Tag: Personal Finance for the Homeowner

Is the ‘Bailout’ Working?

Some evidence of the US Government’s activity affecting our markets in positive ways:

Yesterday, a statement from FHFA Director James B. Lockhart:

“The Federal Reserve Board’s announcement that it will purchase debt of the Federal Home Loan Banks, Fannie Mae and Freddie Mac as well as the mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac and Ginnie Mae is a very positive step. This $600 billion program should be a major boost to the mortgage and housing markets. By providing more liquidity to the market FHFA expects these actions to help reduce the large interest rate spreads between mortgages and Treasuries, resulting in lower mortgage rates over time, assisting homeowners and home purchasers.”

And then, a press release:

FHFA URGES SERVICERS TO TAKE PROMPT ACTION ON LOAN MODIFICATIONS

And then, the announcement of a new report: “Monthly Foreclosure Prevention Report” which promises to detail the efforts to slow down the flood of foreclosure activity.

STRONG moves are being made to stop foreclosures from happening in such large quantities, as the downward spiraling momentum they bring is causing rot within our nation’s housing stock. Property inventory declined this month for the first time in months, quarters, over a year? Let’s hope it is the beginning of a trend… There was a 39% decrease in foreclosures in California, month over month, largely due to the cancellations and the moratorium imposed by the government, which is being followed by most major lenders and loan servicers.

Decreasing inventory causes a shift in supply/demand equilibrium. Are we nearing a bottom? Is it time to be thinking about investing in real estate?

401(k) Seizure? Time for a Dose of Reality

Another vein of panic running through the foundation of the economic and financial stability – whatever amount of it is left – is a concern over an impending seizure by the government of 401(k) balances to be used for some nationalized program used for bailout funds. The Wall Street Journal ran an editorial on Friday, allowing this widespread concern to proliferate.

You can disregard any fear over this – it ain’t gonna happen.

According to George Miller (D-CA), who is chairman of house Committee on Education and Labor, this is nowhere near the intention or goal of Miller, or anybody else in congress.

Miller’s hearings on 401(k) legislation have the following objectives:
1. Expose excess fees that Wall St middlemen take from workers accounts
2. Bring young and low wage workers into the system
3. Ensure that retirement accounts have diversified investment options with low fees
4. Ensure workers have access to reliable independent investment advice
5. Reduce vesting periods and portability of 401(k) accounts

Congressman Earl Pomeroy (D-FL), member of the House Ways and Means Committee, says he is against anything of the sort, and suggests that this concept was born out of political gaming, pushed by conservatives as a threat of what a Democratic leadership landscape might bring.

Speaker of the house, Nancy Pelosi, says “we would never even consider a proposal to seize retirement assets.” in a statement issued to Ric Edelman, financial planner, when asked specifically about this topic.

One of the voices pushing this concept, Teresa Ghilarducci of New York’s New School for Social Research, who is referenced in the Wall Street Journal piece, even claims in an interview with Edelman that her comments were taken way out of context. However sour on the concept of 401(k)s, she admits she was never suggesting that the government take the funds under control.

If you want more information about participating in 401(k) plans, please contact your plan administrator at work, or your financial planner. If you would like a referral to a financial planner, please contact me.

Indymac Failure Raises Important FDIC Questions

For years, FDIC coverage has been a fairly irrelevant concern in the personal finance area. But with the recent collapse of Indymac Bank, and with so many financial institutions teetering in this environment, it’s a good time to get familiar with the risk of having large deposits with banks, and with how FDIC insurance works.

A history of the FDIC can be viewed here, and their main site is here. For up to $100,000 per depositor, checking and savings deposits are insured against institutional failure by the federal government. There are some particular nuances to this however, when you have multiple deposits with different institutions, or deposits in different types of accounts or with different joint ownership, etc.

A new tool published on the FDIC site will help you tally up your savings to find out what your protection is exactly.

With increased down payment requirements for mortgage financing these days, we are seeing more and more consumers with greater than $100k in savings. Even if it is a temporary position as you prepare to make your down payment, you don’t want to get caught over-exposed with the wrong custodian.

And if you are someone who sits on this much cash for longer than short-term, you may want to run your strategy by a financial planner, especially in light of our current inflation.

Interesting Perspective On Federal Economic Stimulus Package From Hoisington Investment Management (Watch Out For Deflation! …yes, "DEFLATION")

From a recent article presented by John Mauldin in his “Outside the Box” weekly, Van Hoisington and Dr. Lacy Hunt write:

“Fiscal Policy would seem to be undisputedly supportive for the economy with Treasury’s $110 billion in rebate checks and a Federal budget deficit that is approaching a record $500 billion. But that is not the case. The Treasury does not $500 billion in its checking account to cover the deficit, nor even the lesser amount for the rebates. The Treasury has to raise these funds by selling debt securities to the private sector. Credit availability may be thought of as a pie. When the Federal sector, which is the economy’s premier borrower, takes more of that pie, fewer dollars are left for the private sector. Thus, deficit financing crowds out funds that would have gone to private uses. With the exception of the Federal funds rate, in the first half of this year, virtually all money and bond yields rose, a clear sign that the deficit usurped funds for the private sector. This has had the impact of slowing, rather than stimulating economic growth.”

This makes for an interesting debate. Is it all politics? Does the government really lack the economic understanding to do what’s best for us at this point, even if misjudgements that got us here were made in the past? Or is this perspective simply inaccurate? What portion of those rebate checks work back into the economy, stabilize personal finances, or help somebody avoid a foreclosure, etc?

Down Payment Assistance Programs – Keeping An Eye On Legislation


Lots of sparks flying right now, with popular down payment assistance programs (DAP) to first-time home buyers under scrutiny, and a mortgage industry fearful of losing another business niche. This recent story brought quiet a bit of chatter into the markets.

The FHA, who lost $4.6 billion last year, may be losing their ability to accept down payment assistance money. Nearly 79,000 people last year took advantage of them, where nonprofit groups provide buyers with money for down payments and home sellers then reimburse the organizations and pay an administrative fee. The FHA said seller-funded down payments present the single biggest challenge to its solvency. Borrowers who take part in these arrangements go to foreclosure at nearly three times the rate of borrowers who put their own money down, according to the agency. The Senate version of the housing bill would have banned the programs but the House version would not. At this point a compromise bill has backed the Senate’s version on this, which also is supported by the Bush administration.

Credit Score Tips (5 Common Mistakes To Avoid) From Edward Jamison

With mortgage lenders raising their minimum FICO score requirements lately, it is as good a time as ever to get in touch with your credit profile. A high percentage of credit reports we look at contain errors and inaccuracies that our clients were unaware of – and if we are working on a purchase contract, or taking advantage of a briefly open window of opportunity to refinance, its often too late to do anything about it by the time we see the score.

Edward Jamison is an attorney who provides credit score repair advice. I am not endorsing his product, but he has a significant presence in the mortgage industry as a go-to for clients in need of credit clean-up. He’ll tell you that much of what he does is stuff a consumer can do on their own, as long as they know how credit scoring works.

Credit scoring models are not 100% transparent, but there are many sources out there who claim to know how to tweak here and there. The problem I see is that much of the advice conflicts with one another, sometimes in significant ways. Jamison seems about as credible as any in providing advice, so I figured this brief article was worth a read at least. Look it over and see if you have made any of these mistakes. And if you need further help, contact me and we can go through your report together.

Another Reason To Pay As Little As Possible Into Your Home Equity


Reason: Corrupt Insurance Companies.

File under: SAFETY.

Staying liquid is safer. Might it cost you a few more dollars? Sure, but its safer. What’s that worth to you? Nothing brings that point home like images of houses in flames, homeowners in tears, and more houses in flames.

Watch all three installments of this video, an effort by PBS and Bloomberg.

I can’t really weigh on where the bias is in this, but I am sure there is some. The media loves to portray big business (insurance companies) as evil, and looking to choose dollars over people all day long. But how well do you know about your homeowners policy? Do you know anybody who lost their home in the Oakland Hills Fire? How about the 2003/2004/2005/2006/2007 fires in San Diego/Los Angeles/Orange/San Bernadino/Santa Barbara/Ventura County?

What I can do, is point out to you that it is important to review and understand your policy. It’s important to work with an insurance provider who is reputable and reliable. If you need a referral to one, please email me.

And I can also teach you some highly effective mortgage strategies that help you take control of your financial profile, build liquidity and safety, and rest easy at night.

Nobody expects disaster to happen to them. But if it does, and you have a fight on your hands with the insurance company, it can take YEARS to settle, or be indemnified. Regardless of the outcome, where are you going to live while the fight goes on – and how are you going to pay for it when the insurance company is denying your claim?

Here’s another example: Senator Trent Lott has been down this road related to Hurricane Katrina devastation to a home he owned free and clear.

What Happens When Savings Is Already Negative, And Then Credit Shrivels Up?


You cut spending, or cash in assets. Or you steal.

I have to give credit to Paul Kasriel, who has been beating this drum for months – or years. He has done several walk-through essays, loaded with charts and visuals, which basically show the following:

We spend more than we earn. (negative savings rate – or very close to it, depending on when you look).

This is possible because we have been liquidating our home’s equity via Lines of Credit (HELOC).

Now that home values are falling, we are losing the equity before we can spend it.

Furthermore, banks are less likely to allow access to equity, even if it is there.

Bottom line: we have to cut back, sell other assets, or steal to keep things going. So if we have not yet cut spending, we are still living off of increased borrowing, or we are liquidating other savings. None of these are good trends for the long-term. This is why our economy is due for a slowdown, recession, etc. We’ve been on an unsustainable path. Check out some of his recent write-ups. Including the most recent one, which is a re-issue of a 2005 essay.

Six Proven Strategies For Managing Your Wealth Wisely

I don’t think there is anything ground-breaking or new here, but this “special report” from the Wealth Management Exchange is the kind of reference that is helpful to read when thinking of your own financial planning or especially when looking for help from a professional. Its general, but comprehensive, and worth a read. If you are not working with a financial planner, or are looking for a new one, contact me for a referral.

Mortgage Relief Act HR 3648 Update From CMPS


Update # 1 – Mortgage Relief Passed by Congress & Signed Into Law by the President!

On Thursday, December 20th, President Bush signed into law a bill passed by Congress: HR 3648 –Mortgage Forgiveness Debt Relief Act of 2007. The three major points are:

· Elimination of the “phantom tax” on foreclosures, short sales or other discharges of debt on a primary residence. Consider this scenario: A property is worth $250,000, and the mortgage balance is $300,000. Under the old rules, if a lender forgave the $50k difference as part of a foreclosure, short sale, refinance or loan modification, the borrower had to claim the $50k as income and pay federal income taxes on that amount. The new law eliminates this “phantom tax”, and the forgiven debt is no longer treated as taxable income to the borrower as long as certain requirements are met, such as the discharged mortgage balance must be on the taxpayer’s principal residence.

· The tax deduction for mortgage insurance premiums is now extended until December 31, 2010 instead of expiring at the end of 2007. The same rules apply as before in terms of the income limitations etc.

· The capital gains exclusion is now $500,000 instead of $250,000 for an unmarried individual who sells their primary residence within 2 years of the time their spouse has died. This new guideline applies to sales after December 31, 2007, and provides relief for widows and widowers by giving them a 2 year window from the time their spouse has died to sell their home and receive the $500,000 exclusion. Of course, the same rules apply as before, where the individual(s) need to have lived in the home as their primary residence for 2 out of the last 5 years.

You can read the full version of the bill by visiting the THOMAS Library of Congress web site and searching for HR 3648. Version # 6 (the enrolled / ENR version) is the final version that was passed by both the House and Senate.

Update # 2 – AMT Relief Passed by Congress

After much drama and a few rounds of chicken between the House and Senate, Congress FINALLY passed AMT relief on Wednesday, December 19. The President has indicated a strong willingness to sign this bill into law, and it is currently awaiting his signature. Under this one year patch, approx. 20 million taxpayers have escaped the clutches of the AMT. However, approx. 3.5 million taxpayers are still expected to be subject to the AMT.

If you have questions related to any of these updates, consult with your tax advisor or contact me for more info.

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*** Posted with help from CMPS Institute