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Monday, April 28, 2008

Food and Gas Prices: Have I Entered a Time Machine and Landed in the Future?

Today, I took a shopping trip to restock our supplies and literally left the two grocery stores I went to with my jaw dropped. Could it really be that the bags of pasta I will buy in a pinch at Store 1 for $0.67, when I have exhausted my stockpile of $0.40 and $0.50 pasta from door buster sales, were $0.99? I bought one box of pasta for dinner.

Next, off I went to Store 2, where I was faced with rows of highly priced pasta, making the $0.99 I spent look like a bargain. I said to myself. . . ."let them eat lentils," and turned onto the next isle where I placed a 2 pound bag of red lentils costing $3.29 and 4 pounds of regular lentils, costing $3.00 into my cart. Lentils weren't looking like "poor man's food" anymore. But, lentil soup is still a bargain and I have leftover celery and carrots from Pesach. No need for those to go to waste. So I said, "let them eat cake" and I turned onto the next isle and found the least expensive bag of store brand flour was a good $0.50 more than the last time I bought flour. My husband asked me to picked up frozen bagels. I went to Store 2 because they regularly price their store brand, kosher certified, frozen bagels at $1.00 a package. It isn't a great value, but keeping the husband happy is priceless. The new price, $1.50. That is a 50% price increase! I've been reading that rice is being rationed and prices are skyrocketing. Fortunately, rice wasn't on my shopping list. I tend to buy in 10 pound bags. I'm good for a little while longer.

After I left Store 2, I passed by 3 gas stations. When did gas prices jump $0.17? I have a little less than half a tank.

I don't know about you, but even with these prices, I am determined to meet the food budget that we set at the end of last year. I'm not sure how that will be possible, give that I am already frugal. But, I'm determined. I already know that we are going to have to spend more on gas in 2008, although I plan to become as organized as possible about our trips out to minimize gas consumption. I doubt the frum community is going to solve the 'tuition crisis' in the near future. So, I can count on tuition going up. I might be able to spend less on consumer goods (clothing, shoes, etc), to make more room for food purchases. But, I've been wearing much of my clothing for 5 and even 10 years and the time has come to make some replacements because I'm seeing visible fraying. Perhaps the baby will potty train early? Nights too? While we are careful about utilities, I know there is always more room to squeeze there. But, everyone needs to be on board since I have far less control over usage than I do over food shopping.

Anyone else feel like they have entered a time machine and fast forwarded at least a year despite having only been missing in action for 2 weeks max? I'm in price shock.

I still need to write more about cost effective shopping habits. Perhaps if you leave your tips, I will share them too! If I'm not already using your tips, I will also give it a try. Given the impact these prices are bound to have on the average frum family's budget, I'm sure many are open to new ideas.

40 comments:

dugmachaya said...

My number one tip is to invest in a freezer chest and learn how to cook in bulk. It is hands-down the number one way to save on money, time and improve your family's health and nutrition. There are many books on this topic available at your public library - although so many of the recipes are treif! If anyone wants a kosher version of how to do this feel free to email me at dugmachaya at earthlink.net.

A second idea is a throw-back to my college days and mentality. Why not organize a food co-op or join an existing one? Do a Google search to see if there is something up and running in your area. Also, here is a link for anyone who would want to attempt this - http://weaversway.coop/index.php?page=how_to_start_a_food_co_op

Power to the people! ;)

Honestly Frum said...

I am at a loss as well. I drive over 70 miles a day to commute to work and gas prices are eating up my already tight budget and yesterday I went shopping.....I was shocked at the prices. We spent over $200 and I feel like we still have nothing in out pantry. Milk close to $4 eggs were up even paper towel, it's getting ugly and there does not seem to be an end to these rising prices in sight. That with the increase in the electric/utility bill are scary.

Anonymous said...

Hey, I grew up around the corner from the original Weaver's Way coop! I also participated in a coop while living in a housing coop down in Austin. I am a big fan of coops and have thought of trying to start one here in Baltimore, at least for some limited products such as meat and dairy products.

I have been unable to get my food bill under $1000/month. I feel this is astronomical, but I can't get it down! I work full-time as does my husband and I can't spend time driving all over creation shopping for the best deals on groceries. I already do some of this, but my time is so tight -- I have no household help, my kids are small and I need to sleep! I would love for someone who spends $100 to $200/week on food to publish your shopping lists and weekly menus.

And where can you get milk close to $4/gallon? I'm happy if I can get it below $5/gallon.

I want to install a clothes line to help with my electric bill. I bake my own bread (price of wheat is through the roof). I've even thought about making my own cheese.

What is Hashem trying to tell us from this situation? Stop the outrageous gashmius? Start relying on one another and rebuild your community? Get back to the land and grow your own food? (not an inexpensive endeavor as some budgeting venues would have one believe)

Esther said...

The gas is most frustrating because I can't change my commute to work - there is no public transportation that would get me there, and I basically got hrough a tank a week even without driving anywhere else.

One thing we did successfully over Pesach was having more awareness to only buy necessary food instead of snacks. I was so proud of DH for not buying ANY nosh items for the kids. Now we just have to implement this the rest of the year. (This was inspired by my conversation with you SephardiLady before Pesach!)

dugmachaya said...

The snack thing is a biggie! I also found over Pesach that we were very satisfied with a greatly pared down menu that included no processed foods or snacks of any kind. I am also hoping to implement this now that Pesach is over.

Yesterday my son repeated something he learned from this weeks parsha on CD. The rabbi said that before eating, one should ask him/herself if the food is necessary and will help them serve Hashem. I think that is a very wise thing to keep in mind when shopping and rummaging in the kitchen. Junk food, snacks, etc. are not only expensive, but they typically run us down physically as well. Not to say that we will never eat something special. I'm just not ascetic enough to give up treats altogether!

Ahavah said...

Take all the grocery receipts you have and make a spreadsheet on your computer of the products you usually buy and what their price is at each place you usually shop. We often try and do this "intuitively" but it's better to actually have it written down. Then, you can use your spreadsheet to make a menu (breakfast, lunch, dinner, snacks, and whatever personal and cleaning supplies you need) for the week (or two weeks, however long you usually shop) using the prices on the spreadsheet to estimate your bill and stay in budget (don't forget to add tax to non-food items).

Food prices and gasoline/diesel prices are going to continue to rise dramatically - this is not a temporary thing. A spreadsheet comes with most computer system these days, so if you're reading this you probably don't even have to buy one. And, of course, graph paper works perfectly well (though it's hard to keep alphabetized).

Also when you're making your list remember to subtract the coupon amounts you have available. Sometimes a couple of coupons makes the difference between having that extra dollar or not having it - so do the math, don't just guess.

That's my advice. It's been working well for me for years now. The only caveat is it can get awfully depressing updating the spreadsheet every week or two when you get new grocery receipts. All those nickels and dimes they raise each price adds up quickly to dollars.

Shalom.

Ahavah said...

Anonymous 12:41 - I actually wrote an article for UOJ addressing that, he hasn't posted it yet on his blog. If he doesn't post it soon, I will post it online myself, even though he asked for the article and I wrote it for him. Not everyone reads UOJ, so as soon as he posts it, or tells me he's not going to, I'll put up a copy.

Anonymous said...

It is me again. With 8 kids in school I have given up budgeting.
Modern Orthodox High School--$29,000 including transportation. Modern Orthodox High School--$27,000 including transportation. Orthodox High School $21,000 including transportation. 4 kids in elementary school at $10,000 including transportation. 1 in Israel at $22,000 plus transportation. Lunch is not included. Tutoring and extra books is another $3000 per year. I have dug deep into savings and do not know how anyone manages this. My kids do not attend the same schools so we have chesed dollars, building and education funds at each one.

No school my kids attend has a tennis court or luxuries. I figure that a couple of suckers paying full price make up for those going to the hotels.

The scholarship applications are degrading.

Anonymous said...

That is 4 kids x $10,000 each for $40,000.

TwinsMommy said...

anonymous--- what's your family income? I have no qualms asking, since, hey, you're anonymous. But of course if you don't want to say, no prob..... I'm being nosy---- but oh my gosh, that's sooooo much money going out.

ahavah--- can you email me your spreadsheet??? I'd love not to reinvent the wheel and I LOVE your idea! heatheramyprice at gmail.com

THANK YOU!

WannaBeChossid said...

Hi,

To anonymous trying to get food under 1k a month, it is not hopeless. My wife and I do it. We used to spend $1900 a month on food (yes, $1900); some yelling and screaming, tearing my hair out, you know the usual. However, now our monthly bill is <= $800 a month.

We have 2 kids, 4 and almost 3, both of whom have healthy appetites; we spend about $100 a month on dining out, mostly my wife's starbuck's addiction (!!!); so when I say we spend $800 on food, it is $800 to feed a family of 4 for a month without eating out.

Here is what changed:


Number 1: This had the largest effect on our bottom line: we stopped shopping @ a local supermarket. In Chicago we have a HUGE kosher section @ a local Jewel-Osco store, a great one stop shop! But every time we walked out of Jewel, I heard that strange sucking sound ….. Ohhhh that is $$$ bills being sucked out of my pocket!! The things we buy there now: meat (chicken on weekly sales) and other specialty products: Soy Milk (one of my kids is allergic to real milk. go figure) etc;

Number 2: We stopped buying cold cuts or other processed products, corn/tuna/salmon;

Number 3: This never applied to us, but I have noticed that 99% that of jewish community I come in contact with drinks Soda or Pop. We don’t drink it (Coke, Pepsi and rest of the poisons that are available @ your local supermarket) @ $1 a 1L bottle ( plus tax ), Instead we buy 15L of water @ Cosco for $5.75; If you need a fix of Soda, get it during Kiddush @ your local Shul on shabbos.

Number 4: My wife switched us to Gluton free diet ( pls don't ask me what that is, all i know that it is good for you ), I can get the actual name of the diet if you would like. Basically it is diet that is based on eating a lot of salads. Salad is always cheaper then meat.

Also, for people who can control their spending, get a Amex or Chase rewards cards; put your money in high yield CHECKING account (see this link: http://www.money-rates.com/checking.htm)


To keep track of your money:

1. Get this:
http://quicken.intuit.com/small-business-finance/home-business.jhtml?lid=site_banner

2. If you have MS excel download this:
http://office.microsoft.com/en-us/templates/TC010233421033.aspx

Quicken does have a Budget feature, but it was a lot easier to use Excel's spreadsheet. Also it has great categories for everyday spending.

Free Alternatives to Quicken:
http://zenhabits.net/2007/05/6-great-free-alternatives-to-quicken-ms-money/


Free Alternative to Excel:
http://www.openoffice.org/



Cheer up! Btw, good quality non kosher food cost as much as kosher food. Also, I don’t keep cholov Israel humrah, but then again, we don’t drink that much milk anyways;

Gasoline prices:

Chicago Land Area right now has the highest prices in the nation right now. So, here is what we do, I got a Amex that gets 3% back on all gasoline purchases; Another approach, Marathon stations have 4% off on their gas if you buy a $50 marathon gift card with cash… To find cheap gas go here: http://www.gasbuddy.com/ , here http://www.fueleconomy.gov/feg/gasprices/states/index.shtml or here: http://en.wikipedia.org/wiki/Gasoline_price_website#United_States_.2F_Canada I read somewhere that if you are willing to go to a station that is on avg 10 miles away, you can save up to 0.12 a gallon; and yet another approach: http://www.bankaholic.com/credit-cards/gasoline/ but this is for people that can control their spending habits.

Good Luck!

Anonymous said...

anon 8:10pm,

We have a saying in our house - "compared to tuition, it's nothing".

And we have 5 kids right now, and only spend half of what you do on tuition.

But seriously, when spending $60-70k on tuition each year, what difference will it make if we reduce our monthly food bill from $1000 to $800-900? No difference at all, and it is negligible when compared to the large tuition payments. Even the mortgage is tiny compared to the tuition!

We also refuse to ask for charity, and may eventually have to consider sending some of our kids to other less expensive schools (public, etc).

Mark

triLcat said...

Mark,

If tuition is killing you, it's time to consider moving to Israel.

My brother is paying $3000 dollars a year to send his son to a good private Yeshiva high school.

ProfK said...

Making radical lifestyle changes as regards where one shops is not always the answer. The time involved in shopping using alternative methods may be time that is not available to the main shopper of the house. The first step should be to examine how you shop now.

Examine your pantry and see if there is food in it that has sat for a long while and has not been used. Why did you buy that food? Make a list of the the items that you do use on a regular basis. Where can you pare some money on those items? Sometimes changing brands can save you money. Sometimes changing the size of the package that you buy can save you money.

Do you read the store circulars before making out a shopping list, and do you make out a detailed list? We have 3 major supermarkets in close proximity to each other with a fourth a short distance from those 3. Where I shop on any given trip depends on who is offering sales on things I use all the time, things I stock up on when the price is great.

My food budget also includes the other types of things that are sold in supermarkets, such as detergents and sponges and toilet paper etc. It also includes yom tov and company. We set a yearly amount, but some months cost more and some cost less against that yearly figure.

Find a spot, even if it is under the beds, and stock up on items that you use all the time when they go on a real sale. My laundry detergent usually costs from $5.69 to $6.59 regular price, including the price at the food wholesalers and discount stores. When one of the stores offered it at $3.19 I bought 6 months worth.

A large freezer is also a necessity if you want to take advantage of cheaper prices offered at sales.

Perhaps the biggest budget breaker re food is snack items. Time to rethink just how many different types are "necessary" and how much is necessary. Also, in what form are you buying those snacks? If you buy the little individual serving sized bags you are paying a fortune. A large sized container of salt-free, low fat pretzels, 84 ounces, was on sale yesterday for $2.99 the container. Individual 4 ounce pre-packaged bags were 49 cents each. A box of reclosable 250 sandwich sized zip bags was on sale for $2.19. Making your own snack bags: $5.18, plus sandwich bags to use for later on. Buying the same amount in individual snack bags: $10.29

WannaBeChossid said...

hi anonymous,

well are you asking for advice or are you just venting :)

If you have a family of 5 kids, plus 2 adults, you are looking @ a large amount of food being consumed, and cutting that amount should be part of your balanced budget.

If you are paying 60k a year !!! for school tuition, this tells me that you are not getting any tuition breaks, and that is b/c of how much money your family makes; so the question is, are you currently living from pay check to pay-check or you make enough $$$ but just upset about paying 60k a year in tuition?
I talked to someone who was a tuition board here in chicago and he told me that they were reasonable, even to people who had kids in different schools. He told me that a lot of times they coordinated between schools on how much money school A will take and how much money school B will take.
So i am little bit surprised to hear that they are making you pay full tuition.

So cutting your food bill is just a start; There are different strategies on cutting mortgage bill as well; taxes, have you applied for homestead? what about reevaluating your property to get a lower tax % ?

cheers.

Ahavah said...

Twinsmommy: what's your email address?

Ahavah said...

nevermind. I see it.

qsman said...

Try mint.com for budgeting help - it will consolidate your accunts and help you track spending. The backend uses yodelee to aggregate your account. I use Quicken, but this is pretty good

Anonymous said...

"If tuition is killing you, it's time to consider moving to Israel."

Tuition is only one reason why we are considering moving as soon as practical (which time may be hastened as I might be out of a job soon). The primary reason is that it is a great mitzvah! I lived and worked (and served in the army) in Eretz Yisrael for about 10 years, and my wife and I were married there. We also have some relatives scattered here and there, but most of our immediate families are still in the USA. But there are other issues in Israel, both financial and otherwise, so it is still a tradeoff.

"well are you asking for advice or are you just venting :)"

Maybe a little of both :-)

"If you have a family of 5 kids, plus 2 adults, you are looking @ a large amount of food being consumed, and cutting that amount should be part of your balanced budget."

For now, our budget is well balanced. My wife is an incredible Eshet Chayil and is the best bargain finder I have ever known in my life. We have boxes of hand-me-down clothes for every age from 2 to 12. As our kids grow (the twins, and youngest, are now about 3), we pass the clothes to the next in line, some to my sister-in-law who has a 2 year old, and some to other friends and family, and in the end to tzedaka. We buy almost everything with coupons, and stock up on everything possible when it is on sale. A few weeks/months ago, my wife found whole chickens on sale for something like $1.29 or 1.49/lb and bought 20 of them (all they had). Here in Florida, that's an amazing price for kosher chicken (not like in Brooklyn where if you buy a case, you can get 99 cents a lb). We also only buy produce that is in season and do without (or use frozen veggies that were bought on sale) the rest of the time. I can almost guarantee you that our monthly food bill is among the lowest for similar sized families. We also conserve energy like crazy so our utility bills are as low as possible. We live only a few miles away from the kids schools, and a few miles (3 1/2) away from where I work, so our gasoline bills are not outrageous.

We have homestead, of course, as it is a must in Florida to keep the property tax bills down. The homeowners insurance jumped a lot over the past 4 years, but we need insurance. Mortgage is the same one we got 10 years ago when we bought our house.

Mark

Anonymous said...

Hello Mark,

I am going to suggest something that is little bit on a risky side, but it works and when done properly can save a large chunk of money.

This strategy involves flipping your mortgage. The basic rules are as follows:

a. you must have a high enough mortage, something over 200k, but less then 410k.

b. You must have a good credit.

c. you refi every 3 months usually to higher rate; therefore you only pay 9 out of the 12 months.

e. The broker you work with is going to give you part of his commission back. For someone who has good credit FICO score, and has good w-2 ( which i am guessing you do ) Mortgage brokers get a commission fee, about 3%. So lets take a 300k loan as an example, that means mortgage broker gets 9k in commission, out of which he would give you 75%, i.e. $6,750;

Strategy is to refi about 4 times a year, and at the end there will be about 27k extra in your pocket

d. obvious downside to this strategy is that you never pay down your mortgage, but avg american now holds a house for about 5 years and not full 30year term.

e. Another down side, if your house looses value, i.e. you mortgaged 300, but house is worth 290, you would be stuck and now you are also stuck paying a higher rate;

f. If your FICO score takes a hit. this would be the worst, since you have to wait some time before continuing.


THIS STRATEGY WORKS ONLY IF YOU STAY ON TOP OF THIS AND ONLY IF YOU HAVE EXCELLENT CREDIT/GOOD W-2 INCOME AND ASSUMES STABILITY. PLEASE DO THIS AT YOUR OWN RISK.

Lion of Zion said...

people might save some $ by only using generic medications, including over-the-counter products. a women came in today and wanted dulcolax (an OTC laxative). ten tablets of the brand cost three bucks. 100 of the generic also costs three bucks. there is no reason to pay 10 times as much for a laxative

Ahavah said...

Flipping mortgages is the MOST IRRESPONSIBLE idea I have heard in quite a while - out here in real life land, nobody is going to give you a mortgage four times a year, presuming you can get one at all with standards tightening the way they are. This sort of scamming and ponzi schemes is what has gotten orthdox families into trouble in the first place - only an unethical and ignorant person would even suggest you can go without paying for your house for months out of the year and not have heavy and permanent financial consequences. THERE IS NO SUCH THING AS A FREE LUNCH.

DO NOT CHANGE YOUR FIXED RATE MORTGAGE for a flaky adjustable rate piece of trash that will be a budgeting disaster, FOR ANY REASON. If you can't qualify for a lower rate permanent fixed mortgage, then refis are FINANCIAL SUICIDE. Don't do it.

Anonymous said...

LOZ 3:33am - "medications"

We save money by not using them at all. B"H, we are all healthy!

anon 11:17pm - "mortgage scheme"

You are very misinformed.

1) Mortgage brokers DO NOT get a 3% fee. You are probably confusing them with realtors.

2) When you refinance, you pay interest to the new lender from the day they cut the check. You also pay interest to the old lender until the day they cash your payoff check. You are probably confusing the case in which that period is refinanced into the mortgage. This means that your mortgage balance goes up with each refi. Do this 4 times a year and you will be overextended pretty soon.

3) Refi's have a bunch of other fees involved. Where does the money come from to pay those fees?

4) Why should I care about the "average American"? I am talking about MY finances here. We purchased our first and only house 10 years ago, and we don't want to move unless it is to Eretz Yisrael.

Mark

SephardiLady said...

Ahavah got to my own blog before me. Thank you Ahavah. I agree with your assessment. If it is "too good to be true, it probably is." Stick with conventional financial vehicles.

Anonymous said...

Ahavah,

“Flipping mortgages is the MOST IRRESPONSIBLE idea I have heard in quite a while - out here in real life land, nobody is going to give you a mortgage four times a year, presuming you can get one at all with standards tightening the way they are.”

The above statement is false.

a. It is not the most irresponsible idea, buying a house where you don’t have enough income to cover a mortgage, or living pay check to pay check I would say is more irresponsible. Or someone gets a mortgage knowing they cannot afford it but since they got a great deal on a % they take a plunge, and hope to sell down the line or to refi to a lower/reasonable rate. This partly caused the Mortgage Crisis of 2007/2008. More on that later.

b. As far as lendors not giving you a loan? I am curious as to what qualification you have to make this statement? Are you are a mortgage broker? When did you get a mortgage last time or tried getting a mortgage? This is not meant as an insult, but please back up your statement.


I refi every 3 months, same mortgage every time. As far as fees are concerned, that is something that mortgage broker takes care of. Mortgage broker takes it out of his fee.


Mark as far as your questions:

1) Mortgage brokers DO NOT get a 3% fee. You are probably confusing them with realtors.

Also not true, depending on how you do a mortgage, i.e. full doc or stated income, his fee goes up or down. The upper limit of 410K is because @ that point banks lower their broker fee to flat 2%.


Q2) When you refinance, you pay interest to the new lender from the day they cut the check. You also pay interest to the old lender until the day they cash your payoff check. You are probably confusing the case in which that period is refinanced into the mortgage. This means that your mortgage balance goes up with each refi. Do this 4 times a year and you will be overextended pretty soon.

A2) Not sure about this one, I can ask my mortgage broker about this. From personal experience that is not true also.

Q3) Refi's have a bunch of other fees involved. Where does the money come from to pay those fees?'

A3) Boker covers all of the fees.


Q4) Why should I care about the "average American"? I am talking about MY finances here. We purchased our first and only house 10 years ago, and we don't want to move unless it is to Eretz Yisrael.

A4) My only point there was that it used to be that people held their houses for a full 30 year term. Today it is no longer true. In my personal case, I am hoping to move in a few years, and money that I will make on real estate would come from increased equity in the house.

This strategy is not for everyone. But if done with certain conditions, it works. I know plenty of people that do this. There are serious risks, as outlined in my previous post.

There are different approaches to mortgages even outside of this strategy, some financial advisors advise to pay off, others say don't pay off. It depends on your personal financial standing.

Tamiri said...

A house is not an ATM machine.

Anonymous said...

Re:

Tamiri said...
A house is not an ATM machine.

:) a lot of financial advisors will disagree with you :) Equity,in your house, if used correctly is a great way to invest.

Anonymous said...

"e. The broker you work with is going to give you part of his commission back. For someone who has good credit FICO score, and has good w-2 ( which i am guessing you do ) Mortgage brokers get a commission fee, about 3%. So lets take a 300k loan as an example, that means mortgage broker gets 9k in commission, out of which he would give you 75%, i.e. $6,750;"

Why do you think that a mortgage broker would give you back 75% of their commission? That is just foolish, and wrong. When we purchased our home,w e used our best friend for our mortgage (not because we had to, because we wanted to, and were thrilled with his hard work). Why should he not be paid for his services? Is he a not for profit organization?

Maybe you have some shtick with your mortgage broker, good for you. But it's wrong for you to expect others to share in their commissions.

Anonymous said...

Hello,

Q. Why do you think that a mortgage broker would give you back 75% of their commission?

A. Because that is how this strategy works, and brokers make money. You refi every time with the same broker, so he is guaranteed income vs not knowing if he will do another deal in a few months or so. Broker would need to do around 5 deals a month like this and he would be set just fine. So a broker would need about 10 -15customers and he can do this year long as a side business.

"But it's wrong for you to expect others to share in their commissions." Why is that? It is your money, why should someone else get it?

With same logic, I hope you don't buy a car at MSRP :) or anything else for that matter without bargaining.

Anonymous said...

Of course not, but someone that works on commission (as my husband does) works very hard for their clients. It would never occur to him to refund his commission check to anyone, no matter who they are (including his own father, his client).

And no good client would EVER expect that. I can't imagine your mortgage brokers bosses/managers would be thrilled to hear about this scam!

Anonymous said...

Hi,


"occur to him to refund his commission" - that all depends on what your business model is; Different companies do business differently, your husband does not refund his commission, and his competitor might if that means he gets the edge. Sometimes market forces force our hand and make think out side of the box; it would never occur to honda to offer 2.9% APR on their best selling minivan, but guess what, they are. But Toyota is not, so does this make Honda a scam artist?

Speaking of cars, do you know that dealer makes money no matter what price they sell a car at? This is called dealer hold back(http://www.edmunds.com/advice/incentives/holdback/index.html ), it is a set amount of $$$ that dealer gets from manufacturer regardless of the price dealer sells the car. Anything else over that amount is pure profit that goes into dealer’s pocket and that my fellow bloggers is your money they are taking. If you want to give it to them, fine. But at least you should know about it 

"And no good client would EVER expect that."
- maybe / maybe not. I have no allegiance to any sales person, and as a consumer, it is my obligation to watch out for my interests and my pocket not someone else’s.

" can't imagine your mortgage brokers bosses/managers would be thrilled to hear about this scam!"
- Why is this a scam? It is certainly not illegal to do. Scam would imply that this is illegal, which at this point of writing it is not in my state, afak.

Btw, there are plenty of banks/mortgage brokers that offer no closing fees (http://www.eloan.com/s/show/nonclosingcost ), how do you think they do this? Magic? I don't think so.

You, as a consumer, have a responsibility to get the best deal for yourself, and not your mortgage broker. is it not what this blog is all about? I am not forcing you to use this strategy, but this is certainly not a scam.

Btw, on a side note, look @ the mortgage crisis that we are currently in, this was caused by uneducated consumers making uneducated guesses. The fact that they took a loan out that they could not afford, whose fault is that? Mortgage broker’s? I don’t think so; it is the fault of a greedy/uneducated consumer who wanted to have a house now and did not understand how a 3 or 5 year arm works. Every mortgage that consumer signs has a piece of papers that says: “I read the terms of this agreement and I understand what I sign.” But in a society that likes to blame everyone for their problems, it makes sense that it is someone’s else fault for the situation we are in.

Again, this strategy is not for everyone; just like investing in stocks is not for everyone. Consumers should beware and do their own research.

Ahavah said...

Anonymous:

As for tightening mortgage qualifications, you seem to be the only person in America unaware of them. Go to google and type "tightening mortgage qualifications" and you'll get 308,000 articles.

My usual source of articles is marketwatch.com and wallstreetjournal.com, which coughed up the most recent article dated just a few days ago: April 26, 2008...

"Lenders are demanding higher credit scores, mandating private-mortgage insurance on many more loans, and requiring larger down payments..."

Zero money down mortages are no longer being offered by any credible companies:

"REAL ESTATE
No-down-payment mortgages gone for good?
Most mortgage insurance companies won't cover 100% loans anymore
By Amy Hoak, MarketWatch
Last update: 7:31 p.m. EDT April 10, 2008"

None of this is news to anybody who's been following the financial news in the past year - the fact that you claim you've never heard of it tells me you are not working with ethical legitimate companies but scams and schemes that are not accepted practice by legitimate law-abiding brokers and national companies.

Anonymous said...

Hi Ahavah,

:) Tightening mortgage qualifications
does not mean they are rejecting mortgages :)

- "Lenders are demanding higher credit scores, mandating private-mortgage insurance on many more loans, and requiring larger down payments..."

See my statements above, you have to have good FICO score, good W-2. This strategy will NOT work if you have a crappy credit history and no income. This strategy also assumes that you already have a house and when you bought it gave your 20% down or when you are purchasing a new house you have that 20% down; that requirement has been around forever, otherwise you would be paying PMI insurance which does not make sense.

I never said anything about “Zero Money Down Mortgages”, that would not work anyways because you have to pay PMI which would eat most of your profits.

“the fact that you claim you've never heard of it“ - I am sorry, what exactly did I claim? Please be more specific.

“with ethical legitimate companies” - You mean companies like Enron? GM? Ford? ComEd ? I am not sure what you mean by Ethical/Legitimate companies.

“legitimate law-abiding brokers” - this strategy is NOT illegal. You could claim it is unethical, but that would be your personal point of view, unless you have documentation that shows otherwise


I am curious, what exactly is wrong with this strategy? I have laid qualifications and downsides pretty well, I think. I don’t encourage you to do it, just gave it as an option. Just because it sounds schemish does not make it so.

Ahavah said...

Since home equity is going down and not up, and every indicator shows plainly they still have a long way to go to reach bottom, your scheme is impossible on it's face. No legitimate bank is going to continue giving more and higher mortgages on property that is declining in value. Any "bank" that would is clearly operated by insane people and should be avoided like the plague.

And every time you refinance you're digging yourself deeper into a hole of debt that you will never get out of. The idea is to actually own your house, not be in perpetual debt slavery to financiers. Why in the world would any reasonably intelligent person start their 30 year mortgage over again multiple times a year? Why not just rent, since you and your kids are never going to own the house anyway.

Your plan violates Torah in at least two ways - you entered into a 30 year contract with no intention of doing business for 3 months, much less the 7 years necessary for a bank to begin turning a true profit on mortgages, defrauding the mortgage company the profit they expect to earn for offering you a mortgage in the first place. And you are offering collateral that is not worth or will not be worth enough to cover the value of the loan, which is a form of fraud.

I would like you to give me the name and number of a mortgage loan officer that works for a nationally licensed, state chartered, FDIC insured bank that will agree to this scheme. Not a broker, a real loan officer.

Anonymous said...

I don't even know where to start, but this scheme cannot work for very long because the numbers simply don't work out.

Let's say the mortgage is $200,000, and let's say the rate is a [high] 8% (prevailing mortgage rates are quite a bit lower at about 5.5-6%). So, you are claiming that you can refi every 3 months and "save" one month of payments, AND not pay any fees whatsoever. So, let's look at the numbers -

Mortgage - $200,000

Income to bank (or whomever is making this loan):

3 months of interest - $4,000

Expenses for bank:

Brokers fee (3%) - $6,000
Mortgage orig costs (a low 1.5%) - $3,000

Let's further give you the benefit of the doubt in that the month of interest that you do not pay is coming from the broker (because it is impossible that it is coming from the bank as the bank gets paid for every day that you have their money).

So, according to you, the bank spent a total of $9,000 to originate this loan. And you spent a total of $4,000 on interest to the bank. So, the bank is in the hold for $5,000 every 3 months on this kind of loan.

Please explain to us why any banker in their right mind would continue to make such a loan every 3 months and lose at least $5,000 every time?

And, in my opinion, if you do this repeatedly by switching banks each time, it is most likely pure Geneiva. Consult your Rabbi (and your conscience) for more information.

Mark

GilaB said...

You can make chicken soup for very cheap if you save the bones left over from any roast chicken and use those to make your stock - your only cost is for the vegetables and seasonings. After people have eaten their chicken, collect up the bones and rinse off any sauces or other seasonings, and throw them in a bag in the freezer. When you're ready to make soup, use those in place of a whole chicken, although you might want to supplement with several pieces of whole chicken if you like to eat your soup with some chicken in it, as I do. I also sometimes buy packages of chicken bones, which even in my Manhattan grocery store are much cheaper than chicken (about $1.29/pound), and use those for soup. On the rare occasion that I have a turkey carcass around, I make stock from that too, but I use it as an ingredient in cooking rather than serve it, as turkey and chicken stocks taste different.

This sometimes strikes people as a bit icky, but the boiling sterilizes the bones. Most of the meat in chicken soup never gets used if you make it with whole chicken, and the stock really derives its flavor and body from the bones rather than the meat, so it's an unnecessary waste to use so much meat.

Ahavah said...

Exactly, Mark! This "scheme" is really a "scam" that no real bank would ever agree to in a million years. The "brokers" this guy is talking about are unscrupulous, to say the least.

Anonymous said...

Hello Ahavah/Mark,

There are a few points that both of you made, but you keep bringing up that is illegal. Fine, lets agree it is and that one should not be doing it (however, having not asked that shailah I cannot tell you for sure), however, Ahavah, you make some statements that completely false. Please read on.

A few points,

a. as with any real estate investment an investor would have to take a calculated risk; Please reread my posts, your mortgage never increases, it is $X @ the time you buy and it is $X @ the time you refi. It does not go up or down, it is the same amount. What you are essentially doing is paying interest. There are plenty of mortgages out there are Interest payment only, and yes they are still available. Therefore your statement of:
“No legitimate bank is going to continue giving more and higher mortgages on property that is declining in value” is wrong. Your mortgage DOES NOT increase after each refi and your property has to hold that 20/80 ratio. In fact you can refi after 3 month for a number of reasons, but more on that later. Mark, I am going to guess that you are a mortgage broker and can in fact confirm that. However, some banks have put in a new rule, that person can refi every 6 months, unless he pays a fee.

b. your statement:
“Since home equity is going down and not up, and every indicator shows plainly they still have a long way to go to reach bottom, your scheme is impossible on it's face. No legitimate bank is going to continue giving more and higher mortgages on property that is declining in value.
- first of all loosing value depends on the market, i.e. California or Florida. Those markets are the ones that getting hammered; there is plenty of evidence that we have hit the bottom with the mortgage crisis. Some other markets actually appreciated: Arizona. This VERY important point is missed if you just read the hysterical media reports.

If you have a house in one of those declining markets owner would have to be careful about declining value of the house regardless. However if you consider that houses appreciated on avg, I believe, 15-20% per year in the last few years in the Florida or any other hot market, so if you bought a house 10 years ago, you have a lot of equity to loose; it is not pleasant but it is certainly not the end of the world. The main thing that banks care about is that your house is worth more then your mortgage, since that is the collateral that they would use to get their money back. Therefore, when you buy a house the ideal amount is 20% to be given as a down payment, otherwise you are paying PMI; Mark please correct me if I am wrong.


c. “Any "bank" that would is clearly operated by insane people and should be avoided like the plague. “ You mean banks like: CitiMortgage, US Bank, LaSalle, CharterOne, Chase should I go on?

I also think that you don’t understand what happened with current subprime crisis.

Here is a good overview:

The origins of the crisis seem fairly clear. Traditionally, when banks look at mortgages on homes, they carefully study the likelihood that the loan will be repaid, as well as the underlying collateral. Their revenue and profits come from the repayment of the loan or the ability to realize the value of the loan through the forced sale of the house.
Two things changed this simple model. The first started a long time ago. Encouraged by the federal government, banks that issued mortgage loans began selling those loans to other entities. This, then, created a large secondary market in bundled mortgages — huge numbers of mortgages grouped together and sold and traded as if they were simply financial instruments, which, of course, they are.
As a result, banks began to view mortgages less as long-term investments than as transactions. They made their money on closing costs, rapidly selling the mortgages to aggregators, which in turn passed them on to others. The banks then loaned the money again. The more mortgages banks racked up, the more money they made. The risk was transferred to others.
In the past few years, two new groups of players entered the scene, one on either end of the spectrum. The first group comprised mortgage companies and brokers, nonbanking institutions whose business model was built primarily around the transaction. The brokers in particular had no skin in the game. Every time they executed a mortgage, they made money. If they didn’t execute one, they didn’t make money. The role of evaluating the borrower increasingly fell to these entities, neither of which was going to hold on to the debt instrument for more than a moment.
The second group was the final buyers of bundled mortgages — increasingly, hedge funds. Hedge funds are monies gathered from various “qualified” investors — otherwise known as rich people and institutions. They are private partnerships, so what they do with their money is between the managers and partners. No federal agency is responsible for protecting the private placement of money by the wealthy.
In a world of relatively low interest rates, wealth-seeking investors flocked to these hedge funds. Some of the older ones were superbly managed. The newer ones frequently were not. With a great deal of money in the system, there was a restless search for things to invest in — and the secondary market in subprime mortgages appeared to be extremely attractive. Carrying relatively high rates of return, and theoretically collateralized by fairly liquid private homes, the risks of these deals appeared low and the returns on the mortgages — particularly when you looked at the contracted increases — seemed extremely attractive.
The fact is that no one really worried about defaults. The mortgage originators that prepared the documentation for these riskier loans certainly didn’t care. They just wanted the mortgages to go through. The primary lenders didn’t worry because they were going to resell them in hours or days anyway. The mortgage aggregators didn’t care because they were going to resell them, too. And the final holders didn’t worry because they assumed the system would permit easy refinancing of loans at sustainable interest rates, and that — in a worst-case scenario — they at least owned a portfolio of houses that they could bundle and sell to real estate companies, perhaps even at a profit.
The final owner of the mortgage, of course, is the loser. The assumption that subprimes could be refinanced if need be failed to take into account that higher interest rates priced these people out of the market. But the worst part is this: Many hedge funds leveraged their purchase of mortgages by using them as collateral to borrow money from the banks.
That was the tipping point. When the subprime defaults started to hit, the banks that had loaned money against the mortgage portfolios re-evaluated the loans. They called some, they stopped rollovers of others and they raised interest rates. Basically, the banks started reducing the valuation of the underlying assets — subprime mortgages — and the internal financial positions of some hedge funds started to unravel. In some cases, the hedge funds could not repay the loans because they were unable to resell their subprime mortgages. This started causing a liquidity crisis in the global banking system, and the U.S. Federal Reserve and the European Central Bank began pumping money into the system.”

I.e. Greed on the part of everyone involved.
d. “And every time you refinance you're digging yourself deeper into a hole of debt that you will never get out of. The idea is to actually own your house, not be in perpetual debt slavery to financiers. Why in the world would any reasonably intelligent person start their 30 year mortgage over again multiple times a year? Why not just rent, since you and your kids are never going to own the house anyway. “

Again, it is not true that mortgage increases. So please stop repeating this. As far as your second point, I plainly stated that you will never pay off the mortgage; this is the same thing as having an interest only loan, where principal is never paid off. From reading your posts, your opinion is that it is a bad financial decision not to pay down the mortgage. However, a lot of financial planners disagree with you and advise their clients to use the equity of their house for investment.

You approach house in a traditional sense, i.e. you would buy a house and hold it for 30 years and then give it to children; but look @ the trends lately, average person who buys a house does not expect to live in the same house for more then 5 years, much less leaving it to kids. This is how interest only mortgages came into place and 40 year mortgages. Who the heck is expected to pay for 40 years?!! Please reread the posts, I made a point of stating that you don’t ever pay off your house.

Why not rent? First because in a lot of places rent is as high as paying a mortgage on a property of the same size. Second, tax breaks. Third, property appreciates (hopefully) and by selling it you make money. This is how a lot of older people lost a lot of money in this mortgage crisis. Forth, you use equity in the house to invest.


“Your plan violates Torah in at least two ways - you entered into a 30 year contract with no intention of doing business for 3 months, much less the 7 years necessary for a bank to begin turning a true profit on mortgages, defrauding the mortgage company the profit they expect to earn for offering you a mortgage in the first place.”

I am not a posek, so I will not debate supposed Torah violations; however, I am sorry to tell you this, but banks rarely hold the mortgages for 30 yearsm, they typically sell your mortgage to someone else for a profit. Also, I am under NO obligation not to refinance, but only under obligations to pay the mortgage. If decide to refi to get a lower rate because Fed just lowered it their rate .25%, is that a Torah violation? What about entering a 40 year old mortgage? If you bought a house in your late 30s, chances are you won’t live that long to pay it off!!! Is that fraud? I don’t think so. What about interest only loans? What is the contract obligation there? This is the part that bank risks, will customer refi or not. And let me tell you, if person got a high interest in early 1990s and still paying that high % is an idiot.

Banks don’t actually hold the mortgages any more, they sell them, therefore they don’t expect you to pay for a mortgage, they don’t care. But again, I am not a posek, I can however ask.


“ And you are offering collateral that is not worth or will not be worth enough to cover the value of the loan, which is a form of fraud.” You keep hammering this point, and I keep telling you that it is not true. Property does not go down in price. If it in fact did go down in price, where original mortgage is less then what the house is worth, you are in trouble no matter what.

When was the last time you refi’d? I am guessing in a long time. If you would do this recently, you would know that ANY bank pays an assessor to assess the value of the property. If it is less then the mortgage or with that 20./80 ratio bank WOULD NOT refi. Same goes for mortgage; Mark, please correct me if I am wrong.


I am curious, are you implying that all those people that bought over inflated houses committed fraud because now their mortgages are larger then their houses are worth? And now that some cannot make payment and are forced to foreclose, did they commit fraud?


”I would like you to give me the name and number of a mortgage loan officer that works for a nationally licensed, state chartered, FDIC insured bank that will agree to this scheme. Not a broker, a real loan officer. “ I don’t know any loan officers, I don’t deal with them;
Look, bottom line is this, regardless of validity of the scheme; I hope that we at least cleared up some points about how mortgages actually work and what is causing the mortgage crisis;

Mark:

As far as your point of genevah, it is a bank rule that home owner cannot refi for 3 months after last refi. Obviously they know what they are doing  every bank that does a refi runs a credit report check and they all see when a person they are currently refi’ng had the last mortgage. Obviously they have underwriters who make a decision to give a loan or not to give a loan. I don’t think that banks loose money in this because they sell that mortgage, thus making up any money they “lost” on a fee to the broker, plus interest that they made in that last xxx months. This is my speculation and not a fact.

Ahavah said...

The mortgage doesn't have to increase when the value of the house is decreasing. You can only borrow a certain percentage of the value of the house - if the value of the house goes down, you can't borrow enough in three months to cover the old mortgage and have a down payment for a new one.

http://www.nytimes.com/2008/04/30/business/30econ.html

"In the 12 months ended in February, the S.& P./Case-Shiller home price index, which measures the value of single-family homes in 10 major metropolitan regions, fell 13.6 percent, the biggest decline since records began in 1987.

The slump in home prices was more severe than at the deepest point of the recession of the 1990s, which was the last time values fell so far so quickly.

David M. Blitzer, who oversees the index, said the prices would most likely keep falling. “There is no sign of a bottom in the numbers,” he said in a statement."

That means anyone who had tried this scam last year would have had the amount they were able to borrow decline more than 3% between the first time they tried it and the second, and another 3+ percent decline in value between the second and third, and so on. Total housing prices are projected to fall a total of 40% from their 2005 levels, meaning they have about 20% more percent to fall.

Borrowing the same amount of mortgage every time is not really a viable option on that account alone - not to mention you are, no matter how much you try and avoid it, have to pay closing costs each and every time you refinance - which is above and beyond the value of the mortgage.

The fact that you can't produce a loan officer who would agree to this scam proves you are just spitting in the wind to hear yourself talking.

You don't understand the mortgage market, you just understand scams.

Anonymous said...

anon 1:30pm,

I never said that what you are doing is illegal, and in fact, I don't think that it is illegal. About its morality, I think you can easily guess what I think.

All I am saying is that the numbers don't work out. I am an engineer (B"H, as so many mortgage brokers down here are now out of work!) and have dealt with numbers for almost my entire life, and these numbers simply don't work out. I also notice that you simply ignored the simple example with numbers that I provided. That's not a very good way to plead your case :-)

Just for some additional information, we still have the exact same plain vanilla 30-year mortgage that we took when purchasing our house (our first and only so far) about 10 years ago, at 6 5/8%. We put down exactly 20% and took a loan for exactly 80% of the purchase price. Most of the closing costs were paid by the company that relocated me. I have paid the exact same amount every single month since then. I do not do escrow and I pay my taxes and insurance once each year when they are due. About 2 years ago, the house was probably worth more than 3 times what we paid for it. Today it is very likely worth less than that, but still it is worth much more that we paid for it.

I've never refinanced, though I was very tempted in 2003 when the rates were so low, but I procrastinated too long and never did it. If I recall correctly, the rates shot up before I got moving. And as far as I know, I still have good credit, but rarely use it.

And as far as the bank selling the loans, how much exactly do you think the bank gets for that $200,000 mortgage?

Mark