$10,000 First Time Home Buyer Monies Now Available in Dallas, Rescuing the American Dream Training, Halloween Fun+ Flu Shots, Market Report for the W

So this week was a little bit quieter (or is it that we are getting too use to the volatility?). Rates came down between .125-.25 so that helped a little bit. For more market news, see below. We are still hearing from buyers that still believe that they need perfect credit and 20% down to purchase, so keep getting the word out that there is still $0 down and 3% down loans with out perfect credit (if you need our marketing material for this let me know and we will be glad to forward it to you). This Friday, we are rolling out a Conventional loan that is No Down AND The Buyer can roll into the loan 3% for closing cost AND the seller can pay 3% additional for closing cost AND possibly NO monthly PMI (depending on credit score and sales price). Stay tune for the details on this loan. We are only one of three companies in the area asked to roll out this Conventional loan because of our expertise in the market and I am excited about offering this to your clients. Be sure to read the Friday market updates for more details! And speaking of monies to close, The City of Dallas have just released their funds up to $10,000(!) towards buyer’s down payment, closing costs and prepaids. See Below for information. Reminder also that The City of Garland also has funds for First Time Home Buyers…. If you need any information on that give us a call at 972-278-3400. Food for thought- Did you know that this week is Food Bank Week (so don’t forget your local charity) and National Businesswomen Week. So to all my fellow businesswomen who keep excellence at work and at home and are superwomen (are at least expected to be :))….. I salute you! Reminder that we post all our past emails and updates on our blog at lindadavidsonmortgage.blogspot.com for your convenience. Also check out our blog this week which includes a Ken Harvey articles titled: Surrounded by Ruins, Mortgage Market Remains Intact. This article is a great perspective of the Market Industry right now and a good one to share with your clients. The City of Dallas have released funds to assist First Time Home Buyers in purchasing a home! $10,000 maximum subsidy for qualified first time homebuyers House must be located in the City of Dallas Cannot earn over 80% of Dallas median family income based on family size (see below) Homeowner education required Must not have owned a home in 3 years (unless it was a mobile home) All existing homes must pass an inspection by an approved MAP inspector All repairs must be completed and inspected prior to MAP approval MAP will reimburse seller up to 1500.00 for MAP required repairs 8 year recapture provision (the second lien is forgiven at a rate of 1/8 per year) 1 2 3 4 5 6+ 37240 42560 47880 53200 57456 61712 Family Size Household Income Reminder: 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! Training Class in November- "Rescuing the American Dream" Due to a lot of calls, we are going to teach one last class in November which is "Rescuing the American Dream". This will be a 90 minute class with quick overviews of what type of financing can be done now, how to market the changes to your clients, as well as a quick overview of short sales and foreclosures and the new housing bill HR 3221. It will be fast, fun and will equip you with knowledge that you can use to market this knowledge to your clients. The class will be held in my office (3200 Broadway Blvd, Suite 120, Garland) on Tuesday, November 4 from 1 PM- 2:30 PM. This will be be the last class of the year that we will hold here at the office. Note, however, that I am available for classes in individual offices/ meetings. To RSVP for the 11/4 class, simply call 972-278-3400 or email us at ldavidson@servicefirstmtg.com. Market Report Last Week in Review "I'm always making a comeback but nobody ever tells me where I've been." Billie Holiday. Making a comeback was exactly what Bonds and home loan rates attempted last week, after approaching some of their worst levels this year. While the Bond market was closed last Monday in Observance of Columbus Day, the early part of the week wasn't short of market-impacting news. On Tuesday, the Bush Administration, including Treasury Secretary Henry Paulson, Federal Chairman Ben Bernanke, and FDIC Chairman Sheila Bair announced a plan to use $250 billion of the $700 billion financial rescue bill recently passed by Congress to buy directly into American banks. The government will begin by buying stock in nine of the largest banks including Bank of America, JPMorgan Chase, and Citigroup. Why did the government do this? Because the financial crisis is due to over-leverage...that means the ratio of outstanding loans to capital is too high. If left unchecked, this can lead to the failure of institutions. And it has already taken a great toll. The only way to repair this is by reducing the leverage ratio, or "de-leveraging". That means sell off loans or increase capital. The Fed's plan helps this on both sides as they can be a buyer of some loans as well as an investor in some banks. Another result of the current financial crisis is that economic reports are taking a back seat to market dynamics in ways that have never been seen before. In the past, fund managers or institutional traders would typically contemplate which direction would best favor the market, and position their portfolio in Stocks if the outlook was favorable, or Bonds if the outlook was cloudy. So we have come to expect Bond prices to move in the opposite direction from Stock prices much of the time, as money flows out of one and into the other. But the pressure to "de-leverage" has all but removed the thought process, and forced selling of all types of securities to raise capital. And while this situation should stabilize and return to normal (which we saw some evidence of on Friday as Stocks and Bonds alternated going up and down), it is one I will continue to monitor as the weeks and months progress. And after all the ups and downs of the week, Bonds and home loan rates did manage a comeback, ending the week a bit better than where they began. HAVING A MEDICARE CLAIM DENIED IN WHOLE OR IN PART DOESN'T MEAN YOU CAN'T COMEBACK AND ACHIEVE A DIFFERENT OUTCOME! CHECK OUT THIS WEEK'S MARKET VIEW FOR SOME GREAT SUGGESTIONS FOR APPEALING A DENIAL. Forecast for the Week Fighting Medicare Claim Denials When an insurance company denies a claim in whole or in part, it is possible to appeal their decision. The same is true with Medicare claims...and in fact more than half of Medicare appeals are successful. If you, a family member, or a friend have had a Medicare claim denied, the following information can help you successfully appeal the decision: Time Frame: If your Medicare claim is denied for less than the full amount, you can ask for a "redetermination" but you must do so within 120 days. Download the Medicare Redetermination Request form at http://www.cms.hhs.gov/cmsforms/downloads/cms20027.pdf, or call 800-633-4227 to receive a copy. Common Denials: The denial you received will include an explanation, which you will need to contest in your appeal. Ask your doctor to write a letter addressing the reasons in the denial and include this letter with your appeals form. Common denials include: The treatment, prescription, or medical service is unlikely to cause your health condition to improve: Fight this by having your doctor write a letter explaining why the care is necessary. Medicare is required to look at your total condition, not just your chance for a full or partial recovery. You are likely to require care for a very long time: Medicare coverage is not limited to treatments that work quickly, so ask your doctor to write a letter explaining that the treatment is making some positive difference or is expected to. The prescription dosage level is greater than what is normally prescribed, or the drug prescribed is not normally prescribed for your health problem: Have your doctor write a letter explaining why the unusual drug or dosage is medically necessary. For instance, you may be allergic to the medicine normally prescribed. You do not qualify for Medicare-covered home care because you are not homebound: Under Medicare rules, homebound does not mean that you are completely unable to leave your home or that you are confined to a bed. It does mean that you require assistance and that it takes considerable effort for you to leave your home. Ask your doctor to write a letter describing in detail how difficult it is for you to leave your home. Be Persistent: If your first appeal is denied, you can file as many as four more appeals. And the more appeals you file, the greater your odds of success. While your first appeal is made to the same group that denied your initial claim, subsequent appeals are made to independent arbiters. For more information, visit www.medicareadvocacy.org. 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 20 – October 24 Date ET Economic Report For Estimate Actual Prior Impact Mon. October 20 10:00 Index of Leading Econ Ind (LEI) Sept -0.3% -0.5% Low Wed. October 22 10:30 Crude Inventories 10/18 NA 5611K Moderate Thu. October 23 08:30 Jobless Claims (Initial) 10/18 NA 461K Moderate Fri. October 24 10:00 Existing Home Sales Sept 4.93M 4.91M 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!!

Surrounded by Ruins, Mortgage Market Remains Intact

From: TAMB [mailto:TAMB@tamb.org] Sent: Friday, October 17, 2008 5:46 PMTo: TAMB@TAMB.orgSubject: Ken Harney's Saturday Article Surrounded by Ruins, Mortgage Market Remains Intact By Kenneth R. HarneySaturday, October 18, 2008; F01 Everybody knows how severe and painful the global financial breakdown has been, with banks unwilling to lend even to other banks. But what about mortgages and real estate? Can you still get a home loan with less than 20 percent or 30 percent down? Or with a credit score below 720? Absolutely. It would be a big stretch to label housing the sunny side of the market at the moment, but there's a lot more light there than in most other financial sectors. Consider: · There is no shortage of money available for home mortgages, no freezing of credit to purchase or refinance a house. Why? Because the American mortgage market effectively has been federalized -- at least for the time being. More than 90 percent of new loans now are being made through the Federal Housing Administration insurance program, plus Fannie Mae and Freddie Mac. The FHA is owned by the federal government, and Fannie and Freddie are operating under federal conservatorship. All three have unfettered access to global capital markets at rock-bottom costs because their borrowings are fully guaranteed by the Treasury.Ginnie Mae, which is the FHA's pipeline to the bond market, recorded an all-time high of $29 billion in new mortgage-backed securities issued in August. · Loan terms and credit underwriting standards have been toughened up, but you can still put down 3 percent (3.5 percent after Jan. 1) on an FHA-insured mortgage and 5 percent on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance. The FHA's credit standards are generous and forgiving -- the agency exists to help people with less-than-spotless credit histories. Fannie Mae and Freddie Mac have raised their credit score requirements over the past year, but buyers and refinancers with scores in the upper 600s can still qualify for loans carrying reasonable rates and fees. · Despite the global financial system's quakes, mortgage rates remain low by historical standards. According to Freddie Mac, 30-year rates this week stood at 6.46 percent. · Maximum loan amounts through the FHA, Fannie and Freddie in high-cost markets on the West and East coasts continue to be $729,750 through December. In January, the high-cost maximum is projected to dip to approximately $625,000. · Home prices -- pushed by foreclosures and short sales -- have rolled back to 2003 and 2004 levels or lower in many of the former boom markets. As a result, growing numbers of buyers are coming off the sidelines, making offers and writing contracts. The pending home sales index jumped by 7.4 percent based on purchase contracts signed in August, according to the National Association of Realtors. The heaviest increases -- pointing to higher closed sales in the coming two to three months -- were in California, Florida, Nevada and the Washington metropolitan area. Housing and mortgage leaders say consumer worries about the stock market have obscured positive developments in real estate, where pricing pain and downsizing have been facts of life for two and a half years. David G. Kittle, president and chief executive of Principle Wholesale Lending and incoming chairman of the Mortgage Bankers Association, said "the mortgage market has never shut down" despite the global financial crisis. Money is "clearly available as long as you can qualify for it," with at least a modest down payment and decent credit history. Matt Vernon, a national retail mortgage sales executive for Bank of America, said, "we've got more than enough liquidity" to handle mortgage demand. "We are open for business." Most of the bank's production is now funded through the FHA, Fannie and Freddie. On the front lines, mortgage company owner Jeff Lipes, president of Family Choice Mortgage near Hartford, Conn., said, "I don't think consumers really know how free-flowing capital is right now in the residential mortgage market. There are no shortages, no breakdowns. People ought to be aware of that." Bottom line: Scary as the news has been about stocks and banks, this is not the case for mortgages. Besides shopping at large national lenders, check in with local banks and credit unions that may be originating loans for their own portfolios -- not for Fannie, Freddie or the FHA. Many of them are healthy, have plenty of cash to lend, and may be surprisingly competitive on terms and rates compared with the big boys.

Rescuing the American Dream- Last Training Class This Year, Investment Properies go to 20% down, Reference Guide for Loans Now Available, Early Votin

Training Class in November- "Rescuing the American Dream" Due to a lot of calls, we are going to teach one last class in November which is "Rescuing the American Dream". This will be a 90 minute class with quick overviews of what type of financing can be done now, how to market the changes to your clients, as well as a quick overview of short sales and foreclosures and the new housing bill HR 3221. It will be fast, fun and will equip you with knowledge that you can use to market this knowledge to your clients. The class will be held in my office (3200 Broadway Blvd, Suite 120, Garland) on Tuesday, November 4 from 1:00-2:30 PM (snacks will be served). This will be be the last class of the year that we will hold here at the office. Note, however, that I am available for classes in individual offices/ meetings. To RSVP for the 11/4 class, simply call 972-278-3400 or email us at ldavidson@servicefirstmtg.com. Just a reminder that Investment Property financing goes to 20% down through Fannie/Freddie as of 11/01/08 as the PMI companies have discontinued the issuance of Private Mortgage Insurance on those loans. In light of that, I have given you below the types of financing currently available and "Things to Remember" about each one. You may want to print this out and keep it for future reference. Check out our blog for a great article from the Barron’s Report- Are We There Yet? which talks about have we reached bottom and ready to go up in our market. lindadavidsonmortgage.blogspot.com Also just a reminder that we post all our weekly emails here in the event that you miss one. You will find below the Financing that is available in the mainstream market (as of today :). You may want to print this out for future reference. When we can be of assistance to you and your buyers on these, please don’t hesitate to contact us. Owner Occupied-Also known as Primary Residence-Eligible for homestead exemption-This is the home where the borrower lives-Co-borrower can be non owner occupant on FHA but program restrictions apply. -Financing Available is FHA, VA, USDA, Conventional (Freddie and Fannie). Note that there are still some "niche" type loans available, but very limited and costly. -Zero Down Loans- VA, USDA and limited "Special Programs" for Conventional. -Three Percent Down Loans- FHA and Conventional (Freddie and Fannie) Seller Contribution Allowed for Owner Occupied: FHA- 6% provided that buyer has in 3% contribution (see our 22 ways that buyers can obtain their funds to close). VA- All reasonable and customary charges. USDA- All reasonable and customary charges. Can also be rolled into the note without increasing the sales price provided the appraised value supports the new loan amount. Conventional (Freddie/Fannie)- 3% if buyer puts down 3.00-9.99 down; 6% if buyer puts down 10% or more; 9% if buyer puts down 20% or more. Non Owner Occupied-Borrower does not live in this home-Property can be rented-also known as investment property-Is not eligible for the homestead exemption-Must do a Conventional loan with at least 20 down*-Must have strong cash reserves remaining after loan closes-Must count full payment and cannot offset with a new lease (exceptions apply)-Rate is higher than owner occupied-Seller contribution is maximum of 2% of sales price *Cut off for obtaining PMI on Investment Property is 11/01/08. Second liens are almost impossible to obtain.Second Home-Typically in a vacation area-Property cannot be rented-Can be purchased if borrower stays in the home on a part time basis -Rate and downpayment may be higher than the Primary home-Not eligible for the homestead exemption -Conventional (Freddie/Fannie) loan only -Seller contribution- 3% if buyer puts down 5.00-9.99 down; 6% if buyer puts down 10% or more; 9% if buyer puts down 20% or more. 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! Let's all get out there and vote!!! Early voting starts Monday, October 20, 2008 thru Friday, October 31, 2008for the November 4, 2008 election. Listed below are links to Dallas,Collin, Rockwall, Tarrant & Denton county early voting location sites.Dallas County Early Voting Locationshttp://www.dalcoelections.org/nov42008/EVLocations.htmCollin County Early Voting Locationshttp://www.co.collin.tx.us/elections/election_information/2008/110408/EV110408.htmlRockwall County Early Voting Locationshttp://www.rockwallcountytexas.com/elecadm/2008/nov4th/GENERAL-Early%20Voting%20Locations-November%20%204%202008-FATE.pdfTarrant County Early Voting Locationshttp://www.tarrantcounty.com/evote/lib/evote/2008/11042008/ev/SCHD_Nov08.pdfDenton County Early Voting Locationshttp://elections.dentoncounty.com/go.asp?Dept=82&Link=1013 Have a blessed weekend. We are here for you and your clients…. 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!!

Are We There Yet? Have We Reached The Market Bottom?

Closer to the Bottom By JACQUELINE DOHERTY There's reason to believe that the stock ­market averages will hit bottom sometime in the next few months, even if the economy is still in the middle of a recession. The buy­ and ­hold approach still applies. FOR THE TENS OF MILLIONS OF INVESTORS WHO HAVE been nervously watching the U.S. stock market's 40% decline in the past 12 months, and it's 18% drop in the past week alone, history holds some solace: There is a case to be made that the averages will hit bottom sometime in the next few months, even if the economy is in the middle of a recession. Indeed, stocks showed some signs of finding a bottom late Friday, with the Dow Jones industrial average closing down just 128 points on the day, after having plummeted about 700 points earlier in the session. The Nasdaq Composite even managed a small gain on the day. Investors will be watching for a possible market bounce that could occur early this week, especially if any new measures to ease the global economic crisis emerge from the weekend's meeting in Washington of the finance ministers of the so­ called G­7 industrial nations. The lesson of history is this: The average U.S. recession since the late 1940s has lasted 10 months, and stocks typically hit their low point about three months before the recession ends. So, if the U.S. entered a recession on July 1, as many economists now suggest, and the recession was to last until April 2009, a typical bottom for stocks would occur some time in the next few months. Granted, much depends on the ability of the Federal Reserve and the U.S. Treasury to put rescue measures in place that will unlock today's frozen capital markets. And there are nagging concerns that the next disaster may lurk in the unregulated $60 trillion market for credit­ default swaps. But the fear that sent the market down so sharply last week may have driven stocks close to their ultimate lows. "I don't think this is the end of America as we know it," says Byron Wien, chief investment strategist at Pequot Capital Management. "I think it's conceivable that the markets will bottom before year end." Wien cites a number of positive events in recent weeks. The Treasury now has the ability, through the $700 billion Troubled Asset Relief Program (TARP), to start buying distressed assets from banks. There is speculation the federal government will come up with yet another program to help the housing market. Oil prices have fallen below $80 a barrel from levels above $140, a slide that on its own should boost economic growth. And smart investors have started buying at what they hope are good prices. Barclays (ticker: BCS) purchased Lehman Brothers' investment banking operations in the U.S. Warren Buffett took stakes in General Electric (GE) and Goldman Sachs (GS). Citigroup (C) and Wells Fargo (WFC) actually fought over the right to buy Wachovia (WB). Recessions certainly have been both shorter and longer than the 10­month average. On a positive note, five recent recessions were shorter. The 1980 recession lasted a mere six months, and there were four recessions that lasted only eight months, according to data from Bespoke Investment Group. But a mild recession wasn't what the market feared last week.Investors were worried the current economic slump will be"different" from those in the past. American consumers are carryingmore debt this time around, and the banking system is in much more fragile shape. THOUGH A TYPICAL RECESSION would end by next spring, economists are paying increasing attention to longer downturns, specifically the two recessions since 1940 that each lasted 16months. The November 1973 to August 1975 downdraft was sparked by the Arab oil embargo, while the July 1981 to November 1982 recession was triggered by the Federal Reserve hiking interest rates dramatically to curtail runaway inflation. In each case stocks bottomed about three months before the recession ended. The good news today is that stocks appear to have gotten out ahead of any recession, falling so sharply that they might already have priced in pretty horrible times ahead. The Dow is down almost as much in the past year as the 45% it fell in the 1973­1975 recession, and its 12­month decline far exceeds the 24% it lost in the period leading up to and during the 1981­1982 recession, according to Birinyi Associates. Today's 40% drop also far surpasses the average bear market slide of 30% since 1940. Markets that decline for more than a year average a loss of 42%, says Paul Desmond, President of Lowry Research Corp. The Dow has fallen by more than 40% 10 other times, with all but one such drop occurring between 1900 and 1930. It slid by more than 50% only once, between 1929 and 1932, when it shed 89%. That bear was bracketed by the Great Depression, which lasted for 44 months. A recession is labeled a depression when economic activity shrinks by 10% or more. From August 1929 to March 1933 U.S. economic output contracted by more than 30%. That's what made it "Great." But back in the 'Thirties, the financial markets lacked many of today's safety nets, like deposit insurance, and the Federal Reserve didn't loosen the purse strings quickly, as the Fed lately has done. Also, the stock­ market rally leading up to the Depression was much more frenzied. From 1921 to 1929, the market rose almost 500%. In the rally from 1987 to 2000, stocks jumped 574%, but did so over a much longer period. From 2002 to the market's peak in October 2007, the Dow rose 94%. Given stocks' swoon in the past 12 months, prices look much more reasonable today. The companies in the Standard & Poor's 500 trade for an average of 11.6 times the profits that analysts expect them to earn next year. And the index trades at 17.1 times the companies' most recent earnings. That's only slightly below the market's 60­year average price/earnings multiple of 17.8, according to Birinyi Associates. The current P/E is still high compared to the low P/Es of previous major recessions. During the '74, '80 and '82 recessions, the S&P's trailing P/E dropped to between 6.8 and 7.2. But in the '70, '90 and '01 economic downturns, the P/E ranged from 12.9 to 23.5. One person who fears further market declines is Wayne Nordberg, chairman of Hollow Brook Associates. "This is the end of the great credit supercycle," he says. "It takes a very long time to unwind." Or, as Doug Cliggott, manager of the Dover Management Long­ Short Sector Fund, put it with regard to the TARP, "we're fighting a forest fire with a garden hose." But such gloomy sentiments aren't a reason to get out of the stock market. It could be quite the opposite, in fact. Consider that $1 invested in stocks from February 1966 through May 2007 would have grown to $16.58 in that period. That's a 7% annual return. By contrast, investors who were out of the market in the five best days each year during that span were left with only 11 cents. That's a pretty good case for the buy and hold philosophy, or, if you're out of the market, for getting back in soon.

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. 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