I've never used a check cashing place, but I can honestly say I hope to own a few someday...

[via Economist's View]

Wow, I was burbed! Burbed is a great blog about the housing crash in the Bay Area.

So in response to Burbed's post about me, I wanted to post more about my situation (this will probably be the "about" page for my very own financial blog in the making: Passive Moola).

My folks were immigrants to the US back in the late 60s. They are from Thailand and did not like carrying debt. Unfortunately, they had the idea of paying off debt early but kept yanking out money to send my sister and I to private school (they live in a very janky neighborhood in the San Fernando Valley that has been overrun with homes that have five Suburbans with 24" spinning wheels parked on every lawn). I did a zipskinny for their area and predict that their current home valuation of 600K will fall to about 350K when all is said and done. They also had a bad restaurant investment as well as an apartment complex they sold for a modest profit BEFORE the bubble. Let's just say that my folks were not very well informed in the financial ways. My folks never invested in any securities or even bonds until very recently and my mom has always trusted an insurance salesman for advice! Insurance? Sure they have tons of it. Actual compounding investments? Nada. Anyway, it took me forever and a day to finally convince my mom to put money into her 401K and take the company match. She had been giving up her company's 4% match for years and thought her pension of 500K would be more than enough to retire on. Yikes!

In my college years, I got head over heels in debt. We're talking credit card debt north of 35K and school loans over 10K. After college I got a decent paying job consulting and did yet another stupid thing: leased a car for $500 a month. My folks really didn't teach me the ways of money since they really didn't seem to understand it much either. When I moved up to the Bay Area for work, I lived with my best friend for several years and just scrimped. I put every penny possible into paying the debts off. It took me about 3 years to pay everything off except for the student loans. Over the last 5 years, I got married, bought and paid for two cars that I plan to drive until 2015 (never lease a car...dumb), paid for my wedding, and have amassed almost 100K, mostly in highly diversified retirement accounts. I still live lean and am 100% debt free. We use credit cards every month in order to get rebates-5% on cellphones & gas, 1% off costco, 3% off amazon.com, 6% off supermarkets etc and pay them in full each month all the while dumping maximum amounts into my 401K, IRA accounts, as well as having enough for a decent amount of cash savings each month. All in all, with food, rent, bills, and entertainment expenses, we use about 1/3 of my gross income...everything else is savings. Heck, I just sold my 32" TV that I got for free from a buddy and watch our 19" TV that I got for free from another buddy. No flat TVs here :D I'll get one when a buddy of mine is ready to upgrade hehe. Overall, my wife and I should be able to afford a down payment of roughly 30% on a 600K home in 2010 (which are the current 800K homes in the East Bay). We may be able to afford more if her folks come over here from China and do daycare and if she starts up her art class for children again which seems to be wildly popular with the Chinese parents around here. If she becomes a nurse in 2009/2010, our monthly gross should clear 20-25K so a 420K mortgage with a payment and taxes of roughly $3K per month should be easy to swallow. We'll probably go full bore into paying it off and drop about 10K a month into the payment and have it all paid off by about 2014-2016 depending on market conditions/income fluctuations/kids/etc. Maybe I'll buy my very first new TV then ;)

Just last year I got in a rather big fight with my mom because she was trying to convince me to go in with her to buy a 400K plot of land in Lancaster. LANCASTER! That's been like the biggest running joke in real estate for-evar. Needless to say, I informed her that we were at the height of a real estate bubble and that it was absolutely absurd to trust someone who makes a commission off your transaction. She tried to do the good old mom guilt trip on me, "look at your friends that you grew up with...they're all successful and have bought homes that cost over $600K and they make much less than you! They are so successful while you just rent an apartment. They didn't put any money down and they have a house!" I basically ripped her a new one and told her that you can't mess with the laws of math and that someone who makes what I make cannot afford a $600K house. I told her to just sit and watch the fireworks and ask her friends about their kids' shiny new 600K houses in a couple of years. She tried to tell me that I get my money back on the mortgage interest and that it was stupid not to get that money back for free. I was like, "umm....you mean you want me to pay 3000 a month in interest so that I can get 800 back on my taxes? Ummm aren't I still loosing 2200 a month in interest?!?" I kid you not. My folks, god-bless them, who have been paying a mortgage for forever and a day do not understand that paying interest and getting a little bit back is NOT AS GOOD AS PAYING NO INTEREST.

After all of that, I realized a lot about my life has been colored by my parents' attitude towards money. They came here with nary a penny to their name and put both my sister and I through private school. Unfortunately, they kept ties with the Thai crowd that are rather unsophisticated in terms of investment strategies. They generally amount to horse racing, shady land flipping deals, restaurants destined to eek by, among other things. I'm sure that a good portion of the "investment property" in LA were "bought" with no doc, no down, option arms within my parent's circle of friends.

Tommy’s parents avoided being foolish [Burbed.com]

Some statistics on the current mortgage crisis as presented Secretary Paulson in a statement made yesterday.

As I mentioned earlier, mortgage defaults and foreclosures are rising. While the delinquency rate today is near the 2001 rate, there are over seven times more subprime mortgages today than there were in 2001. At the end of the second quarter of this year, more than 900,000 subprime loans were at least 30 days delinquent. Foreclosures are also up significantly – increasing about 50 percent from 2000 to 2006. Foreclosures on subprime loans are up over 200 percent in that same period. Current trends suggest there will be just over 1 million foreclosure starts this year - of which 620,000 are subprime.

Of the approximately 50 million outstanding mortgages in the U.S. today, approximately 10 million are subprime loans. Many have cited the statistic that 2 million of those subprime mortgages will reset to higher rates in the next 18 months. That statistic is true, relevant, and troubling, but it is not the complete picture of the risk going forward. Many of those borrowers will be able to afford their new mortgage payment or they will be able to refinance into another more affordable mortgage. Yet, the problem today is not limited to subprime mortgages as the number of homeowners having trouble making payments on prime mortgages is also increasing. And finally, the wide geographic variation in home price trends adds to the complexity of sizing this problem with any certainty.

Ouch...

Get the rest: Economics Blog : Text of Paulson's Remarks on Housing

A little over a year ago, I started loaning cash on Prosper.com, I actually leveraged my credit rating to loan money at a low rate and then reloaned that money out at a much higher rate. The scheme seemed to be working as I was pulling in the equivalent of about 18% per year but only paying about 7.5% on that money. I also had the equivalent amount that I loaned sitting in my emigrant direct account earning 5.05% APY so I had an effective net gain of about 15.5% for basically doing nothing and not risking my own cash. I decided to pay off my own loan 6 months after I took it out since I figured that I could make even more if I didn't have to pay my own interest.

So here we are about a year or so later and Prosper has turned out to be the biggest loser of my portfolio. Thankfully, it has not actually lost money--I just didn't make anything. I still consider it a loss since I would have earned 5.05% on that money in my emigrant direct account if I just left well enough alone.

Anyway, at this point, I'm just biding my time and will extract what I can over the next year and a half hopefully staying positive. Here's what I learned:

1. Don't loan money to students (especially nursing students). I'm not sure what it is, but I got burned on several nursing school loans. One didn't even bother to make a single payment! That's a first payment default--fraud, in my book.

2. Don't loan money to people who need it for medical reasons. While I sympathize to those that are in a medical bind, the chances are that they will be able to recover and actually earn enough to pay the loan off is very poor--that's why a significant percentage of bankruptcies are due to medical bills.

3. Don't loan money to people who are starting a business in an established field. I loaned money to a person with A credit who was starting a coffeeshop figuring that their business plan looked good and their head is screwed on straight considering they have good credit and have saved a good amount of money to start this business of theirs. The truth of the matter is that things just go wrong for whatever reason. You can plan contingencies for just about everything, but sometimes it is not enough.

4. Don't loan money to people who can't spell. I always followed this rule and it says a lot when a person doesn't take the time to understand the difference between "no" and "know".

5. Don't loan money to people to buy real estate. I knew the market was going to implode so I avoided these sort of 1st/2nd home loans. If you can't afford a house....rent. Don't go on prosper and ask for a down payment...sheesh!

6. Avoid prosper altogether. Unless prosper fixes some of its structural deficiencies, I'm out. I'd only do peer to peer lending again if a site implements payback bounties that would work as such:

For each credit rating, they would calculate the actual failure rate (failed dollar amount / total dollar amount for credit grade) and take that percentage as a bounty on each loan. So let's say that the D credit rating on prosper fails 15% of the time. If a person wants to take out a loan for $1000, they will only get $850 if the loan is funded. The rest sits in an escrow account. If they pay off the $850 + interest for the $1000, the $150 goes back to the financiers. If they default, the financiers get their $1000 using the $150 plus bounties from other loans. Since the bounty is calculated based on actual failure rate, the system is self funding and protects the financiers.

Anyway, for the time being, I will most likely use prosper to ensure that my and Hongyun's credit rating gets as close to 850 as possible. Maybe I'll just take out loans and pay them back within two months and see if that helps our credit rating.

(800) 200-8054

I got a phone call from an automated system claiming to be Citibank and to call them back. I decided to google the phone number and one single link came up. Remember the rules:

1. Don't give any personal info to anyone who calls YOU
2. Don't call any number that is not PRINTED ON YOUR CREDIT/DEBIT CARD (especially one that has been left for you by and automated message).
3. Don't click links in emails. Just type in the site in questions and login.