Common Appraisal Adjustments Guidelines, More Marketing Material to Swipe/Adapt, Market Update

Yes, last week was another one for the history books (do you realize that our great grandchildren will be reading about us in the future?) . We talk about the market below in the update. However, there are still houses to be sold, loans to be closed and someone will be doing those- why not you- why not me? I have given you more marketing material below to swipe and adapt- please feel free to use it in any way you want. In addition, I have given you an outline of Common Appraisal Adjustments Guidelines- you may want to print this out and use for future reference also. Don’t forget our Halloween Breakfast/ Flu Shot Clinic on 10/31 (see below)- we hope to see you here. In the meantime, there are some things that we cannot control- they are what they are. But remember the “A”s this week- We can control our Attitude, our Actions and our Adaptability to what the market brings us. Here’s to an Awesome week! Linda More Marketing Scripting to “Swipe and Adapt” Many of you sent emails on the “Swipe and Adapt” marketing scripting that we sent out last week. Here is another one- it is up to us to get the word out that financing is still available without a large down payment, inventory is strong and it is a wonderful time to purchase. So, with that thought, you will find below wording that can be used on flyers, ads, letters, signs, banners- whatever you want to use it for. Please use it (feel free to modify it in any manner that you wish- however you want to change it up)- lets just get the word out!!!!!! When Is It The Right Time To Buy? This question is presented to me three and four times a day. And, frankly, no one can tell you that this is the perfect time to buy a home… However, I can give some pretty compelling arguments that NOW is a really good time to buy. Consider the following: · Home prices in some areas have dropped by 10% in the past year alone. · Values are at their lowest levels in five years. · Interest rates are at almost historic lows…. Did you know that the Average 30 yr fixed rate loan from 1992 to 2008 was 7.06%! · Historically, when rates are down home values are up, and when rates are up, home values are down. · Zero to 3% Down Loans can still be done! · The present combination of great home values and low interest rates makes for the perfect opportunity to purchase a home. This is probably the best time to buy a home in 20 years! We look forward to working with you. Thank you for your trust! The Davidson Group. Common Adjustments Guidelines Used by Appraisers I have asked our appraiser, Chris Smith of Smith Appraisals to give us a guideline on common adjustments. It is important to understand that these are estimates only and should only be used as such. Chris Smith and Smith Appraisals can be reached at ((214) 618-8058 Office (972) 467-0027 Cell and email chris@smithappraisalgroup.com. The following adjustments are very general in nature and may vary from neighborhood to neighborhood and property to property. There are a variety of factors which may influence each situation or scenario. This list should only be used as a guide with each adjustment supported by actual market data from within the area you are working. Sales or Financing Concessions: From a pure “market value” perspective financing concessions should be deducted dollar for dollar. For some time now, lenders have however been willing to allow appraisers to limit their adjustments for concessions to the amount exceeding what is considered typical and “customary” for the area. For example, if 1-3 points are common in an area and a sale has 4.7 points (or 4.7%), an appraiser might deduct 1.7 points. 4.7 (percentage actually paid) minus 3 (typical for the area) for a net deduction of .7% from the sale price. Please keep in mind that seller concessions in any amount are not real estate and should be deducted if your goal is to identify the true value of a home. Also, with the industry changing the way it is, lenders are becoming less tolerant of the practice of excluding only partial amounts of concessions and guidelines may be implemented to prevent this and many other practices used to manipulate or “stretch” values. Date of Sale/Time: Time adjustments are not typically made in this market. (If you are interested in knowing more about time adjustments and when and how they should be used, please feel free to contact me). Location: Location adjustments are among the most difficult to estimate because there a virtually unlimited number of possible scenarios. Some of these are proximity to a potentially positive or negative influence, mitigating factors, acceptability within a particular market, etc. Some sample adjustments are as follows: Sides or backs a busy street: 2-3%. This figure can and will fluctuate due to any number of variables. Fronts busy street: 2-5%, depending on proximity, etc. Sides or backs high tension power lines: 1-2%, depending on proximity, etc. Sides or backs water tower: 1-2%, depending on proximity, etc. Sides or backs light commercial property (retail): 1-2%, depending on proximity, etc. Site Size: $100,000-$200,000 home: $1,000-$2,000 per 1,000 square feet difference in size. $200,000-$400,000 home: $2,000-$4,000 per 1,000 square feet difference in size. $400,000-$600,000 home: $3,000-$5,000 per 1,000 square feet difference in size. $600,000-$800,000 home: $4,000-$7,000 per 1,000 square feet difference in size. View: Golf Course: 3-10%, depending on view, obstructions, etc. Creek: 2-6%, depending on view, obstructions, etc. Wooded Area: 1-3%, depending on view, obstructions, etc. Acreage: 1-2%, depending on view, obstructions, etc. Factors affecting view adjustments can be things such as fences, proximity, obstructions, etc. Design: Design adjustments are very subjective and may or may not be warranted for any particular style or design in any given area. Some examples of common design differences that may require an adjustment: Contemporary style homes often sell lower than their “traditional” counterparts. English Tudors often sell higher than cottages. We can discuss in more detail if anyone is interested. Quality of Construction: There is no rule of thumb for this but I’ll give you a fairly easy way to determine the difference from one neighborhood to the next in class. It’s more difficult within a neighborhood unless you are able to identify the various builders. It can be extremely difficult with true custom built homes because a wide range of quality of construction and finish out often exists from one home to the next, even though they may be built by the same builder. I’ll give some examples and we can discuss if anyone is interested. Age/Effective Age: Appraisers will typically make an adjustment for either age or condition but not both. I’ll give some examples in class and we can discuss. Room Count: Bathrooms: $100,000-$200,000 home: $2,000-$3,000 per ½ bath. $200,000-$400,000 home: $2,500-$4,000 per ½ bath. $400,000-$600,000 home: $3,000-$6,000 per ½ bath. $600,000-$800,000 home: $4,000-$7,000 per ½ bath. Bedrooms: $100,000-$200,000 home – 2 vs. 3 bedrooms: $2,000-$5,000. $200,000-$400,000 home – 2 vs. 3 bedrooms: $3,000-$7,000. $400,000-$600,000 home – 2 vs. 3 bedrooms: $4,000-$10,000. $600,000-$800,000 home – 2 vs. 3 bedrooms: $5,000-$15,000. **There is “typically” no measurable difference in value between 3 and 4 bedroom homes. This difference is most often accounted for within the GLA adjustment. Gross Living Area: $50,000-$100,000 home: $15.00-$25.00 per square foot. $100,000-$200,000 home: $25.00-$35.00 per square foot. $200,000-$400,000 home: $30.00-$40.00 per square foot. $400,000-$600,000 home: $35.00-$50.00 per square foot. $600,000-$800,000 home: $40.00-$60.00 per square foot. Price per foot adjustments will deviate from these guidelines depending on the size of a property. For example, a 2,500 square foot home selling for $100,000 ($40.00/foot) might require a price per foot adjustment of $15.00-$20.00 per square foot; whereas a 1,000 square foot home selling for $100,000 ($100.00/foot) might warrant an adjustment of $35.00-$50.00 per square foot. The lot value in each example should also be considered. **Please remember that much of the guesswork can be eliminated by using comparable sales with similar square footage whenever possible. Heating/Cooling: Typically relevant to cost. Garage Spaces: $50,000-$100,000 home: $1,500-$2,500 per space. $100,000-$200,000 home: $2,000-$3,000 per space. $200,000-$400,000 home: $2,500-$5,000 per space. $400,000-$600,000 home: $4,000-$8,000 per space. $600,000-$800,000 home: $3,500-$10,000 per space. Carports: 1 Car Carport $500.00-$1,000.00 2 Car Carport $1,000.00-$2,000.00 **Carport adjustments will vary depending on price range of the home and the quality of construction of the carport. Covered Patios: $50,000-$100,000 home: $1,000-$2,000. $100,000-$200,000 home: $1,200-$4,000. $200,000-$400,000 home: $2,500-$8,000. $400,000-$600,000 home: $4,000-$10,000. $600,000-$800,000 home: $5,000-$12,000. Fireplaces: $50,000-$100,000 home: $500-$1,500. $100,000-$200,000 home: $1,000-$2,000. $200,000-$400,000 home: $1,200-$2,500. $400,000-$600,000 home: $1,500-$3,000. $600,000-$800,000 home: $1,500-$3,500. Updated Windows: Updated thermal-pane windows (including storm windows) will typically add 1-2% depending on the price range of the home. The percentage will typically decrease as the price of the home increases. Above-Ground Hot Tubs: Above-ground hot tubs, like any other removable (portable) items, are considered personal property and therefore should not be given any value in an appraisal. That does not mean these items are worthless and should not be considered. It simply means that when you are determining what to buy or sell a property for it is important to understand that an appraiser is typically not at liberty to assign value to personal property. Pool/Spa: $50,000-$100,000 home: Pool $4,000-$7,000. Spa $1,500-$2,500. $100,000-$200,000 home: Pool $8,000-$12,000. Spa $2,000-$3,500. $200,000-$400,000 home: Pool $10,000-$16,000. Spa $3,000-$5,000. $400,000-$600,000 home: Pool $14,000-$18,000. Spa $4,000-$7,000. $600,000-$800,000 home: Pool $15,000-$25,000. Spa $5,000-$10,000. **All pool adjustments listed above are for in-ground, gunite swimming pools. Adjustments for more elaborate, high quality pools with amenities such as water features, stone work, fountains, “pebble-Tech” finishes, etc., can require significantly higher adjustments. Above-ground pools are personal property and given no value. Vinyl lined and fiberglass pools are typically worth about half the value of a very basic gunite pool in lower price range properties. Vinyl lined and fiberglass pools are typically worth even less in upper price range homes as the typical buyer of a more expensive home is generally more discriminate and prefers amenities consistent with the price and quality of the home they are purchasing. This is evidenced by the rarity of vinyl lined and fiberglass pools seen in more expensive properties. Halloween Breakfast and Flu Shots- It is fitting that we will hold our annual flu shot clinic here at the office (3200 Broadway Blvd in Garland) on Halloween morning- I think that they are pretty scary- don’t you :) although I do get one every year myself. We will have a nurse at our office from 8-9 AM for flu shots on October 31 if you would like one. I do need an RSVP for the flu shots by 10/29 so that the nurse knows how many shots to bring. The cost is $25 per person. So, to make it fun (and we are always looking for a reason to throw a party), we will be serving breakfast at the same time (Friday morning, October 31 from 8:00-9:00 AM). We will have scrambled “brains” :) (eggs) with tortillas with all the trimmings and homemade pico made by Chef David (my husband) who most of you know is an excellent cook. So whether or not you are getting a shot, come on by for food, fun and prizes. We look forward to seeing you here! Last Week in Review "THOSE WHO CAN SOAR TO THE HIGHEST HEIGHTS CAN ALSO PLUNGE TO THE DEEPEST DEPTHS." Lucy Maud Montgomery. Despite all of the government's efforts, markets here and around the world plunged this week as the financial crisis continues to grow. On Tuesday, the Fed and Treasury Department announced plans to purchase short-term commercial paper that many companies rely on to finance their day-to-day operations, to help businesses with their short-term credit and funding needs. The government hoped this announcement would help ease uncertainty, restore confidence, and give Stocks a boost. They hoped for a similar result on Wednesday when the Federal Reserve cut the Fed Funds Rate by 50 basis points, and coordinated an emergency global interest rate cut with the European Central Bank, Canada, the UK, Switzerland and Sweden. The Central Banks in Asia followed suit and cut their benchmark interest rates overnight as well. However, on Thursday, Stocks plummeted nearly 700 points to a five-year low, and on Friday Stocks ended the day another 126 points lower (after plunging 500 points three times throughout the day). Bonds and home loan rates also worsened sharply in the second part of the week, as Bonds dropped below several important floors of support, and home loan rates ended the week .50-1.00% higher than where they began. From a historical perspective, we are in the midst of a brutal bear market that began on October 9th 2007. Remember that a decline of 20% constitutes a bear market...and a 10% decline is a "correction." The last bear market occurred between March 24th of 2000 and October 9th 2002 saw a 49% drop. Overall, the average bear market lasts for 12.3 months, with the average decline being 32%. The current bear market is right in line with the average historical time frames, and the extent of the decline is worse than previous bear market averages, but still slightly better than the bottom made in 2002. So the historical data might suggest that we could be nearing a bottom. I will continue to monitor this situation closely, and let you know how this will impact home loan rates in the weeks and months ahead. One bright spot is that oil prices are also plunging, falling from a high of $147 per barrel last July to around $80 per barrel Friday morning...which at least makes a trip to fill up at the gas station slightly less painful. Forecast for the Week Last week was a volatile one despite the lack of scheduled economic reports, and this week several big pending reports could add to the volatility...even with the markets being closed on Monday in observance of Columbus Day. Wednesday will bring the wholesale inflation measuring Producer Price Index and the Retail Sales report for September. The Retail Sales report is a measure of the total receipts of retail stores, and changes in these numbers are closely followed as a timely indicator of broad consumer spending patterns. It will be especially important to see what kind of impact the financial crisis has had on recent spending trends. More inflation news will follow on Thursday, as September's Consumer Price Index (CPI) report, which gives a read on inflation at the consumer level, will be released. CPI tells us how much more expensive goods and services are this month over last month, and this widely watched inflation indicator will definitely make headlines. And given what's been happening in the markets, it will be important to note what's happening in the housing sector, which Friday's Housing Starts and Building Permits Report for September will reveal. STOP OVERSPENDING TO STAY ON BUDGET In today's economic environment, many people are paying more attention to their monthly budgets than they have in a long time. One of the best ways to rein in your budget is to get a handle on your spending habits. The tips below can help you figure out where your money is going every month, and whittle down unnecessary expenses. Taking inventory. Many people can name their major expenses, but don't remember all the little expenses that drain their wallets. To help you get a true picture of your spending, try writing down everything you spend money on during the course of a month. That means writing down not only your major expenses, but also those quick trips to the gas station, grocery store, coffee shop, movie theater, fast food restaurants, and so on. Also, if you pay for insurance or your garbage bill on a quarterly basis, write down what the monthly expense equals. Hierarchy of needs. Once you have all your expenses listed, it's time to analyze them. The best place to start is by grouping your expenses using highlighters. For example, you may want to use one color to highlight "must haves" like your house, automobile, life insurance, utility payments and so on. Next, use a different color to highlight items that may be important occasionally, but aren't required--such as, new clothes for work. Finally, use a different color to highlight unnecessary expenses that are nice, but could easily be cut out, such as mochas from the local coffee house. Now, you can make some purposeful decisions about what you can cut--starting with the easy items and working your way up to the important but not necessary. Don't forget, it's not always "either-or." For instance, you don't have to cut out mochas altogether; instead, you can cut down to one per week as a special treat. Give yourself an allowance. Sticking to your budget is easier if you have no other option. If you have a real spending problem, you may want to give yourself an allowance to live on. For example, try taking out $50 or $70 in cash for each week and putting your credit cards and checkbook in a safe place. That way, when you spend money, you'll actually see it leave your wallet...which means you'll see the impact more dramatically. This forces you to make some tough decisions. After all, if you go to lunch on Wednesday, you may not be able to go to the movies on Friday night. It'll be tough at first. But soon, being frugal will be second nature. Stop window-shopping. Marketing is a powerful force. To help eliminate the urge to overspend, avoid filling your lunch hour or Saturday afternoons by walking around the mall. Instead, spend that time walking around a local park, reading a good book, or playing a board game with a good friend. When you do need to shop, make a plan to go to a specific store or two... and go with a list! Of course, the key to having a list is only shopping for the items on it--no more, no less. Pedal to the metal. Make a list of all the places you drive and how far away they are. Then, get out your highlighters again. Use one color to highlight the items that are within 3 miles. These are the places that you can start walking to... that way you'll save on gas and get some exercise in the process. Use a different color to highlight all the places that range from 3-10 miles. Those are the places you can start biking to. Of course, if you want to save even more, you can get rid of your car or a second vehicle altogether. Not only will you save on gas, but you'll also free yourself from those ongoing car insurance and license expenses. If you live in a city with public transportation or where most of your stores are close by, this may also be an option worth exploring. 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 October 13 – October 17 Date ET Economic Report For Estimate Actual Prior Impact Wed. October 15 08:30 Core Producer Price Index (PPI) Sept 0.2% 0.2% Moderate Wed. October 15 08:30 Producer Price Index (PPI) Sept -0.3% -0.9% Moderate Wed. October 15 08:30 Empire State Index Oct -10.0% -7.4% Moderate Wed. October 15 08:30 Retail Sales Sept -0.4% -0.3% HIGH Wed. October 15 08:30 Retail Sales ex-auto Sept 0.1% -0.7% HIGH Wed. October 15 02:00 Beige Book Moderate Thu. October 16 10:00 Philadelphia Fed Index Oct -5.0 3.8 HIGH Thu. October 16 09:15 Industrial Production Sept -0.8% -1.1% Moderate Thu. October 16 09:15 Capacity Utilization Sept 78.0% 78.7% Moderate Thu. October 16 08:30 Jobless Claims (Initial) 10/11 NA 497K Moderate Thu. October 16 08:30 Consumer Price Index (CPI) Sept 0.1% -0.1% HIGH Thu. October 16 08:30 Core Consumer Price Index (CPI) Sept 0.2% 0.2% HIGH Fri. October 17 08:30 Building Permits Sept 845K 854K Moderate Fri. October 17 08:30 Housing Starts Sept 880K 895K Moderate Fri. October 17 10:00 Consumer Sentiment Index (UoM) Oct 69.0 70.3 Moderate Have a blessed week. We are here to make it happen for you and your buyers…. Let our expertise close loans for you! We can be reached at 972-278-3400 or ldavidson@servicefirstmtg.com. 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

FHA-New Guidelines Converting Existing Home to Rental, Halloween Breakfast and Flu Shots, Great Words To Live By, Information to Share with your clien

Halloween Breakfast and Flu Shots- It is fitting that we will hold our annual flu shot clinic here at the office on Halloween morning- I think that they are pretty scary- don’t you :) although I do get one every year myself. We will have a nurse at our office from 8-9 AM for flu shots on October 31 if you would like one. I do need an RSVP for the flu shots by 10/29 so that the nurse knows how many shots to bring. The cost is $25 per person. So, to make it fun (and we are always looking for a reason to throw a party), we will be serving breakfast at the same time (Friday morning, October 31 from 8:00-9:00 AM). We will have scrambled “brains” :) (eggs) with tortillas with all the trimmings and homemade pico made by Chef David (my husband) who most of you know is an excellent cook. So whether or not you are getting a shot, come on by for food, fun and prizes. We look forward to seeing you here! Great Words to Live By…….. Words can never adequately convey the incredible impact of our attitude toward life. The longer I live the more convinced I become that life is 10 percent what happens to us and 90 percenthow we respond to it. I believe the single most significant decision I can make on a day-to-daybasis is my choice of attitude. It is more important than my past, my education, my bankroll, my successes or failures, fame or pain, what other people think of me or say about me, my circumstances, or my position. Attitude keeps me going or cripples my progress. It alone fuels my fire or assaults my hope. When my attitudes are right; there’s no barrier too high, no valleytoo deep, no dream too extreme, no challenge too great for me. - Chuck Swindoll Important New FHA Guideline on Converting The Existing Home to Rental: We sent this out on 9/26, but have had a calls on it, so we wanted to reiterate this again. Buyers cannot purchase a home going FHA if they are going to rent out their current property and use the lease income to offset the mortgage payment- except for the following exceptions below. I have enclosed information from the actual mortgage letter and have highlighted the most important parts: Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence. This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace. Due to FHA’s concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages. Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter (see below for exceptions). The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken. This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. In either case, this guidance is directed to preventing the practice known as “buy and bail” where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage. Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure. Exceptions to the above policy: Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm) may be considered in the underwriting analysis under the following circumstances: · Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance (typically 50 miles- but underwriter discretion) . A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner. · Sufficient Equity in Vacated Property: The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property. The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466. The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040). If you have any questions on the above, please feel free to contact us at 972-278-3400. We also sent out on 9/26 when a buyer can have two FHA mortgages at the same time. If you did not receive that information and need it, just let us know and we will forward it to you. If you have friends or clients who ask you, “What does the rescue bill do to me, or for me?” have them check this out: http://www.forbes.com/2008/10/02/bailout-taxes-washington-biz-beltway-cx_lm_bw_1001bailout.html?partner=daily_newsletter Fed Cut As you know, the Federal Reserve cut the Fed Funds Rate by 50 basis points on Wednesday and coordinated an emergency global interest rate cut with the European Central Bank, Canada, UK, Switzerland and Sweden. Typically, when the Fed cuts rates by itself, the US Dollar weakens--which leads to higher inflation and negative movement for Mortgage Bonds which is what we saw quite significantly this week. Remember a weakness in mortgage bonds is a negative in mortgage interest rates (and we saw rates jump up quick). Stay tune on Monday for more information. Have a blessed week. When we can be of assistance to you and your buyers, simply call us at 972-278-3400. 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

What The FHA Needs To Get The Job Done

What the FHA Needs To Get the Job Done By Kenneth R. HarneySaturday, October 4, 2008; F01 In the current credit squeeze, if you have less than a 20 percent down payment, there's pretty much only one major source of mortgage financing available: the Federal Housing Administration, the Depression-era home loan insurance agency that still offers 3 percent down, 30-year, fixed-rate mortgages with consumer-friendly credit standards, even on jumbo loans in high-cost areas of California and the East Coast. But there is a potentially troublesome problem looming for the FHA: New loan volume is exploding -- tripling in the past 12 months alone -- and Congress has handed the agency the responsibility for almost all the government's efforts to keep economically distressed homeowners out of foreclosure by refinancing their unaffordable loans. The FHA says it needs to hire more staff and upgrade its technology to be able to handle the crush of new business, but it complains that Congress hasn't appropriated the necessary funds -- $65 million -- to do the job fast enough. Capitol Hill appropriations committee staff dispute some of that, but the specifics of the arguments over dollar amounts aren't the issue. The real question is this: Can a government agency whose market share dropped below 3 percent during the heyday of the subprime boom now properly handle explosive volume rocketing it to an estimated market share of 30 percent this year? Are both the agency and Congress -- which controls the purse strings -- up to the task? Mortgage industry, home building and real estate experts worry about the possible consequences of shifting too heavy a share of the mortgage market too quickly to an agency that may be inadequately staffed or funded. Howard Glaser, who served during the Clinton administration as acting general counsel for HUD, the parent department for the FHA, worries that loading on too much business without properly funding staff and technology upgrades raises the odds of breakdowns. "FHA is assuming the risks of a mortgage market abandoned by private investors -- without the risk management tools," he said. "My fear is that next year at this time, we will be debating an FHA bailout." Steve O'Connor, senior vice president of the Mortgage Bankers Association, agreed there's danger lurking in the massive increases in business going to the FHA. "You just can't expect to fit that amount down the same size pipe -- you've got to expand the size of the pipe" by funding additional staff and technology, he said. "It's a very serious concern." Other industry groups, including the National Association of Home Builders and the National Association of Realtors voice similar worries. Dick Gaylord, president of the Realtors, said "if [the FHA] is truly going to serve its growing constituency," it will need more money and people. The FHA -- for years the forgotten federally controlled stepchild of an industry dominated by Fannie Mae, Freddie Mac and the Wall Street mortgage bond machines -- is now insuring more than 140,000 new loans a month, according to agency statistics. It has $400 billion in outstanding loans in its insurance portfolio and runs its home mortgage business with 937 employees in offices spread around the country. The agency wants authorization to add 160 employees immediately. Though historically a resource for first-time buyers, minorities and people with imperfect credit, the FHA increasingly is the go-to place for people who have above-average credit backgrounds but lack -- or choose not to use -- large amounts of down-payment cash. In August, according to agency data, approximately 23 percent of new FHA home purchasers had FICO credit scores above 720 -- far beyond the proportion of prior years. In the same month, just 12 percent had FICO scores below 600. With mortgage limits extending into the jumbo category, the agency is attracting large numbers of customers from high-cost areas of the country, especially California and the mid-Atlantic states. One of 10 new borrowers in August was from California. To some mortgage lenders and loan officers, the FHA is now the main game in town. "Nothing competes with them," said Paul Skeens, chief executive of Colonial Mortgage Group in Waldorf. Fannie Mae and Freddie Mac, both now in federal conservatorship, have steadily added fees to the point where "they just aren't competing with FHA on down payments or costs," Skeens said. In 2001 and 2002, Skeens' firm did just one-quarter of 1 percent of its volume in the FHA. Now it's 60 percent. "The last thing we need right now, with the shape the housing market is in," he said, "is for FHA not to function well."

Rescue Bill Passes to Protect Economy-Will it Work? , Protect Yourself from New Kind of ID Theft, Insurance Tip

It is a new week, the Economic Bill has passed and my hope for this week is good business and no negative news- how is that for being hopeful! My team and I did an exercise Friday that I would like to encourage you to do (maybe do it with another person/group for input). We discussed Reality, Hope, Decision and Actions. First we listed the Reality of our Industry right now (i..e, Guidelines are tighter, Buyers typically need money to purchase, etc.). Then we listed Hope (what we would like to see in our business in the next 3-12 months), followed by Decisions (what decisions we must make to be certain that we remain strong and that business keeps coming in) and then ACTIONS (if we do the same things and expect different results, that is insanity)- so what Actions should we keep, what Actions should we start, and what Actions should we stop. It was a great discussion and we are excited about the future as well as the present! When we can be of assistance to you and your buyers, please don’t hesitate to contact us at 972-278-3400. First Time Home Buyer Monies- We are anticipating some new Texas bond monies available within the next couple of weeks which can be used up to a household income of $53000. We will let you know as soon as those funds become available. Homeowners Insurance: Did you know . . . that the medical coverage in most standard insurance policies covers medical expenses should someone, other than the residents, who suffers a minor injury on your property. Typical coverage would be for certain minor medical costs incurred by the injured person. Examples include the cost of exams and X-rays. Generally, the coverage limits range from $1,000 to $5,000. Alan Jones - The VA Jones Group Market Report TO PASS OR NOT TO PASS? That was indeed the question of the week...and the final answer came on Friday, as the House of Representatives followed the Senate's lead and passed the $700 Billion rescue plan. Check out my blog at lindadavidsonmortgage.blogspot.com for an interesting John Mauldin’s report…. The bill was passed. Will it work? As you know, the week began with the House initially voting against the plan on Monday, causing Stocks to plunge in their final minutes of trading to their single worst loss in the 112-year history of the Dow Jones. However, on Wednesday, the Senate passed a revised rescue plan that included some tax breaks and an increase in FDIC protection from $100,000 to $250,000. This was the version the House subsequently passed and President Bush signed into law on Friday. So as we have talked about before….Why was it important for the plan to pass? Simply put, the plan frees up some of the frozen credit that consumers and small businesses across the country need to survive. As examples, even auto loans were becoming harder for consumers to qualify for...and on the business side, many retail operations have had difficulty in financing their inventory. Credit issues like these are not good for the economy, confidence, and consumer spending, and the rescue plan was passed to help matters. In other news from Friday, the Labor Department reported that 159,000 jobs were lost in September, which is much worse than the 105,000 lost jobs that economists were expecting. So far in 2008, we have lost 760,000 jobs. And while Bonds and home loan rates would have typically improved on this weak economic news (remember weak economic news usually causes money to flow from Stocks into Bonds, helping home loan rates improve), talk that the Fed and other Central Banks around the world may start cutting their benchmark rates kept Bonds and home loan rates from making a big improvement. Remember, a cut in the Fed Funds Rate is inflationary, and therefore bad for Bonds and home loan rates. When all was said, done and passed during this incredibly volatile and historic week, Bonds and home loan rates ended the week only slightly improved from where they began. I will continue to monitor this situation closely in the days and weeks ahead. JUST WHEN YOU THOUGHT YOU HAD A HANDLE ON PROTECTING YOUR IDENTITY...THERE'S A BRAND NEW KIND OF IDENTITY THEFT IN TOWN. THIS WEEK'S MARKET VIEW GIVES YOU THE SCOOP, AS WELL AS TIPS TO PROTECT YOURSELF - SO DON'T LET THIS OPPORTUNITY TO STAY SAFE PASS YOU BY! Forecast for the Week With a light schedule of economic reports on the calendar this week, the financial news and headlines will likely have the biggest impact on the markets this week - particularly as we see how the markets react to the newly signed rescue bill. In addition, late breaking news from last week that Wells Fargo will acquire Wachovia, undoing a prior deal that had Citigroup acquiring Wachovia, and that Citigroup may file a lawsuit, could impact the markets as well. Another big news item will be the Meeting Minutes of the September 16 Fed meeting, which will be released on Tuesday. If these Minutes give evidence that the Fed may cut rates at its next meeting on October 28-29, Bonds and home loan rates could worsen due to the inflationary implications. The Mortgage Market View... Medical Identity Theft With identity theft on the rise these days, most of us are already taking steps to protect ourselves. But did you know that there’s now a growing form of identity theft known as “medical identity theft” that can not only devastate victims’ finances, but also compromise their health, too. According to Joy Pritts, JD, author of Your Medical Record Rights, here’s what you need to know. What is Medical Identity Theft? Medical identity theft occurs when criminals access victims’ medical records. Since medical records contain a person’s social security number and credit card information (if bills have been paid via credit card), criminals can open accounts and make fraudulent charges. However, criminals also gain access to victims’ health insurance policy information and medical histories, and they can create forged health insurance cards to sell to people who are uninsured and need expensive medical treatment. A person who buys a fake health insurance ID card would then seek treatment using the victim’s name and policy number, and then disappear, leaving the victim with the bills to pay. Why Should You Be Concerned? Victims of medical identity theft not only have to repair their credit and convince credit agencies and service providers that bills are fraudulent, they also have to correct inaccurate medical information that becomes part of their health records. Victims could be denied life insurance or individual health insurance if their record shows treatments that they did not have. In addition, victims could receive treatments or medicines that could be harmful to them on the basis of inaccurate content in their medical records. Steps to Take if You Suspect a Medical Identity Theft Read all bills and “Explanation of Benefits” statements from your insurance company to verify they are for treatment you received. If a bill or statement refers to treatment you did not receive, contact the employee in charge of investigating fraud at your insurance company and at the medical facility involved and explain the situation. Follow up with a letter sent via registered mail with return receipt once again explaining the situation, asking for any bills to be voided, and asking that your medical record be amended to state that you did not have this health problem or receive this treatment. Report the identity theft to the police department and state’s attorney general’s office. Contact the health care providers you use, explain the situation, ask if the erroneous information has been added to the providers’ records, and if so, ask them to correct the records. Report the fraud to the major credit bureaus and set up fraud alerts. Also, request free copies of your credit reports to make sure no new fraudulent accounts have been opened. Review your medical records every few years to make sure there are no errors. To learn more about your medical record rights, visit http://ihcrp.georgetown.edu/privacy/records.html. Have a blessed week. Let us know when we can be of assistance to you and your buyers. We can be reached 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

ZERO-3% DOWN LOANS AVAILABLE

Marketing Material to "Swipe and Adapt", USDA ZERO DOWN LOANS- Thoughts to Market Listings, Bill has Passed! Ok, deep breathe..... Lets talk about the week. Monday was brutal, followed by some recovery Tuesday and Wednesday. Yesterday the Senate voted the Revised Economic Recovery plan and Congress finally said Yes today. So in 25 words or less.... what does the Economic Recovery plan mean? Credit lines will remain open and lending should continue. Is it the magic bullet that everything is perfect and all will be the same as before or better? No- but it is a start. Now it is up to us to get the word out that financing is still available without a large down payment, inventory is strong and it is a wonderful time to purchase. So, with that thought, you will find below wording that can be used on flyers, ads, letters, signs, banners- whatever you want to use it for. Please use it (feel free to modify it in any manner that you wish- use it in third person or first person or however you want to change it up)- lets just get the word out!!!!!! Marketing Material to "Swipe and Adapt" for Your Clients and Database A lot of potential buyers are now feeling as if they can't buy a home until they save money for a large down payment. This is not always the case and if buyers want to purchase a primary home, there are ways that are still available to get 0-3% down financing. These programs do require that the buyer qualify for the house, which is a good thing as it won't put people in homes that they can't afford. The credit history does not have to have been perfect; financing for homes can be obtained for people with credit scores of 580 and higher, as long as they can show a good rental payment history. On October 1, 2008, the ability to get an FHA loan and have the seller contribute to a seller-funded down payment assistance program such as Ameridream and Nehemiah ended. The passage of Housing Bill 3221 by Congress took this feature away, ending the ability to have the seller help a buyer to get 100% financing on an FHA loan. A buyer will now have to contribute 3% towards down payment (3.5% after January 1, 2009) for an FHA mortgage. However, there is 100% financing available as you can see below. A buyer does not have to be a first-time homebuyer to get 100% financing. However, as a first-time buyer (haven't owned real estate for the last 3 years), they may qualify for a $7,500 tax credit on the Federal Tax Returns this year (made possible by the Housing Bill 3221), making purchasing now even more attractive with interest rates low and inventory high. Here are some ways to purchase a primary home with 0-3% down: FHA mortgage allows a gift or loan from a family member - A family member can loan or gift the 3% down payment required (also note that there are actually 22 ways in which FHA allows a buyer to come up with the 3% down payment required!). FHA loan limit has increased to $271,050 making it a very attractive loan in Dallas/Fort Worth. There are First Time Home Buyer Bond Programs available. Many of these programs are getting their new allotment of funds this month, so it is a great time to look at this. Zero down VA loans are available for those who have eligibility for having served in the military. In addition, using the VA in conjunction with the Texas Veterans Land Board program (TVLB) could give a buyer a 30 year fixed interest rate down to 4.75 fixed (restrictions apply)! USDA Rural Housing loan - this program actually has the ability to include closing costs in the mortgage as well as no down payment and no monthly mortgage insurance! There are income and location limitations but many people are surprised to see exactly what areas do qualify (i.e., Rockwall, Wylie, Forney, Little Elm and Azle, just to name a few). Interest rates are still low, and buyers can purchase a home with a lower payment. It is a great time to purchase a home. Do you have listings in the following cities? Did you know that buyers purchasing homes in these cities could qualify for the USDA loan (yes, like the beef). NO down payment, NO monthly PMI, the seller is allowed to pay all reasonable closing cost and prepaids, and NO hit to the rate for the zero down, NOT a first time home buyer program and No reserves needed. If you have listings in these areas, a thought would be to advertise ZERO down, or $1000 move in, etc (make certain that there is enough room to roll in costs or seller is willing to pay). This is a great loan product. If you would like more information, just let us know and we can send you more details. Please note that it is income restriction (howbeit the income limits are fairly high). Let us know if we can assist you with any questions that you have. We are an expert in this loan product (we are one of the only two loan officers in D/FW that were asked to be on a USDA advisor board) and would love to be of assistance. Just email us or call us at 972-278-3400 or 866-963-3777. Athens, Alba, Anna, Aubrey, Avondale, Azle, Bardwell, Berryville, Blue Mound, Briar, Brownsboro, Caddo Mills, Campbell, Caney City, Canton, Celeste, Celina, Center Point, Chandler, Coffee City, Combine, Commerce, Corinth, Cottonwood, Crandall, Crowley, Edgewood, Edom, Eustace, Farmersville, Fate, Ferris, Forney, Fruitvale, Gun Barrel City, Glen Heights, Grand Saline, Grays Prairie, Haslet, Hawkins, Heath, Highland Village, Italy, Justin, Kaufman, Kemp, Krum, Lake Dallas, Lakeview, Lavon, Little Elm, Log Cabin, Long Oak, Mabank, Malakoff, Melissa, Midlothian, Milford, Mineola, Murchison, Nevada, Oak Grove, Oak Ridge, Ovilla, Palmer, Paynes Springs, Pelican Bay, Pilot Point, Ponder, Poynor, Princeton, Prosper, Quinlan, Quitman, Red Oak, Roanoke, Rockwall, Rosser, Royse City, Saginaw, Sanger, Seagoville, Seven Points, Talty, Trinidad, Van, W. Tawakoni, Terrell (outside city limits only), Westminster, Wheatland, Wills Point, Winnsboro, Wylie and Yantis. Family Size 1 2 3 4 5 6 7 Household Income Limit $53550 $61200 $68850 $76500 $82600 $88700 $94850 Have a blessed weekend. Call us at 972-278-3400 when we can be of assistance to you and your buyers. 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 Bailout Plan was passed. Will it Work?

The Curve in the Road - John Mauldin's Weekly E-Letter The "Bailout Plan" was passed. Will it work? The answer depends on what your definition of "work" is. If by work you mean no more government intervention and no further costly programs and a functioning market, then the answer is no. But there are things it will do. This week I try to help you see what might lie ahead around the Curve in the Road. We look at how the rescue plan will function, see what is happening in the economy, and finally muse as to whether Muddle Through is really in our future. It will make for an interesting, if not very upbeat, letter, so strap in. I would like your promise to not shoot the messenger. I am just trying to give you some of my thoughts as to what may lie in our future. And remember, as you read this, we will get through it. There are better days "a'coming." But first, a few housekeeping items. Let me welcome some 200,000 new readers from EQUITIES Magazine. I have recently joined EQUITIES Magazine as a regular contributing editor. My column, Back to the Frontline, is featured in both their print publication and at equitiesmagazine.com. I am excited to be associated with this esteemed magazine with a rich history covering the global markets for over 57 years. They've once again agreed to offer any reader of mine a free subscription to EQUITIES Magazine. For those who did not take advantage of the free subscription the first time, here is your chance. You can go to http://www.equitiesmagazine.com/mwi and simply register to get the magazine sent to your home or office. There is also a link to an interview I did in April with them. They have a lot of content and free resources like "live" real-time stock quotes and "live" real-time portfolio managers. Check it out! Second, a quick commercial. There are managers who are successfully navigating these markets. If you would like to learn more about who they are and how you can put them to work for you, my partners would be delighted to introduce them to you. If you are an accredited investor (generally, net worth of more than $1.5 million), please go to www.accreditedinvestor.ws, register there, and my partners in the US (Altegris Investments) or London (Absolute Return Partners) will show you various alternative investments like hedge funds and commodity funds which might help diversify your portfolio. You really should see what is available behind curtain #3. And for those with not quite that amount of net worth, I work with CMG in Philadelphia. They have developed a platform of money managers who can take direct accounts, and I recommend that readers interested in outside money management take a look at them. If you would like to talk with Steve Blumenthal and his team about the managers on the platform, simply click on the following link, fill out the form, and they will call you. http://www.cmgfunds.net/public/mauldin_questionnaire.asp. (In this regard I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA. And please read all the risk disclosures.) And now, let's jump in to the letter. The Curve in the Road When you are out driving on a strange new road, you can't see around the curve ahead. But you can read the warning signs to get an idea of what might be coming. And while we can't really know how the developments in the economic world will actually unfold, there are some signs we can point to that might give us a few ideas. First, let's look at the "rescue plan" as passed by Congress. As I pointed out last week, this is a bad bill. But it was necessary to pass something, and soon. Earlier this week I sent out a report that reviewed a study of 42 major baking crises. The conclusion: navigating them successfully depended upon quick action. As everyone should know, the credit markets are almost completely frozen. LIBOR is bid only, no offers. Commercial paper markets are imploding. And what is trading is often at rates that are much higher than they were a few months ago. Corporations are being strangled on high rates. Corporations have little or no access to normal credit markets, and they will face massive problems when it comes time for them to roll over short-term debt. LIBOR has gone crazy. This is not an orderly market. Look at the following chart from friend Greg Weldon. For most readers, the commercial paper market is something you don't think about. But it is the lifeblood of business. We have seen this market drop by almost 30% in a year and by 10% in just the last three weeks! I simply cannot overstate how serious this is. Left unchecked, business activity in the US would soon slow enough to bring thoughts of the Great Depression. It will not be left unchecked. The credit crisis is not simply a Wall Street issue. It has fast become a Main Street issue. And Main Street is where jobs are created and maintained. As I have said repeatedly for months, the problem is that financial institutions are having to deleverage. They have massive losses and simply have to raise capital in order to survive. If you can't raise equity capital (and most can't), one of the ways you do that is to make fewer loans and to take less risk. You also charge more for the loans you do make. Larger institutions cannot raise capital on competitive terms. GE is an AAA-rated company. Yet they had to pay Warren Buffett 10% to get $5 billion, plus in-the-money warrants worth at least another 10%. Buffett is likely to double his money on this deal over 4-5 years. A short while ago, GE could get short-term commercial paper for a few percentage points. That difference is going to significantly impact GE's bottom line. But they had no real choice. They took the money. As did Goldman Sachs. Yet another Buffett $5 billion preferred-share purchase (with more warrants) at a rate that even Goldman will find it hard to make money on. But they had to raise capital quickly, and they had little choice. I had lunch with Michael Lewitt and Joe Harch yesterday. They were in town to meet with a client, and we took the opportunity to get together and share notes. They run (among other things) a collateralized loan obligation fund. They buy bank and corporate debt. They now have the opportunity buy well-collateralized loans from rated companies at prices well below par. They related story after story of debt from quality, highly rated companies selling below $.90 on the dollar, and some much lower. If GE and Goldman are paying 10%, what do you think it costs a firm with "only" a B rating? 15%? More? Junk bond yields have simply gone ballistic. Firms which used the credit market to access capital now are simply shut out. If they are a small public company, they can go to what are known as PIPE hedge funds (Private Investment in Public Equity) and sell equity at usurious rates (which is what Buffett does but on a larger scale). But a small or medium-sized private company? It is a hard time to go looking for money. Left alone for the markets to work out, the economy of the US and the world would be in a depression within two quarters and would need years to recover. Think Japan. Necessary but Not Sufficient Now for the bad news. The Rescue Plan was necessary but not sufficient to fix the crisis. There is going to have to be more heavy lifting, I am afraid. Let me offer a few ideas about what possible actions might be taken in the future. I am not advocating these actions, I am simply telling you what might happen. These are possible, because authorities will do whatever they deem necessary to avoid a systemic economic meltdown and a potential depression. If you are a large investor or sovereign wealth fund which put money into banks last year, you are down anywhere from 35-50% (unless you invested in Washington Mutual, and then you are down 100%). You are unlikely to invest more in any financial institution without some very real understanding of what is on the balance sheet of the bank that is asking for your money. What the Paulson plan potentially does do is remove the questionable debt. The bank may have to write down assets in order to sell the debt to the government, but they end up with a transparent balance sheet with hopefully known risks. Then they can go to the market and try and raise capital. Shareholders will get diluted. Such is the way of the world. Sidebar: taxpayers really must demand that someone like Bill Gross of PIMCO and/or other savvy market specialists run this new government operation. He offered to do it, and I think we should take him up on his offer. Taxpayer losses should be kept to a minimum, and I believe someone like Gross would do his best to see that would be the case. The point of this exercise is to restart the frozen credit markets, NOT to bail out banks. Some banks may get bailed out in the process, but it should be at a cost to their shareholders and management, not to the taxpayer. I am asked, why can't private money solve the problem? Because there is simply not enough private money. Buffett offered to take 1% of the new government pool. If that is all the largest pile of free money in the world can take, why does anyone think there is enough private capital to take the other 99%? Insuring the mortgage bonds is not sufficient, because there is not enough money to buy them in this market. When things have sorted themselves out in a few years, I think the bonds can be insured and sold, and likely at a profit if bought correctly. But we do not have the luxury of waiting a few years. Between the relaxation of the mark-to-market rules and removing ambiguously priced loans from financial institutions at prices which allow the government pool to make a small profit, if held for five years, that part (the lack of a known price) of the problem can be solved. Banks can hopefully buy themselves time in which to work their way out of the problems they created. It is much like 1982, when every major US bank thought it was a good idea to loan lots of money to Latin American countries. It was a most profitable business, right up until the countries decided to default. Then every US bank was more than just technically bankrupt. In a mark-to-market world, every large US bank would have collapsed. It would have been the end of the world as we knew it. What did they do? The Fed let the banks keep the loans on their books at face value. Over time, they worked their way through the debt, making enough money to be able to write down the loans. That was done simply to give the banks the ability to buy time. We are in a very similar situation. We have to buy some time in order for financial institutions to heal. Why the Government Had to Step In I had a lot of readers write me very nice letters this week, starting out with how much they like my letter, my insights, etc. Then they (mostly - but not all - and politely) launched on me for backing the rescue plan. Many of you had much better ideas than what was passed by Congress, which is not surprising. I really do hate the idea of having to support a rescue plan. It goes against my every instinct. But I also know that doing nothing would result in an economy which would blow right through 10% unemployment within a few quarters, and take years to recover. The stock markets and the savings of millions of retirees would be wiped out. Home values would really go into a tailspin. Being right in theory is not worth seeing that kind of devastation. Herbert Hoover sat by and decided to let the market solve the problems of 1929. He decided to run budget surpluses and ignore collapsing institutions. Combined with disastrous Federal Reserve policy (raising rates in a recession) and Smoot Hawley (which caused major trade wars and a slowdown in global trade), what should have been a serious recession turned into the Great Depression and resulted in the conditions for World War II. The rescue plan does not address the need for the increased levels of capital needed by banks. As noted above, it simply creates the conditions under which capital might be raised. Banks have already raised $440 billion. They have written down $590 billion. Losses are estimated from a mere $1 trillion to as much as $2 trillion. About half of those losses would be in banking institutions worldwide. That means anywhere from $200 to $400 billion more must be raised in order for banks to get back to capital adequacy. It is probably closer to the latter number. Until banks are adequately capitalized, they are not going to be able to do normal business lending. Further, large deposits are fleeing banks. Even with the new level of $250,000 of FDIC insurance, there is $1.9 trillion in uninsured deposits. These are mostly deposits of small to large businesses and financial institutions, which can leave a bank at the push of a button. Nouriel Roubini tells us that there are 800 billion dollars deposited in US banks by foreign counterparties. Up until this week, if you were a foreign operation, would you rather be in large money-center US banks or European banks? Tough choice, but on balance you would pick the US. Then this week Ireland decided to simply insure every deposit in Irish banks, no matter the size. Predictably, money started flowing from all over Europe into Ireland. National banks and finance ministers are furious with Ireland. However, Ireland may have no choice but to backstop its own depository institutions to keep them from losing deposits and becoming insolvent from a bank run by corporations acting in their own best interests. Belgium, The Netherlands, and Luxembourg each took 49% of their respective parts of Fortis Bank in return for a massive injection of capital, declaring the bank too big to fail - also wiping out a lot of already diminished shareholder equity. Europe has its own quite serious problems. But what if the various countries, one by one, decide to guarantee deposits in order to protect their own banks? If you are an international corporation, especially if you are outside the US, do you want your $10 million in Europe or the US if Europe guarantees your deposits with no limit? Could we see silent runs on US banks? I think it is about an even chance that the government will have to guarantee for a period of time (say 6 months to a year) every bank deposit, regardless of size, in the US. That is a staggering thought. The potential will be large for almost-insolvent banks to pursue risky behavior to try and work their way through problems. If such a policy is pursued, tight controls must be administered so risky banks do not offer high CD rates in order to garner assets. The FDIC must closely monitor such activity. Perhaps such guarantees should be for existing depositors and not new customers. Insolvent banks and those on the edge must be shut down quickly in such an event, to prevent risky behavior. Unthinkable? I bet you there is a working committee of government and Fed officials thinking about just that very thing and how to do it. It would be even more scary if there is not one. We are in completely uncharted waters, and every contingency needs to be thought through well in advance. We simply don't need more last-minute Paulson plans. In the next few weeks and months, I think you can count on more extraordinary actions by the Fed and Treasury to try and jump-start the credit markets. Actions which were highly improbable a few months ago will be on the table. Will the Fed open its balance sheet to non-banks? Possibly. If they can guarantee money markets, will there be a scheme to insure commercial paper at some price? Not out of the question. Will European governments take more equity in large European banks? Very likely. Will the Fed and/or the Treasury invest even more capital in larger financial institutions? Given that We the People now own 80% of AIG and 100% of Fannie and Freddie, it is certainly within the realm of possibility that we will be the proud owners of even more private institutions. Again, this is not just a US issue. We will likely see similar actions in Europe and some of the developing world. This is a worldwide crisis, and the response will be from central banks all over the world. Understand, I am not advocating these actions. I am simply trying to help you understand what actions might be put into place by the various government of the world in an effort to avoid systemic economic collapse. All The King's Horses The reality is that the rescue plan does not fundamentally alter the US economic landscape. There can be no doubt we are in a recession. I think it will be dated from the beginning of the year, notwithstanding the odd 2nd quarter growth. The manufacturing ISM was a dismal 43.5 (under 50 means a contracting US manufacturing industry). Such a level is typically associated with recessions, as the chart below shows. Given the financial crisis and the freefall in auto sales, this index is likely to fall further. The "good news" is that the service portion of the economy is right at 50, which means that at least that important area is not contracting. Unemployment rose by 159,000, with nearly every sector affected. Almost 1,000,000 jobs have disappeared over the last 12 months, and it is likely that we will lose another 1,000,000 jobs in the coming year. Since December, the ranks of the unemployed have grown by 1.8 million, and those not in the labor force but wanting a job by 370,000. Almost 3/4 of the increase in the unemployed have been job losers, with half the increase from permanent job losers (not temporary layoffs). (The Liscio Report) Next week we will explore the economic landscape in detail, but let me provide a few thoughts. As I have said for a long time, we will be talking about deflation this time next year. Recessions are by definition deflationary events. Given that we have had two bubbles burst (housing and credit), there is even more potential for deflationary pressures. Add into the mix the deleveraging process, which will take years to finally abate, and the recent bout of price inflation caused by energy and food will pass, as demand destruction for oil will hold oil prices in check. As I have said for a long time, the next move of the Fed is likely to be a cut. We are now close to such an action. A 1% Fed funds rate is again a real possibility. I am not sure it will help as much as some market participants think, but I think it likely the Fed will move before the end of the year, if not much sooner. Europe and Japan are also probably in recession, and it is likely we are going to see a worldwide global slowdown. It would be nice if the European Central Bank, the Bank of England, and the Fed could coordinate a joint rate cut to signal that they are working together on the problems. I would not want to be short the markets that day. At the beginning of the year, I was predicting a small recession with a lengthy and slow recovery period. I now think that the recession could be deeper than a 1% contraction. I think we could see a rather lengthy recession. Quite simply, the credit crisis has been allowed to spin out of control. That Congress almost failed to act is beyond belief. Given the above circumstances, it is not out of the realm of possibility that a recession lasts through the middle of 2009. As recessions go, that is a long time. But trust me on this, it will pass. The recovery will be a slow Muddle Through affair, though. It will be a few years before we are growing at a sustained 3%. Over the next few weeks, we will look at what that means for earnings and the stock markets. Investors who utilize a traditional 60% stocks, 40% bonds portfolio are not going to be pleased. We will look at alternatives. Stay tuned. How Can I Be 59? This has been a particularly hard letter to write, as I know it is rather gloomy, and I wish had more encouraging news. I have been writing this letter for over eight years. Every letter since the beginning of 2001 is in the archives, so my record is open for inspection. I have no particular axe to grind. Since I basically help investors (in conjunction with my partners) find investment managers and funds, we can adjust the choice of funds and management ideas to suit the times, and frequently do make changes in the mix. My goal in this letter is to help us all think about the economy and our investments and to be as "right" as I possibly can. Sometimes, like today, that means not being very upbeat. But it also means looking for ways to go with the tide rather than against it. I actually hope I am wrong and the bulls are right. But that is not the way I see it tonight. Tomorrow is my birthday. The years seem to roll by at an ever accelerating pace. (I had the reason this happens explained to me once. When you are 10, a year is 10% of your life. When you are (sigh) 59, it is 1.6% of your life. It makes some sense.) It is hard to believe I am 59. Maybe it is because I am around my kids so much, but I don't feel that old. Seven kids from 31 to 14 (plus assorted spouses and their friends) can do that. And they are all coming to town to celebrate next weekend, so tomorrow will be a quiet day. And Tiffani is already planning for a serious 60th birthday weekend next year. Life has been good to me, for all its ups and downs. And I firmly believe that my best years are ahead of me. I am simply having more fun than at any time in my life, with more opportunities than I know what to do with. I am blessed with great business partners. I have the best readers of any analyst anywhere. One million closest friends. I am truly one of the world's wealthiest men when it comes to friends and family, and at the end of the day that is what counts. Thanks for being part of my life. I plan on writing for a long time, so take care of yourself so you can keep reading. And have a great week! Your actually optimistic analyst, John MauldinJohn@FrontLineThoughts.com Copyright 2008 John Mauldin. All Rights Reserved Note: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at www.accreditedinvestor.ws or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; Pro-Hedge Funds; EFG Capital International Corp; and Plexus Asset Management. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.

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.