As seen and published in:http://www.associatedcontent.com/article/898327/a_guide_to_recessionary_success.html?cat=3
As the economy continues to struggle, I want to take a few moments to give you perspective from my professional standpoint.
We are currently amidst one of the largest banking crises since the Great Depression of the 1929 era. As a result of that time period, the government sponsored two banking entities that would be used for times of crises, and they are known as Fannie Mae and Freddie Mac. However, to confirm our troubled times, even Fannie Mae and Freddie Mac are on the brink of collapse. They are currently in need a government bailout. To assert even more truth of our times, IndyMac Bank, the #2 mortgage lender behind Countrywide, recently collapsed. Many (over 10,000) lost hundreds of thousands of dollars due to the $100,000 FDIC limit to be insured. Washington Mutual, the largest savings and deposit institution is also in trouble, with its stock value down significantly compared to previous value. Wachovia’s wholesale mortgage is coming to an end as well and it has all but abolished its exotic loan products, which were at one point its own unique product. Bank of America’s revenue was announced to have dropped 42% from this time last year. If you see a pattern forming, you are right. Banking is in trouble. That means our money system may be in trouble.
American Express, one of the largest and most successful credit card companies in the world, has recently reported losses of 40% compared to this time last year. American Express noted a rise in delinquencies with card holders. Google’s profits also fell short of analysts’ expectations. In short, we are going through a massive economic slowdown and a potential recessionary period.
What can you expect in the future? Who knows, really.
But there some certainties we can all agree upon.
First of all, oil prices will not come down anytime soon. This is a multi-faceted issue dealing with supply and demand, our currency valuation and degradation, political affairs affecting oil, our current administration’s outlook and solution to the problem, as well as corporate interest in maintaining oil as our primary source of energy mostly for profit. Aside from everything else, the cost of oil is grossly affected by the low value of the dollar; in a perfect world, where our dollar had a good value comparable to other currencies, oil would be about $60 to $70 per barrel. This drop in price will not happen anytime soon.
Secondly we can agree that consumer debt will remain the same, or possibly increase, since income has not increased in proportion to the cost of living. Subsequently, more and more Americans will continue to sustain their lifestyles with debt. It is quite noticeable that more and more commercials for credit help and credit consolidation are trumping on our television screens? Between American Idol and Boston Legal, it is almost predictable to expect one or two credit repair or credit consolidation commercials. Well, those commercials cost money. So these companies have recently seen an astronomical increase in business.
Thirdly, we can be certain that Americans’ savings are not going up in proportion to goals for retirement. Savings has a parallel relationship with income. The fact that income has not gone up in proportion with the cost of living means more and more Americans are not adequately saving for long-term goals, such as retirement. Due to this, either one of two things will occur: Americans will work longer into their supposed-retirement era OR Americans will retire with much discomfort than originally planned.
This is a very volatile time. With unemployment rates up, inflation up, and everything else mentioned above, I have a few suggestions. My advice is to pay off consumer debt (as much as possible), limit luxury expenses, seek increases in income by proactively being more of an asset in your work environment, and ultimately save more than you ever have. Saving is vital. There will be opportunities to buy assets and equity positions in the coming months/years, and you must be liquid to do so since credit is very tight. For example, real estate prices will be at a very low level. You will want to purchase solid real estate investments and will thank yourself ten years from now. This will include residential as well as commercial property. The same will follow for strong company shares in the stock market. You may want to buy index values in the S&P 500 and such, due to their overall low price levels compared to company valuation. However, only being liquid will allow you to do so. And if you do invest in the coming months/years, you will be very happy with the end result.
From a mortgage standpoint, you may want to get into an Interest Only ARM fixed for a good five to ten years. Paying off a mortgage may not be a priority in a time where savings are so low for most Americans. So pay interest only and save the rest or invest it in interest-earning accounts, to ward off inflation and increase liquidity. We may be entering a recession and controlling these two variables is important.
Also, as you know, money sitting around actually loses value over time due to inflation. More money printed by the Fed and distributed/injected into our economy makes the dollars you and I have in our wallets worth a bit less than they were before that injection. So in order to simply counteract inflation, you need to have your money appreciating at a level of about 4-7% annually simply to come out even.
Additionally, from a mortgage standpoint, you may want to refinance now rather than later. With the turmoil escalating more each day, qualifying for a mortgage will be tougher next week than it is today, tougher next year than it is this year, etc. Banks do not even have the liquidity to lend in some cases; this holds true in IndyMac’s case, where the Fed actually shut them down. We see remnants of that reality with the Government Sponsored Entities Fannie Mae and Freddie Mac as well; if you were to liquidate their assets versus their debts, they would be negative. So in short, Fannie and Freddie are in trouble—as are most lenders. If these big lenders are in trouble, where will you be able to get a loan from? That is the rationale you should use in evaluating your current finances and assessing the single largest debt/asset in your life (your home). Remember that Fannie and Freddie are entities formed for times of crises. If they are troubled during crises, then what happens?
Simply put: save, save, and save. Invest when the opportunity arises. And don’t sweat it too much; downturns in the economy are necessary.
This is simply my opinion and is made for your reading experience.
Cheers.
Cyrus KhadiviManaging Partner
Freedom Lending Group, Inc.www.freedomLG.com
Copyright 2008 Cyrus Khadivi. All rights reserved.
We have great news that is directly related to our housing market and overall economy. As you may know, George W. Bush signed into legislation a new provision for conforming and jumbo limits on February 13th, 2008. Prior to this, any mortgage above $417,000 was considered a jumbo loan and could not be sold off and securitized to and by Fannie Mae and Freddie Mac (the two government sponsored entities who buy and insure loans). As a result, all jumbo loans USED to be told to investors (overseas, Wall Street, etc. etc.) with higher rates associated since investors classified them as "riskier" loans.
However, as of this evening, Fannie Mae, Freddie Mac, and HUD (Department of Housing and Urban Development) announced that the new loan sizes have been carved into stone. This means that in most counties of high cost states, such as California and New York, the loan amounts have been increased to fit into the box of conforming loans. So instead of $417,000, the new loan size in most California counties, such as San Diego, San Mateo, Santa Clara, and so on, is $729,750. This will help a LOT of individuals who need a lower rate for affordability purposes, but have a jumbo loan prohibiting them from capturing a good rate.
What we will see is a lot of improvement in the housing sector as a result of this. Also, the stock market will most likely rise in a lot of movement and activity with an increase in consumer confidence. I am speculating that the FED may even decide to monopolize on this announcement in the loan size increase by cutting rates.
Here is an article directly sent to me by a banking representative that will elaborate more on the topic.
FHA Releases New Mortgage Limits for California Counties
FHA Max Limits Include 14 CA Counties
* FHA Press Release *
WASHINGTON - Tens of thousands of California families could be eligible this year to purchase or refinance their homes using affordable, government-backed mortgages, thanks to the economic growth package signed into law by President Bush. The Economic Stimulus Act of 2008 will allow HUD's Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country. "The Bush Administration is expanding the pool of eligible borrowers, enabling more American families to qualify for safe, affordable FHA-insured mortgage loans. These temporarily higher loan limits are a shot in the arm for communities trying to sustain property values, bringing much-needed liquidity to the mortgage market, while helping many current homeowners who desperately need to refinance," said HUD Secretary Alphonso Jackson at a forum on how to prevent foreclosure at the Operation Hope Center in Los Angeles and a Hope Now Alliance event in Anaheim.Beginning tomorrow, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750. Overall, the change in loan limits will help provide economic stability to America 's communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative. The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as: Los Angeles County , San Francisco County , Orange County , and Santa Barbara County . Previously, FHA's loan limits in these very high-cost areas were capped at $362,790.The Economic Stimulus Act of 2008 permits FHA to insure loans on amounts up to 125 percent of the area median house price, when that amount is between the national minimum ($271,050) and maximum ($729,750). The new minimum and maximum loan limits are based on 65 percent and 175 percent of the conforming loan limits for Government-Sponsored Enterprises in 2008, which is $417,000. The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area. The change in loan limits are applicable to all FHA-insured mortgage loans endorsed after HUD publishes the increased loan limits tomorrow, and it lasts until December 31, 2008 . By increasing loan limits nationwide, FHA will provide much needed liquidity and stability to housing markets across the country. Already, as conventional sources of mortgage credit have been contracting, FHA has been filling the void. From September to December 2007, FHA facilitated more than $38 billion of much-needed mortgage activity in the housing market, more than $15 billion of which was through FHASecure, FHA's refinancing product. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates."This is not an easy crisis to address, and there is no silver-bullet, but I know that we can help hundreds of thousands of people keep their homes, and we can calm the waters," said Jackson .In January 2009, FHA's maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill. "In January 2009 the loan limits will return to their previous setting," Jackson said. "That is why we need to permanently raise the loan limits to an acceptable level that more accurately reflect housing prices nationwide. We also need to make the minimum down payment more flexible and create a fairer insurance premium structure. This will allow more families to use FHA." FHA loan limits are based on the county in which the property is located. However, for properties located in metropolitan or micropolitan statistical areas, the limit is set at that of the county with the highest limit within the metropolitan or micropolitan area. The new temporary FHA loan limits for California are attached below. The full text of the Secretary's remarks can be found on the HUD website.
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HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov. For more information about FHA products, please visit www.fha.gov.
California County LimitsObs prop_addr_st county_nm med_price FHA_1unit185 CA Alameda County 995000 729750 - MAX186 CA Alpine County 438000 547500187 CA Amador County 355000 443750188 CA Butte County 320000 400000189 CA Calaveras County 370000 462500190 CA Colusa County 318000 397500191 CA Contra Costa County 995000 729750 - MAX192 CA Del Norte County 249000 311250193 CA El Dorado County 464000 580000194 CA Fresno County 305000 381250195 CA Glenn County 230000 287500196 CA Humboldt County 315000 393750197 CA Imperial County 260000 325000198 CA Inyo County 350000 437500199 CA Kern County 295000 368750200 CA Kings County 260000 325000201 CA Lake County 321000 401250202 CA Lassen County 200000 271050203 CA Los Angeles County 710000 729750 - MAX204 CA Madera County 340000 425000205 CA Marin County 995000 729750 - MAX206 CA Mariposa County 330000 412500207 CA Mendocino County 410000 512500208 CA Merced County 378000 472500209 CA Modoc County 125000 271050210 CA Mono County 370000 462500211 CA Monterey County 599000 729750 - MAX212 CA Napa County 615000 729750 - MAX213 CA Nevada County 450000 562500214 CA Orange County 710000 729750 - MAX215 CA Placer County 464000 580000216 CA Plumas County 328000 410000217 CA Riverside County 400000 500000218 CA Sacramento County 464000 580000219 CA San Benito County 790000 729750 - MAX220 CA San Bernardino County 400000 500000221 CA San Diego County 558000 697500222 CA San Francisco County 995000 729750 - MAX223 CA San Joaquin County 391000 488750224 CA San Luis Obispo County 550000 687500225 CA San Mateo County 995000 729750 - MAX226 CA Santa Barbara County 615000 729750 - MAX227 CA Santa Clara County 790000 729750 - MAX228 CA Santa Cruz County 719000 729750 - MAX229 CA Shasta County 339000 423750230 CA Sierra County 228000 285000231 CA Siskiyou County 235000 293750232 CA Solano County 446000 557500233 CA Sonoma County 530000 662500234 CA Stanislaus County 339000 423750235 CA Sutter County 340000 425000236 CA Tehama County 250000 312500237 CA Trinity County 200000 271050238 CA Tulare County 260000 325000239 CA Tuolumne County 350000 437500240 CA Ventura County 599000 729750 - MAX241 CA Yolo County 464000 580000242 CA Yuba County 340000 425000
Cyrus Khadivi
Managing Partner
Freedom Lending Group
www.freedomLG.com
Toll Free: (888)-437-0788
As seen and published in:http://www.associatedcontent.com/article/634731/30year_mortgage_demystified_an_opinion.html
30-Year Mortgage Demystified:
An Opinion on America’s Single Largest Debt and Asset
For a lot of Americans in 2008, a paradigm shift occurred with institutional finances. As the mortgage meltdown and the real estate crisis continued from 2007 and has bled into 2008, a lot of Americans, who had previously been working long weeks and long hours merely to be good borrowers in the eyes of the big banks, have simply let go. They not only let go of their mortgage payments, which at times doubled and tripled almost instantaneously, but these Americans let go of the notion that their homes were assets.
Through these times of change, we have witnessed big banking at its best. We have witnessed how much your bank really does care for you. Only until George W. Bush passed legislation to do so, did banks begin to reach out to delinquent homeowners. Shocking right? Another realization, which will be important long after this crisis is over, is the fact that the 30-year mortgage is an outdated and obsolete financial tool. In fact, the 30-year mortgage is the most common, the most revered, and the most advertised for one simple reason: it is the most profitable loan for the big banks.
Simply put, the 30-year mortgage is a guaranteed and secure mortgage not only for the homeowner. It is a guaranteed and secure investment for the banks. What would you think if you could go out and obtain an investment that would yield you 6% for the next 30 years? What if you knew how to invest that 6% return and, while using compounded interest as banks do, make it grow to 12% or 15% or 20% in returns? Would you also lend an initial amount to get that 6% return, only to invest that 6% and make it equal to 12%, 15%, or 20%? Well, big banks have realized this concept and have been utilizing compounded interest, hedging, and investing since the inception of big banking in the United States.
A 30-year mortgage is by design a stable, secure, and guaranteed investment for the bank—not you. Here is why…
Our prime example will be based on a $300,000 loan amount you will borrow for a home mortgage at a fair and fixed interest rate of 6%, paying down both principle and interest over 30 years.
As I hope, you should see by now that the mortgage should by design be a financial vehicle used to drive and further wealth accumulation and your net worth. It should actually be an asset, and not simply a debt, a burden. If you are working for your home and your mortgage, you should consider having your home and mortgage work for you, just like your money should be working for you. Careful, strategic, and proper mortgage planning is the fundamental escape from the traditional mode of thinking that glorifies and adores the 30-year fixed debt. Begin investing in the Bank of You today.
As seen and published in:http://www.realtown.com/ckhadivi/blog/marketinsight1
2008:
The Year Of The Appropriate Mortgage -
A Closer Look
As I last wrote, 2008 is a new year with lots of new resolutions on the horizon. Aside from the personal goals we have all set individually, our government and economic ambassadors have hefty goals to meet as well.
For one, they must salvage and continue to save our economy. Some believe we are already in a recession, with a faltering stock market, a nervous Wall Street, anxious investors overseas, unhealthy unemployment figures, and the obvious housing market.
Be joyous though, friends. There is good news on the horizon. Our government is stepping in (probably with a nudge or two from our ever-so powerful overseas investors). Short-term interest rates look to be cut again by the end of this month, if not earlier. This is will be a very good attempt at stirring up the economy. Consumption is down, while default on debts is up. Most creditors and banks are reporting losses never fathomed. So with the interest rate cut, those with the capacity and the ability to invest will presumably do so. Those with money, high credit, and strong institutional assets will be the investor vultures we have all been reading articles on, buying undervalued properties at 40-70 cents on the dollar.
This leads me to my next point. I have always emphasized the proper mortgage planning for every individual ever come into contact with. I prescribe to a theory that a mortgage is not a debt; a mortgage is an asset. If properly planned, created, and utilized, a mortgage can be one of the strongest financial vehicles. It is one of the last solid American tax write-offs. But aside from that, it is an opportunity to create wealth, control equity, and utilize money that someone has lent in good faith.
2008 will be a great year and will be a year that the real estate/investor market will balance itself out. Those who should never have been investing will slowly be washed out, while those who have been smart with finances will propel higher. I have noticed one thing with most investors who are wealthy: they have a pattern of highly leveraged properties and mortgages. Most investors I have studied and come into contact with do not ever really pay off a mortgage--atleast not as a first priority. They simply utilize a mortgage and equity accumulation, while using equity repositioning tactics, to acquire and build new equity.
The history of our fears of a mortgage go back in time.
In the 1920's, during the time leading up to and after the Great Depression, a common clause in loan agreements gave banks the right to demand full repayment of the loan balance at any given moment should they elect the option. Since this was a bit outlandish and unrealistic, no one really thought twice about it. However, when the actual collapse in the economy did occur, millions of investors lost tremendous amounts of money. A stock that was valued at $15 two weeks earlier could now be bought for $1—if that. These investors who were losing money left and right ran to the banks to pull out any money they had to cover their loses. Only after a short run, the banks began to naturally run out of money. As a result, these banks began to demand full repayment of loans from their ever-so loyal borrowers, who were making monthly payments religiously. Subsequently, most homeowners lost their homes, most banks went belly-up, and an American ideology was born: always own your home outright. Do away with that mortgage!
This new ideology was born and had some logic behind it. The logic was that if the economy were to collapse, if stocks were to come crumbling down, if money were to hold no weight whatsoever, you can atleast own your home free and clear. The bank would no longer be able to take your own home from under your family's feet. Even if you could not put food on your plates or could not pay the water bill, you atleast had your home paid off free and clear.
No wonder mortgages have become a target of hate. It made some sense. However, times have changed. The laws have changed and banks can no longer simply demand the loan to be paid in full at any given time. The Fed now funnels money through our economy and gauges our economy's health. Yet we can see how this outdated way of thinking made sense.
However, for most Americans in this day and age, paying off a mortgage is not realistic. Most Americans will refinance every 18 months to 48 months (Fannie Mae: 4.2 years on average). So being in a 30-year Principle and Interest mortgage is a bit contradictory. While being able to use a lower fixed rate in most cases, why not use the lower payment granted by an Interest Only loan? All the while if it is possible to save money by paying Interest Only, why not invest the difference in interest gaining accounts, such as an IRA account, SEP account, mutual funds, stocks, commodities, bonds, etc?
I hope 2008 will be the year that we all realize (through this recent downfall in real estate) that a mortgage is not simply a debt that should be paid every month. It should be an asset used to invest and accumulate wealth. A lot of Americans have or will unfortunately lose their homes in 2007-2008. So I ask: what has your home/mortgage done for you lately?
As seen and published in: http://www.associatedcontent.com/article/578895/2008_lending_practices_in_review.html
Lending Practices in Review
For quite a while now, I have been writing articles regarding the mortgage and real estate industry. Just recently I decided to publish them, superseding the apprehension that I may spark controversy with my realistic and unbiased views on the industry and the big players in the sector. As a caveat to this article: this is my honest and humble opinion; this is not to be taken as a factual statement, and is being protected by the right to free thinking and right to exercise free speech and press in any form, be it verbal, written, or via internet.
I have always harped on the fact the big players, such as Countrywide, have always done business the wrong way and have ultimately led us to the turmoil we are in now. Why so? Good question. Well, to point out a few interesting facts:
1. Big players originated the business of selling mortgages, on a grand scale, to Wall Street and other investors. You see, the lending industry began with the concept that you walk into your bank, they know you, you know them, they like you, you like them. Based on the relationship they would lend money. They did so because it was a personal and caring relationship. However, this all changed when the fork in the road was presented. The big players decided to take the road not quite traveled. Subsequently, the lending industry transformed from serving the clients’ best interest to serving the lenders’ best interest, who now sells mortgages. These big players began selling mortgages wrapped up in pools to investors overseas, who simply believed the high rate of return on these pools of money (hence the concept of global market). This leads to my next point.
2. Big players do not truly give clients the best product on the market. You see, Big players, are in the business of making lots of money. Obviously, everyone is in the business of making money. However, the nice high-rise office, and the company-expensed corporate functions, the commercials with the nice man who mentions “no-cost loans,” and the executive Ferraris lined up in the parking lot…who pays for them? Ultimately, the client pays for them. This occurs in the form of higher margins and profits which the clients/borrowers will acquire on their financed money. This leads to my next point.
3. Big players qualify clients at a rate that is higher than the clients originally qualify for. Let’s use an example based on John Doe (fictitious name) and C-Wide (fictitious name). John Doe has the option to work with an independent broker/independent banker and also the option to work with a big player named C-Wide. Independent broker/independent banker does not lend his own money, and if he/she does, it is funded by an investor. C-Wide lends its own money, in order to sell it off on the secondary market (also known as Wall Street). Independent broker/independent banker, since not necessarily lending his own/her own money, can really keep John Doe’s best interest in mind and look for/capture the best and lowest rate on the market, be it through his own funds or other investor funds. C-Wide initially lends the money and in hopes of selling for a profit, will raise the margin to make it profitable for itself (seller) and the secondary market (buyer). So, independent broker/independent banker finds a source of funds that can deliver a 5% to the client. C-Wide can deliver the same 5%, but since there has to be a profit margin (remember the high-rise office, commercial with the nice man, and Ferraris), C-Wide will raise the 5% to a new 6%. At the end, if the client goes with C-Wide, he/she will have paid more in overall interest than he/she could have captured with independent broker/independent banker. This leads to my next point.
4. Clients often mention: well you are not my bank. Great point! But I ask: what has your bank done for you lately, other than give you a higher rate, sell your loan, and use your payment to finance the high-rise office, commercial with the nice man, and Ferraris? Good question, right?
Readers, the simple point here is that the concept of banking is much distorted in America. During this time of recession, ask yourself who the most profitable businesses are. You may answer: the oil industry, tobacco industry, pharmaceutical industry, and banking industry. What do they all have in common? When I think about it, thoughts of monopoly, manipulation, greed, and corruption all come to mind. Whose best interest is really kept as the number one priority?
Wouldn’t you expect an industry that promotes the notion of homeownership for all Americans to have your best interest in mind? Well, since it does not, you should work with an advisor and a company that does have your best interest in mind. And remember, just like anything else in life, if it sounds too good to be true (e.g. “a no-cost loan”), it probably is!
As seen and published in: http://www.associatedcontent.com/article/544509/2008_the_year_of_the_appropriate_mortgage.html
The Year of The Appropriate Mortgage
As we start this new year, resolutions will be made while only some will be achieved and upheld. Some will tackle personal goals, while some will address physical aspirations. Most Americans may choose to address financial resolutions, in hopes of furthering financial success and growth.From my humble experience, I have come to realize a world of neglect in an abundance of Americans' mortgage planning. You see, I encounter homeowners, investors, and clients each and every single day. As I review each case, and sometimes do preliminary underwriting on some, I realize that most do not realize the importance of a mortgage in the overall schematics of financial success and overall wealth accumulation.For most Americans, a mortgage is seen as a burden, a debt that must simply be paid every month and eventually, after a good 30 years, it will be lifted off the balance books. However, the unfortunate occurrence I have noticed is that while most Americans religiously focus on working long nights and full weeks simply to pay the hefty mortgage payment, they forget to simply invest in themselves. Most simply invest into the bank collecting the payment.You see, our banking system is one of the largest, if not THE largest, businesses in this country--if not the world. Banks have mastered the art of (first) lending, then collecting, and then investing what they are collecting, which will yield in accumulating interest and wealth. Banks are one of most profitable platforms in our economy. Most wonder why. One example, Bank A lends at 6.5%, collects this payment, utilizes compounded interest, all the while invests that same 6.5% to double, if not triple, if not quadruple, etc. to yield lots and lots of profits. How else can players such as Citi and B of A write off billions in bad debt, while still being profitable businesses?
Sadly enough, most Americans still have not realized that they can too invest in their own bank. I call this the Bank of Me. For the sake of relevance, we will use a recent client of mine by the name of Lilian. Lilian has been self-employed for the past 14 years. Lilian has a 760 fico score, which represents very strong repayment capacity. However, Lilian, now at the age of 58, only has $12,000 in her combined checking and saving account. She has an investment account with Morgan Stanley valued at $60,000. Lilian has been paying her mortgage payment religiously for the past 8 years (since she last refinanced it). Her balance is $680,000. Although Lilian and I realize she will never pay her mortgage to a zero balance, she still prefers a Principle and Interest mortgage, because she likes the concept of "paying the balance down." I have advised Lilian to utilize an Interest-Only mortgage, since it will save her $560 per month, which equates over $6,000 per year. With $6,000 per year in straight savings, Lilian can begin investing, and at a capitalized interest rate of 7.5%, Lilian will begin to see the same type of yield a bank sees if she invests properly. But like Lilian, most Americans neglect to invest in the Bank of Me, and allow their banks to capitalize on the simple investing strategy.This type of thinking is against most Americans' comfort zone. The irony, however, exists in the fact that most Americans will work a lifetime just to pay off a mortgage, all the while neglecting to invest in the Bank of ME. After 30 years and a mortgage balance of zero, a realization is made that no money has been invested in other financial vehicles. So what happens next? The phenomenon known as a REVERSE MORTGAGE. The very thing that has been religiously paid down for 360 months (assuming consistent payments on a 30 year mortgage) will claim the very money that could have been diverted into other financial vehicles.In 2008, with the evolution of technology and efficient dissemination of thoughts and knowledge, I hope more Americans learn to break the cycle of poor investing. I hope 2008 brings more good fortune and financial success to the average American, rather than simply big business, corporations, and Wall Street. Our society, government, and general understandings/influences advocate, almost subconsciously in some forms, that home ownership is a necessity. However, with that, no where is it suggested to invest and utilize the same strategies our big banks deploy. With this comes a lack of understanding of how vital the proper mortgage planning is to an individuals and a family's financial security, success, and overall health. The wealthy become wealthy by using strategies the banks utilize; why not you?!That is why it is crucial to utilize proper mortgage planning. A loan is a loan. Mortgage planning, however, can be a very precise, strategic, and powerful resource. Make 2008 the year you utilize the same tactics banks do; begin investing in the bank of YOU!
As seen and published in:http://localism.com/article/355092/HR-3915-Its-Passing-and-the
Market Update
by
HR 3915: Its Passing and The Message Conveyed
We all know our economy has drastically been affected by the mortgage turmoil and the deterioration of credit. So naturally, everyone wants to suggest cures to the ill that has plagued not only the U.S. economy but a global economy.
Some solutions have been very sound and reasonable. Some have been absolutely ridiculous. It seems the ones that are most reasonable usually come from the unsuspecting normal citizen; the ones that are most outlandish stem from those who have a bias, or their hand in the pot at the end of the mortgage rainbow.
For instance, one good and reasonable solution came from a economic student turned mortgage broker (honest/ethical). His suggestion was to simply freeze all adjustable rate mortgages. This is a very simple yet sound suggestion. We could simlpy pass legislation that suggests and enfores a freeze on all adjustable rate mortgages set to adjust in the future. The ones that have already adjusted could and would and should be re-evaluated by the former lender to save the homeowner's home. This would actually be an effective remedy for a few reasons. For one, it would preserve someone's home. The shelter a consumer uses would be retained. For government purposes and enjoyment, taxes could still be paid. Lenders would still collect the money due per month. This, again, came from a simple young man who actually studied economics.
The other end of the spectrum comes from government officials, who are obviously receiving motivation from the big banks. Motivation can come in many forms: lunch, career advances, cars, vacations, boats, and the oh-so friendly green dollar. We must admit that the banks of this country are one of the largest, if not THE largest, economic bullies. They profit massive amounts every single minute, day, week, month, year. They have the power to do what they want; they can even produce, print, distribute, and control money. What a concept, right? Well, these big banks have lots of power and influence to motivate legislators and government officials. So what does someone who is biased suggest as a cure for this economic ill?
They suggest a bill coined HR 3915. It as a whole does not make much sense. It seems like a lot of jargon that is against predatory lending and against the incentive of over-charging consumers with mortgages. However, this is a bill that is set to only affect mortgage brokers and not banks, such as the oh-so ethical and honest Countrywide. So while the broker will no longer be able to receive a yield-spread premium from a loan and be able to give a client a cheaper loan upfront (potentially), big banks such as Countrywide can continue to operate with high rate loans with no result from HR 3915. Why?
Well, Countrywide is a big operation. Imagine: the large offices with premium coffee has to be paid for by someone. Who? The consumer! The borrower! So while a borrower may truly qualify for a loan at 6% with Countrywide, he or she will really get a 7.5% and Countrywide will get the yield spread premium with no problem whatsoever since HR 3915 only affects mortgage brokers.
Now, I am not complaining. This may actually clean up the industry and cleanse those loan officers who were gauging poor borrowers by sticking them in high-risk and volatile loans with huge prepayment penalties. It may rid the industry of those who were never really qualified to handle one of the largest debts of an average citizen; it may even bring back integrity and quality back to this industry. I actually have no problem with it for that reason. I myself have always gravitated to giving a borrower the BEST and lowest rate they qualify for with no yield spread premium. I prefer to do that and simply charge a cost for it, still giving someone the best possible product available.
But my ultimate problem is with this proposed solution. It is NOT going to fix things. The fix is so much bigger, and has to come from the top. As of now, it will only fix the ones at the bottom of the trickle. Imagine a waterfall with the banks and government at the top; now imagine, at the bottom exists mortgage brokers, appraisers, agents, etc. The cure must occur at the top. The guys at the top will continuously change things to only keep profits to themselves while deterring competition and a true level playing field. That is what this bill will do. Will the banks be governed or controlled? No. Will the little guys at the bottom? Definitely. Will it do much good? Not really.
If these high risk loans and programs were not so profitable for the banks and ultimately the government, who now could offer home ownership for every American out there (ability to afford it or not), they would have never been existent. However, the government and big banks knew how risky they were all along; no one is that oblivious. Allen Greenspan even announced in a Fed Meeting to the American public that adjustable rate mortgages actually made sense for a lot of Americans. Why? Because there was probably some motivation.
My point people is that change must occur within the system, and the corruption must be radified. There must be an internal cleansing at the top of the totem pole, which is headed by the big banks and government. We are only creating a short term fix by proposing these bills. They will only steer the dirty loans to another avenue (e.g. FHA) and really not change the big picture of monopoly, corruption, and economic turmoil.
This is my humble opinion. Until next time, have an excellent day and God Bless!
Freedom Lending Group, Inc.http://www.freedomlg.com
The Last Honest Mortgage Company.
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