ZERO-3% DOWN LOANS AVAILABLE

Marketing Material to "Swipe and Adapt", USDA ZERO DOWN LOANS- Thoughts to Market Listings, Bill has Passed! Ok, deep breathe..... Lets talk about the week. Monday was brutal, followed by some recovery Tuesday and Wednesday. Yesterday the Senate voted the Revised Economic Recovery plan and Congress finally said Yes today. So in 25 words or less.... what does the Economic Recovery plan mean? Credit lines will remain open and lending should continue. Is it the magic bullet that everything is perfect and all will be the same as before or better? No- but it is a start. Now it is up to us to get the word out that financing is still available without a large down payment, inventory is strong and it is a wonderful time to purchase. So, with that thought, you will find below wording that can be used on flyers, ads, letters, signs, banners- whatever you want to use it for. Please use it (feel free to modify it in any manner that you wish- use it in third person or first person or however you want to change it up)- lets just get the word out!!!!!! Marketing Material to "Swipe and Adapt" for Your Clients and Database A lot of potential buyers are now feeling as if they can't buy a home until they save money for a large down payment. This is not always the case and if buyers want to purchase a primary home, there are ways that are still available to get 0-3% down financing. These programs do require that the buyer qualify for the house, which is a good thing as it won't put people in homes that they can't afford. The credit history does not have to have been perfect; financing for homes can be obtained for people with credit scores of 580 and higher, as long as they can show a good rental payment history. On October 1, 2008, the ability to get an FHA loan and have the seller contribute to a seller-funded down payment assistance program such as Ameridream and Nehemiah ended. The passage of Housing Bill 3221 by Congress took this feature away, ending the ability to have the seller help a buyer to get 100% financing on an FHA loan. A buyer will now have to contribute 3% towards down payment (3.5% after January 1, 2009) for an FHA mortgage. However, there is 100% financing available as you can see below. A buyer does not have to be a first-time homebuyer to get 100% financing. However, as a first-time buyer (haven't owned real estate for the last 3 years), they may qualify for a $7,500 tax credit on the Federal Tax Returns this year (made possible by the Housing Bill 3221), making purchasing now even more attractive with interest rates low and inventory high. Here are some ways to purchase a primary home with 0-3% down: FHA mortgage allows a gift or loan from a family member - A family member can loan or gift the 3% down payment required (also note that there are actually 22 ways in which FHA allows a buyer to come up with the 3% down payment required!). FHA loan limit has increased to $271,050 making it a very attractive loan in Dallas/Fort Worth. There are First Time Home Buyer Bond Programs available. Many of these programs are getting their new allotment of funds this month, so it is a great time to look at this. Zero down VA loans are available for those who have eligibility for having served in the military. In addition, using the VA in conjunction with the Texas Veterans Land Board program (TVLB) could give a buyer a 30 year fixed interest rate down to 4.75 fixed (restrictions apply)! USDA Rural Housing loan - this program actually has the ability to include closing costs in the mortgage as well as no down payment and no monthly mortgage insurance! There are income and location limitations but many people are surprised to see exactly what areas do qualify (i.e., Rockwall, Wylie, Forney, Little Elm and Azle, just to name a few). Interest rates are still low, and buyers can purchase a home with a lower payment. It is a great time to purchase a home. Do you have listings in the following cities? Did you know that buyers purchasing homes in these cities could qualify for the USDA loan (yes, like the beef). NO down payment, NO monthly PMI, the seller is allowed to pay all reasonable closing cost and prepaids, and NO hit to the rate for the zero down, NOT a first time home buyer program and No reserves needed. If you have listings in these areas, a thought would be to advertise ZERO down, or $1000 move in, etc (make certain that there is enough room to roll in costs or seller is willing to pay). This is a great loan product. If you would like more information, just let us know and we can send you more details. Please note that it is income restriction (howbeit the income limits are fairly high). Let us know if we can assist you with any questions that you have. We are an expert in this loan product (we are one of the only two loan officers in D/FW that were asked to be on a USDA advisor board) and would love to be of assistance. Just email us or call us at 972-278-3400 or 866-963-3777. Athens, Alba, Anna, Aubrey, Avondale, Azle, Bardwell, Berryville, Blue Mound, Briar, Brownsboro, Caddo Mills, Campbell, Caney City, Canton, Celeste, Celina, Center Point, Chandler, Coffee City, Combine, Commerce, Corinth, Cottonwood, Crandall, Crowley, Edgewood, Edom, Eustace, Farmersville, Fate, Ferris, Forney, Fruitvale, Gun Barrel City, Glen Heights, Grand Saline, Grays Prairie, Haslet, Hawkins, Heath, Highland Village, Italy, Justin, Kaufman, Kemp, Krum, Lake Dallas, Lakeview, Lavon, Little Elm, Log Cabin, Long Oak, Mabank, Malakoff, Melissa, Midlothian, Milford, Mineola, Murchison, Nevada, Oak Grove, Oak Ridge, Ovilla, Palmer, Paynes Springs, Pelican Bay, Pilot Point, Ponder, Poynor, Princeton, Prosper, Quinlan, Quitman, Red Oak, Roanoke, Rockwall, Rosser, Royse City, Saginaw, Sanger, Seagoville, Seven Points, Talty, Trinidad, Van, W. Tawakoni, Terrell (outside city limits only), Westminster, Wheatland, Wills Point, Winnsboro, Wylie and Yantis. Family Size 1 2 3 4 5 6 7 Household Income Limit $53550 $61200 $68850 $76500 $82600 $88700 $94850 Have a blessed weekend. Call us at 972-278-3400 when we can be of assistance to you and your buyers. Linda Linda Davidson, Senior Loan Officer, DE Underwriter Service First Mortgage 972-278-3400 office 972-497-6452 fax 1-866-963-3777 Toll Free www.davidsongroup.net Check out our blog: http://lindadavidsonmortgage.blogspot.com

The Bailout Plan was passed. Will it Work?

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

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

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

10 ways to protect your money now

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

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

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

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

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

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

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

August 2008 Foreclosures Jump 80 Percent

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

Most Expensive Housing Market in the Nation

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

FHA 3.5 Downpayment Effective 1/1/09

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