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Dollars and Sense

September 7, 2016

Question:  Why do banks wait so long to sell a repossessed house? Some of them are falling apart before  they get sold.

Answer:  Based on my experience, it is usually 6 to 10 months before we get a foreclosed property sold.   Lenders have their attorneys do the necessary paperwork to foreclose and then it sits for months primarily due to the backlog of houses that are on the list for a Sheriff's sale. Over the  past 10 years there have been from 150 to 200 per year in Defiance County. The Sheriff has  requirements to meet to keep it in accordance with the law. There are appraisals that have to  be made to determine the value and notices that have to be published. If I had total control  over it as a banker, we would sell them immediately. Unfortunately, it isn't up to the lender so we wait our turn. On top of all this, the borrower often files for bankruptcy during this time  which adds to the delay. It is very frustrating for lenders when we have to wait so long to getback the property to sell. The majority of properties do not get sold at auction and lenders get  the property back to repair before selling. The lender loses money at least 90% of the time.   

Question:  Why do some banks, when approached to buy a CD, say you have to have an account with them to purchase a CD?

Answer:  As a general rule, this is not the policy for most banks. It's actually rare for banks to do this. For  those that do require you to have an account with them to purchase a CD, there are two primary reasons. The first is that they want to force you to have a checking or savings account  which ties you closer to the bank. The other reason has to do with banker's views of CD onlycustomers. CD's alone are the least profitable product for banks. Most bankers feel that CDonly customers are not as loyal and the individual that purchases one without any other business relationship is likely going to leave you when it matures if they can find a better rateelsewhere. I have never gone so far as to require a checking account relationship in order to allow someone to purchase a CD. However, I certainly understand to some degree why somebankers do it. The primary reason behind bankers not wanting CD's from individuals who don't have any other relationships and those who do want them is loan demand. If the banker has alot of loans to fund, it doesn't matter nearly as much about the additional relationships. Ingeneral, bankers would prefer more than just the CD.                 

Question:  What do you say to people who don't use banks and they just hide their money at home?

Answer:  If someone keeps all their money hidden at home and it is stolen, I would like to be there when  they ask their insurance company to cover the loss. It should be good for a laugh. With all due  respect to those individuals who do not believe in banks, keeping money in jars and cans is just not using your head and I'm aware that there are some who do this. It's not safe. There are extremists in this country that have people believing the government is going to take over all  of their assets including all the money in banks. That's about as farfetched as fortune tellerssaying the world is going to end on a certain date. Even if you own a safe in your home, it isn'tas secure as your bank. Some would say that an individual who would do this is just eccentric.    I think it goes a bit further than just being eccentric. It's irrational. You are not only putting your money at risk. You are risking your personal safety. It's a bad idea.

August 31, 2016

Question:  Are young people graduating from high school today with better financial skills than kids did  40-50 years ago?

Answer:  It depends more on how the parents address this issue than what they learn in school. We should not rely totally on the schools to educate our young people. Financial literacy should begin at home. Although our bank sponsors a program of financial literacy in our schools, youshould not rely totally on this training. If your child someday marries someone who has beentaught how to handle finances and your child hasn't, it will most definitely end up causing problems. You can almost count on it happening. I couldn't begin to count the number of timesI've seen this happen. One spouse cannot control their spending habits resulting in a poor credit rating for both. There are many lessons we need to teach our kids while they are still athome. Financial literacy is one of the more important ones.  Unfortunately, I would have to say that kids today are less concerned about financial matters than they were 40-50 years ago. We  can thank our government for much of this in creating the out of control welfare system.

Question:  We hear some say take your social security as soon as possible. Others say wait. Which way is best?

Answer: If everyone were financially able to wait until the age of 70, I would say wait. Since they aren't,there is no right or wrong age to start drawing social security. If you could wait until the age of 70 it would maximize your monthly income vs. the minimum amount at age 62. Also, from the age of 66 until the age of 70, if you have not drawn your social security, the amount will go up about 8% per year. In other words, waiting the additional 4 years could result in roughly a 32%  higher amount than if taken at 66 years of age. For example, if projections call for you to receive $1,500 per month, waiting the extra 4 years will result in your check being about $2,000  per month. That's a significant increase. The majority of retirees do not wait until 70 years of  age.   Again, there is no right or wrong. It's just a matter of whether you can retire at 62 and  take the smaller amount or, wait and maximize the amount at age 70.

Question:  Are U.S. Savings Bonds still popular?

Answer:  In 1935, Savings Bonds were first introduced to the public. They have been called by different names over the years. During World War II, they were referred to as War Bonds. Up untilJanuary 1, 2012, they could be purchased at any bank. They are no longer sold at banks and  purchasers now have to go on-line or through mail service to purchase them. I don't have any  solid numbers as to their current popularity. However, I would imagine they are less popular  since the convenience of buying them at your local bank was discontinued. Also, World War II was considered to be a popular war and many Americans purchased them back then as a patriotic act and not just an investment. Attitudes have changed since then about wars. We've  been involved in several questionable military actions so they are purchased more for the investment than to be patriotic. When you are purchasing a U.S. Savings Bond, you are basically making a loan to our government and they are paying you interest for the loan.

August 24, 2016

Question:  Is there a reason why banks advertise higher interest rates for larger deposits?

Answer:   Financial institutions sometimes offer a special rate. When they do, it usually requires a larger  amount. Let's say the figure is $50,000. The reason is simple. It takes the same amount of time to prepare documentation for a $100 CD as it does for a $50,000 CD. If the goal is to bring in an additional $1 million in deposits to fund loans, it can be done with the higher dollar amount  with much less employee time than if they allowed the special rate on a much lower figure. It's no different than what we see when retail stores offer a product and the more you buy, the better the price. Or, they may advertise buy one get a second at half price. It's basically the same concept except the bank isn't selling you an item. They are investing your money. The single biggest expense any business has is labor cost. The higher dollar amount allows them to attain their objective with less time. The average person does something along these lines in their personal lives all the time. We do things in the most efficient way possible to accomplish the tasks.

Question:  Why is it so difficult to get a loan with the interest rate fixed for a long term?

Answer:  A real estate loan to buy a home can have a rate fixed for a long term if it's being sold in the secondary market. This is about the only way it's possible. The reason is simple. The majority of a bank's customers will not go long term on deposits. Most individuals won't purchase a CD from their bank for longer than 2 to 4 years. Therefore, your bank can't take those deposits and loan it at a fixed rate for 10-30 years because if CD rates go up, our customer will expect a better rate when it matures even though we would be stuck with the long term loan rate. It's somewhat like asking a car dealer to guarantee you a new car price in 5 years at today's prices even though the dealer doesn't know what the manufacturer is going to charge them for the  car in 5 years. Prudent bankers are not going to guarantee a loan rate for 10 to 30 years either.   We just don't know how much we will be paying for deposits that far out. We may do it for 5   to 7 years but not much longer than that unless the loan is going to be sold.

Question:  Some say that one Presidential candidate is better than the other on the economy. Do you agree?

Answer:     We have never seen anything quite like this election and hopefully, we never will again. The attitudes of people toward these two candidates has resulted in us having to choose between the lesser of two evils. One candidate has the financial background we would like but, can't seem to stop putting his foot in his mouth. The other candidate appears to have more political experience but, lies about anything and everything.  Each person has to choose whom they think will do the best job overall.  However, don't worry about either of them  making our economic conditions worse than they already are. The President of the U.S. does  not have the authority to bring our economy down by themselves. Most critical decisions must have the support of the U.S. Congress and Senate. So, if there are mistakes made, there will be plenty of blame to go around. There are a lot of other issues that you need to look at in making a choice. National Security and integrity are just two of them.

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