Archive for March, 2009

Feds unveil plan to help 9 million stay in homes (AP)

Wednesday, March 4th, 2009 | Finance News

WASHINGTON – The Obama administration kicked off a new program Wednesday that's designed to help up to 9 million borrowers stay in their homes through refinanced mortgages or loans that are modified to lower monthly payments. Borrowers, however, are being advised to be patient in their efforts to get help because mortgage companies are likely to be flooded with calls.

Government officials, launching the "Making Home Affordable" program also acknowledge that the initiatives are only a partial fix for a sweeping problem that has helped plunge the U.S. economy into the worst recession in decades. In fact, tens of thousands of homeowners in some of the most battered real estate markets — concentrated in California, Florida, Nevada and Arizona — won't be eligible for the two programs.

"It's not intended to prevent every foreclosure or to help every homeowner," a senior Treasury Department official told reporters. "It's really targeted at responsible homeowners."

There was also skepticism that banks would be willing to participate.

"I've just seen so many of the programs not work," said Pava Leyrer, president of Heritage National Mortgage in Randville, Mich. "It gets borrowers hopes up. They call and call for these programs and we can't get anybody to do them."

The Obama administration's program has two parts: one to work with lenders to modify the loan terms for up to 4 million homeowner, the second to refinance up to 5 million homeowners into more affordable fixed-rate loans.

For the modification program, borrowers who are eligible will have to provide their most recent tax return and two pay stubs, as well as an "affidavit of financial hardship" to qualify for the loan modification program, which runs through 2012.

Borrowers are only allowed to have their loans modified once, and the program only applies for loans made on Jan. 1 2009, or earlier. Mortgages for single-family properties that are worth more than $729,750 are excluded.

Lenders could reduce a borrower's interest rate to as low as 2 percent for five years. Rates would then rise to about 5 percent until the mortgage is repaid.

If the plan works as intended, it could be a big plus for borrowers like Nick Kavalary, a network cable installer who lives outside Milwaukee.

Kavalary, 42, has been struggling with JPMorgan Chase & Co. to get a loan modification. He was finally approved for one this year, but it only cuts his interest rate to about 9.8 percent from 10.75 percent. Even at the lower rate, he said, making the payment is nearly impossible.

"If I can't pick up a second job, I'm going to lose this house," he said. "With the job market being the way it is, nobody's hiring nobody."

For the refinance program, only homeowners whose loans are held by Fannie Mae or Freddie Mac are eligible and have until June 2010 to apply.

Consumers should contact their loan servicer — the company that sends out their monthly bill — to find out if their mortgages are held by Fannie or Freddie. The two mortgage finance companies own or guarantee almost 31 million home loans — more than half of all U.S home mortgages.

Many mortgage brokers, however, are critical. They argue the fees imposed by Fannie and Freddie over the past year make it difficult for borrowers to afford to refinance. The two companies, which are now government controlled, have yet to detail how they will implement the plan, or whether any fees will be rolled back.

Meanwhile, action to put in place another part of Obama's housing plan is expected soon on Capitol Hill.

House Democrats agreed Tuesday to narrow proposed legislation that gives bankruptcy judges the power to change the terms of mortgage loans for debt-strapped borrowers.

In the latest version of the bill, judges would have to consider whether a homeowner had been offered a reasonable deal by the bank to rework his or her home loan before seeking help in bankruptcy court. Borrowers also would have a responsibility to prove that they tried to modify their mortgages.

A full vote in the House could come as early as Thursday.


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Cost cutting that counts: 10 ways to save $1,000 (AP)

Wednesday, March 4th, 2009 | Finance News

NEW YORK – Sometimes it takes creativity to cut back. Whether you're getting squeezed by credit card bills or saving for a big purchase like a car or home, there are some easy ways to save big chunks of change many people aren't thinking about. Here are a few, with assists from personal finance experts Jeff Yeager and Lynnette Khalfani-Cox.

1: Haggle

Paying full price is so 2005. But if you're like many Americans, you can't negotiate your way out of a parking lot. Learn and save. Things such as rent, bank fees, electronics, apparel and even food can be had at a discount just by asking — or by offering to pay cash.

2: Get neighborly

If you stay closer to home you'll save big. AAA estimates it costs more than $8,000 a year to operate the average car. Driving 15 percent less amounts to a $1,200 savings in that case.

3: Raise your deductibles

On home and car insurance, agreeing to pay a higher deductible, say $1,000 instead of $250 or $500, can save you a bundle in premiums.

4: Choose term life insurance

You're only covered for a set amount of years, but you can get a lot more for a lot less cash. A 20- or 30-year term policy will cover the life of a mortgage and be there until kids are out of college. For a healthy 35-year-old man, $500,000 of insurance can be had for $30 a month for 20 years. That same amount in whole life could cost hundreds a month.

5: Butt out

Taxes on smokes are going up again, putting the average price of a pack of Marlboros at more than $5. A pack a day at that price costs $1,825 a year.

6: Open an IDA

An individual development account is a special savings account that helps low-income workers buy homes, cars or start businesses. The accounts are matched by donated dollars at a 1:1 or 1:2 ratio. More people qualify than one might think. Visit to find out more.

7: Drive a stick

They can run about $800 less than an automatic and get two to four miles per gallon more, according to Consumer Reports. They cost less to fix and you earn cool points.

8: Get a roommate

Your home is typically your biggest monthly expense. Whether you rent or own, cut your cost and make a new friend.

9: Take a staycation

Turn off the phone, disconnect the computer and stop your mail. Check for resident discounts on local attractions and explore some great restaurants.

10: Do some sit-ups

Is that New Year's resolution slimming your wallet more than your waist? Consider ditching the pricey gym membership and save on gas getting there. Find out if you can freeze payments when you aren't going.


Tell us about your best recommendation to save $1,000. E-mail the AP at yourmoney(at)


Near-term outlook for U.S. darkening: Fed officials (Reuters)

Wednesday, March 4th, 2009 | Finance News

MIAMI (Reuters) –
The immediate outlook for U.S. growth is grim but forceful policy action will help end the country's year-long recession, top officials for the Federal Reserve said on Wednesday.

"Looking broadly at the national economy, the recent numbers have been discouraging," Atlanta Federal Reserve Bank President Dennis Lockhart told the Greater Miami Chamber of Commerce.

"Other incoming data give little reason to be upbeat about the immediate future. Unemployment continues to rise," said Lockhart, a voting member of the Fed's policy-setting Federal Open Market Committee this year. He told reporters that he was apprehensive about the February jobs report, which is due on Friday.

Analysts polled by Reuters expect a loss of 648,000 jobs last month, compared with a 598,000 loss in January, with the U.S. unemployment rate rising to 7.9 percent from 7.6 percent.

The Fed has cut interest rates to almost zero and more than doubled the size of its balance sheet to around $2 trillion through programs to support private lending in a bid to prevent the downturn from steepening.

U.S. economic conditions got worse in January and February and businesses do not expect improvement until late this year or early 2010, the Fed said in a separate survey on Wednesday.

"National economic conditions deteriorated further," the Fed said in its Beige Book summary gathered from districts around the country. "The deterioration was broad based."

The rapid decline in U.S. growth is the worst since the early 1980s and there is no recovery yet at hand.

"All indicators thus far point to our economy being on track for a decline of roughly the same magnitude in the first quarter of 2009," said Dallas Federal Reserve Bank President Richard Fisher, speaking in Fort Worth, Texas.

"2008 was an annus horribilis -- a truly horrible year that only a sadist could look back upon with pleasure," Fisher said.

"We might call this the Godzilla economy -- it presents a monstrous challenge."

Fisher, who is not a voting member of the FOMC this year, told reporters he was the most pessimistic of all of his colleagues about the prospects for 2009 and feared the country might suffer two years of recession.

Lockhart said he still expects the economy to begin a modest recovery in the second half of the year.

But he warned that the outlook was more unclear than usual and that deteriorating financing conditions for the commercial real estate sector could add to the strain already heaped onto battered banks, after the economy shrank at an annualized 6.2 percent rate in the last quarter of 2008.

"Problems in residential real estate are well known. But, with continued economic weakness, I'm increasingly paying attention to commercial real estate," he said.

"Declining commercial real estate markets could put further pressure on already strained financial institutions and markets. And overcoming problems in the financial sector is central to achieving economic recovery," he said.

Banks have around $2.5 trillion worth of commercial real estate loans on their books, and while this was less than a quarter of the size of the residential mortgage market, any more strain on the financial sector would be most unwelcome, Lockhart said.

"Commercial real estate finance challenges could further complicate efforts to stabilize the banking system and credit markets," he said.

But Lockhart stressed that Fed moves to steady the ability of households to tap credit markets had gained traction and assured his audience that the Fed would do what it takes to restore U.S. growth.

"I want to assure you that the Fed has the capacity to act, even with the federal funds rate near zero, with the aim of returning the country as quickly as possible to its enormous potential for growth and prosperity," Lockhart said.

(Additional reporting by Ros Krasny in Fort Worth, Texas and Mark Felsenthal in Washington; Editing by Kenneth Barry)