Mortgage by Randy
a monthly update to our clients, colleagues, family & friends
by: Randy Mitchelson, August 2008
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In This Issue We Touch On:
R.I.P. IndyMac Bank (b.1997 - d.2008), Debit or Credit? Mortgage Relief Programs
The Beijing Olympics are underway and with all the television coverage, it looks like a lot of late nights ahead as I cannot help but get enthralled with world class ping pong and badminton competition (bocce ball anyone?). When they decide to add Olympic darts or foosball, I will be ecstatic! After the games, the presidential conventions will follow which will dominant the nightly airwaves as we head into September. I just realized that I will be at a tradeshow in New York City in early November so I ordered my absentee ballot today. I recommend that all of you check your calendar for Tuesday, November 4 and if you might be traveling to do the same so your vote can be counted.
I want to thank James Adams at James Scott Salon for sharing a great idea that anyone who has clients can adopt right away. When I mentioned to James that I would be out of town for the election he handed me a business card size piece of paper with the county elections phone number on it. He has these slips at each stylist's station to give to clients that they learn might need to order an absentee ballot. A very simple gesture, but a very useful and powerful customer service at the same time.
The current newsletter and all prior newsletters are archived at our blog space mortgagebyrandy.spaces.live.com. Bookmark it and share with your friends and family. You can enter your own comments and feedback as well. Time for the news...
Mortgage Market: Cash Buyers Cashing In On Vacation Properties
Real estate sales in some markets, including right here at home in Lee County, are perking up. Although the average sale price is down, the number of units moving is on the rise. Since the mortgage market hasn't loosened up at all, how are people paying for these properties? One answer is cash. For example, in the coastal South Carolina area, the percentage of people financing with a mortgage has gone down from its peak at 82 percent (or 5,494 buyers) during the first half of 2006 to 73 percent (2,341 buyers) during the first half of 2008 (The Sun News, Jessica Foster, 8/7/08). One advantage of using cash is that people from other countries like Canada are taking advantage of the currency translation against the relatively weaker dollar. Also, cash buyers can negotiate better pricing with sellers since there's no uncertainty about qualifying for a mortgage and the closing can happen much sooner.
Personal Credit: Debit or Credit? Answer Correctly and Build Your Savings!
Most of us know that your bank issued ATM card usually doubles as a Debit Card (also known as a Check Card). You can use it to make purchase at stores, gas stations and restaurants. However, what many people do not realize is that there are two choices to make when swiping your debit card and we will often hear the clerk at the check out counter ask "debit or credit"? Should you really care? Yes.
Here's what you need to know. When you choose the debit option, you are prompted to enter your 4 digit PIN to authorize the transaction and that night the amount of your purchase is debited from your checking account. Easy enough, but you may be missing out on some significant features by doing it this way. By choosing the credit option when you swipe your debit card, you sign the receipt and your checking out will still be debited that night. However, the credit option in most cases gives you protections in the event the merchandise is defective. For example, a Bank of America VISA check card includes protection (including against fraud) through VISA when you select the credit option.
Some banks have rewards programs associated with their debit cards too. Usually the rewards are greater when you select the credit option. This is because banks earn more revenue when you do it this way. Bank of America's Keep the Change program passes back some of this revenue to you by rounding up your purchase to the nearest dollar and crediting your savings account a matching difference (up to $250 per year). For example, if you eat out for $40.30 and use your Bank of America check card, the trick is to structure the server's gratuity so that your total bill comes out to $47.01 or $48.01 (depending on how much tip you want to leave) and Bank of America will round the purchase to the next whole dollar and match the difference (0.99 x 2 or $1.98) into your savings account. Pretty cool way to save money.
Economy & Financial Insights: R.I.P. IndyMac Bank.............Is Your Bank Going to Fail?
The recent failure of IndyMac Bank sent jitters down the spines of many bank account holders who suddenly had to worry about whether their own bank was in trouble. During the Great Depression, over 9,000 banks closed their doors. Back then banks were much smaller than today's conglomerates. IndyMac's size however, represents about 100 of those "small banks" so this is a big deal. Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, said he expects 300 U.S. banks to fail in the next few years, mainly because of mounting losses from real estate-related loans (Bloomberg, 8/11/08). If you didn't already know, IndyMac is an offshoot of Countrywide Mortgage which became the poster child for the mortgage crisis and was eventually absorbed by Bank of America. Is Bank of America in trouble because they bought Countrywide? Is your bank in trouble?
As far as Bank of America, I dare say, "no worries". The company is well run and relatively conservative as far as lending practices. In fact, their management of the Countrywide acquisition has been praised. The "good" assets from Countrywide have been absorbed already while the "ugly" assets are presently residing in a separate company.....just sitting. Chances are that most of the "ugly assets" will be allowed to evaporate thereby protecting the mother ship from any large negative financial impact. Just my guess.
To check on the pulse of your own bank, follow these steps. TheStreet.com provides letter grade ratings for banks. Call me if you need help using this tool. Also, you can download a list of the Top 100 Safest U.S. Banks (2 from each state) by establishing a free user name at Elliot Wave International. If your bank has a grade less than A, then you may want to think twice about where you store your money. Do you have more than $100,000 at any one bank? If not, you have little to worry about since the federal government insures your accounts up to $100,000. Worse case, if you bank fails, within 24-48 hours the federal government will be operating the bank and you will have access to your money.
Question of the Month: Will the New Government Mortgage Relief Programs Help Me?
Whenever the nightly news reports a new "relief" program, I see an increase in phones calls from struggling homeowners who want to know if they can be helped. Several government programs have grabbed headlines this year as our elected officials attempt to appear proactive in helping homeowners during this election season. Although there have been some positive legislative outcomes, the impact on struggling homeowners is limited. Here is a summary of some key laws and as always, never hesitate to contact me with questions.
The Housing and Economic Recovery Act of 2008, just signed into law July 30 provides some needed changes to the mortgage market, but does not contain any help for struggling homeowners. Among the features of this law is a First Time Homebuyer Credit which allows first-time homebuyers of a principal residence in the United States to take a tax credit of 10 percent of the purchase price of the residence (not to exceed $7500). The credit will begin to phase out if single taxpayer's income exceeds $75,000 per year or the couple's income exceeds $150,000. The credit will be paid back over 15 years and applies to residences purchased between April 9, 2008 and July 1, 2009.
The Mortgage Forgiveness Debt Relief Act of 2007, signed into law in December opens a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under previous law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treated the amount forgiven as income that can be taxed.
The HOPE NOW plan will help subprime borrowers who can afford the current, starter rate on a subprime loan, but would not be able to make the higher payments once the interest rate goes up. HOPE NOW is supporting a toll-free mortgage counseling hotline, 1-888-995-HOPE.
Giving Back: Supporting our Communities
Life throws interesting situations at us sometimes. Recently, we noticed a mourning dove nesting behind our house. A few days later I looked out the window and happened to see the dove fly away which seemed unusual. I went outside, looked up, and the nest was missing and then I saw that the nest had fallen. On the ground below the dangling nest was a tiny baby dove. We kept our eye on it for a few hours but the mother never returned. Shortly before nightfall we called the Conservancy of Southwest Florida. They said they would take the baby but first wanted us to wait another hour to see if the mother returned. As the sun began to set the mother indeed returned to the original nest site but did not see her baby on the ground. We knelt by the baby and pointed, but the mother didn't understand. Next, we laid out a trail of bread crumbs to the baby but the mother just stayed in her perch and watched. Finally, we picked up the baby and nest and climbed up to the mother and set it best we could. A few minutes later the mother hopped to the nest was reunited with her baby. We have been enjoying watching them together each day. Thank goodness we did not rush to bring the baby to the shelter. Thanks to the folks at the Conservancy for their advice and willingness to help.
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
As we enter peak hurricane season, we want to remind those of you in the line of fire to take a few minutes to place copies of your most important documents (insurance policies, deed to house, birth certificates, etc) in a "zip lock" storage bag in the event you need to evacuate. Plan ahead.
Randy
Mortgage By Randy newsletter, Copyright 2008 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
EASY UNSUBSCRIBE from Mortgage by Randy newsletter: send email to randy@mortgagebyrandy.com with UNSUBSCRIBE in the subject line.
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You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy, accessible at mortgagebyrandy.spaces.live.com. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is founder of Estero, Florida based National Web Leads, LLC (www.nationalwebleads.com), an online lead generation service matching consumer finance lenders with customers. Through their network of partners, National Web Leads, LLC delivers bleeding edge Web 2.0 software solutions such as lead generation platforms and real time desktop widget and mobile reporting tools.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership (www.swfrtp.org) and Strategic Planning Director for The Michelle's Angels Foundation (www.michellesangels.com). He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
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