Thursday, July 24, 2008

Indymac Failure Raises Important FDIC Questions

For years, FDIC coverage has been a fairly irrelevant concern in the personal finance area. But with the recent collapse of Indymac Bank, and with so many financial institutions teetering in this environment, it's a good time to get familiar with the risk of having large deposits with banks, and with how FDIC insurance works.

A history of the FDIC can be viewed here, and their main site is here. For up to $100,000 per depositor, checking and savings deposits are insured against institutional failure by the federal government. There are some particular nuances to this however, when you have multiple deposits with different institutions, or deposits in different types of accounts or with different joint ownership, etc.

A new tool published on the FDIC site will help you tally up your savings to find out what your protection is exactly.

With increased down payment requirements for mortgage financing these days, we are seeing more and more consumers with greater than $100k in savings. Even if it is a temporary position as you prepare to make your down payment, you don't want to get caught over-exposed with the wrong custodian.

And if you are someone who sits on this much cash for longer than short-term, you may want to run your strategy by a financial planner, especially in light of our current inflation.

Wednesday, July 23, 2008

Interesting Perspective On Federal Economic Stimulus Package From Hoisington Investment Management (Watch Out For Deflation! ...yes, "DEFLATION")

From a recent article presented by John Mauldin in his "Outside the Box" weekly, Van Hoisington and Dr. Lacy Hunt write:

"Fiscal Policy would seem to be undisputedly supportive for the economy with Treasury's $110 billion in rebate checks and a Federal budget deficit that is approaching a record $500 billion. But that is not the case. The Treasury does not $500 billion in its checking account to cover the deficit, nor even the lesser amount for the rebates. The Treasury has to raise these funds by selling debt securities to the private sector. Credit availability may be thought of as a pie. When the Federal sector, which is the economy's premier borrower, takes more of that pie, fewer dollars are left for the private sector. Thus, deficit financing crowds out funds that would have gone to private uses. With the exception of the Federal funds rate, in the first half of this year, virtually all money and bond yields rose, a clear sign that the deficit usurped funds for the private sector. This has had the impact of slowing, rather than stimulating economic growth."

This makes for an interesting debate. Is it all politics? Does the government really lack the economic understanding to do what's best for us at this point, even if misjudgements that got us here were made in the past? Or is this perspective simply inaccurate? What portion of those rebate checks work back into the economy, stabilize personal finances, or help somebody avoid a foreclosure, etc?

Down Payment Assistance Programs - Keeping An Eye On Legislation


Lots of sparks flying right now, with popular down payment assistance programs (DAP) to first-time home buyers under scrutiny, and a mortgage industry fearful of losing another business niche. This recent story brought quiet a bit of chatter into the markets.

The FHA, who lost $4.6 billion last year, may be losing their ability to accept down payment assistance money. Nearly 79,000 people last year took advantage of them, where nonprofit groups provide buyers with money for down payments and home sellers then reimburse the organizations and pay an administrative fee. The FHA said seller-funded down payments present the single biggest challenge to its solvency. Borrowers who take part in these arrangements go to foreclosure at nearly three times the rate of borrowers who put their own money down, according to the agency. The Senate version of the housing bill would have banned the programs but the House version would not. At this point a compromise bill has backed the Senate's version on this, which also is supported by the Bush administration.

Friday, July 11, 2008

Credit Score Tips (5 Common Mistakes To Avoid) From Edward Jamison

With mortgage lenders raising their minimum FICO score requirements lately, it is as good a time as ever to get in touch with your credit profile. A high percentage of credit reports we look at contain errors and inaccuracies that our clients were unaware of - and if we are working on a purchase contract, or taking advantage of a briefly open window of opportunity to refinance, its often too late to do anything about it by the time we see the score.

Edward Jamison is an attorney who provides credit score repair advice. I am not endorsing his product, but he has a significant presence in the mortgage industry as a go-to for clients in need of credit clean-up. He'll tell you that much of what he does is stuff a consumer can do on their own, as long as they know how credit scoring works.

Credit scoring models are not 100% transparent, but there are many sources out there who claim to know how to tweak here and there. The problem I see is that much of the advice conflicts with one another, sometimes in significant ways. Jamison seems about as credible as any in providing advice, so I figured this brief article was worth a read at least. Look it over and see if you have made any of these mistakes. And if you need further help, contact me and we can go through your report together.