With an increasing number of consumers under stress with high debt levels amidst a deteriorating economy, many are turning to Debt Settlement firms with hopes of salvaging their financial situation. By having you pay monthly sums to them while withholding payment from creditors, these debt settlement firms claim to have the power to negotiate a lump sum settlement with the creditors. BusinessWeek outlined the problems with these firms in a recent Look Out for That Lifeline article.
The reality is that most of these firms simply collect the money and never contact the creditors. Usually the debtor is left in worse shape with daily collection agency calls, additional fees, penalties, higher interest rates, and bad marks on their credit reports.
Most debt holders on these plans also don’t recognize that most of these firms collect 30% or more of the money as fees for their “settlement activities”. ‘The programs typically require financially strapped consumers to pay fees up front, so they make money whether or not any useful services are performed," says Philip Lehman, an assistant attorney general in North Carolina.’
Most banks including Bank of America and Discover Financial Services refuse to negotiate with settlement firms; this means that in many cases that these firms are promising to deliver a “service” that is not viable. The State AGs in half-a-dozen states are currently investigating a significant number of these debt settlement companies due to the high levels of complaints.
Currently seven states have banned settlement activities; it would be wise to urge your state politicians that these debt-settlement scams be banned in all states. The firms are nothing more than the latest incarnation of predators on stressed consumers.
For those who need financial help, it is better to turn to a credit-counseling agency rather than a debt-settlement firm. Most communities have non-profit credit counseling resources available.
Sunday, March 9, 2008
Warning: Debt Settlement Firms are Simply a Scam
Saturday, March 8, 2008
Ring, Ring: Hello, This is your Margin Call for $325 Billion
JPMorgan Chase issued a report on Friday that Wall Street banks are facing a "systemic margin call" for $325 Billion due to their weakening subprime mortgage exposure. "A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call."
This past week, JPM sent a default notice to Thornburg Mortgage after the lender missed a $28 million margin call – sending a ripple through the market. The Thornburg notice is just the start of the cycle according to JPM. There were others this past week missing margin calls, the Carlyle Group's mortgage fund also failed to cough up $37 million it owed. Is there any wonder, why sovereign wealth funds are now taking the position that they can not save Citi.
The worst news is that this is just the start of the cycle, despite the Fed planning to add an unprecedented $50B in liquidity at each of two auctions in March. The current margin calls are only for sub-prime debt; the deteriorating auto loan, credit card, and commercial real estate loan situations have not been addressed yet.
The jumps in unemployment, faltering consumer confidence, and other headwinds make it more likely that the first quarter of 2008 will officially be recorded as a recession for the U.S. economy.
Come Take the New Poll
How will agricultural commodities as represented by the DBA ETF perform in 2008?
Is this market in a bubble or does it have more upside? Let your voice be heard.
The previous survey asked "Now that the 4th quarter earnings are out of the way, is it time to buy banks?" It appears that 45% of the respondents believe that the financial sector will sink by another 20%... and so far they are right on track. With Citi primed to write-down another $18B, the Fed announcing that it is injecting another $50B into the system at both auctions in March, the credit crisis spreading to more forms of debt, and liquidity drying up... the picture appears bleak. Another 30% of the survey respondents believe the banks will at best remain flat. Not much optimism in the banking sector, it is probably not time to bottom fish yet.
Thursday, March 6, 2008
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Wednesday, March 5, 2008
Get your FREE Elliott Wave Theorist
Great news! Due to an overwhelming response, the free Elliott Wave Theorist offer has been extended thru March 10th!
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- A single chart that delivers more wisdom than a full week of financial television.
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- Two excellent services Bob personally recommends.
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Tuesday, March 4, 2008
Is Citi doomed?
Citigroup Inc (C) shares sank to their lowest level in more than nine years on Tuesday after analysts projected that the bank would be taking another $15B to $18B write-down for bad mortgage debt this coming quarter. This places the bank in the perilous position of needing further capital infusions.
Unfortunately, it appears that the sovereign wealth fund spigot is shutting off. Samir al-Ansari, the head of Dubai International Capital, said that it will take more than the combined efforts of the Gulf's wealthiest to save the U.S.-based bank. These statements, made at a private equity conference, are a signal that Citi must find another source for capital.
Sovereign Funds May Not Save Citigroup
Citigroup Shares Drop After Dubai Fund Says Mideast Sovereign Wealth Funds May Fail to Save It
http://biz.yahoo.com/ap/080304/dubai_funds_citigroup.html
SunCom customers can breathe a sigh of relief
SunCom customers can stop living in fear that their cell service would be cut off any day. T-Mobile acquired the train-wreck known as SunCom; salvaging the wireless firm from its certain demise.
Prior the purchase, SunCom had huge debt, regulatory problems, a very dissatisfied customer base racking up record complaints to state authorities, and was primarily recognized for their abusive treatment of customers. The list of hurdles facing the company was almost endless, and self-inflicted. Unable to find refinancing, the only alternative was to sell the company… for pennies on the dollar.
The benefits of this acquisition for T-Mobile are very strong. “Through this acquisition, T-Mobile USA expects to significantly expand its national network to cover 259 million Americans, an increase from 244 million. T-Mobile USA also expects to realize synergies with a net present value (NPV) of approximately $1 billion through reduced roaming and operating expenses. Plus, the company anticipates further upside growth opportunities through the addition of the new markets.”
Inversely, it is not really possible to find any benefits for SunCom in the press release. “These factors also include risks that the acquisition disrupts current plans and operations; the potential difficulties in employee retention as a result of the acquisition; and the ability to recognize the benefits of the acquisition.”
Well at minimum, the good news is that SunCom customers don’t have to worry about their phones going dead.
The local bank downgrades: Commercial loans cited as culprit
The crisis that is about to overwhelm many local banks was discussed recently (see Just how bad is the situation with local banks?). Community and regional banks are facing significant exposure with their commercial real estate portfolios. Many of the loans to real estate developers and commercial builders are starting to turn sour reflecting the problems with overall market. This is turn has started a rush by the rating agencies to downgrade many of these banks as their financial strength weakens.
Moody’s downgraded a number of regional and community banks over the past week. The ratings agency has cut the outlooks of Associated Banc-Corp (ASBC), Associated Bank NA, Bank of Nevada, Susquehanna Bancshares Inc (SUSQ), Western Alliance Bancorporation (WAL) to negative from stable.
Additionally, the ratings agency cut the financial strength rating of Amegy Bank National Association, First Commercial Bank (FCHI.PK), and Nevada State Bank to 'C+' from 'B-'. While placing Fulton Financial Corp (FULT) rating under review for possible downgrade.
This cycle of downgrades, reflecting the likelihood that commercial real estate loans will not be repaid, is expected to increase over the upcoming months. A good number of these banks will be forced to merge or be bailed out by the FDIC.
Once again, it is very important at this time to pay attention to the financial rating of the institution where you perform your banking. Nothing is more painful than having your money locked up and unavailable for eight months while they FDIC “bails out” your bank or to having all your money above the FDIC insurance limit magically disappear forever.
Monday, March 3, 2008
The Subprime Mess Explained
A very funny skit that gets to the heart of the subprime crisis....
http://it.youtube.com/watch?v=SJ_qK4g6ntM
Sunday, March 2, 2008
Is your Town or County next?
The Muni debt crisis continues to unfold. The failure of the Muni Auction Rate market is forcing many local governments to pay the default rate on their bonds. These higher payments, many times more than double the standard interest rate, are putting municipalities under stress.
The most recent casualty is the $3.2 billion of sewer bonds in Jefferson County (Al) that were cut to junk status after the county said it will be unlikely be unable to pay banks holding its floating-rate debt. S&P slashed the county’s sewer bonds by six levels to B, five steps below investment grade. The county, which includes Birmingham, is struggling to find alternatives to survive the predicament.
Previous posts touched on the impending muni crisis (see Bankrupt Cities, Muni failures, and CDS stress, Auction Rate Stress Continues: Muni Bond Funds Impacted, More Credit Turmoil: The Muni Auction Rate market freezes) discussed the issues facing this market.
The obvious next question should be how this situation will impact your local government. Munis are being downgraded every day; governments are finding no buyers for new issues to refinance existing debt. Will your local services come to a grinding halt as municipalities scale back and scramble to overcome debt problems?
