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Archives for August 2010

When You Make Financial Mistakes, Don’t Allow It To Snowball

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I was thinking earlier this week about why sometimes people will find themselves in dire financial straights – situations where they can't seem to get out, even when they seem to have the resources or the smarts to be able to.  After thinking about it, I realized that a lot of the problems we get ourselves into, and the reasons why we can't get out of them, are really just psychological battles.  We allow ourselves to believe negative things about ourselves or our situations that keep us in trouble.  We end up not having the discipline to get ourselves out.

We All Make Mistakes

We all make financial mistakes in our lives.  Some of us make big ones.  We do things like buying expensive homes that we can't afford because we've fallen in love with the house – and we imagine ourselves living there.  Or we buy an expensive car because we can imagine ourselves living a glamorous lifestyle while driving that car.   Others make small mistakes like forgetting to pay a bill, or spending too much while on vacation.

It's fine to make mistakes – we all do it.  What sets the successful apart from those who can't seem to find their way out of debt is that they learn from their mistakes, and they move on.

Poor Decisions Can Lead To More Poor Decisions

Far too often I've seen friends who have made poor financial decisions take a mistake that they've made, and turn it into an even bigger mistake.  Instead of admitting they've made a mistake, they double down and continue the poor decision making.

I remember one friend in college who made some poor spending decisions, and found that he was going to be short on his rent payment that month.  If he had made a wise decision he probably could have admitted his mistake, and tried finding ways to make up his shortage.  He could have sold some of his video games, or got a quickie part time job to help make up the difference.

Instead, he allowed it to get him down, and he decided instead to go on a week long spring break trip – all paid for on his credit card.   Because he allowed his poor decision to get in his head and depress him, he tried to make himself feel better by spending even more money that he didn't have.    In the end he was only able to get out of trouble by begging his parents for a loan – which I'm pretty sure he never paid back.

Learn From Your Mistakes

Instead of allowing your mistakes to get the best of you, and before the snowball gets rolling down  that hill, nip it in the bud.  Don't let your mistake get in the way of your future.  Don't allow one mistake to beget another.

Instead, admit the gaffe, and do what you can to turn things around.   Make a plan for change and think about ways you can ensure that the problems don't arise  again.  Forgive yourself and move on.  Don't be destroyed by guilt, and don't allow your guilt to consume you to the degree that you give up.

If you bought a house you can't afford, cut your losses while you still can and sell the house.  If you've bought a car that is out of your price range, return it or sell it! And if the mistake can't be remedied – at least don't compound it by making new mistakes!

Have you ever made a financial mistake, and then compounded the problem by allowing it to consume you – and pushing you to do something else stupid? What are you thoughts on how problems can snowball out of control?

Obama Administration Offers $1.5 Billion In Foreclosure Funding For Hardest Hit States

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These past few years have been tough ones for homeowners, with home prices dropping, people finding that their homes are underwater, and foreclosure filings increasing all  the time.  In fact, there have been almost 2 million foreclosures so far this year!

RealtyTrac®  the leading online marketplace for foreclosure properties, today released its Midyear 2010 U.S. Foreclosure Market Report, which shows a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions  — were reported on 1,654,634 U.S. properties in the first six months of 2010, a 5 percent decrease in total properties from the previous six months but an 8 percent increase in total properties from the first six months of 2009

With the real estate and economic crises not having much of an end in site, this past month the Obama administration put together a $1.5 billion dollar fund to help the hardest hit states.

State Housing Finance Agencies (HFAs) in Arizona, California, Florida, Michigan, and Nevada  can begin to use $1.5 billion in “Hardest Hit Fund” foreclosure-prevention funding under plans approved today by the Obama Administration. This aid will support innovative local initiatives to assist struggling homeowners in those states, as part of the first round of funding available under this new program.

How The Hardest Hit Foreclosure Prevention Program Will Help

The programs for approved states will help homeowners in the following ways:

  • Assist struggling homeowners with negative equity through principal reduction.
  • Assist the unemployed or under-employed make their mortgage payments.
  • Facilitate the settlement of second liens.
  • Facilitate short sales and/or deeds-in-lieu of foreclosure.
  • Assist in the payment of arrearages.

State Specific Foreclosure Prevention Programs

Of the states that have been hardest hit by foreclosures-  and are a part of the program, here are details of how they will be helping.  From MakingHomeAffordable.gov

Arizona ($125.1 million)

  • Arizona will provide assistance in the form of principal reduction, interest rate reduction, and/or term extension programs with the goal of allowing borrowers to enter into a permanent modification program.
  • In circumstances where a second lien is prohibiting modification of a first lien, the state will provide assistance toward elimination of the second lien.
  • The state will also offer assistance to the under-employed while they seek new employment. This assistance may be used to pay monthly mortgage payments or remove second mortgages where that second lien is prohibiting the modification of a first lien.

California ($699.6 million)

  • California will provide assistance to reduce principal with earned principal forgiveness.
  • The state will also target funds to address delinquent loan arrearages.
  • California will offer a mortgage payment subsidy to unemployed families.
  • Provide funds to assist families that have executed a short sale or deed-in-lieu of foreclosure transition to a stable housing situation.

Florida ($418 million)

  • Florida will offer up mortgage payment assistance to the unemployed and under-employed while they seek re-employment. The state will also offer principal reduction or second lien extinguishment if necessary to achieve a mortgage modification.

Michigan ($154.5 million)

  • Michigan will subsidize an unemployed borrower's mortgage payments while they search for employment.
  • The state will assist with loan arrearages for those who can sustain homeownership and have undergone a financial hardship.
  • The state will assist homeowners with negative equity through earned principal forgiveness.

Nevada ($102.8 million)

  • Nevada will create a mortgage modification program using a combination of forgiveness and forbearance with a goal of reducing principal to less than 115 percent of LTV (loan-to-value) and lowering payments to 31 percent of DTI (debt-to-income).
  • The state will also offer assistance to reduce/eliminate second liens with earned forgiveness over a three-year term.
  • Additionally, the state will provide allowances for appraisal and transaction fees, moving fees, a legal allowance for up to three months, and a combination of incentives for borrowers and servicers to facilitate short sales.

More Funding For Foreclosure Programs A Good Idea?

There are a lot of people that need help, but the question is, are we just throwing good money after bad by continuing these foreclosure programs?  Are the programs really helping – or just prolonging the pain?

In reading up on much of the “Making Home Affordable” program, I read that of the people that got help, a high percentage of them still had problems and went into foreclosure anyway.  So the question is, if we aren't really helping people anyway, just prolonging the pain – why do we keep kicking the can down the road?

What do you think? Should we continue providing foreclosure prevention assistance to homeowners? Are we just prolonging the pain -or is this and other programs actually going to help?  Tell us your thoughts in the comments.