Very Interesting, Easy to Read Information on the Bailout; Cheap State Fair Deals; This Week's Market Report; Insurance Tip

Obviously the Bailout is the big news today (and should be). We are in historical times and it is very important that we stay up to date with this so that we can help our clients make decisions on buying and selling. You will find an article below written Friday by John Mauldin who is a financial expert (his newsletter is one of the ones that I read every week). I tried to cut out of the technical “stuff” as much as possible, but would highly recommend that you take the time to read it. In interest of email space, I have also posted on my blog (lindadavidsonmortgage.blogspot.com) two articles that you will find interesting…. 10 Things That Will Change in the Financial Climate and also the article, 10 ways to Protect Your Money Now. Feel free to share these (as well as anything else that you receive in our email) with you clients. Very Interesting, Easy To Read Information on the Bailout Thoughts from the Frontline Weekly Newsletter Who's Afraid of a Big, Bad Bailout? by John MauldinSeptember 26, 2008 Flying last Tuesday, overnight from Cape Town in South Africa to London, I read in the Financial Times that Republican Congressman Joe Barton of Texas was quoted as saying (this is from memory, so it is not exact) that he had difficulty voting for a bailout plan when none of his constituents could understand the need to bail out Wall Street, didn't understand the problem, and were against spending $700 billion of taxpayer money to solve a crisis for a bunch of (rich) people who took a lot of risk and created the crisis. That is a sentiment that many of the Republican members of the House share. As it happens, I know Joe. My office is in his congressional district. I sat on the Executive Committee for the Texas Republican Party representing much of the same district for eight years. This week, Thoughts from the Frontline will be an open letter to Joe, and through him to Congress, telling him what the real financial problem is and how it affects his district, helping explain the problem to his constituents , and explaining why he has to hold his nose with one hand and vote for a bailout with the other. Just for the record, Joe has been in Congress for 24 years. He is the ranking Republican on the Energy and Commerce Committee, which is one of the three most important committees and is usually considered in the top five of Republican House leadership. He is quite conservative and has been a very good and effective congressman. I have known Joe for a long time and consider him a friend. He has been my Congressman at times, depending on where they draw the line. I called his senior aide and asked him how the phone calls were going. It is at least ten to one against supporting this bill, and that is probably typical of the phones all across this country. People are angry, and with real justification. And watching the debates, it reminds us that one should never look at how sausages and laws are made. It is a very messy process. I think what follows is as good a way as any to explain the crisis we are facing this weekend. This letter will print out a little longer, because there are a lot of charts, but the word length is about the same. Let's jump right in. It's the End of the World As We Know It Dear Joe, I understand your reluctance to vote for a bill that 90% of the people who voted for you are against. That is generally not good politics. They don't understand why taxpayers should spend $700 billion to bail out rich guys on Wall Street who are now in trouble. And if I only got my information from local papers and news sources, I would probably agree. But the media (apart from CNBC) has simply not gotten this story right. It is not just a crisis on Wall Street. Left unchecked, this will morph within a few weeks to a crisis on Main Street. What I want to do is describe the nature of the crisis, how this problem will come home to your district, and what has to be done to avert a true, full-blown depression, where the ultimate cost will be far higher to the taxpayers than $700 billion. And let me say that my mail is not running at 10 to 1 against, but it is really high. I am probably going to make a lot of my regular readers mad, but they need to hear what is really happening on the front lines of the financial world. First, let's stop calling this a bailout plan. It is not. It is an economic stabilization plan. Run properly, it might even make the taxpayers some money. If it is not enacted very soon (Monday would be fine), the losses to businesses and investors and homeowners all over the US (and the world) will be enormous. Unemployment will jump to rates approaching 10%, at a minimum. How did all this come to pass? Why is it so dire? Let's rewind the tape a bit. We all know about the subprime crisis. That's part of the problem, as banks and institutions are now having to write off a lot of bad loans. The second part of the problem is a little more complex. Because we were running a huge trade deficit, countries all over the world were selling us goods and taking our dollars. They in turn invested those excess dollars in US bonds, helping to drive down interest rates. It became easy to borrow money at low rates. Banks, and what Paul McCulley properly called the Shadow Banking System, used that ability to borrow and dramatically leverage up those bad loans (when everyone thought they were good), as it seemed like easy money. They created off-balance-sheet vehicles called Structured Investment Vehicles (SIVs) and put loans and other debt into them. They then borrowed money on the short-term commercial paper market to fund the SIVs and made as profit the difference between the low short-term rates of commercial paper and the higher long-term rates on the loans in the SIV. And if a little leverage was good, why not use a lot of leverage and make even more money? Everyone knew these were AAA-rated securities. And then the music stopped. It became evident that some of these SIVs contained subprime debt and other risky loans. Investors stopped buying the commercial paper of these SIVs. Large banks were basically forced to take the loans and other debt in the SIVs back onto their balance sheets last summer as the credit crisis started. Because of a new accounting rule (called FASB 157), banks had to mark their illiquid investments to the most recent market price of a similar security that actually had a trade. Over $500 billion has been written off so far, with credible estimates that there might be another $500 billion to go. That means these large banks have to get more capital, and it also means they have less to lend. (More on the nature of these investments in a few paragraphs.) Banks can lend to consumers and investors about 12 times their capital base. If they have to write off 20% of their capital because of losses, that means they either have to sell more equity or reduce their loan portfolios. As an example, for every $1,000 of capital, a bank can loan $12,000 (more or less). If they have to write off 20% ($200), they either have to sell stock to raise their capital back to $1,000 or reduce their loan portfolio by $2,400. Add some zeroes to that number and it gets to be huge. And that is what is happening. At first, banks were able to raise new capital. But now, many banks are finding it very difficult to raise money, and that means they have to reduce their loan portfolios. We'll come back to this later. But now, let's look at what is happening today. Basically, the credit markets have stopped functioning. Because banks and investors and institutions are having to deleverage, that means they need to sell assets at whatever prices they can get in order to create capital to keep their loan-to-capital ratios within the regulatory limits. Remember, part of this started when banks and investors and funds used leverage (borrowed money) to buy more assets. Now, the opposite is happening. They are having to sell assets into a market that does not have the ability to borrow money to buy them. And because the regulators require them to sell whatever they can, the prices for some of these assets are ridiculously low. Let me offer a few examples. Today, there are many municipal bonds that were originally sold to expire 10-15 years from now. But projects finished early and the issuers wanted to pay them off. However, the bonds often have a minimum time before they can be called. So, issuers simply buy US Treasuries and put them into the bond, to be used when the bond can be called. Now, for all intents and purposes this is a US government bond which has the added value of being tax-free. I had a friend, John Woolway, send me some of the bid and ask prices for these type of bonds. One is paying two times what a normal US Treasury would pay. Another is paying 291% of a normal US Treasury. And it is tax-free! Why would anyone sell what is essentially a US treasury bond for a discount? Because they are being forced to sell, and no one is buying! The credit markets are frozen. Last week, I wrote about a formerly AAA-rated residential mortgage-backed security (RMBS) composed of Alt-A loans, better than subprime but less than prime. About 5% of the loans were delinquent, and there are no high-risk option ARMs in the security. It is offered at 70 cents on the dollar. If you bought that security, you would be making well over 12% on your money, and 76% of the loans in the portfolio of that security would have to default and lose over 50% of their value before you would risk even one penny. Yet the bank which is being forced to sell that loan has had to write down its value. As I wrote then, that is pricing in financial Armageddon. (You can read the full details here.) One of the real reasons thousands of good bonds are not selling now is that there is real panic in the markets. The oldest money market fund "broke the buck" last week, because they had exposure to Lehman Brothers bonds. We are seeing massive flights of capital from money market funds, including by large institutions concerned about their capital. What are they buying? Short-term Treasury bills. Three-month Treasury bills are down to 0.84%. It gets worse. Last week one-month Treasury bills were paying a negative 1%!!! That means some buyers were so panicked that they were willing to buy a bond for $1 that promised to pay them back only $.99 in just one month. The rate is at 0.16% today. If something is not done this weekend, it could go a lot lower over the next few days. That is panic, Joe. I don't want to name names, as this letter goes to about 1.5 million people and I don't want to make problems for some fine banking names; but there is a silent bank run going on. There are no lines in the street, but it is a run nevertheless. It is large investment funds and corporations quietly pulling their money from some of the best banks in the country. They can do this simply by pushing a button. We are watching deposit bases fall. It does not take long. Lehman saw $400 billion go in just a few months this summer. Think about that number. Any whiff of a problem and an institution that is otherwise sound could be brought low in a matter of weeks. And the FDIC could end up with a large loss that seemed to have come from out of nowhere. The TED Spread Flashes Trouble There is something called the TED spread, which is the difference between three-month LIBOR (the London Inter Bank Offered Rate which is in euro dollars, also called The Euro Dollar Spread, thus TED) and three-month US Treasury bills. Three-month LIBOR is basically what banks charge each other to borrow money. Many mortgages and investments are based on various periods of LIBOR. Typically the TED spread is 50 basis points (0.50%) or less. When it spikes up, it is evidence of distress in the financial markets. The last time the TED spread was as high as it is now was right before the market crash of 1987. Quite literally, the TED spread is screaming panic. Now let's look at the chart below. This is the amount of Tier 1 commercial paper issued. This is the life blood of the business world. This is how many large and medium-sized businesses finance their day-to-day operations. The total amount of commercial paper issued is down about 15% from a year ago, with half of that drop coming in the last few weeks. Quite literally, the economic body is hemorrhaging. Unless something is done, businesses all over the US are going to wake up in a few weeks and find they simply cannot transact business as usual. This is going to put a real crimp in all sorts of business we think of as being very far from Wall Street. I could go on. Credit spreads on high-yield bonds that many of our best high-growth businesses use to finance their growth are blowing out to levels which make it impossible for the companies to come to the market for new funds. And that is even if they could find investors in this market! There are lots of other examples (solid corporate loans selling at big discounts, asset-backed securities at discounts, etc.), but you get the idea. Suffice it to say that the current climate in the financial market is the worst since the 1930s. But how does a crisis in the financial markets affect businesses and families in Arlington, Texas, where my office and half of your district is? The Transmission Mechanism The transmission in a car takes energy from the engine and transfers it to the wheels. Let's talk about how the transmission mechanism of the economy works. Let's start with our friend Dave Moritz down the street. He needs financing to be able to sell an automobile. To get those loans at good prices, an auto maker has to be able to borrow money and make the loans to Dave's customers. But if something does not stop the bleeding, it is going to get very expensive for GM to get money to make loans. That will make his cars more expensive to consumers. Cheap loans with small down payments are the life blood of the auto selling business. That is going to change dramatically unless something is done to stabilize the markets. Credit card debt is typically packaged and sold to investors like pension funds and insurance companies. But in today's environment, that credit card debt is going to have to pay a much higher price in order to find a buyer. That means higher interest rates. Further, because most of the large issuers of credit cards are struggling with their leverage, they are reducing the amount of credit card debt they will give their card holders. If they continue to have to write down mortgages on their books because of mark-to-market rules which price assets at the last fire-sale price, it will mean even more shrinkage in available credit. Try and sell a home above the loan limits of Fannie and Freddie today with a nonconforming jumbo loan. Try and find one that does not have very high rates, because many lenders who normally do them simply cannot afford to keep them on their balance sheets. And a subprime mortgage? Forget about it. This is going to get even worse if the financial markets melt down. We are in a recession. Unemployment is going to rise to well over 6%. Consumer spending is going to slow. This is an environment which normally means it is tougher for small businesses and consumers to get financing in any event. Congress or the Fed cannot repeal the business cycle. There are always going to be recessions. And we always get through them, because we have a dynamic economy that figures out how to get things moving again. Recessions are part of the normal business cycle. But it takes a major policy mistake by Congress or the Fed to create a depression. Allowing the credit markets to freeze would count as a major policy mistake. I have been on record for some time that the economy will go through a normal recession and a slow recovery, what I call a Muddle Through Economy. This week I met with executives of one of the larger hedge funds in the world. They challenged me on my Muddle Through stance. And I had to admit that my Muddle Through scenario is at risk if Congress does not act to stabilize the credit markets. Let's Make a Deal Why do we need this Stabilization Plan? Why can't the regular capital markets handle it? The reason is that the problem is simply too big for the market to deal with. It requires massive amounts of patient, long-term money to solve the problem. And the only source for that would be the US government. There is no reason for the taxpayer to lose money. Warren Buffett, Bill Gross of PIMCO, and my friend Andy Kessler have all said this could be done without the taxpayer losing money, and perhaps could even make a profit. As noted above, these bonds could be bought at market prices that would actually make a long-term buyer a profit. Put someone like Bill Gross in charge and let him make sure the taxpayers are buying value. This would re-liquefy the banks and help get their capital ratios back in line. Why are banks not lending to each other? Because they don't know what kind of assets are on each other's books. There is simply no trust. The Fed has had to step in and loan out hundreds of billions of dollars in order to keep the financial markets from collapsing. If you allow the banks to sell their impaired assets at a market-clearing fair price (not at the original price), then once the landscape is cleared, banks will decide they can start trusting each other. The commercial paper market will come back. Credit spreads will come down. Banks will be able to stabilize their loan portfolios and start lending again. Again, the US government is the only entity with enough size and patience to act. We do not have to bail out Wall Street. They will still take large losses on their securities, just not as large a loss as they are now facing in a credit market that is frozen. As noted above, there are many securities that are being marked down and sold far below a rational price. If we act now, we will start to see securitization of mortgages, credit cards, auto loans, and business loans so that the economy can begin to function properly. What happens if we walk away? Within a few weeks at most, financial markets will freeze even more. We will see electronic runs on major banks, and the FDIC will have more problems than you can possibly imagine. The TED spread and LIBOR will get much worse. Businesses which use the short-term commercial paper markets will start having problems rolling over their paper, forcing them to make difficult cuts in spending and employment. Larger businesses will find it more difficult to get loans and credit. That will have effects on down the economic food chain. Jim Cramer estimated today that without a plan of some type, we could see the Dow drop to 8300. That is as good a guess as any. It could be worse. Home valuations and sales will drop even further. The average voter? They will see stock market investments off another 25% at the least. Home prices will go down even more. Consumer spending will drop. What should be a run-of-the-mill recession becomes a deep recession or soft depression. Yes, that may be worst-case scenario. But that is the risk I think we take with inaction. A properly constructed Stabilization Plan hopefully avoids the worst-case scenario. It should ultimately not cost the taxpayer much, and maybe even return a profit. The AIG rescue that Paulson arranged is an example of how to do it right. My bet is that the taxpayer is going to make a real profit on this deal. We got 80% of AIG, with what is now a loan paying the taxpayer over 12%, plus almost $2 billion in upfront fees for doing the loan. That is not a bailout. That is a business deal that sounds like it was done by Mack the Knife. This deal needs to be done by Monday. Every day we wait will see more and more money fly out the doors of the banks, putting the FDIC at ever greater risk. Panic will start to set in, moving to ever smaller banks. Frankly, we are at the point where we need to consider raising the FDIC limits for all deposits for a period of time, until the Stabilization Plan quells the panic. I understand that this is a really, really bad idea according classical free-market economic theory. You know me; I am as free market as it comes. But I also know that without immediate action a lot of people are really going to be hurt. Unemployment is not a good thing. Losses on your home and investments hurt. It is all nice and well to talk about theories and contend the market should be allowed to sort itself out; and if we have a deep recession, then that is what is needed. But the risk we take is not a deep recession but a soft depression. The consequences of inaction are simply unthinkable. Joe, I am telling you that the markets are screaming panic. Yes, Senator Richard Shelby has his 200 economists saying this is a bad deal. But they are ivory tower kibitzers who have never sat at a trading desk. They have never tried to put a loan deal together or had to worry about commercial paper markets collapsing. I am talking daily with the people on the desks who are seeing what is really happening. Shelby's economists are armchair generals far from the front lines. I am talking to the foot soldiers who are on the front lines. Every sign of potential disaster is there. You and the rest of the House have to act. It has to be bipartisan. This should not be about politics (even though Barney Frank keeps talking bipartisan and then taking partisan shots, but I guess he just can't help himself). It should be about doing the right thing for our country and the world. I know it will not be fun coming back to the district. Talking about TED spreads and LIBOR will not do much to assuage voters who are angry. But it is the right thing to do. And I will be glad to come to the town hall meeting with you and help if you like. With your help, we will get through this. In a few years, things will be back to normal and we can all have stories to tell to our grandkids about how we lived through interesting times. But right now we have to act. Have a great week. I fully believe (OK, deeply hope) that Congress will act. We can all breathe a collective sigh when they do. Your still believing in Muddle Through analyst, John MauldinJohn@FrontLineThoughts.com Copyright 2008 John Mauldin. All Rights Reserved John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore To subscribe to John Mauldin's E-Letter please click here: http://www.frontlinethoughts.com/subscribe.asp To change your email address please click here:http://www.frontlinethoughts.com/change.asp If you would ALSO like changes applied to the Accredited Investor E- Letter, please include your old and new email address along with a note requesting the change for both e-letters and send your request to wave@frontlinethoughts.com Fair Days In interest of saving money in our economy, here are some cost saving tips for the State Fair. If you know of anymore, send them my way and I will let others know. · On Dr. Pepper Tuesdays you can get in the fair for $3 with an empty Dr. Pepper can, and most rides are at reduced rates. - On Wednesdays, if you bring three canned food items, for the North Texas Food Bank, admission is only $1. - On Thursdays you can bring a 20 oz Coca-Cola bottle and get in for $4, versus the usual $14 admission price. - On Thursday, Seniors (60 +) get in free - Kroger stores also have in-house specials. See your local Kroger store. The State Fair of Texas begins Friday, Sept. 26th, and runs for 24 days. Homeowners Insurance: Did you know . . . that the personal liability coverage in most standard insurance policies covers legal expenses and medical costs when you are legally responsible for certain types of damages or injuries to others that occur on your property. The typical policy comes with $100,000 but most insurance professionals generally recommend a minimum of $300,000 and you can actually get up to $500,000 for a minimal cost. Well worth it if you get sued. Alan Jones - The VA Jones Group Last Week in Review DEAL OR NO DEAL? It appears a deal has indeed been struck, as Congressional leaders and the Bush administration announced they had come to an agreement to spend up to $700 Billion on the historic Bailout Plan. But first - a look back at the past week, leading up to the weekend announcements. There were several major developments, beginning with the announcement that Japan's Mitsubishi Financial Bank will purchase 10% to 20% of Morgan Stanley, saving the company from the same bankruptcy fate as Lehman Brothers. On Wednesday, the financial markets received another vote of confidence with word that billionaire investor Warren Buffett's Berkshire Hathaway is investing $5 Billion into Goldman Sachs. But then on Thursday, Washington Mutual was seized by the federal government, and its assets were sold to JP Morgan Chase for $1.9 Billion. The fall of Washington Mutual represents the biggest US bank failure in history. But perhaps the biggest news of the week began on Tuesday, as Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson began their testimony in front of the Senate Banking Committee on the $700 Billion rescue plan proposed by President Bush. The plan calls for taking illiquid mortgage backed securities off the hands of lending institutions, and through the week several elements of the plan were intensely debated, including the amount of the plan, the government's role, the absence of oversight, and limits on pay for executives of bailed-out financial institutions. And while full details are still pending, it appears that an agreement has been reached, with the intent to revive our financial system and avoid negative far reaching effects to the rest of our economy. Despite all the historic events of the week, home loan rates ended the week only around .125 percent worse than where they began. I will continue to monitor this situation closely in the days and weeks ahead, and keep you informed. IN THE MIDST OF ALL THE HISTORIC HAPPENINGS...DON'T FORGET THAT FLU SEASON IS STEADILY APPROACHING. CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR PRACTICAL TIPS YOU CAN USE TO AVOID COLDS AND THE FLU! Forecast for the Week Besides the details that will be coming on the financial rescue plan, several important reports bookend this week. We begin the week with the Fed's favorite gauge of inflation as the Core PCE (Personal Consumption Expenditure) data will be released on Monday. Then, definitely stay tuned for the Department of Labor's big Jobs Report scheduled for Friday, which will show the number of jobs lost or gained in September. The Department of Labor averages their numbers, and part of each month's report includes "revisions" to the several prior months' numbers. A positive report could be good news for Stocks, but bad news for Bonds and home loan rates. It will be important to see how much of an impact the recent turmoil has had on the job market. The Mortgage Market View... Autumn Ushers in the Good and the Not So Pleasant... Fall is in full swing. And that means it's time to celebrate the things we love, like kids returning to school, football season, baseball playoffs, and even the beautiful colors of autumn. But it also means the return of something less fun... the dreaded cold and flu season. And the cost of the season is nothing to sneeze at! Did you know that Americans spend approximately $4 Billion on over the counter cold and flu remedies? That's not even factoring in how much time and productivity is lost on sick-time in the workplace, or co-pays for doctor visits and prescriptions. To Help Stay Healthy, Start Following These Quick Tips Now: Determine how susceptible you are. Start by asking yourself a few simple questions: Were you ill several times last year? Do you frequently feel fatigued? Do you sleep less than seven hours per night? If you answer yes to several of those questions, it may be a good idea to consult your doctor for a pre-flu season check-up. Build up your immune system. Take the time now to catch up on sleep and get a flu shot. In addition, make sure you're getting enough Vitamin C and Zinc. Taking these supplements has been shown to markedly reduce cold symptoms. Wash your hands frequently. Hand-to-mouth contact is the most common way that people get sick, so keep those hands clean and encourage your family to do the same. You can also carry a hand sanitizer with you to keep your hands germ free when you can't wash. Wash your nose? Here's a little known--yet effective--tip for combating the cold and flu season. By using a simple saline nasal wash or nasal irrigation, you can actually help rid yourself of colds and allergies. Although it doesn't look pretty in action, it's effective in washing away germs and particulates, as well as healing and protecting your nasal passages. The fact is, when dry winter air makes the tissues inside your sinuses dry and cracked, germs have a perfect place to live and breed, which makes you sick more easily. But a saline nasal wash, available at most drugstores, can lubricate, protect and clean those nasal tissues to help keep healthy. And it may help reduce snoring! By taking a little time to protect yourself from illness, you can help make sure that you are able to enjoy the things that are important to you... like spending time with family and friends, working hard at your career, and remaining healthy and active during the fall and winter seasons! The Week's Economic Indicator Calendar Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise. Economic Calendar for the Week of September 29 – October 03 Date ET Economic Report For Estimate Actual Prior Impact Mon. September 29 08:30 Personal Income Aug 0.2% -0.7% Moderate Mon. September 29 08:30 Personal Spending Aug 0.2% 0.2% Moderate Mon. September 29 08:30 Personal Consumption Expenditures and Core PCE Aug NA 0.2% HIGH Mon. September 29 08:30 Personal Consumption Expenditures and Core PCE YOY NA 2.4% HIGH Tue. September 30 09:45 Chicago PMI Sept 54.0 57.9 HIGH Tue. September 30 10:00 Consumer Confidence Sept 55.0 56.9 Moderate Wed. October 01 10:30 Crude Inventories 9/27 NA -1520K Moderate Wed. October 01 10:00 ISM Index Sept 50.0 49.9 HIGH Wed. October 01 08:15 ADP National Employment Report Sept NA -33K HIGH Thu. October 02 08:30 Jobless Claims (Initial) 9/27 NA 493K Moderate Fri. October 03 08:30 Average Work Week Sept 33.7 33.7 HIGH Fri. October 03 08:30 Hourly Earnings Sept 0.3% 0.4% HIGH Fri. October 03 08:30 Non-farm Payrolls Sept -90K -84K HIGH Fri. October 03 08:30 Unemployment Rate Sept 6.1% 6.1% HIGH Fri. October 03 10:00 ISM Services Index Sept 50.0 50.6 Moderate Have a blessed week. When we can be of assistance to you and your buyers, simply call us at 972-278-3400. Linda Linda Davidson, Senior Loan Officer, DE Underwriter Service First Mortgage 972-278-3400 office 972-497-6452 fax 1-866-963-3777 Toll Free www.davidsongroup.net Check out our blog: http://lindadavidsonmortgage.blogspot.com The Davidson Mortgage Group Ranking 6th Nationally in FHA/VA Purchase Units Closed! Ranking 33rd Team in the Nation in Total Purchase Units Closed! Ranking #69th Team in the Industry for Total Units! Voted #1 Area Mortgage Team For The Past 10 Years We ARE The Mortgage Experts! Your Lender for Purchase, Refinances, Reverse Mortgages and Commercial Lending!! P.S. The finest compliment that we can receive is a referral from you . We appreciate your trust! Linda

10 ways to protect your money now

10 ways to protect your money now By The Wall Street Journal Here are 10 things you can do amid the current financial panic: 1. Check that your bank accounts are federally insured. The Federal Deposit Insurance Corp. (FDIC) guarantees deposits up to $100,000 per person. If you have to hold more than that, spread it across multiple banks. As a taxpayer, you are paying for this insurance, so use it. 2. Make sure your brokerage accounts are federally insured, too. The Securities Investor Protection Corp. (SIPC) guarantees you at places like Lehman Bros, Merrill Lynch, and E-Trade Financial up to $500,000, including $100,000 in cash. The same rules apply: If you have more to invest, spread it across multiple firms. Note that the SIPC only makes sure you get your shares and bonds back if a brokerage fails. It does not, obviously, guarantee those investments' value. 3. Put money in thy purse. If this market and this economy get any tougher, cash isn't going to be just king anymore. It's going to be king, queen, emperor, lord high chamberlain and the whole court. The easiest way to make or find a buck is to save it. So take an ax to those family budgets -- the restaurant meals, the Superduper Everything Cable package, the rip-off checking account with the high fees and low interest. It's all costing you. 4. Set up a home-equity line of credit while you still can. Normally it would not be advisable to take on more debt, but if access to ready cash might be a lifesaver, it's best to line it up now. That's true especially if you are worried about your job. Credit is already tight, and it may get a lot tighter. 5. Refinance your mortgage. The panic on Wall Street just caused a collapse in the interest rate on long-term U.S. Treasury bonds, as lots of investors rushed there for safety. And that usually leads to a fall in long-term mortgage rates. 6. Don't wait for your worst investments to "recover." If you ever saw John Cleese and Michael Palin perform their famous skit about the dead parrot, you know exactly what I mean. No, your Fannie Mae shares aren't "resting." They're lying at the bottom of the cage with their feet in the air. What more do you need to know? Stop waiting for them to "recover" before you sort out your portfolio. 7. Don't panic. Journalists, like markets, tend to move in herds. And by the nature of their jobs, they write about the plane that crashes instead of the thousands that land safely. Remember, too, that pundits want to seem really wise by putting on serious expressions and saying things like "We don't know how this thing is going to play out" and "The situation could get a lot worse." Bah. Guess what. We never know how things are going to play out. And the situation could get a lot better, too. 8. When it comes to your short-term money needs, nothing has changed. Any money you might need within the next year or two should be held in cash or equivalents. That was true two years ago, and it is true now. The stock market is no home for money you may need urgently. It could fall 30% or jump 30%. Nobody knows. You can get a one-year CD paying 5% right now, and it's federally guaranteed. 9. If you are investing for five years or more, buy some stock. The investment outlook is much, much better today than it has been for several years, because shares are much cheaper. World markets overall have fallen 27% from last year's peak. They're not a steal at current levels, but they are not particularly expensive either. Invest globally. Vanguard Total World Stock (VTWSX) gives you the whole world and low fees. If you are looking for a value, Morningstar analyst Bridget Hughes likes Oakmark Global (OAKGX). Another good one is Tweedy, Browne's new Worldwide High Dividend Yield Value (TBHDX). This list is not comprehensive. Remember: I am not trying to call the bottom of the market. Things could fall quite a bit further. No one knows. So invest little, often and broadly. 10. If you want to worry about anything, worry about your taxes. The worse this crisis gets, the more the feds will end up putting taxpayers on the hook to prevent a meltdown. Taxes will go up sooner or later anyway, no matter who wins the election, because of our gigantic federal deficit. If you think Lehman Bros. was bad, you should look at Uncle Sam. You can forget about any talk of tax breaks. Oh, and if you want a break from worrying about taxes, worry about Treasury bonds. Deficits won't do anything good for them.

10 Things That Will Change In the Financial Market Per Kiplinger Report

10 Things That Will Change What will U.S. regulatory and financial climate will look like in a few months from now? It may look remarkably like the climate of five or 10 years ago. By Jerome Idaszak, Associate Editor, The Kiplinger LetterRenuka Rayasam, Associate Editor, The Kiplinger Letter September 26, 2008 When the smoke clears on the current financial and legislative turmoil -- the economic landscape will look considerably different than it did just a few months ago. Here's what we see ahead: 1. A much less leveraged economy. Cash will be king. In practical terms, that means: Little financing of speculative building and higher pre-leasing hurdles for commercial real estate. More money up front on merger and acquisition deals. Bigger mortgage down payments. Lower limits on credit cards. And higher capital reserves for banks. And less risk-taking in other ways as well. Borrowers will need squeaky-clean track records. Financial deals at publicly traded firms will be more transparent. Buyers will demand a much clearer understanding of exactly what they're getting. 2. More modest rewards -- the natural consequence of less risk taking. Fewer stocks racking up double-digit gains. Slower appreciation of property values. Smaller returns on endowments for universities and nonprofits. For consumers: Fewer second homes, boats, new cars and so on. More households will live within their means. 3. A feast for bottom fishers. Investors with cash, the patience to wait out a gradual recovery and a heart stout enough to withstand periodic wild swings, will be in the catbird seat. They're positioned to make a bundle, snapping up undervalued assets -- businesses, real estate, securities, etc. Even out-of-work talent will go cheap to employers savvy enough to nab it. 4. Fewer financial firms, as big universal banks swallow up midsize regionals. 5. More government oversight of financial markets. Better communication and coordination among regulatory agencies. Increased disclosure requirements. A tighter rein on short-selling. Closer supervision of credit rating agencies. And more. 6. But a revival of private financial firms -- investment banking partnerships and boutique merger and acquisition houses, for example. Their allure: minimizing regulatory burdens and filling a need for investors willing and able to take larger risks for larger returns. 7. Simpler forms of securitizing debt -- plain vanilla ways to spread risk. Secondary markets for mortgages and other assets won't vanish. But the instruments bought an sold will be less exotic. 8. Greater scrutiny of executive compensation, whether mandated by Congress or not. Shareholders are sure to take on the issue more aggressively in the near term. 9. Higher taxes and/or a bigger federal deficit as Uncle Sam shoulders the load of Wall Street's toxic debt. Although eventually the government may make money on the deal, in the short term, the Treasury -- and therefore, the taxpayers -- will pony up billions. 10. Higher long-term interest rates. Treasury yields must rise to lure capital -- foreign or domestic -- driving up mortgage and corporate bond rates. Short-term rates will slide, though, as the Federal Reserve tries to keep the economy afloat and put banks back on solid ground. In reality, the change isn't to a new environment. It's a return to traditional norms of the past, before cheap money inflated asset values, undermined lending standards and encouraged excess risk. It's bitter medicine, but it's necessary.

FHA-New Guidelines Converting Existing Home to Rentals, When Can You Have Two FHA Loans, Reflection of This Market, My visit with HUD in DC This Week

I was in Washington the first part of this week because of an invitation to attend a roundtable with HUD. For the first time since 1934 (when FHA was initiated), FHA is in a deficit. But right now, FHA is our best hope for the housing market and they are committed to come out strong. Below I have listed some of the updates/changes that we are to expect with FHA in the next three months (and have also spelled out the New FHA Guidelines for Converting Existing Homes to Rentals), but first I wanted to share with you a reflection of this market. My hope is that you understand where we are, but also that “this too shall pass”- We will be here for the long haul- Let us know when we can be of assistance. Linda Today as we know it-As the nation stands amidst one of the largest financial crisis’s since the stock market crash/great depression, I like many Americans stand a bit numb and shell shocked. I ask myself, “Am I just in a bad dream or is this really happening?” We are living through a time when our children/grandchildren will look back and say “WOW, that must have really been rough living through those years.” We will be referenced in history and Economics books about the blunders of the US financial markets & how never to repeat it”. Let’s face it; we grew up seeing our country as the invincible Super Power US. We live in an EGO-filled world. The rug was pulled out from under us the first time with 9/11 and the myriad of recent events is yet another reminder that our nation does not have a bullet proof vest. The entitlement view-I think as Americans, we all suffer from a bit of entitlement to some degree. The general feeling is, “I have worked hard, I have earned it, and I deserve it- I want it all (as the commercial says)”. So when something gets taken away from us leaving our lives just a bit more uncomfortable then we were yesterday, there is a quick opportunity for resentment and anger to build. This then erodes our thinking and our view on life and how we respond to those around us. It is easy to wallow in a world of self-pity and get lost and stuck in it. This thinking self perpetuates causing emotional paralysis and negativity can leak into all facets of our life. Bad things happen to good people. Life has its ups and downs- it is what it is. There is much that can be taken from us in life that we have no control of. There is no explanation of WHY this happens. Right this minute, thousands of people are suffering a loss. Some are losing their job, others are losing their home, some are losing their family (the number 1 reason for divorce is financial stress). Worst of all, some will take their own life (suicide will inevitably be up this year). Choosing how to react- Although many things can be taken from us in life, no one can take away our right to decide how to react to a situation. This choice remains exclusively ours. I encourage you to reflect on this a bit in your own life. Are you going to let bitterness erode your heart as we move through these next few tough years or are you going to choose to persevere and focus on what you do have vs. what you do not? You can get up every morning and count your blessings (the love of family, friends, health, the gift of food and shelter) or you can get up grumbling about what you do not have. As I have said before, someone will be purchasing a home and needing a mortgage loan officer… why not me! It is a choice every day to take action plans to make certain that business still comes in. Realties of our Industry- For most of us, we lived through the “glory days” of our industry, we rode the wave of prosperity. Every industry is cyclical and we are now finally experiencing the downturn of our own. I encourage you to ask yourself, “Do I like the core of this business?” If the answer is yes, then you need to put your best foot forward and say “this too shall pass. “ We will experience what feels like normal times again in a few years and as I keep saying, there will be no competition at that juncture. If you were in this business for the money and have no passion for what we do on a daily basis, I encourage you to get out and start looking for something that will ignite excitement in your life. Embracing Change- 98% of people do not like change. It is uncomfortable; it pushes us outside of our comfort zone. Interestingly I have found that all of my personal growth does not come when I am in the confines of my own happy ideal world. It is when I get pushed outside these walls that the opportunity for growth flourishes. Change builds character. Consider viewing these current times as a unique opportunity that will make you a better & stronger person even though it doesn’t feel so fabulous as you are actively walking through these life trials. Change is inevitable- The Davidson Mortgage Group and Service First Mortgage will continue to make changes daily, weekly, monthly to stay ahead of the curve and to ensure our safe delivery through the industry storm. Higher ground and prosperity awaits all of us committed to staying the course. Thanks for your continued commitment to us and allowing us to be a part of your team. We are here for the long- haul for you and your clients. Linda From the FHA Home Front (HUD Round Table in DC) It was my pleasure this week to meet some really sharp people from FHA/HUD as well as strong mortgage professionals who really care about our industry. The round table was attended by 100 mortgage leaders and I came back with a new appreciation of HUD employees as well as those who strive to keep our industry strong. Here were some of the major subjects: · As we stated. for the first time since 1934, HUD is in a deficit. Changes have been made to turn this deficit around, but FHA is very concerned about the next 12-24 months. Will HUD need a bailout like Freddie/ Fannie? Time will tell. · The good news is because of the major tightening in Freddie/Fannie and the implosion of the subprime world, FHA business has increased. Right now it is taking HUD 60+ days to approve test cases for bankers/ brokers that are trying to get their ability to originate FHA loans. A minimum of 10 test cases must be approved by HUD in order to obtain their designation. Over 3200 mortgage companies have applied for the FHA licenses so far from January 2008 through August 2008. HUD states that over 50,000 appraisers that have also applied this year for their FHA designation. It is important to realize that a lot of “practicing” is going on by inexperienced loan officers. · In 2007 there was a total of 13 Mortgagee Letters issued by FHA (mortgagee letters are HUD announcements of a guideline change). So far in 2008(through Friday, September 26) there has been 25 Mortgagee Letters written and FHA is anticipating up to 15 more by the end of the year. · The “new and improved” FHA call center should be up by the end of this year. Changes will be made that underwriters can access the HOC centers without going through the call center (that was my suggestion :)). · FHA states that 87% of their Home Retention claims successfully avoided foreclosure due to their aggressive Home Retention and Disposition Options. It is also estimated that there has been over 340,000 homes saved due to the FHA Secure Program. In addition, HUD states that it is costing them an average of 30% to foreclose on a property. The Customer Service Help Desk can be reached at 888-297-8685. · There have been 10,529 Originators that have been caught in the last five years to have criminal records and still handling mortgages (typically the largest transaction their clients will need guidance). And those are the ones that have been caught. We should see some (more) major changes in FHA as well as Freddie, Fannie and PMI over the next three months. Our commitment to you is to make certain that you stay up to date and we will continue to communicate these changes and updates to you. FHA- New Guidelines Converting Existing Homes to Rentals- IMPORTANT READ! Not wanting to be involved in financing "buy and bail" home purchases, the Federal Housing Administration will no longer count rental income when home buyers choose to vacate, rather than sell, their principal residence. Home buyers seeking to rent out their existing home and buy another with an FHA-backed mortgage must now demonstrate they have sufficient income to pay both mortgages. The FHA won't allow lenders to count rental income for the home being vacated unless borrowers have a 25 percent equity stake or can prove they are relocating for employment and obtain a one-year lease on the home being vacated. The new rules are intended to prevent the practice known as "buy and bail," where the buyer purchases a more affordable dwelling with the intention to cease making payments on the previous mortgage. See link for HUD’s mortgagee letter http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc Because FHA will insure principal residences only, and not income properties, the property being vacated by definition could not have an FHA-insured mortgage (unless it falls under the exception ruling*). But FHA feels that if the property ended up in foreclosure, it might have an impact on the value of nearby homes with FHA-guaranteed mortgages as well as the industry as a whole. The new rules took effect Sept. 19 (we are given a four hour notice!), and are temporary pending a determination whether a permanent rule change is needed. The rules apply only to a principal residence being vacated in favor of another principal residence, and not to existing rental properties disclosed on the loan application and confirmed by tax returns (with at least a year of being reported on Schedule E). *When can you have two FHA loans at the same time? A buyer cannot have two FHA loans at the same time unless: 1) The second FHA loan is for a primary residence and the old home which has the current FHA financing is not in a "reasonable driving distance to the first one" from the new one. An example would be: First home with FHA financing is in New Mexico and they are being transferred here with their company. Since the first home with FHA financing is not in a "reasonable driving distance" from the next home, the buyer can obtain another FHA loan. Note that they would have to qualify for both payments or have a 12 -month lease agreement against the first one (The 12-month lease can only be used to offset the mortgage payment provided that there is 25% equity in the first one OR they are relocating for employment). 2) The second exception of when a buyer can have a second FHA mortgage has two parts (and both parts must be satisfied): A) Current home with FHA must have 25% equity into the home (as per an appraisal) AND (not OR) B) must be able to prove increase of family size (i.e., births of additional children) so that the current home does not now adequately fit the family needs. Note that they would have to qualify for both payments or have a 12 -month lease agreement against the first one. 3) And third exception of when a buyer can have a second FHA mortgage at the same time is if they are non-occupying co-signing for someone. If the parents already had an FHA loan on their current property and they are Non-Occupying co-signing, that is OK. 4) The forth exception would be if a husband and wife are on an FHA mortgage and they get a divorce. The divorce decree specifically awards the home to one spouse. This would release the other spouse (the one not awarded the original home) to obtain their own FHA financing on another home. Obviously in any situation, if a buyer has FHA financing on their current home and it is sold, then that would release them to obtain an FHA loan again. Have a blessed weekend. When we can be of assistance to you and your buyers, please don’t hesitate to contact us at 972-278-3400. Linda

A historical Friday (three huge annoucements that will change financial markets around the world), 30 Great Websites to share with your clients

A historical Friday (three huge annoucements that will change financial markets around the world), 30 Great Websites to share with your clients As you read this, I am in Washington DC attending a HUD round table for a couple of days. I promise that I will do my best to straighten them out :). I am excited-seriously - however, of being able to "have an ear" with HUD and will let you know at the end of the week how it went. In the meantime, my team is at the office to assist you when you need us. As you may know, every person on my team (including myself) holds their DE Underwriting designation and would love the opportunity to work with your buyers or answer any questions that you have. Let us know when we can be of assistance. Linda A historical week was capped off last Friday with an incredible day of three news events, all with an enormous impact. Thank goodness the economic calendar was quiet on Friday, as government announcements took center stage. These three huge announcements Friday will change the financial markets around the world. First, we have been talking about the fear over the safety of money in savings for many Americans. Banks are either folding or on the brink of collapse, bonds are losing some or all of their value, and stocks are dropping at an alarming rate, all causing tremendous fear and anxiety for investors. This fear caused a flight to quality of such magnitude that the return on Treasuries was actually negative. People were actually willing to pay money in order not to lose money...forgetting all about any type of return for their investment. This panic lead to a modern day "run on the bank". There was $180 Billion taken out of money market funds due to a lack of confidence. This resulted in a "breaking of the buck", which means that the Net Asset Value or NAV of some money market funds dropped below $1. Virtually all investors consider money market funds very safe and do not expect any change in the principal value, so a $1 invested will always result in a $1 balance plus any interest. But once the $1 valuation was broken investors panicked and the flood gates opened. This caused the Treasury to step in. Friday morning, Treasury Secretary Hank Paulson announced that the US government will guarantee money market funds. It should be noted that this does not include high yield, enhanced type, or riskier money market funds. This action is helping settle the markets and as a result stocks around the world are marching higher. Another big announcement that is helping to calm the global markets and regain confidence is the Fed's decision to create a market place for illiquid mortgage debt. As we know, the mortgage mess has buried many companies, some were previous giants with long histories like Lehman, Bear Stearns, Fannie & Freddie. The big problem is that there are no buyers for this debt in the current marketplace. So the Fed is stepping in to create a vehicle to make these purchases of mortgage debt and provide a liquid marketplace. This is a brilliant move which has been very well received and should do a lot of long term good to help the housing and lending environment. Stocks around the world responded very favorably to this on Friday. But wait... there was more J...As a student of the market I can tell you first hand that there is a very dark side to stock shorting. The amount of greed is incredible. Many short sellers have used currently illegal tactics such as "naked" short selling. This means they are shorting a stock without the required step of first borrowing it. This has exacerbated the problem in financial stocks as they get unmercifully beaten down. This in turn hurts their balance sheet which also limits their ability to take on credit. And this is the vicious cycle we have been witnessing. Worse yet are the short sellers who sent armies of individuals to use scare tactics on message boards to convince people the sky is falling. The SEC has placed a ban on short selling in 799 financially related stocks. This ban will last through October 2nd and can be extended if needed in 30 day increments. Some other countries around the globe are also instituting similar bans. There are some very foolish politicians and others who are commenting on what a negative move this is, as well as saying there are legitimate short sellers. The problem is that they have failed miserably in policing this problem for a very long time. It is the equivalent of an electronic store saying, "pay for what you take with the honor system". While some will actually pay what is due, there is no doubt that the store will wiped out in a short period of time. The SEC did the right thing here and hopefully this will add another level of calm to the current financial crisis. These 3 steps will not fix everything, but it sure looks like a step in the right direction. The health of our financial system and confidence that our hard earned savings will not be wiped out is far more important. What good is earning a paycheck if there is no place to safely save that money. Prices will undoubtedly continue their volatile ride..... Forecast for the Week ...and the ride isn't over...the coming week may see more wild movement in the markets, as the financial sector responds to all the recent action, along with several reports due in the latter part of the week. We'll get a read on the housing market with Wednesday's Existing Home Sales Report and Thursday's New Home Sales Report. And we will get a read on the economy with Friday's Gross Domestic Product Report (GDP is the broadest measure of economic activity) and Thursday's Durable Goods Report. What are "durable goods"? Simply put, they are items that are durable (i.e. cars, furniture, appliances, games, cameras, business equipment, etc), and are made to last longer than three years. This report shows a good measure of consumer and business consumption and buying behavior, and depending on the health of the report, could add to the volatility we have seen. The Mortgage Market View Five Fantastic Freebies These days, many people are looking for new ways to cut costs and save money. Here are five great ideas from the editors of Kiplinger: Free TV & Movies: Full episodes of more than 300 shows from NBC Universal and Fox stations are available on www.hulu.com. The site also offers over 165 free full-length movies in a variety of genres. In addition, other networks like ABC and CBS are also starting to post full episodes of various shows on their Web sites. Free College Savings: Sign up at www.Upromise.com and you can turn everyday purchases into college savings. You'll earn cash rewards for eligible purchases of groceries, gas, dining out, travel, and online shopping. The money is then automatically transferred to your child's 529 account. In addition, your family and friends can help, too, by linking their rewards to your Upromise account. Free Directory Assistance: The next time you need to call 411, dial 1-800-FREE-411 instead for free directory assistance for both residential and business listings. While you may have to listen to a short advertisement after the voice prompts, you will still save a few dollars. Free Credit Report: By law, you can receive one free credit report once a year from each of the three main credit bureaus. Visit www.annualcreditreport.com to request your report. Free Recipes: Need some inspiration in the kitchen? Check out www.allrecipes.com and www.Epicurious.com where you can access over 100,000 recipes for all kinds of meals...no matter your level of expertise. You can search by meal, occasion, or ingredient, and there are plenty of user reviews and cooking demonstration videos to help. For twenty-five more great freebies, visit www.kiplinger.com/features/archives/2007/08/free.html. These are awesome to send to your clients to let them know and give you a reason to follow up.

August 2008 Foreclosures Jump 80 Percent

August Foreclosures Jump 80 Percent: Report By: PAUL JACKSONSeptember 8, 2008 Nearly 102,000 homeowners lost their properties to foreclosure in August, up nearly 6 percent from July and more than 80 percent higher than in August 2007, according to data released Monday morning by real estate information data aggregator ForeclosureS.com. So far this year, lenders have repossessed a record 656,545 properties nationwide, and remain on track to repossess more than 1 million nationwide by year-end, the company reported. Year to date, 1.45 million homeowners — or 19.6 of every 1,000 U.S. households — faced pre-foreclosure actions by lenders, almost double the number a year ago. There is some good news: pre-foreclosures actions by lenders slowed slightly from July and more than half of the pre-foreclosure as well as REO activities can be attributed to just three states — Arizona, California and Florida. As she has throughout the crisis, ForeclosureS.com president Alexis McGee continued to suggest that the housing market was showing signs of stabilization; it’s a position she has taken for at least the past four months in the face of rising foreclosures. “While we continue to see record numbers of foreclosures and actions that may lead to foreclosure, and despite the higher 6.1 percent August unemployment rate, it does appear that the overall situation is beginning to stabilize,” McGee said. “Importantly, many regions of the country — particularly the Northeast and Midwest — have seen less-dramatic increase in foreclosures and pre-foreclosure activity in 2008 compared with 2007.” The Southwest region, in contrast, reported by far the most foreclosed property filings year-to-date, 348,019 or 12.7 filings per 1,000 households. The Southeast, meanwhile, leads the nation in pre-foreclosure actions filed year to date with 477,177, or 27.5 filings per 1,000 households. For more information, visit http://www.foreclosures.com

Most Expensive Housing Market in the Nation

La Jolla Tops List as Most Expensive Housing Market in Nation By: PAUL JACKSONSeptember 9, 2008 Although both are waterfront cities, something besides the salt water separates La Jolla, Calif. on the Pacific Ocean from Sioux City, Iowa on the Missouri River — like a $1.7 million dollar difference in the cost of homes, according to a study released Tuesday morning. In an annual comparison of similar homes in 315 U.S. markets, La Jolla topped the chart as the most expensive real estate market in the nation with a $1,841,667 average home price. Sixteen hundred miles away in America’s heartland sits Sioux City, the most affordable real estate market in America, where a similar home would cost $133,459, the study found. The study, released by real estate brokerage Coldwell Banker, compares the cost of similar 2,200 square foot, four-bedroom, two-and-a-half bath homes in 315 markets across the United States. See more study results. La Jolla and Sioux City are not alone in representing California and the Midwest, either. In fact, eight out of ten of the country’s most expensive housing markets are in California, according to the study, and eight Midwestern cities make the list of the nation’s 10 most affordable home markets. “This year’s study comes at an interesting time in our nation’s history with the impact of the housing correction and mortgage financing serving as critical economic issues in the presidential election,” said Jim Gillespie, president and chief executive officer of Coldwell Banker Real Estate. The cumulative average sales price of the four-bedroom homes surveyed in the 315 U.S. markets covered in the Coldwell Banker HPCI was $403,738, a 4.4 percent decline from the $422,343 reported one year ago. La Jolla edged out perennial most-expensive contender Greenwich, Conn. ($1,787,000) and other West Coast markets as the most expensive U.S. market in the study, which should be telling; the housing mess has been centered in California. Beverly Hills was the most expensive studied in the U.S. market last year at $2.21 million, Coldwell Banker said; the study does not include Manhattan, however, citing a lack of relevant data. The Northeast Corridor (from Maine to Washington, D.C.) and California dominate all but five of the most expensive “top 40″ U.S. markets slots, according to the study — with just one town from those regions (Augusta, Maine) appearing among the top 40 most affordable markets. Texas, led by Arlington, has six of the study’s 40 most affordable markets. For more information, visit http://www.coldwellbanker.com.

FHA 3.5 Downpayment Effective 1/1/09

Effective January 1, 2009 on all new FHA case number assignment on purchase transaction will require a down payment of 3.5 percentages. Summary of the Memo Purchases Borrower will be required to have paid a down payment in cash or its equivalent (Grant, Bond, Government Funded 2nd Liens) an amount equal to 3.5 percent of the lesser of the Sales Price or the Appraised Value (No longer closing cost may be consider in the down payment calculation.) Seller Concession exceeding 6% of the sales price and/or inducements to purchase (Gift Card, Refrigerator, Car, etc.) must be subtracted form the lesser of the Sales Price or the Appraised Value before calculating the 3.5 percent down payment

Freddie Mac and Fannie Mae Bailout

Freddie and Fannie Bailout September 7 will now be remembered as the day the U.S. government took over the mortgage market. What that means for financial markets going forward has never been less certain. This is no longer the worst mortgage crisis since the Great Depression; this could be the worst mortgage crisis, period. It’s also the end of an era. The U.S. Treasury on Sunday announced a takeover of both Fannie Mae a move that has nearly no precedent in U.S. history. Together, the companies own or guarantee roughly $5.3 trillion* in home loans, roughly half of all outstanding U.S. mortgages. The bailout will involve as much as $200 billion in capital and credit lines to both GSEs, according to documents released Sunday afternoon by the Treasury. This is following a report by the Mortgage Bankers Association last week that more than 4 million American homes- 9% of all homes with a mortgage (i.e. 9 homes out of 100) - were either behind on their payments or in foreclosure at the end of June. A combination of $3.1 billion dollars was lost by Fannie and Freddie Mac between April and June. It is predicted that half of those credit losses are from loans with ballooning or adjustable monthly payments. It is also predicted that a government bailout could cost taxpayers between $25 billion and $200 billion dollars according to the Congressional Budget Office which would make it one of the most sweeping government interventions in the workings of financial markets in U.S. history. Putting that in perspective, it is estimated that the airline bailout after 9/11 cost tax payers $15 billion dollars. So what is $1 billion dollars? If the US Treasury spent $1 million dollars every single day, it would take 2.8 years to spend $1 billion. So if this bailout takes $100 billion dollars (just to estimate in the middle of the predictions), then we (the tax payers) will be paying $100 million dollars every single day for the next 2.8 years to cover the bailout. It almost takes your breath away doesn’t it? What does this mean to your buyers and sellers? Time will tell. Right now we are seeing bonds soaring (i.e., rates will come down), but stocks are trying to rebound so it will be interesting to see how the week plays out. My prediction is that we will see even more tightening in the guidelines as Fannie, Freddie and investors will want to make certain that they don’t continue the cycle. Yesterday was very interesting for me. I was interviewed by Channel 4, 5, 11, 33, WBAP and Sirrus 147 on this bailout. Had a lot of fun (my neighbors were teasing me as we had news stations in the house all afternoon), but obviously it was a big subject. If we can get any clips, we will send them out to you. In the mean time….. stay tune… it should be a bumpy ride this week!

The likelihood that the government will do some type of takeover was increased following a report by the Mortgage Bankers Association last week that more than 4 million American homes- 9% of all homes with a mortgage- were either behind on their payments or in foreclosure at the end of June. A combination of $3.1 billion dollars was lost by Fannie and Freddie Mac between April and June. It is predicted that half of those credit losses are from loans with ballooning or adjustable monthly payments. It is also predicted that a government bailout could cost taxpayers $25 billion dollars according to the Congressional Budget Office which would make it one of the most sweeping government interventions in the workings of financial markets in U.S. history. Putting that in perspective, it is estimated that the airline bailout after 9/11 cost tax payers $15 billion dollars. Freddie and Fannie have played a larger role in the US mortgage market over the past year as the subprime and Alt A lenders have shut down. According to the trade publication Inside Mortgage Finance, the companies guaranteed about three-quarters of all new mortgages in the second quarter of this year, up from under 40 percent in 2006. It is thought that the government could place quarterly infusions of money (instead of one big capital investment) as losses warrant in an attempt to minimize the upfront cost of the rescue. According to MSNBC, placing the companies in conservatorship, rather than receivership, could signal that the government does not intend to nationalize or liquidate Fannie Mae and Freddie Mac. Instead, under the terms of a federal law passed this summer, conservatorship is designed to allow the government to restructure the companies and return them to private control. Treasury officials have previously compared the process to Chapter 11 bankruptcy. MSNCB further reports that if the government plan succeeds, uncertainty in the markets around Fannie Mae and Freddie Mac could subside, making it easier for the companies to get access to funding at cheaper rates. That, in turn, could have a spillover effect in the overall market for mortgages, lowering interest rate and helping the battered housing market recover.

Garland Tx First Time Home Buyer Program/ DAPs

City of Garland now has funds for 17 families for $10,000 each towards buyer's down payment, closing costs and prepaids. The buyer must purchase in the city of Garland and be a First Time Home Buyer. Do You Realize??????? Do You Realize that this is the LAST month in which your buyers can do a Downpayment Assistance Program (and have the seller pay their cost) AND get their $7500 Tax Credit? Downpayment Assistance Programs are GONE as of 9/30- Time to Act Now! Let us close your buyers before DAPs are gone.... Call us today at 972-278-3400. We have in-house processing, underwriting and closing AND because everyone on my Team is an underwriter (including myself), we can underwrite the loan upfront! Best places to live 2008 - Top 100: 1-25 - from MONEY Magazine (link) Did you know that there were nine (9) cities in North Texas that were ranked by Money Magazine on the Best Places to Live of America's Small Cities in 2008! #14- McKinney; #15- Carrollton; #18- Richardson; #34-Euless; #38-Frisco; #57-Denton; #67-Garland; #69-Lewisville; #96- Grand Prairie Great Talking Points As of 9/4/08: Countdown to the first presidential debate: 22 daysCountdown to the vice presidential debate: 28 daysCountdown to the second presidential debate 33 daysCountdown to the third presidential debate: 41 daysCountdown to Election Day 2008: 62 daysCountdown to Inauguration Day 2009: 139 days More Talking Points HOME PRICES - The average home in the USA declined in value by 1.7% over the 1-year ending 6/30/08. Over the last 10 years, home prices have increased +6.2% per year. Over the last 20 years, home prices have increased +4.7% per year nationwide (source: Office of Federal Housing Enterprise Oversight). ASSET STATS - 2.7 million US taxpayers have gross assets worth at least $1.5 million. Of that group, 357,000 taxpayers have assets worth $5 million or more (source: Internal Revenue Service). HARD WORK IS MORE IMPORTANT - The median college grade point average (GPA) for US millionaires is 2.9 on a 4.0 scale (source: SmartMoney.com). BIG GARAGE NEEDED - 35% of US households own 3 or more automobiles and/or trucks (source: Experian Automotive). FOR SALE - As of 7/31/08, there were 4.7 million unsold existing homes in the USA (i.e., not counting new homes on the market that have not been previously occupied). 3 years earlier (7/31/05), there were 2.8 million existing homes for sale (source: National Association of Realtors). GREEN ACRES - Farm real estate values nationwide reached a record high of $2,350 per acre (including land and buildings) as of the beginning of this year (source: Department of Agriculture). LABOR DAY HOLIDAYS- An estimated 16 million Americans flew on US airlines during the current Labor Day holiday, a decline of 1 million passengers from a year earlier (source: Air Transport Association). GENDER EQUALITY - American men won 53 medals at the Beijing Olympics, the same number of medals as won by American women. 4 additional medals were won by Americans in mixed-gender sports. A total of 43 world records were set during the summer games in all sports (source: Wall Street Journal, Financial Times).

Last Month for DAPS + $7500 Tax Credit- ACT NOW!, FHA Funds to Close, Prevent ID Theft

Happy Labor Day! I hope that your holiday and week is blessed. As a new school year is beginning across the country, I thought you would enjoy the facts about education in America. See further below in this newsletter. Do You Realize??????? Do You Realize that this is the LAST month in which buyers can do a Downpayment Assistance Program (and have the seller pay their cost) AND get their $7500 Tax Credit? Downpayment Assistance Programs are GONE as of 9/30- Time to Act Now! Call us today at 972-278-3400 when we can be of assistance to close. We have in-house processing, underwriting and closing AND because everyone on my Team is an underwriter (including myself), we can underwrite the loan upfront! FHA Funds To Close In our commitment to continue to give you more ways to close, we are starting a The Davidson Group (TDG) Mortgage Tube audio/video on the 22 ways that FHA allows funds to close. Visit us for a detailed explanation : http://www.youtube.com/watch?v=LuZWzgLe1DM PART 1 I will send PART 2 of Funds to Close this week (having technical webcam issues). Stay tune! Available By Request: Per popular demand, the following forms are available by request (just send us a quick email to ldavidson@servicefirstmtg.com or call 972-278-3400): - The 22 Ways Buyers Can Obtain Funds to Close on a FHA loan - Quick Reference Guide to the $7500 Tax Credit (Ready- Made Flyer for clients) Interesting Facts on America Education Gotta Go Back... Back... Back to School Again The cast of Grease 2 began the movie with an ode to the end of summer and the beginning of the school year. As we head into the first week of September, parents and students across the country are singing the same tune. In honor of the new 2008-09 school year, here are some interesting facts about education in America: 56 million students are expected to enroll in kindergarten through high school this year. 3.3 million students are expected to receive high school diplomas this year. 10.9 million school age children who speak a language other than English at home - 7.8 million of them speak Spanish at home. Over 30 million children participate in the national school lunch program (based on 2007 data). This is 54% of the students. There are 7.1 million teachers in the United States, with 2.9 million of them teaching elementary and middle school. More than 18 million students are enrolled in colleges and universities this year, which is up from 13 million students 20 years ago. · More than 3 million students are expected to earn their college degrees this year. Did you know that Texas is the No. 2 in ID theft? Here is a great site to help prevent ID theft. Share it with those you know: http://www.texasfightsidtheft.gov/ Have a blessed week. When we can be of assistance to you, please call us at 972-278-3400. Linda