Credit cards, debt, refinancing, Freddie, Fannie and Banks

Discussion in 'Politics' started by dolf250, Jul 12, 2009.

  1. dolf250

    dolf250 New Member

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    Yeah, It's a long title to a thread.


    I just thought that I would hit a couple of points if you are in debt and having a bit of trouble. First, the credit card. If you are sent an offer to pay off your debt for a percentage of what you owe you just need to be aware that it affects your credit rating. That means that you will not get credit from other companies for a few years. However, it also means that if you accept the offer on one of your credit cards and hold others the other companies will likely cut off your credit and/or raise your interest rate. You have suddenly become a huge liability to them and they will most likely be unwilling to carry your debt.


    The other thing that some people do not realize is that the amount the credit card company writes off becomes income for tax purposes. That means that if you pay the company $3 000 on a $10 000 account that you will be issued a slip at tax time stating that you “made” $7 000 income and you will be liable for the tax on that money. If you are paying 50% tax on it (yeah, it's likely less, but that is an easy number to work with) it means that you pay the credit card company $3000 and the government $3500 so you end up saving $3500 and having your credit damaged and other cards/loan holders have a red flag pop up in your file. By the way, where are you getting the $3500 come tax time?


    Now, even worse is refinancing your house. The government has, in it's kindness, decided to bring in the “making home affordable” plan to help homeowners who are underwater. Now you can refinance your house (if it is a mortgage owned by Freddie or Fannie) to 125% of it's value. Great! So you can keep your house and continue making payments for life. If your lucky, after a decade of payments you will be able to sell your house for what you owe.


    The real problem comes when you refinance you become liable to the banks and/or government agency who owns your mortgage for the loan. The link I will put up only gives California as an example, but I would assume that other states have similar rules (sorry, I'm not doing your research for you.) It states that in California the first mortgage is non-recourse. That means you can walk away from it and the only thing the bank can take is the house (you keep the car, the savings account and your furniture.) A refinance mortgage (again, at least in California) is a recourse loan so they can garnish your wages, take your car and seize your saving account if you walk away.


    Sort of the difference between a no fault divorce (yeah, just take the house- it's worth less than the mortgage anyhow) and a dirty divorce (sure, I don't mind if the judge garnishes my wages for the next 25 years...) I say bring back the debtor prisons and have the government offer these wonderful terms...


    New Affordable FHFA Loan Program Sounds Like Predatory Lending -- Seeking Alpha


    Just thought that I would post this in the hopes that people look at the offers when the banks are feeling benevolent and give them a “break.”
     
  2. SpeedoGuy

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    If the thesis of the linked article is true, it would seem that underwater mortgage owners deperate to refinance are likely to get suckered into terms that are potentially even more usurious.

    I hope people read and understand the fine print before signing.
     
  3. dolf250

    dolf250 New Member

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    The problem is that this information is not on the application. It is the law, but if you don't know it then you are out of luck. There is no requirement for the bank to disclose the intricacies of the law. That is why I thought I might post it here- though I question if many people are going to read it.
     
  4. B_VinylBoy

    B_VinylBoy New Member

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    And many banks either operated with the assumption that consumers knew, or the hope that they didn't. Hence another reason why we have such a problem with credit in our country.

    It feels so good not to own a credit card after all these years. :wink:
     
  5. SpeedoGuy

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    Such nuggets of otherwise unadvertised financial lore ingrained in common practices are fascinating to me. Astonishing, but fascinating.

    Some I absorbed early from parents and family. Others I learned from reading the fine print. Still others I learned through hard experience.
     
  6. transformer_99

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    The bailouts are a Ponzi scheme for the most part. Madoff gets 150 years in prison for it, the government forced the US taxpayer to finance this. Home ownership, like automobile transactions has become in reality a leasing transaction. If you're fortunate, perhaps you wind up dieing before the bills come due ? That solves all the problems ? Too bad for those in a will, there won't be any inheritance, which solves another age old argument over inheritance taxes ?

    At the end of the day, it's the best deal that couple can take in that example, remember they're refinancing something they couldn't afford in the first place.

    Funny, the other example followed in the wake of a Bush administration, just happened to be an example in Japan. ARM's were a popular tool back in those days too. The parallels of Daddy Bush and first term Clinton was just as recessionary on it's own scale as "W"'s last administration and first term Obama.

    A cautionary tale: story from 1994 Japan - Credit Writedowns
     
  7. SpeedoGuy

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    It would seem to be that basic finances education about credit, loans, taxes, and investments should be a requirement in high school right along with sex-ed, driver's training, home-ec, first aid, etc. It puzzles me that such important topics are often left completely off the curriculum and relegated to the individual to learn on his/her own. The typical student graduates and stumbles into adult life needlessly ignorant.

    I suppose, though, there powerful interests who have stake in keeping citizens ignorant of facts, distracted by trivia, and overly busy coping with workaday life.
     
  8. B_diddydoo

    B_diddydoo New Member

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    when i was younger i thought freddi mac and fannie may were people lol
     
  9. B_diddydoo

    B_diddydoo New Member

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    crap thats fanny mae* fanny may actually is a person lol
     
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