Debt, Credit Card & Consolidation Current News Digest

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They haven’t drawn a lot of attention, but some new consumer protection rules under the Truth in Lending Act took effect July 30. Here’s a rundown on how they’ll affect you if you’re planning to purchase a new home or refinance your current mortgage.

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Thoughts on the Dow Jones over the 9,000 mark.

Stock Market Performance: Any Cause To Rejoice?

At the beginning of this month, I wrote an article inquiring whether the economic downturn was over. I wrote about the use of an interesting economic indicator that could herald the end of the slump if you take stock of what some economic analysts are saying. That indicator is the jobless claims number — once it peaks, then falls, it’s supposed to signal the bottom of the recession — and as they say, there’s nowhere to go but up!

But that article attracted a lot of cautious responses. People told me to “listen to my spouse” who continues to be skeptical about all this talk of recovery, and who still believes that we’ve got a ways to go with this recession. His view? Got to wring out all the negativity that’s still weighing upon the fundamentals: massive deficit, foreclosures and bad loans, loan defaults, tottering banks, unemployment.

Reviewing The Economic Fundamentals

These last few days though, there appears to be (at least, on the surface) some kind of turning point in the U.S. market psychology, since we’re suddenly seeing the Dow Jones sitting above 9,000 for the first time in 9 months.

The mainstream media is now reporting that the indexes are at their highest levels in 9 months, and what can we attribute this action to? Supposedly, there are three factors:

• A drop in jobless claims (hey, wasn’t that the indicator I was just talking about?),
• Improved profit reports from companies,
• More confidence in the status of the world economy, particularly that of Asia.

So what do you think? As they say, stock market behavior and performance can be harbingers of things to come, particularly with the economy. When the market turns up after a significant weak spell, it may be the sign of an economic turnaround in the near future since stock market trends are said to track the economy some 6 to 9 months in advance. The question here is whether we believe that the fundamentals are improving enough to merit a 9,200 in the Dow Jones, or a 986 in the S & P. My guess is that there are still a lot of you out there who aren’t quite convinced that we’re out of the woods just yet. Here’s why: just take a look at how the U.S. debt has ballooned over time (source: check out this article for more on this sordid matter).

We’re still facing the issues of debt and defaults, and their serious, lingering after effects. Our nation’s financial woes don’t seem like they’re going away anytime soon. So if you acknowledge the underlying fundamentals from this vantage point, then you’re likely to believe that this rise in the market is going to turn out to be one more meaningless bounce in the big scheme of things.

How High Can The S & P Go? Technical Analysis Predictions

But how about we take a peek at what technical analysts are saying on the other hand: since they provide short term reads of the stock market through charts and indicators; their calls are meant more for active investors and traders (those who market time). For the short term, stock traders are seeing a continued bias to the upside based on a potential chart pattern formation called a “head and shoulders” bottoming in the markets that has developed over the past 9 months. For more insight into this, check out the video below to get the perspective of one experienced analyst.

Click this link or the image below to watch the video:

The premise of this video is that there is an opportunity here for the S & P index to hit the 1,200 level (with a minimum target of 1,000) from the current 980+ level. Again, to appreciate this information, you’d have to buy into the teachings of technical analysts, stock traders and chartists. For more on this type of investment focus, check out our posts on how to trade stocks using stock charting tools and stock trading software.

I quake under the enormity of our nation’s situation as I try to grasp the significance of our massive debt problems. So while I’m happy that some of my investments look like they’re recovering quite nicely as they ride the latest market surge, a part of me is bracing for more volatility ahead. And if this market looks any better soon, I may be strongly tempted to lighten my U.S. investment holdings at higher levels (yes, I may just acquiesce to the forces of market timing) as we readjust our portfolio towards a more conservative bent: after all, we’re not getting any younger!

What’s your take on this upward trend?

Great Stock Market Performace, But Will Dow 9,200 Hold?

Many homebuyers turn to 30-year mortgages to finance their purchases. But more people have been using 15-year mortgage loans lately, according to a recent article in the New York Times. Let’s take a look why homeowners might consider 15-year mortgages.

Home Mortgages Paid off in 15 Years

There were 74,497 15-year mortgages issued in February, compared with 42,178 a month earlier, according to real-estate consulting firm First American CoreLogic. Part of that increase may be due to homeowners refinancing the balance their home loans. There are several factors borrowers should consider when choosing a home mortgage for purchase or refinance.

—Some borrowers like the idea of paying off their mortgage debt as quickly as possible. A 15-year loan can allow them to own their home free and clear in half the time they’d be able to with a 30-year mortgage. For many people, being free of mortgage debt is simply a practical solution that can eventually allow them to keep more of their income.

—Mortgage interest rates are lower on 15-year loans, compared with 30-year loans. For instance, mortgage interest rates this week averaged 5.25% for 30-year-loans and 4.69% for 15-years.

—A 15-year mortgage means a homeowner will have higher monthly payments but pay less interest over the life of a loan. For instance, borrowers can use a mortgage calculator to determined that a loan for $165,000 for 30 years at 5.25% would have monthly principal and interest payments of $911.14. The total interest paid over the life of the loan would be $163,009. Borrowing the same amount for 15 years at 4.69% would result in monthly payments of $1,278.32. The total interest paid would be $65,097.60. It’s important to play with the numbers in a mortgage calculator to see how payments would differ with different loan packages.

—Some people who currently have a decent income may choose a 15-year mortgage loan, but some experts caution that that income could take a hit in the event of a sudden job loss or drop in wages. It’s important to remember that homeowners who take out a 30-year mortgage can still make extra payments to pay down their principal quicker. Borrowers who decide to go that route should make sure they have a home mortgage that won’t penalize them for paying off their loan early.

Mortgage Quotes Help Compare Loans

Whether borrowers are purchasing a home or refinancing, they should get mortgage quotes for different loan products to make sure they understand all their options. People can get mortgage quotes from a network of trusted lenders here.

For about the last decade, many Americans were in the habit of using their home’s equity to pay off credit card balances.  As long as the home’s value was increasing, this cycle of maxing out the credit cards and then using a home equity loan to pay the high interest balances could be repeated again and again.

Nancy Cook published an article July 29, 2009 called “Credit We Don’t Deserve” for Newsweek.  In the article she recounts her interview with Charles Geisst who has a new book titled Collateral Damaged: The Marketing Of Consumer Debt To America.  Mr. Geisst says, “From 2000 and onward, people were using their home-equity lines to pay off their credit-card bills to reduce the interest on their credit cards.  Then, they’d congratulate themselves by going out to dinner.  They’re not realizing that they’re eating part of their house at the same time.”

Lenders began reducing the maximum balances on home equity lines shortly after the current housing crisis became obviously serious. {related article} A mortgage in second position such as a home equity loan can rarely make sense of foreclosing.  As values declined sharply in some areas, the home equity lines were no longer in a secure position.  The only way the banks could reduce their risk was to freeze, reduce, or close the HELOCS.   

Fast forward a year and we see that credit card defaults are steadily increasing. ”The default rates already are twice what they used to be.  I think it’ll get worse,” says Geisst.   It seems a logical conclusion that reduced access to home equity lines is causing some of the damage in the credit card business. 

Current statistics estimate that the average household has over 13 credit cards.  That works out to about four credit cards per person.  That could mean there are over a billion credit cards floating around. Geisst says, “The credit-card crisis is still looming.”

In the book Collateral Damaged: The Marketing of Consumer Debt to America, Geisst makes several recommendations for new banking regulations.  He recommends that in future, home equity loans be limited to 20 percent of the home’s equity based upon an impartial appraisal of the property.  That would mean a home worth $200,000 could only have an equity loan of $40,000 regardless of the balance of the first mortgage.  This would be a radically conservative position as compared with the home equity lines Americans have had.

Sun Belt cities continue to be pummeled by foreclosures, with California and Florida heavily dominating the list of worst-affected communities, according to new data from the foreclosure management firm RealtyTrac.

If your kid is heading to college this fall, you may be feeling pretty protective of your wallet. But equipping your offspring with one of the cut-rate laptops in those back-to-school fliers is a false economy.

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