Security Alert

I just received this security warning from the FDIC and wanted to pass it along.

The Federal Deposit Insurance Corporation (FDIC) is warning consumers, businesses and financial institutions to be aware of fraudulent e-mails allegedly from, or related to, financial institutions that have been the subject of recent news stories. Phishing e-mails often incorporate aspects of high-profile news stories – such as bank mergers, acquisitions and failures – to create a sense of urgency and legitimacy for requesting information or action.

These types of fraudulent e-mails may request recipients to verify computer logon credentials, update personal information, or activate new online security features. The fraudulent e-mails may include a link that directs the recipient to a fraudulent or "spoofed" Web site that looks similar to the subject institution's legitimate Web site. Once there, users may be prompted to provide information about online banking credentials or other personal and confidential information that could be used to gain unauthorized access to online banking services or perpetrate identity theft. These spoofed Web sites may also direct the user to download software updates or digital certificates, which may actually be malicious code or software attempting to collect online banking credentials or other personal and confidential information.

Consumers, businesses and financial institutions should be wary of unsolicited e-mails purportedly from financial institutions recently in the news and take the following precautions:

• Do not follow Web links in unsolicited e-mails from apparent financial institutions. Instead, use Web browser bookmarks or type your institution's Web address into the browser address bar when accessing your bank's Web site or online banking services.
• Always use anti-virus software and ensure the virus signatures are automatically updated. Ensure the computer operating system and common software applications are up-to-date with security patches installed.
• Do not open unsolicited or unexpected e-mail attachments claiming to be from a financial institution because of the risk of malicious code or software. As a precaution, call the financial institution using an appropriate telephone number, such as one from an account statement, to validate the e-mail and attached file before opening any attachment.
• Be aware that phishing e-mails frequently use new and innovative ways to trick recipients into providing logon credentials and confidential information or into unleashing malicious code.
• Regularly review financial account statements and immediately report any discrepancies to your institution.
  Be mindful that financial institutions generally deliver notices to consumers in writing about changes in account terms and conditions unless the consumer previously agreed to receive the notice electronically.

Today’s Financial Paradigm Shift

A Paradigm shift is a radical change in personal beliefs, complex systems or organizations, replacing the former way of thinking. The chaos we are dealing with today’s credit market is a Paradigm Shift of unprecedented magnitude.

The use of credit has evolved drastically over the last several decades. Individuals as well as businesses of all sizes including all levels of government have redefined the proper use of credit. Up until recent times, borrowing money was something that wasn’t done without careful consideration.

Consumers borrowed money only as a last resort to tie then over a rough patch. An illness prevented then to earn a salary; a lay off required them to find new employment or an emergency repair was needed. It was only conditions such as these that Americans borrowed money in previous generations. Then a new need surfaced. That was a desire to buy goods that were expensive and had a long useful life. Through a combination of savings and borrowing money we were able to buy the cars and the homes we wanted.

Our grandparents hated the idea of owing money to anyone. They reluctantly borrowed money when needed and looked forward to the day the loan was paid off. Families checked off the major events in their lives; getting married, having children, raising a family and retiring their mortgages. The mortgage burning party was a more major event than a birthday.

Their pride kept them from taking on too much debt. In the event something happen in their lives that forced them to fall behind they were ashamed. They wouldn’t talk about it and would do whatever possible to hide the fact. The goal was to pay back what was owed before any friends or family heard about it. Bankruptcy was considered the ultimate failure. A man failed his family and his community if he was forced into bankruptcy. The people of this generation didn’t go into bankruptcy; they were forced into it.

These people saved for things they wanted to own. As children we were all taught to save our money for what we wanted. We learned by example, we made compromises. Our families couldn’t buy us everything we wanted, we needed to prioritize. We could only expect the toy we really wanted, anything else would have to wait.

As time passed we became more self-centered. Borrowing evolved from being something to be embarrassed of to an acceptable way of life. We no longer used Christmas Clubs as a saving plan to pay for holiday gifts, we just charged the gifts and planned on paying back what was borrowed at a later date. However, paying back the money would limit what we could spend on other things. This wasn’t acceptable; any form of sacrifice just wasn’t in our nature. We just kept borrowing more. Paying back what we borrowed was always something that could be put off until tomorrow.

As we continued running our personal lives this way some of us had jobs that gave us the responsibilities of handling the financial obligations of companies and government agencies. The spend now; pay later attitude that became the norm at home naturally became the norm at work. Companies and the government began doing the same thing. From a business standpoint having cash-on-hand was not the most efficient use of capital. Invest whatever capital is on hand and borrow funds as needed to pay bills while you are waiting to collect on your receivables.

Once the stigma of borrowing money was no longer a concern, it wasn’t long before “living up to your word” became an outdated concept. Utilizing any method available to avoid paying a bill quickly became the expected way of conducting business. Bankruptcy was no longer the ultimate embarrassment but became a valuable tool to be used by individuals and businesses as needed.

In 50 years we have financially evolved as a country from “neither a borrower nor a lender be” mindset to a “let’s live for today” way of life. 2008 became the year of reckoning. We live in a society that needs credit to survive yet we’ve entered an age where no person, company or bank trusts anyone. Banks are afraid to lend to companies. Companies are afraid to extent credit to consumers. Banks are afraid to lend to each other. We are now force into a Financial Paradigm Shift.

Every person and company needs to immediately change their standard operating procedure and begin to conduct themselves in a similar manner that our grandparents did. The problem we are facing is much like that of a dieter. After many years of small incremental increases of weight year to year the dieter is now trying to reverse the trend in weeks. The only difference is that the dieter acknowledges that a change in needed and knows it’s not going to be easy.

As Americans we are in a financial state of denial. We’ve yet to recognize how each and every one of us contributed to the crisis. We spend our days trying to figure out who is to blame for our troubles and refuse to consider our personal contribution.

We can’t blame the lender for giving us the financing we asked for to buy the house we couldn’t afford. We can’t blame the lender for giving us the second mortgage we needed to pay off our credit card debt and buy that big screen television we desperately wanted. We can’t blame the car company that built the SUV that we couldn’t live without and then arrange for the financing that enabled us to buy the vehicle.

Why are we surprised that the creditor that lend us the money to buy the car actually wants to get paid what he’s owed? Why are we surprised that he’s willing to take the car away from us because he hasn’t gotten paid when the car is worth less than what is owed? Why are we surprised that the utility company turned off the electric when they know for a fact we just don’t have the money to pay the bill? Why are we surprised that we can no longer borrower money to support the lifestyle we’ve grown accustomed to?

Every decision made by a company, bank or government was made by a person or persons. The decision may prove to be right or wrong. The decision may have been made with the best of intentions or motivated by pure greed or stupidity. The only thing we have direct control on is the individual decisions we make. Just as the dieter looks at himself, realizes a change needs to be made and addresses his lifestyle to suit we need to objectively analyze our personal financial shape and consciously made the required changes.

Until we make a Financial Paradigm Shift in our personal lives our country will not be able to weather this storm. It’s a massive undertaking that requires all of us to do our part. We need to stop feeling sorry for ourselves and begin to move forward with change.

Looking Back in History for Clarity

When trouble arises, it's important to look back for clues as to how we ended up were we are. This was published in The New York Times on September 30, 1999. It illustrates that during the housing boom years the Federal Government mandated that Fannie Mae purchase mortgages that were below their quality standards.

These are the same subprime mortgages that got Fannie into such trouble that they were nationalized. We, the public, are being told these subprime mortgages should never have been purchased. Did they really have any choice in the matter?

Fannie Mae Eases Credit To Aid Mortgage Lending - By Steven A. Holmes

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.