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Archive for April, 2007

It seems like only yesterday, mortgage brokers were encouraging their clients to use the equity in their homes to pay off the high balances on their credit cards.

In all truth, that’s not a bad idea.  First off, mortgage interest is deductible off of your federal income taxes, while credit card interest is not.  Credit cards are revolving debts as opposed to *most* mortgages’ fixed rates.  In fact, paying the minimum owed on a $6000 credit card debt at 19.99% interest rate will take longer to pay off than a $200,000 balance on a traditional fixed mortgage at 8% APR.  And especially with the new higher monthly minimums, a mortgage payment can be significantly smaller than paying even the minimums on several credit cards.  By the way, don’t let your broker reset your mortgage every time you refinance (Yeah, I hear you – this is the last time… unfortunately, the statistics don’t agree with you).

But there may be a strange reversal coming – one that’s already happening in Australia.

Australia’s # 1 newspaper, the Sunday Herald Sun, is reporting that thousands of families are paying their rising adjustable rate mortgage payments with credit cards – to the tune of $160-grand, in one family’s case.  In fact, the Australian Reserve Bank says that credit card holders there took an estimated $1.035 BILLION in cash advances in January 2007 alone.  And that’s not even taking into account 20%-plus interest rates on the cash advances.  And still foreclosures have doubled in the last four years.

Add to that, the fact that, despite the stiffer bankruptcy laws and increases in the minimum amounts owed each month, and credit card rates rising past 30% in more cases than I care to think about… According to the Federal Reserve, United States credit card debt has blossomed an additional $58-BILLION since the payment adjustments went into effect.  And now families who bought more homes than they could really afford or even those who thought they were getting better deals on their current mortgages thanks to the housing boom are finding themselves with rates adjusting up and equity levels dropping dramatically, leaving them no refinance parachute other than going deeper into the hole their banks already dug for them.

So could a debt reversal be on the horizon?  I hope not, but you never can tell…
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henry_ian_cusick_2.jpgIn last week’s episode of LOST on ABC, the requisite flashback story was in the life of stranded Desmond.  We learned early on that Desmond was a novice, studying to become a monk.  At one point, after a very troubling week, the abbot discovers Desmond imbibing in the wine that the monks press to pay for their order’s livelihood.

“What are you doing, Brother?”

“Getting pissed (wasted) on our wine”

“Each bottle of that wine goes for a 100 Quid” ($200 US)

“Well, it’s good thing we took a vow of poverty, then.”

“Yes, but we also took a vow of charity…”

Are you one of the many who was taught in church that money is evil?  That rich people won’t make it into heaven?  That you cannot serve God and money?

I want to focus on that last statement.  According to both Matthew 6 and Luke 16, Jesus does say, this:

No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Mammon.” 

Interestingly enough, in Matthew, the verse follows Jesus talking about not storing up for yourself treasures on earth, and follows it with the admonition not to worry about food, drink, and clothing.  In Luke, however, the verse follows the parable of the shrewd manager and followed by the parable of Lazarus & the rich man.

I could just focus on the Luke passage, because it helps me make my point easier, but both passages are Scripture and should be able to be reconciled, or I must be laboring under a misunderstanding of what Christ was teaching.

You see, Jesus never taught that rich people wouldn’t go to heaven.  Instead, he expressed that they must have a stronger faith commitment than the poor, because they are more self-sufficient.  And I’ve already explained that Paul writes to Timothy that the LOVE of money is the ROOT of all kinds of evil, not that money, in itself is evil.

What I think many Christians teach on, when they teach that you cannot serve two masters, is that we should flee from money and building riches because they will lead down a path of temptation that we will struggle with.  To be perfectly honest, this is balderdash.  If that was the case, then why did God create women to be desirable to men?  Whether you believe it or not, the more you are blessed with, the more you will struggle with temptation.  The struggle is proof that you are following in God’s will and growing in your faith.  If it wasn’t a struggle or you didn’t feel temptation, either you’ve built up a huge resistance to God’s discipline (Check out Paul’s discussion of this in Galatians 6), or He just doesn’t feel you’ve matured enough to handle such a temptation.  And are we not told to seek higher things?

When Jesus said that we cannot serve God and money, do you think He didn’t realize that we would still struggle with it today?  Do you think that just because He spoke the words in 1st century Jerusalem that He was unaware that we would struggle with finances in 21st century America?  What if His admonition, “Either he will hate the one and love the other, or he will be devoted to the one and despise the other,” could just as easily be applied to credit card debt?  If you owe Chase or Capitol One a few thousand dollars, are you not serving them?  You can tell me all you want that you hate credit card debt and you love Christ, but who are you truly devoted to when you pay Citibank $1000 a month and only have a few twenties to throw into the offering plate at the end of the month?

Why do you think that Luke records Jesus’ parable of the shrewd manager, completing the story with, “use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings”?  That doesn’t sound like what they told me in church.

To discover the truth behind Jesus’ controversial statement, we must read further, when he explains the point of the story, “Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.  So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches?  And if you have not been trustworthy with someone else’s property, who will give you property of your own?” 

Remember, we’re talking about Stewardship here.  The master in the story is upset with his manager because he, “was accused of wasting his (the Master’s) possessions.”  Hmm.  “If you have not been trustworthy with someone else’s property, who will give you property of your own?”  I challenge you to look yourself in the mirror and ask yourself if you’ve been trustworthy with all of the gifts God has given you – physical, mental and financial.

Then, to cap the moment off, Jesus tells the parable of the rich man and Lazarus.  Lazarus is the beggar outside of the rich man’s door who is ignored by the rich man, until the two of them die and the rich man ends up in hell.  I’d like to point out that neither Jesus nor Luke implies that the rich man is in hell because he’s rich, just because that’s where he went.  In fact, it almost seems like a karmic situation: “remember that in your lifetime you received your good things, while Lazarus received bad things, but now he is comforted here and you are in agony,” but I’m pretty sure that wasn’t the point, either.  Of course, your pastor will tell you that the main point of the story is that Jesus was predicting his own death and the fact that some would still not be convinced, and he or she is absolutely right, but these parables are obviously arranged in such a way for a reason as well.

 

Now, as for chapter 6 of Matthew; the passage that appears to not be helping me any in making my point…

 

Matthew 6 begins with the admonition to not display and announce your acts of righteousness before men, to gain honor and admiration, but do them in secret.  Notice that it does not say not to do them, just to not make yourself out to be a great person as a result.  Which might be why most rich people who are generous with their money are never perceived to be rich.  They give more than most in the church, but they do it under the radar, not seeking acclaim from men.

 

Then about halfway through the chapter, Jesus tells us not to, “store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal.  But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal.  For where your treasure is, there your heart will be also.”  We would be foolish not to realize that this ties back in with the beginning of the chapter.

 

Jesus follows by saying, “The eye is the lamp of the body. If your eyes are good, your whole body will be full of light.  But if your eyes are bad, your whole body will be full of darkness. If then the light within you is darkness, how great is that darkness!”

 

The NIV translation leaves a little to be desired here, so I’ll turn to the commentators at InterVarsity Press to explain:

 

“In the Greek text of the Gospels, Jesus literally calls the eye a “single” eye, which is a wordplay: the Greek version of the Hebrew Bible also uses this word for “single” to translate the Hebrew term for “perfect”-thus “single-minded” devotion to God, with one’s heart set on God alone. An “evil eye,” conversely, was a stingy, jealous or greedy eye; yet it also signifies here a bad eye, one that cannot see properly.”

 

How great is the darkness within a man who is not generous, for “no one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.”  And again, we are brought full circle, showing that it is not the quantity of the resources (or money) that is the problem, but the nature and expression of the person with the resources.  Stingy comes at all income levels.  In fact, many who are less well off are more inclined to be stingy, as they fall prey to the fear that there will not be enough.

 

And what does Jesus address next?  That very same fear.  When put into the light of context, could Jesus perhaps be teaching us to focus on the giver of all good gifts and not who gets how much of what?  Who worries more about whether or not they will have food and clothing, the well-off or the less than wealthy.  Of course, there are exceptions to every rule.  There are many who are rich that have come upon their success by hoarding and greed and they fear the same things.  And I have some close friends who live on very little, but are extremely happy and have the ability to donate time, talent, and treasury to various ministries.

 

The issue, again, is not that possessions themselves are bad but that a higher priority holds dominion over our resources. If we value what our Lord values rather than what the TV or other societal forces dictate, we will find freedom regardless of our income stream.  After all, God does want us to have enough to be content, but also to have an abundance so that we may fulfill the vow of charity that we accepted when we took upon ourselves His grace, regardless of what robes (or denim) we wear.  In meeting the needs of others, we become most Christ-like, no matter how much our bank account holds.

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I want to point our readers to an excellent article by a true debt crusader in Canada.  George Boelke wrote a book called It’s Your Money: Tools, Tips & Tricks to Borrow Smarter and Pay It Off Quicker and the Spanish language version, Quedese con Su Dinero, a couple of years ago now, and despite losing a huge chunk of money when his publisher went under, has continued to campaign across the country, explaining to consumers about how they should see credit and debt and why they should wonder, “Who’s in your wallet,” rather than what (The fine print is killer, folks)

Anyways, I encourage everyone to check out George’s latest article, “Kinky Mortgage Loans & Predatory Lending: It’s A Crime – But It’s Legal?,” published on the American Chronicle website.  Then ask yourself, are you an unwitting victim or a contributor to the problem?  One of the things George doesn’t mention is that there are a lot of people out there who have NO IDEA that they have Adjustable Rate Mortgages (ARM’s), Interest-only Mortgages and Option-ARM’s, because, while it was “disclosed” to them, the mortgage broker and/or bank glossed over that paperwork while they were signing all 110 pages of your mortgage agreement. Even if you’ve been using the same mortgage company for years (ahem, Countrywide), don’t assume you’re immune.

I also would advise you, if you have any credit cards at all, to check out George’s book, which can be ordered directly from him here. You can check out George’s other insightful articles on debt, credit cards and your family, here.

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Okay, so maybe the headlines didn’t say that, but they probably should have.  With the purchase of Golden West Financial Corp., the lender has gone from dabbling in option-ARM’s (better known to the general public as “Pick-A-Payment” mortgages) after the acquisition of World Savings Bank to jumping to the #2 position in the country (Countrywide still holds the Gold).  Ninety-nine percent of all mortgages sold by Golden West are option-ARM’s.  Their secondary business is low-yield CD’s.

Wachovia LogoThe chief administrative officer for Wachovia Mortgage, David Pope told reporters from American City Business Journal newspapers on a conference call that he “…expects loan officers at its branches and other areas of its longstanding system will make more option ARM loans as they become more familiar with the product.”  How lucky for the consumer.  But the news could be even worse for the 4th largest bank’s shareholders.

The CEO of Wachovia, Ken Thompson says he is confident that the $25-billion purchase is a good deal and that his shareholders will see the light shortly.  I’m not so sure.  Despite my obvious misgivings about the consumer use for option-ARM’s  – and I don’t care what anyone else says, there is no use whatsoever for option-ARM’s that in any consumer’s plan; the only thing they do is rack up more profits for the banks (in theory) and mortgage brokers and convince people they can afford homes they have no hope of holding on to in the long run – I would seriously question the judgement of any CEO who is convinced that option-ARM’s are going to benefit his shareholders.

Why are the profits only in theory?  Well, despite the fact that Golden West showed huge profits in the previous year, almost $755-million (or 59.6% of their overall profit) is from deferred interest.  For those of us outside of the banking world, a better term might be “phantom profits.”  In other words, the money’s made up, folks… In any other situation, we’d be screaming for the FTC or SEC to come in and crack down on executives for inflating profits and artificially driving stock prices up.  But this is the banking industry. 

0637covdc.gifWhat happens though, 2-4 years from now when the payment automatically and manditorily adjusts up to keep in line with the minimum deferred interest permitted (up to 125% of the loan amount, in some cases) and the consumer is faced with either paying a monthly payment 4-6 times higher than the one they picked or hoping they have enough equity and good credit to qualify for a refinance. 

A pretty big bet, when you’re looking at a collapsing housing market, federal officials talking about suitability regulations, and a banking industry that’s considering self-regulating to prevent getting caught with their hands too far in the cookie jar when the FTC does finally talk notice.

Oddly enough, some market watchers, including Forbes columnist Liz Moyer, criticized new Citigroup CEO Charles Prince for skipping out on the deal to purchase Golden West.  While I am far from Prince’s biggest fan, I’m thinking he made the right move this time around.
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