Obama’s 2012 Mortgage Relief Plan

It’s clear that the depressed housing marketing is going to continue to place a drag on the economic recovery. Recognizing this, President Obama recently proposed a new mortgage refinancing program that would provide relief to millions of homeowners who would benefit from refinancing their mortgages with high interest rates to something that’s closer to today’s low rates. Americans have been having a difficult time taking advantage of historically low rates because their credit has been damaged or their home is now worth less than what they owe.

Last year, programs were enacted to assist homeowners whose mortgages were held by Fannie Mae or Freddie Mac. However, those whose mortgages were not held by Freddie Mae or Freddie Mac were out of luck. With this new proposal, that stands to change. Under Obama’s proposal, the Federal Housing Administration would be given the authority to refinance the mortgages of homeowners who are current on their loan payments, have a credit score above 580, and are currently paying a high interest rate. The estimated cost of the program is $5-10 billion, which would be funded by fees imposed on banks.

I think that overall, we aren’t going to see a complete recovery until the housing market settles down. There are still too many Americans underwater on their mortgage. Others are treading water, barely staying afloat. Once the housing market makes a significant turn for the better these people will be able to return to their normal spending and saving habits. The current proposal seems to have a low likelihood of passing, but I’m still going to root for it.

Your Rights Against Collection Agencies

Although I’ve never personally had any debt sent to a real collector, I know there are many people who have. When dealing with any type of collections, it’s very important to know your rights. Companies attempting to collecting their money will often take extreme, aggressive measures to induce you to pay them. By knowing your rights, you can help to avoid some of the embarrassment and headache that comes with being late on paying your debt.

The main source of rights for someone in collections comes from the Fair Debt Collection Practices Act (FDCPA). Firstly, you should understand the FDCPA only applies to collection agencies. The original creditors themselves are not bound by these same rules. This means that when Citibank contacts you about your late credit card payment, they can violate some of these rules. However, most companies prefer to hand the collections part off to someone else after a certain point, rather than having a huge internal collections department. Your debt is often sold off to a third party for a % of the amount owed. Let’s say Citibank sells your $10,000 credit card debt to a collection agency for $2,000. So anything above $2,000 that the agency collects is profit. This is why you’re often able to settle with credit card companies. They’d often rather get cash from you now than sell it to collections. Better to get $3,000 by settling with you, than sell the debt for $2,000. But settling your debt is another topic for another time.

Collections Past DueIn most instances, the collections agency must contract you directly. They are allowed to contact third parties in order to obtain information about your whereabouts so that they can contact you directly, but they are not allowed to disclose that they are a collection agency or that you owe a debt. Once the collection agency is able to contact you directly, they must deal only with you. There are rules in place to make sure that they only make your life somewhat miserable, not completely miserable. The Fair Debt Collection Practices Act prohibits the collection agency from calling you at inconvenient times. This generally means that they can call you between 8 a.m. and 9 p.m., but not before or after that time slot. The collection agency is also barred from making ale claims or using abusive language. Collection agents are likely to take two approaches: they’ll either be very aggressive (bad cop), or they’ll attempt to become your friend (good cop).

If you’re being contacted by a collector and you don’t intend on paying the debt, you can stop all contact by the collection agency. All you have to do is notify the agency in writing that you will not pay the debt and that you demand they stop further communication. Once you do this, they can only contact you to inform you of a pending lawsuit. Best of all, if the agency causes any damage, you can sue for actual damages caused by the agency’s misconduct. If they get you fired because they called you at your work place, you better make sure they pay for it. Literally.

Warren Buffett’s 2010 Annual Shareholder Letter

Warren Buffett Shareholder Report

Note: Could not find original source of photo

Every year, thousands of investors eagerly await Berkshire Hathaway’s Annual Shareholder Letter to gleam new insight from Warren Buffett himself. Buffett is the wealthiest investor alive and tends to be surprising candid. He’ll occasionally write editorial articles in major newspapers (NYT and WSJ), but his most anticipated writings are definitely his letters to shareholders. When someone like Buffett speaks, it’s probably a good idea to listen. After reading through his newsletter, here are some of the things I found most interesting.

“Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.”

Buffett’s thinking here doesn’t to have changed much since his NYT editorial from 2008. He’s still optimistic about America’s future. If you watch the news it’s easy to think that the end is near. But as he states, this isn’t the first time such fear has been spread by politicians and the media.

I particularly liked Buffett’s words on debt:

“Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very
few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart
people.

Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees. In September 2008, in fact, its overnight disappearance in many sectors of the economy came dangerously close
to bringing our entire country to its knees.”

And I think, finally, I’ll leave you with this gem here. It’s a letter from Warren’s Grandfather to his youngest son, Fred, written in 1939. It demonstrated how important an emergency fund was perceived after the Great Depression, and reinforces how important liquidity is at any time.

“Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash. I have known people who had to sacrifice some of their holdings in order to have money that was necessary at that time.

For a good many years your grandfather kept a certain amount of money where he could put his hands on it in very short notice.

For a number of years I have made it a point to keep a reserve, should some occasion come up where I would need money quickly, with-out disturbing the money that I have in my business. There have been a couple occasions when I found it very convenient to go to this fund.

Thus, I feel that everyone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund by placing $200 in an envelope, with your name on it, when you were married. Each year I added something to it, until there is now $1,000 in the fund.

Ten years have elapses since you were married, and this fund is now completed.

It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose that it was created for. Should the time come when you need part, I would suggest that you use as little as possible, and replace it as soon as possible.

You might feel that this should be invested and bring you an income. Forget it — the mental satisfaction of having $1,000 laid away where you can put your hands on it, is worth more than what interest it might bring, especially if you have the investment in something that you could not realize on quickly.

If in after years you feel this has been a good idea, you might repeat it with your own children.

For your information, I might mention that there has never been a Buffett who ever left a very large estate, but there has also never been one that did not leave something. They never spent all they made, but always saved part of what they made, and it has worked out pretty well.”

Warren Buffett’s Uncle Fred  sent a similar letter to his four children. Warren found this letter, along with $1,000 cash, when he opened her safe deposit box in 1970. Hopefully, if nothing else, this has inspired you to take an extra-long look at your current emergency fund.