the rich and lending to the poor and credit agencies are on a mission to destroy the tactic.

Credit repair has never seemed so noble! According to the release, the piggybacking company is continuing to sell their $600+ services with the rationale that the credit industry changes will take a while to implement. No matter that FICO, the largest credit scoring company in the US, is rolling out the change next month. And don't mind the fact that any improvements to your score gained through an authorized user account will be wiped out when the changes are implemented.

Do me a favor, don't sign up for a piggybacking service. Save your $600 and open a secured credit card in your own name. Establish your credit the right way and you won't have to worry about it in the future. Share your feedback in the comments section below!

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

KMart Gift Card Fee Refunds -- Too Late??

Kmart is getting a slap on the wrist from the Federal Trade Commission for hiding annoying gift card fees. In a settlement with the FTC, Kmart has agreed to reimburse "dormancy fees" for eligible consumers. You can find details on Kmart's website, but basically to get a refund you will have to give 1) your Kmart gift card identification number, 2) mailing address, and 3) phone number. If your card did have one of these fees assessed, you'll get a new gift card for the amount of the fees.

At issue were monthly "inactivity fees." It's not that these fees are illegal (though some states do ban dormancy fees or have disclosure requirements). Instead, the FTC found issue with the fact that the cards were marketed as "never expiring," yet a $2.10 fee would be assessed each month the card was not used. In case you don't want to do the math, over two years that adds up to $50.40 in fees.

The FTC says that many consumers didn't learn of the fees until they went to use their cards.

Unfortunately, I imagine most of these gift card holders no longer have their cards so they can request a refund. Would you have kept yours after you spent the remaining balance or finding out it was practically worthless? (The company stopped charging the dormancy fee March 1, 2006). Still, if you have an older KMart gift card still hanging around it's worth applying for the refund.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Reader Question: How to Establish Credit

With authorized user accounts being taken out of credit scoring models starting next month, the issue of how to establish credit has suddenly become a hot topic. Here's a question we received last week:

How do I obtain new accounts to boost credit score when no one will give me credit?

It used to be so easy! Just have relative or friend with good credit add you as an authorized user on an established account.  They wouldn't even have to give you the credit card. Your credit would benefit from their established credit as soon as the authorized user account appeared.

Now that FICO has decided to stop counting authorized user accounts in their credit scoring models, this easy strategy is out the window. No more loopholes, it's back to establishing credit the hard way. There are a few good ways to get started:

1. Secured Credit Card - Secured cards work by having you deposit a cash amount into a savings account to "secure" the credit limit. If you put $500 in the savings account, you'll have a $500 credit limit. Getting together this deposit may be tricky, but you'll save a lot in rates and frees over unsecured cards. When the card is closed or moved to being unsecured, you'll get your deposit back with interest.
2. Student Credit Card - A student credit card is a great option for anyone who is a full or part-time student. You don't even need to be attending a major university. Many cards will accept community college or online college students as well.
3. Unsecured Subprime Credit Card - You can also find unsecured (no deposit needed) credit cards for people with bad or no credit. However, these offers are often paired with extremely high interest rates and fees. Be sure to read all the small print when considering these offers.
4. Retail or Gas Card - Not quite as good as a secured or unsecured card but also an option for establishing your credit.
5. Auto Loan - Auto dealers will often go the extra mile to help a buyer with bad credit or no credit find an auto loan. Just be very careful about the interest rates and costs of these loans. It doesn't make sense to buy a $20,000 car at 18% APR when a secured card would work just as well.

Now, let's talk about what's not an option for establishing your credit:

1. Pre-Paid Credit Card - No matter what their marketing says, pre-paid credit cards do not help you build your credit history. They might report to some no-name credit bureau, but they don't ever send data to the credit bureaus that really count.
2. Checking Account - Checking, banking and savings account don't help to establish your credit. Even an ATM card with a Visa or MasterCard logo doesn't count.
3. Any Account that You Will Not Use Responsibly - It's better to have no credit history than to have a credit history full of late payments and problems. If you can't afford a credit card or loan right now, wait until you can.
4. Co-signed Accounts - Okay, so technically co-signed accounts can be a good way to establish your credit. However, I think the risks are too high. If one person makes a late payment or defaults, both credit reports are damaged. And if one person can't pay, they'll come after the other.  Stick to getting your own account if you can.

Good luck establishing your credit!

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

 

Character Based Lending to Asset Based Lending to ?????????

The mortgages on the first four homes I owned were all provided by local institutions, Pasadena Federal Savings, Idaho First National Bank, Winnetka Bank and Trust, and Security Pacific Bank.  The underwriting was done by a career employee of the institution who met with you, reviewed your job and income, and approved your loan.

This was in the days before the development of the Secondary Market where banks sold loans to outfits like FannieMae, FreddieMac, or Wall Street. The banks kept the loans so they obviously had a real vested interest in only doing good loans.  It was also before credit reports so the loan officer's job was, in large part, sizing you up as an individual and ascertaining if you would be a good customer for the bank.  I will call this Character Based Lending, meaning the decision to lend you the money was based, in large part, on the Loan officer's assessment of your character.

In the late 1980s’s and early 1990’s FannieMae, FreddieMac, and Wall Street firms really took over the mortgage business. If you have not read Michael Lewis's book LIAR'S POKER, you really ought to.  The banks were there and some of the S&Ls were still left, not many, and they originated loans and sold them back East. Of course, there was no way anyone back there could meet you and assess your character. 

What this caused was a transition to Asset Based Lending.  The plain truth is that an asset based lender looks long and hard at the collateral you are providing to them as security for your loan. They know that, ultimately, that while they want you to make the payments, and they know that most people will make payments, they will end up owning some of the homes.  We used to kid about the old Home Savings, saying that if they held a mirror under your nose and could detect a sign of life, they'd do your loan, the one caveat being that they had to like your home.

Truthfully, that's actually not a bad way of lending.  If people have equity in their homes, they will work hard to protect it. And if you are in a market where values go up substantially year after year, people have more and more equity to protect and the default rate stays real low.

But in the last few years with the rise of sub-prime lending – what I call junk lending – there was no basis for doing loans. Oh, they started out talking about "under-served" markets and minority borrowers. Honestly, I think that there were a lot of employees in those lenders who really thought that they were helping people who never would have had a shot at owning a home without them.

They also threw out most of the rules. Bad credit? We don't care: No paycheck stubs or W-2s?  We don't care. No down payment?  We don't care.

They plain truth is that those people at the lenders who were making obscene profits on their customers and the Wall Street companies that were making so much money throwing them at their customers, got hooked on the volume! What they were doing was Volume Based Lending that had little to do with loan quality. It had to do with how much money they were making. As someone once said about these guys: If you want a friend on Wall Street, get a dog.

What happens next?  Hard to tell, but what our industry kindly calls "non-traditional" mortgages are going to be very hard to get for a while. The market for full documentation, good credit, lower LTV loans is alive and well, but for the rest, someone is going to have to find a new formula.  Stay tuned.

Funny Money Friday: Subprime Infographic

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

You know a story has become big news when the comedians start jumping on the bandwagon. The Daily Show and The Colbert Report have both done an excellent job explaining and satirizing the recent suprime mortgage crisis. And now The Onion, America's leading satirical newspaper, has joined up too.

Their most recent Statshot is "How are we Paying Off Our Subprime Mortgages?"

It's funny, because (sadly) it's so true. Happy Friday!

How to Boost Your Credit in 15 Seconds

One of the most important credit score factors is your credit card debt-to-credit limit ratio (aka debt utilization ratio). Keeping your credit card balances below 10% of your credit limit can do wonders for your credit score. Inversely, having higher balances can really hurt your credit scores.

Here's a few key points to consider about debt utilization (watch out, it's about to get geeky):

• The ratio of total credit card debts to total credit limits is most crucial for your score. For example, if you used $4,500 in debt across 4 cards and had a total credit limit of $15,000, you would have a 30% debt-to-limit ratio.
• Keeping this ratio low, ideally below 10%, will help earn you the most credit score value in this category.
• Your credit card debts are calculated from the "statement balance." So you could be receiving credit debt damage even if you pay your credit card bill in full each month.

There are three ways you can improve in this category:

1. If you are carrying large debts, pay them off. A $5,000 credit card debt from your vacation in April could be bringing down your credit score today. Paying off credit card debts is good for your credit score and your budget.
2. Control your credit card spending. Try to never charge more than 10% of your credit limit on your credit cards. For a $10,000 limit, this is $1,000. If you do charge over this line, you might want to pay it down before your credit card goes to "statement."
3. Increase your credit limits. This is where the "15 seconds" comes in. I  went online today to increase a credit limit I have with American Express card. The online form only asked for my requested increase amount and my monthly income. One quick click, and I had nearly doubled my credit limit for that card. My good customer record made this process a snap. Not all requests are this easy though, check to make sure the credit card issuer will not pull your credit with a hard inquiry before you request a credit limit increase.
4. Bonus tip - Avoid closing unused credit cards.  The unused credit limit acts as "insurance" and will help to keep your overall debt utilization lower than if you closed the account.

By increasing your credit limit, you make it harder to go over that 10% threshold and damage your credit score. Once my new higher credit limit is reported to the credit bureaus (within a few weeks), my score could show a big increase from the debt-to-limit drop.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

Learning About Money and Credit in School

Back-to-school season is ramping up. Along with sales on school supplies and new clothes, are your kids armed with money management skills?

According to a recent Visa study, they're not likely learning about credit at school or at home. Only 5% of adults reported learning about money management in elementary or high school. At the same time, less than half (48%) reported that they learned about money management from their parents.  So how are people learning about money management? 41% said they were self taught or learned the hard way.

Before sending your kids back to school, here are a few quick lessons you can give them to learn about money management and credit:

1. Saving is Important. This is a lesson a lot of people could stand to learn. Teach your kids about saving by paying them "interest" when they save up their allowance for a big purchase. You can use the analogy of a penny doubled every day being worth more than $1 million to teach them about compounding interest.

2. Working can be Rewarding. The ol' lemonade stand, babysitting or summer lawn mowing job really sets a foundation for understanding income, capital, taxes, business, etc.  Encourage your kids to set up a summer business or job.

3. Credit Cards, ATM Cards and Checks...Oh My. Do your kids the know the difference between these payment options? A quick lesson at the grocery store check-out counter can help teach your kids about how to use money responsibly. Make some kid-friendly paper checks that your kids can use when playing "shop."

4. Paying Bills Late Has Consequences. Make sure your kids know just how important it is to always pay your bills on time. Involve them in your bill payment and talk to them about the lasting credit damage that can come with a late payment.

5. Older Kids: Credit Cards are Not Free Money. If you can get your kids through high school and college without massive credit card debt, you've done an excellent job! Teach your older kids about how credit card interest rates are calculated, how minimum payments work and how you need to send in payments on time.

Remember, your own financial example is the best lesson your kids will learn. If you make smart financial decisions (keeping your debt low, controlling your spending, saving & earning good credit), your kids are likely to make the same healthy choices when they are older.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com editor

Does Money Impact Your Vote?

The Pew Research Center recently conducted a poll called "Trends in Political Values and Attitudes."  The study examined public opinions over the past 20 years about political and social concerns. And part of their research includes financial stability:

More broadly, the poll finds that money worries are rising. More than four-in-ten (44%) say they "don't have enough money to make ends meet," up from 35% in 2002. While a majority continues to say they are "pretty well satisfied" with their personal financial situation, that number is lower than it has been in more than a decade.

This statistic is certainly being reflected in the rising debt levels and falling savings levels we've recently seen. The report also revealed that Republicans and Democrats have very different opinions about how their income measures up:

Three-in-four (74%) Republicans with annual incomes of less than $50,000 say they are "pretty well satisfied" with their financial conditions compared with 40% of Democrats and 39% of independents with similar incomes.

I wonder if a lot of that chalks up to Democrats often living in more expensive areas, where their income doesn't go as far? With some pretty major economic shifts taking place thanks to the "credit crisis" and mortgage industry crash, it will be interesting to see how these numbers look next year.

In the meantime, the survey brings up an interesting question: Does your financial situation impact your vote? What do you think?

Opinion Polls & Market Research

Chicken Littles in the Real Estate Market

How humans handle risk has always been an interesting spectator sport.  What is so strange is that people seem to ignore risk until something terrible happens to them. Then everyone stands around asking, "Why didn't we see this coming?"

The current disruption in the credit markets that spilled over into the equity markets last week is no different from tornadoes and earthquakes. If you live in the Midwest, tornadoes are a possibility and if you live in California, earthquakes DO happen. Financial tornadoes and earthquakes happen too.

While I'm on that topic, Lucy Jones, a scientist with the U.S. Geological survey, talked about risk last week. She said that the Coachella Valley area of Southern California – read "Palm Springs," one of the fastest growing areas – was way overdue for a major earthquake. As reported in the Los Angeles Times, she said that:

"the shaking could last more than 100 seconds, kill thousands, destroy homes, collapse the I-10 and I-15 freeways, ignite petroleum pipelines and leave untold thousands homeless in potentially searing desert heat. The long-term effects, she said, could be akin to the economic collapse of New Orleans and the Gulf region following Hurricane Katrina."

Now, how's that for someone laying out a risk scenario? Yet, my guess is that if you went down to Palm Springs this afternoon, you'd find that real estate activity was virtually unchanged from a week ago. Should we actually get such a quake, it will likely that no one will remember Lucy's warning, but they may bring it up again after the fact.

So it goes with sub-prime mortgages.  I sit in the epicenter of the sub-prime meltdown with many of the industry's (formerly) biggest players just a few miles away.  I could see that their business practices were encouraging the development of loan products that were potentially dangerous to borrowers.  I could see that the outrageous commissions being paid to loan officers were encouraging unethical business practices.  I could see that the lack of regulation served to stimulate the growth of the industry.

Finally, I could see that gazillions of borrowers were being sold irrational mortgages that would jeopardize their financial future, the housing values in their neighborhood, and, potentially, impact the entire U.S. real estate market. And I wrote about it.

I think that Lucy Jones and I both must feel like Chicken Little.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles. Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Funny Money Friday: Investment Strategies for the Credit Crisis

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

What the heck is going on? The stock market is jumping up and down by the hour. The nation's #1 mortgage lender, Countrywide, has announced big trouble. The mortgage implosion has led to a hedge fund implosion. Jim Cramer's blood pressure is through the roof. Sarah Jessica Parker has resorted to petty robbery.

With all the drama in the financial world this month, consumers might be looking for alternative ways to invest their money. CreditBloggers has a few strategies for concerned investors:

• Under the Mattress - A classic savings method that we haven't seen much of recently. May be making a comeback.
• In a Jar - Similar to under the mattress strategy, but with the added benefit of automatic balance viewing privileges.
• Buried in the Yard - A pirate-based model of savings and banking.
• Gold Bars - Follow Ron Paul's lead and cash out your savings into something tangible...and shiny.

What's your strategy for saving and investing during the credit crisis?  Share  your ideas in the comments section below. Happy Friday!

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Subprime Lending Reality Check

Even though they call them reality TV shows, you wonder about how close they are to reality. I am also always amazed at how we are so ready to abandon reality when it comes to financial affairs.  There is a reality to financial affairs that is very much rooted on common sense, and it works year after year after year, decade after decade.

Yet there are times when the "irrational exuberance" of people leads them to believe something different than what is reality based. For example, we know that the Price Earnings Ratio, P/E, is normally between 15 and 20.  Growth companies that have an ability to grow faster and produce earnings faster than the economy in general command P/E ratios that are higher than average.

Yet during the dot com boom, even concepts like earnings went out the window.  Valuations, if you can call them that, were based upon website traffic without any reference to how that traffic might be turned into revenue and, ultimately, earnings, at some point in the future.

Of course, we all know that in many cases, the management of those companies were spending a significant portion of their time flying around the world trying to attract the next level of financing as they spent money at a prodigious rate, what a friend of mine referred to as "spending their way to glory."  This process of going through cash without much revenue coming in actually got a name - burn rate.  That was the number of months the company could continue to spend money before they went out of business or attracted the next level of financing.

Of course, we know how that turned out. Stock market losses wiped out investment value. Reality finally asserted itself.

We have had a similar situation with subprime lending. It was obvious to everyone in the business that the subprime lenders had departed from this reality and were operating in a galaxy far, far away. Initially, I think that the parties involved really thought that traditional underwriting practices as developed largely by FannieMae and FreddieMac were out-dated.

There is some evidence to support that contention, should anyone want to make it. For example, when they developed their automated underwriting engines in the late 1990s, we quickly found out that the criteria they were using departed significantly from what their own underwriting guidelines that were being used by human underwriters. The computers were being far more liberal in applying rules.

It doesn't mean they were bad loans, just ones that no human underwriter would have thought prudent.  My guess is, however, that the loans that were approved under the more liberal computer rules had a delinquency and foreclosure rate that was no different than the performance of loans that were underwritten under the old, stricter rules. The new rules were just not as strict, but still reality-based.

What happened with the subprime lenders was that they simply threw out the rule books altogether.  The executives and other employees became so addicted to the massive amounts of money they were making, - two, three, four times or more than what ethical lenders were earning on comparable loans – that they just didn't want to quit. They would approve anything!

Reality appears to be finally rearing its ugly head and we're seeing the consequences.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles. Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Who Needs Paper? Go Green with Online Banking

We can save 16.5 million trees and avoid 3.9 billion tons of greenhouse gases … every year … if we do all our banking and bill paying online. These are the key findings from a recent study conducted by the Javelin Strategy & Research.

According to the report, "2007 Online Banking and Bill Payment," over half of US households are already cyber-banking, with about a third of us paying bills via the Web. And if we totally eliminated paper checks and bills … every year … we would also:

• Save 2.3 million tons of wood.
• Reduce fuel consumption by enough to power up homes in San Francisco for an entire year. (That's where Credit.com is based!)
• Decrease toxic air pollutants by the equivalent of having 355,000 fewer cars on the road.
• Reduce toxic wastewater by 13 billion gallons.

According to the report's author, Mary Monahan, "Bankers can meet consumer needs while providing vital environmental benefits. In addition, emerging features such as two-way mobile or email alerts … can transform today's overwhelming flood of online information into an experience that is green, safe and practical for everyone."

We're All in It Together
Javelin's study finds that with the current state-of-the-art for online money management:

"… emerging technologies actually fulfill common needs, ranging from the basic (access to one's complete financial picture) to emerging capabilities (mobile banking and payments, live chat, banking blogs, Web 2.0 bank-sponsored community forums, or bulletin boards). Companies can also provide important safety advantages with paperless options that minimize criminal mail access, user-defined activity alerts, fraud-loss guarantees and the ability to safely log in and monitor activity from nearly anywhere."

Sounds good to me! What do you think?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Capital One Will Start Reporting Credit Limits

Capital One has long offered great deals on credit cards. However, most consumer advocates and credit experts have shunned their products because of an extremely damaging credit reporting policy.

Capital One has refused to correctly report credit limits to the credit bureaus for years. Instead of your actual credit limit, they reported your highest balance to the credit bureaus. This would damage your credit score by making it appear that your account had a low limit and a high utilization rate. Capital One claims to have done it for their cardholder's "privacy" but it was likely just to hide the real value of their users from other credit card companies. We talked about this issue in an article called "The Case of the Disappearing Credit Limits."

On Friday, Capital One announced that they would change their policy and start reporting credit limits. Hooray!  Almost everyone with a Capital One card could see an increase in their credit scores when this change takes affect. Capital One has finally decided to do the right thing for their consumers.

Or have they? ConsumerAffairs has reported that this policy shift is being paired with a dramatic interest rate increase for some of their borrowers. Some cardholders have seen their rates increase 5% or more without making any late payments or account changes.

Is this a case of two steps forward, one step backward for Capital One?

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Funny Money Friday: Jim Cramer Really is Mad

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

Jim Cramer, of CNBC's Mad Money investing program, appeared on TheStreet.com a couple times this week announcing the death of real estate. In his first segment, Jim Cramer tells homebuyers to "Just walk away" from their mortgages. What?!

In his interview the next day, Jim Cramer backs up his statement and tells people whose homes have depreciated to just default and foreclose on their mortgage. He also says that "credit cards are much more important than your house." Has he lost his mind?!

This advice is craziness when you consider the impact of a home foreclosure on your credit. A foreclosure leaves a scaring record on your credit files for 7 years and will significantly drop your credit scores. A foreclosure filing is just as damaging as a bankruptcy.

Not only will you not be able to get a new mortgage for a long time, you'll also face dramatically rising rates on your credit cards, car loans, insurance accounts and more. Selling your home at a loss may be painful, but at least it won't kill your credit for almost a decade.

Deciding to walk away from your mortgage may make sense from an investment perspective. But in our world, it is basically credit suicide. If you are in trouble with your mortgage and not interested in losing your home, you can read this great article on tips for avoiding foreclosure. 

In advising millions of his followers to foreclose on their homes, it seems like Jim Cramer may have completely lost it. All those sound effects have apparently finally driven him over the edge. Remember to take his advice with a grain of our credit "salt."  Happy Friday! 

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Would you vote for legislation to stop unfair credit card practices?

An article by Christine Dugas in USA Today illustrates perfectly how credit card fees have gotten out of hand. The consumer featured in the story was charged a $29 late fee and a $29 over limit fee -- all because he was 31 minutes late with a payment.

We've chronicled many of the landmines consumers face when it comes to credit cards, including floating due dates, strict cut off times before late fees are imposed, over-limit fees that are charged month after month, and many more.

But the reality is that the credit industry is very powerful, and unless we really start speaking up and demanding change, things won't get better.

There is an easy way to make your voice heard.

In May, Senators Carl Levin (D-MI) -- who has also been holding high-profile hearings on the credit card industry -- and Claire McCaskill (D-MO) introduced the Stop Unfair Credit Practices Act of 2007. Following is a summary s