The "Unwind Your Personal Finances" Thread - (a work in progress)

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fortytwo's picture
fortytwo
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The "Unwind Your Personal Finances" Thread - (a work in progress)

I've decided to start a thread for those of us who are aware of the changes that are coming, wish to prepare, but aren't in a place that allows a lot of financial freedom to make drastic changes quickly.

You might be someone who is hopelessly underwater in your house, lost a job, have familiy obligations, or physical limitations that prevent you from doing many of the strategies discussed.  Perhaps you're investments have tanked to a point where you feel it's helpless.  Maybe you are looking at bankruptcy, foreclosure, defaulting on debt, or borrowing more to stay in place.

This is a place to discuss strategies that involve some tough decisions that going beyond what to buy to soften my transition.

I'll add my own thoughts to this thread as I start doing research in the coming weeks, and I hope to get great ideas from others as well.

 

BonMot's picture
BonMot
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Re: The "Unwind Your Personal Finances" Thread - (a work in ...

Hello Forty Two...thanks for starting this thread. Need I say how grateful I am to have found Chris Martenson and all you wonderful, smart people.

In a nutshell, we live in a modest working class neighborhood in Michigan. We have a few months of food stored, some pm's, a water filter that can purify a puddle and plans to start square foot gardening. We are 65/60, both having been downsized few years ago and unemployed since. We've been living off our IRA's (thank you Universe) and now must ponder our next move.

After an unpleasant experience with a financial planner who could not except that we wanted out of the stock market, then money market cash fund, we are sitting on (or frozen on) the remaining of our modest pension money.

What to do?  We feel we have few ways to go...pay off the house, stick it in credit union IRA or something, or buy gold as insurance. But if inflation hits? 

Trying not to worry, yet want to be practical. Need to be wise here for we will have to help our families (who won't believe the train wreck coming).

Any suggestions will be so appreciated and please don't worry about giving any advice. We are all responsible after all for our decisions.

For all you young families, even though the future looks frightening, we do see many benefits coming from this catastrophe. Think warm and caring communities again where the bottom line is us!

 

 

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agoodhuman
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Re: The "Unwind Your Personal Finances" Thread - (a work in ...

I'm also very thankful to have found the Chris Martenson Forums.

I lost a lot in the stock market crash and had been going along with my financial advisor's advice of riding it out. Without having any clear ideas about what the future might hold, I had stayed in the stock market despite three margin calls for which I needed to find a lot of cash in a hurry. Within about a week of reading as much as I could on this website, I pulled all of my money out of stocks (much to my advisor's disdain). I earn a good income in a secure job, so I'm confident I'll soon have paid off all debts associated with my loss in the stock market. My husband and I live quite frugally considering my income, so by the end of the year we should be back to square one. I guess that was a valuable (if painful) lesson to learn.

I also hold a few investment properties in Australia (my home country). Just last week I put one of them on the market. It's mostly paid off, so selling it will leave us with quite a bit of cash to put towards our future plans. The Australian property market has not taken a dive like the US, so I hope I can sell it for a reasonable price. The government currently offers cash incentives to First Home buyers and that is running out at the end of June. I hope that will push some more young people to get into the property market soon so I can get out.

My biggest priority at the moment is to drastically reduce our debt. It really was quite horrendous how much investment debt I was holding. In the last two months, I've managed to reduce it by about 40%. If I manage to sell my house I will have reduced my debt by over 60% in a year which would be a huge weight off my shoulders. Fingers crossed.

 

 

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jerrydon10
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Re: The "Unwind Your Personal Finances" Thread - (a work in ...

Guys, there are a few savvy investors on here that can still play the markets and make money in this economy. But for the average Joe Sixpack that must rely on a financial adviser to make their decisions for them, you don't need to have any money in the markets for the next 5 years.

These advisers will try to keep you in the market because they are making a living on your buys and sells. They will tell you that the only way to make money in the market is to stay in because it has always historically recovered from it's downs.

While that is true, they leave out that with the early 30s crash it took almost 25 years to recover. They also ignore the fact that past performance of the market is not indicative of future performance.

With us being (I believe) on the back side of peak oil and peak other things, it may NEVER fully recover.

They will also tell you that the losses you see in your IRA are just "paper losses." Uh huh........But at some point you will have to start taking your required minimum distributions and it won't be a paper loss then if the market hasn't recovered.

I also don't trust them. A couple of months ago, I rolled an older couple's IRAs over for reinvestment. Their adviser had a good chunk of them invested in Lehman Bro. bonds, lol. These aren't worth the paper they are printed on and when we tried to sell the bonds we received not one bid. Many times your investments aren't being watched nearly as close as an investor thinks they are.

I advise my clients to deversify their retirement accounts. Fixed indexed annuities with solid insurance companies are hot retirement investments right now. Both because you can change them from paying you a fixed interest rate to becoming indexed with a market indicator such as the S&P 500 should it look like the market is going to recover and they are safe (If you vet the companies) and further guaranteed by your state govt. if you live in the U.S.

Gold is good. But while we are in this deflationary economy, common sense tells me that gold will go down before it goes back up over the long haul.

Another safe investment for this economy might be I-bonds where the "I" stands for "inflation-protected." The Treasury Dept. calls them "Series I Savings Bonds" and in general they are a bond that pays you a set annual "base" interest rate plus an "inflation rate."

And trite CDs with staggered dates of maturity so that one can always be rolling them to reflect a changing economy are good investments as long as there is an FDIC to protect the banks and a NCUSIF to protect the credit unions.

 

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fortytwo
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Purpose:

 I spoke to, listened to or read a lot of interesting stuff in the past few days and I'm really excited to share it with people.  

Before I begin, let me clarify a few things:  I was a financial advisor for years, then a manager/coach to that profession for years.  In the past week there have been many articles written in mainstream press along the lines of "Why I fired my financial advisor/broker/etc".  The reasons mostly revolve around advisors having a stubborn resistance to examine / abandon their current business model in favor of an actual 'practice' that serves the needs of their clients.  As such they are trained to asset allocate into a dominantly American stock market.  They are given talking points and investment products that allow them to do that profitably and with minimal effort.  They are also utterly unprepared to advise people on liability side of their balance sheet, and are really perplexed by the idea that the future relationship of ones assets to one's liabilities has fundamentally changed.

My goal for this topic is to specificly address the financial issues that advisors don't / can't / won't address yet are absolutely key in transitioning your finances to a post-growth economy.  While my background gives me some experience and opinions about 'what not to do' - I also realize that experience is no where as valuable as the skill of figuring what to do.  I had the benefit of having a mentor several years ago who taught me how to educate myself, and I now no longer feel as if I need to abdicate decisions or the forming of opinions to others.  By educating myself, I'm specifically not talking about reading more blogs of more people who talk about what's wrong.  I'm talking about searching out people who made things work, and calling them and asking them how they did it.  After talking to enough of them, patterns begin to emerge.  If this idea sounds attractive- I'd encourage you to check out the 'Two beers with Steve' calls and podcasts.  It is a perfect example of this in action.

Lets see if any of the things I've discovered recently are helpful....

 

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fortytwo
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On unwinding mortgages:

Mortgages are a good starting place to deal with the difficult question of unwinding things. The 'Mortgage' holds a special, honored, almost sacred place on the balance sheet. It is the bill that gets paid before all others and at all costs. It represents your 'home' and you ability to provide a sense of stability and security to your family. It represents a place where you can do what you want, when you want and how you want. It is often the largest and longest debt a person will ever carry and getting one carries a lot of mystery and fear especially the first time.  This makes it one of the most difficult unwinding topics to cover.

Last week 3 good friends participated in a conversation. All 3 were in their late 30's/early 40's, married with one or two kids living in a house they bought 3-5 years ago after moving out from apartments where they had saved for down payments. They all purchased typical 3 bedroom town homes or suburban homes in the best neighborhoods they could afford so that their children would have a decent school system to attend. They have various jobs and education: teacher, marketing consultant and lawyer. Each of them is worried about losing their job and has looked at refinancing or modifying their mortgage. Each one has a house that is currently worth $70-$120k less then the mortgage. This is on houses that range in original purchase price from $220-350k. None of these people were sub primers, speculators, house flippers or whatever the latest victom the media is blaming.

What they all have in common is that they fell into 'The Two Income Trap"- as described by Elizabeth Warren (google it). The trap isn't in buying more than you need, its that to have the things that you need- you require two full time incomes, which in these economic times are at least twice as likely to not be stable. As any pilot knows, a multi-engine plane is at least twice as likely to have a fatal failure because there are at least twice as many parts, systems, engines, to fail.

The second trap that they all fell into is the belief that the future will be better / more prosperous than the past. And you can't blame them- the best parents I know have an unshakable positive outlook.  However, holding this common belief may turn out to be the most likely predictor for future financial problems for young families because it influences your decisions towards prosperity and growth.

So what do you do when you realize that the future (financially speaking) will most likely not be as prosperous as the past? After watching Elizabeth Warren's presentation, I realized that my friends will have more education than their parents, owe way more money in student loans, so they can get a corporate job of a level needed to pay the loans off, and you realize that your young family is nothing like the one you grew up in. In fact, you work 10-20 hours a week more than your father did, and get paid less- with more education, and your wife is doing the same thing. The house that you bought is the kind of house that working class people with one income bought 30-40 years ago, and you can't make it work with two incomes, a graduate degree and an extra 10-20 hours a week.

And like anyone who is trying this hard to make it, it is a crushing blow to the ego to begin coming to grips with how you might not.

I could go on, but I won't. I have found that the best baby boomers have realized that their kids are going through this, but many do not. The reasons aren't worth going into. I will propose, however, that this is the demographic group that represents the tipping point.  It isn't because they represent the young middle class family that we celebrate in American pop culture.  It is because they are the ones having grandchildren to baby boomers.

This is the first generation that will be unable to raise a family in any 'traditional' fashion, and their children are the grandchildren of the baby boomers.  It seems to take a grandschild for a baby boomer to begin to see the multigenerational impact of what's happening. The deteriorating circumstances of their adult children didn't do it.

So what to do? Prepare yourself: You are probably one small step away from unwinding.  It might not be as bad as you think.

Here's what I learned.... Lets call it the mortage unwinding FAQ:

1) If I can't pay the mortgage what happens?

-your phone will ring off the hook with people trying to 'collect'. They are not empowered to negotiate much more then a short term payment plan. Renegotiating terms on a mortgage typically doesn't happen until you are past 90 days late, and will rarely happen with the mortage holder. A lawyer or mortgage restructuring specialist seem to be the only people that penetrate the system and get a decision maker to offer a change in terms. The changing terms will usually lower interest rates, forgive fees, and lengthen the term- but rarely ever lower the principal. The governement programs meant to encourage this do not see to have been successful. I've spoke with both lawyers and mortgage restructuring agents and both have confirmed that it usually isn't an option, and that usually more than half of the restructured mortages fail within 6 months anyway- so there isn't a lot of incentive for a mortgage company to renogiate.

-if you can't renegotiate (you lost your job, don't have income, etc) then you will get foreclosed. It is my understanding that this process takes about a year in the current format. That means that you can live in your house for about a year without making mortage payments before you required to leave. Methods to extend this time frame include the 'produce the note' strategy (google it), or generally paying a lawyer to muck around and delay things because they are so busy with the glut of foreclosures and bankruptcies.

2. If I can't pay my mortgage do I have to declare bankruptcy?

-No. A foreclosure is a forfeiture on a secured debt. It can happen without a bankruptcy.

3. How does it affect my credit?

-Your credit score seems to depend a lot more on your income than on your late payments or delinquencies and forfeitures. The FHA website, for example, states that they will finance a new mortgage on someone 3 years after a foreclosure, and 2 years after a bankruptcy- given that payments on other things are up to date and there is solid income for two years. I spoke with a credit repair counselor who says it is often possible to remove negative items even foreclosures and bankruptcy, although you will have to declare that you've had one on most credit and mortgage applications anyway (it would be fraud to lie on the application).

4. Does it affect the rating of my spouse?

-Yes. In almost all cases, yes. It is difficult to separate your finances without a divorce, and there are procedures in place to look at large changes to people's finances prior to events like divorce or bankruptcy to determine if assets or income are being hidden, and a court will bring those assets back into the final settlement.

5. My student loan payments are as much or more as my mortgage and I can't find a job that supports paying them back?

-That's a pickle. Student loans can be deferred, but cannot be discharged in a bankruptcy. In most cases I am told they will simply defer the payments, accrue the interest and extend the term.

6. Should I pay off my mortage with my investments?

-Examine your rationale: if you are holding both debt and investments at the same time, is it because you presume that the investments will grow at a rate that exceeds the interest charged on the debt? If so- what if that assumption is no longer valid? Each person will need to figure out their own cost/benefit analysis. The market as a whole hasn't given much in the way of positive gains for 10 or more years. If it doesn't substantially outperform going forward, it probably isn't a good risk to take.

7. Do I have to wait until I'm totally broke before I go into foreclosure, bankruptcy, etc?

-Nope. In fact that's a bad idea. Your retirement acount, and certain amounts of your assets (cars up to a certain amount, household furnishings, etc to a certain dollar amount) are protected. By pulling the plug earlier rather than later, you free up more assets and time to live cheap in a house before a foreclosure (no payments) and create a more stable situation going forward.

8. How much does it cost?

I found that good attorneys charge less than $2k for a personal and less than $4k for a small business. You need to pay them before the process starts, so waiting until you are flat broke will prevent you from hiring the professional to help you file.

9. I need to get another house / apartment / place to live. What are my options?

- If you believe that your finances will be less prosperous in the future, you may want to rent or if you are handy, buy a really distressed property. If you choose to buy something, you will need to find money to buy it. You can use retirement accounts (IRAs) to write notes on property and buy real estate, but not for your own use. With some creativity you might be able to find someone else to finance you, or swap financing on properties and projects. I met a man Saturday who was buying foreclosed properties in Minneapolis, fixing them up, and renting/selling them on contract for deed to employed young families. Look into the entrust group for ideas on how to use alternative means of financing. Also- look into craigslist. There are 45 million people who use it daily and it has created a gigantic underground market to facilitate these sort of transactions. Use caution, but realize that there are literally millions of like minded people willing the trade and barter for roomates, rent, property, etc.

8. What will other people think of me?

-Depends on their circumstances.  You may find all kinds of people secretly 'coming out' to you to ask questions about how you are doing it.  You parents won't be happy-  parents have a natural tendency to judge their children through the lens of the hard times they went through.  It will be hard for them to understand that they lived in a time of prosperity and you don't.  Their bubble will continue longer then yours.  Your siblings will judge you in the way family members do.  Your employer might care if you care working in a sensitive or public position.  The good news is-  there is a wave of bankruptcies and foreclosures that will be hard to ignore, and the institutions that judge it most harshly are the ones whose businesses are hurt the worst as the meltdown continues.  

PlicketyCat's picture
PlicketyCat
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Re: Unwinding Mortgages

Thanks for posting this Mortgage info fortytwo. We're in the position that the only debt we have is the mortgage and HELOC (all house, no toys) and we're now upside-down since the market decline began in October.  I do have a question for you... how do you find out who holds your mortgage if the original lender is one that has gone "boom"?  Our mortgage is serviced by the same company even though the lender no longer really exists; I've contacted loan servicer 3 times, but they don't seem to know who owns the lien now either and keep telling me that they'll get back to me (they haven't). Is this common with everything going on right now?

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jerrydon10
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Re: Unwinding Mortgages
PlicketyCat wrote:

Thanks for posting this Mortgage info fortytwo. We're in the position that the only debt we have is the mortgage and HELOC (all house, no toys) and we're now upside-down since the market decline began in October.  I do have a question for you... how do you find out who holds your mortgage if the original lender is one that has gone "boom"?  Our mortgage is serviced by the same company even though the lender no longer really exists; I've contacted loan servicer 3 times, but they don't seem to know who owns the lien now either and keep telling me that they'll get back to me (they haven't). Is this common with everything going on right now?

I'll let 42 answer this one. But the fact that they cannot find the note may be good. If you read his post he suggested the "produce the note" defense if you have to go to court.

This is one of the latest defenses for consumers as they are being foreclosed on.

The contract changes hands over and over these days until everyone seems to forget where the original note you signed is at. When the consumer goes to court, he simply files a motion for the plaintive to show the original note he signed to prove that he owes them money.

Often they cannot and lose. I don't know, I guess the homeowners just get to keep their house...LOL

fortytwo's picture
fortytwo
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Re: Unwinding Mortgages
PlicketyCat wrote:

"how do you find out who holds your mortgage if the original lender is one that has gone "boom"?  Our mortgage is serviced by the same company even though the lender no longer really exists; I've contacted loan servicer 3 times, but they don't seem to know who owns the lien now either and keep telling me that they'll get back to me (they haven't). Is this common with everything going on right now?

I'm not a mortgage expert, but it seems like you find out by doing exactly what you did.  It doesn't surprise me that a servicing agent doesn't know, and can't figure out how to find out.  Not being able to answer basic questions is symptomatic of a system that is cracking under pressure.  I remember years ago when we sold CMO's to investors (bundles of mortgages sold like a bond), we tried to find out which mortgages exactly (addresses?) were included in a particular bond.... and we couldn't.   

In Minnesota there is a case of a person who filed a "produce the note" request years ago and it was never produced, effectively halting the foreclosure process.  I would imagine with the crushing weight of more and more homes foreclosing, those that fight back with a produce the note strategy get dropped to the bottom of a pile while they chase the easier ones.  Eventually enough of them will pile up so that someone will grease the lawmakers to invalidate it,  but for now it sure seems like an intriguing strategy if you have to stop making mortgage payments.

By next week I hope to have some other strategies for what to do after walking away from a unreasonable mortgage.

PlicketyCat's picture
PlicketyCat
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Re: The "Unwind Your Personal Finances" Thread - (a work in ...

Well if no one owns the mortgage or at least can't produce the note, that would make my HELOC lender (I know who bought them out) a whole lot happier... they wouldn't lose diddly if I did a Deed In Lieu or Short Sale. Hmmmm... wonder if a lawyer could get that through in court... that the 1st lender has no claim because they can't produce the note so the 2nd holder who can produce the note has the automatic right to accept the DIL or SS instead of trying to get a deficiency judgment or put a kiebash on the whole deal. At this point I don't care about this property (I'm so fed up with all of this), so foreclosure and losing it doesn't matter as long as I don't get screwed with collections, etc.

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