Finance

$10.1 billion in federal stimulus money has been released to the states by the Department of Housing and Urban Development, and Arizona is receiving more than $150 million of that. And what is that money to be used for, in a state where there are tens of thousands of homes for sale with few buyers (50,000+ in Maricopa county alone)? Building more housing. The Arizona Republic reports that Millions of dollars more will go to state and local programs. That includes $32 million to begin construction of affordable rental housing, $22 million to prevent homelessness and $12 million to build or repair public housing across the state.To the extent this money is used to build new homes, as opposed to repairing deteriorating ones, it’s just going to accelerate the decline of home prices, putting more homeowners underwater and providing them with more incentive to walk away from their mortgages. Now, I think that a further decline in home prices is inevitable, no matter what the stimulus money tries to do, but it’s ridiculous to throw additional money at accelerating that process. It makes about as much sense as using federal stimulus money to give grants to investment bankers to develop more complex collateralized debt obligations. Now, this isn’t actually quite that bad, since it does apparently focus on some particular communities–a third of the money is for Native American communities that didn’t get a housing bubble of speculative buying. Some of it is also for families that need short-term help with utility bills, rent, or other expenses (something that the Modest Needs Foundation has been doing for years with private donations). And Tucson is apparently using it to improve energy efficiency of existing public housing units. Those are all much more reasonable uses of the money than building more houses. ...

I just read this email this morning, which has to win a prize for the best Nigerian 419 scam I’ve ever seen: Reply-To: [email protected] From: “Mrs. Mary S. Derrick”[email protected] Subject: Stop Contacting those people !!! Date: Fri, 27 Feb 2009 04:43:50 +0100 X-Priority: 3 X-MSMail-Priority: Normal X-Mailer: Microsoft Outlook Express 6.00.2600.0000 X-MimeOLE: Produced By Microsoft MimeOLE V6.00.2600.0000 To: undisclosed-recipients:; X-NetStation-Status: PASS Attn: My Dear, I am Mrs Mary Susan Derrick, I am a US citizen, 48 years Old. I reside here in New Braunfels Texas. My residential address is as follows. 108 Crockett Court. Apt 303, New Braunfels Texas, United States, am thinking of relocating since I am now rich. I am one of those that took part in the Compensation in Nigeria many years ago and they refused to pay me, I had paid over $20,000 while in the US, trying to get my payment all to no avail. So I decided to travel down to Nigeria with all my compensation documents, And I was directed to meet Mr. Henshaw I. Anderson, who is the member of COMPENSATION AWARD COMMITTEE, and I contacted him and he explained everything to me. He said whoever is contacting us through emails are fake. He took me to the paying bank for the claim of my Compensation payment. Right now I am the most happiest woman on earth because I have received my compensation funds of $1,500,000.00 Moreover, Mr Henshaw I. Anderson, showed me the full information of those that are yet to receive their payments and I saw your name as one of the beneficiaries, and your email address, that is why I decided to email you to stop dealing with those people, they are not with your fund, they are only making money out of you. I will advise you to contact Mr. Henshaw I. Anderson You have to contact him directly on this information below. COMPENSATION AWARD HOUSE Name : Mr. Henshaw I. Anderson Email: [email protected] Phone: +234 802 739 4935 You really have to stop dealing with those people that are contacting you and telling you that your fund is with them, it is not in anyway with them, they are only taking advantage of you and they will dry you up until you have nothing. The only money I paid after I met Mr. Henshaw I. Anderson was just $580 for the paper works, take note of that. Once again stop contacting those people, I will advise you to contact Mr Henshaw I. Anderson so that he can help you to Deliver your fund instead of dealing with those liars that will be turning you around asking for different kind of money to complete your transaction. Thank You and Be Blessed. Mrs. Mary Susan Derrick.She’s being so honest about those other Nigerian scammers that ripped her off, so surely she must be honest about this compensation fund. The sad thing is that those who have been ripped off multiple times already will probably fall for this one, too. ...

I recently wrote about how Chase Bank’s inflexible systems just cost it money by not allowing me to make a $100 payment to my mortgage account to make up an erroneous underpayment. Instead, I had to make an entire additional payment, depriving them of a significant amount of future interest. In January, I received an offer from Chase Bank to open a checking account with them, with a minimum deposit of $100. After I set up direct deposit, within ten business days of the first deposit they would deposit $125, which would be mine to keep so long as I left the account open and receiving direct deposits for at least six months. I asked an online banker whether there was any minimum amount that had to be direct deposited, and was told no. I decided to set up the account in person at a branch near my office, and again asked whether there was any minimum direct deposit. The banker told me no, there was no minimum–if I wanted to deposit only $1 per paycheck, that would be fine. As I have no interest in using Chase Bank as my primary bank–I’m quite happy with a regional bank that is one of the top-rated places to work in the country and has demonstrated reliability to me repeatedly over several decades–I decided to maximize my return on this otherwise non-interest-earning account by minimizing my deposits. My employer provides a convenient way for me to control my own direct deposits into up to three different banks, so I added a new direct deposit of $0.01 per paycheck into my new Chase Bank account. The first $0.01 went in on January 15. On January 30, no $125 had been deposited, so I sent an online email inquiry asking when I could expect to see it. A response a couple days later told me I needed to call in to get an answer to my question, so I dialed the toll-free number, waited on hold, and finally got to a person who told me I needed to wait four to six weeks after the first direct deposit. My second $0.01 went in on January 30. My third $0.01 went in on February 13. Still no $125. Today, I got another $125 offer from Chase Bank, which prompted me to dig up my application materials and see that they promised my $125 would be deposited within ten business days, not four to six weeks. So I called and left a message for the banker at my branch, I sent another online inquiry asking whether Chase Bank is going to remedy its failure to honor its offer, and called in to the toll-free number again. I described the issue to my “telephone banker,” and he asked for my account information. When he brought up my account, he asked if the $0.01 deposits were pre-authorizations for direct deposit, and I told him no, those are the deposits–I was told multiple times that there was no minimum deposit, and there is nothing in the written offer that mentions a minimum deposit. He was unable to solve the problem, and said he would have to send it to be researched, and I would hear back within a couple of days. If they didn’t want to honor the offer, they shouldn’t have made it in the first place. By failing to live up to it, they’re costing themselves even more money. It’s surprising to me that this is probably the strongest of the major banks in the U.S., and the least likely of the majors to end up costing the U.S. Treasury money in the long run from the TARP’s preferred investments ($25 billion put into Chase so far). UPDATE (February 18, 2009): I received a voice mail from Chase Bank stating that the promised $125 will be deposited into my account within the next two weeks. My real-life banker left me a voice mail saying that the issue was that their system doesn’t automatically count direct deposits for issuing an award if they are less than $1. So they do intend to honor their offer, it will just take longer since I used the system in a way they apparently didn’t anticipate (or did anticipate with the same reasoning companies use with rebates). UPDATE (February 25, 2009): My $125 was deposited yesterday. ...

My mortgage has been purchased by Chase Bank a couple of times (after the first time, I refinanced with another bank and then Chase bought my mortgage from them), and they’re my current lender. I pay extra principal with every payment, usually about 30% more. For my February payment, I decided to reduce the extra principal a bit, for various reasons including keeping a bit more cash on hand in current economic conditions. Unfortunately, I made a $100 error in my payment. Rather than paying an extra $40.37, I underpaid the monthly payment by $59.63. I learned my mistake when I received my mortgage statement, indicating that my entire payment was in “suspense funds received” and had not been applied to my mortgage at all. I immediately called Chase. Even though it was an hour before their call center closed, I was unable to get to a human being. Instead, after being told I was being transferred to customer service, I got an automated message saying that my call could not by completed. I looked for online options for payment, but the Chase website referred me instead to their phone-based “FastPay” system. The “FastPay” system by phone charges a $15 fee (which the phone system says can be avoided by using the online payment system) and only allows making a full payment. I tried again the next morning, and got through to Tonja, a customer service rep who told me that I could only make a full payment through the phone (not the $100 I wanted to pay), but said if I connected an external bank account online, I could make the payment that way, and as soon as the extra $100 was received, the payment would be applied as normal. I’m also well within the 15-day grace period for a payment, so I don’t have to worry about late fees. Online, I searched through some counter-intuitive menu options–within the mortgage account, payment options send you to the page about FastPay over the phone–I finally found that from the front page I could get to an option to connect an external account. I started the process, and learned that my bank could not be connected instantly by putting in my online banking authentication information, but had to use a method of verification where Chase puts two small deposits in my account and I come back later and input those amounts back to Chase to prove that it’s my account (or at least that I have access to it). It then allowed me to attempt the instant verification method, despite its previous claim that my bank didn’t accept it, but that failed (and I probably shouldn’t have tried–Chase shouldn’t have my authentication credentials to another bank). It then said it would take up to two business days for these deposits to go through. The next day, my bank showed me that there were two pending deposits from Chase (yet another cost Chase is incurring), so I went back to the verification page and entered those amounts. Chase’s website informed me that because those deposits had not been made yet, I was not allowed to verify the amounts yet. Dumb design. I tried again later in the evening, and my verification was accepted. Now I went to the page to make a payment, only to find that once again, the only option is to make an entire payment. Contrary to what Tonja told me, I cannot pay just an additional $100, because there is an outstanding payment that hasn’t been made, and my $1100 sitting in “suspense funds” doesn’t count and can’t be used. Well, I’ve got the money in savings, so I decided that if Chase is going to make things so difficult, I’m going to go ahead and make a full extra payment and deprive them of a little more interest over the life of my loan, in addition to the overhead costs they’ve incurred through this episode. The website told me it would take two business days to process, so it will be applied on February 11–still during the grace period. But now I still am not sure that the $1100 will be applied to principal reduction, so I called in again and spoke with Kim. I explained what has happened, and pointed out to her that Chase is losing money from its inflexibility, and she offered to move $100 from my January extra payment to February so that I could cancel the additional payment. I thanked her for the option (which I would have needed to take if I didn’t have the money to spare), but declined, since that would result in an increase in interest. I asked if she could verify that the $1100 would be applied correctly, and she suggested that I call in again after I see online that the new payment is applied–which will incur yet further costs to Chase. This is a nice demonstration of how an inflexible payment system doesn’t deal well with partial payments can cost a company money and customer goodwill. ...

In a fiendishly clever plan, Credit Suisse Group AG has found a way to reduce its exposure to toxic securities and transfer risk off its balance sheets–it’s paying senior executives’ bonuses with them. Managing directors and directors, the two highest ranks at the Zurich-based company, will be paid year-end bonuses in its most illiquid loans and debt. Those assets will be transferred to a “Partner Asset Facility,” and those directors will receive shares of ownership in the facility. Those assets will make semi-annual payments to the owners, with the full value only to be known as the assets mature or default.

The traditional bank lobby, filled with expensive marble and and furnishings, is designed to signal to the customer that the bank is stable and isn’t going anywhere. Some recent failed banks have used advertising slogans also designed to inspire confidence, such as IndyMac’s “you can count on us." Others, however, should perhaps have been recognized as clues of impending problems: Dexia: “The short term has no future." Fortis: “Here today, where tomorrow?" Countrywide: “[A] lender that actually finds ways to make loans." Fannie Mae: “As the American dream grows, so do we." Washington Mutual: “Whoo hoo!" (Via The Economist, October 2, 2008.)

I’m generally quite averse to watching sports, let alone reading about them. But I did read Michael Lewis’s Moneyball at one sitting and just read Malcolm Gladwell’s “Most Likely to Succeed” in the December 15 issue of The New Yorker. Gladwell’s article looks at examples of jobs where there are few, if any, available measurements of performance available before hiring that correlate with success in the position. The performance of college quarterbacks doesn’t track their success in the NFL (apparently due to factors such as the sizes of players and the types of offensive formations used), and none of the items on a resumé seem to predict the success of teachers or financial advisors. Yet quality of teaching is a huge factor in student educational success (as I’ve previously noted on this blog with regard to an Economist article about a McKinsey & Co. study that compared education across OECD nations). As The Economist article I referenced noted, “Studies in Tennessee and Dallas have shown that, if you take pupils of average ability and give them to teachers deemed in the top fifth of the profession, they end up in the top 10% of student performers; if you give them to teachers from the bottom fifth, they end up at the bottom. The quality of teachers affects student performance more than anything else." Gladwell suggests that we should find a way to hire more teachers, have them apprentice with demonstrably successful teachers, and weed out the bad ones. But the most successful nations do not follow Gladwell’s suggestion of increasing the number of new teachers, instead doing nearly the opposite. Again quoting The Economist: ...

Yesterday the Arizona Republic had an interactive foreclosure map and document of data (PDF) which includes the monthly foreclosure statistics for the last eighteen months: April 2007: 553 May 2007: 475 June 2007: 579 July 2007: 676 August 2007: 806 September 2007: 1,093 October 2007: 936 November 2007: 1,344 December 2007: 1,617 January 2008: 2,052 February 2008: 2,249 March 2008: 2,365 April 2008: 2,969 May 2008: 3,402 June 2008: 3,717 July 2008: 4,104 August 2008: 4,013 September 2008: 4,378 October 2008: 4,587 Total foreclosures per year: 2004: 4,444 2005: 1,370 2006: 1,070 2007: 9,920 2008: 33,836 through October This is not good news for a state where construction and real estate provide a large share of the employment opportunities. It is good news for those who do not own homes and have been waiting to buy at lower prices–it looks like next year will offer significantly better prices than this year, but there are still a lot of delusional sellers out there asking way too much. (There’s a two-bedroom, two-bathroom house on a half acre in a quiet neighborhood near us that looks very nice, but is probably worth about half of the $429,000 asking price, based on comparable sales and the current downward trend. Zillow says it’s worth $277,000.) See their summary article, which has links to the map and other documents. ...

Gee, who was completely full of crap? I love the captions–Dow over 13,000 and Ben Stein is saying now’s the time to buy… Merrill Lynch a buy at $76, Charles Payne says buy Bear Stearns… they were delusional idiots. Schiff was right about everything except inflation and gold (at least so far–deflation looks like a bigger immediate risk than inflation). He was saying to buy gold at $830 in late 2007; it’s at about the same point today, but if you had taken his advice you could have sold higher earlier this year, and at least you wouldn’t have taken any real losses. (Hat tip to Brett Vickers for the video.) ...

October set a new record of 8,503 notices of trustee’s sales in Maricopa County, of which 900 were duplicates of previous notices. The number of pending foreclosures has dropped, as Bank of America cancelled numerous foreclosures after acquiring Countrywide. 3,516 foreclosures were cancelled in October, about double September’s rate. At the end of October, there were 27,874 pending foreclosures in Maricopa County. (Back in the summer of 2005, the total inventory of homes for sale was around 5,000. Today it’s around 50,000 34,000, which obviously has the potential to go much higher.) Trustee’s sales hit 4,587 in October, up from 4,378 in September. (Via azcentral.com.) UPDATE (November 26, 2008): Updated the inventory number to October 21, 2008, which is down from a peak of over 50,000, but which has been climbing back up from a recent low of just under 26,000 at the beginning of August 2008.