On the other side, consumers were happily taking on those mortgages, being under the false impression that prices of property will always rise and that they are making a good investment. They were also easily hooked by the Adjustable Rate Mortgage (ARM) which allowed them to take on a mortgage at a super low rate. The housing market was at its full glory: the USA home ownership rate grew to the record 69.2% (US Census Bureau Report, 2007). In the meantime, those mortgages were pooled and sold to domestic and foreign investment institutions as ‘AAA’ graded CDO’s. Since everyone was buying, demand has increased which naturally led to the increase in supply. Housing is built everywhere, 24/7. When the market reached its tipping point in the middle of 2007, supply became higher than the demand and prices began to decline. Prices quickly dropped by over 20% within less than a year (Standard & Poor’s Home Price Indices, 2008).

At one point, more people were finding themselves in a situation where they had zero or even negative equity in their homes. As a lot of those people took ARM mortgages, their payments were steadily increasing by that time. Many were unable to pay their mortgages. A wave of refinancing attempts and foreclosures made it harder and harder to obtain better financing rates and new loans. By the end of 2007, Nearly 1.3 million US housing properties were in the process of foreclosure (RealtyTrac. US Foreclosure Activity Report, 2008). This further deepened the issue – more and more consumers were unable to meet their repayment obligations, defaulting on their mortgages. People were resorting to withdrawals from their last savings accounts and even cash advances from credit cards. That led to a global bank run in which more than $550 billion dollars were withdrawn from US accounts. Banks were vastly losing their liquid assets. As a result of this, banks went low on cash, their assets disappeared and a liquidity problem developed. This pretty much is what brought down Washington Mutual – consumers feared that the bank is in trouble; they pulled their cash out and left the bank high and dry. The collapse of the Credit Default Swaps (CDS) market boosted the rapidly evolving subprime mortgage crisis even more. The weak regulation of the CDS market allowed for millions of junk swaps to be traded. The above mentioned investors, buying the ‘AAA’ graded pooled mortgages suddenly found themselves holding nearly worthless paper.

As a result of that, bankruptcies were quick to follow. This huge instability in the market had a snowball effect: AIG, the largest US insurer quickly started losing money merely because of the now worthless CDO’s they have insured. It became a vicious cycle: People were failing to pay off their mortgages, their homes were foreclosed; the owners of those failed loans were unable to recover their money so they turned to the insurers of those loans, who quickly run out of finances to pay the insurance on those junk mortgages. The result: consumers are low on cash, banks are low on cash, investors, insurers and banks are low on cash. The liquidity of the market almost doesn’t exist.

The fall of Lehman Brothers Holdings on September 14th, 2008 started a domino effect within the financial world. Many of their investments were foreign-funded, and as a result of that the US mortgage crisis quickly spilled beyond America’s borders. The German branch of Citigroup was heavily stressed by the bankruptcy of Lehman Brothers. The Indonesian stock market suspended trading after a 10% on October 8th of 2008. Thailand, Russian and Ukraine followed. Merrill Lynch was sold to Bank of America. Black Monday turned into the Black Week for the US markets: The Dow Jones fell 456.3 to 8122.2 leading to a 21pc dip, The S&P 500 fell 53.4 to 856.5, a weekly drop of more than 20pc (TMG. Financial crisis: US stock markets suffer worst week on record, 2008). This brings a whole new problem in the financial market: banks close their doors to loans, not just mortgages, credit cards and personal loans but loans to big companies, such as GM, IBM etc. These companies often rely on loans to support their productivity, but with this market seize it is hard for even them to obtain a good credit.

What started as a mortgage crisis in the middle of 2007 has quickly developed into a worldwide financial crisis. The failure of U.S. and European investment banks, insurance firms, mortgage banks and governments to contain and resolve the subprime mortgage crash has allowed for it to spread and grow into a huge, complex financial mess which is now known as the market crash of 2008.
References

Census Bureau Reports on Residential Vacancies and Homeownerships. US Census Bureau. 26 October 2007.
http://www.census.gov/hhes/www/housing/hvs/qtr307/q307press.pdf

Standard & Poor’s Home Price Indices. Standard & Poor’s S&P/Case-Shiller. New York, November 25, 2008.
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_112555.pdf

US Foreclosure Activity Report. RealtyTrac. Irvine, January 29, 2008.
http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=3988&accnt=64847

Financial crisis: US stock markets suffer worst week on record. Telegraph Media Group Limited. London, October 10, 2008.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3174151/Financial-crisis-US-stock-markets-suffer-worst-week-on-record.html

Tags: market crash 2008 | lehman brothers | foreclosure | census | financial crisis |   CDS | debt | credit

Ford Motor Company was found in June 16, 1903 with the simple idea of making quality, affordable vehicles so people can afford to buy and use them as they were not just a matter of luxury.  Henry Ford was in the root of this new, Detroit-based car manufacturer. On par with 87 other automobile manufacturers this young company had to quickly improvise in order to stay afloat. Many great innovations came to life in 1920’s – Ford was the first car company to introduce a conveyer-belt assembly line which allowed workers to produce complete vehicles in a matter of hours. Ford’s worker’s policies were also notable – higher wages, profit sharing and opportunities for the handicapped were a phenomenon in the industry. In 1919, Henry Ford retired, handing over the leadership to his son, Edsel. Further down the road, in 1943, Henry had to come back to the management position after the death of his son. On September 1st, 1945 Ford resigns conclusively.

Ford Motor Co has a long history and a great experience in the areas of vehicle manufacturing, alternative fuel innovations and electronics. By 1944, during World War II Ford manufactures B-24 aircraft and M-4 tanks for the US Government. Trough Philco, in 1965 Ford cooperated with NASA in their mission of putting a man on the moon.

Property, Financial & Current Lawsuits

As of the end of 2008, Ford Motor Co owned and operated 95 plants, 41 distribution centers/warehouses, 50 engineering/research & development facilities and 72 sales offices worldwide.

The total sales & revenue (the numbers are in millions, except for the stock prices) for the Ford Motor Company by the end of 2007 are $172,455. The same were equal to $160,065 for the year of 2006 and $176,835 for the year of 2005. The Net Income/Loss were reported as -$2,723 for the year of 2007, -$12,613 for the year of 2006 and $1,440 for the year of 2005. The Ford Common Stock was priced by NYSE at high/low $8.96/$7.35 (Q1 2006) and $8.06/$6.17 (Q2 2006) and $9.48/$6.06 (Q3 2006) and $9.19$/6.85 (Q4 2006). The current stock price (as of February 6th, 2009) is $3.00/$2.80.
According to the current 10K report for 2008, there are 3 state lawsuits, 2 class action lawsuits and 3 other lawsuits, currently in process for the company.

Products

In addition to vehicle manufacturing, Ford also produces vehicle parts, accessories and additives. Ford Motor Co is the manufacturer of the vehicles under the brand of ‘Ford’, ‘Lincoln’, ‘Mercury’, and ‘Volvo’. The company also produces car parts, accessories and additives (such as paint and oils) under the ‘Motorcraft’ brand. Fodor Motor Co is also a stockholder of Mazda. Ford Motor Co also supports several Governmental agencies in their development and manufacturing efforts.

Services

Ford Motor Co provides a wide array of services related to the automotive industry. Besides vehicle manufacturing, Ford also provides parts, accessories and additives (such as paint and oils) under the ‘Motorcraft’ make. Ford Credit is the financial service unit of Ford Motor Co which services loans to private and corporate parties. Ford Racing and The Ford Performance Group manufactures, sells and services vehicles & parts for NASCAR, Formula One and off-road enthusiasts.

Management

William Clay Ford, JR is Ford Motor Company’s Executive Chairman since September 1st, 2006. He started his journey within the Ford Company back in 1988 as a Director. Mr. Ford is also a member of the Environmental and Public Policy, Finance committees.

Allan Mulally is Ford Motor Company’s President and CEO since September 1st, 2006. He is also a member of the Finance committee.

Michael E. Bannister is Ford Motor Company’s Executive Vice President. He is also responsible for all operation within the Ford Credit subsidiary of Ford Motor Co.

Markets, Strategy, Research & Competition

As of today, Ford has established their business worldwide. In the 1920s, vehicles by the Detroit based company were mainly directed towards the US market. Later on, especially after the introduction of the assembly line, Ford breaks ground in Europe, Asia-Pacific, South America, Africa and the Middle East. In the beginning continental models would differ from country to country, with time that has changed and nowadays models differ mainly by continent.

The company strategy is to keep vehicles affordable and safe. Ford vehicles are appealing for a wide arrange of individuals, government as well as businesses. The company manufactures a broad spectrum of cars, trucks, vans and SUVs which are being used as daily drivers, NASCAR, rally & sports cars, test vehicles and military & government transport.
Ford Motor Co invests steadily in research and development. The Ford Company is the world’s first vehicle manufacturer to introduce a hybrid SUV. The company also developed many environmentally-friendly concepts, such as soy foam seats, 6-speed variable rate transmissions and fuel cell hybrid electric plug-ins.

The Detroit based company faces sturdy competition, especially in the recent years. Foreign manufacturers such as Toyota, Honda and Hyundai are on par and even ahead in some areas of development, sales and marketing. Domestic rivals such as GM are also a threat.

Tags: Ford | automobiles | cars | GM | Huyndai | Toyota | Honda | crisis | 10K | Detroit

Bankruptcy brings a lot of consequences that might have a very negative impact on your financial ‘grade’. Here are several facts to consider:

1) You are still obligated to pay off some of your debts: Although you will probably get rid of a lot of your simple debts, you may still be responsible for repaying, for example your mortgage or your car loan. There are certain exemptions of that rule in some states, so make sure you check that before filing. You also won’t be able to get rid of your student loans or tax debts.

2)  Bankruptcy will leave a mark: Bankruptcy filing stays on your credit report for 7 to 10 years. It will be there, on top of the negative list when you apply for credit cards, auto insurance, mortgage, rental and even a job. It will be hard for you to obtain any normal loan repayment terms.

3) Bankruptcy costs a lot: Besides the high interest rates you will most likely be getting as a result of your bankruptcy filing, you will also have to pay lawyer and filing fees.

4)  Bankruptcy process takes time: In most cases you may be required to take financial planning and credit counseling session before you are even allowed to file.

5) Bankruptcy filing is restricted: You can file once every six years. So if it does not work the first time,  you will have no other options for the next 6 years. Re-filing has a waiting period of 180 days.

6) Bankruptcy screws up your co-signers: Bankruptcy doesn’t protect the co-signers of your debt. If the filing discharges your debt,  your creditors are free to go after the co-signer.

7)  Bankruptcy won’t save your from acquiring interest:  All of your nonchargeable debts are still acquiring interest and other fees.

8 ) You still may not be able to save your property: In some cases, when you property debts are higher than the discharge exceptions, the bankrupt’s trustee may have to liquidate (sell) your property in order to pay the creditors.

9) There are different types of bankruptcy: Chapter 7 bankruptcy obligates the debtor to turn over all all nonexempt property to the bankruptcy trustee who then liquidates it and repays the loans.  Chapter 13 allows the debtor to keep their property and enter into a repayment plan with 3-5 years term.

10) You can fail in bankruptcy: If you continue missing payments, for example on your mortgage, even though you are under a bankruptcy protection your mortgage lender can go ahead and proceed with foreclosure.

Please be advised that the above facts can have exemptions and vary by state.

Tags: bankruptcy | chapter 7 | chapter 13 | filing | debt | credit | taxes

When you are filling out credit card applications,  several things happen:

1) All your personal information is collected and verified
2) The credit issuing company pulls up a copy of your credit report and scores
3) All of the above is analyzed, weighted and a decision is made

At first, all your personal information is collected -  your name, address, social security number, income and real estate property data. This is all verified against your mother’s maiden name and against your credit report.

In the second step, the credit issuer pulls a current copy of your credit report and your credit score. This usually happens instantly and most of the times the creditor will only use one credit reporting agency. If the loan is more complicated (bigger sum, lower interest or additional benefits) they may check with more than one agency at a time.

In the third step, the credit issuer goes over your info in order to determine your credibility. Several factors come into play when a decision is made: the age of your credit report; the ratio of available/used credit; the occurrence of any negative items such as charge-offs, bankruptcy, collections or late payments; if you own or rent and also your yearly income.

Most of the time the process of evaluation is completed automatically, by a computerized system. It would automatically deny credit when certain negative items exist on the report. If the computer is unable to make a decision, the request sometimes gets forwarded to a person who reviews the data and makes the decision. People with poor credit are most of the time unable to receive any type of credit. Consumers with average scores are usually able to receive what’s called credit cards fair credit, which have good APRs and credit limits. Consumers with higher scores usually get special offers, lower APRs and higher credit limits.

Tags: credit | credit card | debt | fair credit | credit application

Coffee, or the Starbucks Effect – since when do we need coffee every morning in order to get us going? Price it at least $2 per day, and in one year you can easily spend up to $600. Brewing your coffee, on the other hand will cut that cost in half.

Change your bulbs – 100 Watt regular bulbs burn 10 times more than an energy saving CFL bulb. It is good for your wallet; it is also good for the environment.

Call your banks and ask them to lower you APR’s or waive some fees. Ask to talk with a supervisor.

Save on transportation by riding the bus / subway or carpooling. Even if you do it only once a week, it will save you a lot of money on gas and other car expenses.

Don’t buy bottled water – tap water is perfectly ok to drink. At $2 per 1.5 l bottle, you are throwing away up to $1000 per year on water.

Buy generic products – they are made from the same ingredients but cost less, because you are not paying for the brand (and for their shiny packaging).

Unsubscribe from all those magazines, newspapers and cable TV. Take a walk in the park instead or read a real book.

Brown bag it and stop buying from the vending machine – first of all it is expensive, second its junk food and third one hour later you will be hungry again.

Buy stuff on sale, around the holidays and look for coupons online.

At the end, if you follow the above easy steps, you will probably save at least $3000 per year. Not bad, right?

Tags: save money | frugal living | gas

Let’s do a quick estimate. Say a gallon of gas costs $4.00 at Gas station 1, and that gas place is 1 mile away. Gas station 2 sells the same gasoline for a lower price, $3.85, and its 3 miles away. For this example, our vehicle will have a 12-gallon fuel tank and it will burn approximately 25 miles per gallon (city driving).

So, after calculating the cost of driving (which is a mix of gasoline cost and vehicle amortization cost) you basically save $1.48 per fill-up. And if you are fueling 4 times a month, 48 times per year, your savings will come to around $70 annually. Now, if you also add the cost of the time you will spend in driving (which has no price) my guess is that you will come up with the right answer to the question, ‘Is it really practical to tinker around for cents?’ all by yourself. For the rest of us, who really hate math – it’s not worth the hassle.

Tags: gas | gasoline | cheap gas | vehicle | car | auto

Check the history records: Carfax.com offers a vehicle history report. You will need the vehicle’s VIN number (ask the person selling it) in order to run the report. It will provide vital information concerning the auto you are about to invest your money into. A CARFAX report can disclose past vehicle accidents, recalls and registration information.

Check the vehicle body: All panels should be well-aligned, especially around the doors – check the gaps, the sections should be evenly positioned. Look at the paint color – does it match on all panels? Check the bottom of the doors for rust. Inspect the body for scratches, dents and fresh paint. Take a good view of the tires – especially the sidewall should be clean of cuts and damages. All tires should be the same (brand and type) and they should be evenly worn out. Open the driver’s door and take a look at the vehicle label – it usually will indicate the VIN number. Compare it to the registration VIN.

Inspect the interior: Good interior usually means the vehicle was taken good care of. Check for broken locks, buttons. Take a look at the dashboard, the seat belts, and the trunk. Test all doors.

Electrical stuff: Test all the lights on the dashboard – turn the key halfway until all lights light up. Make sure they all work – this indicates that the on board control unit tests the various systems of the car. Check the headlights, the taillights, the signal lights, the backing up lights. Turn on the radio.

Heater and A/C: Start the car, turn on the A/C. Make sure that the air is cold. Check the heating function as well. Turn the A/C on the highest speed possible and listen to the engine – if it struggles there may be a problem.

Engine: Pop the hood with the engine off. Inspect visually for oil leaks, torn cables / pipes. Open up the coolant fluid and take a look inside – is it clean and bright green? If it is brownish or there’s oil floating on top there is a problem. Also take a look at the engine oil – it should be brownish and there shouldn’t be any bubbles in it. Black oil means it hasn’t been changed regularly or that the engine burns oil. The transmission oil should have bright red color. Ask if the transmission has been flushed ever and if the transmission filter was changed. Let the owner start the engine and listen for noises, clicking. Check the temperature too. Ask the seller to shift the transmission from Park to Neutral (make sure to apply the brakes first) and look at the engine. It may move a bit but if it jumps a lot during shifting, avoid buying this vehicle. If you can, stick your head under the engine bay, watch out for leaks.

Transmission: Take a seat inside the car, start the engine. Apply the brake, and shift from P do D than to L / 1 / 2 / 3 / R (or whatever options you have). Fell the car – does it jump or does it make weird sounds every time when you shift?

Take a test drive: Don’t just drive on the parking lot – take a good ride, slowly, make some turns, and it would be great if you can do a short highway run. Listen, smell and look for anything out of the ordinary. Try turning the A/C, the radio, the heating while driving. Stop the car somewhere; leave it for a minute with the engine running, than ask the owner to sit inside and step on the gas. If a smoke cloud appears, this vehicle is burning oil – avoid buying it.

Trust your intuition: I the car is really good, but the price is unrealistic, avoid buying it. Ask for maintenance records; oil changes; known problems. Why is this car up for sale? How long have they owned the car? Has the car been involved in an accident? Check the title – does the VIN, the owner’s information match? If everything looks ok to you, go ahead with the purchase. If you have doubts, take the car to your mechanic / nearest shop and have it checked out. After all, it’s your hard earned money!

For more information or to file a complaint with the Federal Trade Commission, visit the FTC site.

Tags: car | vehicle | used car | dealer | credit

Unfortunately, the guys at Chrysler ‘forgot’ to mention the details in their commercials. The first and the biggest hit on the customer is the fact, that the buyer will not receive the usual inducements: Most of these vehicles normally are sold with cash-back incentives. However, if you go with the ‘Let’s Refuel America’ plan, you won’t be able to take the green as well, although some of the cars in this plan also offer some cash-back — $500 plus the gas as opposed to $2,500 cash back, for instance. The second caveat is the octane restriction - the plan only applies to diesel and low-grade gasoline, with octane level no higher than 87. Which means that if you pump mid or high-grade gasoline, you will be paying the full price. But that’s not all! The ‘Let’s Refuel America’ deal will only cover you up to 12 000 miles per year. Every additional mile on top of that - you guessed right, regularly priced gas. And last, but not least - you are restricted to maximum of 708 gallons per year.

So after doing the simple math, at average price of $4.20 per galon the ‘Let’s Refuel America’ deal will save the buyer about $800 per year, or up to $2600 for the three years in which the incentive is active. Knowing that you could have received at least $2500 cash back on that vehicle, the ‘Let’s Refuel America’ program doesn’t really save you a dime.

Tags: gas | fuel | jeep | chrysler | Let’s Refuel America | $2.99 guarantee

Job Stability

Lenders like to approve individuals who have held the same job for at least two years if not longer. Jumping from job to job or having holes in your job history will require explanation and is not advantageous in the eyes of a lender.

Owning a Business

If you own a business you must provide a solid history of the success of your business for a two year period. To do this you must either obtain a letter from your accountant that clearly states that you have been in business for a period of two years or else you must be able to show proof of a business license that will identify when your business got its start.

Two Year History

If you do not have a two year job history or have not been in business for two years then you can still apply for a mortgage. If you qualify in the other categories then you are not likely to run into a problem with being approved. For those who fail to meet the two year criteria there are what is known as “No Doc” loans. If you apply for one of these types of loans, your job history does not have to be disclosed or verified. The down side however is that you will pay a higher interest rate on the mortgage.

Income

The two year rule applies with income as it does with job history. The lender will need to see two years worth of W-2 forms as well as your current pay stubs. If you own a business, the lender will take a two year average of the money you have earned based on what shows on the last line of your tax return after everything else has been written off. If you earn a commission income you must be able to account for a two year history and from that the lender will take an average. If your monthly debts equal 41% or less of your gross monthly income then you should be approved for a mortgage.

Down Payment

The traditional amount required for a mortgage is 20% which will put you in good standing with the lender and help you get the best interest rates possible. However putting 5% or 10% down is still something a lender will be pleased to see.

Reserves

Reserves are money that remains in your bank account after you have paid all of your closing costs. Having one month of reserves looks well to a lender and that includes enough money to cover one mortgage payment, your property insurance and all applicable taxes. The reserves you need are dependent upon the type of mortgage you are applying for. As a general rule, having two to six months worth of reserves is considered desirable.

Credit History

Your credit history plays a significant role in whether or not you will be approved for a mortgage and well as what terms will be set down. It is your “fico” score that will be closely scrutinized by the lender and will weigh heavily into the decision of whether to approve your application or not.

Tags: mortgage | lender | credit | home | realty

The secured credit card is basically a credit card for individuals with poor credit (such as those who have been discharged from bankruptcy); or those who have a lower income. This type of credit card is one in which you put down your own money as collateral. You may then use the card and borrow in this manner until a time at which the credit card company is willing to consider extending you credit by way of an unsecured credit card. This will happen once you have proven that you can use credit responsibly and can pay your bills on time every month.

In most cases, the limit on a secured credit card is low, in the range of $500 to $1000. This is a small enough amount that the person who is attempting to rebuild their credit should not run into any financial problems. Most companies are willing to consider a responsible credit card holder for an unsecured card after they have been with the company for anywhere from one to two years. The request will be considered on a case-by-case basis. Once you feel you have proven yourself with responsible credit card use, do not be afraid to approach the company about switching to an unsecured credit card.

There are a number of companies that issue secured credit cards but it is important that you look for one that does not charge an application fee. Most have an annual fee as this is a standard practice, but make sure you compare the fees from company to company before you make a final decision.

Another important point of note is that before you apply to any particular credit card company, find out if they make it a habit to report their credit information to all three credit reporting agencies. After all this is a primary benefit that you should take full advantage of.

Tags: credit card | secured credit card | debt | apr | loan