14 KIPLINGER’S PERSONAL FINANCE^ 09/
AHEADLISE METZGERGIVEN THE ONSLAUGHT OF
news about global terror-
ism, military confrontations
and political tensions, it’s
not surprising that investors
are concerned that a geopo-
litical crisis could torpedo
their portfolios. A recent
poll conducted by Gallup
and Wells Fargo Investment
Institute, the banking giant’s
research arm, found that
three-fourths of investors
are worried that current
geopolitical issues will
harm their investments—the top worry among those
polled. (Worries about do-
mestic politics came in a
close second, at 69%.)
Fears about global tur-
moil may be misplaced.
Over the past several de-
cades, geopolitical crises
have seldom had a lasting
impact on the stock market.
InvesTech Research
looked at nearly a dozen
geopolitical crises, from the
German takeover of France
in 1940 to the U.S. invasion
of Iraq in 2003, and found
that Standard & Poor’s
500-stock index, on aver-age, fell 2.5% in the week
following a crisis but was
up 7% after six months and
11.5% after one year.
InvesTech president Jim
Stack says investors are dis-
tracted by global tensions at
a time when stocks face big-
ger risks, such as high share
prices in relation to corpo-
rate earnings and other
measures of value. Other
concerns include the possi-
bility of rising inf lation and
higher interest rates, Stack
says. MARC A. WOJNOINVESTING
HOW STOCKS REACT
TO GLOBAL CRISES
History shows that after an initial dip, share
prices tend to bounce back smartly.
r-Q
What is being done to rein in the newest epidemic of predatory
home lending—so-called installment land contracts or con-
tracts for deed, which victimize thousands of unsophisticated
home buyers across America, most of them minorities?Ways to protect borrowers
from predatory home lending
Sadly, not enough. But some states, including Maine, Oklahoma
and Texas, have put borrower protections in place, and the
Consumer Financial Protection Bureau is investigating the
land-contract industry for possible violations of the federal Truth in
Lending Act.
Land contracts are a kind of seller-financed home loan used when
the buyer’s income and credit history don’t meet standards for a mort-
gage. The contracts often have long terms, high interest rates, low
monthly payments that are almost entirely interest, and a balloon
payment at the end.
Here’s the kicker: The contract isn’t legally recorded, and the seller
doesn’t deliver the deed and title to the buyer until the last payment
is made. If the buyer misses even one payment, the seller can cancel
the contract, quickly evict the “homeowner” and keep everything
the buyer has ever paid in—down payment, principal and buyer-paid
improvements to the house—plus any appreciation to the property.
The buyer has none of the rights he or she would have in a foreclosure.Land contracts are being used extensively to sell cheap, often
dilapidated houses in blighted neighborhoods of Detroit, Atlanta and
other cities. After the first buyer forfeits the house by missing a pay-
ment, the owner (often an out-of-state corporation owning thousands
of houses) sells the house again—and sometimes several times—to
other hopeful but ill-informed buyers, making a profit each time.
“Designed to fail, land installment contracts exploit low-income
would-be homeowners, especially in communities of color, draining
them of resources,” concluded a scathing study by the Federal Reserve
Bank of Boston.
Here are some badly needed reforms: Require that the contracts
be recorded and titles delivered to the buyers; provide longer notice
before forfeiture and eviction proceedings; and after forfeiture, return
to the buyer all cash paid in (down payment, principal and cost of re-
pairs), minus the fair-market value of rent.A
MONEY & ETHICS // KNIGHT KIPLINGER
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