Credit Card Brains

From MarketWatch: J.C. Penney scales back growth plans

Pointing to a tough economic environment that is clouding its outlook for the year, J. C. Penney Co. said it will open and renovate fewer stores …

Penney plans to open 36 new stores this year, compared with 50 last year, a reduction that’ll save $200 million in capital spending this year … Total capital spending will drop by about a fifth to $1 billion this year from $1.24 billion…

“I’ve been in business in 39 years,” [Chief Executive Mike Ullman] said. “I don’t think I’ve seen anything as unpredictable. Our entire business is soft because of lack of traffic. We can’t give much guidance because there’s no visibility.”

Company after company has announced scaled back capital spending plans. This will lead to more layoffs - especially in non-residential construction - and further weaken the economy. This is the typical pattern as the economy enters recession.

From DataQuick Bay Area home sales remain at two-decade low

For the seventh month in a row, Bay Area home sales were at their lowest level in more than two decades as potential buyers and sellers continued to wait out market turbulence, a real estate information service reported.

A total of 4,898 new and resale houses and condos sold in the nine- county Bay Area in March. That was up 22.8 percent from 3,989 in February, and down 41.1 percent from 8,317 for March 2007, DataQuick Information Systems reported.

Last month was the slowest March in DataQuick’s statistics, which go back to 1988. Record monthly lows have been logged in since September. The sales increase between February and March this year was the lowest on record. Normally sales increase by 40 percent.

On prices:

The median price paid for a Bay Area home was $536,000 last month, down 2.2 percent from $548,000 in February, and down 16.1 percent from $639,000 in March last year. Last month’s median was 19.4 percent lower than the peak median of $665,000 reached last June and July.

Last month’s median price would have been closer to $597,000 if the availability of jumbo home loans had remained stable. A year ago jumbo loans, mortgages above $417,000, accounted for 62.2 percent of all Bay Area home loans. Last month they were 29.8 percent.

This is why the Case-Shiller repeat home method is better than the median price method for calculating home price changes. Using the median price method, it appeared prices were holding up pretty well at the beginning of the housing bust simply because the mix changed - fewer low end homes were sold. Now it’s the high end being hit. And finally …

Foreclosure activity is at record levels …

The California foreclosure activity data should be released soon for Q1. It will probably be stunning.

Professor Krugman writes: It’s my TED! Mine!

OK, OK … Today I’ll just stick with the A2/P2 spread from the Fed’s commercial paper report.

Here is a simple explanation of this chart: This is the spread between high and low quality 30 day nonfinancial commercial paper.

What is commercial paper (CP)? This is short term paper - less than 9 months, but usually much shorter duration like 30 days - that is issued by companies to finance short term needs. Many companies issue CP, and for most of these companies the risk of default is close to zero (think companies like GE or Coke). This is the high quality CP. Here is a good description.

Lower rated companies also issues CP and this is the A2/P2 rating. This doesn’t include the Asset Backed CP - that is another category. (see commercial paper table).

The spread between the A2/P2 and AA paper shows the concern of default for the A2/P2 paper. Right now that concern is still pretty high.

I really have no good personal finance news to share on this drab, rainy spring day. It’s kind of a cranky, “crap, I didn’t know it was that bad,” sort of a day. Did you see any positive stories today? If so, let me know. ‘Cause all I saw today was this:

A British paper is claiming the U.S. is in “the Great Depression of 2008″ and cites some alarming statistics about the use of food stamps as support. Read it here. OK, it’s just one article, but these types of stories are becoming very prevalent.

The Wall Street Journal points out that the credit crunch is now affecting our savings accounts! What! That’s a blow to this savvy saver! It makes me feel like there are no good decisions to be made. I think my Emigrant Direct account is no longer keeping up with inflation. Grrr…

The New York Times says the average consumer is carrying $9,000 in credit card debt from month to month. (That can’t be right, can it?)

And Fortune is freaking out about the proposed new finance regulations and the mess on Wall Street. (Don’t worry if it’s over your head, nothing’s likely to happen very soon.)

We’re so grumpy-pants we’re even hating on SATC today.

Will Summer please get here soon so we can return to sunshine and happiness?

As I was doing my taxes this weekend, I thought about a post I wrote long ago to commemorate the first interest payment I received from my very first savings account: a whopping 15 cents.

Though I didn’t know it at the time, that 15 cents, that tiny step, was symbolic of a huge shift in the way I approached my finances. It was the start of my savings, the start of what will soon be a downpayment on a house or condo, and the start of a wave of financial learning that I hope will bring me stability and security for the rest of my life.

This year, I made more than $500 in interest from my savings account. It may not seem like a ton, but when you remember that it all started with a 15 cent interest payment, it’s a sign of huge growth both personally and financially.

As I reflected on this growth, a nickname from my childhood flashed into my mind. When I was born, my grandfather couldn’t pronounce my name. Every time he said “Nicole” it sounded like “nickel.” My mom tried again and again to correct him, but he was simply baffled by her. To him, the pronunciations of Nicole and nickel sounded identical. So family, in all their sarcastic glory, began calling me “five cents.” As in “Hey! Five cents! What’s happening?” It’s a nickname that stuck with me throughout my childhood.

The irony, of course, is that a girl who grew up with the nickname “five cents” grew up to become “The Budgeting Babe.” In retrospect, I wonder if it was meant to be. Regardless, I know my grandparents - all of them - are looking down and laughing right now.

Thanks guys. You set me on the right course

From DataQuick: Southland home sales log tepid gain; record price drop

The onset of spring did little to thaw Southern California’s semi-frozen housing market: The seasonal boost in sales between February and March was less than half its normal level and a record low. The weak start to the home buying season also saw another record dive in the median sales price, the result of depreciation, slow sales for higher-priced abodes and growing sales for discounted homes fresh out of foreclosure.

A total of 12,808 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 18.8 percent from 10,777 the previous month but down 41.4 percent from 21,856 in March 2007, according to DataQuick Information Systems.

Over the past 20 years Southland sales have risen by an average of 38 percent between February and March. Last month’s 18.1 percent increase from February was the lowest in DataQuick’s statistics, which go back to 1988.

March was the seventh consecutive month in which sales have fallen to the lowest level on record for that particular month. On average, March sales have been about twice as high - 25,407 - as last month.

Foreclosure resales - houses sold after being foreclosed on - continue to dominate many inland neighborhoods. More than one out of three Southland homes that resold last month, nearly 38 percent, had been foreclosed on at some point in the prior year. This time last year such sales were only 8 percent of the market. At the county level, foreclosure resales ranged from 28.8 percent in Los Angeles County to 56.4 percent in Riverside County.
…
The median price paid for a Southland home was $385,000 last month, the lowest since $380,000 in April 2004. Last month’s median was down 5.6 percent from February’s $408,000, and down a record 23.8 percent from $505,000 in February 2007. That peak median of $505,000 was reached several times last spring and summer.
…
Foreclosure activity is at record levels …
emphasis added

Grim.

Yesterday, I ventured into the land of bad decisions. I left my apartment at 8:00 a.m., running late and unprepared for the day ahead. I knew I had a series of events to attend, yet I had not determined how I was getting to them, coordinated meeting points with other attendees or planned how to transition my outfit from day to evening. It was the perfect equation for overspending.


I was aware I approached the day without a plan, but I felt a bit helpless about it. My morning work conference began 9:00 a.m., and I would not be caught dead lugging a weekend bag full of clothes and make-up to an event full of influential health care communications professionals from around the nation. (Leaving it in my car wasn’t an option; I don’t have one.)

So from the conference on, my day was full of tragic spending missteps: I knew I was making bad decisions, yet I didn’t see any better options, so I just kept spending. I bought lunch, I spent $20 on a dress and another $20 on a sweater for the evening (I couldn’t remember if I had anything clean; I would have been fine without them) and then spent another $30 on a cab ride from my apartment (to make up for time), rushing all the way and still arriving a full hour late to my evening affair.

As with most bad decisions, after all was said and done, I felt terribly guilty about my spending afterwards, and in retrospect was able to identify numerous other options that would have enabled me to spend less (arriving to work early and dropping off a bag, or staying home from the evening gathering, for instance). But I was living in the moment, rushing ahead of myself and blindly moving through the day, so I missed those opportunities.

It’s a story not unlike most people’s approach to personal finance.

I’ve been reading Jean Chatzky’s book, “Make Money, Not Excuses: Wake Up, Take Charge and Overcome Your Financial Fears Forever.” Though I’m only through the first few chapters, what struck me while reading her introduction was that many of the women she interviewed were just floating through their financial lives, unaware of where their money was going, without a plan, a savings structure or an understanding of their financial needs and goals. And while most of the women she interviews are in their 40’s and 50’s, the sentiment also rings true for most 20-somethings I know.

For those right out of school, a first paycheck and a first raise are a cause to celebrate. And while happy to focus on securing a job and developing new skills to attain raises, financial planning is not front and center (at least in my experience). So into their mid- to late-20’s, many intelligent, hardworking people are scratching their heads, still moving blindly though their financial lives, spending here and there, monitoring checking accounts and paying off credit card bills and student loans, but feeling terribly guilty about not having any savings and silently panicking because they know where to start. Some have amassed major debt, others have just been hemorrhaging money. In short, living in the land of bad decisions.

The good news is, every single day offers the opportunity to start anew. Every day offers the opportunity to make a good decision – to look into your 401k, to open a savings account, to spend a day at the library learning about financial goals, to reassess your income and your outgoing cash flow. There are numerous resources available – books, Web sites and blogs – that can start you on the right path. But to get there, you have to recognize that the decisions you’re making are the wrong ones. You have to slow down and assess your progress. You have to ask yourself: Am I making decisions today that will help me achieve my future goals? If the answer is no, it’s time to start changing your behaviors.

So today, I’m determined to get back into the wonderful world of good decisions. I’m starting by taking it slow: I went to cheap and delicious buffet breakfast this morning with a good friend, then came home to take stock of all my accounts, finish my laundry and do a bit of writing. We’re going to watch the final four at home tonight and maybe head to a local watering hole to celebrate a big law school achievement for B. It’s all planned out, there’s no rush, and my spending limits for the day are set.

Now for another good decision: time to go transfer some money from my checking to my downpayment savings account. After all, there’s no better way to make an evening of overspending up to yourself than by stashing some cash away for future use.

Kind reader AK (bless you) sent me the link to this awful Slate piece on “walking away.” It’s a fact-free rehashing of the increasingly popular “walkaways are the new subprime” meme, worthwhile only as a kind of crystallization of everything that is wrong with this “story.” Its burden of wisdom is the simple assumption that while those subprimers couldn’t afford their mortgages, the Option ARM borrowers just don’t want to be underwater after their loans recast and, um, they either can or can’t afford their mortgages depending on how you do or do not look at it.

What kind of logic do you expect from an essay that begins:

California is to mortgage lending what Chicago is to pork bellies.

California (the whole state) has a famous exchange on which future prices of mortgage lending are determined? Well, no:

For years, that meant it was a place with soaring house values; today, the foreclosure rate across the state is twice the national average and going up fast.

“That meant”? Home prices in California bubbled and then busted because homes were traded like commodities futures? We’re two sentences into the piece here and the wheels have already come off the logical wagon. The tone is set for the lede:

California should be the poster child for a mortgage-loan bailout. In few other places have so many taken on such onerous debts with so little equity. Unfortunately, the crisis in California is going to get much worse, and there is no bailout that will solve it. Why? Because if the first stage of the foreclosure crisis was about people who could not afford their mortgages, the next stage will be about people who have every reason not even to try to pay their mortgages.

As usual, I’m amazed at how short memories are, since the “subprime crisis” was only just last year. And why just last year, when we had been originating large volumes of subprime loans for years prior to that? Well, 2007 was when those people who couldn’t afford their mortgage payments suddenly lost the ability to refinance or to sell the home ahead of foreclosure. And why was that? Because home values were sliding in high-subprime-concentration markets. So maybe the price declines as of a year ago were “only” single-digits, as opposed to the “40%-50%” our intrepid Slate reporter forecasts for California. So? Underwater is underwater: if you cannot or do not wish to bring cash to the closing in order to sell your home, and you cannot maintain the payments, you end up in foreclosure, whether you’re 5% under or 50% under.

Insofar as there’s any sort of point here, it seems to be the unsurprising one that so-called “prime” borrowers last longer in an RE bust than subprime borrowers do. By the time prime borrowers get to the end of their ability to handle crushing mortgage payments, RE values have dropped further than they had for subprime borrowers. What else are we to make of this:

The most common subprime loans were known as “2/28″ in the industry: 30 years, including a two-year teaser rate before the interest rate rose. Now these loans have reset, and we’re seeing the fallout.

But prime borrowers, too, got loans that started out with low payments; if you bought or refinanced your house in the last few years, it’s not unlikely that you have one. With an “option ARM” loan you have the “option” (which most borrowers happily take) of paying less than the interest; the magic of “negative amortization.” The loan grows until you hit a specified point—the exact point varies with the lender; with Countrywide, it’ll come after about four and a half years—when the payment resets to close to twice where it was on Day 1. . . .

The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset.

Option ARM loans were heavily marketed to upper-tier home buyers in California. It’s hard to know how bad the option ARM crisis will be before it actually happens, but Moe Bedard, an advocate in Southern California who advises homeowners on foreclosure and blogs about the crisis at Loansafe.org says that the difference in the time until the rate rises is the main reason that upper-middle-class Orange County (now facing foreclosures at a rate merely twice the national average) hasn’t yet been hit as badly as places like Riverside.

The 2/28 “subprime” foreclosure crisis also started well before most of those loans had reset, as the failed flippers and borrowers with crushingly high DTIs even before reset were trapped by even modest drops in value. It shouldn’t be surprising that Option ARM failures are beginning to occur before the payment recast.

But, as with the CBOT analogy, what’s the point here? That well-heeled Orange County OA borrowers will not be able to afford doubled mortgage payments when their OAs reset, and that by then they will be underwater by 40%? This makes them “walkaways,” whereas the subprime borrowers were just plain old “foreclosures”? The way I see it, we have two choices here. We can take the perspective that “we’re all subprime now,” or we can insist that in fact “we” aren’t subprime, “we” are walkaways, and that’s different.

Such “rebranding” leads inexorably to this sort of fantasy:

Consider, too, that, yes, going through a foreclosure kills your credit rating and makes it a lot harder to buy a new house—but as more and more prime borrowers go into foreclosure, it’s perfectly possible that buying a new home a year later will in the near future be as routine and unsurprising as the once inconceivable idea that you can get a whole batch of new credit cards two years after a bankruptcy.

What a foreclosure and a “killing” of your credit rating does to you is make you “subprime.” “Prime” is not a birthright; it is not an immutable characteristic like having blue eyes. The confident assertion that credit will be easily and quickly available to these borrowers formerly known as prime rests on a hidden assumption that they are unlike any other “subprime” borrower, and therefore will get preferential treatment in a year or two.

Mystification aside, this is a prediction that the subprime mortgage lending industry–and the investors therein–will have recovered sufficiently in just a year that this new large crop of subprime borrowers with a year-old FC on their records will be deluged with mortgage offers. Perhaps that will happen, but what makes anyone think it will happen just because these were once “prime” borrowers? Most subprime borrowers were once prime. With the exception of borrowers who have never had any credit, which is a fairly small group, subprime borrowers once had prime credit, and did not manage it well, and therefore now have cruddy credit records and FICOs. How, exactly, will these “walkaways” be any different from any other subprime borrower?

The whole thing is so nonsensical that I am forced to the conclusion that for this (and many other writers), “subprime” is code for “poor people” and “prime” is code for “middle and upper class people,” hence the need for distinguishing terms for loan failure: “foreclosure” for the poor, “walkaway” for the non-poor. Foreclosure is something that happens to you against your will; “walkaway” is something you do to the bank as an exercise of control over your finances. If we can maintain these illusory distinctions, we can maintain “our” distance from “them.”

In the realm of rhetoric, that is. I for one suspect that the economics of mortgage lending in a year or two will be somewhat less fantasy-driven than that.

The DataQuick numbers for SoCal will be available soon.

From Jon Lansner at the O.C. Register: March home price ($506,000) is a 4-year low

DataQuick’s final count of Orange County home-buying activity last month shows the median selling price for all residences at $506,000 — the lowest since March ‘04 and off 19.6% from a year ago. Buyers grabbed 1,663 homes last month down 46.9% from a year ago. It’s the 30th consecutive month where total sales failed to beat the year-ago level.

Here is the CBS Evening News story featuring The Budgeting Babe… Saving Green is the New Black.



And here is the extended interview that aired online only:



I’m really happy with the way everything turned out.


As I said, it was a wonderful experience. Roughly one week after I received the initial e-mail from CBS expressing interest in my blog, the amazing Kelly Wallace and her fantastic CBS producer, Tony, flew out to Chicago to film my friends and I talking about fashion and finance. We spoke for about an hour and I was surprised by how in-depth the conversation turned; we talked about the importance of living within your means, saving for goals and retirement, the housing market, the impact of the economy on fashion and a multitude of other things. We then went back to my office, where both Kelly and Tony experienced the luxury of sitting on the purple yoga ball that is my chair (you can see it in the interview), and we talked about my blog.

Truth be told, I was a nervous wreck the morning of the interview. But we had a lot of fun, the conversation was good and I had two of my closest friends at my side to boost my confidence. And I must say, as you can tell from the second interview, they did beautifully on camera! They were smart, funny and well-spoken. I was so impressed!

During the week since taping ended, I’ve been frantically calling, e-mailing, Facebooking and texting my friends and family to let them know about air time. Although they were a little nervous when I got bumped by a bunch of newts on Tuesday (LOL!), in the end they were so happy and proud to see the story. I’m so lucky to have their support.

Now that it’s all over, I’m actually kind of excited to get back to my regular life. I have piles of laundry to do, several big projects at work that need attention, my heat just broke (fabulous), my lease needs to be signed, my taxes aren’t done yet and I have to pick out an outfit for a fancy party this weekend. Ahhh…. normalcy. My 15 seconds was fun but now this Budgeting Babe has to get back to reality.