Tuesday, September 30, 2008

Bailout not approved. Why? Is this good or bad?

The $700 billion bailout bill was defeated by a 228 to 205 vote. What happened? Is this a good thing or a bad thing?

How defeated?

Two thirds of the House Republicans voted against the bailout bill, while in comparison, 60% of the Democrats voted for it. This is an interesting defeat since the Bush Administration put this plan together and it was also supported by John McCain.

Another round?

President Bush and congressional leaders are determined to bring the bill back again for another vote; hopefully later this week. Congress was to adjourn this week until after the election, but it looks as if they will all be back by the end of the week. It is unclear as to what the markets will do as the week progresses.

Five courses of action in the plan

• Free up credit - Primary goal is to make it easier for individuals and business to start getting credit again.
• Modify loans - Goal is for the Treasury to modify difficult loans.
• Accountability - The Treasury will be forced to report on their spending of the $700 billion.
• Executive benefits limited- Companies who participate in getting bailed out will lose certain tax benefits. This will limit some executive compensation.
• Taxpayer benefits received- Companies that participate in the bailout must provide compensation that benefit taxpayers once the company heads in a positive direction.

These courses of action sound like reasonable goals. For now they are on hold, but let’s look at the short term effects that have occurred so far because of the defeat, and the long term effects that appear to be on the horizon.

Short term effects

The Dow Jones Industrial Average plummeting more than 700 points yesterday. This was the largest one-day point drop ever. The short-term effects are not good at all. There was an immediate effect in the confidence of the worldwide financial system. Long-term effects might be better.

Long term effects positive and negative

Longer-term, it actually could be positive since it somewhat protects the Federal Government’s balance sheet. The Federal Government may already be looking at trillions of losses because of the FDIC, Fannie, Freddie, the Federal Reserve and the Federal Home Loan Banks. Does the Federal Government need another $700 billion in debt? Give us your comments. We’d love to hear from you.

On the negative side, it is possible there could be a worldwide run on the dollar. Currently, people are running to buy U.S. treasuries. They are perceived to be the safest investment in the world. But dollar assets could fall rapidly once it becomes apparent that the U.S. government is printing a huge amount of currency to pay off its debts.


The future of the worldwide financial system is looking doubtful. There are different theories out there as to how to protect yourself while the economy is so volatile. Some Wall Street professionals have advised clients to take cash out of their bank accounts and keep it in a safe place. Two months expenses are the goal. Others say to hold on and wait for the craziness to pass.

None of us really know what direction the U.S. economy will head from here. It is a guessing game. Things seem to change rapidly. Feel free to give me a call or email me at 913-642-3334 or michele@wantinsight.com.

Michele “MAC” Cole

Thursday, September 25, 2008

Federal Reserve leaves funds rate at 2%

The Federal Reserve Board has once again decided to leave a key interest rate untouched. What is their reasoning behind this?

Existing Pressures

In its press release, the Fed pointed out the already existing pressures on Wall Street, employment, household spending, and inflation:
• On Wall Street: Strains have "increased significantly"
• On Employment: The workforce has "weakened further"
• On Household Spending: It's "softening"
• On Inflation: It's "been high"

The Fed believes though, that the combined impact of these pressures will eventually die down by both prior rate cuts, and market forces. Let’s not forget, that just last August, the Fed Funds Rate was 5.250 percent and the Fed wants to avoid over stimulating the economy. Too many rate cuts could be counterproductive and detrimental in the long run.

Injecting Money

The Federal Reserve controls the supply of money and its cost by injecting funds or taking funds out of the banking system. The Fed has already recently injected $50 billion to curtail instability brought on by the collapse of Lehman Brothers and the problems of American Insurance Group.

Fed helps bring liquidity
• The Fed buys government securities from banks in exchange for lending them money, in order to increase the money supply and make money easier to borrow.
• Banks that borrow the money, then lend money to other lending institutions.
• The other institutions lend to consumers.


Part of the economic theory behind leaving the rate unchanged, is because the Fed does not want to create the sense that it is going to rescue more struggling companies. Could this affect risky decisions made by large companies if they felt the government would bail them out if needed?? Give us your comments.

Economic growth over the next few quarters is likely to remain flat, but over time, the considerable easing of monetary policy, combined with continuous plans to promote market liquidity, should help to encourage moderate economic growth. Do you think it makes sense to leave the rate at 2%?

If you're wanting a plan to monitor and lock-in great rate dips like the ones we’ve been seeing off and on, get in touch with us and we’ll walk you through the process to capture a low mortgage rate when it presents itself. Call us at 913-642-3334 or email at michele@wantinsight.com.

Michele “MAC” Cole

Tuesday, September 23, 2008

Fed throws out an $85B Life Preserver to AIG

The Federal Reserve provided the largest government bailout of a private company in U.S. financial history. They provided AIG with $85 billion in emergency loans to rescue them from bankruptcy in exchange for almost an 80% claim in AIG. The loan provided was at a very high interest rate and AIG’s entire assets were used as collateral.

Reactions from large newspapers
On its front page, the New York Times calls the government's move "the most radical intervention in private business in the central bank's history," a step taken "to avert a possible financial crisis worldwide." The Washington Post calls the Fed's move "a stunning turnaround," while USA Today says it was a "stunning decision," coming "just days after the Treasury and Fed refused to bail out investment bank Lehman Bros., which filed Monday for the largest bankruptcy ever." The Los Angeles Times calls the move "the largest single financial intervention in the nation's history and a measure of the depths of America's financial crisis."
Does this feel like an indication of the continuing uncertainty in the financial sector? Give us your comments….

Possible implications
It is a little unsettling thinking about how detrimental this could be to corporations around the world. They could get hit with billions of dollars in losses if AIG is allowed to fail.
Keep in mind, that AIG is bigger than Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers or the former Bear Stearns. Analysts have been saying that most of AIG’s businesses are in decent financial shape on their own, but the events of Wall Street are the cause of AIG’s problems. This bailout weakens AIG’s current stockholders a great deal but does not wipe them out completely.

Why the bailout?
The decision to rescue AIG was a remarkable turnaround from what government officials had said just a few days earlier. AIG has extensive ties to the struggling U.S. financial system already, so they needed to come to AIG's rescue in order to help stabilization. The federal government determined that AIG was too big to fail and needed to be rescued. These steps were taken in order to promote stability in financial markets and limit the danger to the broader economy.
Is it possible that without this radical intervention, that it may have averted a possible worldwide financial crisis? What do you think?

Feel free to call or email me at www.michele@wantinsight.com

Michele “MAC” Cole

Wednesday, September 17, 2008

Michele Cole is a featured guest on Friday Encouter Bott Radio Network 92.3 Fm Friday 9/19 at 2pm cst

Today's Article!

Lehman Brothers Holdings Inc. succumbs to the largest bankruptcy filing in history

Lehman Brothers Holdings Inc. was forced to file a Chapter 11 petition with U.S. Bankruptcy Court on Monday. The New York-based firm, once the fourth-largest investment bank in the United States, joins Merrill Lynch & Co., Bear Stearns Cos., and more than ten other banks that couldn't survive this year's mortgage crisis.


The firm listed more than $613 billion of debt and lost 94% of its market value this year. Lehman owes its 10 largest unsecured creditors more than $157-billion, including debts to bondholders totaling $155-billion. The filing is by Lehman's holding company and won't include any of its subsidiaries.
Historical Events survived by Lehman Brothers Holdings
Lehman Brothers is a 158-year-old firm that has survived many difficult times.

• survived railroad bankruptcies of the 1800s
• the Great Depression in the 1930s and
• the collapse of Long-Term Capital Management a decade ago

Do you think there will be a domino effect? Possibly from individuals or firms that relied on their financing?

Talks of Takeover

There was talk of a takeover but those ideas were discarded. For three days leading up to the filing, the Federal Reserve and Treasury negotiated with Wall Street execs, trying to strike an agreement that would prevent Lehman Brothers Holdings from going down before markets opened on Monday. Treasury Secretary Henry Paulson indicated that he did not want to use taxpayer funds to simplify the sale of the company. Treasury and the Fed have determined that markets have adjusted to the Bear Stearns situation.

If every time a big institution goes under and the markets expect the government to step in, would anyone ever adapt? Give us your thoughts!


In hindsight, Lehmans needed capital to survive and it might have gained a lifeline by selling itself or stripping its fund management. The direct effect of the bankruptcy has been immediate falls in global stock markets, especially in bank stocks and a shift towards safer assets such as gold. The long term effects are unclear. Feel free to call or email me at www.michele@wantinsight.com

Michele “MAC” Cole

Monday, September 15, 2008

How did we get into the mortgage crisis and how can we get out?

Many industries have played a role in getting us into this mess. Lenders expanded their guidelines so that more people could qualify for loans, even if they did not have the means to repay the loan. It meant that many Americans that once could have never afforded a home loan, would now have the American dream; temporarily anyway. Even Congress and President Bush believed that everyone should own a home and encouraged lenders to loan to lower income families. A popular saying was, if someone could breathe, they could get a loan.

Realtors, appraisers, builders, loan originators, developers, and title companies all saw this time period as an opportunity to make money. Even the home buyers thought of this as an opportunity to buy a larger house than they had ever imagined; either in hopes of reselling for a profit down the road, or just to keep up with the Jones’. Scripture 1 Timothy 6:10 says that “For the love of money is the root of all kinds of evil”. Many people wandered from their true faith and brought on hardship. Email michele@wantinsight.com for more InSight.

There was a sequence of events that contributed to the time line of these market changes. Some believe it started with the Twin Towers collapse on September 11, 2001. Shortly after, the federal government cut taxes and sent rebates to Americans, encouraging the American people to spend more, in order to fight terrorism. Alan Greenspan cut the discount rate to 1 percent and announced that adjustable rate mortgages were a positive choice. Mortgage companies and lenders threw themselves into creative finanancing. They created ARMs, Option ARMs, 100% financing loans, teaser rate loans, no-doc loans, , and negative amortization loans. The availability of new loans created an immediate demand in housing; upgrading into larger homes and buying new construction. The value of homes started to increase rapidly which led to investors speculating and flipping homes with plans to immediately resell for a profit. This value increase also led to many Americans taking the equity out of their homes with second mortgages in order to spend the money on unnecessary possessions. No wonder we are in such a mess! Visit our website www.wantinsight.com for more information.

The government has stepped in once again, and will hopefully ease the housing and credit crisis, by lowering mortgage rates and allowing greater availability of credit for consumers. Lending standards will not ease though. Fannie Mae and Freddie Mac will keep a close eye on underwriting practices, and fees for borrowers with weaker credit histories will remain in effect. Their primary goal is to increase the availability of mortgage finance while remaining proactive in the processes. Fannie and Freddie are crucial to the turn-around.

The consequences of this market will be seen for years to come. What is the good that will come from all of this? Now is the time to really teach and equip the Church and others financial and biblical stewardship. Americans need to learn how to live within their means and avoid debt, including their mortgage. Our prayer is to see a steady increase in the number of God’s children become 100% debt free by connecting them to different ministries. Bart Nill with Crown Financial Ministries and Matt Schoenfeld of Abundant Life Ministries play an active role in helping InSight’s customers move towards financial freedom. InSight Mortgage Group’s foundational principals are based on biblical principles taught by Kingdom Advisors, an organization that equips the Christian financial professional as well as an Integrity Resource Center. Kingdom Advisors is a ministry teaching business that shows leaders how to walk out their faith in the marketplace with integrity and accountability. Email michele@wantinsight.com or call 913-642-3334 for more information.

Michele "MAC" Cole

Thursday, September 11, 2008

Real Estate Investors Will Feel the Effects of Fannie Mae and Freddie Mac Takeover.

Fannie Mae is updating its guidelines by adding new restrictions and fees on investment properties. One of the largest changes is the 4-property limitation on properties owned by one investor.
With the new guidelines, applications will be denied if the applicant has a second home and investment properties totally more than 4 properties financed. Previously, the limitation had been 10 properties.
On the good side, Fannie Mae has made changes to the definition of a property owned. This has created a loophole for investors. If the property is held in the name of an LLC, then Fannie Mae will no longer declare it as a personally financed property, even if the corporation is in the name of the sole owner. In the past, this has been a typical practice of real estate investors for tax and liability purposes, but now it is going to be a necessity for these loans to be approved through underwriting. Give us a call at 913-642-3334 or visit our website at wantinsight.com for more information or if you have any questions.
Properties that have become a second home by default are not included in this new definition. In other words, there will not be a penalty when a home owner is unable to sell their primary residence, and are forced to rent this property to pay the mortgage. A couple of restrictions apply to this scenario, the property owner will not be able to use the rental income as income on a new application and will need to declare the entire monthly income as a loss if the equity in the home is less than 30%. If the equity exceeds 30%, and if six months of housing payments are in reserves for the rental home and new home purchase combined, then the owner will benefit from the use of 75 percent of the rental income for qualifications purposes.
There are loan fees that are applied to investment properties. If the loan-to-value (LTV) is 80.01-90 percent, there is a 3.75% fee; if the LTV is 75.01-80.00 percent, there is a 3.00% fee; and if the LTV is less than 75 percent, there is a 1.75% fee.
As unsettling as these changes for investment property owners may seem, if they qualify, then lower rates will be available to them. It is uncertain that the takeover of Fannie Mae and Freddie Mac will lead to a mortgage industry turnaround, but there is still a lot of upward movement needed to stimulate long-term economic growth. Give us a call at 913-642-3334 or email us at michele@wantinsight.com for more information.
Michele "MAC" A. Cole

Tuesday, September 9, 2008

US takeover of Fannie Mae and Freddie Mac offers hope of recovery!

The US takeover of Fannie Mae and Freddie Mac will likely ease the housing and credit crisis, by lowering mortgage rates and allowing greater availability of credit for consumers. Rates could realistically drop by 1 percentage point for a 30-year fixed mortgage rate.
There is not a clear picture of what Fannie Mae and Freddie Mac will look like over time, but the market reaction of this bailout was overwhelmingly positive. The takeover drastically lessens the probable threat to the housing market, financial industry, and the overall economy. Combined losses for Fannie Mae and Freddie Mac were $3.1 billion between April and June. Fifty percent of these credit losses were due to risky loans with ballooning payments. Both companies said that they could handle these losses, but many investors felt that with more defaults and foreclosures ahead, these reserves could diminish quickly.
Don’t expect lending standards to ease though. Fannie and Freddie will still keep a close eye on underwriting practices, and fees for borrowers with weaker credit histories will remain in effect. The primary goal is to increase the availability of mortgage finance while remaining proactive in the processes. Our economy and markets will not recover until a large portion of the housing correction is behind us. Fannie and Freddie are crucial to that turn-around.
Under the plan, both firms will abandon their goal of shareholder profit, will receive government chosen CEO’s, and the Treasury has agreed to boost each firm with 100 billion dollars if necessary. The hope is that by tapping into the enormous reserves of the US government to the government-sponsored enterprises, this plan will begin to calm down the housing market and confidence will return. The overall effect of funneling money back into housing should put a floor on the housing market. Hope is on its way! Call or email me anytime at michele@wantinsight.com.

Michele “MAC” Cole

Tuesday, September 2, 2008

When the Feds cut rates, will mortgage rates go down to?

When the Feds cut rates will interest rates go down??

Previously, the Federal Reserve has lowered the Fed Funds Rate by 0.500%. In response, mortgage rates go up, not down.
This surprises a lot of people when we tell them that.
Remember: the Fed Funds Rate and mortgage rates are not related. When the Feds "cut rates", it's working on an overnight interest rate between banks. By contrast, mortgage rates are based on long-term securities between bond market traders.
When the Feds cuts the Fed Funds Rate, it is meant to stimulate the economy and that makes inflation more likely. Inflation, of course, erodes the value of the dollar and, therefore, the value of mortgage bonds.
This is why mortgage rates have gone higher after each of the Federal Reserve's four most recent rate cuts. The bigger the cut, the more the increase to mortgage rates.
Call or email me michele@wantinsight.com anytime. I am happy to serve you.
God Bless!

Michele "MAC" A. Cole