Friday, September 18, 2009

“Document the Loans You Make to Family and Friends [Personal Finance] (Lifehacker)” plus 2 more

“Document the Loans You Make to Family and Friends [Personal Finance] (Lifehacker)” plus 2 more

Document the Loans You Make to Family and Friends [Personal Finance] (Lifehacker)

Posted: 18 Sep 2009 11:11 AM PDT

Loaning money to family and friends can get tricky because, well, they're your family and friends. This makes drawing up a formal in-case-of-default agreement all the more important. CNN Money has some tips on how to do so.

Photo by Omar Omar.

It may seem awkward to ask family and friends to sign a formal agreement, but where large loans are concerned, it's the prudent thing to do. As CNN notes, the point of the agreement is to do away with any notion that because you are close to the loaner, s/he can be lax about repayment. In essence, a loan agreement "makes it clear to the borrower that he or she is taking on a real financial obligation and that you expect it to be repaid." Placing it in writing gives the agreement more weight than a verbal promise between the parties.

The article also suggests finding a promissory note and using that as a template instead of writing up your own contract. Mixing business with family is always a delicate situation, and it's great when you can help out your loved ones, but remember: If it's a big enough loan that you'd be upset if you didn't get back, taking these steps can help everyone involved.



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The truth about pre-approved loans (rediff.com)

Posted: 18 Sep 2009 01:27 AM PDT

Last week I got a call from my bank informing me that I have been pre approved a personal loan for Rs 200,000! What?! Only recently I had successfully paid off a personal loan for 2 years!

And this pre-approved loan will be at a lower rate of interest and will be disbursed within the next 48 hours. And all I required was resubmit some documents. Perfect and simple! Or is it?

I am sure I am not alone here. Most of us out there at some point had similar calls from your banks! But should we jump when such an offer is made to us? Or is there anything else that we need to check before taking it up? I decided to find out. I rang up my financial consultant and he said that there are several points to be considered before taking up a pre-approved loan.

What is a pre-approved loan, eligibility and types of pre approved loans

A pre approved personal/home/car loan is usually offered by banks to people who have a clean track record of loan repayment history, like in my case. You get it even if you had pre closed your earlier loan amount.

Some banks pre-approve a loan to its own customers even if they had not taken a loan at all based on certain conditions like the cash inflow and transactions in their salary accounts or the repayment track in case of credit card holders. However, in both cases pre approved loan offers often come with a time limit to accept them.

There are two types of pre approved loans: unsecured and secured. Unsecured pre approved loans comprises of mainly personal loans and credit cards while the secured ones are the car loans, and even home loans.

So what you need to know if you get a pre approved loan offer from your bank?

Do you really need it?

First ask yourself if you really need the loan at all. There are times when people take the loan just because it was offered to them when in reality there was no necessity. Avoid a loan if you do not have a really pressing situation ahead of you! Remember, every loan pre approved or not comes with a cost. And at the end of the day it is you who will have to bear it.

Why a pre approved loan is good!

Generally, the time taken for processing of pre approved loans is much less thus reducing the risks of you missing out on the chances of getting that new car or your dream house. In-principle approvals for home loans from banks are a boon to people who have not identified a property yet. This will let the customer know how much the bank will give him and search for a property accordingly.

Decide the right loan amount for you!

If you decide to take up the pre approved loan the next thing to decide the exact loan amount you would need. Usually, the banks decide the pre approved loan amount based on your previous loan repayment records or your account balance, transactions and credit card transactions.

And here you are in a better negotiating position. Having said that it becomes all the more important for you to decide on the loan amount based only on your requirements and not simply for the reason it is being offered to you.

Check the interest rates!

In the case of pre approved loans the interest rates will be slightly lesser than the rate of interest offered to other customers like in my case. My bank offered me an interest rate that was 2 per cent less than what was offered to other customers.

However, this alone does not qualify for taking up the loan. There could be other banks out there that offer the same loan amount for a cheaper 16-18 per cent. So it is important to check the loan offers from other banks before signing on the dotted lines.

It is also important to clarify with the bank about the nature of the interest, particularly for home loans, whether it is fixed or floating.

You would still need the documents anyway!

Often, the conditions for a pre-approved loan are more or less the same for a loan you may approach your bank for. Even for pre approved loans banks might require some documents except in the case of some in house bank customers and require the prior checks in case of home and car loans. Sometimes even a small discrepancy in the documents could be enough reason to cancel the pre approved loan.

So the next time you get a mail from banks about a pre approved loan remember to look for the above details. After all, it is your money!



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FDIC Sells Off Loans From Failed Banks (Washington Post)

Posted: 16 Sep 2009 09:00 PM PDT

The long-awaited program was announced earlier this year as a way to help banks that remained in business get rid of their soured loans, but a lack of interest from banks led the FDIC to focus on its own holdings instead.

The agency said Wednesday that it would form a partnership with a Texas company, Residential Credit Solutions, to take ownership of mortgage loans originally worth $1.3 billion. The company, which will manage the partnership, will pay the FDIC $64.2 million for a half-share of any profits as the loans are repaid or sold.

An FDIC official said a second deal would soon follow, and that he expected others before the end of the year.

The official said that the agency continued to believe that the program could help banks and that the agency in part was moving ahead so that it would be ready if the industry took a turn for the worse.

"We'd be ready to apply this process either on failed bank assets or on open banks," said the official, who conducted a briefing for the media on the condition of anonymity.

The FDIC repays depositors in failed banks and then seeks to recoup as much money as possible from the wreckage. Historically it has relied on the basic approach of immediately selling everything it can to another bank, but 92 failures so far this year have started to sate the appetite of eligible buyers. Increasingly the FDIC has sweetened the deal by guaranteeing to limit any potential losses, but even that sometimes is not enough, leaving the agency with a growing pile of assets that must be sold.

The FDIC said that 12 groups placed bids for the mortgage portfolio, which comes from Franklin Bank, a Houston company that failed in November. An executive with a group that placed an unsuccessful bid said that the FDIC had offered a particularly attractive portfolio in this first auction. Roughly 70 percent of the mortgages are still being paid on time.

An FDIC official said the portfolio sold Wednesday also was chosen because the loans resembled those held by many banks, creating a meaningful dry run for any revival of the program's original focus on helping the industry sell troubled assets.

The winner, Residential Credit Solutions, is a Fort Worth firm that specializes in working with borrowers who have fallen behind on their payments. Under the terms of the deal, the company agreed to modify the mortgages of borrowers who meet federal eligibility standards.

The FDIC will make money on the deal in three ways. First, it plans to sell a note to investors worth $727.7 million, plus interest, against the value of the loans held by the partnership with RCS. The money the partnership collects on the mortgages that it holds will first be used to repay that note.

Second, the FDIC will collect $62.4 million from RCS.

Finally, the FDIC gets to keep the rest of the profits after the note and RCS are paid.

The FDIC originally projected up to a $1.6 billion loss on cleaning up after the failure of Franklin Bank, in part because it expected to recover 50 percent of the value of the loan portfolio sold Wednesday. The agency says the new program should allow it to recover 71 percent of the value. Officials said they did not have an updated estimate of the loss.

There are risks, however. The FDIC will guarantee the value of the note sold to investors. It also plans to match the RCS investment in the partnership. If the value of the loans falls below expectations, the FDIC could lose some or all of its stake.

The government has announced a series of efforts to help banks clear away troubled loans, including the Bush administration's original $700 billion financial rescue program and the Obama administration's idea for investment partnerships.

Administration officials say the need for such purchases has faded because banks have been able to raise new capital from investors.

But the Congressional Oversight Panel, which monitors the federal bailout efforts, warned in a report last month that many smaller banks were still overwhelmed by troubled assets, and it urged the Treasury to launch some kind of program to help banks sell those assets.



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Posted by Rakhma at 6:31 PM

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