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Comment on After Ananda Krishnan loan, 1MDB now needs government cash by Justice Ipsofacto

BY THE EDGE FINANCIAL DAILY
The Malaysian Insider
23 February 2015

1MDB was not only helped by billionaire T. Ananda Krishnan to settle its RM2 billion debt to banks, but it may also require a cash injection of as much as RM3 billion from its owner, the Ministry? of Finance (MoF), say sources.

They say the controversial debt-laden outfit is facing a cash crunch as income from its power assets is not enough for debt servicing and it has run out of borrowing options, as shown by having to turn to a businessman for help.

Ananda provided a 15-month RM2 billion loan to enable 1MDB to settle its loan with a consortium of local banks on February 13.

Sources familiar with the matter confirmed this with The Edge Financial Daily and also expressed their surprise that 1MDB president and group executive director Arul Kanda Kandasamy had dismissed media reports about the loan from Ananda as mere speculation.

Arul had announced on February 13 that 1MDB had settled the RM2 billion owed to the consortium led by Maybank and RHB Bank Bhd which was first due on November 30, 2014. The loan was settled in time to prevent the banks from declaring a default.

Arul did not explain how it raised the money in his February 13 statement, but in an interview with Mingguan Malaysia? two days later, he said reports that AK lent the money were pure speculation.

“Ananda has never said anything about this matter. This is speculation by third parties,” Mingguan Malaysia quoted him as saying.

“I don’t know how he (Arul) can claim that (AK did not help),” says a source.

“It was a simple, clean loan (with no conditions) as AK did not want to be seen as taking advantage (by setting tough conditions).”

In reply to questions by The Edge on why he could not just come out and disclose how 1MDB raised the money, Arul said: “The facts on the (settlement of the) loan will be revealed in the appropriate forum/time i.e. our next set of accounts. To demand any different is to set a different standard for 1MDB which is not only unfair, but also ignoring our right and that of our stakeholders to legal and commercial confidentiality”.

Paying off the RM2 billion debt does not solve the problem for 1MDB, which has total debts of more than RM42 billion and annual debt servicing of RM2.31 billion and a negative cash flow of RM2.25 billion in its financial year ended March 31, 2014.

Sources say that MoF is aware of 1MDB’s cash-flow problem and knows it may have no choice but to step in with a RM3 billion injection.

But in order for that to happen, approval has to be given by the Cabinet, given the large amount of money involved and all the controversy that 1MDB has generated.

The government had on February 11 and 12 raised RM2.1 billion through two treasury bill issues that money market dealers say were unusually large amounts. Sources say the MOF could be getting the money ready should it go ahead and come to the aid of 1MDB.

The cash injection will have to be done before 1MDB’s next financial year close on March 31, 2015 – which is just five weeks away.

?Despite concerns raised by so many parties, MOF officials have always insisted that 1MDB was financially healthy and that the government only had to put in RM1 million as initial capital because the company was strong enough to borrow to fund itself.

Arul, in a February 18 press release on its strategic review, said 1MDB would stop borrowing from now.

Sources say the truth is that 1MDB can no longer go to the market to borrow – whether through bank loans or bond issues.

“The size of its debt of RM42 billion, the massive negative cash flow it has experienced in the last two years plus its struggle to pay the RM2 billion makes it difficult for any bank to lend to them,” says one banker.

“Bond investors will also shy away from any new debt it wants to issue.”

1MDB recently called off a RM8.4 billion Islamic bond that it had planned to raise cash to finance the 3B power project.

Bankers say it was cancelled because of lukewarm response. Sources say bankers have also taken note of the fact that 1MDB has had difficulties proceeding with its plan to float its power assets to raise cash. – February 23, 2015.

[…]

Comment on After Ananda Krishnan loan, 1MDB now needs government cash by waterfrontcoolie

BY THE EDGE FINANCIAL DAILY
The Malaysian Insider
23 February 2015

1MDB was not only helped by billionaire T. Ananda Krishnan to settle its RM2 billion debt to banks, but it may also require a cash injection of as much as RM3 billion from its owner, the Ministry? of Finance (MoF), say sources.

They say the controversial debt-laden outfit is facing a cash crunch as income from its power assets is not enough for debt servicing and it has run out of borrowing options, as shown by having to turn to a businessman for help.

Ananda provided a 15-month RM2 billion loan to enable 1MDB to settle its loan with a consortium of local banks on February 13.

Sources familiar with the matter confirmed this with The Edge Financial Daily and also expressed their surprise that 1MDB president and group executive director Arul Kanda Kandasamy had dismissed media reports about the loan from Ananda as mere speculation.

Arul had announced on February 13 that 1MDB had settled the RM2 billion owed to the consortium led by Maybank and RHB Bank Bhd which was first due on November 30, 2014. The loan was settled in time to prevent the banks from declaring a default.

Arul did not explain how it raised the money in his February 13 statement, but in an interview with Mingguan Malaysia? two days later, he said reports that AK lent the money were pure speculation.

“Ananda has never said anything about this matter. This is speculation by third parties,” Mingguan Malaysia quoted him as saying.

“I don’t know how he (Arul) can claim that (AK did not help),” says a source.

“It was a simple, clean loan (with no conditions) as AK did not want to be seen as taking advantage (by setting tough conditions).”

In reply to questions by The Edge on why he could not just come out and disclose how 1MDB raised the money, Arul said: “The facts on the (settlement of the) loan will be revealed in the appropriate forum/time i.e. our next set of accounts. To demand any different is to set a different standard for 1MDB which is not only unfair, but also ignoring our right and that of our stakeholders to legal and commercial confidentiality”.

Paying off the RM2 billion debt does not solve the problem for 1MDB, which has total debts of more than RM42 billion and annual debt servicing of RM2.31 billion and a negative cash flow of RM2.25 billion in its financial year ended March 31, 2014.

Sources say that MoF is aware of 1MDB’s cash-flow problem and knows it may have no choice but to step in with a RM3 billion injection.

But in order for that to happen, approval has to be given by the Cabinet, given the large amount of money involved and all the controversy that 1MDB has generated.

The government had on February 11 and 12 raised RM2.1 billion through two treasury bill issues that money market dealers say were unusually large amounts. Sources say the MOF could be getting the money ready should it go ahead and come to the aid of 1MDB.

The cash injection will have to be done before 1MDB’s next financial year close on March 31, 2015 – which is just five weeks away.

?Despite concerns raised by so many parties, MOF officials have always insisted that 1MDB was financially healthy and that the government only had to put in RM1 million as initial capital because the company was strong enough to borrow to fund itself.

Arul, in a February 18 press release on its strategic review, said 1MDB would stop borrowing from now.

Sources say the truth is that 1MDB can no longer go to the market to borrow – whether through bank loans or bond issues.

“The size of its debt of RM42 billion, the massive negative cash flow it has experienced in the last two years plus its struggle to pay the RM2 billion makes it difficult for any bank to lend to them,” says one banker.

“Bond investors will also shy away from any new debt it wants to issue.”

1MDB recently called off a RM8.4 billion Islamic bond that it had planned to raise cash to finance the 3B power project.

Bankers say it was cancelled because of lukewarm response. Sources say bankers have also taken note of the fact that 1MDB has had difficulties proceeding with its plan to float its power assets to raise cash. – February 23, 2015.

[…]

7 Ways to Build Your Credit Score Without a Credit Card

Unless you have a ton of cash at your disposal, you’ll probably need credit at some point in your life. Whether you’re buying a home, car or big-ticket luxury item, the first thing that most lenders typically look at is your credit score.

If you have limited or no credit history, you’ll need to begin building your credit and boost your score before you apply for a major loan. Unfortunately, many believe that opening and using a credit card is the only way to go.

Here are a few alternatives to help raise your credit scores without the magic plastic:

1. Ask companies to report on your behalf

Do you have any recurring bills that you pay on a monthly basis, such as rent, utilities, cable or a cellphone? Try giving the providers a call and request that they report your account activity to the three major credit bureaus, TransUnion, Experian and Equifax.

Do this only if you have responsible payment habits, as payment history accounts for 35 percent of your credit scores and can have a significant impact if there is not a lot of other data in your credit reports.

Also, bear in mind that these companies are not obligated to report to the bureaus, and your request is simply a favor that they have the right to deny.

2. Become an authorized user on another credit card

Of course, there are pros and cons to becoming an authorized user. If the cardholder has a strong credit background, two thumbs up for you because signing on as an authorized user will enable their stellar behavior to improve your credit profile somewhat (perhaps not as much as you think). But, if things are the other way around, your credit scores could take a hit.

Either way, if you opt in and have a change of heart, the information will quickly vanish from your credit file when you request to be removed from the account.

3. Open an account with a credit union and take out a small personal loan

Some credit unions have restricted membership and limited accessibility, but credit unions generally offer financing options at lower interest rates than traditional banks. To give your credit score a boost, apply for a small personal loan.

If your request is denied, inquire about a secured loan in which your money, say, a certificate of deposit or savings account, will be used as collateral. The request will more than likely be approved because the risk to the institution is minimal. And you may have to pay a tad bit of interest, but the rate usually beats what’s available in the credit card world.

4. Apply for an installment loan

Installment loans paid in a timely manner over an extended period of time build your credit scores because they show creditors that you are a responsible borrower. The types of credit in your file make up only 10 percent of your score, but the impact has the potential to be greater if the information in your credit reports is limited.

Retailers sometimes offer promotional installment loans to customers with little to no introductory interest for a limited period of time. If you have the cash on hand, it may not be a bad idea to take this route. But be sure that you have the total sum of cash available upfront to make timely payments and eliminate the balance before the interest kicks in.

5. If you’re a student, take out a federal student loan

A credit check is not required to obtain a federal student loan. All you need to do is fill out the Free Application for Federal Student Aid (FAFSA), and you’re all set. Since it is an installment loan, it can help boost your credit score.

But don’t get the loan and blow through the money. Instead, aim for one that is subsidized and deposit the money into a safe interest-bearing account so the funds will be available when repayment starts.

6. Research peer-to-peer loans

Companies such as Prosper and Lending Club offer peer-to-peer loans in an environment where borrowers are connected with individual investors. The interest rates are usually lower than those of traditional financial institutions. And the lenders are eager to loan unsecured funds because the return they derive is competitive with other investments. (See “4 Things to Know About Peer Lending.”)

Most of the peer-to-peer lenders report to the major credit bureaus.

7. Try an alternative credit score

By reporting your payment history to an alternative to the big three credit bureaus, you can create a nontraditional credit score. Check out a service like Payment Reporting Builds Credit, known as PRBC, to learn more about how an alternative credit score service works.

Do you know of any other ways to improve your credit score without using a credit card? Feel free to share it in the comments below or on our Facebook page.

For more tips on raising your score, watch this video by finance expert Stacy Johnson:

Watch the video of ‘7 Ways to Build Your Credit Score Without a Credit Card’ on MoneyTalksNews.com.

This article was originally published on MoneyTalksNews.com as ‘7 Ways to Build Your Credit Score Without a Credit Card’.

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Bipartisan bill puts payday loan industry before people | The Stand

Image moneytree-payday-loans.jpg

By JOHN BURBANK


(Feb. 12, 2015) — If your friend told you that she could get a payday loan of $700, and that the interest would be 36%, plus a small loan origination fee of 15%, plus a monthly maintenance fee of 7.5%, you might advise her to get out her calculator. Here’s why: That $700 loan could cost her $1,687, even if she makes all her payments on time. Right now, under state law, she can get the same loan and it will cost her $795 in all.

Which loan would you choose? That seems like an easy question to answer. But a lot of legislators have failed this test in Olympia. They are sponsoring a bill, HB 1922, to enable MoneyTree to sell “small consumer installment loans,” with high interest, maintenance fees, and origination fees.

Why would these legislators — 36 in the House and 12 in the Senate, both Democrats and Republicans — want to enhance the revenue of the payday loan industry? State Rep. Larry Springer (D-Kirkland) is the prime sponsor of this legislation. He says that “(o)ur current payday lending system is broken. Too often it leaves consumers in a never-ending cycle of debt.”

Unfortunately, HB 1922 makes matters worse, not better, for borrowers.

Rep. Springer may not know how well the law that he helped pass in 2009 reformed payday loan practices. That law leashed in the payday loan industry, with new standards that helped to make sure that people with loans did not get pushed deeper and deeper into debt. The industry didn’t like it, as the total amount of loans fell by more than $1 billion, from $1.3 billion in 2009 to $300 million in 2013. The amount of fees that the industry collected dropped by $136 million annually. The number of payday loan storefronts has fallen from over 600 in 2009 to less than 200 now. The total number of loans has fallen from 3.2 million in 2009 to 870,000 in 2013. That’s a lot of money for people to keep in their communities, rather than giving it to MoneyTree.

But very quietly last year, the owners and executive staff of MoneyTree, principally the Bassford family, dropped $81,700 in campaign contributions to both Democrats and Republicans. Many of the beneficiaries of this largesse are sponsoring the MoneyTree bill, HB 1922. In fact, the chief sponsor in the Senate, Sen. Marko Liias (D-Edmonds) received $3,800 from the Bassfords.

What would be the result of the bill that Rep. Springer and Sen. Liias are pushing? For a $700 loan, what now costs a total of $795 could cost $1,687. The poor person (literally) who gets this loan would end up paying $252 in interest, $105 in origination fees, and $630 in monthly maintenance fees, as well as, of course, the original one-year loan of $700. From 2017 on, the fees on these loans will be automatically raised through the consumer price index.

MoneyTree’s investment of $81,700 in campaigns could result in literally hundreds of millions of dollars in revenue. That’s quite a cost-benefit equation for the Bassfords. How about the working people who take out these loans? Their average monthly income is $2,934, or about $35,000 a year. With this bill, legislators punish the already poor for being poor, while enhancing the wealth of the payday loan perpetrators.

The legislation pretends to be helpful to borrowers by requiring this notice to be included in loan documents: “A SMALL CONSUMER INSTALLMENT LOAN SHOULD BE USED ONLY TO MEET SHORT-TERM CASH NEEDS.” Now isn’t that helpful! What is not helpful is that this bill was scheduled to be voted out of committee Thursday, even before the committee heard the bill on Wednesday, and even before any bill analysis was developed by legislative staff.

Our current payday loan system may be broken from MoneyTree’s perspective. But, while it is not perfect for low-income borrowers, it works, and it is a lot better than the previous system. Perhaps some responsible legislators will slow down the fast-track on the MoneyTree bill, and put people ahead of MoneyTree profits.


John Burbank is the executive director and founder of the Economic Opportunity Institute in Seattle. John can be reached at john@eoionline.org.

[…]

Government Loans: Risky Business for Taxpayers

Obtaining a loan from the government now seems perfectly normal to most Americans, be the loans for education, business, healthcare, or whatever else.

Examples include Small Business Administration loans, where a potential business owner goes to the government to get startup cash, and student loans, where a college student borrows money for tuition or even living expenses. These loans can often be paid back with interest over the course of what is often several decades.

Other examples might include Federal Housing Administration (FHA), Veterans Administration (VA), or Rural Housing Services (RHS) loans, which differ from the former in the sense that they are government insured loans, yet the fundamental principle behind them remains the same: government is taking upon itself (via taxpayers) the risk behind making the loan.

Of course, private loans are also available, though those that do not employ government insurance or other subsidies usually come with higher interest rates. The higher interest rates in the purely-private sector come from the fact that the private entity making the loan must take on all the risk, instead of externalizing it to the taxpayers.

So, the reality of lower interest rates in government and government-subsidized loans means they are vitally necessary, right?

First of all, the government doesn’t “make money,” in the way that private entities do. There is only one way in which states initially accumulate revenue, and that is through taxation. This extorted wealth is originally made in the private sector. So, in order for a government to make a loan back to the private sector, that money must first be removed from the private sector via taxation.

Government Knows How To Best Spend Your Money

For private entities, however, when they make a loan and determine who qualifies for it, and at what interest rate, the private firm making the loan is basically determining at what price (i.e, interest rate) the firm feels adequately compensated for the risk of lending out this money, and for giving up direct control over that money for the duration.

To claim, therefore, that the government should be in the business of making loans because private loans are generally too costly or too inaccessible for buyers, is no different than saying that government must take individual’s money and use it in a way that the original owners (i.e., the taxpayers) themselves would determine to be reckless and irresponsible. While it is true that occasionally a government loan may be paid back with interest at the appropriate time, it would be absurd to suggest that politicians would be more knowledgeable about how a person’s money should be used than the person who originally created and owned the wealth in the first place.

But Government Should At Least Prevent Usury, Right?

Moreover, there are those who will say that private firms making loans should be restricted from charging “excessive” interest on their loans (i.e., usury). This is an example of a very well-meaning, but utterly damaging regulation. It is crucial to note the differences in time preference displayed by both the lender and the borrower. The lender’s time preference (in this case) is lower than that of the borrower’s, meaning that the lender prefers a larger sum of money in the future, and the borrower prefers a smaller sum now. To get money now, however, the borrower must pay for it in the form of interest.

This represents a healthy balance between lenders and borrowers. It is why loans are made. Laws passed that prohibit certain interest rates on loans are far more likely to hurt those who need the loans, than anyone else. As was previously stated, a firm or person making a loan must feel compensated for the risk of making the loan, and that compensation manifests itself in the interest rate. To restrict a firm from charging a certain percentage of interest on their loans will only reduce the amount of loans it gives out.

Taking Away Your Choices

If a potential borrower who is determined to be a rather high risk asks for a private loan, then their interest on that loan will be quite high, but at least in that situation, the borrower has the choice of taking the loan, or to not take the loan. In the end, the borrower will choose what he or she believes will most benefit him or her. Yes, the borrower might miscalculate and the loan might turn out to have been a bad idea, but at least the borrower had a choice.

On the other hand, if the amount of interest that could be charged on the loan were to be forced down via government regulation, then the firm or person making the loan would simply not offer the loan at all, as he or she would not feel their risk is justified by the legally-allowable interest rate.

Faced with a lack of loans, risky borrowers may then look to government and government-subsidized loans as an option, but we find here just another case of government offering itself as the (taxpayer-funded) solution to a problem it caused in the first place.

Image source: iStockphoto.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

[…]

Federal Regulators to Crack Down on Unaffordable Payday Loans …

Image Shawn-M.-Griffiths_avatar_1381172453-35x35.png

Feb 9, 2015

The New York Times

reported Monday

that federal regulators are expected to draft new rules to govern short-term loans, including car titles and payday loans, which to date have fallen mostly under the jurisdiction of individual state law. While many states have tried to put an end to short-term loans with exorbitant interest rates, payday lenders have found ways to get around these laws or have lobbied state legislatures to soften regulations.

“Such maneuvers by the roughly $46 billion payday loan industry, state regulators say, have frustrated their efforts to protect consumers,” the Times reports.

According to the report, the Consumer Financial Protection Bureau (CFPB) will soon take the first step by federal regulators to reduce the number of unaffordable loans lenders can make. The CFPB, created after the 2008 financial crisis, is an independent agency tasked with protecting consumers in the financial sector. Along with banks and credit unions, payday lenders fall within the agency’s jurisdiction.

In March 2014, the CFPB released a startling report on the realities of payday loans and the effect they have on low-income households and borrowers, the demographic payday lenders target most. The people lenders seek out are in desperate financial situations, and therefore do not thoroughly consider all the facts before signing up for these loans, the fees of which may end up being more than the initial principal.

The initial loan is typically a 14-day loan of no more than $500, though some can exceed this amount. According to the CFPB, these loans carry fees between $10 to $20 for every $100 borrowed.

“A $15 fee, for example, would carry an effective APR of nearly 400% for a 14-day loan,” CNN Money reports.

The CFPB found that over 60 percent of all payday loans are made to individuals who take out 7 or more loans in a row, meaning the accumulated fees end up being more than the initial amount taken out.

“60% of all payday loans are made to individuals who take out 7 or more loans in a row.”@ cfpb

“The bureau found that during a 12-month period, borrowers took out a median of 10 loans,” the Times reports. “Borrowers paid median fees of $458. The median amount borrowed was $350.”

People may recall the Montel Williams commercials for Money Mutual where he makes it sound like short-term loans are the most convenient solution for people who are having money problems and live paycheck to paycheck. Yet, according to the CFPB, these loans are only convenient for people who can pay them back immediately or after no more than one renewal.

For those who can’t, the challenge becomes getting out from under the debt.

“[O]ne Pennsylvania woman who took out a total of $800 in payday loans to help pay for rent after losing her job told the CFPB that she meant for the loan to be only short-term,” the CNN Money article says. “But after rolling over her first loan and eventually taking out another one to help pay for it, she has already paid more than $1,400 towards the debt and still owes more.”

There are currently 35 states that do not have laws regulating short-term lenders. However, even among the states that have made these types of payday loans illegal or have limits in place, lenders have found ways to get around the laws by reclassifying their stores as car-title lenders or using other similar tactics. New rules by the CFPB could make it harder for these companies to get around state regulations and could protect consumers in states that do not currently have these laws.

More articles in Economy

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Photo Credit: Lori Martin / shutterstock.com

About the Author


Shawn M. Griffiths

Shawn is located in the Dallas-Fort Worth area in Texas and has been actively involved in grassroots efforts in the state since 2005. His political philosophy is founded on the principles of individual liberty, limited government, and fiscal responsibility. He is not affiliated with any political party, and has great appreciation for intellectual independence and objective truth.

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[…]

Keeping money in one place a key to getting a mortgage

By Scott Sheldon January 30, 2015 12:00 am

Keeping your money in one place is vital to a mortgage transaction.

Cash to close and savings post closing escrow become critically important to sealing the deal. I’ll detail what you need to know if you’ve been moving money around and are applying for a mortgage.

It’s an issue for banks

Moving money around in different accounts may raise concerns for suspicious activity with home mortgage banks. Lenders these days must be able to document the paper of funds on each and every loan made. While 99.9 percent of mortgage borrowers are simply moving money from one bank account to another for various convenience reasons, they are at the same time creating a red flag when the origin of the funds cannot be substantiated.

When you move money around, the lender has to document each account the money passes through.

Picture yourself having a standard checking account that does not contain significant assets but is used for your monthly accounting of bills and expenses, and you took the money for your down payment to purchase a home from another account and moved this money into your checking account while continuing to pay bills.

It could appear to the mortgage lender, like you, are spending part of your down payment creating a cash to close roadblock. A better solution? Keep the money in the same place. Transfer the money when needed, sending directly to escrow on your loan transaction, simplifying the details.

Create a paper trail

To best avoid lending conditions surrounding money movement, be prepared to show the full statements of the monies leaving each account. It is customary within mortgage lending to provide two months of statements for each account needed for cash to close escrow and/or for savings required after the fact as a safety cushion. This paper trail must appear to the naked eye that the money begins in one account, goes to another and ends up at close of escrow.

As long as the paper trail is clear and conspicuous, the lender should have no concerns with these monies as long as the funds can be supported. The same goes for gift funds; gift monies will also need a clear paper trail. The same requirements that come into play maybe needed for that safety cushion incumbent of your loan program.

For example:

• Conventional loans: Two months mortgage payments needed in the bank in most cases financing a primary home, six months of mortgage payments for investment homes for all properties owned.

• FHA loans: No reserve requirement.

• VA loans: no reserve requirement.

• Jumbo loan: Varies by lender; generally at least six months mortgage payments in assets needed post closing escrow.

*If you plan to use a bank statement in conjunction for obtaining a mortgage that shows a history of money movement, including money transfers and other various accounts and/or additional monies being deposited independent of your income, you’re going to have some homework to do.

Other considerations include:

• Joint bank accounts: If you’ve been moving money out of an account with another party whose name is on the account but is not a party to the mortgage transaction, the lender is going to request a letter from this other individual stating you have 100 percent access to those funds.

• Cash deposits: Placing cash deposits in your bank account independent of your normal income, i.e., your normal job, can be problematic for getting a mortgage because these monies cannot be identified as to the origin of where they come from raising possible suspicious activity concerns even though they can be legitimate deposits-like freelancing or side jobs. Lenders want to see at least two months of mortgage statements without cash deposits and without large movements of money otherwise, expect these transfer and deposits to be identified, questioned and documented.

While these requirements can be somewhat of a nuisance making the prospect of getting a mortgage somewhat unpleasant, it is also a byproduct of the quality of loans being made in the market today, fully documenting improving everything leaving no stone unturned further substantiating a mortgage borrower’s ability to qualify.

As such, these credit requirements help ensure there is little risk to buying a home or taking on a mortgage you cannot afford.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.

[…]

The Mortgage Mistake You May Not Realize You're Making

It’s no secret you need cash on hand to get a mortgage, but you may not know that the way you handle that cash as you apply for a loan can seriously derail your homeownership chances.

Keeping your money in one place is vital to a mortgage transaction. Cash to close and savings after closing escrow are critically important to sealing the deal. Here is what you need to know if you’ve been moving money around and are applying for a mortgage.

It’s an Issue for Banks

Moving money around in different accounts may raise concerns for suspicious activity with mortgage lenders. Lenders these days must be able to document the paper of funds on each and every loan made. While 99.9% of mortgage borrowers are simply moving money from one bank account to another for various convenience reasons, they’re creating a red flag for lenders when the origin of the funds cannot be substantiated.

When you move money around, the lender has to document each account the money passes through. Let’s use an example. You have a standard checking account that does not contain significant assets, but it’s used for your monthly accounting of bills and expenses. If you moved the money for your down payment into your checking account from your savings account while continuing to pay bills, it could appear to the mortgage lender like you are spending part of your down payment, creating a cash to close roadblock. A better solution? Keep the money in the same place. Transfer the money when needed, sending it directly to escrow on your loan transaction, simplifying the paper trail.

Create a Paper Trail

To best avoid lending condition surrounding money movement, be prepared to show the full statements of the monies leaving each account. It is customary within mortgage lending to provide two months of statements for each account needed for cash to close escrow and/or for savings required after-the-fact as a safety cushion. This paper trail must appear to the naked eye that the money begins in one account, goes to another, and ends up at close of escrow. As long as the paper trails is clear and conspicuous, the lender should have no concerns with these monies so long as the funds can be supported. The same goes for gift funds. Gift monies will also need a clear paper trail. The same requirements that come into play may be needed for that safety cushion, depending on your loan program.

Here’s a quick guide to typical requirements for “safety net” funds your lender may require:

Conventional Loans: Two months of mortgage payments needed in the bank in most cases if you’re financing a primary home. You’ll need six months of mortgage payments for investment homes for all properties owned.FHA Loans: No reserve requirementVA Loans: No reserve requirementJumbo Loan: Requirements vary by lender, but you will generally need at least six months of mortgage payments in assets after closing escrow.

The bottom line: If you plan to use a bank statement that shows a history of money movement, including money transfers and other various accounts and/or additional monies being deposited independent of your income, you’re going to have some homework to do.

Just because you have a paper trail doesn’t mean you’re home free yet. If you have a joint bank account or have cash outside of your normal income that’s entering your account, you have a few more steps to satisfy lenders. Here are the details.

Joint Bank Accounts

If you’ve been moving money in and out of a joint bank account with another party who is not a party to the mortgage transaction, the lender is going to request a letter from this other individual stating you have 100% access to those funds.

Cash Deposits

Placing cash deposits in your bank account independent of your normal income can be problematic for getting a mortgage. Since these deposits can’t easily be traced to their origin, it may raise some suspicious activity concerns even though they can be legitimate deposits from other income sources like freelancing gigs or side jobs.

Lenders want to see at least two months of mortgage statements without cash deposits and without large movements of money. Otherwise, expect these transfers and deposits to be identified, questioned and documented. While these requirements can seem like a nuisance to the average homebuyer,it’s a byproduct of the quality of loans being made in the market today. By fully documenting everything and leaving no stone unturned, lenders can do their due diligence in further substantiating a mortgage borrower’s ability to qualify. As such, these credit requirements help ensure there is little risk to buying a home or taking on a mortgage you cannot afford. (Here’s a calculator to help you figure out that home affordability number.)

In addition to income and a paper trail for your homebuying funds, make sure your credit score is in good shape before you head to your lender to get pre-approved or apply for a mortgage,. You can get your free annual credit reports at AnnualCreditReport.com under federal law. And you can see your credit scores for free every month on Credit.com.

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Students: payday loans are not your only option | Education | The …

The top testimonial for payday loan company Smart Pig is from someone without a surname, who declares in block capitals: “I love you Smart-Pig.com! You are my favourite pig ever! Who needs Peppa when you’re in my life!”

Noor” has clearly only met pigs willing to give her a 782% representative APR loan, a full 1% worse than the offer from Smart Pig.

Smart Pig is just one of a number of high interest payday lenders now offering their services to students. Their adverts, which have been reported to the Advertising Standards Agency (ASA), highlight prizes you can get your hands on, including the opportunity to “win a term’s rent”. All in a space they could have used to explain their APR.

Targeting Students

A worrying number of undergraduates are turning to payday loans. Around 2% of undergraduates used them last year, according to a survey by the National Union of Students (NUS). This may not sound like a lot, until you consider this means up to 46,000 students are risking the debt spiral associated with payday loans.

Despite a NUS campaign in 2013 to ban payday loan adverts on campuses, payday lenders are still heavily targeting students.

Peachy Loans have recently had complaints upheld against them by the ASA for an advert they ran on sandwich wrappers in cafes opposite university campuses and colleges. The campaign, it was found, encouraged a casual attitude to taking out a loan. Its slogan was: “Small bites put a smile on your lips! You can now get a loan from £50 to £500 and pay it back in small bits…” emanating from a cartoon mouth.

People willing to take financial advice from their sandwich wrappers may seem like a financially unsound group unlikely to return your investment but, unfortunately, these are probably the same group of well-meaning but naïve people that will incur late fees.

Scam techniques

There’s a reason payday loans companies use such trite campaigns, and it’s the same reason email scams are so poorly written. You and I may realise the emails are obviously a scam, but that’s because we’re supposed to.

Scammers deliberately use terrible spelling and implausible stories because it weeds out “false positives”, according to research from Microsoft. These are people who will likely figure out it’s a scam before they send off their money.

In the same way, adverts for payday loans weed out the people they’re not interested in, until all they’re left with are the incredibly desperate or the young and unreasonably optimistic.

There is money to be gained from the people optimistic enough to think APR won’t apply to them, as implied by Wonga’s now banned advert which claimed their 5,853% APR was “irrelevant”.

Payday loan companies aren’t looking to attract people who might look up what their interest rate actually means. They’re looking for more vulnerable people.

People who look at smiling pigs with top hats carrying bags of cash and don’t see a monumentally large danger sign. People who are paying attention to the singing Austrian girls handing people wads of money in TV adverts, and not the alarming text at the bottom of the screen.

Or they’re looking for people far too desperate to care. All too often students fit into this latter category.

Other options are available

Student Money Saver’s advice is to go to your university or student union for financial help. No matter how desperate things seem, advice and financial help will be available.

Hardship funds are available to you from your university when you are in dire financial circumstances. Hardship funds are lump sums or installments paid to you when you can’t afford the essentials, such as rent payment, utility bills or food.

Usually these are lump sums or installments paid to you, which you won’t have to pay back. In some cases your university will give you money as a loan, but without the massive rates of interest offered by payday lenders. Talk to your university and they will help you.

You can also request a higher bank overdraft if you haven’t done so already. Banks know students are likely to be high earners when they graduate, and so are likely to allow you this extension as an investment in your loyalty. If one bank won’t offer you an extended overdraft, shop around for a bank that will.

James Felton is the content editor of student finance website Student Money Saver.

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What It's Like To Live Without A Bank Account For A Day

The challenge was simple, or so it seemed: Pay my bills and complete a handful of money-related errands before my work shift began at noon. It was harder than I ever could have imagined.

In reality, I wasn’t handling my own finances; I was participating in a simulation of what it’s like to be one of the underbanked—that is, to be one of the 7.7% of Americans with limited access to traditional banking services. The Financial Solutions Lab, a spin-off of the Center for Financial Services Innovation (CFSI), put on the simulation for a group of entrepreneurs, nonprofit employees, and banking executives so that they could come up with new product ideas for addressing the challenges of cash flow management.

We ended up waiting for nearly half an hour while the store decided it couldn’t cash one of the checks.

During the two-hour simulation, the group was split up into teams and given a series of tasks to complete. These included buying a general purpose re-loadable card (GPR) and loading it up with cash, cashing a payroll check and a personal check, completing a money transfer and then picking up a money transfer card from another team, and paying the balance of a monthly rent bill.

My team—Paul Breloff, managing director of the Accion Venture Lab, Ethan Bloch, the CEO of digit, and myself—walked around San Francisco’s Mission District, popping into the payday loan and cash advance outfits, with names like Ace Cash Express and Money Mart, that I had passed so many times before without even a second glance.

Our first problem came at Ria’s, a storefront where we planned to cash our checks and load up our GPR card. We ended up waiting for nearly half an hour while the store decided it couldn’t cash one of the checks because we couldn’t immediately get verification from the sender that it was legitimate.

Ace Cash was willing to take care of the checks and GPR quickly, but for a significantly higher fee. Still, Ace Cash refused to let us pay the $10 balance from our monthly rent bill. The transaction was “declined for unspecified reasons.”

Western Union presented yet another challenge. Upon arriving at the storefront, we were told that their system was down. Eventually, we were told that the other team instructed to pick up our money transfer could do so at any Western Union—but we were charged a $5 fee for our $30 transaction.

Though we failed to complete our tasks, my team still won the competition. The other teams, apparently, finished even fewer tasks.

Normally, I take care of the vast majority of my financial transactions online. But as the FinX simulation made clear, the options for the underbanked are often limited to opaque in-person transactions that suck up large amounts of time. These transactions are unreliable; one team couldn’t pay their rent check because of a systems failure at a storefront, and Western Union failed us all. Customers have to wait on long lines, and there are few options for self-service.

All of these pain points are fixable, and there are plenty of startups that are working in the underbanked financial services space. None have really taken off yet, but CFSI is hoping that its new Financial Solutions Lab—a $30 million, five year initiative that will offer funding and resources to financial security entrepreneurs—will provide new solutions.

For now, banking without a traditional bank account remains a time-consuming, exhausting experience.

[…]