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LESSONS FOR BOOMERS FROM TODAY’S RETIREES

https://www.oppenheimerfunds.com/digitalAssets/2064ce9cd6c1c010VgnVCM100000e82311ac____-0.pdf     by OppenheimerFunds

WHAT IS YOUR FINANCIAL CONDITION

Take my financial condition poll — http://htmlgear.tripod.com/poll/control.poll?u=jfergie01&i=1&a=render

Fed Cuts Rate A Quarter Point, Banks Respond

The Federal Reserve cut the federal funds rate by one-quarter percentage point to 4.5 percent Wednesday.

In response, commercial banks, including Bank of America, Wells Fargo, and KeyCorp., announced that they were cutting their prime lending rate — for certain credit cards, home equity lines of credit, and other loans — by a corresponding amount, to 7.5 percent.

The decline in these rates generally also pushes down first mortgage and refinance rates.

The Fed policymakers supporting Wednesday’s rate cut said the action was needed to “forestall some of the adverse effects on the broader economy” that might arise from the housing and credit troubles that have wreaked havoc on Wall Street over the past few months.

But Fed policymakers said the current and the previous rate cut in September should be enough to “roughly balance” the risk to the economy from inflation.

Most economists are taking that statement to mean that the Fed probably will leave the funds rate alone when it next meets on Dec. 11, the last session of the year.

Source: The Associated Press, Jeannine Aversa (11/31/07)

Top 10 Best Rural Counties to Live

Where’s the best rural place to live?
Progressive Farmer magazine, in partnership with the real estate research firm OnBoard, has compiled a top-10 list of desirable rural counties. The list takes into account several criteria, including home and land prices, crime rates, air quality, education, access to health care, and average household income.

Before making these picks, the magazine’s editors traveled to the top contenders and interviewed the residents and get the lay of the land. Here are their final selections:

• Barren County, Ky.
• Warren County, Pa.
• Randolph County, Ill.
• Gillespie County, Texas
• Union County, S.D.
• St. Lawrence County, N.Y.
• Sac County, Iowa
• Garfield County, Okla.
• Amador County, Calif.
• Polk County, N.C.

Source: Progressive Farmer (October 2007)

Forclosures Drop in September, Still up 99% for Year

Foreclosures were down 8 percent in September compared with August when they hit a 32-month peak. However, foreclosures are still up 99 percent compared to September a year ago.

There were 223,538 foreclosures in September — or one in every 557 households. California, Florida, and Nevada led the nation, according to RealtyTrac, an online market for foreclosure properties. Other states with foreclosure rates ranking among the nation’s 10 highest were Michigan, Arizona, Georgia, Ohio, Colorado, Texas, and Indiana.

In 39 states, foreclosures fell in September. “It’s too early to tell if September’s numbers represent a one-month lull or if they could signify that more buyers and investors are getting back in the market and snatching up discounted foreclosure properties,” says James Saccacio, RealtyTrac’s chief executive officer, in a statement.

Foreclosure rates fell in Texas and Michigan, but both states still reported more than 14,000 foreclosure filings for the month. Georgia reported 11,926 foreclosure filings, down 14 percent from the previous month, but still the sixth highest state total.

Illinois, which was No. 11 in total filings, was the only state to see an increase in foreclosures in September versus August.

Source: Reuters News, Al Yoon, and RealTrac (10/11/07)

Mortgages for Illegal Immigrants Grow in Popularity

While the subprime market has taken a hit in recent months, lenders continue to report success with ITIN mortgages, or home loans given to illegal immigrants who use individual taxpayer identification numbers instead of Social Security numbers.

Lenders say these borrowers are evaluated using different criteria than traditional borrowers — such as whether they have paid taxes for at least two years and made timely utility, rent, and cell phone bill payments. The amount of money sent to relatives in their homeland and their running tabs at local grocery stores also are assessed.

The number of banks writing such loans has expanded since the Hispanic National Mortgage Association began purchasing the loans and bundling them into securities for sale to investors. Banks report a less than 1 percent delinquency rate for ITIN mortgages, but there are concerns that rising borrowing costs and a possible crackdown on illegal workers by the federal government will make it difficult for them to keep up with their monthly payments.

Source: The Wall Street Journal, Miriam Jordan (10/09/07)

House Votes to Eliminate ‘Phantom Tax’

The U.S. House of Representatives voted on Thursday to get rid of a tax burden for home owners who have had a loan forgiven or foreclosed on their home because they were unable to make their mortgage payments. The Mortgage Cancellation Tax Relief Act, H.R. 3648, passed by a vote of 386 to 27. Similar legislation is making its way through the Senate.

Since the early 1990s, NAR has supported such measures to eliminate the “phantom tax” on financially-strapped home owners.

“Congress made a good decision that will affect many Americans who find themselves in a truly bad situation,” says NAR President Pat V. Combs. “Changing the IRS code is an issue of fundamental fairness. It would relieve a tax burden at a time when an individual or family has experienced a true economic loss arising from the sale or loss of their home. These families are already in financial distress and are most likely unable to pay additional taxes.”

The current tax code requires a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. This disclosure applies whether it is a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt. If the property is sold at foreclosure or is sold for less than was borrowed, that difference is considered income and is subject to the tax.

H.R. 3648 would ensure that any amount forgiven on mortgage debt secured by a principal residence will not be taxed. The legislation has a provision to safeguard against abuses. That provision is similar to one that already exists for commercial real estate owners and would treat commercial and residential property equally.

“This is not only about the subprime turmoil we are currently experiencing,” Combs says. “This is also about families who have lost their home or a need to sell that home for less than the amount owed on their home mortgage because of job loss, divorce, health issues, a decrease in the value of the home or other unfortunate circumstances. Clearly it is unfair to tax people on phantom income when they most likely have no cash with which to pay the tax.”

In other news, another bill has been sent to the House Judiciary Committee that would revise the bankruptcy code to allow judges to order mortgage lenders to ease terms for home owners in bankruptcy proceedings. Currently, mortgage lenders can foreclose against a home owner in default 90 days after the filing of bankruptcy.

— REALTOR® Magazine Online

How to Deal with Prospects Reluctant to Buy

New real estate agents must understand that just 5 percent to 10 percent of prospects are ready to buy or sell right now, but it’s still important for them to remain in contact with those who are thinking about moving but don’t plan to within the next 90 days.

But how do you know who will eventually buy and who may hold off on buying for years? To narrow down prospects to those most likely to use your services down the road, first ensure they are in their target market — whether first-time buyers, empty nesters, or those interested in downtown lifestyles or condominiums.

Then, determine which prospects are considering a move due to job relocation, having children, or family downsizing. Understand that those with such reasons to move are most likely to proceed with their plans.

So you can keep in touch with these buyers, ask permission to send them an electronic newsletter with information about home buying and selling; send holiday cards for the major holidays as well as St. Patrick’s Day, Labor Day, and other less popular holidays; and make phone calls to inquire about their moving timelines.

Source: Realty Times, Brian Hilliard (09/20/07)

FAQs on the Subprime Markets

You may have followed recent media coverage of the problems impacting the subprime sector of the mortgage market. Below is a basic overview of the issue and answers to frequently asked questions. 

The Basics: 

Subprime Mortgages are mortgages that have been made to homeowners with poor credit histories. These borrowers may be more likely to default on their loans than other homeowners since they already had financial problems before taking on their mortgages. After a subprime mortgage has been issued, the issuing bank often sells that loan to investors. Because subprime mortgages are higher risk, they typically pay higher yields to lenders (investors) in return for assuming that additional risk. Attracted by the higher yields, many mutual funds and hedge funds have invested in these loans often through CDOs (see below) or similar structures.

Collateralized Debt Obligations (CDOs) are structured products that pool multiple debt securities together, such as mortgages or bonds, and then issue debt collateralized by the pool. The debt issued by the CDO will vary by risk and credit rating. Investors in CDO debt can decide to purchase higher rated, less risky debt or lower rated, riskier debt.  

The structure of the CDO may allow a pool of relatively low rated mortgages or bonds to produce higher rated debt. There are two primary ways this can occur:
 
1. The structure may require that higher rated debt has first call on incoming cash flows. Lower rated debt gets paid only after the higher rated portions are completely paid off. This means that almost all of the debt would have to default before investors in the high rated debt would take losses.
2. CDOs are typically constructed so that the debt securities that they hold as collateral, such as bonds and mortgages, have low correlations to each other. This is designed to reduce the overall risk of the portfolio. 

FAQs

What’s the current situation?

Over the last 6 months many subprime mortgages have become delinquent as homeowners have run into financial difficulty. This has hurt hedge funds and others that have invested in these mortgages.

How does this activity impact the markets?

Higher defaults in the subprime part of the mortgage market may cause investors in other parts of the mortgage markets to demand higher risk premiums, which could drive down the prices of investment grade mortgages and bonds. 

However, it is unlikely that defaults will actually rise in other parts of the mortgage market since credit-worthy borrowers should be able to service their loans as long as the economy remains strong and unemployment remains low. Higher defaults are likely to be limited to those who had financial weaknesses before they took out their mortgage. Therefore, it appears that investors in higher rated mortgages or CDOs have little cause for worry with regard to the current status of the subprime market.