But the bill does more than simply bail out the participants in the mortgage market mess. Others may benefit as well. Here’s who will benefit from the housing relief bill:

• Fannie Mae and Freddie Mac. These two government sponsored enterprises (GSEs) are getting the ultimate bail out. The housing relief bill authorizes the government to extend even more credit to the mortgage lenders, as well as to buy equity in the companies and make emergency loans. Happily, the bill also institutes a regulation of GSEs — something that has been sorely lacking and one of the reasons that Fannie and Freddie have capitalization that would bring any truly private company down.
• First-time Homebuyers. The bill offers a tax benefit of the lesser of 10% of the home’s purchase price or $7,500 to first-time homebuyers. Nice for first-time buyers. But where was this incentive last year, when I was buying a home?
• Homeowners facing foreclosure. Some homeowners facing foreclosure (an estimated 400,000) will be able to refinance their loans through the FHA. I think, though, that this is likely to merely delay the inevitable. Not to mention that 400,000 is just a drop in the bucket compared with the estimated more than 2 million foreclosures through 2009.
• US Creditors. Congress is raising the cap it has on the national debt

by $800 million. This brings the new national debt ceiling to $10.6 trillion. Aside from the fact that even having a national debt ceiling is a farcical exercise in futility, this move is one to be concerned about. This increases our interest payments to creditors, and could possibly devalue the dollar further — not to mention contribute to inflation.

• IRS. The Internal Revenue Service is also likely to get a boost. Tucked into this several-hundred page document is an amendment that requires electronic payment processors (like PayPal) and credit card processors, to report business transactions. For the IRS, this means increased revenue, ostensibly meant to offset the money spent on the housing bail out. This means that yet another third party is going to need to store your tax-ID number. Additionally, this also creates a situation that would allow the IRS to look through your transactions and decide what may be “too many” for your industry or collect any number of privacy-invading data.

What do you think of the housing the relief bill?

Post from: EveryJoe

Who Will Benefit from the Housing Relief Bill?

“But wait,” you say. “Didn’t someone have to decide to take on these mortgages?” And that’s just the point that Dan at Property Crossroads makes regarding the current mortgage mess:

 Of course, the lenders aren’t the only ones who screwed up during the housing boom. Borrowers got too greedy, stretching themselves financially to get that bigger house. Real estate agents were too greedy, too, encouraging buyers to overbid on houses that weren’t really worth what buyers were paying for them. Builders built too many houses, too quickly.

The first rule of successful personal finances is this: Exercise control in your personal finance decisions and live well within your means. 

Post from: EveryJoe

Warren Buffett Takes Mortgage Lenders to Task

In all the hoopla surrounding last week’s tax rebate announcement, the fact that the new plan allows for a temporary raise to the conforming loan limit was lost. The Seattle Times reports on this conforming loan limit move:

It would raise loan limits temporarily above $700,000 for the quasi-government entities Fannie Mae and Freddie Mac, which fund the bulk of the nation’s mortgages. Until now, these entities couldn’t buy and package mortgages larger than $417,000, the so-called conventional-loan limit. …

The House plan would permanently increase the maximum loan size for mortgages backed by the Federal Housing Administration (FHA) from $362,790 to $729,750.

For high-priced housing markets, this means that more people, especially first time home buyers, will be able to get conventional mortgages, rather than having to resort to much more expensive jumbo loans.

But no matter where you live, no matter the housing prices, you are probably in a buyer’s market. If you can afford to, now is the time to buy.

Post from: EveryJoe

Conforming Loan Limit to Get Boost

And, in an effort to ward off criticism that the Fed is more concerned with inflation than it is with the credit crisis, the Fed unveiled a plan this morning to inject cash liquidity into the financial markets.

But the bottom line is this: All of it is an effort to kowtow a bit to Wall Street. It’s not really about the “regular folks.” In USA Daily, Presidential candidate Ron Paul points out that, despite the perceived-conservativeness of the rate cut, inflation will still rear its ugly head:

“Inflationary monetary policies created the problems in the economy we are seeing, and these problems will be made worse, not better, by more inflation. And today’s action by the Fed is very bad news for American workers and retirees who are about to get hit with yet another jump in prices.”

And, of course, more liquidity didn’t solve problems back in the summer when the Fed tried a cash infusion. Will it work now, in the form of reserve auctions? Who knows…

Unfortunately, Fed rate cuts and cash infusions don’t solve the underlying problems of the mortgage market and the economy of easy money any more than the five year mortgage rate freeze will. The Wall Street Journal says it very well:

In any case, it isn’t at all clear that more liquidity is the solution to what is fundamentally a solvency problem. The world isn’t suffering from a dearth of dollars, but rather from the fact that mortgage and real-estate assets are worth much less than banks and homeowners once thought.

And don’t forget that part of this problem is caused by poor financial decision-making: lenders who lent to people that maybe shouldn’t have bought a home, investors who invested in the bad debt and homeowners who bought more house than they could afford. In order for true change to take place, and true economic recovery to manifest, a fundamental change in the way our society views and deals with debt must be made.

Post from: EveryJoe

Yesterday’s Fed Rate Cut…And Today’s Liquidity Plan

Rep. Tom Feeney, R-Fla., called HR 3915 “the landlords and lawyers relief act,” because he said it would make it more difficult for renters to become home buyers, and make lenders and the investors who back them more vulnerable to lawsuits.

Why are so many hating on what appears, at least by the long title (Mortgage Reform and Anti-Predatory Lending Act of 2007), to be a positive step to help us avoid another subprime lending crash? Well, because according to some, it does no such thing.

Mortgage lenders complain that the limits to their incentives and prepayment penalties hurt would-be borrowers as much as themselves, reports Inman:

Some critics said the bill, in attempting to eliminate incentives for loan originators to place borrowers in higher-cost loans, would not allow borrowers to choose a loan with higher up-front fees in exchange for a lower interest rate.

But why are consumer groups upset? Well, because they feel the predatory lending bill, as passed by the House, is a step backward for borrower protections. ConsumerAffairs.com reports on their concerns:

“We cannot support a bill that eliminates strong state-law remedies for the victims of predatory mortgage abuses,” said Ed Mierzwinski, consumer program director of U.S. PIRG. “Consumers need these protections now more than and ever, and intentionally or not, this federal law creates rights without remedies.”

That’s right. The new law pre-empts tough laws many states already have in place, replacing them with a federal standard of protection that some feel is essentially toothless.

But all is not lost for consumer groups and mortgage lenders. The bill still has to pass the Senate, and a Senate version with some differences is already in the works. And then it has to pass presidential muster as well. So there is plenty of time for the predatory lending bill to change.

Post from: EveryJoe

Financial News: Predatory Lending Bill

Even though mortgage lenders and other creditors, such as credit card companies, do deserve some of the blame for the current credit crisis situation, some of the blame does rest on us. After all, we were the ones that bought into the idea of easy money that can help us get what we want now.

The bottom line is that more education is needed in order to help more Americans take responsibility for their personal finance situations. We need to spread bet word about credit used wisely, and the virtues of buying only what we can actually afford.

Until that happens, any predatory lending bill will only address part of the problem.

Post from: EveryJoe

Predatory Lending Bill Does Little in Way of Education

1. Pay your bills on time and in full. This is a biggie. Missed payments, or payments that come in below the minimum show you as irresponsible and unreliable. Give yourself plenty of time to make payments, and pay the minimum. If you are having troubled, contact your creditor before things get too desperate and make arrangements. As long as you try, and as long as you get things back together, most creditors will delay reporting your to the credit bureaus.
2. Keep maintained bank accounts. Checking and savings accounts show stability and responsibility.
3. Maintain long-standing accounts. I have a credit card that doesn’t do me much good. It has no rewards program. But it is the oldest credit card I’ve got. Every now and then I buy a pizza or a pair of shoes on it. Then pay off the balance. This credit card establishes that I have a long credit history. This is a good thing.
4. Use your name consistently on credit applications. Pick a version of your name and stick with it. Just altering the middle initial can make it look like you are attempting to get more credit under other names. This can be rough for women, but if you change your name upon marriage, use one version of that name. This will show only one alias for you, and it’s a pretty obvious one.
5. Try to focus on “good” credit. “Good” credit includes things like reasonable auto loans, home loans and major bank credit cards used judiciously. Retail store credit cards and finance company loans are not considered “good.” That payday loan or that Xpress card will damage your rate more than a personal loan from a major bank or a Visa card.
6. Get rid of “pre-screened” offers. Preferably by shredding them. These offers come to you, but don’t affect your credit score until you fill out and send in the application. The more inquiries into your credit, the lower your score. You can get a good credit score boost by not applying for credit for at least six months.
7. Fix mistakes on your credit report. Check your credit report regularly for discrepencies and mistakes. My credit report was showing duplicate accounts, as if I had two credit cards with one company. I disputed and had the extra account removed from my report. My credit score went up by 8 points immediately. Make sure you fix any mistakes you find on your credit report.

Post from: EveryJoe

Give Your Credit Score a Boost