5 tips for wisely tapping your home equity
Bankers love it when you borrow against your house. That's reason enough to be wary of home-equity lending.
Yet millions of Americans are buying lenders' pitches that our homes are a good source of funds for whatever our little hearts desire, from Super Bowl tickets to exotic vacations to investments in stocks and bonds. That lust for cheap cash has turned home-equity lending into the fastest-growing, and very profitable, area of consumer loans.
Mainstream home-equity lending soared 33% last year according to SMR Research, with new borrowing at nearly quadruple the level of just five years ago. The amount we owe on home-equity loans and lines of credit, $719 billion, now exceeds the balances on our Visas, MasterCards and other general-purpose credit cards.
Home-equity lending skyrockets
2004 1999 Increase
New borrowing $431 billion $114 billion 278%
Total owed $719 billion $267 billion 169%
Source: SMR Research
Those figures don't include home-equity lending to people with troubled credit. So-called subprime mortgage lending rose 60% last year, said SMR vice president George Yacik, to $516 billion. Although the figure includes first mortgages, Yacik said most subprime home lending involves home-equity loans and lines of credit.
Good for banks, risky for consumers
The risk to lenders from all this debt is quite low. The amount banks actually lose on home-equity lending overall is about 0.15%, Yacik said, compared to more than 3% on credit cards.
"There's no bad debt to speak of," Yacik said. "(The borrower's) home is at stake, and they have to be deeply extended not to pay their bill."
Rising home prices mean that banks can get their money back even if they have to foreclose, and troubled borrowers typically sell the home or refinance before that happens.
The low default rate masks the real problem with home-equity lending: Most borrowers are using the loans and lines of credit to fritter away their long-term wealth on short-term spending.
"I recall one computer magazine a couple of years ago that recommended that people get home-equity loans or lines of credit to purchase computers," said Andrew Analore, editor of Inside B&C Lending, an Inside Mortgage Finance publication. Then there was the recent Associated Press article about fans calling mortgage lenders to finance Super Bowl tickets, on top of the more usual borrowing to fund big-screen TVs to watch the game.
"That kind of stuff can be problematic," Analore said, "because people sometimes don't understand that their house is on the line if, for some reason, they are unable to pay for their new computer or big-screen television."
Understand loan types
Solid statistics are hard to find, but lenders believe a third or less of home-equity borrowing is used for anything that could be considered an investment, such as home improvements or education. The rest goes for debt consolidation, vacations or purchases of assets that quickly depreciate, such as cars.
If you're thinking of literally betting your house with a home-equity loan or line of credit, you should clearly understand how these loans work, when to use them and how to get the best deals.
First, the basics. There are two types of home equity lending, loans and lines of credit:
Home-equity loans are installment loans, like regular mortgages and auto loans. You're given a certain amount of money which you typically receive all at once and pay back according to a set schedule, over time. Home-equity loans usually come with fixed rates and fixed payments.
Home-equity lines of credit, by contrast, work more like credit cards. You're given a credit limit that you can borrow against, and paying down your debt frees up more credit that you can potentially spend. Home-equity lines of credit have variable interest rates that are typically tied to the prime rate.
Unlike credit cards, however, home-equity lines of credit usually aren't open-ended. For the first 10 years or so, you can draw as much as you want from your credit limit, and you only need to pay the interest charges. In the next stage, however, the "draw" period ends and whatever debt you have left is "amortized," which means you need to start paying principal and interest to retire your debt. (Some lenders let you renew your draw period, but eventually the debt has to be paid off.)
Average amounts borrowed
Types
2004
1999
Increase
Lines of credit
$77,526
$49,260
57%
Loans
$62,112
$35,672
74%
Source: Consumer Bankers Association
With either type of borrowing, you're pledging your home as collateral. If you fall behind on your payments, the lender can foreclose and take your house.
When to use these loans
A home-equity loan is generally the best choice when you know exactly how much your purchase is likely to cost and you need several years to pay it off. A major home-improvement project, for example, might be a good candidate for a home-equity loan.
A line of credit may be a better option for shorter-term borrowing, or when you want to be able to tap your home equity to cover emergencies.
You also might consider a loan, rather than a line of credit, when you want to lock in a low interest rate in a rising-rate environment, like we have now. In recent months, the rates on lines of credit have been ratcheting up with each Federal Reserve hike.
The gap has narrowed considerably from a few years ago, when lines of credit averaged more than two percentage points less than loans. When the gap is that big, it may make sense to take the risk of choosing a variable-rate line of credit over a fixed-rate loan.
5 tips for smart borrowing
Here's how to know if you're getting a good deal:
Compare the rates. The rate you'll be offered on a loan or line of credit depends heavily on your credit score -- perhaps too much, according to one banking regulator. Julie Williams, acting head of the U.S. Comptroller of the Currency, said in December that home-equity lenders were relying too much on "risk factor shortcuts" like credit scores, which reflect consumer's past credit performance but that don't factor in how well they'll handle a big increase in their debt.
If you have an excellent score of 760 or above, you should be able to win a home-equity line of credit for half a point below the prime rate, said Chris Larsen, CEO of E-Loan. A good score of 700 to 759 should win you a rate equal to prime. (To see current rates on lines of credit and loans by credit score, visit the Loan Savings Calculator at MyFico.com.) People with mediocre to poor credit can pay 1 to 5 points over prime, or more.
Avoid the fees. If you have decent credit, you shouldn't have to pay any application or appraisal fees to borrow against your home. (Make sure the lender isn't tacking fees onto the loan amount, and that you're not paying a "broker fee" if a third party is helping to arrange the loan.) You may have to pay recording fees, which should be minimal, and an annual fee on your credit line.
Know the tax rules. Home-equity borrowing is often touted as superior to other consumer debt because you can deduct the interest. But that's not always true. You have to be able to itemize, which most taxpayers can't do because they don't have enough deductions.
If you have excellent credit, for example, you might be able to get a new car loan for a fixed rate that's actually lower than what you'd get on a variable line of credit. Unless you're able to itemize, the fixed-rate auto loan is clearly the way to go.
Also, know that even if you do get a deduction, the tax break is limited to interest on loan amounts of $100,000 or less; if you've borrowed more, the interest you pay on amounts over $100,000 can't be deducted.
Know what you're risking. A home can be a good way to build long-term wealth -- as long as you're not constantly draining it away. Every dollar of equity you borrow is a dollar that can't be used to buy your next home when you're ready to trade up, or to fund your retirement when you're ready to downsize.
Be particularly wary of using home equity to pay off credit cards or other short-term debt. Often you'll just wind up deeper in debt because you haven't addressed the basic overspending problem that got you into trouble in the first place.
Also, don't assume that using equity to pay for home improvements or education is always a slam dunk. Not all home improvements add value and it's easy to go overboard with student-loan debt, as well. It's up to you to set reasonable limits on your borrowing and to make sure that what you're buying is worth the wealth you're committing.
In general, you don't want the term of your borrowing to last longer than what you've purchased. If you use home-equity borrowing to buy a car, for example, try to pay off the balance in a few years -- and definitely before you trade in for a new vehicle.
Keep some headroom. You should try to keep a cushion of at least 20% equity in your home. If your combined mortgage and home-equity borrowing exceeds that amount, you'll pay higher interest rates. You're also cutting yourself off from an important source of funds in an emergency.
"Very few families are good at savings. In effect, their home equity is their 'rainy day' fund," Analore said. "It's the only source of capital that many people will be able to tap in an emergency. And it won't be there if the home has already been leveraged to fund short-term consumption."
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
Tuesday, June 13, 2006
Don't hand your house to a thief
Don't hand your house to a thief
Mortgage scams are like Baskin-Robbins offerings -- they come in 31 flavors. Here are three top choices of con artists and how to avoid them.
By Christopher Solomon
If owning a home is the great American dream, then swindling people out of their prized possession is one of the great, lucrative American scams. Mortgage fraud is on the rise, thanks to the tremendous value that's locked up in real estate today and to the increasing number of people who are struggling to pay their mortgages.
"It's kind of become the new get-rich-quick scheme out there," says attorney Rachel Dollar, publisher of Mortgage Fraud Blog.
More than 323,000 properties entered some state of foreclosure in the first quarter of 2006, a 72% increase over the same period a year ago, according to RealtyTrac. And things could get worse: Nationwide, more than one in three outstanding mortgages has an adjustable rate and interest rates have been rising. "Nobody really knows what's going to happen," says RealtyTrac's Rick Sharga, vice president of marketing.
But scammers know that people in trouble make easy victims. They're swooping in and offering to "help" beleaguered borrowers -- and ending up with their house keys. Victims sometimes spend years fighting to get their homes back and some never succeed.
Meet Carol and Anthony
Carol and Anthony Calvagno of Deer Park, N.Y., on Long Island are in a hell like this right now. In 2003, the Calvagnos were in trouble. Anthony Calvagno had health troubles and had lost his job. In order to pay their bills, the couple took out a home equity loan on the Cape Cod-style house that had been in the family for three generations. (At the time, the couple had a $125,000 mortgage on a house worth about $290,000 -- a high-equity target.) But even the home equity loan wasn't enough.
That's when Mitchell Sims swooped in, offering to help, says the couple's attorney, Arshad Majid.
Sims told the couple that he would arrange a bailout, and that they should stop making mortgage payments while he worked out the details. When foreclosure notices started showing up, he told the couple to ignore them, saying he'd take care of it.
Nearly eight weeks after Sims had entered their lives, and the day before their foreclosure was scheduled, Sims told the Calvagnos that the arrangement hadn't worked. Instead, he said they'd have to file for bankruptcy and enter a "special program" in which they'd sign over their house's title to one of Sims' employees and another of his business associates, who also happened to be Sims' brother. They'd be allowed to live in their home as tenants, Sims told them, and their rent payments would go toward buying their home back from him, says Majid. "They were put in the position where they didn't have any choice" but to sell their deed, Majid says.
But Sims never made any mortgage payments. He kept the Calvagnos' rent money and about $50,000 of the couple's money that remained after their creditors were paid.
The Calvagnos had fallen victim to a scam known as equity stripping -- just one of the many flavors of mortgage fraud. Their house was sold. Sims and another person have been put in prison for their crimes. The couple has successfully fought eviction -- so far -- but not everyone is so lucky. Here's a quick look at three of the main ways scammers can steal the roof over your head.
Scam No. 1: The bailout, aka 'equity stripping'
As the Calvagnos' case shows, this scam is particularly ingenious -- and humiliating for the victim. In theory, a person or company could help a homeowner keep his house via a process in which the homeowner sells the house very cheaply to them while the homeowner gets his finances in order. The new owner pays the mortgage, and the old homeowner pays to live in the home in the meantime, buying back the home (with interest) in a fixed amount of time. If the financial setbacks are temporary, and the company is above-board, everybody can win: The homeowner keeps the house and the company earns a profit for its role as rescuer.
But "reconveyance," as it's sometimes known, is ripe for abuse.
Attorney Leah Weaver, who focuses on fighting the scams as an Equal Justice Works Fellow at the Legal Aid Society of Minneapolis, explains how scammers work this fraud:
Suppose you've got a $200,000 home, with $100,000 of equity in it. A divorce and medical bills have you facing foreclosure. Suddenly, the phone rings with a bailout proposal.
So you sell your home, for $120,000 -- not much more than what's owed on the mortgage. Why sell for so little? "Because it's never intended to be a true sale," Weaver explains; remember, you don't think you're selling the house permanently, but buying it back in a short period, right?
The new purchaser, meanwhile, takes out a $120,000 loan, wipes out any liens on your property and even gets you a little cash back; and you get a two-year lease with a purchase option at the end.
But soon you realize you're in trouble. Why? Because scammers aren't about to let you get your home back. Often, the lease terms desperate homeowners agree to turn out to be as onerous as their previous mortgage payments that helped get them into trouble. Con artists also manipulate victims when facing crucial deadlines.
"One of my clients was told that payments were going be to under $1,000 a month," Weaver recalls. But the criminals dragged out the process until the foreclosure was imminent and she was backed into a corner. "When she got to the closing … they were like, 'Oh, no, the payments are going to be $1,150.'
"Inevitably," she says, "you're going to default."
And default isn't pretty. The new purchaser evicts you as soon as possible, sells your $200,000 house, pays off the $120,000 loan and pockets about $80,000 -- all for a few months' work, says Weaver. Some people don't even fight back because they don't know they have options -- such as calling a lawyer, says attorney Dollar.
Do's and don'ts:
• Don't fall for promises like "We'll save your credit"; "We'll buy your house 'as is'"; or "We'll get you a new mortgage with low monthly payments."
• Don't sign away ownership of your property (sometimes called a "quit claim deed") to anyone without the advice of lawyer you trust. "When people get behind on their loan payments, they get a bit desperate, but the answer is not putting someone else on your title," says Oakland real-estate attorney James Hand.
• Beware of any home sale contract where you aren't formally released from liability for your mortgage. Also, make sure you know what rights you're giving up and that you agree to giving them up.
Scam No. 2: Phantom help
This scheme is fairly simple: Let's say you're way behind on your home payments and facing foreclosure. An individual or group approaches and offers to help -- then charges you thousands of dollars for various administrative duties like filing forms and phone calls, or else keeps simply promising a big rescue later. You can probably guess what's really going on: The "helper" isn't really doing anything at all to stop your foreclosure despite collecting thousands from you. By the time you figure out you've been hoodwinked, it's often too late to stop the loss of your house.
How did the scammer know to target you, anyway? That's easy: When a lender schedules the home for public auction, the matter becomes public record. In just more than half of the states, a lawsuit must be filed in order to spur a sale. Anyone can check the court documents to find the list of lawsuits, says Elizabeth Renuart, an attorney with the National Consumer Law Center and co-author of a major report last year on mortgage fraud called "Dreams Foreclosed." Soon, a letter or phone call comes like something from a guardian angel -- only it's a vulture.
In the other states (including California and Massachusetts, for example), the process doesn't go through the courts; foreclosure sales simply must be advertised publicly, as in the local newspaper. This latter process usually moves faster -- and makes an already-stressed homeowner even more vulnerable to a scam, says Renuart.
Do's and don'ts:
• Do call your mortgage company or lender if you're in trouble. Ask for the loss mitigation department. Contrary to popular perception, lenders don't want to steal your house, says attorney Dollar. They want to work with you. Why? "Lenders always lose money on foreclosures, even in a rising market," Dollar says. Scammers, on the other hand, will try to keep you from communicating with your lender.
• Don't call for assistance from one of those ubiquitous signs on telephone poles that advertise help. Chances are, that's not where help lies.
• Do proceed with caution, if a company or person:
o Describes itself as a "mortgage consultant," "foreclosure service," or something similar;
o Collects a fee before giving any services;
o Advertises to people whose homes are listed for foreclosure, including anyone who sends flyers or solicits door-to-door; and
o Says you should make home mortgage payments directly to them or to their company instead of your mortgage lender.
• Don't panic. Get full information on the foreclosure process in your state. Make sure you know ALL deadlines -- for court, for document filings, etc. States usually have associations that can offer free advice. Minnesota, for example, has the Minnesota Housing Finance Agency as well as the Minnesota Mortgage Foreclosure Prevention Association, which has federal Housing and Urban Development counselors available. For who to turn to for advice, click on your state here.
Scam No. 3: The bait-and-switch
In this scam, which NCLC calls the "bait-and-switch," con artists actually trick a homeowner into signing over the deed to a home -- without his knowledge.
How could somebody fall for this?
Attorney Hand gives an example. Hand is dealing with 10 cases involving the same real estate loan broker, Kaseem Mohammadi of Union City, Calif., who has been charged with 13 counts of real estate fraud. One of Mohammadi’s strategies, Hand says, was to visit his alleged victims armed with a load of documents on a clipboard and places marked with Post-It notes indicating where to sign. His victims -- some of whom were elderly, or didn't speak English well -- were usually overwhelmed by the documents and also couldn't exactly see what they were signing thanks to the clipboard. And one of the things Mohammadi allegedly got them to sign was a "grant deed" that passed their home's title to a third party.
You don't have to be old or a non-English speaker to be stymied by the legalese. Attorney Renuart says she has seen shysters get their victims to sign incredibly complicated legal documents that resulted in their property being transferred to entities such as trusts. "These trust agreements, I can't understand them -- and I'm a lawyer."
And if a criminal can't get the signature? Forgery goes a long way in real estate these days, experts say.
Do's and don'ts• Don't sign anything that has any blank spaces. Information could be added later that you didn’t agree to. (Yes, it happens.)
• Never sign a contract under pressure. Always know exactly what you're signing. Take your time to review the paperwork thoroughly -- ideally with a lawyer who only represents your interests.
• Never make a verbal agreement. Get all promises in writing and get full copies.
• Cast a jaundiced eye at deals that sound too good to be true. Lately, some scam artists promise they'll wipe out or pay off your home's debt for you (so-called "debt elimination"). Some flustered homeowners bite. Just remember the free lunch rule: There isn't one.
A final thought: Remember, if you can't fix your finances, selling your house (on the normal market, that is) may not be the end of the world. Sure, you'll be a renter again. But given how much homes around the country have appreciated in the last several years, chances are you've made some money, which you can use to get back on your feet.
Source of tips: National Consumer Law Center; U.S. Department of Justice's U.S. Trustee Program; attorney Rachel Dollar
Mortgage scams are like Baskin-Robbins offerings -- they come in 31 flavors. Here are three top choices of con artists and how to avoid them.
By Christopher Solomon
If owning a home is the great American dream, then swindling people out of their prized possession is one of the great, lucrative American scams. Mortgage fraud is on the rise, thanks to the tremendous value that's locked up in real estate today and to the increasing number of people who are struggling to pay their mortgages.
"It's kind of become the new get-rich-quick scheme out there," says attorney Rachel Dollar, publisher of Mortgage Fraud Blog.
More than 323,000 properties entered some state of foreclosure in the first quarter of 2006, a 72% increase over the same period a year ago, according to RealtyTrac. And things could get worse: Nationwide, more than one in three outstanding mortgages has an adjustable rate and interest rates have been rising. "Nobody really knows what's going to happen," says RealtyTrac's Rick Sharga, vice president of marketing.
But scammers know that people in trouble make easy victims. They're swooping in and offering to "help" beleaguered borrowers -- and ending up with their house keys. Victims sometimes spend years fighting to get their homes back and some never succeed.
Meet Carol and Anthony
Carol and Anthony Calvagno of Deer Park, N.Y., on Long Island are in a hell like this right now. In 2003, the Calvagnos were in trouble. Anthony Calvagno had health troubles and had lost his job. In order to pay their bills, the couple took out a home equity loan on the Cape Cod-style house that had been in the family for three generations. (At the time, the couple had a $125,000 mortgage on a house worth about $290,000 -- a high-equity target.) But even the home equity loan wasn't enough.
That's when Mitchell Sims swooped in, offering to help, says the couple's attorney, Arshad Majid.
Sims told the couple that he would arrange a bailout, and that they should stop making mortgage payments while he worked out the details. When foreclosure notices started showing up, he told the couple to ignore them, saying he'd take care of it.
Nearly eight weeks after Sims had entered their lives, and the day before their foreclosure was scheduled, Sims told the Calvagnos that the arrangement hadn't worked. Instead, he said they'd have to file for bankruptcy and enter a "special program" in which they'd sign over their house's title to one of Sims' employees and another of his business associates, who also happened to be Sims' brother. They'd be allowed to live in their home as tenants, Sims told them, and their rent payments would go toward buying their home back from him, says Majid. "They were put in the position where they didn't have any choice" but to sell their deed, Majid says.
But Sims never made any mortgage payments. He kept the Calvagnos' rent money and about $50,000 of the couple's money that remained after their creditors were paid.
The Calvagnos had fallen victim to a scam known as equity stripping -- just one of the many flavors of mortgage fraud. Their house was sold. Sims and another person have been put in prison for their crimes. The couple has successfully fought eviction -- so far -- but not everyone is so lucky. Here's a quick look at three of the main ways scammers can steal the roof over your head.
Scam No. 1: The bailout, aka 'equity stripping'
As the Calvagnos' case shows, this scam is particularly ingenious -- and humiliating for the victim. In theory, a person or company could help a homeowner keep his house via a process in which the homeowner sells the house very cheaply to them while the homeowner gets his finances in order. The new owner pays the mortgage, and the old homeowner pays to live in the home in the meantime, buying back the home (with interest) in a fixed amount of time. If the financial setbacks are temporary, and the company is above-board, everybody can win: The homeowner keeps the house and the company earns a profit for its role as rescuer.
But "reconveyance," as it's sometimes known, is ripe for abuse.
Attorney Leah Weaver, who focuses on fighting the scams as an Equal Justice Works Fellow at the Legal Aid Society of Minneapolis, explains how scammers work this fraud:
Suppose you've got a $200,000 home, with $100,000 of equity in it. A divorce and medical bills have you facing foreclosure. Suddenly, the phone rings with a bailout proposal.
So you sell your home, for $120,000 -- not much more than what's owed on the mortgage. Why sell for so little? "Because it's never intended to be a true sale," Weaver explains; remember, you don't think you're selling the house permanently, but buying it back in a short period, right?
The new purchaser, meanwhile, takes out a $120,000 loan, wipes out any liens on your property and even gets you a little cash back; and you get a two-year lease with a purchase option at the end.
But soon you realize you're in trouble. Why? Because scammers aren't about to let you get your home back. Often, the lease terms desperate homeowners agree to turn out to be as onerous as their previous mortgage payments that helped get them into trouble. Con artists also manipulate victims when facing crucial deadlines.
"One of my clients was told that payments were going be to under $1,000 a month," Weaver recalls. But the criminals dragged out the process until the foreclosure was imminent and she was backed into a corner. "When she got to the closing … they were like, 'Oh, no, the payments are going to be $1,150.'
"Inevitably," she says, "you're going to default."
And default isn't pretty. The new purchaser evicts you as soon as possible, sells your $200,000 house, pays off the $120,000 loan and pockets about $80,000 -- all for a few months' work, says Weaver. Some people don't even fight back because they don't know they have options -- such as calling a lawyer, says attorney Dollar.
Do's and don'ts:
• Don't fall for promises like "We'll save your credit"; "We'll buy your house 'as is'"; or "We'll get you a new mortgage with low monthly payments."
• Don't sign away ownership of your property (sometimes called a "quit claim deed") to anyone without the advice of lawyer you trust. "When people get behind on their loan payments, they get a bit desperate, but the answer is not putting someone else on your title," says Oakland real-estate attorney James Hand.
• Beware of any home sale contract where you aren't formally released from liability for your mortgage. Also, make sure you know what rights you're giving up and that you agree to giving them up.
Scam No. 2: Phantom help
This scheme is fairly simple: Let's say you're way behind on your home payments and facing foreclosure. An individual or group approaches and offers to help -- then charges you thousands of dollars for various administrative duties like filing forms and phone calls, or else keeps simply promising a big rescue later. You can probably guess what's really going on: The "helper" isn't really doing anything at all to stop your foreclosure despite collecting thousands from you. By the time you figure out you've been hoodwinked, it's often too late to stop the loss of your house.
How did the scammer know to target you, anyway? That's easy: When a lender schedules the home for public auction, the matter becomes public record. In just more than half of the states, a lawsuit must be filed in order to spur a sale. Anyone can check the court documents to find the list of lawsuits, says Elizabeth Renuart, an attorney with the National Consumer Law Center and co-author of a major report last year on mortgage fraud called "Dreams Foreclosed." Soon, a letter or phone call comes like something from a guardian angel -- only it's a vulture.
In the other states (including California and Massachusetts, for example), the process doesn't go through the courts; foreclosure sales simply must be advertised publicly, as in the local newspaper. This latter process usually moves faster -- and makes an already-stressed homeowner even more vulnerable to a scam, says Renuart.
Do's and don'ts:
• Do call your mortgage company or lender if you're in trouble. Ask for the loss mitigation department. Contrary to popular perception, lenders don't want to steal your house, says attorney Dollar. They want to work with you. Why? "Lenders always lose money on foreclosures, even in a rising market," Dollar says. Scammers, on the other hand, will try to keep you from communicating with your lender.
• Don't call for assistance from one of those ubiquitous signs on telephone poles that advertise help. Chances are, that's not where help lies.
• Do proceed with caution, if a company or person:
o Describes itself as a "mortgage consultant," "foreclosure service," or something similar;
o Collects a fee before giving any services;
o Advertises to people whose homes are listed for foreclosure, including anyone who sends flyers or solicits door-to-door; and
o Says you should make home mortgage payments directly to them or to their company instead of your mortgage lender.
• Don't panic. Get full information on the foreclosure process in your state. Make sure you know ALL deadlines -- for court, for document filings, etc. States usually have associations that can offer free advice. Minnesota, for example, has the Minnesota Housing Finance Agency as well as the Minnesota Mortgage Foreclosure Prevention Association, which has federal Housing and Urban Development counselors available. For who to turn to for advice, click on your state here.
Scam No. 3: The bait-and-switch
In this scam, which NCLC calls the "bait-and-switch," con artists actually trick a homeowner into signing over the deed to a home -- without his knowledge.
How could somebody fall for this?
Attorney Hand gives an example. Hand is dealing with 10 cases involving the same real estate loan broker, Kaseem Mohammadi of Union City, Calif., who has been charged with 13 counts of real estate fraud. One of Mohammadi’s strategies, Hand says, was to visit his alleged victims armed with a load of documents on a clipboard and places marked with Post-It notes indicating where to sign. His victims -- some of whom were elderly, or didn't speak English well -- were usually overwhelmed by the documents and also couldn't exactly see what they were signing thanks to the clipboard. And one of the things Mohammadi allegedly got them to sign was a "grant deed" that passed their home's title to a third party.
You don't have to be old or a non-English speaker to be stymied by the legalese. Attorney Renuart says she has seen shysters get their victims to sign incredibly complicated legal documents that resulted in their property being transferred to entities such as trusts. "These trust agreements, I can't understand them -- and I'm a lawyer."
And if a criminal can't get the signature? Forgery goes a long way in real estate these days, experts say.
Do's and don'ts• Don't sign anything that has any blank spaces. Information could be added later that you didn’t agree to. (Yes, it happens.)
• Never sign a contract under pressure. Always know exactly what you're signing. Take your time to review the paperwork thoroughly -- ideally with a lawyer who only represents your interests.
• Never make a verbal agreement. Get all promises in writing and get full copies.
• Cast a jaundiced eye at deals that sound too good to be true. Lately, some scam artists promise they'll wipe out or pay off your home's debt for you (so-called "debt elimination"). Some flustered homeowners bite. Just remember the free lunch rule: There isn't one.
A final thought: Remember, if you can't fix your finances, selling your house (on the normal market, that is) may not be the end of the world. Sure, you'll be a renter again. But given how much homes around the country have appreciated in the last several years, chances are you've made some money, which you can use to get back on your feet.
Source of tips: National Consumer Law Center; U.S. Department of Justice's U.S. Trustee Program; attorney Rachel Dollar
How to Answer These Tricky Interview Questions
How to Answer These Tricky Interview Questions
By Kate Lorenz, CareerBuilder.com
Does the thought of going on a job interview cause your palms to sweat and your body to break out in hives? Stop itching; you're not alone.
The vast majority of job seekers admit to emotions ranging from mild uneasiness to downright panic leading up to their interviews. The good news is there have been no reported cases of job seekers who died of nervousness during a job interview. So relax and follow these simple tips for keeping your anxiety at bay before and during your interview.
First, take the proper amount of time to prepare for your interview. Being well-prepared will boost your confidence and lower your anxiety. Experts recommend that you spend at least three hours preparing for each interview.
You should draft answers to the most common interview questions and practice speaking them out loud. You also should read up on the company with which you will be interviewing and prepare some questions of your own. This lets the interviewer know that you are truly interested in the company and the position.
As a final step in your preparation, make sure you have good directions to the interview site. Some job seekers make a dry run to the interview site to ensure the directions are correct and to estimate the amount of time they will need to get to the interview on time.
Going into a job interview is often like entering the great unknown. Although every interviewer is different and questions vary from industry to industry, there are some questions that are common across the board. Reading through the following questions and developing your own answers is a good place to start in your preparation. Once you have done that, remember practice makes perfect! Nothing impresses a potential employer like being ready for whatever is thrown your way.
Why should we hire you?
Here's the chance to really sell yourself. You need to briefly and succinctly lay out your strengths, qualifications and what you can bring to the table. Be careful not to answer this question too generically, however. Nearly everyone says they are hardworking and motivated. Set yourself apart by telling the interviewer about qualities that are unique to you.
Why do you want to work here?
This is one tool interviewers use to see if you have done your homework. You should never attend an interview unless you know about the company, its direction and the industry in which it plays. If you have done your research, this question gives you an opportunity to show initiative and demonstrate how your experience and qualifications match the company's needs.
What are your greatest weaknesses?
The secret to answering this question is being honest about a weakness, but demonstrating how you have turned it into a strength. For example, if you had a problem with organization in the past, demonstrate the steps you took to more effectively keep yourself on track. This will show that you have the ability to recognize aspects of yourself that need improvement, and the initiative to make yourself better.
Why did you leave your last job?
Even if your last job ended badly, be careful about being negative in answering this question. Be as diplomatic as possible. If you do point out negative aspects of your last job, find some positives to mention as well. Complaining endlessly about your last company will not say much for your attitude.
Describe a problem situation and how you solved it.
Sometimes it is hard to come up with a response to this request, particularly if you are coming straight from college and do not have professional experience. Interviewers want to see that you can think critically and develop solutions, regardless of what kind of issue you faced. Even if your problem was not having enough time to study, describe the steps you took to prioritize your schedule. This will demonstrate that you are responsible and can think through situations on your own.
What accomplishment are you most proud of?
The secret to this question is being specific and selecting an accomplishment that relates to the position. Even if your greatest accomplishment is being on a championship high school basketball team, opt for a more professionally relevant accomplishment. Think of the qualities the company is looking for and develop an example that demonstrates how you can meet the company's needs.
What are your salary expectations?
This is one of the hardest questions, particularly for those with little experience. The first thing to do before going to your interview is to research the salary range in your field to get an idea of what you should be making. Steer clear of discussing salary specifics before receiving a job offer. Let the interviewer know that you will be open to discussing fair compensation when the time comes. If pressed for a more specific answer, always give a range, rather than a specific number.
Tell me about yourself.
While this query seems like a piece of cake, it is difficult to answer because it is so broad. The important thing to know is that the interviewer typically does not want to know about your hometown or what you do on the weekends. He or she is trying to figure you out professionally. Pick a couple of points about yourself, your professional experience and your career goals and stick to those points. Wrap up your answer by bringing up your desire to be a part of the company. If you have a solid response prepared for this question, it can lead your conversation in a direction that allows you to elaborate on your qualifications
By Kate Lorenz, CareerBuilder.com
Does the thought of going on a job interview cause your palms to sweat and your body to break out in hives? Stop itching; you're not alone.
The vast majority of job seekers admit to emotions ranging from mild uneasiness to downright panic leading up to their interviews. The good news is there have been no reported cases of job seekers who died of nervousness during a job interview. So relax and follow these simple tips for keeping your anxiety at bay before and during your interview.
First, take the proper amount of time to prepare for your interview. Being well-prepared will boost your confidence and lower your anxiety. Experts recommend that you spend at least three hours preparing for each interview.
You should draft answers to the most common interview questions and practice speaking them out loud. You also should read up on the company with which you will be interviewing and prepare some questions of your own. This lets the interviewer know that you are truly interested in the company and the position.
As a final step in your preparation, make sure you have good directions to the interview site. Some job seekers make a dry run to the interview site to ensure the directions are correct and to estimate the amount of time they will need to get to the interview on time.
Going into a job interview is often like entering the great unknown. Although every interviewer is different and questions vary from industry to industry, there are some questions that are common across the board. Reading through the following questions and developing your own answers is a good place to start in your preparation. Once you have done that, remember practice makes perfect! Nothing impresses a potential employer like being ready for whatever is thrown your way.
Why should we hire you?
Here's the chance to really sell yourself. You need to briefly and succinctly lay out your strengths, qualifications and what you can bring to the table. Be careful not to answer this question too generically, however. Nearly everyone says they are hardworking and motivated. Set yourself apart by telling the interviewer about qualities that are unique to you.
Why do you want to work here?
This is one tool interviewers use to see if you have done your homework. You should never attend an interview unless you know about the company, its direction and the industry in which it plays. If you have done your research, this question gives you an opportunity to show initiative and demonstrate how your experience and qualifications match the company's needs.
What are your greatest weaknesses?
The secret to answering this question is being honest about a weakness, but demonstrating how you have turned it into a strength. For example, if you had a problem with organization in the past, demonstrate the steps you took to more effectively keep yourself on track. This will show that you have the ability to recognize aspects of yourself that need improvement, and the initiative to make yourself better.
Why did you leave your last job?
Even if your last job ended badly, be careful about being negative in answering this question. Be as diplomatic as possible. If you do point out negative aspects of your last job, find some positives to mention as well. Complaining endlessly about your last company will not say much for your attitude.
Describe a problem situation and how you solved it.
Sometimes it is hard to come up with a response to this request, particularly if you are coming straight from college and do not have professional experience. Interviewers want to see that you can think critically and develop solutions, regardless of what kind of issue you faced. Even if your problem was not having enough time to study, describe the steps you took to prioritize your schedule. This will demonstrate that you are responsible and can think through situations on your own.
What accomplishment are you most proud of?
The secret to this question is being specific and selecting an accomplishment that relates to the position. Even if your greatest accomplishment is being on a championship high school basketball team, opt for a more professionally relevant accomplishment. Think of the qualities the company is looking for and develop an example that demonstrates how you can meet the company's needs.
What are your salary expectations?
This is one of the hardest questions, particularly for those with little experience. The first thing to do before going to your interview is to research the salary range in your field to get an idea of what you should be making. Steer clear of discussing salary specifics before receiving a job offer. Let the interviewer know that you will be open to discussing fair compensation when the time comes. If pressed for a more specific answer, always give a range, rather than a specific number.
Tell me about yourself.
While this query seems like a piece of cake, it is difficult to answer because it is so broad. The important thing to know is that the interviewer typically does not want to know about your hometown or what you do on the weekends. He or she is trying to figure you out professionally. Pick a couple of points about yourself, your professional experience and your career goals and stick to those points. Wrap up your answer by bringing up your desire to be a part of the company. If you have a solid response prepared for this question, it can lead your conversation in a direction that allows you to elaborate on your qualifications
Saturday, June 03, 2006
Ways to pay for college
KATHY KRISTOF 5/30/06:
Kathy Kristof
Personal Finance Columnist
June 5, 2006
For Matt Morris, the good news and the bad news came in the same envelope -- his acceptance letter from the University of Southern California's film school.
It is, after all, one of the most lauded programs in the country. But at $44,000 a year, it's also one of the most costly, and his financial aid grant was nowhere near enough to make it affordable.
Now the big issue for Morris is how to pay the tab at a time when federal grant money is scarce, competition for academic scholarships is intense, and interest rates for student loans are rising.
Paying for college is particularly thorny for middle-income families because higher-income parents can better afford it and lower-income students can get much more financial aid.
Complicating matters further are housing values, which have soared in recent years, boosting home equity for many middle-income parents. This paper wealth puts them in a bind when their children choose private schools, which can count home equity as an asset the parents can tap to pay for college.
But tapping that equity forces parents to pay on bigger home mortgages as they use most of their disposable income to pay college bills.
"It has gotten progressively tougher to finance college every year," said David Jaffe, president of College Pursuit, a New York-based college consulting firm. "Parents are in a really tough spot. I see them giving up home equity. I see them giving up their retirement money."
As students like Morris can attest, financial aid for middle-income families is increasingly about loans, loans and more loans. But experts say there are ways to cut the number of loans needed and make wiser choices among the lending options.
It all starts with a financial aid award letter, which all students who have applied for aid should receive from any college that accepted them. These award letters detail the scholarships, grants and loans available to the student from federal, state and school-based aid programs.
This is the cornerstone of college finance, but it's not the last word, said Martha Holler, a spokeswoman for student lender Sallie Mae.
Chances are, the award letter will provide a handful of sources of free money -- scholarships and grants based on need and merit -- and a list of loans and work-study awards.
Morris, for example, said he had received about $6,500 in scholarships, "enough to take the edge off" but not nearly enough to finance the entire bill. USC expects him to come up with the rest of the tab by working, using his parents' resources and taking out loans.
Before Morris heads down those roads, Holler suggested that he seek out private scholarships. Although it is too late to apply for some of these grants, others have late deadlines. The rules affecting private donor awards are as diverse as the individuals and organizations that provide them. These groups include corporations aiming to encourage certain fields of study, service groups such as the Knights of Columbus or DeMolay International, and even private individuals.
The easiest way to find private scholarships is to search on the Web. At sites such as www.fastweb.com and www.finaid.com, applicants fill out detailed surveys about their family history, awards and interests. The sites then search for relevant scholarships, sending links and applications to the student.
Students should apply for everything that has an even modest chance of success -- even if they're small amounts. But this aid will affect the aid the college provides, said Joe Russo, director of student financial strategy at the University of Notre Dame in Indiana. Notre Dame tells its students that they must inform the college when they receive scholarships not listed on their aid award letters. Those scholarships will reduce other aid, he added, but will generally offset loans rather than grants.
Once all sources of free money are exhausted, students and parents have myriad loans to choose from:
>The best of the lot, for those who qualify, Russo said, is the Perkins Loan -- federally subsidized loans for students with demonstrated financial need. The government pays the 5 percent fixed interest rate while the student is in school and through a nine-month grace period after graduation.
There are no origination or guarantee fees, but the maximum loan amount for undergraduate students is $4,000 -- and few students qualify for the full amount.
The next-best option is Stafford loans, which come in two forms -- subsidized and unsubsidized. Starting in July, the interest rate on all newly issued Stafford loans will be fixed at 6.8 percent. For a subsidized Stafford loan, the government pays the interest while the student is in school. But more commonly, middle-income students are offered unsubsidized loans, for which the interest accumulates while the student is in school. Therefore, the loan amount -- the maximum is $2,625 in 2006 -- will grow until the student begins to pay it off.
The big trick with Stafford loans is realizing that the origination and guarantee fees that are charged up front are negotiable. Many lenders waive most, if not all, of these fees, which can add up to as much as 4 percent of the loan amount. Pending changes will alter the fees charged in 2007. For now, students need to know that every lender will charge the same rate on a Stafford loan, but it's worth shopping for lenders who will waive the fees.
Those who reach their Perkins and Stafford borrowing limits and still need more aid have four additional options -- monthly payment plans, parent loans, home equity loans and private loans"
>Monthly payment plans are simply an arrangement with the school -- or a third-party financial service -- to break the remaining cost of tuition (after scholarships and other loans) into nine or 10 monthly payments. For families that don't have the cash flow to handle the bill in one fell swoop, these are a terrific option. Typically, the only cost is a sign-up fee of $40 or $50, depending on the school.
>Parent loans fall under the federal student loan program. As such, they have set rates and fees. As of July 1, all parent loans, dubbed PLUS for Parent Loan for Undergraduate Students, will be at a fixed 8.5 percent rate for the life of the loan. These loans are also subject to 4 percent origination fees, and, unlike student loans, parents must start repaying this debt within 60 days after the funds are disbursed. They are generally repaid over 10 years.
With those rates and fees, PLUS loans aren't a huge bargain. But if the parents have a poor credit rating, they may be worth applying for because these parents have fewer low-cost borrowing options and, if they're turned down for a PLUS loan because of credit problems, their children may be able to borrow more under the lower-cost Stafford loan program.
>Home equity lines of credit may be a better option for some parents. A good credit risk can often secure a home equity line at prime rate -- currently 7.75 percent -- or just a fraction more. However, these loans are generally variable rate, which means they could become more costly if the Federal Reserve continues to hike interest rates.
On the plus side, interest paid on home equity debt of as much as $100,000 is tax-deductible -- no matter what the money is used for -- which lowers the after-tax cost.
The downside to home equity debt is that these loans put the house on the line, giving the lender the right to foreclose on the property if the loan is not repaid. If there's any chance the parents will have trouble repaying, they'd be smart to stick with unsecured loans, even if they cost a little more.
>Private and alternative student loans have cropped up in large numbers as lenders have discovered that the federally guaranteed options are increasingly insufficient to deal with the rising cost of college. The terms and conditions of these loans, however, vary widely. Some can be as attractive as PLUS loans, whereas others are far more costly and less flexible.
These bank loans are usually variable rate and can be taken out by the student or the parents. The loan rate will vary based on the lender and the borrower's credit profile. Holler suggests that students consider getting a cosigner if they take out the loan because it's likely to win them a considerably lower rate.
In any event, she said, the private loan is probably the last option, to be used when the student's ability to borrow elsewhere is exhausted.
Kathy Kristof writes for the Los Angeles Times, a Tribune Co. newspaper. She can be reached at Business Section, Los Angeles Times, 202 W. First St., Los Angeles, CA 90012, or kathy.kristof@latimes.com.
Kathy Kristof
Personal Finance Columnist
June 5, 2006
For Matt Morris, the good news and the bad news came in the same envelope -- his acceptance letter from the University of Southern California's film school.
It is, after all, one of the most lauded programs in the country. But at $44,000 a year, it's also one of the most costly, and his financial aid grant was nowhere near enough to make it affordable.
Now the big issue for Morris is how to pay the tab at a time when federal grant money is scarce, competition for academic scholarships is intense, and interest rates for student loans are rising.
Paying for college is particularly thorny for middle-income families because higher-income parents can better afford it and lower-income students can get much more financial aid.
Complicating matters further are housing values, which have soared in recent years, boosting home equity for many middle-income parents. This paper wealth puts them in a bind when their children choose private schools, which can count home equity as an asset the parents can tap to pay for college.
But tapping that equity forces parents to pay on bigger home mortgages as they use most of their disposable income to pay college bills.
"It has gotten progressively tougher to finance college every year," said David Jaffe, president of College Pursuit, a New York-based college consulting firm. "Parents are in a really tough spot. I see them giving up home equity. I see them giving up their retirement money."
As students like Morris can attest, financial aid for middle-income families is increasingly about loans, loans and more loans. But experts say there are ways to cut the number of loans needed and make wiser choices among the lending options.
It all starts with a financial aid award letter, which all students who have applied for aid should receive from any college that accepted them. These award letters detail the scholarships, grants and loans available to the student from federal, state and school-based aid programs.
This is the cornerstone of college finance, but it's not the last word, said Martha Holler, a spokeswoman for student lender Sallie Mae.
Chances are, the award letter will provide a handful of sources of free money -- scholarships and grants based on need and merit -- and a list of loans and work-study awards.
Morris, for example, said he had received about $6,500 in scholarships, "enough to take the edge off" but not nearly enough to finance the entire bill. USC expects him to come up with the rest of the tab by working, using his parents' resources and taking out loans.
Before Morris heads down those roads, Holler suggested that he seek out private scholarships. Although it is too late to apply for some of these grants, others have late deadlines. The rules affecting private donor awards are as diverse as the individuals and organizations that provide them. These groups include corporations aiming to encourage certain fields of study, service groups such as the Knights of Columbus or DeMolay International, and even private individuals.
The easiest way to find private scholarships is to search on the Web. At sites such as www.fastweb.com and www.finaid.com, applicants fill out detailed surveys about their family history, awards and interests. The sites then search for relevant scholarships, sending links and applications to the student.
Students should apply for everything that has an even modest chance of success -- even if they're small amounts. But this aid will affect the aid the college provides, said Joe Russo, director of student financial strategy at the University of Notre Dame in Indiana. Notre Dame tells its students that they must inform the college when they receive scholarships not listed on their aid award letters. Those scholarships will reduce other aid, he added, but will generally offset loans rather than grants.
Once all sources of free money are exhausted, students and parents have myriad loans to choose from:
>The best of the lot, for those who qualify, Russo said, is the Perkins Loan -- federally subsidized loans for students with demonstrated financial need. The government pays the 5 percent fixed interest rate while the student is in school and through a nine-month grace period after graduation.
There are no origination or guarantee fees, but the maximum loan amount for undergraduate students is $4,000 -- and few students qualify for the full amount.
The next-best option is Stafford loans, which come in two forms -- subsidized and unsubsidized. Starting in July, the interest rate on all newly issued Stafford loans will be fixed at 6.8 percent. For a subsidized Stafford loan, the government pays the interest while the student is in school. But more commonly, middle-income students are offered unsubsidized loans, for which the interest accumulates while the student is in school. Therefore, the loan amount -- the maximum is $2,625 in 2006 -- will grow until the student begins to pay it off.
The big trick with Stafford loans is realizing that the origination and guarantee fees that are charged up front are negotiable. Many lenders waive most, if not all, of these fees, which can add up to as much as 4 percent of the loan amount. Pending changes will alter the fees charged in 2007. For now, students need to know that every lender will charge the same rate on a Stafford loan, but it's worth shopping for lenders who will waive the fees.
Those who reach their Perkins and Stafford borrowing limits and still need more aid have four additional options -- monthly payment plans, parent loans, home equity loans and private loans"
>Monthly payment plans are simply an arrangement with the school -- or a third-party financial service -- to break the remaining cost of tuition (after scholarships and other loans) into nine or 10 monthly payments. For families that don't have the cash flow to handle the bill in one fell swoop, these are a terrific option. Typically, the only cost is a sign-up fee of $40 or $50, depending on the school.
>Parent loans fall under the federal student loan program. As such, they have set rates and fees. As of July 1, all parent loans, dubbed PLUS for Parent Loan for Undergraduate Students, will be at a fixed 8.5 percent rate for the life of the loan. These loans are also subject to 4 percent origination fees, and, unlike student loans, parents must start repaying this debt within 60 days after the funds are disbursed. They are generally repaid over 10 years.
With those rates and fees, PLUS loans aren't a huge bargain. But if the parents have a poor credit rating, they may be worth applying for because these parents have fewer low-cost borrowing options and, if they're turned down for a PLUS loan because of credit problems, their children may be able to borrow more under the lower-cost Stafford loan program.
>Home equity lines of credit may be a better option for some parents. A good credit risk can often secure a home equity line at prime rate -- currently 7.75 percent -- or just a fraction more. However, these loans are generally variable rate, which means they could become more costly if the Federal Reserve continues to hike interest rates.
On the plus side, interest paid on home equity debt of as much as $100,000 is tax-deductible -- no matter what the money is used for -- which lowers the after-tax cost.
The downside to home equity debt is that these loans put the house on the line, giving the lender the right to foreclose on the property if the loan is not repaid. If there's any chance the parents will have trouble repaying, they'd be smart to stick with unsecured loans, even if they cost a little more.
>Private and alternative student loans have cropped up in large numbers as lenders have discovered that the federally guaranteed options are increasingly insufficient to deal with the rising cost of college. The terms and conditions of these loans, however, vary widely. Some can be as attractive as PLUS loans, whereas others are far more costly and less flexible.
These bank loans are usually variable rate and can be taken out by the student or the parents. The loan rate will vary based on the lender and the borrower's credit profile. Holler suggests that students consider getting a cosigner if they take out the loan because it's likely to win them a considerably lower rate.
In any event, she said, the private loan is probably the last option, to be used when the student's ability to borrow elsewhere is exhausted.
Kathy Kristof writes for the Los Angeles Times, a Tribune Co. newspaper. She can be reached at Business Section, Los Angeles Times, 202 W. First St., Los Angeles, CA 90012, or kathy.kristof@latimes.com.
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