Debt, Credit Card & Consolidation Current News Digest

LifeLock spent millions spreading its CEO’s Social Security Number all across America. Now the firm will spend $12 million settling claims that it engaged in deceptive advertising and failed to protect customers' personal information.

The Federal Trade Commission and 35 state attorneys general announced on Tuesday that Lifelock is changing its business model to address allegations of unfair and deceptive business practices. 

"They developed a market to capitalize on consumers' fear,"  FTC Chairman Jon Leibowitz said at a news conference.  "They were exaggerating the service they offered to consumers. This was a fairly egregious case of deceptive advertising."

Consumers who signed up with the service as early as 2005 — about 1 million customers in all — will be eligible for refunds. The fine is steep for the firm, said Leibowitz.

"We're taking all the money they had on hand," he said.

The firm remains in business, and has agreed to change its advertising practices. Leibowitz said its services do provide some protection against identity theft, but not the level it repeatedly promised consumers in its well-known advertising campaigns.

LifeLock made a name for itself by plastering CEO Todd Davis' Social Security Number across billboards and other advertising. Many of the ads suggested that LifeLock could provide absolute protection against ID theft.

In one ad, the firm said it could make consumers' personal information "useless to a criminal."

"Consumers received far less protection than they were promised," Leibowitz said.  For example, Lifelock was useless against identity theft involving existing credit cards or bank accounts, he said.

The firm also collected extensive personal information from consumers when they registered, and promised to keep that data safe. The FTC says LifeLock failed to do so. In its complaint, the FTC says the firm:

* Did not encrypt data, but stored and transmitted it in clear text.

* Failed to require employees to use hard-to-guess passwords.

* Did not install patches and critical updates.

* Did not plan for common vulnerabilities to their network, including SQL injection attacks.

* Did not install antivirus software on employee computers.

* Allowed faxes with personal information to be available in open office area.

Illinois Attorney General Lisa Madigan said LifeLock engaged in "scare tactics" while advertising to state residents.  She said the firm sent letters to individual consumers implying they were at heightened risk for ID theft — one of which was mailed to her at home.

"Don't be scared into spending your hard-earned money," she said, addressing consumers. 

Lifelock has numerous imitators in the marketplace.  Madigan said her office will continue to monitor their advertising.

"Know that if you are misleading consumers, we will go after you," she said.

LifeLock CEO Todd Davis said his firm has addressed all concerns raised by the FTC and has long since abandoned many of the techniques the agency said were misleading.

"This has has no impact on current practices or products," he said. "We haven't used the (Social Security number) ad in quite some time."  He also said personal data stored by LifeLock is now carefully guarded, and that the FTC complaint refers to vulnerabilites that have been addressed.

He said he welcomed new federal regulation in the competitive field of ID theft protection, comparing the industry to the early years of automobiles.

Related coverage

Court: LifeLock using 'unfair business practice'

Foolproof way to prevent ID theft? Nope

Experian sues LifeLock, alleges fraud

"When cars came out there weren't speed limits," he said.  "We were told we were speeding. We understand and accept responsibility. We don't want in any way for someone to be misled."

LifeLock consumers will soon receive letters explaining how they can apply for refunds.

Madigan added that most of the services provided by paid ID theft prevention firms are available to consumers for free.  They can place fraud alerts on their credit files at the credit bureaus, and get copies of their credit reports at AnnualCreditReport.com.

Become a Red Tape Chronicles Facebook fan or follow me at http://twitter.com/RedTapeChron

Some more retirement investing advice.

So how long do you think you will live? I am thinking I will make it to age 81. Well, if I’m lucky. My grandmothers lived to be 88 and 93 so that’s pretty good. The men in my family have all passed in their 60s or 70s. Uplifting thoughts, huh? Morbidity aside it really is important to think about your life expectancy and whether you are really ready to live for a century.

So, what do you think your chances of living to a hundred are? Of course, the fairer sex always wins this particular “race”, if you see it as such. Here’s how it generally breaks down:

This table shows the chances that an American man or woman will reach the target age specified, given that they’re currently middle-aged (in this case, that age is 40). If you’re looking for something more accurate, you can do a search for a mortality or longevity calculator. These statistics are for the “average” man or woman and do not really account for things like genetics, lifestyle, etc.

Following is a Wikimedia map to see what life expectancies are like around the world. If you can’t make out the label and details, just click the graphic and it will expand to a larger image. Basically, this is what the colors break down to: Dark Red = life expectancy of under 50 years; Red = life expectancy of 50 to 60 years; Orange = life expectancy of 60 to 70 years; Yellow = life expectancy of 70 to 75 years; Light Green = life expectancy of 75 to 80 years and Dark Green = you’re expected to reach 80 or older. Well isn’t that interesting! People in Australia and Canada on average, live the longest?

The good news is that there are more centurions alive in America today than in the past, and the U.S. has been in the forefront of medical advances. Also, lifestyle changes and diet allow us to increase our chances of living longer each day. The flip side of this are the issues posed if we do beat the odds: not many of us may be financially prepared to live long lives. For some of us, it would have a potentially disastrous effect on our families.

For instance, a poll by Money Magazine found that 3% of respondents worried about losing their health, 69% of losing their mental abilities, and 60% of running out of money. Where do you fall? What worries you most? Personally, my biggest fears are that of losing my health and running out of money. Not necessarily for my sake, personally, but because I would most likely become a warden of the state or a burden on my family or both.

Financial Retirement Planning For A Life Expectancy of a 100

Let’s go through a few issues involved when planning for the distant future. Here are a few considerations I found important:

1. Review life expectancy numbers.
Of all the assumptions made in financial planning (inflation, rate of return, tax brackets, etc.), your life expectancy is probably one of the biggest of all. Using the wrong number can be detrimental. I would always suggest using a higher number than you think. The averages listed above are just that, averages. They do not reflect anything about diet, exercise, family history, etc. I have always focused on the century mark as a “worst” case scenario.

For instance, based on your projections, you may want to ask yourself: how would you fare should you live to a 100? But, this is the part that truly becomes overwhelming for people. Here’s an example I’d like to run:

Using the landmark ages above (85, 90, 95, and 100), how much would you need to cover your expenses should you spend $75,000 a year currently? The answer (excluding social security or pension payouts) would be $2.5 million (age 85), $3.6 Million (age 90), $4.6 million (age 95) and $5.9 million (age 100).

Those numbers look daunting for anyone. It’s no wonder that people run and hide from planning and avoid trying to provide for their future. But, with the proper planning and due diligence on your part, these numbers seem less awe inspiring. For instance, there are other considerations you’ll need to make — perhaps your expenses may not be that high, or you may be expecting social security and/or pension payments that will supplement your portfolio earnings. Some of us may even consider working past retirement, and may therefore need less. But the point of all of this is to have some idea and plan for it.

2. Visualize your retirement years.
I think it’s a good idea to visualize your retirement years as definitively and concretely as possible. This will help you narrow down exactly what your expenses will be. Part of that is knowing where you are going to live (check out this piece on best places to retire for cheap).

Don’t make the mistake my parents made by moving to some remote area in Colorado. Not only are their winters rough, but access for family members flying in for support is harder and expensive, medical care is less abundant, and networks to nurture and support their older days are few and far between. They also did not think about the practicality of living in a farm house structure. While charming in its own way, it offers a host of challenges for my father’s health now and will become more problematic when they reach their 70s and 80s. Of course, they retired in their 50s and did not think of these things. So, please know where you will live and why.

3. Don’t underestimate your retirement expenses.
You also don’t want to underestimate your retirement expenses. Many people assume that they will spend around 85% of their current expenses in retirement, but that’s pretty arbitrary. You must factor in again where you will be living, your expected lifestyle, getting help as you age, and the huge costs of healthcare. All these factors can lead to your retirement expenses (or income need) being the same or even higher than when you were working.

Some scary statistics from the Employee Benefit Research Institute study showed that a 65-year-old today would need to have socked away at least $122,000 to have a 90% chance of fully covering his or her future healthcare costs. And, that’s with employer-sponsored retiree insurance. As if retirement wasn’t hard enough for many people. So check if you’ve saved and invested enough for your retirement. Make sure to factor additional costs in and try to become properly insured to cover the extras (long-term care, etc.) Otherwise, as you reach the century mark you may easily run out of money.

So, how long do you think you’ll be around? How does that factor into your planning and your current savings and investment plan? Please do yourself and your family a favor and get as specific as possible about your retirement plans. You will most likely be around a lot longer than you think and you want to be prepared.
 
Contributing Writer: Todd Smith, CFP

Financial Retirement Planning For A Life Expectancy of a 100

The Consumer Federation of America and the Federal Trade Commission have issued warnings to consumers about the dangers of predatory lenders and the possibility of unwitting Americans becoming mired in debt through the use of payday loans. Instant payday loans are easy to obtain and certainly there are concerns about what happens when individuals are not paying payday loans back on time. There are both negative and positive consequences associated with short term payday loans.

Payday Advance Loans Negatives

• The biggest problem with payday loans is that when families are in trouble and turn to these loans as a quick fix, they sometimes have trouble repaying the loans on time. A large percentage of payday loan customers extend these instant payday loans creating an expensive debt problem.
• The other reason financial experts rarely recommend payday loans is that they are generally extremely expensive. Lenders are supposed to provide an Annual Percentage Rate (APR) for every loan, but some payday loan companies use the term finance fee and do not reveal the true APR. Payday loan customers should look for a lender who will openly publish the APR. For example, a fee of $20 per $100 for a payday loan may seem as if the lender is charging 20% interest, similar to many credit cards. However, the $20 fee per $100 is charged every two weeks. This fee is the equivalent of 26 times that credit card interest! Payday loans sometimes have an APR of anywhere from 250 to 650%.

Positive Aspects of Short Term Payday Loans

• Despite the high interest rates, the best payday loans can sometimes be a good choice for consumers. First, these loans have never been meant as a long-term source of credit, so the high interest will only be paid by someone who has too many payday loans and cannot pay the money back.
• Payday loans are designed to be a short-term emergency solution.
• The average payday loan is small, for about $200 to $500, which should be easy enough to pay back quickly. Most lenders will never loan more than $1500 on one short term payday loan.
• Bad credit payday loans can be the only credit available for consumers while they are working to rebuild their credit.
• An easy payday loan can be less expensive than overdrawing your bank account, since bank penalties often top $30 and the recipient of a bounced check may also charge a fee.

Consumers who need cash for an emergency and cannot access other credit can benefit from the occasional use of a payday loan as long as they understand the importance of repaying the loan as soon as possible. Rebuilding credit and a savings account for emergencies should be the next priority after repaying the payday loan.

BigNews.biz (press release)

Pay off Your Debts with Credit Card Debt Consolidation Loans in America Brentwood Press Credit Card Debt consolidation is considered a last resort, but it's definitely better than declaring bankruptcy.It is true that debt consolidation loans … Low Rate Credit Card Debt Consolidation Loans, How to Find a Credit Card Debt …TMCnet Debt Consolidation Loans More Important as Home Equity ShrinksCredit Loan (blog) Should You Consider a Consolidation Or Debt Settlement? Debt Reduction HelpBigNews.biz (press release) Subprime Blogger (blog) -Prfire (press release) -Brentwood Press all 73 news articles »

Fewer homeowners tried to refinance last week, contributing to a drop in demand for home mortgages. The Mortgage Bankers Association (MBA) Market Composite Index, which measures mortgage loan application volume, fell 10.9% from a week earlier on a seasonally adjusted basis.

“Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today’s rates,” Michael Fratantoni, MBA’s vice president of research and economics, said in a statement.

Mortgage Refinancing Q&A

Mortgage rates are expected to begin rising this year, but there’s still time to refinance at some of the lowest mortgage rates ever. Anyone considering mortgage refinancing should consider the following things to help them decide:

—Will mortgage refinancing reduce the monthly payment? In the good old days before the housing market tanked, the rule of thumb about refinancing was usually not to do it if borrowers couldn’t shave at least 2 percentage points off their mortgage rates. Those rules have changed and many homeowners are choosing to refinance even if they only see a 1 percentage point drop in their mortgage rates.

—How many months until the borrower recoups the closing costs? Homeowners can run the numbers with a mortgage calculator to see how long it would take to break even on the closing costs involved with refinancing. If a borrower plans to stay in their house for at least that amount of time, refinancing could pay off.

—Can the borrower drop their mortgage insurance (MI) by refinancing? Although a lot of homeowners are underwater on their mortgages, not everyone has negative home equity. Some people who are currently paying mortgage insurance because they made a down payment of less than 20% on their mortgage loan may be able to get rid of this cost by refinancing. The cost of private MI (PMI) varies depending upon the down payment and loan amount, but runs about $50 to $80 a month for a median priced home valued at $198,600, according to the Mortgage Insurance Companies of America. 

—Has the borrower shopped around for mortgage quotes from several lenders? It’s important to compare deals being offered by mortgage lenders since not all loan packages are the same. Borrowers should look at the terms of the mortgage loan being offered, as well as how the mortgage broker gets paid.

Shorter Term, Larger Payments

Some people may be uncomfortable with the idea of restarting the clock on a 30-year mortgage because much of the payment in the early years only goes toward interest and not principal. If this is a concern, borrowers who want to refinance can always consider refinancing into 15-year mortgage loan, but their monthly payments would likely increase.

The New Frugality by Chris Farrell is a new personal finance book that discusses a growing trend in America towards frugality. As we claw our way out of the Great Recession, American families are going back to smarter and safer spending after a near decade at the buffet table of cheap credit. This isn’t a book with a million different ways to pinch a penny, it’s a book that seeks to teach you how to be smarter with your money in actionable ways.

For most books, there’s usually one big idea followed by dozens of examples. Once you understand the big idea, there’s not that much more too it. For example, Automatic Millionaire’s main idea is that if you make something (saving) automatic, then you’re more likely to accumulate wealth. Set your 401(k) contribution when you start work and even if you never look at it again (which is dangerous), you’re going to be better off. The Millionaire Next Door’s main idea was that there are millionaires all around you and they didn’t do anything special, outside of being smart with their spending and their savings, to get there. The flash and jazz of superstar athletes or actors was just that, flash and jazz, but there are plenty of quiet millionaires… living right next door to you.

So what’s The New Frugality’s main idea? It’s actually quite subtle and he reveals it in the first few pages. Personal finance isn’t really about stocks, budgeting, or any of that stuff. Those are just the things on the surface. It’s really about deciding how to live your life, what you value, and then being smart with your money so you can create a good life with the things that are truly important. When you think about it in those terms, it’s easy to see where all the various pieces of the puzzle fit in.

Where New Frugality differs is in the wealth of information he provides in support of that main idea. After years of helping people with real personal finance problems on Marketplace Money, he’s acquired a great perspective on the issues that are really troubling those who call in. I hesitate to call it representative of Americans, but I don’t think doing so would be that much of a stretch. As a result, his advice is both actionable and timely.

I connected to one passage in the book that I thought was funny. When Farrell was growing up, his family was both frugal and green. The first was deliberate while the second was accidental. All the things you associate with being green has to do with consuming less, because it helps you save money. He said his mom never turned on the dryer and always used the clothesline. Growing up, we didn’t even own a dryer!

Overall, it’s a good book about frugality that doesn’t focus on pinching every last penny. It establishes a good framework for a healthy and sustainable way to be smarter with your money, including being frugal. I especially liked the idea of how frugality establishes a greater “margin of safety,” which enables you to take intelligent and sensible risks later. Finally, and I hope you take this idea away with you, personal finance is really about living a good and fulfilling life, part of which means avoiding the bad mistakes that could derail your quest to that end.

The New Frugality by Chris Farrell from personal finance blog Bargaineering.com.

Deb and Rick Franklin

For nine months, Deb Franklin said, she did exactly what JP Morgan Chase and President Barack Obama told her to do. She made her mortgage payments on time, delivered via Western Union, after they were reduced from $1,433 to $1,233 through Obama's Making Home Affordable program. After three payments, the mortgage relief was supposed to become permanent, but a maddening string of paperwork headaches landed her in limbo. Then, on the day after Christmas, a "bomb dropped" on her life.

A letter from a law firm representing Chase said the bank had begun foreclosure proceedings against her. 

"It was devastating, just devastating," Franklin said. "I ended up on the couch shaking so badly that my husband started piling blankets on me saying, 'Are you OK?' And I told him, 'I'm not cold, I'm scared.' "

The Franklins are exactly the kind of family the Making Home Affordable program was designed to rescue. They were trying to hang on to their primary home, had enough income to make significant monthly payments and their home’s  value was still within shouting distance of their mortgage balance. Home values in rural Airville, Pa. — just across the Maryland border, near Baltimore — never exploded like those in America's big cities, so market value of their modest split-level hadn’t fallen far.

But instead of hope and help, the Franklins say their 10-month odyssey through the Making Home Affordable program raised their mortgage balance from $187,000 to $207,000, ruined their credit score, leading to cancellation of their credit cards, and now — despite making all their payments — put them on the brink of losing their home.

Franklin has been told by bank representatives that the foreclosure notice was sent in error, but she doesn't buy it. On a single day in early January, she says, one Chase representative told her that the loan modification plan had been denied, another said it was approved and a third told her the foreclosure had been "suspended."

"I check my county auctions every Monday to make sure my house isn't on there,” she said. “I don't believe anything they say anymore."

Some 4 million American homeowners qualify for the Making Home Affordable program, and around 850,000 of them have been offered lower payments on a trial basis, according to the Treasury Department.  Enrollees see their mortgage payments reduced to 31 percent of their income through interest rate reductions, fee waivers and lengthening of mortgage terms.  Entrants are told that if they make three "temporary" modification payments on time, they will qualify for permanent relief. But as of December, only 66,000 had seen their mortgage permanently modified – a number dwarfed by the 2.8 million foreclosures completed last year.

Until the lower loan payments are made permanent, banks are entitled to continue with foreclosure proceedings.

Franklin is one of many homeowners who have enrolled in the Home Affordable Modification Program (HAMP), offered as part of Making Home Affordable, who later compared their experiences through the Web site LoanSafe.org. They found that many of them had similar tales of lost paperwork, surprise foreclosure notices and ruined credit.  Msnbc.com reviewed about two dozen such stories involving virtually every major bank. Franklin, who shared an extensive diary of events she said she kept during her attempt to modify her mortgage, is typical.

"I don't know if President Obama knows what's going on," she said, adding that she recently sent a long fax message to the White House chronicling her Red Tape nightmare. "I don't know what else to do."

The Franklins' home

The Franklins hadn’t suffered significant loss of income during the recession. Rather, health problems and family emergencies pushed them to the brink of financial ruin, placing the home they’ve lived in since 1984 at risk. When their adult child had a near-fatal car accident in July 2008, they emptied their bank account to help him and his three children through the ordeal. Soon, their $1,433 monthly mortgage payments were overwhelming their budget, and they began to dip into their retirement savings. So Franklin was one of the first in line last March after President Obama announced the Making Home Affordable program.

She and her husband received a quick response after signing up March 2 on Chase’s Web site. They were told to call the bank two weeks later. Then, when they filed a 37-page packet with Chase later that month, they were told their application was “in underwriting. “ On April 22, they were told their modification was approved and a new payment of $1,233 was to be paid via Western Union beginning May 1.  If they managed to also complete payments on June 1 and July 1, their modification would be made permanent, Franklin said Chase employees told them.

The first sign of potential trouble came almost immediately.  On May 1, she said she was told during a phone call that her actual payment should have been $1,233.18 – so she was short 18 cents. If the 18 cents didn't arrive soon, her modification would be "canceled," she quoted the Chase employee as saying. She sent Chase a check for $1, to be safe, and on June 1 and July 1, she sent payment via Western Union for $1,234. Calls to Chase after each payment elicited the same response: "Everything is on track," Franklin said.

But in July, when the modification was to be made permanent, she said she was told that Chase's loan department was overwhelmed and that she would have to wait another 45 to 60 days. In the meantime, her log shows that Chase employees told her to keep making the temporary modified payments.

Things began to go south in August. She received a notice of default from the bank, which demanded $11,000 in late fees and unpaid mortgage payments to bring the loan current. A Chase operator told her to ignore the letter and to keep making modified payments.

Meanwhile, other parts of her financial life began to unravel.  Despite making the payments prescribed by Chase, the bank had reported her to the credit bureaus as having made only partial payments on her mortgage.  Her credit score plummeted from 660 to 444, and penalty credit card interest rates kicked in. In a short time, her cards rocketed from 8.99 and 14.99 percent to 29 percent. 

"They did not tell us that would happen when we entered the program," she said. "For many people, their credit is destroyed. I know people who say they never would have entered the program if they knew that."

(A Treasury Department official told the New York Times recently that many early applicants to the Making Home Affordable program did see severe credit score hits of “30 to 100 points.” But the official said that in November, banks developed a new way to report mortgage modification recipients to the credit bureaus that does not do as much damage to their credit scores.)

On Aug. 31, before making her next payment, Franklin called to check her status.  At this point, the operator said her paperwork was missing and told her to re-fax the entire 37-page application. She sent the documentation and submitted the payment.

On Sept. 29, she was told that her modification had been approved, but she still had to wait for some delayed paperwork — perhaps another 30 to 60 days.

On Oct. 10, she received a letter from Chase telling her to call immediately because her modification was at risk.  When she called, she said, an operator told her that the letters were "computer generated," and she should “disregard” them.

When a letter arrived on Dec. 7 from Chase warning her that "although we received a payment on your loan, it was not sufficient to bring the loan current," she was given the same advice by a Chase operator: "Disregard those letters." She was reminded that stable income and stable payment history were the most important factors in modification decisions. 

She was about to make her eighth trial payment when the nightmare letter arrived indicating foreclosure had begun.

“The law firm of Shapiro & DeNardo, LLC has been retained to initiate a lawsuit to foreclose the mortgage on your property,” it read. It indicated her loan balance was now $213,362.41 – more than $20,000 larger than when she’d entered the HAMP program. When she called the law firm, she was told that $13,235 was required to bring the loan current.

A call to Chase shed little light on the situation. 

"We were told the foreclosure process marches on even if you are in the modification," she said.

But an operator also told her that all her paperwork was in order, and she should receive her final modification within the week.  After a few more phone calls, a supervisor asked that she once again re-fax the application.

Two days later, a Chase operator who said he was in Florida called to say the modification had been denied, and demanded $13,235 to stop the foreclosure. A return call to Chase produced a different response: The family was approved for the permanent modification, the operator told her. A call to the lawyers’ office confirmed that the foreclosure was suspended.

But as of Monday, the Franklins were still awaiting final paperwork, and assurance that they will be allowed to remain in their home of 26 years. The most recent information, she said, came from a Chase operator, who told her there would be no new information until Feb. 1. On that date, Franklin will make her 10th modified payment.

“This whole thing just doesn’t seem like it makes sense,” she said. “Everybody is into the big political story here, but I think people are too wrapped up in that to know what’s really going on and try to deal with it.”

In a statement to msnbc.com Chase apologized for “incorrectly sending a foreclosure notice.”

Chase spokesman Tom Kelly said that the firm processed many other modification applications quickly, and had ramped up quickly to deal with an “unprecedented volume of customers” seeking mortgage help. He said the firm offered 600,000 trial modifications and approved 120,000 during 2009. Meanwhile, it added 5,000 employees to an existing staff of 8,000 who work with delinquent borrowers, he said. 

While Kelly declined to discuss most specifics of Franklin’s case, the statement placed some of the blame for delay on the family.

“We set up the borrower's trial modification payment using information the customer provided,” the statement read. “When we received the documentation, we learned that the family's income was significantly different.  As a result, we continue to review how we can best help the family.” 

So for now, Deb Franklin continues to scan the newspapers every week, making sure her home hasn’t been put up for sale.  She had a scare on Monday.

“I checked the sheriff's sale this morning and my heart sank when I saw a home on our road listed for auction,” she said.  “All I saw was the name of our road at first, but it was not us….Whew, dodged another one this week.”

 Become a Red Tape Chronicles Facebook fan or follow me at http://twitter.com/RedTapeChron

Obviously one sector of the economy that has really taken a nose-dive is the housing market. Many homeowners find themselves in the position of owing more on their mortgage than their home is worth, perhaps even with an adjustable rate mortgage that is troublesome to refinance.

Beyond the impact on individuals, entire companies have seen their values plummet. Housing stocks such as Lennar and DR Horton have been hammered as investors rushed to short the housing market.

All throughout 2009, news stories like this one about slower homebuilding in California have peen popping weekly and monthly. The mood has been dire in as many ways as possible.

One positive sign, for borrowers looking to refinance a mortgage, is that homebuilders seem finally to have accepted that building more and more homes, without buyers to buy them, is counterproductive to everyone’s interests. Yes, people lose jobs, but homebuilders are also forced to build creatively.

The main benefit as far as refinancing is concerned, when builders stop building so much, is that the integrity of the market is maintained. There should not 25 emtpy homes in your neighborhood, as Detroit and certain parts of California have been experiencing.

With less homes on the market, homes become more valuable, especially if the neighborhood is generally well cared for. That’s the law of supply and demand.

And in this case, it could benefit hopeful homeowners quite considerably.

Homeowners seeking to refinance will definitely want to look at the matter from the buyer’s perspective, because the refinance yes or no decision made by the bank certainly will be. That is to say, the bank will base their lending decision heavily upon the fact of what your home would sell for on the open market.

If your home doesn’t hit those requirements, that refinance is going to be hard to close.

Be happy, then, when there are less homes being built, at least for the time being. If there is one part of America that seems alive and well, it’s the dream of the young married couple to own their own home. This bodes positive for the long-term health of the housing market.

Looking to save your home from foreclosure by refinancing? Click here to find a lender that does that.

This guest post is by Austin Morgan, from Foreigner’s Finances. It’s a great follow up to the other article I published here last week on setting goals to reach by the age of 30.

I picked up my first personal finance book a little over a year ago as a college senior. As soon as I read it, I wanted to go around telling every other twenty-something how important it was to get their finances in order as young adults.

Unfortunately, my girlfriend rolled her eyes at me and my friends couldn’t have cared less. Sometimes you have to do a bit of prying to show people how much easier life can be if you have your finances in order as a twenty-something before the real life trials and tribulations kick in.

How To Manage Your Money In Your Twenties

Let’s take a look at the advantages that twenty-somethings have when it comes to matters of personal finance, and why there’s no better time than today, to get your financial life in order. The earlier you start caring about your money, the better!

Let’s Look At Compound Interest

There’s a reason Albert Einstein said, “The most powerful force in the universe is compound interest”. Coming from a man who studied physics, forces, and atoms for his entire life, that’s saying a lot.

The most important factor in compound interest is TIME. As a twenty-something, you — hopefully — have plenty of years ahead of you. But don’t waste these years because even a couple can set you back for the rest of your life.

Let’s take a classic example that illustrates the power of compounding: Alice is a 25-year-old who starts investing $5,000 a year at 8%. She invests for 10 years and stops. Her money continues to gain interest until she is 65. Bob doesn’t start investing until he is 35-years-old, but he invests $5,000 a year for 30 years at 8%.

So who has more money? Alice. Don’t believe it? Check out the numbers.

Because Alice’s money sat in equities for 10 years before Bob even had a chance to invest, more of her interest and returns had a chance to accumulate and really kick in over time.

In total, she invested only $50,000 of her money, while Bob invested $150,000; yet Alice still came out ahead. Now imagine if Alice had kept investing $5,000 a year. She would have well over a million dollars by the time retirement rolled around and she would be financially set.

Time To Build Good Credit

I always thought it would be really helpful (though a bit awkward) if a girl or guy confessed on a first date if they had bad credit or not. I’m sure America’s debt woes would quickly improve and wasted dates would be weeded out because, let’s face it, bad credit is unattractive.

A lot of twenty-somethings don’t think about their credit, but knowing the ins and outs of your FICO credit score can save you thousands of dollars throughout your life.

Want the simple and quick way to get good credit? Pick up a credit card or two. Start out with secured credit cards if you want to establish credit. Use them sparingly. Pay them off in full every month. Then ask for a credit increase every year or two. Done.

When you’re in your twenties you have the opportunity and the time to build credit properly. With good credit you’ll receive better interest rates for your car and house, and those savings will equal thousands of dollars over a lifetime. In fact, with good credit, you’ll even qualify for better personal loan rates if you want to borrow money. You can also negotiate for better rates for those loans you already have. You can qualify for balance transfer cards and the harder-to-get 0% APR credit card offers that are reserved for reliable credit card customers. That’s where the irony is — have great credit and you can obtain cheaper loans; have terrible credit and you pay through your nose.

Now let’s take a specific example that shows good credit at work: when you decide to buy a house and you’ve got great credit, your interest rate could be around 5.5%; but if you have horrible credit it could very well be pegged at 6.5%. A few percentage points don’t seem like a huge deal, but over the life of a thirty year mortgage, it’s a GIGANTIC deal.

So say you buy a $300,000 house. If you have a 30-year mortgage of $250,000 at a 6.5% interest rate, the house will end up costing you $700,111. That’s $333,548 just in interest! If you buy the same house with a loan sporting a 5.5% interest rate, the house will end up costing $642,260, with the interest totaling $276,322. A 1% change in the interest rate will cost you $57,226!

It’s Easier To Save When You Have No Kids

You often hear from twenty-somethings that saving at their age isn’t a priority and they’ll just do it later because they’ll be making more money in the future. Yes, that’s probably true. But you’ll also have additional costs you didn’t consider, like those expenses you incur once you have kids.

According to MSN Money, a child will cost an average American family approximately $249,000 from the time they are a new born until they’re eighteen. $249,000 for one kid! That’s about $14,000 a year!

Your income will probably be higher in ten years, but if you have two or three kids (as is the case with the average family), it’s likely that you could end up with a net income that’s similar to your low-level entry job today, after all your family expenses are accounted for.

I don’t want you to swear off having kids. I just want to show you that you’ll never have it easier financially than when you’re a twenty-something with no children. Take advantage of the simplicity of your life, where you can go home after work and research a Roth IRA, instead of having to help your 8-year-old with their science project.

No House To Worry About…Yet

The American dream is alive. I’m 23 and I’m already envisioning my “dream home”. Outdoor eating area, whirlpool, cavernous study. I want it all. A lot of people assume that being a home buyer is in their immediate future.

You may think that saving and getting your finances in order will be easier when you’re older, but will it be, once you have the stress of a mortgage, house repairs, property taxes, and homeowners insurance to think about? You have time to prepare for this purchase, but it’s going to be tricky if you don’t have your finances and savings in order when you decide to buy your house.

For example, to get a lower interest rate on your mortgage, it’s beneficial to pay 10%-20% as a down payment. That doesn’t sound like much, but if you assume a house costs $300,000, you’ll need to put down $30,000-$60,000 of your savings as a deposit.

You also have to factor in property taxes which, depending on where you live, can cost $3,000-$4,000 every year. There are also household repairs to think about. The general rule of thumb is to set aside the equivalent of 1% of your home’s valuation for repairs and maintenance. Know that these hidden costs add up and will make a serious dent in your future income from month to month, so it’s beneficial to prepare as early as you can for this eventuality.

As a twenty-something, you have extra money while you’re renting or living at home that you won’t have at other times in your life. Use that money to invest, save, and get ahead so you can be on top of your finances when you reach your thirties, forties, and later years. It turns out that we spend a lot of money over our lifetimes. But by taking action at a young age, we can adequately prepare for different financial milestones in our lives without having to face insurmountable issues.

Get A Financial Education In Your Twenties

What some call America’s most notorious hidden fee is about to be dealt a serious blow, as new rules kick in that will eliminate many of the booby traps that lead to bank account overdraft fees. 

Already, in advance of the Federal Reserve regulations coming in July, many banks are allowing consumers to opt out of the "courtesy" overdraft coverage and associated, cascading $35 fees.

But it should come as no surprise that there's a catch. In fact, there are lots of them. Topping the list: Consumers who opt out of overdraft protection now may find themselves in the worst of both worlds. Their transactions will be denied and they will face a $35 insufficient funds fee anyway.

"My card is being denied and checks are being returned, but the fee remains, “ wrote Ginnie Logan, who banks at Elevations Credit Union in Colorado and recently opted out of what the organization calls courtesy pay. "Essentially the issue hasn’t gotten any better. In fact, it has gotten worse."

Logan’s sentiment would sting consumer advocate groups who spent years fighting high bank overdraft fees. Expect a new round of consumer frustration  this year as insufficient funds fees make a comeback and consumers try to understand why. We'll try to explain.

Much of the frustration with overdraft fees came from the element of surprise.  While most consumers understood the danger of writing a check that might send their account balance into the red, few realized that they could overspend their balance by swiping debit cards or withdrawing cash at ATMs. The new regulations are designed to end those surprises: Beginning in July, banks will not be able to honor the last two kinds of transactions charges and assess the overdraft fee unless those consumers have opted in to a overdraft protection program.

Bank of America, JP Morgan Chase and a number of other institutions already have announced that consumers may call and opt out of overdraft coverage now.  Most consumer advocates, including Consumers Union staff attorney Lauren Bowne, recommend that account holders immediately do so.

That, however, can lead to an unnerving conversation with your bank.  During a recent call to Bank of America, an msnbc.com reporter was told, "You may still incur overdraft charges in some cases," ever after opting out. That’s because lags between credit and debit transactions and the time they are posted to your account can still cause headaches.

It's possible, for example, that an online bill payment could be sent when a checking account balance is above zero, but not debited until later, after a series of other withdrawals have sent  the balance to zero.  That would still result in an overdraft fee, because the bank could not have known the "true" balance of the account would dip below zero when it initiated the e-payment.

In addition, there are numerous circumstances under which opting out would case transactions to be denied, triggering an insufficient funds fee.

Wire transfers or checks would bounce the old fashioned way, for example. At Bank of America, the insufficient funds fee is $35 – same as the overdraft fee.

Still, the Bank of America operator gave assurances that opting out would eliminate the possibility of debit card purchases leading to overdraft fees.

That should reassure consumers who aren’t so sure. Several have e-mailed msnbc.com recently suggesting they are still seeing overdraft fees related to debit card swipes after opting out.  The confusion is understandable, given the complexity of the systems involved. It doesn’t help that Bank of America operators won’t provide paper documentation of the procedure, its terms and conditions, or confirmation of the account change. The only way to confirm overdraft protection had been removed is to call after five days and ask another customer service representative to check, she said.

At operator at Logan's credit union gave a less black-and-white answer to the debit purchase/overdraft question.

"From what I've seen that's not happening," he said. "But it is possible."

 He described some potentially thorny time-lag situations. Not all merchants immediately process transactions — many transmit transactions in batches every hour or two, for example –  so it would be possible for a consumer to swipe their debit card four or five times in different stores during a day before the bank realizes the account holder's balance had gone south of zero.

Consumers who use ATMs outside their own banks' network could also face this problem, as some ATMs perform what are called "stand-in" authorizations, and don't transmit transaction information until later in the day.  That could also result in an overdrawn account.

Still, he said such situations were extremely rare.

The American Bankers Association offered several warnings about this kind of confusion last year while arguing against overdraft reform. But Nessa Feddis, spokeswoman for the trade group, said much of the confusion should be cleared up by the time the new Fed rules kick in this summer.

"The rule is very consumer-oriented,” she said. “… The Fed did a lot of testing and the rule forces banks to do things the way consumers would want them in each situation.” After July, she said, banks will not be able to charge a fee because of a lag in batch transactions, for example, because the Fed decided that consumers could not be expected to know about merchant transmission procedures.

The new rules aren’t perfect, however. Many consumers would want small debit card transactions or ATM withdrawals denied when their balance is at zero (saving a overdraft $35 fee), but prefer that checks be honored (since they would result in an insufficient funds fee anyway, and they would also lead to additional fees from the jilted merchant).  But many banks' systems can't handle such a split decision, Feddis said. Overdraft protection must either be on or off.

Consumers who misunderstand their overdraft protection has been removed may wind up bouncing a lot of checks.

"There are a lot of operational issues that still have to be solved," Feddis said.  "Some of these things will be resolved, but it might be through a different kind of product.” One possibility: banks will offer incentives to customers to keep larger minimum balances in their accounts to avoid overdraft situations, she said.

Despite the confusion, and the "worst of both worlds" possibility, the Consumer Union’s Bowne said she's sticking by her initial advice.

"Overall, I still think it is sound advice to opt-out of overdraft, when possible, as we wait for the rule to go into effect," she said.  "I cannot envision a scenario where a bank would charge a consumer for ‘attempting’ a debit or ATM transaction in which the consumer never completes the transaction. … That being said, nothing much surprises me with respect to these bank practices and without seeing the actual terms and conditions from the different banks it is hard to be certain."

Red Tape Wrestling Tips
You should opt out of overdraft protection now if you bank allows it. The end goal here is to avoid overdrawing your checking account through debit purchases or ATM withdrawals. You never want to pay $40 for a $5 hamburger, as has happened to many people in recent years. But there are hazards.

If you have overdrawn your account in the past year, think before you opt out. A bounced check can have more far-reaching consequences than an overdraft fee.  You might end up in the ChexSystems database and lose check-writing privileges, for example.  So don't opt-out until you are ready to stay out of the red.

Consumers who live near a zero balance will find that so-called “account holds” placed on debit purchases by gas stations and some other businesses can cause headaches in a post-overdraft-fee world.  Holds, which exceed the transaction price, can freeze funds for days and cause confusing time lags. Be cautious using your debit card for purchases at firms that place holds.  One tip: If you must use debit, use a PIN instead of a signature. PIN-debit transactions generally are processed faster than signature-debits, so that will help you keep your account balance up to date.

When July comes, look for a mandatory notice from the bank about the new procedures. Don't fall for comes-ons advertising "courtesy" protection.  If you do nothing, you won't have it. And that's probably your best choice.

After you opt out, and the fed rule kicks in, when might you be hit with a fee?  When the bank has to “return” an attempted payment to you – a bounced check, for example, or an e-payment that can’t be honored. 

The safe way to protect yourself from overdrawing your checking account is to link it to other accounts – your savings account, a credit card, or even a line of credit. Everyone makes mistakes. Yours will be less costly if you borrow your own money through linked accounts than if you borrow the bank’s money through a “courtesy.”

Become a Red Tape Chronicles Facebook fan or follow me at http://twitter.com/RedTapeChron

« Previous entries