Business of last resort

Seven years ago, Mandisa Bruce of Muskegon purchased a 1996 Oldsmobile Aurora for $11,831.
Today, she is being sued for $16,711 by a Southfield "sub-prime" auto loan company although the vehicle, which had sat unused in her driveway for years, was stolen and left burnt-beyond-use in Muskegon Township in 2006.

"I knew I spent too much for it when I bought it," said Bruce. "But I had just gotten a job in Grand Rapids and I needed transportation. I had bad credit so I knew it wasn't going to be cheap, but I didn't have a choice. I couldn't take the (MATS) bus to my job in Grand Rapids.

"But to pay $16,000 for a car that was five years old at the time and had more than 100,000 miles on it doesn't seem fair."

Such is the plight of the working poor who, because of lack of wages and good credit, are forced to work with those in the so-called "poverty business." Needing a quick fix, they often spiral deeper and deeper into debt.

From pawn shops to rent-to-own outlets to pay-day advance companies and urban corner stores with high-priced groceries, the "poverty business" is flourishing in the country and throughout West Michigan as the economy worsens and gas prices rise.

The Muskegon area has at least nine cash-advance outlets, four rent-to-own stores and four pawn shops that profit from charging high prices, fees or interest rates on the backs of people who have nowhere else to turn.

"People are in desperate situations when they walk in the doors of these businesses," said Tim Burgess, executive director of the Neighborhood Improvement Association, which works with low-income homebuyers in Muskegon.

"Some of what is done is legal and legit but evil," Burgess said. "They know they are taking advantage of those that are in need of real help."

BusinessWeek magazine in a story last year on the "poverty business" reported that payday lending companies have grown from 300 in the early 1990s to more than 25,000 today, with five of them major corporations traded on the New York Stock Exchange or NASDAQ. The "alternative financial services" sector, which services people with no credit or bad credit, represents more than $250 billion a year in loans, the magazine reported.

The question begs: Are businesses such as Golddiggers pawn shop on East Laketon or J.D. Byrider -- the national sub-prime auto king with an outlet in Muskegon -- serving the working poor who need quick access to cash, goods or cars or are they "preying" on their financial desperation?

It depends on who you talk to.

The woman who brought in a "mother's ring" to be pawned at Golddiggers on Monday was thankful for the $8 she received, though store owner Adam Pollock explained he couldn't pay more.

"I'll take it," said the woman, who asked not to be identified. "I need gas for my car."

When people take goods to a pawn shop, they are putting an item up for collateral for a cash loan and given so many days to recover the item at a stiff interest rate -- 35 percent at Golddiggers. Some just want the cash and never return to pick up their pawned items.

But Pollock said he is providing a service -- "I'm helping people get money so they can buy gas to go to work. You couldn't go to a bank and get a small loan of $100."

Pollock said it is a myth that people like him are getting rich at the expense of the poor. He said he gave $116,000 in loans last year, but after paying rent, his two employees -- who he pays $10 or $11 an hour -- had a better income than he.

Pay big, or do without

Mandisa Bruce, who also was housing her brother and his son, bought the Oldsmobile at MD Auto Sales, 5710 Holton with a "sub-prime" auto loan that was eventually sold to Automotive Credit Corp. of Southfield, Mich. Automotive Credit has been in the sub-prime auto loan business since 1992, purchasing loan contracts from independent dealers for "consumers with limited or challenged credit histories who are unable to obtain financing from traditional sources," according to the company Web site.

The loan agreement was for $10,350 after Bruce put $1,500 down on the five-year-old car. The 36-month loan had a 25 percent interest rate -- the legal limit under Michigan's usury laws -- for a monthly payment of $411.51.

That interest rate is typical for many local people seeking transportation, said MD Auto Manager Nick Davis.

"Due to the economy, our customer's credit is getting worse and worse," Davis said. "(Interest) rates go up when you have credit problems. It's like trying to get low insurance rates with two (drunk driving charges)."

For many low-income auto buyers, the option is to pay 25 percent interest rates or go without a car, which often is critical to keeping a job.

'Dream homes' aspiration for Brits

Despite the recent downturn in the UK property market, 60 per cent of Brits still assume they will one day own their dream home.

Figures from the Nationwide illustrate the average price of a property has fallen for the last five consecutive months, but undeterred Brits are still one day dreaming of moving up the ladder to their perfect property.

For one in five of these would-be homeowners a country character house would be their ideal property.

A detached home with a garden in the suburbs was next choice along with or a self-build or self-designed home, which were each mentioned by 18 per cent of those surveyed, in research carried out by Legal & General.

The top location for a dream home is in a village according to the results, with 25 per cent of respondent selecting this idyll.

This is a jump of 17 per cent compared with the last survey, when only eight per cent mentioned this as the location for their dream home.

A life by the sea was also popular, with 22 per cent saying they would like to live on the coast, compared to just eight per cent seeking an inner-city life.

"The survey would indicate that people are still quite positive about the future housing market given the number of respondents who still wish to live in their dream home," said Garry Skelton, marketing director for Legal & General's general insurance business.

"However, probably reflecting financial concerns, the number of Brits who do not expect to ever live in their dream home has risen from just over 20 per cent to 30 per cent since the last survey."

The top five most sought counties for a dream home were: Cornwall; Devon; Greater London; Surrey and Yorkshire.

Chris O'Toole

Irish mortgage brokers to begin charging clients as sector faces contraction

By Finfacts Team
Apr 24, 2008 - 11:48: AM

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Irish mortgage brokers are expected to begin charging for their services as home loan lenders slash commissions or opt to cease using the intermediaries. Business transacted by brokers will inevitable fall and a contraction of the sector will follow.

The Professional Insurance Brokers Association said on Thursday that it is inevitable that an extra burden on prospective new home-owners, who do not deal directly with lenders, would be introduced.



Last year, mortgage lender EBS said that it has traditionally operated exclusively through its network of branches and franchised agents. But it said that the market for home loans in Ireland had been transformed "by a new breed of independent mortgage brokers who now account for 40 percent of the market. To respond to this marketplace change, EBS needed a channel to reach these brokers."

Big bank brands in the market will be in a strong position with the contraction of the broker market.

Today's announcement from the Professional Insurance Brokers Association (PIBA), follows the decision by several Irish banks and other lenders to cut back the commission they pay.

Another monthly decline in existing house sales and prices

Every month for more than a year, the news has been the same: Sales of existing houses have fallen.

House sales in most St. Louis area counties continue to nose-dive, falling by as much as 41 percent in one county from March 2007 to March 2008. Median prices also declined from last year throughout the region, with St. Charles, Madison and Monroe counties as notable exceptions.

In the Midwest, sales fell 15.9 percent from March 2007, while nationally they dropped 19.3 percent, according to the National Association of Realtors.

The median price in St. Louis County was $148,450 in March, up from February's $135,000. In St. Charles County, the median house price moved up to $184,000 in March, from $174,500 in February.

But potential sellers remain focused on the sluggish sales pace. Tom and Barbara Niemann put their six-bedroom Frontenac house on the market last September for $800,000. They later reduced the price by $50,000.

After getting no offer in four months, the Niemanns took the house off the market.

"I think it was the economy. Everything was just slowing down," said Barbara Niemann. "We are just going to wait it out until the highway (Highway 40) construction is finished and the economy gets better."

The couple may have to wait for quite some time. Real estate experts point to a number of hurdles facing the housing market.

— Tighter credit standards. With the subprime mortgage mess continuing to ripple, banks are turning away more mortgage applicants.

"These are people who maybe would have qualified for a loan last year," said Bob Marx, vice president for mortgages for Midwest Bank Centre in Lemay. "We are having to have some tough conversations with folks."

Prospective buyers with credit scores of 600 or less are having a tough time finding mortgage insurance, Marx said, and lenders are less willing to make loans on mortgages with relatively small or no down payments.

As tougher credit requirements eliminate some borrowers, sellers are competing for a smaller pool of buyers.

— Buyers on the sidelines. That's having a domino affect on house sales, said Tari Jacobs, a broker and owner of Concept Real Estate, based in Columbia, Ill.

"Some people that want to move simply can't because they can't sell their house," Marx said.

Jacobs has seen the greatest slowdown in the $250,000 to $350,000 price range, which is a traditional second- or third-house market.

First-time home buyers also are being more cautious, she said.

— Mortgage problems. Foreclosure rates continue to increase, which puts more houses onto the market.

And some property owners who bought at the peak of the market are being forced into short sales. A short sale is when a homeowner sells a house for less than the purchase price to avoid foreclosure. Such sales are spiking, Jacobs said.

"A couple of years ago, I couldn't tell you what a short sale meant; now I am an expert," said Jacobs. "I have six short sales listed right now and several foreclosures."

— Economic uncertainty. Rising food and gas prices and concerns over job security are making buyers jittery.

"Clearly consumer confidence, or a lack thereof, drives our market. People need to feel good to go out and buy," said Shawn Kelsey, general manager of Kelsey Real Estate Group, based in Chesterfield. "The information they receive on a daily basis is generally negative right now."

With the Federal Reserve lowering certain interest rates, and the federal government taking other steps to stabilize the economy, a market turnaround could happen in the second half of this year, said Albert Suguitan, president and chief executive of Greater Gateway Association of Realtors in Glen Carbon.

Kelsey figures there is pent-up demand, which could help the housing market in coming months.

He also offered a caveat: "If there is a further erosion of consumer confidence, a recovery could be pushed back."

Yale economist Robert Shiller, whose 2000 book "Irrational Exuberance" correctly forecast a stock market correction, said in a speech Tuesday that U.S. housing prices could fall more than they did during the Great Depression.

House prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Shiller said.

"Basically we're in uncharted territory," Shiller said. "It seems we have developed a speculative culture about housing that never existed on a national basis before."

A step-by-step guide to helping your children onto the property ladder

There are many ways you can help your child get on the property ladder. Some parents allow their children to live at home rent-free to help them save up for a deposit. Others just offer cash. Here are some of the ways you can help:

Contribute to the deposit

A sizeable deposit helps in many ways. Having at least 10 per cent of the value of the property they want to buy, gives the first-time buyer a wider choice of mortgages and a chance to secure a lower rate. The difference between loan for 90 per cent of the value of a property and 100 per cent of the value of the property can be as much as 1 per cent. Putting down at least 10 per cent will also help the first-time buyer avoid a higher lending charge. This is a form of insurance some banks charge to those who borrow 95 per cent or more of the value of the property.

Some parents contribute to the deposit as part of their inheritance tax planning. Inheritance tax is charged at 40 per cent on estates over £275,000. Cutting down the size of your estate now can ensure less of it goes to the taxman when you die. The gift is tax free provided the donor survives for the next seven years. However, sums over £3,000 will be liable to tax if you meet your maker before then.

Parents who do not have ready cash sometimes remortgage their own homes to raise the funds. Interest rates are still relatively low and falling. Tapping into the equity under your roof could be an option provided you can cope with the extra monthly payments.

A joint mortgage

You can help boost your child’s buying power by taking out a joint mortgage. That way, the amount you can raise will be based on your combined income. This is good if you are mortgage-free and still earning but if you have another mortgage and other debts your borrowing power will be reduced.

If you are taking out a joint mortgage, you need to decide whether to go for a joint tenancy, a form of ownership usually favoured by couples as both parties own the property equally, or tenancy in common, where each party owns a particular share of the property. However, most joint mortgages are offered on the basis of "joint and several liability". That means that if your child stops paying you are liable and vice versa

There are tax implications too. If you already own your home, you will have to pay capital gains tax on your share of the property when it is sold. Equally, if your child wants to buy you out at a later stage, he/she may have to pay Stamp Duty, if your portion of the property is over the £125,000 Stamp Duty threshold.

Acting as a guarantor

By acting as a guarantor, you agree to step in and cover your child’s debt if he or she defaults. By having you as a safety-net, lenders are more likely to advance larger sums to your child provided that you earn enough to cover the entire debt. Both of your incomes will be assessed. However, as the child will be paying the mortgage on his or her own (unless disaster strikes) it is important not to overstretch. The mortgage and the property will be in the child’s name so there is no capital gains tax liability for you.

However, lenders are cautious about extending this arrangement on loans above 90 per cent of the value of the property. A deposit is still important.

Special Deals

There are some options which bridge the gap between acting as a guarantor and taking out a joint mortgage. Both the Bank of Ireland and Bristol & West offer the “First Start” mortgage where the parent’ income (after their own borrowing commitments) is added to the child’s. The parent is not a guarantor but jointly responsible for the loan and repayments. However, unlike a joint mortgage, the parent’s name appears only on the mortgage but not the deeds. This means that if the child wants to take over the entire mortgage at a later stage, the parents will not have to pay capital gains tax.

Residents begin tornado recovery

PIKEVILLE, N.C. -- A tornado ripped through northwestern Wayne County on Saturday, tearing through homes and bringing down trees. But a day later, residents are picking up the pieces, moving on and hoping for the best.



On Sunday, Anthony Herring began piecing parts of his trailer back together by hand because he has no insurance.



"I had to go underneath the mobile home and make sure the tie straps are anchored good and crawling up under there because with the wind and force, it moved everything," he said.


The tornado blew across Wayne and Johnson counties, downing trees and pulling siding, even blowing two vacant trailers into one another. Still, area residents are grateful because they know it could have been worse.



"I look at my neighbors, what they've gone through, and I'm thankful," said Herring.



In Pikeville, two large trees fell on top of a couple’s roof.



"[The radar] was showing that storm coming through here and that thing looked like it was going to Pikeville and Freemont, so I told my wife that thing is right on top of us,” resident Alton Finch explained.



Finch says he then told his wife to run to the basement. After surveying the damage, he saw that one tree had been uprooted about 20 feet from the ground and lay across his house. It also brought another tree with it. Now, Finch picks up limbs from his yard one by one.



"It’s going to be a right good while of cleaning up to do yet,” he said.



In the meantime, it’s been estimated he'll have to fork over $1,000 just to get the trees off of his roof. That doesn't include the damage to his house. Despite the damage, Finch is still in good spirits. He says he and his wife, Alice, will keep on living.



Although his clock stopped at the exact time the trees hit his home, Finch hasn't. He took out the grill and began barbecuing for a Sunday family get-together.