There are loan sharks and then there are pay day loan stores. These are the stores that lend money on no credit and charge in 319% interest. If you can’t pay back the original pay day loan, then they renew and in many cases continue to loan money which ends up putting the customer in a trap that they will never escape.

Now, you can add banks to that pay day loan category. Banks such as Wells Fargo, Fifth Third Bancorp, and US Bancorp are already running a pay day loan program. Of course they certainly don’t call it that. Here is how it works – You can take out a short-term loan for 30 days. They charge $10 per $100 borrowed. That is the equivalent of 120% interest. The Wells Fargo spokeswoman says, “the advance is less expensive than a pay day loan.” So, in other words, it is OK to charge a fee that works out to around 120% in interest. The average pay day loan is $15 per $100. Wow! It looks like Wells Fargo is doing the customers a favor.

So, why are they going this route? Federal regulators finally cracked down on the abusive business of bank overdraft fees. This is the program where they give the customer the ability to continue use a debit card even though they are debiting more than is in the account. A bank customer could have nothing in his or her account, use the debit card 7 times in a day and have 100’s of dollars in fees because they didn’t know they were at a negative balance.

Now, federal regulators say that banks will have to give the customer the ability to opt into the program rather than just abusing them. This could be a loss of 15 to 20 billion dollars in revenue. Really? We should feel sorry for a banking industry that has used abusive means to make money. Just like the credit card industry, these banks will turn to different methods to abuse consumers. Now they are going to be pay day loan sharks. Sure 120% is lower than the 391% effective interest rate for pay day loans; however, it is still abusive. Banks are just going to provide another way for customers to get themselves into a problem.

Don’t worry – it will take regulators around 5 years or so until they deem this abusive then they will clamp down on the banking industry once again. It is amazing that the very people that are suppose to protect consumers from abusive consumer practices will allow these obvious abuses to be practiced for years before doing something about it. They allowed this practice of overdraft fees to go on for years.

Tags: Debt, Fees, interest rates, loan

When the Government released their plan, which is intended to help a projected 9 million homeowners prevent foreclosure, I was very skeptical that it would actually work.  

The trend with our Government is to release all of the media sound bites concerning the solutions that they are coming up with to fix the crisis.  However, when you read the fine print of the solution, you quickly realize that there is no solution and that all of those political “sound bites” were nothing but talk.  

The politicians follow a strategy.  They always look like they are doing their job to protect and help the American people. They hold press conferences telling you all of the wonderful things that they are going to do.  Then they go so far as to pass legislation, create new programs, and sign new laws.  Unfortunately, these wonderful “solutions” are nothing more than window dressing.  The only people that they protect are the ones who donate to their political campaigns.  

All you had to do was read the fine print of the mortgage modification program to know that there was no way that they were going to help 9 million homeowners.  This plan was projected to cost 75 billion dollars.   

Law Professor Alan White came up with some interesting statistics.  His analysis shows that mortgage modification was actually down 11% in May.  If the plan was working, wouldn’t we be getting more of these plans done each month?  

In May there were 32,267 foreclosed properties and only 19,041 mortgage loans modified.

The statistics get even better.  His analysis shows that 27% of the loans modified caused the payment to increase rather than decrease.  The reason that homeowners need their loans modified in the first place is because their payments are too high.  

If you read the fine print, you will realize that there are 100,000’s of Americans that cannot even apply for the program.  Dick Morris reports a disturbing list of reasons why you cannot even qualify:  

     -You have lost your job;

     -You owe more than 5 percent above what your house is worth;

     -You are already in default;

     -You have not yet missed at least one payment;

     -Your lender does not want to participate;

     -Your mortgage is not one of the half of all mortgages insured or owned by Fannie Mae or Freddie Mac;

     -The reworked mortgage payment would come to more than 31 percent of your income;

     -Your mortgage is over $759,000;

     -The home is not your primary residence.

What is the Government’s solution?  Well like everything else that they do. They hold press conferences, tinker with numbers, and tell you what they want you to believe.  There is nothing that a good Public Relations Campaign can’t solve.

Statistics Source:  Dr. Jerome Corsi read his articles on www.worldnetdaily.com   

Tags: Bob Brooks, crisis, Deceptive Money, Dick Morris, Dr. Jerome Corsi, Foreclosure, Government, Homeowners, loans, loans modified, mortgage, mortgage modification, politicians, Prudent Money

After hearing about all of the scams with these home loan modifications, I thought I would post these 5 things to know that were sent to me by a home loan modification.  I would post the author and internet site.  However, I know nothing about this company.  If you are looking get your home loan modified, just know that there are tons of scammers out there and you need to be very careful.

 1. “How long have you been in the loan modification business?” Loan modifications have been going on for years, but companies are popping up left and right trying to figure it out on the fly, so pick an expert! You need to have confidence in the person you are talking to, as they will be handling your family’s financial future.

2. “Are you an Attorney-based company? If they aren’t attorney-based, they may just be some fly-by-night operation who might not even be around in thirty days after they get your money. Successful negotiations require Attorneys, and you need strong legal representation.

3. “Is your company registered with the Directory of Registered Loan Modification Companies?” The DRLMC is a national private registry of loan modification companies. Its members must adhere to strict operational standards. DRLMC membership speaks volumes about a company’s integrity and competence.

4. “Do you have Forensic Audit experience?” Since an estimated 4 out of every 5 loans contain serious state and federal violations, any loan modification company you choose needs to be expert at forensic audit analysis in order to catch any potential violations. Before you can effectively have your loan modified, your modification company and it’s Attorney must know exactly what violations were performed by the lender.

5. “Do you have a WRITTEN money-back guarantee and do you guarantee in writing that you have no ‘back-end’ fees?” Some modification companies require payment up-front, and are “performing little to no services for those fees” (1). Worse yet, there are even some companies who charge a large, surprise junk fee at the end of the process once the loan modification is ready to be signed since the average customer is usually in a financial crunch and working on a short time line!

I received this e-mail from a listener:

I had written you some time concerning our mortgage with Bank of America and how the bank rushed us into a loan modification that increased our interest rate from 5.75 to 6.85 since 2006.

This year when the interest rate got to 4.7, we tried to refinance and the loan representative told us that we would get an interest rate of 5.2 with no closing cost except for a fee of $200.We paid the $200 fee and waited for the final part of the refinancing.

To our greatest suprise, when the refinancing documents were mailed to us the truth in lending page had a loan amount of $290,000 instead of the $279,400 we are refinancing. This means the bank put a closing cost of $10,000 into our original loan balance.

$10,000??  Now that is a closing cost!!  If you are refinancing, be careful.  Mortgage companies and Banks are still trying to charge big unnecessary fees.  Make sure that you watch the fine print.  There are some great mortgage companies out there.  Make sure you are working witha  trusted resource.

It is amazing how many stories that I have received over the years about Bank of America ripping off consumers.

Tags: Bank of America, Bob Brooks, closing cost, Deceptive Money, interest rate, loan, loan modification, mortgage companies, Prudent Money, refinance

Dear Bob,

I think that I have a big problem on my hands.  Let me give you a little background first.  I took out student loans to go to college.  I have been paying on them ever since. I have never missed a payment, always paid on time, and most of the time paid a little more.  I received a letter from Wachovia yesterday (who bought my loan in 2007), saying that starting 11/28/08 instead of paying $95 a month I need to pay $1,035.55 for the next year to pay the loan off. 

I called them and told them that I can’t pay that amount and inquired about my options.  She told me that I had none.  She said that they did a review and looking at my account, if I continue to pay $100 (which is what I chose to pay over the amount that was due), the note would not be paid off in time.  I asked her why wasn’t I billed a higher amount 10 years ago then.  This wasn’t supposed to be a balloon type note. It was supposed to be gradual.   She said that there was nothing that she could do.  

I have paid them over $13,000 since 1994. 

Well, come to find out, the payment was supposed to go up gradually over time and that didn’t happen.  So, Wachovia stuck it to her.  As I said yesterday, banks are desperate for money.

Yet another bank changing the terms of a loan and not working with the consumer.  It is pretty tough to handle that large of an increase in a loan payment.  Let’s look at her options:

1)       Her husband told her to tell them that she would settle the debt for $3,000.  He told her to tell them that she would give her $3,000 and that is it and if they want to file a claim on the credit report they were more than welcome.  

That wouldn’t be a real good idea because defaulting on student loans has very large consequences.  It is one of the few loans were the creditor can garnish your wages to get their money.  They would ruin your credit and still get the money at the same time.  That is not a good option.

2)     Do nothing at all on the grounds of it not being fair

Credit applications don’t have the word fair written in them.  In fact, with most consumer-based loans, you give them the right to be unfair.  They can change the terms and conditions at will.  

3)     Refinance the debt or pay it

That is the only good option.  If your credit is still good, it is possible to accomplish that objective and that is just what she did.

She made two critical errors this loan, which had nothing to do with making the payments.  First, she didn’t have any of the original paperwork.  Chances are the bank didn’t have all of the details right and she probably could have disputed the details and maybe had the payment changed back.

Second, she didn’t fully understand her loan and failed to monitor it along the way.  If your loan is more than just a fixed payment over a specified time period, then make sure you know when the payments are supposed to change and make sure that they do change.

Today, no one has the luxury of not paying attention.  In desperate times, banks are doing desperate things.  Raising a person’s payment from $95 to $1,000 when a payment has never been late is desperate.

Tags: balloon note, banks, Bob Brooks, credit, Deceptive Money, gradual note, loan, Prudent Money, Student Loan, Wachovia

I had Alice White Hinckley on the show with me yesterday. She is a mortgage consultant that I have known for over 25 years. If you are in the market to refinance or finance a new home purchase, I would highly recommend her. She is very good at what she does.

The mortgage markets are really changing. Credit scores are incredibly important. The bottom line is that anything north of 680 is going to get you a good rate. However, the further you fall from 680, the rates start to go up. Alice said that they will increase at every 20 point interval as you decline below 680. Then there comes a point where you don’t qualify at all.

The biggest problem is the lack of equity in homes. Due to the small percentage that was placed as a down payment during the initial purchase as well as the declining values of homes, many homeowners find themselves upside down in their home (owing more than the house is worth). Banks and lenders want to see some type of equity.

Private mortgage insurance has also increased in price. Beyond the monthly price increases, often times lenders are requiring an upfront cost to be paid at closing. In other words, not only are interest rates higher, so are the closing costs.

So, here are a few tips:

1) Plan ahead – If you know that you will need to refinance, talk with a mortgage consultant ahead of time so that you know your situation. Even then, things could change between today and the time you are going to refinance. It appears that things are changing daily as banks attempt to keep up with this credit crisis.
2) Know your credit score – This is also important. Work to keep that credit score high. If your credit score is low, do whatever is necessary to increase your credit score (beyond calling one of the credit repair companies that advertise on the telephone pole).
3) Find a mortgage consultant and stay away from the sales people – In this environment, you need someone who is going to act as a consultant and not someone who is going to pretend to be a consultant but really is nothing more than a slick salesman.
4) If fees at closing seem excessive, they just might be – Some of these mortgage brokers are charging outrageous fees and getting away with it. Most fees are standard across the board. Then some try to charge points (additional fees) stating that there is no way around it. Remember you can always get a second opinion.
5) If you have an adjustable rate mortgage, don’t just assume you should re-finance – Look the numbers over very carefully. Your rate might not increase to the point where refinancing makes sense. If you can buy another year, it makes sense to do so. The credit markets might be in better shape a year from now.

To listen to yesterday’s show, click here.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tags: Alice White Hinckley, Bob Brooks, credit scores, Deceptive Money, equity, Mortgage consultant, mortgage markets, Prudent Money, refinance

I have been getting a lot of questions on car financing. So, I thought I would cover some key points to know. The key to any type of consumer debt is keeping the interest rates as low as possible. Thus, I wanted to go over with you the key pieces of information that you need to know when attempting to get the best deal possible on a car loan.

1) You have to know your credit score. It is almost impossible to get the best rates without a score north of 670. I am finding more and more people who have great credit scores and are paying too high of interest rates.
2) It is important to know the going rates. You can get a good idea of the going rates by going to www.bankrate.com. The best rate that I know of is at www.penfed.org. There is more on that below.
3) You can refinance an older car. Most consumers think about refinancing a home loan to a lower rate. Most don’t think about refinancing an older car. The good news is that you do have the ability to get that interest rate lower.
4) You should never pay up-front fees when you finance a car.
5) Always take out guaranteed asset protection or GAP insurance. This is important insurance to have for your car loan. If you total your car and you owe more than the insurance company is going to pay, GAP protection picks up the difference.
6) If you are upside down in a car, it is almost impossible to get the loan refinanced.

The best car financing source that I have come across is the Pentagon Federal Credit Union. They are the credit union for the United States Pentagon. The website is www.penfed.org.

If you or anyone in your family (includes extended family) is active or has served in the US Army, US Air Force or Coast Guard, or Reserve, National Guard, or ROTC, then you can join the credit union for free. If not, you can join the National Military Family Association for $20 a year. The only downside is that you must join the credit union prior to applying. You do need a good credit score.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tags: Bob Brooks, car financing, car loan, consumer debt, Credit Score, Deceptive Money, GAP insurance, GAP protection, interest rates, Pentagon Federal Credit Union, Prudent Money

Paying someone to do it for you? Not so good.

So are these equity accelerator programs worth the cost that it takes to set them up? These programs advertize that you can save big bucks in interest and shave years off of your equity loan by using their service. So is the marketing true?

If you run the numbers, the claims are true. However, with most of these programs, there are fees for services. So, the idea is great. However, it might not make sense to pay someone to do it for you. I saw a good example of such a program today that I wanted to share with you. With this program, there is an initial cost of $295 to set it up and then they charge a $5.42 service charge each month.

Basically, they are turning your loan into a bi-weekly payment plan which would ensure that you make one extra payment a year. If you are making 13 payments versus 12 payments, you will definitely pay it off earlier.

However, is this worth the cost? I had a chance to review one of these programs today and these are the numbers.

Option 1 Pay the loan out over 30 years making the monthly required payment

Monthly Payments $416.13
Total interest paid $88,805.91

Option 2 Use the equity accelerator program

Interest Saved by using their program $23,403.82
Up-front cost of $295.00 and a monthly service fee of $5.42
Make payments of $208.06 every two weeks – This will turn your 12 payments each year into 13 payments

Option 3 Do it yourself and don’t waste your money on fees

Strategy – Take a monthly payment of $416.13 and divide it by 12. That comes to $34.67. Now add that to your monthly payment of $416.13. You new monthly payment would be $450.80. Now instead of paying them $5.42 a month, pay that $5.42 a month towards your loan. Now your payment would be $456.22.

Result? This results in a savings of $24,886.39.00!! By doing it on your own and not paying this company fees, you save an additional $1,482.57 as well as not pay the up-front fee.

The moral of the story – Marketing claims that are bold and outrageous should be looked upon with skepticism. It is amazing to me that companies will market programs and charge fees for simple steps that you as a consumer can do yourself. Rule #1 should always be “Don’t buy into the marketing without seeing if you can do it for free yourself.”

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tags: Bob Brooks, Deceptive Money, equity accelerator programs, equity loan, Fees, interest, loan, payments, Prudent Money, service charge

Well our politicians are diligently trying to make voters believe that they are working to fix the foreclosure problem in America. There is a version of a bill making its way through the system right now.

Now, let’s assume that Congress is going to pass something that will actually help homeowners and help bail them out. Thus far everything that they have done has been somewhat of a joke. It has been all headline and little substance.

Let’s pretend that they are really going to do something that can bail out people in mass quantity. Do you think that is the right thing to do?

One argument says no! The taxpayers shouldn’t have to pay for a person’s decision to sign off on a loan that they knew going into it would be a problem some day and or a house they couldn’t afford. What about the people who have already gone through foreclosure?

One argument says yes! If the government doesn’t do something, this is going to hurt everyone. The consequences will be way too tough on the economy.

My opinion?

First, there is a subset of people involved in this problem that were dealt with fraudulently in the process of obtaining a loan. Although they still signed the dotted line and should have known what they were signing, they were treated in an unethical/fraudulent manner.

This problem has to work itself out without Congress intervention. It is the healthiest thing long-term for our country. Congress just makes a problem bigger in the future by continuing to try and intervene. The taxpayer in either case is going to get hit for this problem. The unintended consequences of this type of intervention could end up being as bad as letting the problem fix itself over time.

The best course of action for our future is to let this problem correct itself. Regardless, it is going to probably be a long time before any type of bill gets passed. By then, the problem will already be way past the point of intervention having a positive effect. We are currently experiencing the highest amount of mortgage resets. The problem will start to diminish towards the end of the year.

The problem is already here and facing millions of Americans. The Titanic is heading for the iceberg. The saddest part of the whole story is that our politicians let this happen on their watch. You could see this problem coming from a mile away. No, it is not hindsight. Loans that are written on 105% of the home, at interest rates that are going to adjust, low initial payments, no documentation closes, etc. have a high probability of crashing.

These were loans written for more than just people with bad credit making this much bigger than the advertised “sub-prime” problem.

What is your opinion?

Tags: bad credit, bail-out, Bob Brooks, Congress, Deceptive Money, Foreclosure, Government, Homeowners, loan, mortgage, politicians, Prudent Money, taxpayers

Yesterday I talked about one aspect of a weak plan from our politicians in Washington to save the homeowner from foreclosure. It was a big benefit for big business and little for the distressed homeowner. Now Representative Barney Frank has his ideas on the table to help the homeowner.

I can sum up this latest attempt to help homeowners. The bottom line is that Congress has to APPEAR that they are solving the problem. Politics are all about appearances. Are they really helping anyone? Well this latest idea (read: political spin) has the three qualities that stand out in most political solutions.

First, it is too little too late. By the time this or any other piece of legislation actually gets passed, the bulk of people in trouble will have already been failed by the current system. Second, the plan has headline grabbing details. Reading the details of this plan leads a person to think that Washington is really helping people. Third, it is a plan that helps a very small percentage of people.

The plan is set up for the FHA to, in a sense, buy mortgages from banks from struggling homeowners, readjust their payment, and then the government would share in any gain that the homeowner receives after the sale of the home.

Of course, the bank has to agree to take a loss on the mortgage and forgive some of the debt. It is not clear as of yet whether the homeowner would take a tax hit on the portion of the loan that was forgiven. As of today, the homeowner would pay federal income taxes on any portion of a loan that is forgiven.

We could walk through the details of the plan. However, it is not necessary. I will just tell you the political headline and then the few pieces of this legislation that assures only a very small percentage might be helped.

In an article written about the newest round of legislation it says,

“Frank’s bill would allow a whole new swath of homeowners who are currently too financially strapped to qualify for a government-insured loan to do so. That includes people who are badly behind on their mortgage payments, have poor credit and hefty debt, and those who owe more than their homes are worth.”

This is the best part of the “solution.” They will only re-finance up to 90% of the home value. Let’s see, most of these people who are in trouble borrowed close to 105% of their original home value. You factor in a 20 to 25% decrease in value. You can do the math.

This plan will only help those who actually have equity in their homes. This is the problem. With declining home values and homeowners mortgaged to the capacity, they will not be able to qualify for enough loan to actually cover the mortgage. Thus, this plan will not help those who need it.

Then there is my second favorite part of the article.

“One major task of the board will be to figure out how to compensate those who hold secondary claims on a home, who would walk away with no more than 1 percent of the home’s value.”

You think that might be a problem? It is a huge understatement. There are thousands of investors who have invested in these horrible loans. Now they have to take a hit as Congress attempts to bail out a problem they could have prevented in the first place if they were actually doing their jobs as the governing body that is elected to protect Americans from these types of practices.

Just think of the political sound bites and photo opportunity for politicians when Congress finally comes up with their “homeowner rescue” plan.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tags: bail-out, Bob Brooks, Congress, Debt, Deceptive Money, equity, FHA, Foreclosure, government-insured loan, Homeowners, income taxes, loan, Mortgages, payment, politicians, poor credit, Prudent Money, Representative Barney Frank, Washington

It is vitally important today that you as a consumer check your facts and verify information that is being told to you. Unfortunately, the reason is not because mistakes can be made. I am seeing more and more examples of companies in the financial arena that are deliberately misleading consumers into thinking one thing when another actually exists.

Consumers have been running into trouble with these adjustable rate mortgages. Adjustable rate mortgages start out with low “teaser” rates for a period of time. Then the time comes when the payment and the interest rate changes or “resets.”

When these mortgages reset, the payment usually takes off. As a result, many consumers can’t make the payment and many have or are facing foreclosure.

We only hear about the mortgages that change for the worse. What about the ones were the payment changes for the better or the payment changes but is still bearable? If that happens, then the consumer could be set for at least another year.

In an article written by “Mike Mish” Shedlock, he writes that Citigroup is scaring people into refinancing their mortgages without giving them all of the information.

He sites an example where a recent letter sent out by Citigroup is encouraging this one consumer to refinance his mortgage because the mortgage is resetting. Of course, the letter is written as if the payment will go up.

The letter gives an example and shows the ARM adjusting on the date, the new interest rate, the new higher payment, and then compares that to a refinance. If you look at the data, of course it makes sense to just go ahead and refinance.

The problem is that the data was based on old rates. Given the old data, the mortgage payment would reset higher. Given current data, there would be no need to refinance because rates have fallen making refinance a bad idea. It wouldn’t make sense.

Nowhere in that letter is pointed out that his adjustable rate mortgage could be lower. There is obscure language that hints at it.

So, this individual calls Citigroup and asks the question:

Consumer: What happens to our loan on the anniversary? Will it go down?

Citigroup Rep: It is very unlikely that it will go down. Would you like to refinance?

Although no one is outright lying in this situation, there is a question of ethics. Remember, that you have to verify information and not just trust what you are being told.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tags: adjustable rate mortgages, Bob Brooks, citigroup, interest rate, Mortgages, Prudent Money, refinanciang

The mortgage marketing machine is running in overdrive and aimed at getting your mortgage. For the most part, the teaser rates promising ridiculously low rates are gone. Mortgage companies now have moved on to other ways to get your business. Now the method of choice is the personalized offer.

Mortgage companies armed with information on your mortgage are sending out personalized offers to refinance your mortgage. The solicitation is designed to look like a done deal. It is an offer much better than the current mortgage. The marketing message leaves the impression that only a signature is required and the low rates are a given.

One listener wrote me about an opportunity to get her rate lowered from 9% to 5%. She was hopeful that this was a good deal for her.

Well, yes it is a good deal……if she qualifies. Yes, it is a good deal if she qualifies and the deal is not back-loaded with excessive penalties. If you are paying high interest rates on your mortgage and are facing the prospects of an adjustable rate mortgages, you still have to qualify for a new lower interest rate mortgage.

What if you don’t qualify? Could there still be an opportunity for a new mortgage? I am currently working on a story for the Under the Radar Newsletter that uncovers one bank’s offer to refinance a mortgage at a higher interest rate. Why would anyone be interested in a higher interest rate?

Well, this bank is doing it under the pretense of a debt consolidation/mortgage plan. Not only were they going to charge almost 1.5% more in interest on the total loan, they were also going to charge 4% in fees to close the note. What’s worse, this bank called the listener on his cell phone and pitched the deal.

His credit score is 596 (considered a poor credit score) and they want to offer this deal because he is a “preferred customer.” Be watching for that story in the Under the Radar. This is clearly predatory lending.

Rules of thumb:

- If you need to refinance, do so only if the overall interest costs are reduced.

- Those with a good credit score and substantial equity in their home have more options available to them.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tags: Bob Brooks, debt consolidation, Deceptive Money, interest rate, lending, loan, mortgage marketing solicitation, Prudent Money

The mortgage markets are a mess. Getting a mortgage is a different ballgame today. We are beyond the days when you could just fog a mirror and get the keys to a house.

Credit is tight. Lending standards? Well, there are actual lending standards now. I have always said it is important to make sure that you go to someone who is more of a consultant than a salesperson.

Today, this is even more important. Through their marketing efforts, mortgage companies invite you to just pick up a phone and qualify for a loan. It is important to sit down with someone who is going to look at your situation and consult you. A consultant will look at your credit score, analyze your current mortgage, and help you get into the right type of financing.

I have known Alice White Hinckley for over 25 years and think that she is the best out there. If you are in need of mortgage help, I recommend her with confidence. If you didn’t get a chance to hear the show from yesterday, make sure you listen to the podcast.

Her email address is alwhite@firsthorizon.com.

Copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Tags: Alice White Hinckley, Bob Brooks, credit, loan, mortgage, mortgage companies, mortgage markets, Prudent Money, refinance

I define “irresponsible marketing” as marketing that leads you to believe something that is just not true.

A good example is a promotional article marketing payday loans. This article was promoting that you should just use a payday loan if you need quick cash rather than borrowing from a credit card. It went through reasons such as a one-time flat fee, avoiding paying long-term interest rates, and fast loan approval.

Then of course at the bottom of the promotional article is a link to a website that will quickly qualify you for one of these payday loans.

What the promotional article doesn’t tell you is that this 14-day loan has an annual percentage rate of 782.14%. The site also promotes renewing the loan. It says you could renew a loan up to 4 times, which they do automatically unless you call them and instruct them to stop.

So let’s say a person borrowed $200 from one of these outfits, renewed it 4 times, and then paid it back in full. You would have borrowed the money for 56 days and that $200 would have turned into $440. You would pay $240 worth of interest for borrowing $200 in just 56 days. In addition, they charge fees every time you renew.

Understand that there is a difference between marketing and good prudent advice and information. Don’t believe everything that you read at face value. Learn the art of being skeptical. It can save you a great deal of headache down the road. Plus it is just good stewardship to do so.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Tags: Bob Brooks, irresponsible marketing, long-term interest rates, Payday Loans, Prudent Money, stewardship

The new College Cost Reduction and Access Act just recently signed into law offers some interesting opportunities for college students. Some of the provisions of the law:

- Increase Pell Grant Scholarships over time,
- Provide up-front tuition assistance for students willing to teach in high poverty areas or high-need subject areas
- A landmark investment of $510 million to be made into minority serving institutions
- Reduce the interest costs by 50% over the next four years on subsidized student loans

The most interesting provision of the new legislation is federal debt forgiveness for anyone going into a public sector job. The government will forgive the balance of debt not paid after 10 years as long as the student works in the public sector. The public sector is defined as military service members, first responders, law enforcement officers, firefighters, nurses, public offenders, prosecutors, early childhood educators, librarians, and others.

The program will figure out your monthly payment based on either your salary if you are single or your combined salary if married. The public service employee will make 120 payments and the rest would be forgiven by the government.

So what is the drawback? Well the good news is that the government would forgive the remaining school debt. The bad news is that the employee will now owe taxes on that forgiven money. For example, let’s say that the remaining balance on a note comes out to $100,000. The tax bill due that year could be as high as an additional $35,000. Where someone who is making $45,000 to $50,000 a year is going to come up with $35,000, I have no idea.

Only Congress can take a good idea and turn it into a bad one.

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Tags: Access Act, Bob Brooks, College Cost Reduction, college loans, debt forgiveness, interest, law offers, new legislation, Prudent Money, public sector, taxes