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Thu

11

Feb

2010

The Do-It-Yourself Bailout
Thursday, 11 February 2010 05:13
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trickle
Wall Street got hundreds of billions in bailout help. The banks got hundreds of billions in bailout help.

And what did average American homeowners get?  Hot air.  Change we could believe in. Assurances that, if we bailed out the banks and Wall Street they’d bail the rest of out in return. It's the bailout version of “trickle down economics.” But haven't we learned by now that, the only time any thing trickles down from above to us is the tab.

So, isn’t it time we took matters into our own hands and fashioned our own bailout? Let’s call it our “do-it-yourself bailout.”

Here’s how it works:

 -- Do you have no equity in your home but are saddled with a mortgage so underwater that, even if you sold your home at full market value, you’d still owe the bank $50-000 to $100,000 – or more? Is that your problem? And, when you asked your bank  (you know, one of the banks you just helped bailout) for help the bank treated you like some kind of deadbeat? And instead of sitting down and working with you, they warned you to keep making the payments our they’d foreclose? (Banking's version of kneecapping.)

 Is that what’s bugging you buck-o? Well then, just do-it-yourself. Put the keys to your house in an envelop and mail them to the bank with a note telling them that, since they think the house is worth what’s owed, they can have it as full payment.

Purchase money home loans are "non-recourse" loans. The lender can't do a thing about it:

Definition
Loan agreement under which the collateral securing a loan is the ultimate source of repayment, and the lender cannot hold the borrower personally liable in the event of a default. The lender can seize (and sell) the collateral but cannot seize non-pledged asset or property.

No Help in Sight, More Homeowners Walk Away
New York -- Feb. 3, 2010 --In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040...“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?” ( Full Article)

Most of the banks we bailed out also run giant credit card arms (Citi, Chase, BofA, etc) Let's not beat around the bush. With interest rates and penalty fees that would make John Gotti blush, these credit card arms are little more than legally sanctioned loan sharking operations.


Did you know, for example, that last year American consumers paid more in penalty fees to credit card companies than they spent on fresh vegetables? Did you know that if you owe $10,000 on a card and make the minimum monthly payment and don't charge another dime, it would take you 48-years to pay it off? That's not banking. That's loan sharking by any sane (and moral) person's definition.

So if you’ve gotten yourself stuck in this credit card tar pit debt, and the issuer refuses to negotiate a reasonable, mutually acceptable deal with you, then tell them to sue you for it. If they force you into a corner, file personal bankruptcy and let them see what they can get out of you... and the few million other former card holders who do the same.

I know what you’re going to say: “But what about my credit score?”

Friends, being captive to your credit score is exactly what they’re counting on. Credit scoring is the 21st century’s version of indentured servitude. For those with a bad score it's the modern version of a Scarlet Letter. It’s slavery minus the plantation. Breaking those chains is not going to easy or entirely pleasant.

But freedom has always had it's price. And I'm not saying that playing hardball with these behemoths is a pain-free exercise. And there's also the emotional guilt of "whelcing on a contract." But stop and think who's on the other side of these transactions. They are enormous companies that themselves routinely break contracts when it's in their bottom-line interest to do so.

What these companies are demanding you to do is to comply with a contract which, through no fault of your own, has become a suicide pact. They want to force/guilt-trip you into adhering to contracts that their own corporate shareholders would lynch them for if they did the same. In business -- big business -- contracts are renegotiated or broken every single minute of every work day. When conditions change rendering an existing contract a serious loser, the company CFO on the losing end picks up the phone, calls their lawyer and tells him/her to figure out how to get them out of the damn thing.

Companies understand that there's usually a price to pay for breaking a contract, of course. All they want to know is this: is the price of breaking the contract less than the price of fulfilling it. It’s a simple cost/benefit analysis. If they can get out cheaper, they get the hell out. Nothing personal. It's just business.. hard ball business -- smart business.

All I'm saying is, isn't it’s time we consumers -- the draft horses of the America economy --  start measuring our ourselves the same ways corporations do ... as a business enterprise responsible only to our stakeholders. In the corporate world those stakeholders are their bond and stock holders. In our lives the stakeholders are our wives, husbands, children and grand children. And we owe them the same unyielding fiduciary responsibility as companies owe theirs. Nothing more, and most certainly nothing less.

So, start by conducting your own cost/benefit analysis when evaluating your level of debt and the best (as in cheapest) way of getting that monkey off your back -- and keeping it off. Will you have to pay a higher interest rate on future loans if you're score drops? Sure. But if keeping sticking with debt that sinking you and yours, just to maintain a high credit score also means having to swallow a $100,000 or more in lost home equity, while continuing to pay on that outstanding balance... well, DUH!

One more thing about this do-it-yourself bailout. Credit scoring tens of millions of consumers as either bad or good little earner for lenders is so yesterday. It gotta change. Credit scoring companies employ data modeling that fails to reflect – or purposely refuses to recognize – that when the economy crashed in 2008, everything changed. for their average cash-cow consumer. And credit scoring will have to change as well.

After all, what do you think lenders will do for business in the future as the average credit score falls and falls and falls again – especially if enough people arrange their own bailouts. As the average credit score plummets, do you really think they'll continue insisting that only those with 700 - 600 scores can get loans, or loans at affordable rates?  If they do they'll simply put themselves out of business as fewer and fewer borrowers are able to qualify for credit.

And what do you think the powerful and influential home building industry will have to say if lenders refuse home loans to millions of eager families wanting to get back into the home market, simply because they were victims of the “Great Recession" of 2008-201-?

So, lenders -- not to mention every other industry dependent on a active and fluid housing market  -- will demand that credit scoring agencies lighten up and change their scoring models to reflect the enormous economic stress American consumers have endured.

Listen folks. if you're among the tens of millions of Americans still waiting for some of the trillion dollars in stimulus money to trickle down to you and your family, I have a news bulletin for you – it ain't coming. Period. Never. Not a dime.

The ONLY one who's going to bail you out, is you.
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