From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: http://www.cnnmoney.com/
Mortgage-market revival: Try, try again
The feds are trying to stimulate housing activity, but two earlier efforts show success won't come easy.
By Colin Barr, senior writer
Last Updated: November 25, 2008: 3:40 PM ET
NEW YORK (Fortune) -- The feds are trying once more to resuscitate the mortgage market. But history shows reviving this patient won't be easy.
The Federal Reserve said Tuesday morning it would spend $600 billion in coming quarters to buy the bonds and mortgage-backed securities issued or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). The move, the Fed said, aims "to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally."
The market reacted positively to the announcement, with the spreads between the yields on agency bonds and similar-duration Treasury securities narrowing. Lower spreads translate to lower mortgage rates, which bring down the cost of buying houses. That generally leads to more house sales - a top priority for officials who want to slow the decline in house prices that is soaking financial-sector balance sheets with losses.
The decision to buy agency debt and mortgage-backed securities shows policymakers are "looking to drive mortgage rates down," says Bill Larkin, a fixed-income portfolio manager at investment adviser Cabot Money Management in Salem, Mass. "They need to get them close to 5% if they want to get the housing markets going again."
That will take some doing, though. The rate on a 30-year fixed mortgage was around 6% Monday, before rates fell Tuesday on word of the Fed plan. The lowest rate on record since the St. Louis Fed started tracking conventional 30-year mortgage rates was the 5.23% reached in June 2003, in the midst of the housing bubble that inflated earlier this decade.
Larkin says the government will need to bring the rate down into that range to create demand for mortgage refinancing, and to get current homeowners who'd like more room or a better location to think about making a change. Larkin notes that homeowners who took advantage of the last refinancing opportunity in January, when rates on a 30-year fixed mortgage dropped briefly to around 5.5%, won't be tempted to refinance again - thereby incurring additional fees and in many cases having their houses assessed at lower values - till rates go substantially lower.
If at first you don't succeed...
Still, government officials clearly view reducing mortgage rates and bolstering house sales and refinancing activity as one of their few good options in the midst of financial sector meltdown. Treasury Secretary Henry Paulson has tried at least twice this year to bring down mortgage rates, by seeking to ease market fears about the health of the main conduits for U.S. mortgage financing, Fannie Mae and Freddie Mac.
In July, as mortgage rates soared, Paulson announced a plan for the government to provide backup financing for the companies, whose publicly traded shares had come under attack amid questions about the adequacy of their capital. That move initially brought mortgage rates down and narrowed the spread between agency bonds and Treasurys, but the 30-year mortgage rate remained stubbornly above 6%.
In September, Paulson put the companies into conservatorship, citing a need to clarify the companies' role in the economy and their relationship to the government. "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system," he said Sept. 7, "that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
That move - which was accompanied by the announcement of a federal plan to buy mortgage-backed securities similar to today's announcement - led to a deeper decline in mortgage rates than had July's move. The 30-year fixed rate tracked by the St. Louis Fed fell to 5.78% on Sept. 18 from 6.35% the week before the nationalization.
But the collapse of Lehman Brothers, the near implosion of AIG and the plunge of world stock markets this fall resulted in a new flight to the liquidity of Treasury bonds that widened agency spreads and pushed mortgage rates back up over 6%, where they have largely been since then.
That's partly because the government hasn't been able to devote much firepower to buying mortgages, what with the crisis-a-day schedule of recent months. And it's partly because the investors who once were avid buyers of agency bonds have fled for the greater safety and liquidity of Treasury bonds.
Brad Setser, an economist at the Council of Foreign Relations, says that in the third quarter, China bought $81 billion of Treasurys and sold $16 billion of agencies. Just a quarter earlier, China was buying more agencies than Treasurys, Setser writes at his blog. Larkin says questions about the liquidity in the markets for agency bonds continue to push investors toward Treasurys, which give holders the security of knowing they can sell without a hitch at any moment.
New mark of quality for bond market
One other question mark comes from this week's debut of the Federal Deposit Insurance Corp. corporate-bond loan-guarantee program. Goldman Sachs (GS, Fortune 500) issued $5 billion worth of bonds Tuesday under the plan. Larkin calls those bonds "interesting," and says he believes the FDIC label could emerge as the new mark of quality in the bond market, what with the ratings issued by agencies like S&P and Moody's largely discredited.
But if the FDIC plan works and issuers like Goldman and Morgan Stanley (MS, Fortune 500) come quickly to market with billions of dollars in new issues, it could draw some investor demand away from the agencies, counteracting some of the gains from federal purchases of Fannie and Freddie securities.
And Edward Gainor, a lawyer at McKee Nelson in Washington, notes that the Fed approach to the mortgage-backed securities market neglects the most troubled part of that market - the one for bonds not backed by Fannie and Freddie, some of which continue to weigh on financial institutions' balance sheets.
"The non-agency MBS market is not functioning," he says, "and no program has yet been announced that will stimulate that market."
Wednesday, November 26, 2008
Tuesday, November 25, 2008
FED to Jumpstart Lending
Fed bets $800 billion on consumers
Central bank and Treasury announce a massive plan to jumpstart lending.
NEW YORK (CNNMoney.com) -- The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.
The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.
One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.
The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.
In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.
Together, the programs from the Federal Reserve and the New York Fed are more than Congress approved in October for a bailout of the nation's banks and Wall Street firms. The Fed said the money will come from an increase in its reserves -- in essence, it is creating new money.
The idea is that by making money available for investors who are interested in buying loans bundled together into securities, it will be easier and more profitable for banks to loan money to consumers and small businesses.
Before the current credit crisis, lenders got the money they needed to extend credit by selling the loans they had already made. But the Treasury Department said the issuance of those securities essentially came to a halt in October.
"This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy," said Treasury Secretary Henry Paulson at a press conference.
Still, previous efforts to pump money directly into financial institutions have done relatively little to expand credit available for consumers, and some economists said it was not immediately clear if this money would flow through to households as planned.
"It's certainly not directly going to go through to the consumers. I don't know if anyone can say how much will get through," said Keith Hembre, chief economist at First American Funds. "It certainly shouldn't hurt. We'll have to see how much it does help."
To that end, government officials said that they would not set up the $200 billion consumer lending program until February. So officials couldn't say if the mere announcement of the program would cause lenders to make more credit available to consumers in time for the holiday shopping season.
Paulson described the $200 billion consumer lending program as a first step, one that could be expanded later to include different kinds of debt, including assets backed by commercial real estate mortgages and business debt.
He said the fact that the Fed and Treasury had to work together to get an additional $800 billion into the system is not a sign that the $700 billion bailout of banks and Wall Street firms passed by Congress last month has been a failure. He said that, without that program, it is likely that the financial markets would be in even worse shape than they are today.
"I wish, and I know everybody wishes, that one piece of legislation, and then magically the credit markets would unfreeze," he said. "That's not the type of situation we're dealing with."
The fact that the New York Fed is taking the lead on the consumer lending program means that the man nominated by President-elect Obama to succeed Paulson, New York Fed President Timothy Geithner, played a central role in this new effort.
But Paulson said this is not a sign that the Bush administration is letting the new administration call the shots on further efforts to revive the economy.
How it may affect mortgages
The larger part of the new program is geared toward ending the mortgage crisis, which was the original intent of the bank bailout plan proposed in September and signed into law in October.
That plan, known as the Troubled Asset Relief Program, or TARP, was quickly dropped for one in which Treasury instead made direct capital investments in banks in return for the government receiving preferred shares in the institutions getting funds.
This new program is much closer to the planned bailout. But government officials stressed that this new plan is different from TARP in that only mortgage securities backed by Fannie, Freddie and Ginnie Mae will be in the new program.
The loans being backed by the new program, for the most part, are of better quality than many of the troubled assets that would have been purchased under the original TARP plan.
"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the Fed said in a statement.
There is also limited additional risk for the federal government from the Fed buying that $600 billion in debt from the three firms, since the government is already on the hook for losses those firms suffer on the loans they back.
Despite that implicit government guarantee behind Fannie and Freddie's debt, there gap between rates for U.S. Treasurys and the rates for mortgage assets continues to widen.
But with the Fed buying such a large amount of mortgage assets directly, the hope is that this will narrow that gap and drive down mortgage rates.
The Treasury, which oversees the $700 billion in the TARP program, has been reluctant to expand the use of those funds beyond direct capital investments in banks, despite request to use the funds to help out insurance companies and even the nation's automakers.
The moves came as the Commerce Department announced that gross domestic product, the broadest measure of economic activity, fell at an annual rate of 0.5% in the third quarter.
That was the biggest drop in seven years and economists believe that the economy will decline further in the current quarter and into early next year.
Central bank and Treasury announce a massive plan to jumpstart lending.
NEW YORK (CNNMoney.com) -- The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.
The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.
One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.
The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.
In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.
Together, the programs from the Federal Reserve and the New York Fed are more than Congress approved in October for a bailout of the nation's banks and Wall Street firms. The Fed said the money will come from an increase in its reserves -- in essence, it is creating new money.
The idea is that by making money available for investors who are interested in buying loans bundled together into securities, it will be easier and more profitable for banks to loan money to consumers and small businesses.
Before the current credit crisis, lenders got the money they needed to extend credit by selling the loans they had already made. But the Treasury Department said the issuance of those securities essentially came to a halt in October.
"This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy," said Treasury Secretary Henry Paulson at a press conference.
Still, previous efforts to pump money directly into financial institutions have done relatively little to expand credit available for consumers, and some economists said it was not immediately clear if this money would flow through to households as planned.
"It's certainly not directly going to go through to the consumers. I don't know if anyone can say how much will get through," said Keith Hembre, chief economist at First American Funds. "It certainly shouldn't hurt. We'll have to see how much it does help."
To that end, government officials said that they would not set up the $200 billion consumer lending program until February. So officials couldn't say if the mere announcement of the program would cause lenders to make more credit available to consumers in time for the holiday shopping season.
Paulson described the $200 billion consumer lending program as a first step, one that could be expanded later to include different kinds of debt, including assets backed by commercial real estate mortgages and business debt.
He said the fact that the Fed and Treasury had to work together to get an additional $800 billion into the system is not a sign that the $700 billion bailout of banks and Wall Street firms passed by Congress last month has been a failure. He said that, without that program, it is likely that the financial markets would be in even worse shape than they are today.
"I wish, and I know everybody wishes, that one piece of legislation, and then magically the credit markets would unfreeze," he said. "That's not the type of situation we're dealing with."
The fact that the New York Fed is taking the lead on the consumer lending program means that the man nominated by President-elect Obama to succeed Paulson, New York Fed President Timothy Geithner, played a central role in this new effort.
But Paulson said this is not a sign that the Bush administration is letting the new administration call the shots on further efforts to revive the economy.
How it may affect mortgages
The larger part of the new program is geared toward ending the mortgage crisis, which was the original intent of the bank bailout plan proposed in September and signed into law in October.
That plan, known as the Troubled Asset Relief Program, or TARP, was quickly dropped for one in which Treasury instead made direct capital investments in banks in return for the government receiving preferred shares in the institutions getting funds.
This new program is much closer to the planned bailout. But government officials stressed that this new plan is different from TARP in that only mortgage securities backed by Fannie, Freddie and Ginnie Mae will be in the new program.
The loans being backed by the new program, for the most part, are of better quality than many of the troubled assets that would have been purchased under the original TARP plan.
"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the Fed said in a statement.
There is also limited additional risk for the federal government from the Fed buying that $600 billion in debt from the three firms, since the government is already on the hook for losses those firms suffer on the loans they back.
Despite that implicit government guarantee behind Fannie and Freddie's debt, there gap between rates for U.S. Treasurys and the rates for mortgage assets continues to widen.
But with the Fed buying such a large amount of mortgage assets directly, the hope is that this will narrow that gap and drive down mortgage rates.
The Treasury, which oversees the $700 billion in the TARP program, has been reluctant to expand the use of those funds beyond direct capital investments in banks, despite request to use the funds to help out insurance companies and even the nation's automakers.
The moves came as the Commerce Department announced that gross domestic product, the broadest measure of economic activity, fell at an annual rate of 0.5% in the third quarter.
That was the biggest drop in seven years and economists believe that the economy will decline further in the current quarter and into early next year.
Friday, November 21, 2008
Fannie/Freddie Freeze
From the desk of:
Rich Storey
Mortgage Specialist
615.260.8028
Credited to: www.WashingtonPost.com
Fannie, Freddie Halt Foreclosures for Holidays
Fannie Mae and Freddie Mac will stop foreclosures and evictions on delinquent loans from Nov. 26 to Jan. 9. (By Justin Sullivan -- Getty Images)
The companies said they are taking the step so they can include more people in a newly announced program to change the terms of troubled mortgages to make them more affordable.
The mortgage finance giants, seized by the government in early September, have been under pressure by lawmakers and housing advocates to take bolder steps to fight foreclosures. As the owners or backers of trillions of dollars of mortgages, the companies have an unrivaled ability to shape the home loan market and help people with distressed mortgages.
Last week, the companies said they would enact a program to restructure mortgages for borrowers who are falling behind in their payments. That effort would seek to help homeowners who haven't paid their loans for three months but whose homes had not been foreclosed upon yet. In a foreclosure, Fannie Mae or Freddie Mac seizes control of a home and, usually, tries to sell it.
The foreclosure freeze announced yesterday will extend the mortgage modification program to those who have been declared in default and are at immediate risk of being forced from their homes. The companies said as many as 16,000 borrowers could benefit.
"With this suspension, seriously delinquent borrowers may have an opportunity to avoid foreclosure and work out terms to stay in their homes," said Federal Housing Finance Agency director James B. Lockhart III, the regulator in charge of Fannie Mae and Freddie Mac.
Under the mortgage modifications program unveiled last week, Fannie and Freddie will seek to modify loan terms to ensure borrowers aren't paying more than 38 percent of their monthly pretax salary on their mortgage. The companies will do this by extending the total term of loans to up to 40 years, reducing the interest rate, and, in some cases, delaying payment on part of the loan.
The program will begin Dec. 15. Attorneys working for Fannie Mae and Freddie Mac will contact borrowers facing foreclosure.
"Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes," Fannie Mae chief executive Herbert M. Allison said in a statement.
Freddie Mac chief executive David M. Moffett said his company is on track to help three out of five troubled borrowers with Freddie Mac-owned loans avoid foreclosure. "Today's announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays," he said in a statement.
The foreclosure freeze will apply to single-family homes that continue to be occupied. Freddie Mac's program also applies to buildings with two to four apartments.
Fannie and Freddie have launched other programs as well. A Fannie Mae program requires employees to take a second look at delinquent loans to ensure the borrower has been contacted and other options have been considered. Freddie Mac gives authority to mortgage lenders to renegotiate loans and offers them financial incentives to do so.
"We must and will do more," Allison said.
Rich Storey
Mortgage Specialist
615.260.8028
Credited to: www.WashingtonPost.com
Fannie, Freddie Halt Foreclosures for Holidays
Fannie Mae and Freddie Mac will stop foreclosures and evictions on delinquent loans from Nov. 26 to Jan. 9. (By Justin Sullivan -- Getty Images)
The companies said they are taking the step so they can include more people in a newly announced program to change the terms of troubled mortgages to make them more affordable.
The mortgage finance giants, seized by the government in early September, have been under pressure by lawmakers and housing advocates to take bolder steps to fight foreclosures. As the owners or backers of trillions of dollars of mortgages, the companies have an unrivaled ability to shape the home loan market and help people with distressed mortgages.
Last week, the companies said they would enact a program to restructure mortgages for borrowers who are falling behind in their payments. That effort would seek to help homeowners who haven't paid their loans for three months but whose homes had not been foreclosed upon yet. In a foreclosure, Fannie Mae or Freddie Mac seizes control of a home and, usually, tries to sell it.
The foreclosure freeze announced yesterday will extend the mortgage modification program to those who have been declared in default and are at immediate risk of being forced from their homes. The companies said as many as 16,000 borrowers could benefit.
"With this suspension, seriously delinquent borrowers may have an opportunity to avoid foreclosure and work out terms to stay in their homes," said Federal Housing Finance Agency director James B. Lockhart III, the regulator in charge of Fannie Mae and Freddie Mac.
Under the mortgage modifications program unveiled last week, Fannie and Freddie will seek to modify loan terms to ensure borrowers aren't paying more than 38 percent of their monthly pretax salary on their mortgage. The companies will do this by extending the total term of loans to up to 40 years, reducing the interest rate, and, in some cases, delaying payment on part of the loan.
The program will begin Dec. 15. Attorneys working for Fannie Mae and Freddie Mac will contact borrowers facing foreclosure.
"Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes," Fannie Mae chief executive Herbert M. Allison said in a statement.
Freddie Mac chief executive David M. Moffett said his company is on track to help three out of five troubled borrowers with Freddie Mac-owned loans avoid foreclosure. "Today's announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays," he said in a statement.
The foreclosure freeze will apply to single-family homes that continue to be occupied. Freddie Mac's program also applies to buildings with two to four apartments.
Fannie and Freddie have launched other programs as well. A Fannie Mae program requires employees to take a second look at delinquent loans to ensure the borrower has been contacted and other options have been considered. Freddie Mac gives authority to mortgage lenders to renegotiate loans and offers them financial incentives to do so.
"We must and will do more," Allison said.
Monday, November 17, 2008
Hey Obama!!!
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Message to Obama: Send loans fast
What can Washington do to help small business owners save jobs and keep spending? Exactly what the president-elect promised during the campaign.
(CNNMoney.com) -- What could jump-start the economy? Affordable loans for small business.
With bank lending almost frozen and consumer spending down sharply, entrepreneurs foresee a Main Street wipeout if Washington doesn't take action soon to shore up the nation's small businesses.
"It's killing us right now. We can't expand, we can't buy inventory; we've had to do everything on credit cards because the banks won't even look at us," said Amy Rhodes, owner of A-2-Z Scuba in Puyallup, Wash. "Every single dime of our $40,000 in profit last year we sunk right back into the business. Now sales are down, and we're making ends meet out of our own money - which makes it more difficult to pay our mortgage."
In a mid-October campaign appearance, then-candidate Barack Obama proposed a "small business rescue plan" to address entrepreneurs' need for working capital. "A credit crunch has dried up capital and put these jobs at risk," Obama said at the time. "If we don't act, we'll be looking at scaled-back operations, shuttered shops, and laid-off workers."
The situation has since grown grimmer. The Federal Reserve's recent Senior Loan Officer Opinion Survey found that 75% of the banks surveyed had tightened their lending standards for small-business loans. For the first time in six years, payroll giant ADP reported a net loss of jobs among small companies; its monthly index estimated 25,000 positions were shed in October. And a survey conducted by American Express Open last month found that 18% of small business owners polled say they could be out of business in six months -- twice the August prediction.
So what should the government do? Exactly what Obama pledged, small business owners say: Persuade banks to start lending, or start cutting loan checks directly from the government.
In October, Obama proposed temporarily suspending the fees the Small Business
Administration changes for participation in its flagship loan-guarantee programs, which insure banks against losses on a portion of the money they lend to qualifying small businesses. But he also suggested making direct loans available through the SBA's Disaster Loan Program, which traditionally assists natural-disaster victims.
"I would prefer direct lending from the government, if they could pull that off," said Rob McNaughton, owner of online fashion retailer Rob Diamond in Denver. "I feel like the banks don't like to do SBA loans. It's a lot of paperwork.
The SBA's 7(a) loan-guarantee program backed 30% fewer loans in 2008 than it did in 2007, and fewer banks are making those loans. SBA watchers attribute the decline to the growing expense of complying with SBA requirements and subtle changes to the program's mission.
"The root of the problem is that the SBA has raised its credit standards over the past decade," said Joel Pruis, director of advisory services for Baker Hill, a financial-services consultancy. "The differential between what's acceptable without the SBA guarantee and what's acceptable with it has narrowed significantly. We've got very few loans now that fit in that gap. Then, the operating costs related to the program are burdensome - small banks often have to hire a full-time employee that knows the SBA. It's not a program you can dabble in; you either have to get all-in or not do it at all."
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Message to Obama: Send loans fast
What can Washington do to help small business owners save jobs and keep spending? Exactly what the president-elect promised during the campaign.
(CNNMoney.com) -- What could jump-start the economy? Affordable loans for small business.
With bank lending almost frozen and consumer spending down sharply, entrepreneurs foresee a Main Street wipeout if Washington doesn't take action soon to shore up the nation's small businesses.
"It's killing us right now. We can't expand, we can't buy inventory; we've had to do everything on credit cards because the banks won't even look at us," said Amy Rhodes, owner of A-2-Z Scuba in Puyallup, Wash. "Every single dime of our $40,000 in profit last year we sunk right back into the business. Now sales are down, and we're making ends meet out of our own money - which makes it more difficult to pay our mortgage."
In a mid-October campaign appearance, then-candidate Barack Obama proposed a "small business rescue plan" to address entrepreneurs' need for working capital. "A credit crunch has dried up capital and put these jobs at risk," Obama said at the time. "If we don't act, we'll be looking at scaled-back operations, shuttered shops, and laid-off workers."
The situation has since grown grimmer. The Federal Reserve's recent Senior Loan Officer Opinion Survey found that 75% of the banks surveyed had tightened their lending standards for small-business loans. For the first time in six years, payroll giant ADP reported a net loss of jobs among small companies; its monthly index estimated 25,000 positions were shed in October. And a survey conducted by American Express Open last month found that 18% of small business owners polled say they could be out of business in six months -- twice the August prediction.
So what should the government do? Exactly what Obama pledged, small business owners say: Persuade banks to start lending, or start cutting loan checks directly from the government.
In October, Obama proposed temporarily suspending the fees the Small Business
Administration changes for participation in its flagship loan-guarantee programs, which insure banks against losses on a portion of the money they lend to qualifying small businesses. But he also suggested making direct loans available through the SBA's Disaster Loan Program, which traditionally assists natural-disaster victims.
"I would prefer direct lending from the government, if they could pull that off," said Rob McNaughton, owner of online fashion retailer Rob Diamond in Denver. "I feel like the banks don't like to do SBA loans. It's a lot of paperwork.
The SBA's 7(a) loan-guarantee program backed 30% fewer loans in 2008 than it did in 2007, and fewer banks are making those loans. SBA watchers attribute the decline to the growing expense of complying with SBA requirements and subtle changes to the program's mission.
"The root of the problem is that the SBA has raised its credit standards over the past decade," said Joel Pruis, director of advisory services for Baker Hill, a financial-services consultancy. "The differential between what's acceptable without the SBA guarantee and what's acceptable with it has narrowed significantly. We've got very few loans now that fit in that gap. Then, the operating costs related to the program are burdensome - small banks often have to hire a full-time employee that knows the SBA. It's not a program you can dabble in; you either have to get all-in or not do it at all."
Thursday, November 13, 2008
Senator calls for BANKS TO START LENDING!!!!
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Senator: Banks must start lending
Congressional committee questions bankers over $700 billion bailout. Dodd: 'We want to see more progress.'
NEW YORK(CNNMoney.com) -- The head of the Senate Banking Committee Thursday said banks receiving money as part of the $700 billion federal bailout must step up their lending to consumers and businesses.
Banks are failing to use public funds to make credit more available and to help troubled homeowners, said Sen. Christopher Dodd, D-Conn. Congress did not pass the bailout plan so banks could hoard the money or use it to scoop up faltering rivals, he said.
"We want to see more progress from our friends in the financial sector -- more progress in foreclosure mitigation, in affordable lending, and in curbing excessive compensation," Dodd said. "And if that progress is not forthcoming, we are prepared to legislate."
Lawmakers on both sides of the aisle have been critical of the Treasury Department's implementation of the bailout of the financial sector.
Democrats are concerned that banks are not increasing their lending, despite getting capital infusions from the government. They also want to move faster to help the homeowner. Republicans, meanwhile, want more disclosure on how the Treasury Department is carrying out the plan.
Treasury Secretary Henry Paulson said Wednesday that the government would broaden the reach of the plan to support non-bank financial institutions that provide consumer credit, such as credit cards and auto loans.
In this second stage of the bailout, officials also hope to attract private capital, possibly through matching investments, to give the government's injections more heft.
Paulson also said the government is no longer planning to buy troubled mortgage assets, the original goal of the plan. Therefore, it must come up with new ways to help homeowners and slow the tide of foreclosures, which it had hoped to do once it owned the troubled loans.
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Senator: Banks must start lending
Congressional committee questions bankers over $700 billion bailout. Dodd: 'We want to see more progress.'
NEW YORK(CNNMoney.com) -- The head of the Senate Banking Committee Thursday said banks receiving money as part of the $700 billion federal bailout must step up their lending to consumers and businesses.
Banks are failing to use public funds to make credit more available and to help troubled homeowners, said Sen. Christopher Dodd, D-Conn. Congress did not pass the bailout plan so banks could hoard the money or use it to scoop up faltering rivals, he said.
"We want to see more progress from our friends in the financial sector -- more progress in foreclosure mitigation, in affordable lending, and in curbing excessive compensation," Dodd said. "And if that progress is not forthcoming, we are prepared to legislate."
Lawmakers on both sides of the aisle have been critical of the Treasury Department's implementation of the bailout of the financial sector.
Democrats are concerned that banks are not increasing their lending, despite getting capital infusions from the government. They also want to move faster to help the homeowner. Republicans, meanwhile, want more disclosure on how the Treasury Department is carrying out the plan.
Treasury Secretary Henry Paulson said Wednesday that the government would broaden the reach of the plan to support non-bank financial institutions that provide consumer credit, such as credit cards and auto loans.
In this second stage of the bailout, officials also hope to attract private capital, possibly through matching investments, to give the government's injections more heft.
Paulson also said the government is no longer planning to buy troubled mortgage assets, the original goal of the plan. Therefore, it must come up with new ways to help homeowners and slow the tide of foreclosures, which it had hoped to do once it owned the troubled loans.
Tuesday, November 11, 2008
Citi Home Owner Assistance Program
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Citi to modify $20 billion in home loans
A new program aimed at homeowners who haven't defaulted yet could help 130,000 mortgage borrowers stay in their homes.
NEW YORK (CNNMoney.com) -- Citigroup says it will expand its foreclosure prevention efforts and try to keep 130,000 troubled borrowers with $20 billion in mortgages in their homes.
The news follows similar initiatives announced earlier this year by IndyMac Bank, which was seized by the Federal Deposit Insurance Corp. last summer, as well as Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) each of which heralded enhanced housing rescue efforts.
Banks are undoubtedly feeling pressured to be more aggressive in aiding home owners, given how many billions of taxpayer dollars have poured into the industry to stem the credit crisis.
The Citi (C, Fortune 500) effort, dubbed the Citi Homeownership Assistance Program, targets 500,000 Citi borrowers. CitiMortgages CEO Sanjiv Das said he expects that more than a quarter of these people, with mortgages worth about $20 billion, will take advantage of the program over the next six months.
"We're reaching out to borrowers in areas of steeper-than-usual falling prices and higher-than-average unemployment," said Das, including California, Michigan, Florida, Nevada, Ohio and Arizona. "These areas are where the concentration of at-risk mortgages are the highest."
The new initiative differs from Citi's existing mortgage mitigation efforts in that it's a much more proactive plan, said Eric Eve, Senior Vice President, Global Community Relations for Citi.
The company will determine where the need for mortgage modification is greatest, based on economic conditions, and send out letters to its borrowers in these areas to tell them that help is available should they need it.
Borrowers on the brink
This new initiative is open only to borrowers who are still current on their loans but are at risk of defaulting - particularly those borrowers who owe more on their mortgages than their homes are currently worth. Additionally, their loans must be owned by the bank, rather than sold off to investors.
Citi already has a program in place to work with borrowers who are delinquent, reducing interest rates to as low as 1% for as long as two years for borrowers who are judged capable of keeping up with lower payments. The bank says that its ongoing mortgage mitigation efforts have produced about 370,000 work outs since the beginning of 2007.
For borrowers who have yet to default, Citi will now aim to reduce their monthly mortgage payment, including property taxes and insurance, to 40% or less of their income. To do that, it will freeze or reduce interest rates, extend the lifetime of the loan or even reduce the loan principal.
Das said the new plan will be implemented immediately and the workouts will be handled in a very fast, streamlined fashion to aid as many homeowners as quickly as possible.
Each of these new foreclosure prevention efforts, from Citi, IndyMac, Bank of America and JPMorgan, represent a significant step forward in resolving the housing crisis, according to Jared Bernstein, senior economist with the Economic Policy Institute. But, he adds, the problem remains overwhelming.
"These programs are helping but the help is marginal - in the hundreds of thousands of homeowners," he said. "But help is needed by millions."
Even after taking these new bank programs into account, Mark Zandi, chief economist for Moody's Economy.com, estimates that 1.6 million Americans will lose their homes this year either in a foreclosure or distressed sale. Some 1.9 million are projected to lose their homes in 2009.
It's certainly doubtful that the banks' housing relief programs will be as successful as they hope.
For example, IndyMac's program was launched in late August, and slated to help as many as 40,000 borrowers. But in late October, FDIC chief Sheila Bair told a congressional committee that the bank had only completed 3,500 work outs.
So Bank of America's claim that it will help 400,000 homeowners, and JPMorgan Chase's goal of rescuing another 400,000 borrowers should probably be taken with a grain of salt.
Bigger plans
Still, Bernstein welcomes every effort. "Let a thousand flowers bloom," he said. "It's like an experiment and, if we're smart, we'll see what plans work and what doesn't." Then, the best aspects of the various plans could be applied to as many at-risk mortgages as possible.
But the bottom line is that the bank programs won't be nearly as effective as any massive foreclosure prevention effort that may yet be implemented by the U.S. government, according to Bernstein.
And there is a possibility that such a program may yet emerge. Congress already enacted its Hope for Homeowners initiative, which will allow borrowers to refinance their mortgages into loans backed by the Federal Housing Authority. Now there is talk of a new $50 billion plan that could bail out as many as 3 million homeowners.
"We can keep the number below a million [homes lost] next year with an effective government effort," said Zandi. "It would be very doable but also very costly."
The single best thing about the bank programs, according to Bernstein, is that they don't cost the taxpayers anything.
"You have to be happy about that," he said.
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Citi to modify $20 billion in home loans
A new program aimed at homeowners who haven't defaulted yet could help 130,000 mortgage borrowers stay in their homes.
NEW YORK (CNNMoney.com) -- Citigroup says it will expand its foreclosure prevention efforts and try to keep 130,000 troubled borrowers with $20 billion in mortgages in their homes.
The news follows similar initiatives announced earlier this year by IndyMac Bank, which was seized by the Federal Deposit Insurance Corp. last summer, as well as Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) each of which heralded enhanced housing rescue efforts.
Banks are undoubtedly feeling pressured to be more aggressive in aiding home owners, given how many billions of taxpayer dollars have poured into the industry to stem the credit crisis.
The Citi (C, Fortune 500) effort, dubbed the Citi Homeownership Assistance Program, targets 500,000 Citi borrowers. CitiMortgages CEO Sanjiv Das said he expects that more than a quarter of these people, with mortgages worth about $20 billion, will take advantage of the program over the next six months.
"We're reaching out to borrowers in areas of steeper-than-usual falling prices and higher-than-average unemployment," said Das, including California, Michigan, Florida, Nevada, Ohio and Arizona. "These areas are where the concentration of at-risk mortgages are the highest."
The new initiative differs from Citi's existing mortgage mitigation efforts in that it's a much more proactive plan, said Eric Eve, Senior Vice President, Global Community Relations for Citi.
The company will determine where the need for mortgage modification is greatest, based on economic conditions, and send out letters to its borrowers in these areas to tell them that help is available should they need it.
Borrowers on the brink
This new initiative is open only to borrowers who are still current on their loans but are at risk of defaulting - particularly those borrowers who owe more on their mortgages than their homes are currently worth. Additionally, their loans must be owned by the bank, rather than sold off to investors.
Citi already has a program in place to work with borrowers who are delinquent, reducing interest rates to as low as 1% for as long as two years for borrowers who are judged capable of keeping up with lower payments. The bank says that its ongoing mortgage mitigation efforts have produced about 370,000 work outs since the beginning of 2007.
For borrowers who have yet to default, Citi will now aim to reduce their monthly mortgage payment, including property taxes and insurance, to 40% or less of their income. To do that, it will freeze or reduce interest rates, extend the lifetime of the loan or even reduce the loan principal.
Das said the new plan will be implemented immediately and the workouts will be handled in a very fast, streamlined fashion to aid as many homeowners as quickly as possible.
Each of these new foreclosure prevention efforts, from Citi, IndyMac, Bank of America and JPMorgan, represent a significant step forward in resolving the housing crisis, according to Jared Bernstein, senior economist with the Economic Policy Institute. But, he adds, the problem remains overwhelming.
"These programs are helping but the help is marginal - in the hundreds of thousands of homeowners," he said. "But help is needed by millions."
Even after taking these new bank programs into account, Mark Zandi, chief economist for Moody's Economy.com, estimates that 1.6 million Americans will lose their homes this year either in a foreclosure or distressed sale. Some 1.9 million are projected to lose their homes in 2009.
It's certainly doubtful that the banks' housing relief programs will be as successful as they hope.
For example, IndyMac's program was launched in late August, and slated to help as many as 40,000 borrowers. But in late October, FDIC chief Sheila Bair told a congressional committee that the bank had only completed 3,500 work outs.
So Bank of America's claim that it will help 400,000 homeowners, and JPMorgan Chase's goal of rescuing another 400,000 borrowers should probably be taken with a grain of salt.
Bigger plans
Still, Bernstein welcomes every effort. "Let a thousand flowers bloom," he said. "It's like an experiment and, if we're smart, we'll see what plans work and what doesn't." Then, the best aspects of the various plans could be applied to as many at-risk mortgages as possible.
But the bottom line is that the bank programs won't be nearly as effective as any massive foreclosure prevention effort that may yet be implemented by the U.S. government, according to Bernstein.
And there is a possibility that such a program may yet emerge. Congress already enacted its Hope for Homeowners initiative, which will allow borrowers to refinance their mortgages into loans backed by the Federal Housing Authority. Now there is talk of a new $50 billion plan that could bail out as many as 3 million homeowners.
"We can keep the number below a million [homes lost] next year with an effective government effort," said Zandi. "It would be very doable but also very costly."
The single best thing about the bank programs, according to Bernstein, is that they don't cost the taxpayers anything.
"You have to be happy about that," he said.
Monday, November 10, 2008
Saving for Retirement.....
From the desk of:
Rich Storey
Mortgage Advisor
c.615.260.8028
Credited to: www.CNNMoney.com
This has very good info in it.
How to save your retirement
With the risk to your No. 1 goal growing, you may be wondering what to do now.
(Money Magazine) -- Without a doubt, the past few months have ranked as the most tumultuous - and scariest - times that I've seen in the more than 20 years I've been at Money magazine. We've witnessed events that up to now had been almost unimaginable: the stock market fluctuating wildly and governments around the globe taking extraordinary steps to unlock frozen credit markets. And it's still unclear when the economy and the markets will hit bottom.
Given the unprecedented level of fear and uncertainty, it's no surprise that readers of my Long View column in Money and my Ask the Expert column on CNNMoney.com have inundated me with retirement planning questions. These five common ones cover your biggest concerns.
Should I put less money into my 401(k)?
Q. I am contributing 15% of my salary to my 401(k). With the crisis taking a toll on the stock market, would it be a good idea to reduce my contribution to 10% and place the additional 5% somewhere else? --Verona, Savannah, Ga.
A. I can understand why you're tempted to scale back. But reducing your 401(k) contributions now would be a mistake.
To begin with, you'd be giving up lucrative tax benefits. You pay no income tax on your 401(k) contributions, or on your investment gains, until you make withdrawals. Plus, if your company matches what you save, you are turning away free money. With a match of 50¢ to the dollar, you'd be giving up an instant 50% return on your contribution. That's a terrific deal at any time, but especially today. (For more on how 401(k)s work, see the Ultimate Guide to Retirement)
And be honest. Ask yourself whether you'll end up saving the 5% you're planning to divert. Without the convenience of a 401(k)'s payroll deductions, good intentions to save can too often succumb to the temptation to spend. By forgoing the tax breaks, the match and the automatic savings, you will almost certainly end up with a smaller nest egg when you retire.
That's an important consideration. The debt that the government is taking on to deal with today's crisis will strain the federal budget in coming years, increasing the possibility of cutbacks in programs like Social Security and Medicare. Your retirement security will depend more than ever on how successful you are at managing your 401(k). This is not the time to cut back - with one possible exception.
With the ranks of the unemployed swelling, it's especially crucial to have an emergency cushion of three to six months' living expenses tucked away in a highly secure stash, such as a bank account or a money-market fund. If you don't have a reserve, start building one pronto. Ideally, you'd do this by tightening spending. But if that's not possible, you may have to resort to saving less in your 401(k). I can't stress enough, however, that such a move should be temporary. Once you have your emergency fund, bump your 401(k) contributions back to where they were before, if not higher to make up for lost ground.
Is my pension safe?
Q. Does the crisis have any effect on my defined-benefit pension plan? I just turned 55 and was getting ready to start drawing from it. --Lynn, Hephzibah, Ga.
A. The fact that the stock market is reeling doesn't mean your employer can slash your pension or take it away from you. With a traditional defined-benefit pension, the size of your check is based on the number of years you worked and your salary. Once you're vested, your employer must pay you the pension you've earned.
Of course, since pension managers generally invest about 65% of their assets in stocks, plummeting prices have put a strain on the funds employers are counting on to pay retirees. But that doesn't mean promised benefits are in peril. Pensions are paid over decades. There's plenty of time for assets to bounce back.
Besides, even if your company were to go bankrupt, you would likely collect all or most of your pension. The federal Pension Benefit Guaranty Corporation would step in and cover your pension, up to certain limits. For a 65-year-old, the PBGC's maximum payment for plans ended in 2008 is $51,750 a year (for more, go to pbgc.gov).
There's one way that the current crisis could hurt your pension, however. If a pension fund's investment losses are deep enough, your employer could be required to inject big sums of cash just as profits are being squeezed. If that happens, the company might follow the example of Equifax, Gannett, IBM and others, which have frozen or plan to freeze their pensions. In that case you would typically no longer accrue additional benefits in the plan. But you would still be eligible for whatever benefits you had already earned.
Should I still stick with stocks for the long term?
Q. My 401(k) is invested entirely in stocks and has dropped 30% over the past two months. Should I move my account out of stocks now? Help! --Leslie, Fairfield, Conn.
A. At times like these, it's natural to want to do something - anything - to stem the bleeding. Just about any move has to be better than staying in stocks, right?
Wrong. Switching your 401(k) into bonds or cash may make you feel better today. But by allowing fear to dictate your investing strategy, you are undermining your chances for a comfortable retirement. Stifle the urge to flee stocks, step back and assess this situation coolly.
Despite the steady drumbeat of bad news, the U.S. economy isn't going to disintegrate. Yes, we're likely in or entering a recession. When we'll come out of it, frankly, no one knows. Recessions typically last about 10 months, but the length and severity of this one depends a lot on how well the various rescue measures work and when the housing market recovers. But we will rebound from this crisis, just as we recovered from previous recessions.
When that happens, stocks will still offer you the best shot at long-term growth. I realize that notion may be a hard sell: The market is down more than 30% this year, and stock returns have actually lagged those of bonds over the past 10 years.
But steep price setbacks aren't new, and while the decade has been discouraging, it's an anomaly. Of the 73 rolling 10-year periods since 1926, stocks have beaten bonds 85% of the time. There's no guarantee that the future will repeat itself. Then again, the case for stocks is even stronger when they're selling well below their peak.
Remember, stocks typically lead an economic recovery. By the time you feel more comfortable investing in them, the market may already have begun to rally. If you aren't there for the initial part of a rebound, you may miss out on the biggest gains. When the market exploded from its low in the 1982 recession, it gained 59% over the next year. But 70% of that return came in the first six months.
Alas, neither I nor anyone else can say when the market will recover. But if you want to participate in the recovery, you need to have your 401(k) positioned right. The younger you are, the more you should tilt your mix toward stocks. You don't have to be so concerned about stock market setbacks, even frightening ones, since you've got plenty of time to bounce back.
Generally, if you're in your twenties or thirties, you should probably invest 80% to 90% of your retirement savings in stock funds, with the rest in bond or stable-value funds. As you get older and have less time to recoup losses, you can gradually scale back on equities, although you'll still need stocks for growth. You should have 70% or so of your retirement portfolio in stocks by the time you're in your fifties and perhaps 60% by the time you turn 60. Create your own stock-bond mix using the Asset Allocator.
I think investing 100% of your 401(k) in stocks is too aggressive for nearly all investors. It's the kind of approach people adopt when the market is flying high - and come to regret when a bear market sets in. What you don't want to do, though, is get so freaked out that you dump stocks altogether. You'll be setting yourself up for a more devastating setback later: entering retirement with a nest egg that's too small.
How can I protect my retirement income?
Q. I'm 61 and plan to retire in about eight months. Should I withdraw some or all of my 401(k) money and put it in a safer place? --Peggy Wagstaff, Marietta, Ga.
A. There's no doubt that the closer you are to retirement, the more alarming this economic crisis is. You simply don't have as much time to wait for stock prices - and your 401(k) account balance - to rebound. Older investors face another challenge: If you're collecting income from your portfolio at the same time you're suffering market losses, you'll have an even smaller investment pool left when stocks recover.
But moving your retirement savings into safe options like CDs or money-market funds isn't the right response. The yields are just too low to keep pace with inflation over a retirement that could last 30 or more years. While the stock market may be the last place you want to be, you still need the long-term growth that equities have historically provided.
That said, one reason so many pre-retirees and retirees are hurting as badly as they are now is that they went into this crisis with far too much money in stocks. A year before the bear market started, nearly 40% of 401(k) participants in their mid-fifties to mid-sixties had 80% or more of their account invested in stocks, according to the Employee Benefit Research Institute. That's too aggressive.
Reasonable people can disagree about the perfect blend of stocks and bonds, but for anyone on the verge of retiring or a few years into retirement, something in the neighborhood of 55% stocks and 45% bonds is more appropriate. As long as you have a suitable stock-bond mix, the key question you should be asking yourself is this: Given the value of your 401(k) today, can you still draw enough to live comfortably for 30 or more years?
A financial planner should be able to help with that analysis, or you can do it on your own with an online tool like the Retirement Income Calculator in the Investment Guidance and Tools section at troweprice.com. You plug in your planned retirement date and key financial information such as your projected living expenses, your savings and investments and how much you'll get from Social Security and a pension. The tool will then project how much income you can reasonably count on and how that compares with what you'll need.
If you find you have enough, great. But if you come up short - and I suspect many people will - you'll have to make some changes. One option is to work a couple extra years. That would enable you to save more, give your portfolio a chance to recover and pad your eventual payout from Social Security. Each year you delay taking benefits beyond age 62, you can boost your payout by about 8%. For a look at what you can expect, go to ssa.gov/estimator.
Working longer may not be an option, of course, once you've retired and have already begun taking withdrawals from your retirement accounts. If your 401(k) has taken a big hit early in your retirement, the odds that your money will last 30 years have plummeted.
In that case, you may want to cut back your spending so that your savings well doesn't run dry. After all, what could be more disconcerting than to realize that you're in good enough shape to go another 10 or 20 years but that your portfolio is only healthy enough to make it another five?
Is my annuity still safe?
Q. I have $100,000 in an annuity with AIG that my mom and I depend on. Should I cash it out even though I would suffer a loss? --Kitty Schwartz, Plano, Texas
A. Most people buy an annuity at least in part because they see it as a refuge from market tumult. But that faith has been tested as the government has stepped in to cover the debts of AIG, the nation's largest insurer. I have been flooded with questions about annuity safety. I would love to be able to offer a simple reassurance. But annuities are too complicated for that. Instead, here's what you need to know.
First, if you own a variable annuity, your money is likely invested in one or more subaccounts, or mutual-fund-like stock or bond funds. Neither the insurer nor its creditors can tap these funds. So while the value of your variable annuity may decline, your investment would be safe if the insurer went out of business.
With a fixed annuity, you're protected by a network of state guaranty funds. When an insurer fails, most states cover up to $300,000 in life insurance death benefits, $100,000 in life insurance cash surrender values and $100,000 in withdrawals and cash value for annuities. This coverage is per person per insurer. As long as your annuity's value is within your state's limit, your money is secure. (For more on how annuities work, see the Ultimate Guide to Retirement)
If your annuity is worth more, you've got to weigh the cost of getting out against the risk of staying in. With most annuities, you pay a stiff penalty for pulling money out early: Surrender charges typically start at 7% and then fall over seven years.
Plus, when you withdraw money, you owe tax at ordinary income tax rates. You can get around the tax hit by exchanging your annuity for another, but that won't exempt you from surrender charges.
As for assessing the risk, the best you can do is see how highly your insurer is rated by companies like A.M. Best, Moody's and Standard & Poor's. It's hard to draw a dividing line between what rating equals an acceptable level of safety and what doesn't. But it's reasonable to want a rating of A or better.
If your insurer is highly rated and the surrender charges are still high, you might prefer to hold on for now. But if the insurer has a low rating and the surrender penalty isn't too severe, consider a switch. Other precautions: Try to spread your money among two or more insurers and, if possible, stay below the guaranty fund limit for your state.
Annuities can be complicated. But there's one aspect of them that has become painfully obvious: Getting into them is a lot easier than getting out.
Rich Storey
Mortgage Advisor
c.615.260.8028
Credited to: www.CNNMoney.com
This has very good info in it.
How to save your retirement
With the risk to your No. 1 goal growing, you may be wondering what to do now.
(Money Magazine) -- Without a doubt, the past few months have ranked as the most tumultuous - and scariest - times that I've seen in the more than 20 years I've been at Money magazine. We've witnessed events that up to now had been almost unimaginable: the stock market fluctuating wildly and governments around the globe taking extraordinary steps to unlock frozen credit markets. And it's still unclear when the economy and the markets will hit bottom.
Given the unprecedented level of fear and uncertainty, it's no surprise that readers of my Long View column in Money and my Ask the Expert column on CNNMoney.com have inundated me with retirement planning questions. These five common ones cover your biggest concerns.
Should I put less money into my 401(k)?
Q. I am contributing 15% of my salary to my 401(k). With the crisis taking a toll on the stock market, would it be a good idea to reduce my contribution to 10% and place the additional 5% somewhere else? --Verona, Savannah, Ga.
A. I can understand why you're tempted to scale back. But reducing your 401(k) contributions now would be a mistake.
To begin with, you'd be giving up lucrative tax benefits. You pay no income tax on your 401(k) contributions, or on your investment gains, until you make withdrawals. Plus, if your company matches what you save, you are turning away free money. With a match of 50¢ to the dollar, you'd be giving up an instant 50% return on your contribution. That's a terrific deal at any time, but especially today. (For more on how 401(k)s work, see the Ultimate Guide to Retirement)
And be honest. Ask yourself whether you'll end up saving the 5% you're planning to divert. Without the convenience of a 401(k)'s payroll deductions, good intentions to save can too often succumb to the temptation to spend. By forgoing the tax breaks, the match and the automatic savings, you will almost certainly end up with a smaller nest egg when you retire.
That's an important consideration. The debt that the government is taking on to deal with today's crisis will strain the federal budget in coming years, increasing the possibility of cutbacks in programs like Social Security and Medicare. Your retirement security will depend more than ever on how successful you are at managing your 401(k). This is not the time to cut back - with one possible exception.
With the ranks of the unemployed swelling, it's especially crucial to have an emergency cushion of three to six months' living expenses tucked away in a highly secure stash, such as a bank account or a money-market fund. If you don't have a reserve, start building one pronto. Ideally, you'd do this by tightening spending. But if that's not possible, you may have to resort to saving less in your 401(k). I can't stress enough, however, that such a move should be temporary. Once you have your emergency fund, bump your 401(k) contributions back to where they were before, if not higher to make up for lost ground.
Is my pension safe?
Q. Does the crisis have any effect on my defined-benefit pension plan? I just turned 55 and was getting ready to start drawing from it. --Lynn, Hephzibah, Ga.
A. The fact that the stock market is reeling doesn't mean your employer can slash your pension or take it away from you. With a traditional defined-benefit pension, the size of your check is based on the number of years you worked and your salary. Once you're vested, your employer must pay you the pension you've earned.
Of course, since pension managers generally invest about 65% of their assets in stocks, plummeting prices have put a strain on the funds employers are counting on to pay retirees. But that doesn't mean promised benefits are in peril. Pensions are paid over decades. There's plenty of time for assets to bounce back.
Besides, even if your company were to go bankrupt, you would likely collect all or most of your pension. The federal Pension Benefit Guaranty Corporation would step in and cover your pension, up to certain limits. For a 65-year-old, the PBGC's maximum payment for plans ended in 2008 is $51,750 a year (for more, go to pbgc.gov).
There's one way that the current crisis could hurt your pension, however. If a pension fund's investment losses are deep enough, your employer could be required to inject big sums of cash just as profits are being squeezed. If that happens, the company might follow the example of Equifax, Gannett, IBM and others, which have frozen or plan to freeze their pensions. In that case you would typically no longer accrue additional benefits in the plan. But you would still be eligible for whatever benefits you had already earned.
Should I still stick with stocks for the long term?
Q. My 401(k) is invested entirely in stocks and has dropped 30% over the past two months. Should I move my account out of stocks now? Help! --Leslie, Fairfield, Conn.
A. At times like these, it's natural to want to do something - anything - to stem the bleeding. Just about any move has to be better than staying in stocks, right?
Wrong. Switching your 401(k) into bonds or cash may make you feel better today. But by allowing fear to dictate your investing strategy, you are undermining your chances for a comfortable retirement. Stifle the urge to flee stocks, step back and assess this situation coolly.
Despite the steady drumbeat of bad news, the U.S. economy isn't going to disintegrate. Yes, we're likely in or entering a recession. When we'll come out of it, frankly, no one knows. Recessions typically last about 10 months, but the length and severity of this one depends a lot on how well the various rescue measures work and when the housing market recovers. But we will rebound from this crisis, just as we recovered from previous recessions.
When that happens, stocks will still offer you the best shot at long-term growth. I realize that notion may be a hard sell: The market is down more than 30% this year, and stock returns have actually lagged those of bonds over the past 10 years.
But steep price setbacks aren't new, and while the decade has been discouraging, it's an anomaly. Of the 73 rolling 10-year periods since 1926, stocks have beaten bonds 85% of the time. There's no guarantee that the future will repeat itself. Then again, the case for stocks is even stronger when they're selling well below their peak.
Remember, stocks typically lead an economic recovery. By the time you feel more comfortable investing in them, the market may already have begun to rally. If you aren't there for the initial part of a rebound, you may miss out on the biggest gains. When the market exploded from its low in the 1982 recession, it gained 59% over the next year. But 70% of that return came in the first six months.
Alas, neither I nor anyone else can say when the market will recover. But if you want to participate in the recovery, you need to have your 401(k) positioned right. The younger you are, the more you should tilt your mix toward stocks. You don't have to be so concerned about stock market setbacks, even frightening ones, since you've got plenty of time to bounce back.
Generally, if you're in your twenties or thirties, you should probably invest 80% to 90% of your retirement savings in stock funds, with the rest in bond or stable-value funds. As you get older and have less time to recoup losses, you can gradually scale back on equities, although you'll still need stocks for growth. You should have 70% or so of your retirement portfolio in stocks by the time you're in your fifties and perhaps 60% by the time you turn 60. Create your own stock-bond mix using the Asset Allocator.
I think investing 100% of your 401(k) in stocks is too aggressive for nearly all investors. It's the kind of approach people adopt when the market is flying high - and come to regret when a bear market sets in. What you don't want to do, though, is get so freaked out that you dump stocks altogether. You'll be setting yourself up for a more devastating setback later: entering retirement with a nest egg that's too small.
How can I protect my retirement income?
Q. I'm 61 and plan to retire in about eight months. Should I withdraw some or all of my 401(k) money and put it in a safer place? --Peggy Wagstaff, Marietta, Ga.
A. There's no doubt that the closer you are to retirement, the more alarming this economic crisis is. You simply don't have as much time to wait for stock prices - and your 401(k) account balance - to rebound. Older investors face another challenge: If you're collecting income from your portfolio at the same time you're suffering market losses, you'll have an even smaller investment pool left when stocks recover.
But moving your retirement savings into safe options like CDs or money-market funds isn't the right response. The yields are just too low to keep pace with inflation over a retirement that could last 30 or more years. While the stock market may be the last place you want to be, you still need the long-term growth that equities have historically provided.
That said, one reason so many pre-retirees and retirees are hurting as badly as they are now is that they went into this crisis with far too much money in stocks. A year before the bear market started, nearly 40% of 401(k) participants in their mid-fifties to mid-sixties had 80% or more of their account invested in stocks, according to the Employee Benefit Research Institute. That's too aggressive.
Reasonable people can disagree about the perfect blend of stocks and bonds, but for anyone on the verge of retiring or a few years into retirement, something in the neighborhood of 55% stocks and 45% bonds is more appropriate. As long as you have a suitable stock-bond mix, the key question you should be asking yourself is this: Given the value of your 401(k) today, can you still draw enough to live comfortably for 30 or more years?
A financial planner should be able to help with that analysis, or you can do it on your own with an online tool like the Retirement Income Calculator in the Investment Guidance and Tools section at troweprice.com. You plug in your planned retirement date and key financial information such as your projected living expenses, your savings and investments and how much you'll get from Social Security and a pension. The tool will then project how much income you can reasonably count on and how that compares with what you'll need.
If you find you have enough, great. But if you come up short - and I suspect many people will - you'll have to make some changes. One option is to work a couple extra years. That would enable you to save more, give your portfolio a chance to recover and pad your eventual payout from Social Security. Each year you delay taking benefits beyond age 62, you can boost your payout by about 8%. For a look at what you can expect, go to ssa.gov/estimator.
Working longer may not be an option, of course, once you've retired and have already begun taking withdrawals from your retirement accounts. If your 401(k) has taken a big hit early in your retirement, the odds that your money will last 30 years have plummeted.
In that case, you may want to cut back your spending so that your savings well doesn't run dry. After all, what could be more disconcerting than to realize that you're in good enough shape to go another 10 or 20 years but that your portfolio is only healthy enough to make it another five?
Is my annuity still safe?
Q. I have $100,000 in an annuity with AIG that my mom and I depend on. Should I cash it out even though I would suffer a loss? --Kitty Schwartz, Plano, Texas
A. Most people buy an annuity at least in part because they see it as a refuge from market tumult. But that faith has been tested as the government has stepped in to cover the debts of AIG, the nation's largest insurer. I have been flooded with questions about annuity safety. I would love to be able to offer a simple reassurance. But annuities are too complicated for that. Instead, here's what you need to know.
First, if you own a variable annuity, your money is likely invested in one or more subaccounts, or mutual-fund-like stock or bond funds. Neither the insurer nor its creditors can tap these funds. So while the value of your variable annuity may decline, your investment would be safe if the insurer went out of business.
With a fixed annuity, you're protected by a network of state guaranty funds. When an insurer fails, most states cover up to $300,000 in life insurance death benefits, $100,000 in life insurance cash surrender values and $100,000 in withdrawals and cash value for annuities. This coverage is per person per insurer. As long as your annuity's value is within your state's limit, your money is secure. (For more on how annuities work, see the Ultimate Guide to Retirement)
If your annuity is worth more, you've got to weigh the cost of getting out against the risk of staying in. With most annuities, you pay a stiff penalty for pulling money out early: Surrender charges typically start at 7% and then fall over seven years.
Plus, when you withdraw money, you owe tax at ordinary income tax rates. You can get around the tax hit by exchanging your annuity for another, but that won't exempt you from surrender charges.
As for assessing the risk, the best you can do is see how highly your insurer is rated by companies like A.M. Best, Moody's and Standard & Poor's. It's hard to draw a dividing line between what rating equals an acceptable level of safety and what doesn't. But it's reasonable to want a rating of A or better.
If your insurer is highly rated and the surrender charges are still high, you might prefer to hold on for now. But if the insurer has a low rating and the surrender penalty isn't too severe, consider a switch. Other precautions: Try to spread your money among two or more insurers and, if possible, stay below the guaranty fund limit for your state.
Annuities can be complicated. But there's one aspect of them that has become painfully obvious: Getting into them is a lot easier than getting out.
Friday, November 7, 2008
MORTGAGE RATES FALL
From the desk of:
Rich Storey
Mortgage Advisor
6150260.8028
Credited to: www.CNNMoney.com
Mortgage rates fall
Rates on 30-year fixed-rate mortgages drop to 6.20% from 6.46% and are expected to remain firm.
NEW YORK (CNNMoney.com) -- Mortgage rates fell this week amid a pullback in consumer spending and a weaker job market.
Mortgage finance firm Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.20% this week. That's down from 6.46% last week and below 6.24%, the rate at this time last year.
Even though interest rates were slightly lower this week, rates are fairly firm and likely to remain that way, according to Keith Gumbinger of HSH Associates.
"From the mortgage-lender standpoint, the risks are rising," he said. "And because the risk of real estate lending remains so acute, the price of that money reflects the risks."
Lenders are tightening their credit standards in the face of a contracting economy and record home foreclosures, according to Frank Nothaft, Freddie Mac (FRE, Fortune 500) vice president and chief economist. A survey of senior loan officers from the Federal Reserve found that about 70% of banks raised their lending standards for prime mortgages, and about 90% of banks that offer nontraditional mortgages did so as well.
Rates on 15-year fixed-rate mortgages fell to 5.88% from 6.19% last week. A year ago, the rate was 5.90%. The five-year adjustable-rate mortgage fell to 6.19%, from 6.36% last week. A year ago, the rate was 5.89%. The rate on a one-year adjustable-rate mortgage fell to 5.25% from 5.38% last week. At this time last year, the rate was 5.50%.
Rates for 30-year fixed-rate mortgages have been at 6% or higher for four straight weeks. Between the week of Oct. 9 and Oct. 16, the 30-year fixed-rate mortgage posted its biggest weekly jump since April 1987, rising from 5.94% to 6.46%.
In September, the government took control of the mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac with a rescue plan that could inject them with $200 billion.
Rich Storey
Mortgage Advisor
6150260.8028
Credited to: www.CNNMoney.com
Mortgage rates fall
Rates on 30-year fixed-rate mortgages drop to 6.20% from 6.46% and are expected to remain firm.
NEW YORK (CNNMoney.com) -- Mortgage rates fell this week amid a pullback in consumer spending and a weaker job market.
Mortgage finance firm Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.20% this week. That's down from 6.46% last week and below 6.24%, the rate at this time last year.
Even though interest rates were slightly lower this week, rates are fairly firm and likely to remain that way, according to Keith Gumbinger of HSH Associates.
"From the mortgage-lender standpoint, the risks are rising," he said. "And because the risk of real estate lending remains so acute, the price of that money reflects the risks."
Lenders are tightening their credit standards in the face of a contracting economy and record home foreclosures, according to Frank Nothaft, Freddie Mac (FRE, Fortune 500) vice president and chief economist. A survey of senior loan officers from the Federal Reserve found that about 70% of banks raised their lending standards for prime mortgages, and about 90% of banks that offer nontraditional mortgages did so as well.
Rates on 15-year fixed-rate mortgages fell to 5.88% from 6.19% last week. A year ago, the rate was 5.90%. The five-year adjustable-rate mortgage fell to 6.19%, from 6.36% last week. A year ago, the rate was 5.89%. The rate on a one-year adjustable-rate mortgage fell to 5.25% from 5.38% last week. At this time last year, the rate was 5.50%.
Rates for 30-year fixed-rate mortgages have been at 6% or higher for four straight weeks. Between the week of Oct. 9 and Oct. 16, the 30-year fixed-rate mortgage posted its biggest weekly jump since April 1987, rising from 5.94% to 6.46%.
In September, the government took control of the mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac with a rescue plan that could inject them with $200 billion.
10 Ways to Be Happier
From the desk of:
Rich Storey
Mortgage Advisor
615-260-8028
Credited to: www.Yahoo.com
10 Ways to Be Happier
How happy are you -- really? If there’s room for improvement, then Gretchen Rubin has some suggestions.
1. Don’t start with profundities.When I began my Happiness Project, I realized pretty quickly that, rather than jumping in with lengthy daily meditation or answering deep questions of self-identity, I should start with the basics, like going to sleep at a decent hour and not letting myself get too hungry. Science backs this up; these two factors have a big impact on happiness. Learn how to Get a Good Night's Sleep.
2. Do let the sun go down on anger.I had always scrupulously aired every irritation as soon as possible, to make sure I vented all bad feelings before bedtime. Studies show, however, that the notion of anger catharsis is poppycock. Expressing anger related to minor, fleeting annoyances just amplifies bad feelings, while not expressing anger often allows it to dissipate. (See 16 Ways to Manage Your Anger from Real Simple)
3. Fake it till you feel it.Feelings follow actions. If I’m feeling low, I deliberately act cheery, and I find myself actually feeling happier. If I’m feeling angry at someone, I do something thoughtful for her and my feelings toward her soften. This strategy is uncannily effective.
4. Realize that anything worth doing is worth doing badly.Challenge and novelty are key elements of happiness. The brain is stimulated by surprise, and successfully dealing with an unexpected situation gives a powerful sense of satisfaction. People who do new things — learn a game, travel to unfamiliar places — are happier than people who stick to familiar activities that they already do well. I often remind myself to “Enjoy the fun of failure” and tackle some daunting goal.
5. Don’t treat the blues with a “treat.”Often the things I choose as “treats” aren’t good for me. The pleasure lasts a minute, but then feelings of guilt and loss of control and other negative consequences deepen the lousiness of the day. While it’s easy to think, I’ll feel good after I have a few glasses of wine…a pint of ice cream…a cigarette…a new pair of jeans, it’s worth pausing to ask whether this will truly make things better.
6. Buy some happiness.Our basic psychological needs include feeling loved, secure, and good at what we do and having a sense of control. Money doesn’t automatically fill these requirements, but it sure can help. I’ve learned to look for ways to spend money to stay in closer contact with my family and friends; to promote my health; to work more efficiently; to eliminate sources of irritation and marital conflict; to support important causes; and to have enlarging experiences. For example, when my sister got married, I splurged on a better digital camera. It was expensive, but it gave me a lot of happiness bang for the buck.
7. Don’t insist on the best.There are two types of decision makers. Satisficers (yes, satisficers) make a decision once their criteria are met. When they find the hotel or the pasta sauce that has the qualities they want, they’re satisfied. Maximizers want to make the best possible decision. Even if they see a bicycle or a backpack that meets their requirements, they can’t make a decision until they’ve examined every option. Satisficers tend to be happier than maximizers. Maximizers expend more time and energy reaching decisions, and they’re often anxious about their choices. Sometimes good enough is good enough.
8. Exercise to boost energy.I knew, intellectually, that this worked, but how often have I told myself, “I’m just too tired to go to the gym”? Exercise is one of the most dependable mood-boosters. Even a 10-minute walk can brighten my outlook. Try one of these 15-Minute Workouts.
9. Stop nagging.I knew my nagging wasn’t working particularly well, but I figured that if I stopped, my husband would never do a thing around the house. Wrong. If anything, more work got done. Plus, I got a surprisingly big happiness boost from quitting nagging. I hadn’t realized how shrewish and angry I had felt as a result of speaking like that. I replaced nagging with the following persuasive tools: wordless hints (for example, leaving a new lightbulb on the counter); using just one word (saying “Milk!” instead of talking on and on); not insisting that something be done on my schedule; and, most effective of all, doing a task myself. Why did I get to set the assignments?
10. Take action.Some people assume happiness is mostly a matter of inborn temperament: You’re born an Eeyore or a Tigger, and that’s that. Although it’s true that genetics play a big role, about 40 percent of your happiness level is within your control. Taking time to reflect, and conscious steps to make your life happier, really does work. So use these tips to start your own Happiness Project. I promise it won’t take you a whole year.
Rich Storey
Mortgage Advisor
615-260-8028
Credited to: www.Yahoo.com
10 Ways to Be Happier
How happy are you -- really? If there’s room for improvement, then Gretchen Rubin has some suggestions.
1. Don’t start with profundities.When I began my Happiness Project, I realized pretty quickly that, rather than jumping in with lengthy daily meditation or answering deep questions of self-identity, I should start with the basics, like going to sleep at a decent hour and not letting myself get too hungry. Science backs this up; these two factors have a big impact on happiness. Learn how to Get a Good Night's Sleep.
2. Do let the sun go down on anger.I had always scrupulously aired every irritation as soon as possible, to make sure I vented all bad feelings before bedtime. Studies show, however, that the notion of anger catharsis is poppycock. Expressing anger related to minor, fleeting annoyances just amplifies bad feelings, while not expressing anger often allows it to dissipate. (See 16 Ways to Manage Your Anger from Real Simple)
3. Fake it till you feel it.Feelings follow actions. If I’m feeling low, I deliberately act cheery, and I find myself actually feeling happier. If I’m feeling angry at someone, I do something thoughtful for her and my feelings toward her soften. This strategy is uncannily effective.
4. Realize that anything worth doing is worth doing badly.Challenge and novelty are key elements of happiness. The brain is stimulated by surprise, and successfully dealing with an unexpected situation gives a powerful sense of satisfaction. People who do new things — learn a game, travel to unfamiliar places — are happier than people who stick to familiar activities that they already do well. I often remind myself to “Enjoy the fun of failure” and tackle some daunting goal.
5. Don’t treat the blues with a “treat.”Often the things I choose as “treats” aren’t good for me. The pleasure lasts a minute, but then feelings of guilt and loss of control and other negative consequences deepen the lousiness of the day. While it’s easy to think, I’ll feel good after I have a few glasses of wine…a pint of ice cream…a cigarette…a new pair of jeans, it’s worth pausing to ask whether this will truly make things better.
6. Buy some happiness.Our basic psychological needs include feeling loved, secure, and good at what we do and having a sense of control. Money doesn’t automatically fill these requirements, but it sure can help. I’ve learned to look for ways to spend money to stay in closer contact with my family and friends; to promote my health; to work more efficiently; to eliminate sources of irritation and marital conflict; to support important causes; and to have enlarging experiences. For example, when my sister got married, I splurged on a better digital camera. It was expensive, but it gave me a lot of happiness bang for the buck.
7. Don’t insist on the best.There are two types of decision makers. Satisficers (yes, satisficers) make a decision once their criteria are met. When they find the hotel or the pasta sauce that has the qualities they want, they’re satisfied. Maximizers want to make the best possible decision. Even if they see a bicycle or a backpack that meets their requirements, they can’t make a decision until they’ve examined every option. Satisficers tend to be happier than maximizers. Maximizers expend more time and energy reaching decisions, and they’re often anxious about their choices. Sometimes good enough is good enough.
8. Exercise to boost energy.I knew, intellectually, that this worked, but how often have I told myself, “I’m just too tired to go to the gym”? Exercise is one of the most dependable mood-boosters. Even a 10-minute walk can brighten my outlook. Try one of these 15-Minute Workouts.
9. Stop nagging.I knew my nagging wasn’t working particularly well, but I figured that if I stopped, my husband would never do a thing around the house. Wrong. If anything, more work got done. Plus, I got a surprisingly big happiness boost from quitting nagging. I hadn’t realized how shrewish and angry I had felt as a result of speaking like that. I replaced nagging with the following persuasive tools: wordless hints (for example, leaving a new lightbulb on the counter); using just one word (saying “Milk!” instead of talking on and on); not insisting that something be done on my schedule; and, most effective of all, doing a task myself. Why did I get to set the assignments?
10. Take action.Some people assume happiness is mostly a matter of inborn temperament: You’re born an Eeyore or a Tigger, and that’s that. Although it’s true that genetics play a big role, about 40 percent of your happiness level is within your control. Taking time to reflect, and conscious steps to make your life happier, really does work. So use these tips to start your own Happiness Project. I promise it won’t take you a whole year.
Thursday, November 6, 2008
Good News about lending....
Cost of borrowing falls further
Interbank lending rates fall overnight. Treasury prices mixed with the 30-year bond declining on renewed confidence about the future.
The 3-month Libor rate dropped to 2.39% from 2.51% on Wednesday, according to Bloomberg.com. Thursday's rate is the lowest since Nov. 25, 2004, when it was also 2.39%.
The overnight Libor rate rose slightly, bouncing off an all-time low, to 0.33% from 0.32%. The rate had been falling for 7 days in a row.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend dollars in the U.K. and is a key barometer of liquidity in the credit market.
Libor rates have been retreating since mid-October, when the Federal Reserve flooded 13 central banks around the globe with unlimited amounts of dollars.
Less than a month ago, 3-month Libor was at 4.82%, and the overnight rate was at an all-time high of 6.88%. Lower rates are a major boon for the troubled credit markets because more than $350 trillion in assets are tied to Libor.
"Banks are beginning to come into line," said Bob Brusca, economist at Fact and Opinion Economics in New York. "But the real question is the economy."
While banks are becoming more willing to lend to each other, they remain reluctant to lend to customers, which hampers economic activity, Brusca said.
"When economic conditions get bad, banks pull back. That makes economic conditions even worse, and banks pull back more. It's a vicious circle," he said.
Central banks world wide have taken unprecedented steps to shore up the economy amid growing sings of a global recession.
Interbank lending rates fall overnight. Treasury prices mixed with the 30-year bond declining on renewed confidence about the future.
The 3-month Libor rate dropped to 2.39% from 2.51% on Wednesday, according to Bloomberg.com. Thursday's rate is the lowest since Nov. 25, 2004, when it was also 2.39%.
The overnight Libor rate rose slightly, bouncing off an all-time low, to 0.33% from 0.32%. The rate had been falling for 7 days in a row.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend dollars in the U.K. and is a key barometer of liquidity in the credit market.
Libor rates have been retreating since mid-October, when the Federal Reserve flooded 13 central banks around the globe with unlimited amounts of dollars.
Less than a month ago, 3-month Libor was at 4.82%, and the overnight rate was at an all-time high of 6.88%. Lower rates are a major boon for the troubled credit markets because more than $350 trillion in assets are tied to Libor.
"Banks are beginning to come into line," said Bob Brusca, economist at Fact and Opinion Economics in New York. "But the real question is the economy."
While banks are becoming more willing to lend to each other, they remain reluctant to lend to customers, which hampers economic activity, Brusca said.
"When economic conditions get bad, banks pull back. That makes economic conditions even worse, and banks pull back more. It's a vicious circle," he said.
Central banks world wide have taken unprecedented steps to shore up the economy amid growing sings of a global recession.
Tuesday, November 4, 2008
2009 = "Year of the THAW"
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
2009: Year of the thaw
Why the great credit freeze of 2008 won't turn into the Great Depression of 2009.
(Money Magazine) -- Well, we were partly right. At this time last year, we said that the stock market would be increasingly volatile in 2008, that home prices would fall further and that a subprime blowup could propel the economy downward.
But not in our wildest dreams did we foresee anything like the kind of jaw-dropping, stomach-churning ride that lay ahead. The economy in recession (as most experts now believe)? The Dow off 40%? Credit markets frozen worse than Sarah Palin's hometown? Precious few saw all that coming.
Peering into the future is tricky in the best of times. But even though predictions always turn out to be flawed - it's impossible for even the smartest experts to nail this stuff perfectly - you cannot build a future without first guessing what challenges you'll face on the way there.
History is your best guide. It has taught us that recessions tend to push inflation lower; that stocks usually recover before the economy does; and that jobs recover later. Most of all, history shows us that downturns don't last forever - and that it's when people are most disheartened that rebounds begin.
The economy
The prediction: The recovery will begin in the second quarter of the year.
As 2008 draws to a close, fears of a recession seem almost quaint. For many people spooked by the vicious credit crisis and the 2008 stock market meltdown, the real fear now is the D-word. Six in 10 Americans believe a depression is somewhat or very likely, according to a recent poll by CNN/Opinion Research Corporation.
Take a deep breath, people. The catastrophic 10% annual decline in economic output that marks a depression is simply not going to happen, according to even the most pessimistic mainstream economic forecasters. The gloomiest of the bunch aren't calling for anything remotely close to the crushing 25% unemployment rate seen during the Great Depression that began in 1929.
That's partly because back in the days when people were cooking up bathtub gin, the unprecedented actions taken by the U.S. and European governments this past fall to help stabilize the global financial system weren't even imaginable.
Still, few of us will feel like popping champagne corks in 2009. The consensus among nearly 50 economists polled each month by Blue Chip Economic Indicators is that a recession (officially defined as two or more consecutive quarters of declining gross domestic product) started in July and will continue throughout the first three months of 2009 (see the chart to the right).
The economists estimate that the economy - staggering under the credit crunch and one of the worst housing busts this nation has ever seen - will continue to shrink by 0.1% in the first quarter. It will then start growing again, but sluggishly. GDP growth is forecast to hit about 2.5% by the end of 2009, below the U.S. economy's long-term annual growth rate of about 3%.
But this recession, even if it's relatively short and shallow, is likely to leave you feeling queasy for quite some time after it's officially over. One reason: The unemployment rate is expected to keep rising throughout 2009, to 7% by the end of the year (see the chart). Many other economists think it could top 8%.
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
2009: Year of the thaw
Why the great credit freeze of 2008 won't turn into the Great Depression of 2009.
(Money Magazine) -- Well, we were partly right. At this time last year, we said that the stock market would be increasingly volatile in 2008, that home prices would fall further and that a subprime blowup could propel the economy downward.
But not in our wildest dreams did we foresee anything like the kind of jaw-dropping, stomach-churning ride that lay ahead. The economy in recession (as most experts now believe)? The Dow off 40%? Credit markets frozen worse than Sarah Palin's hometown? Precious few saw all that coming.
Peering into the future is tricky in the best of times. But even though predictions always turn out to be flawed - it's impossible for even the smartest experts to nail this stuff perfectly - you cannot build a future without first guessing what challenges you'll face on the way there.
History is your best guide. It has taught us that recessions tend to push inflation lower; that stocks usually recover before the economy does; and that jobs recover later. Most of all, history shows us that downturns don't last forever - and that it's when people are most disheartened that rebounds begin.
The economy
The prediction: The recovery will begin in the second quarter of the year.
As 2008 draws to a close, fears of a recession seem almost quaint. For many people spooked by the vicious credit crisis and the 2008 stock market meltdown, the real fear now is the D-word. Six in 10 Americans believe a depression is somewhat or very likely, according to a recent poll by CNN/Opinion Research Corporation.
Take a deep breath, people. The catastrophic 10% annual decline in economic output that marks a depression is simply not going to happen, according to even the most pessimistic mainstream economic forecasters. The gloomiest of the bunch aren't calling for anything remotely close to the crushing 25% unemployment rate seen during the Great Depression that began in 1929.
That's partly because back in the days when people were cooking up bathtub gin, the unprecedented actions taken by the U.S. and European governments this past fall to help stabilize the global financial system weren't even imaginable.
Still, few of us will feel like popping champagne corks in 2009. The consensus among nearly 50 economists polled each month by Blue Chip Economic Indicators is that a recession (officially defined as two or more consecutive quarters of declining gross domestic product) started in July and will continue throughout the first three months of 2009 (see the chart to the right).
The economists estimate that the economy - staggering under the credit crunch and one of the worst housing busts this nation has ever seen - will continue to shrink by 0.1% in the first quarter. It will then start growing again, but sluggishly. GDP growth is forecast to hit about 2.5% by the end of 2009, below the U.S. economy's long-term annual growth rate of about 3%.
But this recession, even if it's relatively short and shallow, is likely to leave you feeling queasy for quite some time after it's officially over. One reason: The unemployment rate is expected to keep rising throughout 2009, to 7% by the end of the year (see the chart). Many other economists think it could top 8%.
Monday, November 3, 2008
Credit Markets Continue to Loosen
F.rom the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.USAToday.com
Easing credit lifts U.S. stock futures
By Ellis Mnyandu, Reuters
NEW YORK — U.S. stock index futures rose Monday as a further drop in interbank lending rates suggested that credit continues to loosen up.
The costs for banks to borrow dollars from each other fell again, sending three-month rates down for a 17th day and boosting hopes that steps to restore confidence in credit markets are paying off.
Free-flowing credit is seen as crucial in helping avert an acute economic downturn as investors fret about a global recession.
Overseas, Britain's FTSE 100 stock index rose 0.73%, Germany's DAX index was up 0.96%, and France's CAC-40 advanced 0.35%. Hong Kong's Hang Seng Index climbed 2.7%. Japan's stock market was closed for a holiday.
SHOCK-TOBER ENDS: Can stocks keep rising?
Peter Cardillo, chief market economist at Avalon Partners in New York says the market has probably discounted an election victory by Democrat Barack Obama, heading into Tuesday's U.S. presidential election.
"It looks like we will have a Democratic president, so the election and the anticipation of the economic data is probably going to keep the market in a very tight range for most of the session today and tomorrow as we go to the polls."
Dow Jones industrial average futures were up 54 points early Monday, Nasdaq 100 futures gained 2.00 points.
Democrat Barack Obama heads into Tuesday's voting in a comfortable position, with Republican Sen. John McCain struggling to overtake his lead in every national opinion poll and to hold off his challenge in about a dozen states won by President Bush in 2004.
Obama leads McCain in six of eight key battleground states, including the big prizes of Florida and Ohio, according to a series of Reuters/Zogby polls released Monday.
U.S. stocks ended one of their worst months on record on Friday but signs of further thawing in credit markets boosted battered shares.
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.USAToday.com
Easing credit lifts U.S. stock futures
By Ellis Mnyandu, Reuters
NEW YORK — U.S. stock index futures rose Monday as a further drop in interbank lending rates suggested that credit continues to loosen up.
The costs for banks to borrow dollars from each other fell again, sending three-month rates down for a 17th day and boosting hopes that steps to restore confidence in credit markets are paying off.
Free-flowing credit is seen as crucial in helping avert an acute economic downturn as investors fret about a global recession.
Overseas, Britain's FTSE 100 stock index rose 0.73%, Germany's DAX index was up 0.96%, and France's CAC-40 advanced 0.35%. Hong Kong's Hang Seng Index climbed 2.7%. Japan's stock market was closed for a holiday.
SHOCK-TOBER ENDS: Can stocks keep rising?
Peter Cardillo, chief market economist at Avalon Partners in New York says the market has probably discounted an election victory by Democrat Barack Obama, heading into Tuesday's U.S. presidential election.
"It looks like we will have a Democratic president, so the election and the anticipation of the economic data is probably going to keep the market in a very tight range for most of the session today and tomorrow as we go to the polls."
Dow Jones industrial average futures were up 54 points early Monday, Nasdaq 100 futures gained 2.00 points.
Democrat Barack Obama heads into Tuesday's voting in a comfortable position, with Republican Sen. John McCain struggling to overtake his lead in every national opinion poll and to hold off his challenge in about a dozen states won by President Bush in 2004.
Obama leads McCain in six of eight key battleground states, including the big prizes of Florida and Ohio, according to a series of Reuters/Zogby polls released Monday.
U.S. stocks ended one of their worst months on record on Friday but signs of further thawing in credit markets boosted battered shares.
Sunday, November 2, 2008
Nashville's Economy called "Goldilocks"....not too hot, not too cold
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Optimism reigns that Nashville will weather recession
Diverse economy, educated work force make region resilient
In past economic slumps, the Nashville area's Goldilocks economy — never overheated, but not too cold either — has usually experienced shorter dives and quicker recoveries than the nation as a whole because of the region's diverse economy and well-educated work force.
That history has left many forecasters and business leaders here optimistic that a national recession triggered by a widespread housing meltdown will deal a much softer — and shorter-lived — blow to Music City business owners and job hunters than to the country as a whole.
A recent report by Garrett Harper, the chamber's research director, shows that Nashville's economy may stumble when the nation's does, but it generally rebounds faster coming out of an economic slump, with stronger job growth about a year after a U.S. recession ends.
"Nashville may enter recessions a bit earlier, but (it) also recovers quickly and much more robustly than the nation in many instances," said Harper, who studied economic data from the early 1970s until the present day to reach his conclusions.
SPECIFIC REASONS TO BE HOPEFUL:
• While home sales are down in the Nashville area, as in the rest of the nation, local prices have remained relatively stable. The median price of a single-family home was just under $170,000 here in September, down 7 percent from a year earlier but far from the double-digit declines seen in many harder-hit cities.
• A shift away from overdependence on manufacturing jobs in the past 30 years makes the eight-county Middle Tennessee region less prone to economic downturns. Diversity of jobs is key to the area's resilience. Manufacturing employs about 10 percent of the area's work force, down from 14.1 percent in 2000.
• The presence of numerous universities in and around Nashville gives the area another source of highly skilled workers, even if it doesn't always lead directly to local job growth.
• One in five Nashville-area workers are self-employed, and that generally helps speed economic recoveries. Others who lose corporate jobs start their own businesses, and that helps as well, said Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University.
As the economic climate of our nation has settled on dark times......it looks like middle Tennessee may offer a ray of hope for it's community.
Rich Storey
Mortgage Advisor
615.260.8028
Optimism reigns that Nashville will weather recession
Diverse economy, educated work force make region resilient
In past economic slumps, the Nashville area's Goldilocks economy — never overheated, but not too cold either — has usually experienced shorter dives and quicker recoveries than the nation as a whole because of the region's diverse economy and well-educated work force.
That history has left many forecasters and business leaders here optimistic that a national recession triggered by a widespread housing meltdown will deal a much softer — and shorter-lived — blow to Music City business owners and job hunters than to the country as a whole.
A recent report by Garrett Harper, the chamber's research director, shows that Nashville's economy may stumble when the nation's does, but it generally rebounds faster coming out of an economic slump, with stronger job growth about a year after a U.S. recession ends.
"Nashville may enter recessions a bit earlier, but (it) also recovers quickly and much more robustly than the nation in many instances," said Harper, who studied economic data from the early 1970s until the present day to reach his conclusions.
SPECIFIC REASONS TO BE HOPEFUL:
• While home sales are down in the Nashville area, as in the rest of the nation, local prices have remained relatively stable. The median price of a single-family home was just under $170,000 here in September, down 7 percent from a year earlier but far from the double-digit declines seen in many harder-hit cities.
• A shift away from overdependence on manufacturing jobs in the past 30 years makes the eight-county Middle Tennessee region less prone to economic downturns. Diversity of jobs is key to the area's resilience. Manufacturing employs about 10 percent of the area's work force, down from 14.1 percent in 2000.
• The presence of numerous universities in and around Nashville gives the area another source of highly skilled workers, even if it doesn't always lead directly to local job growth.
• One in five Nashville-area workers are self-employed, and that generally helps speed economic recoveries. Others who lose corporate jobs start their own businesses, and that helps as well, said Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University.
As the economic climate of our nation has settled on dark times......it looks like middle Tennessee may offer a ray of hope for it's community.
Saturday, November 1, 2008
Memphis Ranks Nationally for Real Estate Investing
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Memphis Tennessee has landed in the Top 15 cities that will make investors money within 2 years. The Uptown Group is a full service Real Estate Investing Firm located in Memphis, TN.
See below.
Top 15 Cities Where You Will Make Money In Real Estate In 2 Years
St. Louis, MO-IL
Milwaukee-Waukesha-West Allis; WI
Charlotte-Gastonia-Concord; NC-SC
Cincinnati-Middletown; OH-KY-IN
Denver-Aurora; CO
Columbus; OH
Austin-Round Rock; TX
Kansas City; MO-KS
Indianapolis-Carmel; IN
Memphis, TN-MS-AR
San Antonio; TX
Pittsburgh; PA
Houston-Sugar Land-Baytown; TX
Dallas-Plano-Irving; TX
Fort Worth-Arlington; TX
Rich Storey
Mortgage Advisor
615.260.8028
Memphis Tennessee has landed in the Top 15 cities that will make investors money within 2 years. The Uptown Group is a full service Real Estate Investing Firm located in Memphis, TN.
See below.
Top 15 Cities Where You Will Make Money In Real Estate In 2 Years
St. Louis, MO-IL
Milwaukee-Waukesha-West Allis; WI
Charlotte-Gastonia-Concord; NC-SC
Cincinnati-Middletown; OH-KY-IN
Denver-Aurora; CO
Columbus; OH
Austin-Round Rock; TX
Kansas City; MO-KS
Indianapolis-Carmel; IN
Memphis, TN-MS-AR
San Antonio; TX
Pittsburgh; PA
Houston-Sugar Land-Baytown; TX
Dallas-Plano-Irving; TX
Fort Worth-Arlington; TX
Gov't Plans to help with Refi's
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.USAToday.com
Plan to refinance mortgages may save millions of homes
By Anna Bahney and Kathy Chu, USA TODAY
The government is weighing a plan to restructure hundreds of billions of dollars in home mortgages, its most ambitious effort yet to curb high foreclosures.
The plan is expected to help 2 million to 3 million homeowners at risk of losing their homes and cost the Treasury Department $40 billion to $50 billion, according to two sources familiar with the matter. The plan is still being finalized, and the details could change, the sources said. They declined to speak on the record because they were not authorized to discuss the proposal.
Under the proposal discussed, banks, thrifts and other mortgage servicers would stave off foreclosures by restructuring loans based on a homeowner's ability to pay. They could do so by lowering homeowners' principal balance, reducing interest rates or changing the loan terms.
Foreclosures in the past year have dragged down the economy. In September, foreclosure filings hit 265,968, a 12% decrease from the previous month but up 21% from September 2007, according to RealtyTrac. While the pace of foreclosures has slowed because of recent prevention efforts, mortgage delinquencies continue to grow.
In September, homeowners were at least 90 days late on 4.6% of outstanding mortgages, up from 2.9% in September 2007, according to First American CoreLogic.
FIND MORE STORIES IN: United States Treasury Department Federal Deposit Insurance Corp RealtyTrac CoreLogic
The government's latest plan to help struggling homeowners goes well beyond previous private and government efforts. It addresses the largest number of homeowners yet in a standardized way, instead of encouraging lenders to deal with borrowers on a case-by-case basis. Sheila Bair, chairman of the Federal Deposit Insurance Corp., said last week that the government is working to craft a plan that would help beleaguered homeowners.
"Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards," Bair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."
Andrew Gray, a spokesman for the FDIC, said the agency has had "productive conversations with Treasury and the (Bush) administration about options for the use of credit enhancements and loan guarantees." Still, he said, "it would be premature to speculate about any final framework or parameters of a potential program."
Treasury, in a statement, said that details of the plan widely reported in the media Wednesday were "simply inaccurate." It said department officials "have not decided on a particular approach."
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.USAToday.com
Plan to refinance mortgages may save millions of homes
By Anna Bahney and Kathy Chu, USA TODAY
The government is weighing a plan to restructure hundreds of billions of dollars in home mortgages, its most ambitious effort yet to curb high foreclosures.
The plan is expected to help 2 million to 3 million homeowners at risk of losing their homes and cost the Treasury Department $40 billion to $50 billion, according to two sources familiar with the matter. The plan is still being finalized, and the details could change, the sources said. They declined to speak on the record because they were not authorized to discuss the proposal.
Under the proposal discussed, banks, thrifts and other mortgage servicers would stave off foreclosures by restructuring loans based on a homeowner's ability to pay. They could do so by lowering homeowners' principal balance, reducing interest rates or changing the loan terms.
Foreclosures in the past year have dragged down the economy. In September, foreclosure filings hit 265,968, a 12% decrease from the previous month but up 21% from September 2007, according to RealtyTrac. While the pace of foreclosures has slowed because of recent prevention efforts, mortgage delinquencies continue to grow.
In September, homeowners were at least 90 days late on 4.6% of outstanding mortgages, up from 2.9% in September 2007, according to First American CoreLogic.
FIND MORE STORIES IN: United States Treasury Department Federal Deposit Insurance Corp RealtyTrac CoreLogic
The government's latest plan to help struggling homeowners goes well beyond previous private and government efforts. It addresses the largest number of homeowners yet in a standardized way, instead of encouraging lenders to deal with borrowers on a case-by-case basis. Sheila Bair, chairman of the Federal Deposit Insurance Corp., said last week that the government is working to craft a plan that would help beleaguered homeowners.
"Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards," Bair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."
Andrew Gray, a spokesman for the FDIC, said the agency has had "productive conversations with Treasury and the (Bush) administration about options for the use of credit enhancements and loan guarantees." Still, he said, "it would be premature to speculate about any final framework or parameters of a potential program."
Treasury, in a statement, said that details of the plan widely reported in the media Wednesday were "simply inaccurate." It said department officials "have not decided on a particular approach."
Subscribe to:
Posts (Atom)