Andrew-Schultz.com » Finance

Secured vs. Unsecured Debt

Drew — Wed, 14 Jan 2009 12:29:37 +0000

In speaking to a friend recently about credit cards, mortgages, and personal finance, he confided that he had very little knowledge of most things finance related. The question he eventually asked me was “What is the difference between secured and unsecured debt?” Since I feel the answer could benefit more than just my friend, I decided to post it up here for all to see.

Secured Debt is debt backed by something tangiable. Good examples of a secured debt are your vehicle and your mortgage. There is a physical good that can be reposessed or foreclosed on to recoup losses by the lender in the event you fail to make the payments.

Unsecured Debt is debt without a tangiable asset to back it. The best example of this would be a credit card. A regular credit card has nothing to back it, so the creditor can only attack your credit score and not your home.

There are secured credit cards, where you pay a specific amount up front to the creditor, for instance, $500. You are then given a credit card with a credit limit of $500, secured by the money you have already fronted to the creditor. This would be considered a secured debt.

Hope this helps!

Fannie Mae To Allow Renters To Stay

Drew — Tue, 16 Dec 2008 16:16:19 +0000

Fannie Mae, the large mortgage backing entity recently bailed out by the government, has made a smart financial move. They announced that they will be allowing the tenants living in foreclosed properties owned by fiscally irresponsible landlords to remain in place, as long as their rent remains current. Freddie Mac has not yet announced a similar move, but is expected to do so soon. A spokesman for Freddie Mac stated that they were working out the operational details of such a move. [CNN Money]

This move wasn’t just an attempt to be a good neighbor, however. The two giants are required to comply and allow tenants to stay in properties “where permissible” as part of the $700 billion bail out plan.

This is a smart move on their part, because it will prevent, or at least slow, the decline in condition of the properties and prevent further strain on the housing markets.

My main concern is that of ability. Fannie Mae and Freddie Mac aren’t set up to manage properties in the landlord / tenant sense. This means that they will either have to find property managers, pretty much all over the country, or hire maintenance contractors for every issue that springs up as a result of this move. If a property is already in poor condition, this could result in a serious amount of money being spent to upkeep a property that the previous owner didn’t see fit to keep up. In addition, not using an ethical property manager can result in serious price gouging.

However, Keeping tenants in the property may make them easier to sell. In addition, tenanted properties tend to resell for more money. The balance just needs to be reached between amount invested and return on investment, so that potential investors will want to jump on these properties in a timely fashion.

Overall, my opinion is that this is a smart move because of the reduction of diminishing value due to the homes being empty, and the potential ability to turn the properties around quickly. The ability to manage from a distance is just part of doing business, similar to a California investor owning property in New York.

Halloween Is Going To Suck This Year!

Drew — Tue, 07 Oct 2008 01:04:20 +0000

This was forwarded to me by my boss, so I don’t know who to credit.

The $700 Billion Bailout

Drew — Sat, 04 Oct 2008 13:59:30 +0000

This is a topic that I’ve been struggling to try and write about, because it is simply over my head. Actually, it’s probably over many people’s heads. However, I FINALLY found an article over at Blueprint for Financial Prosperity that will help explain everything. You can take a look at that article [here]. In addition, they are keeping the article up to date as things progress.

One item that I did note is that the bill has now passed. Included in the bill was an increase of the FDIC’s deposit insurance from $100,000 to $250,000, which I had mentioned the proposal for in a previous article.

FDIC Seeks To Raise Deposit Insurance Limits

Drew — Tue, 30 Sep 2008 22:28:36 +0000

The FDIC (Federal Deposit Insurance Corporation), the organization that protects the money in your bank accounts, is currently seeking to raise the limit on the amount of money that will be protected in the event of a bank failure from $100,000. Shelia Blair, Chairman of the FDIC, did not specify an amount she would like to see it raised to. Instead, the amount of the increase, if any, will be determined. The $100,000 figure was set in 1980, and beginning in 2011, it will increase annually to account for inflation. This change was passed in 2005 by Congress.

With the public failures of both Washington Mutual (Thursday) and Wachovia (Monday), many people are looking at this on a more speculative level. While many people don’t carry nearly $100,000 in their bank accounts, many busiensses do. It is estimated that in 1991, 82% of deposits were protected while today only 63% of deposits are protected. [CNN Money]