Avoiding a Mortgage Meltdown
If the deepening lending crisis is an imminent threat, borrowers have options to improve their standing
by Emily Thornton and Lauren Young
McGraw Hill Business Week
August 24, 2007

You're reading stories every day about people losing their homes and life savings. You're wondering whether you could be the next casualty. Stop wondering. Do something. Right now.

It's impossible to know just how ugly things could become. But one thing is clear: The mortgage mess and market turmoil are signaling that you should prepare for the worst, while hoping for much better. This Five for the Money features ways you can do that.

1. Boost Your Credit Rating
The standards for loans and mortgages are getting tougher. Last year, consumers with a credit score of 650 points out of a possible 850 could expect lower interest rates. Now, the bar is up to 680. To avoid sky-high rates or outright rejection, start by going online to grab your free yearly credit report at annualcreditreport.com. The site, which provides results from all three credit reporting agencies, will let you know if you're being penalized for late payments or if you may have missed other credit problems.

Next, check out the most widely used credit score—the FICO score provided by Fair Isaac (FIC)—by going to myfico.com. For $15.95, you can learn how you rank compared with other would-be borrowers. If your ratings are below par, the best way to boost your borrowing profile is to make on-time payments and to keep the balances on your credit cards below 35% of their limits. Don't open new cards or rush out to close a bunch of them, either. Both actions will set off alarm bells.

2. Make a Deal
If you face problems making a mortgage or other payment, you have more options than you may realize. Don't throw away the threatening letters or ignore the phone calls. Instead, call your lender and make a deal. In a strange twist, struggling mortgage holders have gained—not lost—bargaining power. Banks, wary of being saddled with foreclosed homes, are more willing than ever to make special arrangements. Washington Mutual (WM), for example, plans to refinance up to $2 billion in subprime loans at discounted interest rates for customers who are up-to-date on their existing loan but anticipate payment problems in the near future.

No matter how painful, keep your bank informed of your situation. "The first day you can't make a monthly payment, you need to contact the bank, tell them what the problem is and how long the problem will persist," says Manhattan real estate attorney Andrew Sokol. Put a payment proposal in writing. Show the lender that whatever you plan to pay is the most you can afford, even if it is only the interest on your mortgage.

As a last resort, consider tapping your retirement account by taking a hardship distribution from your 401(k) or a premature distribution from an individual retirement account. Work with an adviser to minimize the taxes and penalties you'll face. "To save the farm, the negative consequences are worth it," says Mitchell Rubin, a certified financial planner in New York.

3. Re-Read Your Mortgage
The biggest mistake many homeowners made was assuming they understood the inch-and-a-half stack of mortgage documents they received on closing day. Do you really understand yours? If you have an adjustable-rate mortgage, it might be worth contacting a mortgage counselor or consumer lawyer to be sure that dangerous details aren't lurking in the fine print. They can figure out whether you face a sudden rate increase by examining sections explaining how your interest rate will be recalculated. If your rate is about to leap to a rate higher than it should be for your credit profile, "you need to start working on relief strategies right away," says Marie McDonnell of Truth in Lending Audit & Recovery Services. You may also have a right to cancel certain loans, known as a "right of rescission." It lasts for years if the terms weren't disclosed properly to you in writing.

4. Shop Around
Financial conditions are changing day by day, both for borrowers taking out first-time mortgages and for those who are refinancing. Even in upscale neighborhoods, "banks are reneging on commitments and then going out of business," says Jeffrey Seabold, CEO of Beverly Hills-based CS Financial, a private mortgage bank. Some mortgage brokers are readying back-up lenders—and you should, too. Line up both a second mortgage and broker. "You should have more than one deal in your sights," says Keith Gumbinger at financial publisher HSH Associates in Pompton Plains, N.J.

5. Rebalance Your Portfolio
During the housing boom, many people plowed every dollar they could into their homes. With most or all of their net worth in real estate, these consumers may find that the downturn has derailed plans for early retirement. Don't panic and try to sell your home in the middle of a credit crunch. Do start to think about ways to return to a healthier mix of investments. People in their 30s should put much of their net worth into equities and their homes.

But Christopher Cordaro, chief investment officer at wealth management firm RegentAtlantic Capital in Chatham, N.J., advises clients in their 50s and older to limit real estate to half their net worth. Of the share not in real estate, put 40% in fixed-income investments and the remainder in equities. A retiree should create a hefty cash reserve to weather a three-year bear market in stocks, says James Stehr, a financial adviser in Alameda, Calif. To get help with these decisions, check out the National Association of Personal Financial Advisors (napfa.org) and the Garrett Planning Network (garrettplanningnetwork.com).

Emily Thornton is an associate editor for BusinessWeek. Young is a Personal Business editor for BusinessWeek.

All Aboard!

Officials want train service into Cape May
Staff Writer, (609) 463-6713
Press of Atlantic City
Published: Saturday, August 11, 2007
By BRIAN IANIERI

Inside the historic Tuckahoe train station, public officials on Friday afternoon pitched NJ Transit for $27 million in track repairs for an excursion line from Richland to Cape May.

More than a dozen elected officials from Cape May and Atlantic counties took a ceremonious train ride on the Cape May Seashore Lines to meet NJ Transit Executive Director Richard Sarles in Tuckahoe.

Meanwhile, inside a white Ford Explorer at the station parking lot, two Middle Township officials made their own pitch to Sarles, one with a significantly different tone.

They showed him photographs of decrepit trains and asked him to forgo any possible funding until Cape May Seashore Lines moves vandalized trains from tracks in Rio Grande.

The trains have been a sore spot for Middle Township officials for several years.

The concept of sweeping passenger railroad coverage down the shore has excited some southern New Jersey officials who want to increase tourism without increasing traffic jams and parking nightmares.

“There is a real interest to build this rail line,” Buena Vista Township Mayor Chuck Chiarello said inside the quaint Tuckahoe train station. “The infrastructure is around here. We're just looking for the missing link.”

The tracks run from Richland to Tuckahoe through Woodbine down to Cape May Court House and Cold Spring, terminating in Cape May.

But Cape May Seashore Lines owner Tony Macrie has been in a contentious relationship with Middle Township officials for years about vandalized trains stored on the tracks along Route 47 in Rio Grande.

Middle Township Solicitor James Pickering said the township did not want to stop rail line improvements, but wanted its issues addressed.

He and former Mayor Michael Voll, a vocal opponent of the trains in Rio Grande, met with Sarles before officials gathered in the Tuckahoe train station.

In March, Middle Township Committee even passed a resolution requesting it be notified of any federal, state or county government funding requests by Seashore Lines.

Officials estimate about $27 million is needed to repair train tracks, particularly those between Woodbine and Cape May Court House.

Dennis Township is seeking federal funding for a train station to be built in Dennisville, Dennis Township Administrator Jody Alessandrine said. Also needed, he said, is about $6 million in infrastructure for the tracks in the township.

This week, the state Department of Community Affairs announced it is lending $435,000 to Woodbine for track repairs, a parking lot and a new rail platform for the Cape May Seashore Lines excursion.

Chiarello sees a boon to the communities and businesses located alongside the tracks. He objected to the way Middle Township officials approached Sarles at the event Friday.

“Obviously we had a group of 25 folks that were there for the betterment of the project,” he said. “That was our mission today. I was a little blindsided, and I think it was inappropriate for Mike Voll to use that opportunity to bring up an issue that's totally unrelated to that project we’re working on. “It was more of an embarrassment. I felt it was an embarrassment to Middle Township to attempt to become a spoiler to what otherwise was a positive day.”

Meanwhile, Middle Township will probably start citing and fining Cape May Seashore Lines shortly for trains stored in Rio Grande, said Township Administrator James Alexis, who did not attend Friday's event.

“It's literally come to a boiling point with the residents affected by the sight of the cars and the level of deterioration they’ve reached, and we feel we’re not getting the cooperation of the rail operator,” Alexis said.

Township officials said they are concerned about the unsightly trains and the criminal element attracted to them after dark.

Township officials have said that, despite being assured the trains would be relocated, they have remained unmoved for several years.

Macrie said he is being vilified for an issue beyond his control.

The trains were in pristine condition when he first stored them in Rio Grande but have fallen victim to serious damage and vandalism, he said.

The trains are sprayed with graffiti, windows are cracked and doors are missing.

Macrie said moving the trains now requires fixing damage done to the tracks following storms in April.

“If you owned a car and someone was vandalizing it, and you had the opportunity to move it, wouldn't you move it?” Macrie said Friday. “We’re a small company. We’re not a gigantic operation.”

“Look at the stuff here,” Macrie said, pointing to the shiny silver and black trains on the tracks in Tuckahoe. “This is the way it looked when we placed it there.”

Meanwhile, the trains can be a lure for tourism, history and transportation, he said. In 2005, about 16,000 people took the train in and out of Cape May, he said.

“Our position is, here we would love to see mass transit coming into Cape May. We have significant traffic and parking problems,” said Lou Corea, Cape May City manager.

The train had run into Cape May previously but has not done so recently due to bridge repairs over the Cape May Canal, Corea said.

Inside the train station, Sarles told officials gathered that the project was on his radar, but that there were many other priorities in New Jersey as well. He stressed that federally earmarked money could move the project along.

Chiarello said he found the meeting encouraging

The large scale of the project could be done in pieces over several years.

“We can get this done, town by town, section by section. Rome wasn't built in a day,” he said.

On Friday, Voll and Pickering's presence and statements on Friday irked some who had gathered to pitch NJ Transit for funding.

After Sarles left, Voll and Pickering were arguing with Paul Mulligan, of the New Jersey Association of Railroad Passengers.

“You guys have a lot of nerve,” Mulligan said inside the train station, adding their statements could hurt the recent funding requests.

“If you think they're going to give that guy (Macrie) $27 million,” Voll yelled, “you must believe in the Easter Bunny.

To e-mail Brian Ianieri at The Press:BIanieri@pressofac.com