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April 2008 Entries
April 30, 2008 Quotes of the Day - Thomas Jefferson
Honesty is the first chapter in the book of wisdom. Thomas Jefferson
In matters of style, swim with the current; in matters of principle, stand like a rock. Thomas Jefferson
Information is the currency of democracy. Thomas Jefferson
I do not take a single newspaper, nor read one a month, and I feel myself infinitely the happier for it. Thomas Jefferson
I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them. Thomas Jefferson
I like the dreams of the future better than the history of the past. Thomas Jefferson
A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor and bread it has earned - this is the sum of good government. Thomas Jefferson
For a people who are free, and who mean to remain so, a well-organized and armed militia is their best security. Thomas Jefferson
Advertisements contain the only truths to be relied on in a newspaper. Thomas Jefferson
I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale. Thomas Jefferson
Commerce with all nations, alliance with none, should be our motto. Thomas Jefferson
Educate and inform the whole mass of the people... They are the only sure reliance for the preservation of our liberty. Thomas Jefferson
Press Release
Release Date: April 30, 2008
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.
In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.
April 29, 2008 Quotes of the Day by Warren Buffett
If past history was all there was to the game, the richest people would be librarians. Warren Buffett
In the business world, the rearview mirror is always clearer than the windshield. Warren Buffett
It's better to hang out with people better than you. Pick out associates whose behavior is better than yours and you'll drift in that direction. Warren Buffett
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Warren Buffett
A public-opinion poll is no substitute for thought. Warren Buffett
Chains of habit are too light to be felt until they are too heavy to be broken. Warren Buffett
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks. Warren Buffett
The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective. Warren Buffett
Price is what you pay. Value is what you get. Warren Buffett
Bush to focus on economy at news conference
President to urge Congress to pass new ‘sensible’ bills, spokeswoman says
WASHINGTON - President Bush will address Americans’ growing worry about the economy at a news conference Tuesday at the White House.
Spokeswoman Dana Perino said the president would deliver an opening statement on the “understandable anxiety” about issues affecting their pocketbooks.
The president will "call upon Congress to send him sensible and effective bills that will help Americans weather this difficult period and keep our country moving forward," she said.
That includes sweeping energy legislation Bush has long sought that would increase investment in alternative energy sources. The White House has acknowledged the measure would do nothing to address the current energy price squeeze affecting consumers. Oil prices hit an all-time high near $120 a barrel on Monday, and the price of gas averaged $3.60 a gallon in the United States.
Bush also was to ask lawmakers to reform farm programs, pass broad housing legislation and give the federal government greater authority to buy federal student loans, Perino said.
It has been two months since Bush's last solo news conference with reporters.
NBC News and The Associated Press contributed to this report.
April 28, 2008 Quotes of the Day - Winston Churchill
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. Winston Churchill
A politician needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year. And to have the ability afterwards to explain why it didn't happen. Winston Churchill
All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope. Winston Churchill
Attitude is a little thing that makes a big difference. Winston Churchill
Continuous effort - not strength or intelligence - is the key to unlocking our potential. Winston Churchill
Courage is rightly esteemed the first of human qualities... because it is the quality which guarantees all others. Winston Churchill
Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen. Winston Churchill
Criticism may not be agreeable, but it is necessary. It fulfils the same function as pain in the human body. It calls attention to an unhealthy state of things. Winston Churchill
Difficulties mastered are opportunities won. Winston Churchill
Rebate Checks Go Out Early
Incentive tax rebates will start going out to Americans today, a week earlier than expected, President Bush announced Friday afternoon.
Direct deposit payments will go out first, while paper checks will be mailed beginning May 9.
The rebates — up to $600 for an individual, $1,200 for a couple, and an additional $300 for each dependent child — are the centerpiece of the government's $168 billion stimulus package, enacted in February. Roughly 130 million households are expected to get them.
Source: The Associated Press (04/28/08)
Residents Question Rising Property Taxes
Home owners across the country are facing higher property taxes at a time when rising food and gas prices, declining home prices, and increased job losses already are taking a toll.
Municipalities are hiking property taxes to balance their budgets, and some local governments are delaying tax cuts that were planned years ago.
The Bureau of Economic Analysis reports a 6.1 percent boost in state and local government spending costs between the 2006 fourth quarter and 2007 fourth quarter, versus a 2.6 percent jump for the national economy.
Property taxes have been raised 9.7 percent in Spring Valley, N.Y., and 4 percent in Arlington County, Va., for instance, and could surge 17 percent in Memphis.
Observers note that municipalities often turn to property taxes when they need more money, with a Census Bureau report indicating that property taxes make up 40 percent of general revenue for local governments on average; but some home owners think officials should cut services instead.
Although home price drops ultimately will lower a home's assessed value and reduce property tax bills, it takes time for market conditions to affect appraisals. In response, many home owners are requesting reassessments.
Source: The Wall Street Journal, Conor Dougherty (04/25/08)
Bank of America to Woo Fed for Merger OK
Bank of America will tell the Federal Reserve today that if it is allowed to buy Countrywide Financial Corp., it will help more than 265,000 borrowers to keep their homes.
BofA also will promise to double its community development lending, which focuses on affordable housing, particularly in low-income and minority neighborhoods and on properties for small business. Under the plan, the bank will lend $1.5 trillion over 10 years.
Liam E. McGee, president of Global Consumer and Small Business Banking, also will tell the Fed that the bank will donate $2 billion to charity over the next 10 years, a 33 percent increase from its current contribution level.
Approval would give Bank of America 25 percent of the U.S. mortgage market. Regulatory approval of the deal is expected, and the bank hopes to win speedy approval and complete the acquisition in July.
Source: The Los Angeles Times, E. Scott Reckard (04/28/08)
Unpaid Utility Bills Becomes Bigger Problem
Utility companies say that an increasing number of utility customers are facing shutoff because of their failure to pay their heating bills.
Central Maine Power Company says that as of March 31, 29,000 of its 537,000 residential customers had not paid anything on their accounts since December -- a 4 percent increase from 2007.
Northern Utilities, which supplies natural gas to 26,000 residential and business customers in Maine, says the amount owed by customers whose bills are 30-60 days past due is up 45 percent from the first quarter of 2007.
Northern's customers in New Hampshire and accounts at sister company Bay State Gas in Massachusetts have similar problem with unpaid bills, says spokeswoman Sheila Doiron.
In River Falls, Wis., a city of 14,000, service to a dozen homes with overdue bills was discontinued by River Falls Municipal Utilities this month, says customer service supervisor Jan Lorenz. The utility has 5,800 customers. "In past years, nobody would be shut off," she says.
Source: USA Today, Judy Keen (04/25/08)
April 27, 2008 Quotes of the Day-Aristotle
Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit. Aristotle
Friendship is a single soul dwelling in two bodies. Aristotle
I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is over self. Aristotle
The wise man does not expose himself needlessly to danger, since there are few things for which he cares sufficiently; but he is willing, in great crises, to give even his life - knowing that under certain conditions it is not worthwhile to live. Aristotle
Courage is the first of human qualities because it is the quality which guarantees the others. Aristotle
At his best, man is the noblest of all animals; separated from law and justice he is the worst. Aristotle
Bring your desires down to your present means. Increase them only when your increased means permit. Aristotle
Character may almost be called the most effective means of persuasion. Aristotle
Dignity consists not in possessing honors, but in the consciousness that we deserve them. Aristotle
April 26, 2008 Quotes of the Day-Henry Wadsworth Longfellow
The talent of success is nothing more than doing what you can do well, and doing well whatever you do without thought of fame. If it comes at all it will come because it is deserved, not because it is sought after. Henry Wadsworth Longfellow
A single conversation across the table with a wise man is better than ten years mere study of books. Henry Wadsworth Longfellow
Ambition is so powerful a passion in the human breast, that however high we reach we are never satisfied. Henry Wadsworth Longfellow
Morality without religion is only a kind of dead reckoning - an endeavor to find our place on a cloudy sea by measuring the distance we have run, but without any observation of the heavenly bodies. Henry Wadsworth Longfellow
Most people would succeed in small things if they were not troubled with great ambitions. Henry Wadsworth Longfellow
Ships that pass in the night, and speak each other in passing, only a signal shown, and a distant voice in the darkness; So on the ocean of life, we pass and speak one another, only a look and a voice, then darkness again and a silence. Henry Wadsworth Longfellow
Sometimes we may learn more from a man's errors, than from his virtues. Henry Wadsworth Longfellow
They who go Feel not the pain of parting; it is they Who stay behind that suffer. Henry Wadsworth Longfellow
We judge ourselves by what we feel capable of doing, while others judge us by what we have already done. Henry Wadsworth Longfellow
7 Reasons to Own Your Home
1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, as well as some of the costs involved in buying your home.
2. Appreciation. Real estate has long-term, stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the NATIONAL ASSOCIATION OF REALTORS®. In addition, the number of U.S. households is expected to rise 15 percent over the next decade, creating continued high demand for housing.
3. Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.
4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
5. Predictability. Unlike rent, your fixed-mortgage payments don’t rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will increase.
6. Freedom. The home is yours. You can decorate any way you want and benefit from your investment for as long as you own the home.
7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.
Questions to Ask When Choosing a REALTOR®
Make sure you choose a REALTOR® who will provide top-notch service and meet your unique needs.
1. How long have you been in residential real estate sales? Is it your full-time job? While experience is no guarantee of skill, real estate — like many other professions — is mostly learned on the job.
2. What designations do you hold? Designations such as GRI and CRS® — which require that agents take additional, specialized real estate training — are held by only about one-quarter of real estate practitioners.
3. How many homes did you and your real estate brokerage sell last year? By asking this question, you’ll get a good idea of how much experience the practitioner has.
4. How many days did it take you to sell the average home? How did that compare to the overall market?
The REALTOR® you interview should have these facts on hand, and be able to present market statistics from the local MLS to provide a comparison.
5. How close to the initial asking prices of the homes you sold were the final sale prices? This is one indication of how skilled the REALTOR® is at pricing homes and marketing to suitable buyers. Of course, other factors also may be at play, including an exceptionally hot or cool real estate market.
6. What types of specific marketing systems and approaches will you use to sell my home? You don’t want someone who’s going to put a For Sale sign in the yard and hope for the best. Look for someone who has aggressive and innovative approaches, and knows how to market your property competitively on the Internet. Buyers today want information fast, so it’s important that your REALTOR® is responsive.
7. Will you represent me exclusively, or will you represent both the buyer and the seller in the transaction? While it’s usually legal to represent both parties in a transaction, it’s important to understand where the practitioner’s obligations lie. Your REALTOR® should explain his or her agency relationship to you and describe the rights of each party.
8. Can you recommend service providers who can help me obtain a mortgage, make home repairs, and help with other things I need done? Because REALTORS® are immersed in the industry, they’re wonderful resources as you seek lenders, home improvement companies, and other home service providers. Practitioners should generally recommend more than one provider and let you know if they have any special relationship with or receive compensation from any of the providers.
9. What type of support and supervision does your brokerage office provide to you? Having resources such as in-house support staff, access to a real estate attorney, and assistance with technology can help an agent sell your home.
10. What’s your business philosophy? While there’s no right answer to this question, the response will help you assess what’s important to the agent and determine how closely the agent’s goals and yours are.
Need a REALTORS® and don't know where to begin - try www.askaboutrealestate.net and make your request for a TOP Real Estate Professional.
Why You Should Work With a REALTOR®
Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here are five reasons why it pays to work with a REALTOR®.
1. You’ll have an expert to guide you through the process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.
2. Get objective information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?
3. Find the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.
4. Benefit from their negotiating experience. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.
5. Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.
6. Real estate has its own language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.
7. REALTORS® have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you’ve done it before, laws and regulations change. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.
8. Buying and selling is emotional. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, home buying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.
9. Ethical treatment. Every member of the NATIONAL ASSOCIATION of REALTORS® makes a commitment to adhere to a strict Code of Ethics, which is based on professionalism and protection of the public. As a customer of a REALTOR®, you can expect honest and ethical treatment in all transaction-related matters. It is mandatory for REALTORS® to take the Code of Ethics orientation and they are also required to complete a refresher course every four years.
5 Common First-Time Home Buyer Mistakes
1. They don’t ask enough questions of their lender and end up missing out on the best deal.
2. They don’t act quickly enough to make a decision and someone else buys the house.
3. They don’t find the right agent who’s willing to help them through the homebuying process.
4. They don’t do enough to make their offer look appealing to a seller.
5. They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.
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10 Ways to Prepare for Homeownership
1. Decide what you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.
2. Develop your home wish list. Then, prioritize the features on your list.
3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in, taking into account items such as schools, recreational facilities, area expansion plans, and safety.
4. Start saving. Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 2 and 7 percent of the home price.
5. Get your credit in order. Obtain a copy of your credit report to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.
6. Determine your mortgage qualifications. How large of mortgage do you qualify for? Also, explore different loan options — such as 30-year or 15-year fixed mortgages or ARMs — and decide what’s best for you.
7. Get preapproved. Organize all the documentation a lender will need to preapprove you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of homeownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.
10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the process.
Request a Top Real Estate Professional at www.askaboutrealestate.net.
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April 25, 2008 Quotes of the Day - Abraham Lincoln
America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.
Abraham Lincoln
And in the end it's not the years in your life that count. It's the life in your years.
Abraham Lincoln
The probability that we may fail in the struggle ought not to deter us from the support of a cause we believe to be just.
Abraham Lincoln
With Malice toward none, with charity for all, with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation's wounds.
Abraham Lincoln
With public sentiment, nothing can fail. Without it, nothing can succeed.
Abraham Lincoln
You cannot build character and courage by taking away a man's initiative and independence.
Abraham Lincoln
You cannot escape the responsibility of tomorrow by evading it today.
Abraham Lincoln
You cannot help men permanently by doing for them what they could and should do for themselves.
Abraham Lincoln
You have to do your own growing no matter how tall your grandfather was.
Abraham Lincoln
Don't interfere with anything in the Constitution. That must be maintained, for it is the only safeguard of our liberties.
Abraham Lincoln
Don't worry when you are not recognized, but strive to be worthy of recognition.
Abraham Lincoln
Better to remain silent and be thought a fool than to speak out and remove all doubt.
Abraham Lincoln
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30-Year Rates Jump to 6.03%
Freddie Mac reports a jump in the 30-year fixed mortgage rate to 6.03 percent during the week ended April 24, from 5.88 percent the prior week, marking the first time in six weeks that mortgage rates rose above 6 percent.
The 15-year fixed mortgage rate climbed during the same period, edging up to 5.62 percent from 5.40 percent.
The five-year adjustable mortgage rate increased to 5.68 percent from 5.48 percent, while the one-year adjustable rate shot up to 5.28 percent from 5.10 percent.
Freddie Mac chief economist Frank Nothaft attributes the gains to heightened inflationary concerns.
Source: Baltimore Sun (04/25/08)
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Mortgage Brokers Get Jail Time for Scam
Two mortgage brokers and a title attorney have been sentenced to multiple years in prison for their parts in a $37 million mortgage scam.
America’s Best Mortgage Services broker Richard Crowder got 11 years for luring buyers to a fraudulent no-money-down financing scheme to purchase 17 condos complexes called Continuum and Point of Aventura, both on Miami Beach.
His accomplices, title attorney Gary Mills, owner of Four Star Title, and former Wachovia loan officer Karen Lynn Sullivan, got 46 months and 50 months in jail respectively.
Officials charged that Sullivan would draw up phony closing documents showing the would-be buyers already owned the units, then she would help get fraudulent home equity credit lines. The money was used to make down payments on first mortgages for the same units and pay the fees and commissions.
Source: Miami Herald, Monica Hatcher (04/25/08)
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Where Entrepreneurs Thrive
Entrepreneurial business is growing in many parts of the country with 495,000 new businesses per month started in 2007, according to the Kauffman Index of Entrepreneurial Activity.
The study, which is sponsored by the Ewing Marion Kauffman Foundation, found that some areas encouraged far more entrepreneurial activity than others.
The 10 states with the highest entrepreneurial activity rates were:
- Idaho
- District of Columbia
- Arizona
- Tennessee
- Louisiana
- Wyoming
- Vermont
- Montana
- Georgia
- California
The 10 states with the lowest entrepreneurial activity rates were:
- West Virginia
- Alabama
- Delaware
- Pennsylvania
- Ohio
- Connecticut
- Rhode Island
- Hawaii
- Washington
- Virginia
Among the 15 largest metropolitan areas in the United States, the highest entrepreneurial activity rates were in Phoenix, Riverside-San Bernardino, Atlanta, Los Angeles, and Miami. Philadelphia posted the lowest rate of entrepreneurial activity.
Source: Ewing Marion Kauffman Foundation (04/24/08)
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April 24, 2008 Quotes of the Day - Donald Trump
Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you're generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don't make.
Donald Trump
I don't make deals for the money. I've got enough, much more than I'll ever need. I do it to do it.
Donald Trump
I have made the tough decisions, always with an eye toward the bottom line. Perhaps it's time America was run like a business.
Donald Trump
I like thinking big. If you're going to be thinking anything, you might as well think big.
Donald Trump
Fed to Slash Rates Again, Then What?
The Federal Reserve has cut the federal-funds rate to 2.25 percent from 5.25 percent, amounting to seven reductions over a span of eight months, and experts anticipate another 0.25 percentage point cut at its April 29-30 meeting.
However, experts think the central bank could take a breather after the next rate cut to give officials time to assess the impact of rate reductions, upcoming tax rebates, and other measures on the economy during the latter half of the year.
Moreover, there are concerns that further reducing the federal funds rate could increase inflationary pressure and weaken the dollar even more. Despite rising food and oil prices, officials point to some improvements in the financial markets, with the 30-year mortgage rate on the decline; but they note that stricter lending standards could worsen the downturn.
The statement issued by the Federal Reserve after its meeting likely will point to ongoing concerns about economic growth and inflation and state that additional rate cuts will be made as necessary.
Source: The Wall Street Journal, Greg Ip and Kevin Kingsbury (04/24/08)
Affordability Improves for New Buyers
Falling prices are good news for home buyers, making it increasingly likely that they will be able to find a property at a price that is significantly lower than it would have been two years ago and probably less than the house would have brought just a few months ago.
Real-estate data company Zillow.com estimates that the median value for all homes in the 12 months ending March 31 fell 25 percent in the Las Vegas metro area, 19 percent in Miami and Orlando, and 16 percent in Phoenix. They declined lesser amounts in most other areas.
In the metro areas of Raleigh and Charlotte, N.C., Dallas and Houston, prices are rising — but very modestly.
There’s a “return to normalcy” in the relationship between home prices and incomes, says Richard DeKaser, chief economist at National City Corp. In an analysis of 330 metro areas in the fourth quarter of 2007, National City and Global Insight, an economic research firm, found that home prices were overvalued in relation to household income and other factors in 21 metro areas, down from a peak of 58 metro areas in the second quarter of 2006.
Source: The Wall Street Journal, James R. Hagerty (04/24/08)
House Panel OK's Bill to Curtail Lawsuits
The U.S. House Financial Services Committee endorsed a bill Wednesday that would shield loan servicers from investor lawsuits when they modify home loans for distressed borrowers.
Mortgage servicers have claimed that they are unable to modify the terms of subprime loans because investors that hold the loans will sue.
"Without this legislation, I am concerned that lawsuits could bring modifications to a halt," Rep. Mike Castle (R-Del.), a sponsor of the legislation along with Paul E. Kanjorski (D-Pa.).
The Securities and Financial Markets Association said on Wednesday that the bill might make investors uneasy but that the trade group would not stand in its way.
In separate legislation, the committee also approved $15 billion in grants and loans to help communities buy up abandoned properties before they damage the livability of neighborhoods.
Source: Reuters News, Patrick Rucker (04/23/08)
10 Most Challenging Housing Markets
The hardest places to sell homes are those with falling prices and a large inventory of unsold homes.
Forbes magazine, which examined markets all over the country, concluded that Florida has the most markets that are really in the doldrums. Several cities there are overbuilt, saddled with lousy loans and flat sales.
Jonathan Miller, president of Miller Samuel, a Manhattan-based real estate appraisal company that assisted with the analysis, says it is hard for a city to climb out of a slowdown because in the best of circumstances there's generally a three- to six-month lag between the time buyers start putting a serious dent into the inventory and the time when prices start to improve.
Here are the 10 markets where Forbes says the sales opportunities are the most challenging:
- Miami
- Orlando
- Phoenix
- Tampa
- Los Angeles
- Washington, D.C.
- Chicago
- Baltimore
- San Diego
- Denver
Sources: Forbes, Matt Woolsey (04/15/08)
Lenders Stall Short Sales, Practitioners Say
Real estate practitioners across the country believe mortgage lenders are worsening the housing downturn by taking months to make decisions on short sales and sticking to high internal target prices.
As a result, home buyers are abandoning short sale properties, forcing them to be sold in foreclosure sales that typically result in lenders accepting lower prices than they could have achieved in a short sale.
"The only question banks should ask is can they make more in a short sale than in foreclosure," according to Lighthouse Point, Fla.-based real estate practitioner Ron Rosen, who cites a "broken" system. "The answer is that in nine out of 10 cases they will lose more money in a foreclosure. But banks seem to be asking a different question."
Some practitioners contend that lenders lack the appropriate systems and staff to handle short sale requests, while lenders insist the short sale process is complicated by the need for approvals from investors and mortgage insurers.
Still, practitioners note that a more efficient short sale process would boost prices and reduce inventory.
Source: Reuters, Nick Carey (04/22/08)
Governor Randall S. Kroszner
At the Community Reinvestment Fund First Annual Forum, Minneapolis, Minnesota
April 21, 2008
Developing Sustainable Capital for Community Investments
Good afternoon. I am pleased to address the inaugural Community Reinvestment Fund (CRF) Annual Community Forum Series. The development of sustainable capital sources through innovation is an important goal for the Community Development Financial Institutions (CDFI) industry. Today's host, CRF, has played a pioneering role in the development of a secondary market for community development loans, a topic I spoke on more than a year and a half ago in Washington, D.C.
The financial markets have experienced much turbulence since that time. The turmoil in the subprime mortgage market, in particular, has affected liquidity of the larger secondary markets. Given the cautious state of financial markets, how can the CDFI industry enhance the attractiveness of CDFI investments to private capital?
The markets have changed, but the core ideas I raised in my previous remarks are more relevant than ever. There is a striking parallel with the challenges for the re-emergence of the subprime mortgage market and the adoption of innovations in the community development investments market. To overcome the unease of the current financial markets and attract a new source of capital, new market entrants must make particular efforts to reduce the uncertainty associated with their investment opportunities. For the CDFI industry, the challenges that need to be addressed are improving information about these products, developing models of risk and pricing, and standardizing these contracts. Addressing these issues will be critical to jump-start sustainable private CDFI investments as well as to revive the subprime mortgage market.
Growth of Community Development Finance and Current Challenges
The Community Reinvestment Act (CRA) was enacted more than 30 years ago in response to deteriorating economic conditions in urban areas, particularly in lower-income and minority communities. The CRA served as a catalyst in attracting innovative public and private investment capital into low- and moderate-income communities. Consider the following: In 1991, 2,000 community development corporations (CDCs) built 300,000 units and 17 million square feet of commercial space. In 2006, 4,600 CDCs built 1.2 million units and 126 million square feet of commercial space. Today, there are more than 600 CDFIs with more than $19 billion in assets and with more than $20 billion of finance activities. The CRF has issued three rated securities within the past six years totaling almost $200 million, opening the door to institutional investors and expanding the marketplace.
The migration toward sustainable mainstream capital sources is important in light of budgetary challenges facing governmental and philanthropic funding sources. For CDFIs to expand the scope and volume of their financing activities, they need to develop new products and innovations that tap more predictable sources of funding. Accessing the broad depth of the capital markets as a self-sustaining funding source for community development would yield enhanced benefits, such as more-efficient delivery of capital, greater funding and underwriting discipline, and reduced finance costs.
Of course, a real challenge is building a bridge between the two very different worlds of capital markets and community development. The former requires strict market discipline, a rich set of data to assess risk and pricing, and standardization. The latter, community development, however, has a commitment to individuals and communities that have been left out of the economic mainstream and uses products tailored to their unique circumstances. These two worlds, however, can be brought together; and that has begun to happen, particularly around the challenges I will discuss in greater detail.
Importance of Data for New Products and Proper Risk Modeling
When a new product is being developed, there is an initial experimentation phase in which market participants learn a great deal about the product's performance and risk characteristics. This phase involves gathering and processing information and modeling the performance of the product in various scenarios and under different market conditions. It may then take time for market participants to understand what, exactly, they need to know to value a product. During the early phases, a fair amount of due diligence is appropriate, given the greater uncertainty associated with innovative products.1
In the initial experimentation phase, the terms and characteristics of a new product are adjusted in response to market acceptance--or lack thereof. During this period, market participants are seeking and providing information so that they can properly value the product, judge its potential for risk and return, assess its market acceptance and liquidity, and determine the extent to which the risks of the product can be hedged or mitigated.
To do this, market participants must perform due diligence, a process to gather and assess relevant sources of information to evaluate that product. Due diligence is critical because market participants must trust but verify the market-provided information. Potential purchasers, for example, might engage in various activities, ranging from assessing risk exposures through stress testing to assessing the enforceability of contracts that define the requirements of investors, trustees, guarantors, and originators.
We have recently seen how a lack of information and insufficient due diligence have created problems in the market for subprime residential mortgage-backed securities. Many investors appear not to have demanded sufficient information about these investment vehicles, or perhaps did not carefully evaluate the information that was available. Instead, they may have simply accepted or trusted credit ratings as a substitute for their own risk analysis, and not verified enough. As a result, subprime delinquencies and defaults exceeded expectations. Lack of information, a stressed financial environment, and disparate contract obligations led to a general lack of liquidity in the subprime market, which later spread to the broader market for mortgage securities.
Investors in new and innovative products have suffered losses before. In the early 1990s, for example, participants engaged in the collateralized mortgage obligation (CMO) market and in certain types of interest rate derivatives that did not have adequate information about the potential volatility and prepayment risk involved. Consequently, market participants did not appropriately model these risks and suffered significant losses when market interest rates rose sharply in the mid-1990s. As in the case of today's market for residential mortgage-backed securities, the general market reaction was a flight away from these instruments. However, over time, the market was restored as market participants came to better understand the risks and as standardized methods were developed to measure the risks and model the value of these instruments under alternative scenarios. Increased information and standardized pricing conventions, such as the use of option-adjusted spreads, moved these instruments from the experimentation and learning phase to broad market acceptance.
When market participants realize that they do not have the information necessary for proper valuation of risks, market liquidity can become impaired, such as in the CMO market in the 1990s and in the subprime market recently. A significant investment in information gathering, processing, and evaluation may be necessary to revive markets. This process will likely take time. First, more-detailed data will need to be collected in a more systematic manner in order to better understand the nature and risks of the instruments and their underlying assets. Second, investments will need to be made to warehouse and model data related to these instruments, which will enhance the understanding of risks, particularly under stress conditions. Third, investments in human capital expertise--that is, in people so that they can better understand, interpret, and act appropriately on the results of the modeling and analysis of the information gathered--will also need to be made. Finally, sellers may respond by reducing complexity and by improving the quality of the underlying assets, increasing transparency, or both. Ultimately, the payoff from these activities will be a greater understanding of risks and greater ability to value the instruments.
For innovations in the community development investment markets, it will also likely take time for these markets to mature because of the time and cost to systematically collect data and for investors to understand these new instruments. To accelerate the development of these markets, however, some key issues will need to be addressed. First, how will the CDFI industry organize itself to generate and collect this data? Second, who is poised to lead efforts in setting standards for industry data? Finally, who and how will the intellectual capital be developed to model and structure these new instruments? There should also be consideration of existing standards from established products that parallel developing ones, such as the adoption of best practices for both mortgage securitizations and community development securitizations.
I do want to acknowledge that there have been many notable accomplishments in pioneering community development investments. For example, there is a growing secondary market for community development loans; community development venture capital has grown 100 percent since 2002 to more than $800 million in assets under management in 2004; since 2002, the New Markets Tax Credit Program has issued $16 billion in allocations, with a growing sophisticated market for investments and trading of the tax credit equity.
I am pleased that the Federal Reserve Banks have played an active role as a convener on these topics and in the dissemination of best practices and policy. I enjoyed sharing my thoughts on the topic of the development of the secondary markets for community development loans at a forum that was hosted last year by the Board of Governors and the Federal Reserve Banks of San Francisco and New York. For these markets to grow significantly, however, there must be continued dialogue and exchange between market participants to collect these data uniformly from the beginning to the culmination of these deals so that performance data are captured.
Standardization in Developing Markets
These data should be collected with consideration toward improving standardization of many of the aspects of the product, which can help to increase transparency, improve efficiency, and reduce uncertainty. For example, the recovery of the CMO market was aided by improved information and modeling, which increased confidence, especially as products became increasingly standardized. Standardization in the terms and in the contractual rights and obligations of purchasers and sellers of the product reduces, but does not eliminate, the need for market participants to engage in extensive efforts to obtain information and reduces the need to verify the information that is provided in the market through due diligence. Reduced information costs, in turn, lower transaction costs, thereby facilitating price discovery and enhancing market liquidity. Also, standardization can reduce legal risks because litigation over contract terms can result in case law that applies to similar situations, thus reducing uncertainty.
The benefits of the development of standardization for enhancing the liquidity of financial markets have a long history. One particularly clear example dates back to the development of exchange-traded commodities futures contracts in the mid-1800s. The standardization of the futures markets improved the flow of information to market participants, reducing transaction costs and fostering the emergence of liquid markets.2
In the mid-1850s, the market for grain did not enjoy the very deep liquidity we see in today's market. At the time, Chicago was facing competition from exchanges in Minneapolis and St. Louis and from some in Europe that had created innova | |