Credit scores range between 200 and 800. Scores above 720 are considered desirable for obtaining a mortgage. These factors will affect your score.
Your payment history. Whether you paid credit card obligations on time.
How much you owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.
The length of your credit history. In general, the longer the better.
How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.
The types of credit you use. Generally, it’s desirable to have more than one type of credit—installment loans, credit cards, and a mortgage, for example.
For more on evaluating and understanding your credit score, go to http://www.myfico.com.
Tuesday, December 23, 2008
5 Common First-Time Homebuyer Mistakes
They don’t ask enough questions of their lender and miss out on the best deal.
They don’t act quickly enough to make a decision and someone else buys the house.
They don’t find the right real estate professional who is willing to help you through the home buying process.
They don’t do enough to make their offer look good to a seller.
They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.
Reprinted with permission from Real Estate Checklists and Systems (www.realestatechecklists.com)
They don’t act quickly enough to make a decision and someone else buys the house.
They don’t find the right real estate professional who is willing to help you through the home buying process.
They don’t do enough to make their offer look good to a seller.
They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.
Reprinted with permission from Real Estate Checklists and Systems (www.realestatechecklists.com)
Saturday, December 20, 2008
Attracting What You Want - 4 Ways to Supercharge Your Positive Thinking
Many people have come to realize that what we are focused upon often
manifests itself in our lives. Thus, if we are apprehensive about or
fearful of events in the future, we will often attract that very thing
into our lives. Fortunately, it works the other direction as well. If
we are strongly focused on what we want, and imagine it happening in
our minds, frequently we will receive it, or a form of it, into our
lives. Here are four powerful ways to optimize your ability to focus
on what you want:
manifests itself in our lives. Thus, if we are apprehensive about or
fearful of events in the future, we will often attract that very thing
into our lives. Fortunately, it works the other direction as well. If
we are strongly focused on what we want, and imagine it happening in
our minds, frequently we will receive it, or a form of it, into our
lives. Here are four powerful ways to optimize your ability to focus
on what you want:
1. Take care of your physical body. The mind and body are intricately
connected, and care of one will benefit the other. Make sure you are
eating healthy foods, taking appropriate multivitamins and calcium,
and exercising regularly. These measures will elevate your mood and
clear your mind, allowing you to think about the things you desire.
2. Rid your mind of negative thinking. If you are harboring anger
toward someone or something, allow yourself the full negative emotion
and note how it affects your mood and physical body. Make a conscious
decision to release this negative feeling inside yourself for your own
benefit. Remind yourself that you are here and now, exactly where you
are meant to be. Assure yourself that whatever decisions you made
regarding the situation, they were the best decisions for you at the
time.
3. Allow that the other person or event has its limitations, and if it
is a person, that this individual did what he or she could with what
they have to work with. Visualize releasing this person or event into
the universe, back to the God who had purpose for it. Begin to seek
out the benefits of the experience and look ahead toward what you may
constructively do with your experience.
4. Begin daydreaming about the things you want. Is it a material item
like a car? A romantic partner? A new job? Allow yourself to think big
and experience in your sensory capacity what it will feel like, look
like, smell like, and taste like to have that thing. Anytime a doubt
or negative thought that you "can't have that" comes into your mind,
imagine a big red "X" through the thought or image, and verbally say
"Cancel". Repeat as often as necessary to plant the positive mindset.
Article Source: http://EzineArticles.com/?expert=Shannon_E_Cook
How to spend $350 billion in 77 days
In two-and-a-half months, the Treasury has used up half of the money
from the Troubled Asset Relief Program. Here's how it came and went so
fast.
from the Troubled Asset Relief Program. Here's how it came and went so
fast.
NEW YORK (CNNMoney.com) -- President Bush has grudgingly allowed
General Motors and Chrysler to drive away with the last few billion
bucks in Treasury's TARP till, which boasted $350 billion a mere 77
days ago.
How did it all slip away so fast?
The money pot -- intended to save the teetering financial system --
was formally proposed in a three-page missive that Treasury sent to
Congress on the morning of Saturday, Sept. 20.
Over the course of two weeks, lawmakers debated the potential moral,
ethical and financial hazards of handing over unprecedented power and
unprecedented sums of taxpayer money to the Treasury. Their responses
ranged from gobsmacked to apoplectic.
By Friday, Oct. 3, Congress had passed a 451-page bill that President
Bush signed into law within hours. The law granted Treasury up to $700
billion, half of which was made available right away.
Since then, Treasury has:
sent checks totaling $168 billion in varying amounts to 116 banks;
committed another $82 billion to capitalize more banks;
bought $40 billion in preferred shares of American International Group
(AIG, Fortune 500) so the troubled insurer could pay off an earlier
loan from the Federal Reserve;
committed $20 billion to back any losses that the Federal Reserve Bank
of New York might incur in a new program to lend money to owners of
securities backed by credit card debt, student loans, auto loans and
small business loans;
committed to invest $20 billion in Citigroup on top of $25 billion the
bank had already received;
committed $5 billion as a loan loss backstop to Citigroup;
agreed to loan $13.4 billion to GM and Chrysler to get them through
the next few months.
That next $350B? Maybe not yet, Hank
Now, it's likely that Treasury will ask for the second tranche of $350
billion.
"It's clear Congress will need to release the remainder of the TARP to
support financial market stability," Treasury Secretary Henry Paulson
said Friday. "I will discuss that process with the congressional
leadership and the president-elect's transition team in the near
future."
It's not clear, however, whether Paulson will formally ask Congress
for the second tranche of TARP money before turning over the keys of
the Treasury to his likely successor, Tim Geithner.
Even if Paulson wants to, however, he's likely to face an uphill
battle getting it.
"It seems very unlikely that Congress will give the final TARP
installment to the Bush administration," said Jaret Seiberg, a
financial services analyst at policy research firm Stanford Group.
That's because the apoplexy among those who originally opposed the
TARP or who voted for it reluctantly has grown and spread for several
reasons.
One cause of Capitol Hill's bailout rage: the Treasury has not used
TARP money to help prevent foreclosures. Democratic lawmakers, who
crafted the legislation and purposefully included language about
foreclosure prevention, beg to differ. They have said repeatedly they
will not release any more TARP money until the Treasury commits to use
some of it to help troubled homeowners.
Second, lawmakers are not happy Treasury has given so much capital to
banks without requiring them to lend more and do more to oversee how
the banks are using the money. Paulson has said Treasury told TARP
recipients that it expects them to lend. "But it's not practical or
prudent for the government to say 'make this loan, don't make that
loan,'" he said Thursday, speaking at an event in New York.
And third, Republicans in particular resent what they see as TARP
mission creep. House Minority Leader John Boehner, R-Ohio, was one of
many who opposed the auto bailout, and the fact that TARP was the
source of the bridge loans in particular.
"The use of TARP funds is also regrettable, the latest in a growing
list of TARP money uses that were not discussed with or envisioned by
Congress when the program was authorized," Boehner said Friday.
House Speaker Nancy Pelosi, D-Calif., has said she is working on a
bill to add more guarantees that future TARP funds be used to prevent
foreclosures and protect taxpayers. But it's not clear yet how much
Democratic support that will get. And there is near total Republican
opposition in the House to approve any more TARP funding.
If that remains the case, the Obama team will have to add yet another
entry to its ever-growing to-do list when they take power on Jan. 20.
- CNN congressional producer Deirdre Walsh contributed to this report.
First Published: December 19, 2008: 4:13 PM ET
http://money.cnn.com/2008/12/19/news/economy/tarp_tale_of_first350b/index.htm?postversion=2008121916
Friday, December 19, 2008
A Second Mortgage Disaster On The Horizon?
Dec. 14, 2008
(CBS) When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.
As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.
One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.
"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."
In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work, analyzing the millions of mortgages that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the sub-primes, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgages.
"It was data we'd never seen before and that's what made us realize, 'Holy cow, things are gonna be much worse than anyone anticipates,'" Tilson says.
The trouble now is that the insanity didn't end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.
"The defaults right now are incredibly high. At unprecedented levels. And there's no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall," Tilson explains.
"What you seem to be saying is that there is a very predictable time bomb effect here?" Pelley asks.
"Exactly. I mean, you can look back at what was written in '05 and '07. You can look at the reset dates. You can look at the current default rates, and it's really very clear and predictable what's gonna happen here," Tilson says.
Just look at a projection from the investment bank of Credit Suisse: there are the billions of dollars in sub-prime mortgages that reset last year and this year. But what hasn't hit yet are Alt-A and option ARM resets, when homeowners will pay higher interest rates in the next three years. We're at the beginning of a second wave.
"How big is the potential damage from the Alt As compared to what we just saw in the sub-primes?" Pelley asks.
"Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That's probably another $500 billion to $600 billion on top of that," Tilson says.
Asked how many of these option ARMs he imagines are going to fail, Tilson says, "Well north of 50 percent. My gut would be 70 percent of these option ARMs will default."
"How do you know that?" Pelley asks.
"Well we know it based on current default rates. And this is before the reset. So people are defaulting even on the little three percent teaser interest-only rates they're being asked to pay today," Tilson says.
That second wave is coming ashore at a place you might call the "Repo Riviera" - Miami Dade County. Oscar Munoz used to sell real estate; now his company clears out foreclosed homes.
"Business is just going through the roof for us. Fortunately for us, unfortunately for the poor families who are going through this," Munoz explains.
"I wonder do you ever come to houses where the people are still here?" Pelley asks.
"Absolutely," Munoz says. "That's really a sad situation. I'd rather not meet the people."
Asked why not, Munoz says, "It's not easy to come in and move a family out. It's just our job to do it for the bank. It's just the nature of what's going in the market right now."
Munoz says his company alone gets about 20 to 30 assignments per day. "And we're one of the few companies right now who are hiring. We have to hire people because the demand is so high," he tells Pelley.
People who've been evicted tend to leave stuff behind. The next house is usually much smaller. Banks hire Munoz to move the possessions out where, by law, they remain for 24 hours. Often the neighbors pick through the remains.
Once the homes are empty the hard part starts - trying to find buyers in a free-fall market.
Miami real estate broker Peter Zalewski talks like a man with a lot of real estate to move. "We have 110,000 properties for sale in South Florida today, 55,000 foreclosures, 19,000 bank owned properties. Sixty-eight percent of the available inventory is in some form of distress. They need someone to clean it up."
Asked what the name of his company is, Zalewski says, "It's called Condo Vultures Realty."
What does that mean?
"That in times of distress, and in times of downturn, there's opportunity. And you know, vultures clean up the mess. A lot of people seem to think they kill, but they don't actually kill, they clean," he says.
The killing, in Miami, was done by the developers back when it seemed that the party would never end. They sold hyper-inflated condos at what amounted to real estate orgies-sales parties for invited guests who were armed with option ARM and Alt-A loans. "There were red ropes outside. They had hired cameramen, and they had hired photographers to almost set the scene of a paparazzi," Zalewski remembers.
"They were hiring fake paparazzi? To make the customers feel like they were special?" Pelley asks.
"You were selling a lifestyle," Zalewski says.
Asked what roles these exotic mortgages played, Zalewski says, "They were essential. They were necessary. Without the Alt A or option ARM mortgage, this boom never would've occurred."
It never would have occurred because without the Alt As and the option ARMs, many buyers never would have qualified for a loan. The banks and brokers were getting their money up front in fees, so the more they wrote, the more they made.
"They stopped checking whether the income was even real. They turned to low and no-doc loans, so-called 'liar's loans' and jokingly referred to as 'ninja loans.' No income, no job, no assets. And they were still willing to lend," Tilson says.
"But help me out here. How does that make sense for the lender? It would seem to be reckless, in the extreme," Pelley remarks.
"It was," Tilson agrees. "But the key assumption underlying, the willingness to do this was that home prices would keep going up forever. And in fact, home prices nationwide had never declined since the Great Depression."
On the way up, everyone wanted in. No one expected to feel any pain. People like acupuncturist Rula Giosmas became real estate speculators.
Giosmas says she bought about six properties in this last five-year period as investments. She says she put 20 percent down on each. Now they're all financed with option ARM loans.
Asked what she understood about the loans, Giosmas says, "Well, unfortunately, I didn't ask too many questions. I mean in the old days, I would shop around. But because of the frenzy, and I was so busy looking to buy other properties, I didn't really focus on shopping around for mortgage brokers."
"But if you're investing in real estate, you're buying multiple properties, you should be asking a lot of questions," Pelley remarks. "Why didn't you ask?"
"I was busy. I was really busy looking at property all the time, all day long," she replies.
She also acknowledges that she didn't read the paperwork. Now she's losing money on every property.
"You know that there are people watching this interview who are saying, 'You know, she was just foolish. She was greedy and foolish. She was buying small apartment buildings and wasn't paying enough attention to how they were financed,'" Pelley points out.
"My full-time job is I'm an acupuncturist. So, this was just a side thing," she says.
Giosmas says she was misled and she hopes to renegotiate her loans. But many other buyers have simply walked away from their properties. One Miami luxury building was a sellout, but when 60 Minutes visited, a quarter of the condos were in foreclosure.
Zalewski says one of those condos was originally purchased in October 2006 for $2.4 million. Now he says the asking price from the lender is $939,000.
And there are tough years to come because, just like the sub-primes, the Alt-A and option ARM mortgages were bundled into Wall Street securities and sold to investors.
Sean Egan, who runs a credit rating firm that analyzes corporate debt, says he expects 2009 to be miserable and 2010 also miserable and even worse.
Fortune Magazine cited Egan as one of six Wall Street pros who predicted the fall of the financial giants.
"This next wave of defaults, which everyone agrees is inevitably going to happen, how central is that to what happens to the rest of the economy?" Pelley asks.
"It's core. It's core, because housing is such an important part. We're not going to get the housing industry back on track until we clear out this garbage that's in there," Egan explains.
"That hasn't cleared out yet. We haven't seen the bottom," Pelley remarks.
"It's getting worse," Egan says. "There are some statistics from the National Association of Realtors, and they track the supply of housing units on the market. And that's grown from 2.2 million units about three years ago, up to 4.5 million units earlier this year. So you have the massive supply out there of units that need to be sold."
"What with the housing supply increasing that much, what does it mean?" Pelley asks.
"It means that this problem, the economic difficulties, are not going to be resolved in a short period of time. It's not gonna take six months, it's not gonna 12 months, we're looking at probably about three, four, five years, before this overhang, this supply overhang is worked through," Egan says.
In the next four years, eight million American families are expected to lose their homes. But even after the residential meltdown, Whitney Tilson says blows to the financial system will keep coming.
"The same craziness that occurred in the mortgage market occurred in the commercial real estate markets. And that's taking a little longer to show. But there are gonna be big losses there. Credit cars, auto loans. You name it. So, we're still, you know, we're maybe halfway through the mortgage bubble. But we may only be in the third inning of the overall bursting of this asset bubble," Tilson says.
"Does that mean that the stock market is gonna continue plunging as we've seen the last several months?" Pelley asks.
"Actually we're the most bullish we've been in 10 years of managing money. And the reason is because the stock market, for the first time I can say this, in years, has finally figured out how bad things are going to be. And the stock market is forward looking. And with U.S. stocks down nearly 50 percent from their highs, we're actually finding bargains galore. We think corporate America's on sale," Tilson says.
The stock market will still have a lot of figuring to do with more troubling news on the horizon. The mortgage bankers association says one out of 10 Americans is now behind on their mortgage. That's the most since they started keeping records in 1979.
http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml (CBS) When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.
As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.
One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.
"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."
In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work, analyzing the millions of mortgages that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the sub-primes, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgages.
"It was data we'd never seen before and that's what made us realize, 'Holy cow, things are gonna be much worse than anyone anticipates,'" Tilson says.
The trouble now is that the insanity didn't end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.
"The defaults right now are incredibly high. At unprecedented levels. And there's no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall," Tilson explains.
"What you seem to be saying is that there is a very predictable time bomb effect here?" Pelley asks.
"Exactly. I mean, you can look back at what was written in '05 and '07. You can look at the reset dates. You can look at the current default rates, and it's really very clear and predictable what's gonna happen here," Tilson says.
Just look at a projection from the investment bank of Credit Suisse: there are the billions of dollars in sub-prime mortgages that reset last year and this year. But what hasn't hit yet are Alt-A and option ARM resets, when homeowners will pay higher interest rates in the next three years. We're at the beginning of a second wave.
"How big is the potential damage from the Alt As compared to what we just saw in the sub-primes?" Pelley asks.
"Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That's probably another $500 billion to $600 billion on top of that," Tilson says.
Asked how many of these option ARMs he imagines are going to fail, Tilson says, "Well north of 50 percent. My gut would be 70 percent of these option ARMs will default."
"How do you know that?" Pelley asks.
"Well we know it based on current default rates. And this is before the reset. So people are defaulting even on the little three percent teaser interest-only rates they're being asked to pay today," Tilson says.
"Business is just going through the roof for us. Fortunately for us, unfortunately for the poor families who are going through this," Munoz explains.
"I wonder do you ever come to houses where the people are still here?" Pelley asks.
"Absolutely," Munoz says. "That's really a sad situation. I'd rather not meet the people."
Asked why not, Munoz says, "It's not easy to come in and move a family out. It's just our job to do it for the bank. It's just the nature of what's going in the market right now."
Munoz says his company alone gets about 20 to 30 assignments per day. "And we're one of the few companies right now who are hiring. We have to hire people because the demand is so high," he tells Pelley.
People who've been evicted tend to leave stuff behind. The next house is usually much smaller. Banks hire Munoz to move the possessions out where, by law, they remain for 24 hours. Often the neighbors pick through the remains.
Once the homes are empty the hard part starts - trying to find buyers in a free-fall market.
Miami real estate broker Peter Zalewski talks like a man with a lot of real estate to move. "We have 110,000 properties for sale in South Florida today, 55,000 foreclosures, 19,000 bank owned properties. Sixty-eight percent of the available inventory is in some form of distress. They need someone to clean it up."
Asked what the name of his company is, Zalewski says, "It's called Condo Vultures Realty."
What does that mean?
"That in times of distress, and in times of downturn, there's opportunity. And you know, vultures clean up the mess. A lot of people seem to think they kill, but they don't actually kill, they clean," he says.
The killing, in Miami, was done by the developers back when it seemed that the party would never end. They sold hyper-inflated condos at what amounted to real estate orgies-sales parties for invited guests who were armed with option ARM and Alt-A loans. "There were red ropes outside. They had hired cameramen, and they had hired photographers to almost set the scene of a paparazzi," Zalewski remembers.
"They were hiring fake paparazzi? To make the customers feel like they were special?" Pelley asks.
"You were selling a lifestyle," Zalewski says.
Asked what roles these exotic mortgages played, Zalewski says, "They were essential. They were necessary. Without the Alt A or option ARM mortgage, this boom never would've occurred."
It never would have occurred because without the Alt As and the option ARMs, many buyers never would have qualified for a loan. The banks and brokers were getting their money up front in fees, so the more they wrote, the more they made.
"They stopped checking whether the income was even real. They turned to low and no-doc loans, so-called 'liar's loans' and jokingly referred to as 'ninja loans.' No income, no job, no assets. And they were still willing to lend," Tilson says.
"But help me out here. How does that make sense for the lender? It would seem to be reckless, in the extreme," Pelley remarks.
"It was," Tilson agrees. "But the key assumption underlying, the willingness to do this was that home prices would keep going up forever. And in fact, home prices nationwide had never declined since the Great Depression."
On the way up, everyone wanted in. No one expected to feel any pain. People like acupuncturist Rula Giosmas became real estate speculators.
Asked what she understood about the loans, Giosmas says, "Well, unfortunately, I didn't ask too many questions. I mean in the old days, I would shop around. But because of the frenzy, and I was so busy looking to buy other properties, I didn't really focus on shopping around for mortgage brokers."
"But if you're investing in real estate, you're buying multiple properties, you should be asking a lot of questions," Pelley remarks. "Why didn't you ask?"
"I was busy. I was really busy looking at property all the time, all day long," she replies.
She also acknowledges that she didn't read the paperwork. Now she's losing money on every property.
"You know that there are people watching this interview who are saying, 'You know, she was just foolish. She was greedy and foolish. She was buying small apartment buildings and wasn't paying enough attention to how they were financed,'" Pelley points out.
"My full-time job is I'm an acupuncturist. So, this was just a side thing," she says.
Giosmas says she was misled and she hopes to renegotiate her loans. But many other buyers have simply walked away from their properties. One Miami luxury building was a sellout, but when 60 Minutes visited, a quarter of the condos were in foreclosure.
Zalewski says one of those condos was originally purchased in October 2006 for $2.4 million. Now he says the asking price from the lender is $939,000.
And there are tough years to come because, just like the sub-primes, the Alt-A and option ARM mortgages were bundled into Wall Street securities and sold to investors.
Sean Egan, who runs a credit rating firm that analyzes corporate debt, says he expects 2009 to be miserable and 2010 also miserable and even worse.
Fortune Magazine cited Egan as one of six Wall Street pros who predicted the fall of the financial giants.
"This next wave of defaults, which everyone agrees is inevitably going to happen, how central is that to what happens to the rest of the economy?" Pelley asks.
"It's core. It's core, because housing is such an important part. We're not going to get the housing industry back on track until we clear out this garbage that's in there," Egan explains.
"That hasn't cleared out yet. We haven't seen the bottom," Pelley remarks.
"It's getting worse," Egan says. "There are some statistics from the National Association of Realtors, and they track the supply of housing units on the market. And that's grown from 2.2 million units about three years ago, up to 4.5 million units earlier this year. So you have the massive supply out there of units that need to be sold."
"What with the housing supply increasing that much, what does it mean?" Pelley asks.
"It means that this problem, the economic difficulties, are not going to be resolved in a short period of time. It's not gonna take six months, it's not gonna 12 months, we're looking at probably about three, four, five years, before this overhang, this supply overhang is worked through," Egan says.
"The same craziness that occurred in the mortgage market occurred in the commercial real estate markets. And that's taking a little longer to show. But there are gonna be big losses there. Credit cars, auto loans. You name it. So, we're still, you know, we're maybe halfway through the mortgage bubble. But we may only be in the third inning of the overall bursting of this asset bubble," Tilson says.
"Does that mean that the stock market is gonna continue plunging as we've seen the last several months?" Pelley asks.
"Actually we're the most bullish we've been in 10 years of managing money. And the reason is because the stock market, for the first time I can say this, in years, has finally figured out how bad things are going to be. And the stock market is forward looking. And with U.S. stocks down nearly 50 percent from their highs, we're actually finding bargains galore. We think corporate America's on sale," Tilson says.
The stock market will still have a lot of figuring to do with more troubling news on the horizon. The mortgage bankers association says one out of 10 Americans is now behind on their mortgage. That's the most since they started keeping records in 1979.
Produced by David Gelber and Joel Bach
© MMVIII, CBS Worldwide Inc. All Rights Reserved.
Monday, December 15, 2008
Federal Reserve Expected to Cut Rates to Near Zero
The Federal Reserve is expected to cut interest rates to close to zero on Tuesday and may point to further unconventional steps to battle a year-old recession.
Economists expect the US central bank to lower its target for benchmark overnight rates by at least a half-percentage point to 0.5 percent and clearly state it will deploy so-called quantitative easing measures to restore growth.
The Fed on Monday said US industrial production fell 0.6 percent in November, with manufacturing output shrinking 1.4 percent to put it 7.3 percent below its year-ago level. A separate index of manufacturing activity in New York state hit a record low in December.
The data offered a fresh sign that an already year-old U.S. recession is deepening, and underscores the case for aggressive and unconventional actions by the central bank's policy-setting Federal Open Market Committee.
Some economists expect US output to shrink at a 6 percent annual pace or more in the fourth quarter.
"Since there is precious little room between current target rates and zero, it will be more interesting to see if the FOMC statement begins to lay out any additional steps that might be undertaken in the new quantitative easing regime," said Max Bublitz, chief strategist at SCM Advisors in San Francisco.
Quantitative easing, which recalls the emergency steps taken by Japan to expand the supply and circulation of money to end a deflationary decade of stagnation in the 1990s, was discussed by Fed Chairman Ben Bernanke in a speech on Dec. 1.
"Our nation's economic policy must vigorously address the substantial risks to financial stability and economic growth," the Fed chief said.
Bernanke said the Fed could directly intervene in markets to stimulate the economy, saying it could purchase U.S. government bonds to drive down yields or private sector debt to narrow spreads and lower borrowing costs.
With yields on U.S. Treasury debt already very low, economists say the Fed may get better results by aiming at mortgage-backed securities. Increasing demand for these bonds should help to reduce mortgage rates, spurring demand for homes and hopefully halting the slide in housing prices.
The housing collapse has led to the worst financial crisis since the Great Depression and tipped the U.S. economy into recession last December. The downturn is already the longest since the 1980s, and economists hold out little hope for an upturn before mid-2009.
The Fed has already reduced the overnight federal funds rate 4.25 percentage points to 1 percent since September 2007.
It also has engaged in a degree of quantitative easing by pumping over $1 trillion into financial markets through a range of emergency liquidity facilities that it decided not to immediately sterilize, or withdraw, via daily operations.
This decision has seen the size of the Fed's balance sheet almost double from a year ago to $2.2 trillion.
Sterilization of Fed cash injections is normal practice to prevent excess money supply growth from stoking inflation, but that seems a like a distant problem at the moment.
In fact, some economists predict that the United States could suffer a deflationary period of its own in 2009, as tumbling oil and commodity prices, alongside increasing slack in the economy, deliver a sustained fall in general prices.
© 2008 CNBC.com
Sunday, December 14, 2008
Green Facts and Energy Saving Ideas
Start with Just a Bulb
Start with small changes that make a big difference in your own energy use and the pollution we generate on our planet. If every homeowner replaced their five most frequently used light fixtures or the bulbs in them with ones that have earned the ENERGY STAR label, we could save close to $8 billion each year in energy costs, and together we would prevent the greenhouse gases equivalent to the emissions from nearly 10 million cars!
Top Fixtures/Bulbs to Replace First:
Kitchen ceiling lights
Living/Family room table and floor lamps
Outdoor porch or post lamps
Facts
ENERGY STAR qualified lighting uses about 75% less energy than standard lighting, produces 75% less heat and lasts up to 10 times longer.
The energy used in the average home can be responsible for more than twice the greenhouse gas emissions of the average car. Helping with global climate change starts right at home with easy changes like light bulbs and fixtures.
Heart of the Home
Close to 50% of the energy used in your home goes to heating and cooling. It makes sense to ensure your systems are operating efficiently. We've listed some basics below.
Air Filters & Obstructions
Change the air filter on your furnace at least every 3 months to run it at its maximum efficiency. Clogged, dirty filters really reduce efficiency of your system and the air quality in your home.
Keep your vents and registers unobstructed. Move drapes, rugs and furniture away from heat registers and return-air vents. Free-flowing air through the furnace provides more comfort and will save you money.
Save Money with Regular Maintenance
Get a tune-up for your HVAC equipment yearly. Airflow and other problems can reduce your system's energy efficiency by 15%.
Choose ENERGY STAR
If you need a new furnace*, choose an ENERGY STAR qualified product. These furnaces have an annual fuel efficiency rating of 90% or higher making them up to 15% more energy efficient than standard models.
*If your furnace is more than 10 years old, you may want to consider a new, more efficient model. Depending upon where you live, you can save $200 or more a year, and improve the value of your home.
Install a Programmable Thermostat
An ENERGY STAR qualified programmable thermostat can save you $150 a year in energy costs! It will give you the flexibility to turn down the heat or air conditioning during the day and when you are away for extended periods of time.
Save 25 to 40% on Energy Costs
Seal your leaky heating and cooling ducts and increase their efficiency by as much as 20%, while increasing the comfort in your home. Much of your heating and cooling goes out through leaky ductwork.
Close to 75% of installed cooling equipment has the incorrect amount of refrigerant. This can lower efficiency from 5-20% and cause premature failure. Work with your contractor to verify the level is correct.
Going Tankless
Tankless water heaters have an advantage over tank water heaters because they provide significant energy savings. The tank water heaters must constantly heat the tank's water waiting for the demand, where the tankless provides the hot water on demand. Installing tankless water heaters in new homes makes a lot of sense. When replacing a tank water heater in an existing home, the cost of the tankless, plus installation will generally be 2-3 times higher.
However, for a family of 4, the payback timeframe can be just five years, and after that you enjoy savings of about $180/year, adding up to about $2700 over the life of the tankless water heater. The life expectancy for a tankless water heater is 20 years, which is longer than the typical 7-15 years for a tank style.
If you are replacing an electric or liquid propane tank water heater with a tankless, the savings can be up to 50% on water heating costs. The cost of heating hot water in a home is about 14% of your energy bill, so it is a significant expense.
There are both electric and natural gas tankless hot water heaters. The natural gas units are more expensive than the electric, but they cost about 10-15% less to operate. A good plumbing contractor can help you calculate your potential savings and payback period, plus discuss which is better for your home.
Front Load vs. Top Load
When you need a new clothes washer, there are quite a few choices, but the primary choice is between a front or top loading machine design.
Front loading machines use about 38% less water and 56% less energy, and they are also easier on clothing because there's no agitator. They require less detergent too. Big families can fit more clothes in a load, saving even more energy and some time doing laundry too. Front loading machines also extract more water, reducing drying times for additional energy savings.
Front loading machines do cost more upfront, but can pay for themselves fairly quickly. A family of four can save around $100 annually just on water and energy costs alone. The cost of top loading machines ranges from $400-$1200 and front loading machines from $700-$1500. A front loading machine can pay for itself in 2-3 years, depending upon the model you choose.
Remember to always look for ENERGY STAR!
ENERGY STAR Savings
Products with the ENERGY STAR rating use 10-50% less energy and water than standard models. The money you save on energy will more than make up for any additional cost. Look for the EN ERGY STAR label on clothes washers, refrigerators, dishwashers and many other household systems and appliances.
Together We CAN Save the Planet!
We can save 25 billion pounds of greenhouse gas emissions, equal to 2 million cars, if we all purchased ENERGY STAR qualified products from appliances and heating/cooling systems to electronics such as TV's, DVD players, telephones and more.
ENERGY STAR qualified electronics perform a standby power mode function that uses less energy. TV's that are ENERGY STAR qualified use approximately 30% less energy than standard units. And you could save $100 a year just on qualified electronics!
Visit: www.energystar.gov for many more ideas on how to green your life and save!
"Buy American"
In these economic times, people go into survival mode and have the mentality of "flight or fight." Most people opt for "flight" and their fear has immobilized them to the point where rational thinking goes out the door. It's completely understandable because these hardships are very real and resonant into the lives of all Americans. In the midst of all this chaos, one man has come forward as the voice of reason. Warren Buffet is a master. He has made billions during the 1980's when the US was in one of it's worst recessions in history. When Warren Buffet speaks, we should all listen. Here is what he has to say:
October 17, 2008
Buy American. I Am.
By WARREN E. BUFFETT
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."
I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was." Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
Conversations with a Billionaire
I recently had the honor and pleasure of meeting Mr. Bill Bartmann at the Peak Potential's Never Work Again Seminar in Palm Springs, CA. And I must say he is the nicest, most down to earth billionaire I've ever met (okay, so he's the ONLY billionaire I've ever met). How many people can say that they shook hands with a real life billionaire? Mr. Bartmann not only built a billion dollar company from only $13,000 investment and was named as One of the Top 100 Entrepreneurs in 100 Years (by the Kauffman Center for Entrepreneurial Leadership, Allbusiness.com and Apple Computer) but he has a permanent place in history in the Smithsonian Institute Museum of American History! Pretty cool, huh?
Of course, you can't walk away from meeting a billionaire without taking away some life lessons. I certainly didn't and I took copious notes and I'm going to share them with you! Here are a few pieces of advice from a very wise man.
The secret to success is to increase your self-esteem. Simple as that! If you increase yourself esteem, you'll have a better chance of taking some risk and putting yourself out there to succeed. Also, Mr. Bartmann has four additional lessons about business. They are:
1) The only opinion of you that matters is yours
2) In order to be truly successful you have to learn how to forgive. You can't go forward by looking backward.
3) Everything in life is a choice. So "choose wisely"
4) Invest in yourself.
It was truly a great experience to be able to meet and learn from someone like Mr. Bartmann who has gone through it all and has come out on top. He's not only successful in business but he's also successful in life. He is one of those people you can definitely learn from. Some moments in life you'll remember forever. These are one of those moments.
Thursday, December 4, 2008
Keep a Watchful Eye on Your Credit Card Interest Rates
The recent turmoil in the financial markets has everyone's heads spinning. But remember to try to keep your head on straight and eyes wide open to the effect this craziness has on you and your wallet. A note of caution to all of you out there who have outstanding balances on your credit cards - make sure you know what your credit card company is charging you in interest.
I had the recent misfortune of falling victim to hiked up rates (though I must say I could have done a better job myself of knowing what the credit card company was up to which is why I'm sharing this tidbit of information to you). In any case, I was floating along happy with my low interest rate of 3.99% and just paying the minimum balance due each month since I was in no hurry to pay off my credit card. (I know, I know shame on me for having any credit card debt at all!). Oh by the way, did I mention the name of the credit card company? I'm not afraid to name names it was Advanta. Anyway, one day I thought I should actually take a look at my credit card statement instead of throwing it in my filing cabinet like I usually do without opening it. When I looked at the APR and saw 34.99% I nearly flipped! I thought surely that was a typo, a mistake, an oversight, someone fell asleep at the wheel or something to that effect! So I hurriedly riffled through the stack of old statements and sure enough, my credit card company had been charging me 34.99% for 6 months and I hadn't even noticed! My balance was relatively low and my minimum payments never increased significantly so I had no idea I was being charged such an exorbitant amount. I always paid my bill on time and was a loyal customer for over 5 years.
I felt betrayed and angry, so I did what any reasonable person would do and called up the credit card company to yell and scream and demand my interest rate be lowered. But would you believe it, I got the stiff arm. Rude and unapologetic does not even begin to describe the demeanor of the person on the other side of the phone.
Apparently, after review of my file and careful calculations done on the likelihood that I would ever pay off my balance the credit card company decided that I was high risk and determined that 34.99% was the amount of interest they could charge me to justify keeping me as a customer. The nerve! After realizing I was fighting a losing battle I sternly requested that my account be closed and that Advanta never contact me ever again in the future because I would never do business with them again. Then I hung up, transferred funds from my bank account to pay off my remaining balance and washed my hands of the whole ordeal.
So all you fellow credit card debtees out there, be smarter then me and read your credit card statements, you might learn something.
I had the recent misfortune of falling victim to hiked up rates (though I must say I could have done a better job myself of knowing what the credit card company was up to which is why I'm sharing this tidbit of information to you). In any case, I was floating along happy with my low interest rate of 3.99% and just paying the minimum balance due each month since I was in no hurry to pay off my credit card. (I know, I know shame on me for having any credit card debt at all!). Oh by the way, did I mention the name of the credit card company? I'm not afraid to name names it was Advanta. Anyway, one day I thought I should actually take a look at my credit card statement instead of throwing it in my filing cabinet like I usually do without opening it. When I looked at the APR and saw 34.99% I nearly flipped! I thought surely that was a typo, a mistake, an oversight, someone fell asleep at the wheel or something to that effect! So I hurriedly riffled through the stack of old statements and sure enough, my credit card company had been charging me 34.99% for 6 months and I hadn't even noticed! My balance was relatively low and my minimum payments never increased significantly so I had no idea I was being charged such an exorbitant amount. I always paid my bill on time and was a loyal customer for over 5 years.
I felt betrayed and angry, so I did what any reasonable person would do and called up the credit card company to yell and scream and demand my interest rate be lowered. But would you believe it, I got the stiff arm. Rude and unapologetic does not even begin to describe the demeanor of the person on the other side of the phone.
Apparently, after review of my file and careful calculations done on the likelihood that I would ever pay off my balance the credit card company decided that I was high risk and determined that 34.99% was the amount of interest they could charge me to justify keeping me as a customer. The nerve! After realizing I was fighting a losing battle I sternly requested that my account be closed and that Advanta never contact me ever again in the future because I would never do business with them again. Then I hung up, transferred funds from my bank account to pay off my remaining balance and washed my hands of the whole ordeal.
So all you fellow credit card debtees out there, be smarter then me and read your credit card statements, you might learn something.
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