Money Making Schemes

Nagesh answers:

ITunes is a brilliant system where users are forced (generally) to purchase resources from a single source. Will not go into breaking the encryption (or jail break). If you buy an iPhone, iPod, iPad you are agreeing to used a close system to purchase music. You can import purchased music or copy music from CD’s you own to the Apple device.
Today a lot of music is protected through a process called DRM or Digital Rights Media. It is a copy protection scheme which prevents music from randomly being copied to multiple computers. This is where LimeWire or Kaaza, Pirate Bay were popular. Several music sharing companies have been sued out of existence. People would share their music collection from their home computer. Then came the RIAA. Recording Industry Association of America. Lovely folks. They have a pact with musicians who create music and protect their interest. Does seem fair if you are a musician and someone has a copy of your song you should get paid. The RIAA has an aggressive mission to find people who share music and file suits. Recently people have been sued for several thousand for a few songs on their computer.
Also, for most general users, it is very simple. You buy a device and you do not have to go through hoops to “rip” your music from a CD, worry about what format, set up music artist folders etc. You just pick the song, click pay your 99 cents and magically it is downloaded to your device. Main reason Apple makes money, simplicity. Long dissertation to get to a simple answer. Simplicity.

Nagesh answers:

Here is what happened with the “mortgage crisis” (in a nutshell)…

Those who study mortgage trends have said that there has been a pretty consistent pattern of a “bust” in mortgages about every 18 years since World War II. We’ve seen problems like this before and we will survive this “crisis.” If you’re looking for a mortgage right now, rates are still very good. The world is not ending (as the politicians who are itching to “help” would have us believe).

In summary, EVERYONE (not just the Mortgage Lenders) was involved played a part in the “bust” to some extent or another.

BORROWERS — Rather than living within their means, many borrowers decided that they wanted to have a bigger, more expensive house than they could afford. In order to afford these houses, they often turned to loan products such as “Interest Only” loans. With IO loans, you basically pay the minimum amount possible every month and the principal is never reduced. To complicate matters, some loans featured “zero down” where the borrower had absolutely NO equity in the property. Here is an illustration of a typical problem: A property is worth $800,000 at the time of purchase. The borrower takes out an Interest Only loan for $800,000 (putting nothing down). Then the property value drops to $700,000. Now the borrower has a loan for $800,000 for a property that is only worth $700,000. The borrower has ZERO equity in the property so guess what… They walk away from the property and the lender ends up taking the loss.

MORTGAGE COMPANIES (BAD OR POOR UNDERWRITING GUIDELINES) — In an effort to make as many loans as possible (and to sell these loans to foolishly eager investors), many mortgage companies relaxed their guidelines beyond reason. Some loans had a Loan-to-Value (LTV) ratio of 100 (or higher on rare occasion!). If the property was worth $100,000, then an LTV meant that $100,000 was loaned to the borrower (as stated before, no equity). The lower the LTV, the less risky (and more desirable) the loan is. Another arguably stupid mortgage product was the “80-20” loan. A loan with an LTV of 80 or lower is not considered risky in the mortgage business. Therefore, Mortgage Insurance (MI) is not required for loans with an LTV of 80% or less. (If a borrower has an LTV of 85 and pays it down to 80, then they can drop the MI from the loan.) MI is basically insurance against borrower default. For example, if a borrower defaults on his loan and the lender forecloses and sells the property and loses $2000 in the process, then the MI company will cut a check to the lender for $2000 to make the lender “whole.” Rather than requiring borrowers to carry MI on their loans (which would have mitigated risk), the mortgage companies allowed the borrowers to take out a second loan on the same property (a “second lien” or Home Equity Line of Credit or HELOC). This HELOC money was then used as the “money down” on the first loan so that MI could be avoided. For example, if the property is worth $100,000, the borrower might get a HELOC for $20,000 and put that money down on the first loan, thereby lowering the LTV to 80 (thereby exempting them from MI). Another popular loan was an Adjustable Rate Mortgage (ARM) or “Fixed-Adjustable” (where the Interest Rate is fixed for a few years and then starts to adjust (up or down) based on a financial instrument). Borrowers were allegedly given a low “teaser rate” and then (because they bought too much house) couldn’t make the payments with the higher interest rate when the rate adjusted. (It seems hard for me to believe that an interest rate adjustment would be so severe that it would prevent someone from making their payments, but that’s what the borrowers allegedly claim.) Maybe this is too many detailed examples, but suffice it to say that a lot of stupid mortgage products were offered by mortgage companies (and accepted by borrowers).

INVESTORS — In their quest to make a “fast buck”, investors bought up tons of these mortgages since these riskier “sub-prime” loans brought higher returns (higher interest rates). These investors should have performed a “due diligence” on the loans they bought; but they didn’t. When investors purchase loans, there is usually (if not always) a “buyback” provision. This means that if a loan goes bad and the investor finds that there was some irregularity in the underwriting (the loan decisioning process) that the mortgage company who sold them the loan is required to “buy back” the loan. The problem is that most mortgage companies are “cash poor” (meaning that they borrow the cash that they lend from a “warehouse lender” temporarily until they can sell the loan to an investor and pay back their warehouse lender). So when these loans started going bad (hundreds of millions of dollars worth!), the investors demanded the mortgage companies buy back the loans (according to their agreement). So mortgage companies were now looking at buying millions and millions of dollars worth of loans back when they had little or no money of their own! So what happened? Countless mortgage companies declared bankruptcy. With all of the hullaballoo around bad mortgages, investors decided to stop buying sub-prime mortgages. Since there was nobody buying these mortgages and since mortgage companies don’t have their own cash, mortgage companies found that they could no longer make these sub-prime loans. The sub-prime market dried up almost instantly.

RATING AGENCIES — The job of rating agencies is to investigate the creditworthiness of investments (many of which included mortgage debt). These agencies did not do their due diligence and ended up giving these investments an artificially high rating. So investors thought the investments were less risky than they were. Investors will always buy investments that have a high return and low risk (but obviously they weren’t low risk).

THE GOVERNMENT — The government has always put pressure on mortgage companies to make loans to poor and/or minority borrowers. Because these borrowers typically have worse credit and/or less income and/or greater debt, they had to go to the “sub-prime” market to get a mortgage loan. Is it so hard to imagine that a borrower with less income, more debt and bad payment habits will default on a loan (especially when they’ve put little or no money down)? Of course not. But the government continues to “wish away” laws of basic economics and common sense. In order to “do right” by poor people and minorities, the government expected mortgage companies suspend their normal sound underwriting guidelines and business sense. (Obviously, the sub-prime problem goes beyond just poor borrowers, but my point is that the government contributed to the crisis to some extent.) The government is now poised and ready to exacerbate the crisis beyond what it is now by “freezing” interest rate adjustments. Here is an illustration of the problem: Let’s say you have $5000 in cash. I’m a bank and I tell you that if you deposit your $5000 with me that I will pay you 1% during the first 2 years but then I will pay you 7% after those 2 years. So you deposit your money at the low rate of interest. After two years (when you’re about to get your higher interest rate), the government comes in and says, “Sorry. You’re not getting your 7% as promised. In fact, you can’t take your money out of that bank; you must leave it there and only collect 1% for another 10 years.” What will happen when you have another $5000 to deposit? Will you put it in my bank? Absolutely not. Why? Because you don’t know if you’ll really get the return you agreed upon. In the same way, if the government steps in and says to the investor/lender, “Sorry… You’re not getting the return on your money that you negotiated… And you can’t take back your money; you’ve got to leave it at the low rate,” then guess what the investor is going to do. He will never invest in mortgages again! He will take his money to China or municipal bonds or any other vehicle in which he can get a RELIABLE return on his money. If he DOES decide to put money into mortgage debt again, he will demand a higher return to compensate for the greater risk that the government will step in and “help” again. (In other words, Interest Rates on mortgages will go up for EVERYONE!) Thank you Big Government Democrats and George Bush!

REGIONAL PROBLEMS — Some regions in the USA had events that made the mortgage problems particularly bad. For example, inflated property values in California started deflating. Condos in Florida didn’t sell as thought and many sit vacant. Companies providing jobs in the “rust belt” (such as Michigan) have moved or gone under; thereby leaving the local homeowners with no income with which to make their mortgage payments.

Sorry for such a long answer. Hope it all makes sense.

Thanks!

Nagesh answers:

Http://www.cashcrate. Com/131862

This FOR ONCE is not a spam, work at home, making money scheme. I’ve been using this website for a few months now and all you do is fill out surveys, sign up for websites and do free trial offers. You can also make money by referring people. You get 20% of what your referrals make and 10% of what THEIR referrals make.

Here’s an example of the money I’ve made. It’s not some AMAZING amount of money but hey… Anything extra helps right? It’s extra money you wouldn’t have had before.

January ’07 – $166.19
February ’07 – $63.30
May ’07 – $35.63
September ’07 – $83.50

It is all based on how much effort you put into it and how many offers you complete and YES, I’ve received an actual paper check in the mail every time. If you have any further questions about it PLEASE ask me and I’ll give you as much info as I can. This is great to do in your spare time or when you’re up at 2 in the morning cuz you can’t sleep!

If you’re serious about signing up, 1 tip. Sign up for an additional yahoo mail account just for your cashcrate offers. Believe me, the emails you get from signing up for offers and sites are crazy and then spam mail on top of that…so don’t ruin your established email address.
Http://cashcrate. Com/131862

Nagesh answers:

Real estate taxes vary widely depending on your state and local government. There are areas of the country where taxes may be as little as $2000-3000/yr, and a nice house in a nice neighborhood in a high-price high-tax state can run over $50,000/yr.

They may be due quarterly, semi-annually or annually. You may have to pay both real estate taxes and school taxes. Your realtor should tell you what the tax scheme is for the area or community where you are looking for a house. They must also disclose current tax rates and the current tax bill, when the next payment is due, etc.

Many lenders will require the first year’s taxes to be paid in advance, as well as the first year’s homeowners’ insurance, with proof of payment presented at the closing. Some may then add 1/12 of annual insurance and annual property taxes to your mortgage payment so that these are paid in advance and held in escrow for them to pay when due.

Your property taxes will go up. Whatever it is now, it will be more next year. Towns, villages, cities, counties, school districts all over the US are hurting for money, inflation is hitting them hard, and taxes are skyrocketing in many places! Be sure you understand what taxes, easements, and special assessments apply to any property you consider BEFORE you make an offer on it. The realtor is required to disclose all of this info to you. Make sure you understand it all clearly.

Nagesh answers:

Affordable housing and housing in general would be high on their agenda. Building desperately needed houses creates jobs, stimulates demand, and gets the economy moving, instead of stagnating with thousands facing unemployment. Building houses also helps other businesses because it’s not only people who need a home to live in, they need to buy the furniture and all the goods required to furnish it, not to mention more shops and outlets to purchase the goods in the first place. Then there is the income from the sales and rents. It is a win win situation if you invest in house building.

EDIT: – You are mistakenly assuming that social housing is ONLY for unemployed people, but you would be wrong. I myself had a Council flat once and I have never been unemployed. Councils are now being urged to take local working people into their social housing, and therefore the rents on such properties could be increased accordingly. Furthermore, because of the severe shortage of social housing, many councils are having to pay out enormous amounts of tax payers money to keep people on benefits in private rented accommodation, which is costing twice as much as social housing. Removing the private landlords windfall and placing people into social housing would reduce that cost dramatically. Add to that the increase in the number of people gaining employment through the house building scheme, you cannot lose. And then there is the rent to buy scheme, which could help hundreds of thousands of people to gain a foothold on the property ladder, while paying rent and getting a mortgage for a portion of the property. That way the cost to the council would be greatly reduced. There are any number of ways to make a profit from property, and the building program would not have to be all social housing. There are millions of people wanting to buy reasonably priced properties but are unable to do so in this economic climate. Building new homes for a variety of schemes makes perfect sense, and is better than the prospect of a triple dip recession and zero growth in the economy over the last 2.5 years of this coalition govt.