Tom Petruno is one of the smartest guys I know. Now that he’s leaving the Los Angeles Times, we’re really going to miss his insights on the markets, the economy and the world.
You should take a few minutes to read his last column for the Times, because it offers a sense of perspective that’s too often missing from today’s business coverage. He writes:
I’m stepping away at a time that is strikingly reminiscent of my first few years in the business of covering financial markets and the economy. That was 1979-82, in what was then considered the worst U.S. economy since the Great Depression.
Many Americans’ attitude toward the stock market was exactly the same then as now. In 1979 the market was mistrusted or outright despised. What was the point of owning stocks? The Dow Jones industrial average was no higher in 1979 than it had been in 1964.
The rest of that story is that after so many years of pinging between 600 and 1,000, the Dow Jones Industrial Average in the 1980s finally started its long, explosive climb upwards. (The DJIA closed today at 11,555.)
Many of you reading this probably don’t remember those years, and some of you who do are convinced it’s different this time. Like Tom, I’ve been hearing the doom-and-gloomers predict the end of the economic world for decades now. And whaddya know…we’re still here.
This is not to downplay the severe financial beating so many have experienced. There are people who have lost everything they had, and who aren’t likely to get all or even most of it back. The unemployment rate is scary and so is the all the debt we’ve accrued, as people and as nations.
But we have survived worse. I think we will again.
Dear Liz: I’m 59 and have been unemployed for more than three years. My retirement is gone, my unemployment insurance has expired and my family resources are maxed out. I own one rental property that I’m trying to sell because it has a negative cash flow. The comparable market is glutted now. I’ve missed the last four payments on my home of 32 years, although I’ve applied for help through the Making Homes Affordable program. I am overwhelmed and unsure how to handle this. Do I just walk away? I am actively seeking employment, working with Goodwill’s Job Connection, but don’t have much hope at this stage. I’m too young for a reverse mortgage and too old for doing physically demanding work.
Answer: Talk to a housing counselor approved by the Department of Housing and Urban Development about your situation, including the rental property. (You can get a referral to this free or low-cost help at http://www.hud.gov.)
You don’t need the financial drag of this property adding to your woes. Ideally you’d be able to slash the price for a quick sale, or if you owe more than the property is worth, to arrange for a short sale. That’s when the lender agrees to accept the proceeds of the sale in lieu of the larger amount you owe. Otherwise, you may need to let the property go into foreclosure.
You may not be able to save your primary residence either. If you don’t have any income, you’re unlikely to get a refinance or a modification, but the HUD counselor can apprise you of your options. If you have any equity in the property, it probably makes sense to sell it while you can rather than let the bank take over and lose a small fortune in foreclosure-related fees. For more information, read attorney Stephen Elias’ book, “The Foreclosure Survival Guide.”
Dear Liz: To what extent do you inherit a spouse’s credit score for activity that occurred prior to the marriage? My fiance and I would like to get married soon. However, he has been going through a short-sale process for almost a year. The bank took a long time to review the matter and would not accept the multiple offers. My fiance has recently stopped making the mortgage payments and that has negatively impacted his credit. When we get married, does his credit score activity become incorporated into mine?
Answer: No. Your credit reports and credit scores aren’t combined when you marry.
If you apply for a loan together, both of your credit histories and scores would be taken into account. His bad scores could prevent you from getting approved. If you did get approved, you would probably have to pay a much higher interest rate.
If you do plan to get a mortgage or other loan together down the road, he should start to rehabilitate his scores as soon as his home situation is resolved. He should expect his scores to remain in the poor-to-fair category for at least three years, and it may take as many as seven years to get them into the “excellent” range.
Dear Liz: I have some very important questions regarding my son who is going to be attending a private university next year. He is going to be a student athlete (he golfs), which does not help very much financially. We’re shocked at the cost and do not have enough saved. We were counting on selling our home and downsizing to pay for his education, but got caught up in the real estate downturn. We need some help and advice on how we can get access to the free money that I know is out there. We also have two other boys, 13 and 6. We will start immediately saving for their college.
Answer: The “free money” you know is out there may not be the answer to your problems.
Yes, there are scholarships your boy might get to help pay for his education. But if he receives any financial aid from the university, those scholarships may reduce the amount he gets in grants — another form of financial aid that doesn’t have to be paid back.
If, on the other hand, he doesn’t get any grants, the scholarships could reduce the amount of loans he’d otherwise need to take out. He can start his search for scholarships at FastWeb.com.
You definitely should apply for financial aid from the university, if you haven’t already. (FinAid.org’s estimated family contribution calculator can give you a rough idea of how much you’ll be expected to chip in, although the school’s actual package may differ somewhat.)
Then take a hard look at what this education is going to cost you. You may not be able to afford it. If you would have to stint on your retirement, or your son would have to borrow more than the federal student loan limits ($5,500 for his freshman year), you probably need to look for other alternatives.
One option is for your son to live at home and attend a two-year college to get some of his requirements out of the way. Another is an in-state school, or one with a golf team that wants him badly enough to offer a better merit-based package of aid. FinAid.org offers resources and ideas for getting an affordable education, as does college expert Lynn O’Shaughnessy’s workbook, “Shrinking the Cost of College,” available on her website, TheCollegeSolution.com.
What you don’t want to do is bankrupt yourself, or consign yourself or your son to huge student loan debts. No education is worth a lifetime of debt, particularly when other options are available (and you have two other kids to educate).
Dear Liz: We applied for a loan modification a year ago and submitted all the paperwork requested on time. Our lender claims we were denied because of missing papers. I had everything documented, so the denial was appealed, but as of now we’re still waiting to hear whether we were approved or not. What can we do? We haven’t made a payment since last March. We have the money on hand to make three trial payments, as we were originally instructed, but I’m so worried.
Answer: Unfortunately, your experience is all too common — and too often people waiting for an answer from their lender wind up losing their homes to foreclosure. Lenders’ poorly trained and poorly staffed loan modification departments have created endless nightmares for homeowners trying to avoid foreclosure.
You should immediately enlist the help of a counselor approved by the U.S. Department of Housing and Urban Development. You can get referrals from http://www.hud.gov or by calling (800) 569-4287. The advice is free or low-cost. A counselor can help assess your situation, offer alternatives and guide you through the modification process — if a modification is still an option.
You also should read attorney Stephen Elias’ excellent book “The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket.”
What you shouldn’t do is expect the lender to do the “right” thing, including honoring any promises or commitments made to you. The people who get loan modifications have to be tenacious, persistent and savvy about the process.
Elizabeth Gilbert, the author of the megabestseller “Eat Pray Love,” has an essay in the latest issue of O magazine called “Confessions of an Over-Giver.” She writes that when she suddenly became rich from the proceeds of her book, she indulged her long-standing tendency to give too much–and did it on a grand scale. “I was like an alcoholic locked in a distillery–what wonderful and terrible luck!” she writes.
She paid off her friends’ credit card bills, helped them catch up on their mortgages, even bought houses for two. Now some of those friends aren’t her friends any more.
By erasing years of obstacles, she also sometimes erased their dignity. Sometimes her over-giving, as she puts it, left her friends “feeling shamed and laid bare.”
“Sometimes, for instance, ‘lack of money’ hadn’t been a friend’s problem in the first place: Maybe her real problem had been lack of confidence or organization or motivation. Maybe by erasing her money problems, all I’d done was suddenly expose her other problems.”
The chances of you coming into a windfall big enough to buy houses for your friends and relatives may be, alas, pretty small. But Gilbert’s words help us remember that sometimes what we think is the problem really isn’t the problem. That can help us when we struggle with money in our own lives, or when we’re asked for a loan or a gift from someone who always seems financially underwater. Maybe money will help–but maybe not.
A day after my rant about my bad Sears experience, the company announced more losses and another quarter of declining revenue (read “Sears stumbles again” for more). The Wall Street Journal ran an article, “Sears suffers as it skimps on stores,” pointing out that the company spends a fraction of the amount other retailers devote to annual maintenance–about $1.90 per square foot, one analyst said, compared to the $6 to $8 per square foot retailers traditionally spend. Macy’s plans to spend almost as much remodeling a single store (its flagship Herald Square location) than Sears spent on all of its 3,100 stores last year, the Journal reported.
Former Sears Canada Chief Executive Mark Cohen, now a professor at Columbia University, told the Journal bluntly: “There is no viable retail strategy here. In retailing, when your stores get dark, dirty and grim, you are past the point of no return.”
Another analyst told the Journal, “With these ‘dead man walking’ stores, the objective of the parent company is not to maximize [store] productivity but milk it for what little it has left before it can sell the property.”
The article didn’t include information on Sears’ customer service or online operations, but it’s not too much of a stretch to suppose that a company that lets its brick-and-mortar locations fall apart is also skimping in other areas.
I don’t include this just to keep bashing Sears. But if you’ve had positive experiences with them in the past, be warned that Sears may no longer be the store you remember.
The investor buzz on Sears is that it has more of a future as a real estate business, leasing its store space to others, than as a retailer. My recent experience supports the idea that the company isn’t much interested in selling stuff to consumers.
The day before our new washer and dryer were to arrive, I still hadn’t received an email from Sears confirming the delivery. Online, my order was still listed with the word “processing.”
Huh. So I called the customer service line to ask what was going on. After a loooong wait on hold, a rep said he would investigate. There was a second looooong wait on hold. He came back to say the order had been cancelled.
Say what? Why?
He said he would investigate, and then we were disconnected.
I called back, endured another long wait, only to have another phone rep tell me the same thing. She didn’t disconnect me, but she also couldn’t answer why my order had been cancelled or why I wasn’t notified.
So I sent an email to customer service, and eventually got this back:
While our inventory is updated periodically, it is not in a real-time inventory environment. As our website serves customers throughout the entire country, it is typical that several customers will have the same item in their cart. Inventory is again verified after the order is submitted. It can happen that more orders are submitted than we can complete.
Again, no guidance about which item was out of stock (was it the washer? The dryer? The hose? The plug?) or why I wasn’t notified prior to my calls that my order had been cancelled.
The email did encourage me to “please place a new order for the same [sic] after some time or order a similar item at Sears.com.”
Oh, yeah, sure. I’m a lab rat that can be conditioned by intermittent reinforcement. I’ll keep placing my order and hope that sooner or later I get what I paid for…or “a similar item.”
Ordering from Sears.com was a pain to begin with. For one thing, the site automatically includes Sears’ wildly overpriced extended warranty, which equals about a third of the cost of the appliance. After you opt out of that, you have to enter delivery information separately for each appliance—because so many people have their dryers delivered to a different place than their washers, I guess. Sears also wants you to pay extra if you want a four-hour delivery window instead of an all-day wait.
I was trying to be loyal to the Kenmore brand, because the washer and dryer we’re replacing performed well for 13 years. So much for that. Lowes had a nice set for a better price, fortunately, and its free delivery came with a two-hour window.
My new washer and dryer are working great—so this story has a happy ending. I wonder if the same will be true for Sears.
Dear Liz: My wife and I, ages 58 and 60 respectively, are both retired and collecting $3,500 a month in pensions. We have about $375,000 in two 401(k) accounts and owe about $75,000 on our home. Should we be thinking about estate planning? If so, who does this work and how much do they charge?
Answer: Unless your home is a mansion, you probably don’t have to worry about the federal estate tax, which currently affects only estates worth $5 million or more. After 2012, the limit is scheduled to drop to $1 million.
But you still need an estate plan. Most important, you need legal documents that can help others take over for you should you become incapacitated. Powers of attorney for healthcare and finances can allow someone you trust to pay your bills, make medical decisions and otherwise handle your affairs. Spouses typically name each other as their preferred agents, but you also need to name back-ups in case one of you dies or you’re both injured in the same accident, for example.
You also probably need a will to say who gets what when you die, and you may want to consider a living trust if the probate process in your state is particularly lengthy or expensive (as it tends to be in California). You can create all these documents yourself using software products such as Quicken WillMaker or Nolo’s Online Living Trust. If you want a little more guidance — and many people do — you should look for an attorney who specializes in estate planning. A simple will with powers of attorney will cost a few hundred dollars, while a living trust typically costs $2,000 or more.