Many individuals and small businesses borrow money in times of crisis. The old saying, “If you don’t need it, I’ll lend it,” seems particularly true. When we have excess money, usually we’re not thinking of borrowing.
Read MoreOn the Money From the August 7, 2009 print edition The Federal Reserve Board has proposed changes to Regulation Z, which is how the Truth in Lending Act is enforced. Since 1968, Regulation Z and the Truth in Lending Act supposedly have been protecting consumers from deceptive lending practices. The Federal Reserve Board has proposed changes in both the content and timing of what will be required of mortgage lenders. In general, Regulation Z directs that disclosures be made to potential borrowers during the application, underwriting and consummation process. Underlying the regulation’s effectiveness is the assumption that the potential borrower will read, and understand, the implications of the disclosures. Lenders will be required to supply a new one-page Federal Reserve Board publication, titled “Key Questions to Ask About Your Mortgage,” which would explain potentially risky features of a loan. Whether enacted into law or not, the following seven questions contained in the new publication are worth asking the lender: Will my monthly payments reduce my loan balance? Some loans let you pay...
Read MoreOn the Money From the January 5, 2007 print edition New Year’s resolutions are a tradition dating back to the early Babylonians. The early Babylonians’ most popular resolution was to return borrowed farm equipment. According to the U.S. General Services Administration, the top three New Year’s resolutions are to lose weight, pay off debt and save money. [While there may be a relationship between numbers 1 and 3 as it applies to the weekly grocery bill,] let’s look more closely at number 2– paying off debt. The first step toward taking control of any financial situation is to create an accurate picture of the fiscal landscape. Start by listing income from all sources. Then record fixed expenses, such as mortgage payments or rent, car payments and insurance premiums, followed by expenses that vary, such as entertainment, recreation and clothing. The best course is to contact creditors directly and immediately if expenses exceed income. Explain the cause of the difficulties, and try to work out a modified payment plan that reduces...
Read MoreOn the Money From the August 4, 2006 print edition Commercial banks play an important role in the financial system and the economy. Although it may not always appear this way, banks don’t create money. They simply allocate funds from savers to borrowers, and reward themselves for this matchmaking effort by loaning the money they receive from savers at interest rates higher than they pay to the savers (the spread), and charging fees for their connection services. A quick glance at The Wall Street Journal reveals that as a saver, you’ll receive about 5 percent on a one-year savings deposit. On the other hand, as a borrower, you get to pay 13 percent on an average credit card. The 8 percent difference is commercial banking’s matchmaking fee. Banks also provide specialized financial services, mostly information about both savings and borrowing opportunities. They key word is “information.” We’ve been living in the Information Age for awhile now. Electronic devices, high-speed telecommunication lines and the Internet have made Alvin Toffler’s “Future...
Read MoreOn the Money From the June 2006 print edition Sometimes, the word “collateral” may be uttered so many times that the very sound of those syllables causes gastric distress. Obvious forms of collateral include houses, cars, stocks, bonds, and cash—all things that are readily convertible into cash to repay the loan. Some of those assets are “hard,” such as houses and automobiles; others are “paper,” such as the stocks and bonds. However, there are other forms of collateral assets that are sometimes overlooked and can assist the new business in obtaining operating funds. An asset is defined to be anything that has commercial or exchange value that is owned by a business, institution or individual. In addition to intrinsic or “hard” value, anything that has revenue or a potential future earnings stream can be used as collateral. This includes contracts for purchase or purchase orders, which are “collateralized” by the promise of future payment by your customer. Another form of collateral is loans you have made to other people, either simple...
Read MoreOn the Money From the May 5, 2006 print edition The three major credit bureaus — TransUnion, Equifax and Experian — are ganging up on Fair Isaac (FICO) in an attempt to break the latter’s monopoly on credit scores. They have formed Vantage Score Solutions, LLC, which has announced a new credit scorecard called “VantageScore.” It purports to predict the creditworthiness of consumer borrowers. The trio also hopes to generate more revenue for themselves by offering VantageScore and thus eliminating license fees paid to Fair Isaac. Here’s a comparative look at the two offerings. FICO and VantageScore use two different ranges. FICO scores range from 300 to 850. VantageScore starts at 501 and runs to 990. The three credit bureaus that created VantageScore claim its range is more “intuitive.” It looks a little like a school report card: 901-990 equals A. 801-900 equals B. 701-800 equals C. 601-700 equals D. 501-600 equals F. Intuitive or not, the values constructed during scorecard development are arbitrary and have no bearing on the...
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