Merry Christmas!

We are in the middle of an 18-day road trip and are currently in Idaho. We've had a very frugal Christmas so far, and I will write more about that later. I hope that however you celebrate your Holiday (or your avoidance of the whole deal) you enjoy the day (week, etc.) and have a great experience.

Happy Holidays!

Mortgage Roundup

I've noticed a lot of articles about the current mortgage crisis in the PF community, and there is a lot of finger-pointing going on in the media as well. Here's a few articles I ran into this evening:
The Seattle Times writes It's a Wonderful Mess (great discussion thread on Seattle Bubble):

Nowadays, it's impossible to watch the 1946 holiday movie "It's a Wonderful Life" and not feel a twinge of respect for Henry F. Potter, the villainous banker played by Lionel Barrymore. Potter was not above drawing the last drop of blood, but at least borrowers knew whom to hate. And if they were late paying, they knew where to crawl.

That's not necessarily the case today. Mortgage companies often ship the loans to Wall Street, which repackages them into securities sold around the globe.

So if you're a borrower in trouble, and your loan is diced up into some mortgage-backed security, you'd be hard-pressed to find a lender's ear. How's your Chinese?

Newsweek writes about When Mortgages Made Sense:

Greenstein says loan modifications—whether done on a case-by-case basis or via the standards recently set out by the Bush administration—are the logical starting point. He also wonders if we'll hear more about steps to help people who have invested in securitized mortgages, which are now suffering losses. He hopes the lending process will move back toward stricter underwriting, to a time when people wouldn't be issued a mortgage that would consume 40 percent of their income. The Fed's reforms will help, but Greenstein says he'd also like to see the loan documents borrowers sign become more comprehensible.

The Wall Street Journal had an article entitled If Homes Cost Too Much, Is It Okay To Rent Forever? (more discussion at BostonGalsOpenWallet):

As a renter in an up-and-coming neighborhood in Manhattan, I’m particularly interested in this subject. I pay an admittedly low rent — for New York City — of under $2,300 for a large two-bedroom apartment. When I run the numbers on any mortgage calculator, it looks like we’d be spending more than $3,500 per month on a $400,000 mortgage (including taxes, but not including all the unknown expenses that come with home ownership). I know there is an upside: tax breaks, an appreciating asset, a home to call our own and shelter from the shock of rent increases. But, increasing our outlay on housing by 50% or more sounds like asking to be house poor. We’re still going to save up and sure, we’ll likely get raises along the way, but we’ve resigned ourselves to being renters for up to another decade.

There's even a movie in the works, called Maxed Out:

Maxed Out begins as Beth Naef, one of the most successful real estate brokers in the country's hottest real estate market, Las Vegas, gives us a tour of a $5.5 million spec house. What's important to her clients, she says, are elevators, massive kitchens and wine cellars. Beth is building a ten-thousand square foot McMansion of her own, a home she admits she won't be able to afford if interest rates go up. But, as she concludes, "if you look like you make money, I guess eventually you will."

Single Ma has something to say about this whole mess:

I don't even know what to say about the current mortgage industry. I don't want to pass judgment on the borrowers and I don't want to place all the blame on the lenders. But there's one thing I do know for sure - it is affecting the entire US economy. Ruthless scammers are trying to take advantage of the uninformed, savvy investors will profit from their misfortune, the government is making futile attempts to help, tax dollars will be wasted, home values are rapidly declining, and responsible borrowers are pissed...and rightfully so.

In my opinion, it's just a hot butterball mess!

Here's an interesting piece from Millionaire Mommy Next Door:

Good friends of ours built their home in Phoenix before the prices skyrocketed. They plunked a lot of cash into their home and accelerated their mortgage payoff. They now own their home free and clear. A couple years ago, they shared the exciting news that their home's value was evaluated at over $850,000 and they expected the price to appreciate to $1,000,000 very soon.

You can guess how this story ends.

Here's another one from Millionaire Mommy:

"All current living generations in America have been force-fed the idea that home ownership is absolutely essential to financial freedom. It is an article of faith in the national religion. Question this and you are branded a heretic. Somehow, through an Orwellian twisting of the language and a corruption of the educational system, debt became wealth. The last two generations that would have disputed this have passed on."

Dear readers, don't just take my word on this topic. Ask questions, do some research and come to your own conclusion. The purpose of my site is not to tell you what to do. My intention is to educate.

There's a lot of information out there. As for us, we wanted to sell our house in 2005 and start renting; it would have made us debt-free. My instincts were good, but a serious illness kept us from making that happen. Now, oh, how I wish we had done it! Regardless, we will pay our debt the slow way, and if our house gets to be too much -- we'll rent it out and downsize. Luckily we got an excellent loan and bought a house well within our means; we are the minority today, I guess. Happy reading!

Another college post

In an earlier post I wrote about my extremely expensive college education, and the diminishing returns I have received from it. Part of the problem of my education choice was the fact that I was the very first person in my entire extended family to attend college, so nobody really knew what I needed. My parents dropped me at school with $50 in my pocket. They felt it would get me to my first paycheck; after all, I had a room in the dormitory, and a meal card, and a backpack with pens and notebooks. What else did I need?

Books.

My first paycheck didn't come for 6 weeks, and in that time I needed to come up with $400 worth of books. I called my parents, who said, "We don't have that kind of money! I thought your scholarships covered everything?" Well, they didn't -- the $2400 work "scholarship" allotted to me as a student worker I earned slowly, as I actually worked. I didn't understand this, so between my student work "scholarship" and my books, I was $2800 short for the year. So what was a young person to do? I wandered around at a loss until I finally ended up at a counter where they handed me an application -- for a credit card.

One week later it came in the mail. I went immediately to the bookstore, blew $400 on books and then headed to the mall to buy a winter coat. By the time I went home for Christmas, I had put $660 on the card. By the time I graduated, I owed $6,400. I finally had to negotiate a settlement, which I did, paying just $900 and getting a black mark on my credit.

Lessons I learned from this:

• Only go to college if you can afford it.
• Books cost A LOT. If you're smart, you can utilize some great new programs that weren't available when I went to college, like chegg.com or bookrenter.com -- sites where you can rent books for a fraction of the cost.
• Avoid credit cards. Avoid credit cards. Avoid credit cards AT ALL COSTS. I nearly dropped out of school because I had no money for books again my second year, and sometimes I wish I had (of course, I planned to take my credit card to Europe, so probably it was best I stayed).
• Find a mentor. Rely on them. Heavily. Seriously, I found a mentor my second year, and although he did not help my financial situation much, he did help me graduate. By my second year I was $15,000 in the hole with student loans, so graduating was smarter than dropping out.
• Ask questions! Ask the school what additional expenses you should look for, and don't disregard their response. I could have asked financial aid what to expect and they would have told me; instead I took the 1-year scholarships as a sign that I was going to make it, and when those scholarships went away after the first year I just took out more and more loans to make it through.

Learn from my mistakes; if you're going to go to college, be smart about it.

The Appliances have been Paid For!

Last week I paid took out $1400 and paid off our Sears credit card. We had to buy new appliances last month and we decided to put them on the card, but I just couldn't see paying interest on a credit card in order to keep our emergency fund filled to the brim. We decided to cut our fund to just $500 in order to pay this card off. We now have one less bill...I just hope it was the right choice.

What the heck is a Kindle?

Okay, here's another abnormal post...I guess it's just been one of those days. I was looking over my Amazon accounts (I still have that Amazon versus eBay versus Half.com post to write, and it is coming, I assure you) and I saw something about Kindle referrals.

What's a Kindle? I thought. Some kind of new phone, I assumed.

Well, it isn't. It is an electronic reader, otherwise known as a e-Book. It is about the size of a book and you can download text, newspapers, etc. to it. It doesn't use WiFi, it uses cell phone technology so you have fewer dead spots. Here's a picture:

And I have to say, while I would never buy one at the cost of $399.00, the idea of fewer books in my house...well, it's tempting. Selling my books via eBay, Half and Amazon has been stressful at best and an exercise in futility at worst. I have long known that something like this would come; is the time finally here? Has the paperback run its course? I guess I'll just have to wait and see.

Pentecostals push Entrepreneurism in Poorest Countries

I was drawn to this series about Pentecostal missionaries facing members of organized crime in Brazil; I read The Cross and the Switchblade as a teen and have always been impressed with what one man can and did do (it's the story of how Teen Challenge centers were started). Of course, religion is not the focus of this blog, nor do I ever want it to be. But when religion crosses with finance, the end result is interesting -- at least in this case.

Wealth gospel, long the territory of television evangelists and charlatans, has apparently moved to the slums with a surprisingly positive result. It sounds as if the movement is having a varying degree of success; critics point to a $33 million dollar mega-church in Guatemala that seats 12,000 and sports a heliport -- hard to justify in the middle of an impoverished region, after all. It's sort of like building a cathedral in the middle of a slum. But for those grassroots churches that are giving people seed money to start a business -- well, that seems more fiscally responsible. Or perhaps it would be better to simply say it sounds more fair. It's hard to say, but any program that encourages finance education is good by me.

The 'Gospel of Prosperity' helps Guatemalans help themselves out of poverty

Early Pentecostals reached out to the poor with the idea that poverty on earth would lead to riches in heaven. They gained a reputation for being concerned only with the "otherwordly." But the movement has unabashedly adopted a new ethos: God doesn't want anyone to be poor.

This message, known as "prosperity theology" or "health and wealth gospel," is most often associated with the newer Neo-Pentecostal branches of the religion where adherents, mostly upper and middle class, fill massive megachurches. But in Guatemala even the more traditional denominations are adopting a message of social mobility, making the words "self-improvement" and "ascent" part of the daily lexicon.

In churches like Showers of Grace, Pentecostals are told that poverty does not equal humility. They are offered business classes, taught how to save money, and encouraged to be community leaders.

Is College Worth The Money?

I was perusing Millionaire Mommy Next Door's blog (who wouldn't? I want to be a millionaire mommy too) when I saw a link to this article, entitled Is college worth the money? As someone with $49,000 of student loans still to pay, I couldn't resist. Here's what it said:

If you check the College Board's Web site (.pdf file), you'll find a reassuring study indicating that education really does pay. Without considering the intangibles, the study says each additional level of education draws a higher lifetime income. While the median high school graduate age 25 and older earns $26,300, the median college graduate age 25 and older earns $42,200. That's an annual income premium of $15,500, or 59%.

Well, maybe not.

According to the College Board, it takes 14 long years before the four-year college grad's income, net of loan payments, starts to beat what the high school grad earns. During all those 14 years, college doesn't pay. High school pays.

. . .

If college pays for the median-income worker, it may not pay as well for graduates who aren't so fortunate. Worse, if you earn less than the median, the burden of your college loans will weigh very heavily. They could, in fact, exceed your earnings gain.

Bottom line: College, particularly an expensive private college, is a high-risk investment, which, for many, won't pay.

I have to agree. I went to an expensive private college, expecting to make a lot of money when I graduated, but that wasn't the case. Not only did the private college not give me an edge -- you'd be surprised the number of "alums" from state colleges and universities that would prefer to hire their own rather than someone from a "fancy" private school -- a lot of times it actually made it more difficult to get a job because the school was small. Imagine my surprise when, five years after graduating and paying $80,000 to go to an "excellent" private school on the West Coast, someone on the East Coast asked me if the school was accredited? I nearly had a heart attack. If I had gone to Washington State University, on the other hand, I could have paid 75% less for tuition and the name recognition of the school would follow me anywhere in the U.S. -- no questions of "accreditation" required.

My alumni association constantly presses me to encourage teens to apply for the school, but I simply cannot in good faith do it. I loved my school, it was a great experience, but financially it was disastrous for me. I will soon attend my 10-year college reunion without a lot to show for the education I received.

As for my kids, I plan to send them to a state university, at least for two years. If they have the scholarships and want to get that private school diploma, they can go for the last two years.

After all, education is only as good as it frees you to do better and more interesting work; a high debt-load, even with student loans, is nothing but a different set of chains.