Financial Reform Bill Update

Congress moved on multiple fronts last week, bringing the financial regulatory reform bill to the edge of enactment and sending to the President's desk a pair of bills extending the flood insurance program and the settlement deadline for the home buyer tax credit. President Obama signed both bills on Friday.

The House approved the Dodd-Frank bill Wednesday by a 237-192 vote, though the week did not go by without some unexpected drama. While the legislation was expected to be approved by both the House and Senate in time to meet President Obama’s July 4 deadline, last-minute objections over a $19 billion bank tax added in the dead of night led to the bill being reopened in order to remove the provision. The passing early in the week of Sen. Robert Byrd, D-W.Va., also changed the vote count for passage.

The Senate is still expected to pass the financial reform package, but not until Congress returns the week of July 12.

House Passes Regulatory Reform Conference Report; Senate Passage Delayed
A week after passing what was thought to be the final Dodd-Frank regulatory reform bill out of the conference committee, prospects for final passage in Congress were complicated by two major events.

First, the death of Sen. Robert Byrd, D-W.Va., June 28 cost Senate Democrats a crucial vote for the legislation, and necessitated the Senate adjourning early for memorial services. Byrd’s passing, coupled with an announcement by Sen. Scott Brown, R-Mass., that he would oppose the legislation after a bank tax was added to the bill at the end of the conference process, left congressional leaders scrambling to wrap up the legislation before the July 4 deadline set by President Obama.

In an attempt to win back Brown’s vote, as well as several other moderate Republicans, the conference committee reconvened on June 29 and removed the bank tax, replacing it with an increase in Federal Deposit Insurance Corp. fees and an earlier sunset of the Troubled Asset Relief Program. With these changes, the House passed the conference report Wednesday evening by a 237-192 vote.

The Senate, however, delayed a final vote on the legislation until after the Independence Day break. That period will be critical to determining if the most recent legislative changes will sway enough Republicans to break the expected filibuster, and it will also provide time for the governor of West Virginia to fill that state’s vacant Senate seat.

MBA sent a letter to the conferees stating that while changes to the conference report modestly improved the legislation, it still believes that additional improvements can be made to limit the negative impact the bill will have on businesses and consumers. MBA will continue to monitor this issue as it develops over the next 10 days.

Most Americans Say Now Is Time to Buy a House

The Efinity Report rarely posts news articles, however; we thought we would the following report from Reuters is a good indication of the mired direction of the housing market.

"Nearly two-thirds of Americans think the time is right to buy a house, with a majority believing prices will be the same or higher over the next year, according to a Fannie Mae survey released Tuesday.

The 64 percent that said it is a good time to buy is just shy of the 66 percent that said the same thing in 2003 as the U.S. housing market was racing higher, said the survey.

However, most of the 3,451 polled said that it would be tougher for them to get a loan than it was for their parents.

The survey comes amid signs that the U.S. housing market is recovering after suffering the worst downturn since the 1930s.

But, while home prices in some regions are rising, soaring delinquency rates across the nation mean foreclosures will keep persistent pressure on the market, according to analysts.

Fannie Mae, the largest U.S. mortgage finance company, said that the public still "strongly believes" in upholding their financial commitments, though that weakens once people know someone who is defaulting.

Those who know someone in default are more than twice as likely to have seriously considered stopping payments on their own mortgage, Fannie Mae said.

Housing Tax Credit in it's Final Legs

Tax breaks, get them while they are hot!! There is a potential to save thousands of dollars but time is running out. If you're thinking of taking advantage of the government's home buyer tax credits you must have a contract to purchase a home by the end of this month. The opportunity is sizable. First time home buyers can get a credit of up to $8,000.

The exclusively government funded program is designed to ensure we have a sustainable economic recovery as homeowners don't see further destruction of their homes. Many of which are the backbone of their wealth.

The government also offered a tax credit to long-time residents who buy a new principal residence — no credits for vacation homes. They're eligible for a credit of up to $6,500. If you're convinced a new home may be in your future, consider some of the basic rules outlined in the tax credit.

Who qualifies

First-time home buyers: To qualify as a first-time home buyer, you must not have owned a home in the last three years. The tax credit is 10 percent of the purchase price of a home up to a maximum of $8,000. This applies to a single taxpayer or a married couple filing a joint return. Married couples filing separate returns qualify for half that amount. The $8,000 credit applies to sales in 2009 and through the end of April. Homes bought in 2008 also get a tax credit, but the rules are different.

Of course, your particular situation may not be so clear cut. The IRS outlines many different scenarios and how they effect the home buyer rules here.

Long-time residents: To qualify as a long-time resident, you must have owned and used the same home as your principal residence for at least five consecutive years of the eight-year period ending on the date you bought your new home. The maximum credit is $6,500 for a single taxpayer or a married couple filing a joint return, or $3,250 for a married couple filing separate returns.

The deadline
You must enter into a binding contract to buy a home before May 1, 2010, and close before July 1, 2010. If you're building a home, the purchase date is considered to be the date you first occupy the home.

How to get the credit
The credit is claimed on IRS Form 5405, First-Time Home buyer Credit, which was revised in December. It must be filed with your 2008, 2009 or 2010 federal income tax return, depending on which year you're claiming the credit. If you have already filed a 2008 or a 2009 tax return without claiming the credit, but bought a home that qualifies, you can amend your return to claim the credit using Form 1040X with the December 2009 Form 5405 attached.

Certain additional supporting documents will be required to be filed with your tax return, including a copy of the settlement statement used to buy the home or a similar document.

Those seeking as credit for long-time residents will need to prove they have lived in their home for five consecutive years by providing mortgage interest statements, property tax records or home owner's insurance records for five consecutive years.

Income limits for full credit
Purchases after Nov. 6, 2009
Single taxpayers — up to $125,000
Married couples filing jointly — up to $225,000

Purchases before Nov. 7, 2009
Single taxpayers — up to $75,000
Married couple filing jointly — up to $150,000

The IRS uses your modified adjusted gross income, which for most people is the adjusted gross income on your tax form with student loan, tuition and fee deductions added back in.

Many additional questions are answered by the IRS on its Web site.

The Future of Mortgage Lending

There have been a hundred's of articles written over the last 12 months outlining what might happen to Mortgage Lending Industry if/when the federal government slows it's heavy participation through Fannie, Freddie and the Federal Housing Administration.
To say there would be no housing market without the government is an understatatement. thankfully, Washington has taken extraordinary steps to keep home loans available and affordable over the last 24 months. That caused a tentative housing recovery last year. Home sales reversed their four-year descent, while prices stabilized.

Now comes the hard part. Fannie, Freddie and the Federal Housing Administration are massive entities that purchase home loans, package them into investments and guarantee them against default. The price tag has been huge — $126 billion and growing.

The Obama administration has been surprisingly mute on the subject which makes me all the more neervous. Congress will hold its first today on how to restructure the mortgage system in the wake of the current financial crisis. How to manage change when the housing recovery remains too fragile and feeble for the government to step away. Even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run don't see that happening anytime soon.

"The housing finance system clearly cannot continue to operate as it has in the past," said Treasury Secretary Timothy Geithner in testimony prepared for Tuesday's hearing held by the House Financial Services Committee. He added that any restructuring should wait until "a time of greater market stability."

My interpretation: See National Health Care. Get your cheap mortgage rates now!!!

Housing's Continued Weakness (Existing Home Sales)

Earlier this week the Commerce Department reported a 7.2 percent decline in existing home sales. No surprise to anyone, this reflects continued evidence that high unemployment and tight lending standards are undercutting the government's attempts to prop up the market.

I would like to make a few points regarding the existing lending standards. First, we need to keep in mind that the government is currently buying roughly 93% of all residential mortgage activity in the US via Fannie Mae and Freddie Mac. Without a robust capital markets outlet for mortgage backed securities, politics get to determine who obtains a home and who does not. Given the financial crisis of the last three years and the added negative press surrounding mortgages in general it's not surprising to see credit requirements sitting at their highest points in 15 years. While housing is not the largest employment industries in our nation, it does serve several critical needs of our country and must play a participatory role in our nations recovery. Out of reach lending standards is not going to help matters.

So back to Friday's report. Since the for forecast was so much worse than forecast and suggest the housing recovery will sputter without government support. The government has spent billions to keep mortgage rates low and give buyers tax breaks, but both programs are set to end this spring.


The National Association of Realtors said that home sales fell 7.2 percent to a seasonally adjusted annual rate of 5.05 million from a downwardly revised pace of 5.44 million in December. Economists expected a slight increase to a rate of 5.5 million.

Home sales have been sluggish this winter even though the deadline for a tax credit for first-time buyers was extended. It had been set to expire on Nov. 30. That caused sales to surge last fall. Then Congress extended the deadline until April 30 and expanded it to existing homeowners who move.

The housing report was another sign that consumers still aren't feeling comfortable making sizable purchases. With jobs still scarce, weak consumer spending is a key reason why economic growth is expected to be feeble this year.

Home sales are still up nearly 12 percent from the bottom, but are down 30 percent from their peak more than four years ago.

Last month, sales declined throughout the country, falling the most — nearly 11 percent — in the Northeast. Sales fell by about 7 percent in the South and Midwest and by more than 5 percent in the West.

Nationally, more than a quarter of buyers last month paid all cash, reflecting a surge of investors buying low-priced foreclosures, the Realtors group said.

Nationwide, the median sales price was $164,700, unchanged from a year earlier and down about 3 percent from December. The inventory of unsold homes on the market was down slightly. There is a 7.8 month supply at the current sales pace, up from a recent low of 6.5 months in November.

The bleak report comes after the government reported Wednesday that sales of newly built homes plunged 11 percent to a record low in January. The report, which measures signed contracts to buy homes rather than completed sales, also came as a surprise to economists.

Another question hanging over the housing market this year is whether interest rates will rise, and by how much. The Federal Reserves $1.25 trillion program to push down mortgage rates is scheduled to expire on March 31. This is a MAJOR concern for us here at Efinity. The affordability of homes right now is critical to this nation's recovery.

FED LOOKING MORE LIKE JP MORGAN CHASE EVERY DAY....

The few remaining banks left on Wall Street aren't the only banks having a banner year. The Federal Reserve made record profits in 2009, as its unconventional efforts to prop up the economy created a windfall for the government.

The Fed will return about $45 billion to the U.S. Treasury for 2009, according to calculations by The Washington Post based on public documents. That reflects the highest earnings in the 96-year history of the central bank. The Fed, unlike most government agencies, funds itself from its own operations and returns its profits to the Treasury.

The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy — though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms.

This turn of events comes as the banks that benefited from the Fed's actions are under the microscope: Major banks are expected to announce massive earnings and employee bonuses starting at the end of this week, and anger in Washington is at such a high boil that the Obama administration is likely to propose a fee on financial firms to recoup the cost of their bailout, officials confirmed Monday.

As it happens, the Fed's earnings for the year will dwarf those of the large banks, easily topping the expected profits of Bank of America, Goldman Sachs and J.P. Morgan Chase combined.

Much of the higher earnings came about because of the Fed's aggressive program of buying bonds, aiming to push interest rates down across the economy and thus stimulate growth. By the end of 2009, the Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier. The interest income on those investments was a major source of Fed profits — though that income comes with risks, as the central bank could lose money if it later sells those securities to reduce the money supply.

Emergency loans
The Fed also made money on its emergency loans to banks and other firms and on special programs to prop up lending, such as one that supports credit cards, auto loans, and other consumer and business lending. Those programs impose interest and fees on participants, with the aim of ensuring that the Fed does not lose money.

And while the central bank in its most recent financial report had recorded a $3.8 billion decline in the value of loans it made in bailing out the investment bank Bear Stearns and the insurer American International Group, the Fed also logged $4.7 billion in interest payments from those loans. Further losses — or gains — on the two bailouts are possible as time goes by. The Fed also charges fees for operating the plumbing of the financial system, such as clearing checks and electronic payments between banks.

From its revenue, the Fed deducts operating expenses, such as employee salaries, then returns almost all of the earnings that remain to the Treasury. The largest previous refund to the Treasury was $34.6 billion, in 2007.


"This shows that central banking is a great business to be in, especially in a crisis," said Vincent Reinhart, a resident scholar at the American Enterprise Institute and a former Fed official. "You buy assets that have a nice yield, and your cost of funds is very low. The difference is profit."

The Fed plans to release its estimate of 2009 earnings Tuesday. The Post's calculation is based on combining data through September from the Fed's monthly balance sheet report with more recent data from the Treasury's daily budget statement.

Fed officials do not make policy with an eye toward maximizing profits. They are charged by law with managing the nation's money supply to keep employment high and prices stable, and earnings fluctuate depending on a wide range of factors as they pursue that goal. In the crisis, the central bank's policy has been to create money and use it to buy a wide variety of assets, which in turn pay interest.

Exotic investments
In effect, the unprecedented range of actions taken to address the crisis has made the Fed's balance sheet more like that of a private bank. A firm such as Bank of America takes money from depositors, whom it pays little or nothing in interest, and lends it out at significantly higher rates. The Fed, similarly, takes money that banks keep on deposit, at a rate of 0.25 percent, and lends it to the U.S. government by buying Treasury securities and, lately, to home buyers and other private borrowers though more exotic investments.

While that resulted in higher earnings in 2009, it exposes the Fed to more risks down the road. "They've moved up the risk-return curve, as they have more long-term assets and more things that involve credit risk," said Diane Swonk, chief economist at Mesirow Financial.

If the price of Treasury bonds or mortgage-related securities issued by Fannie Mae and Freddie Mac were to fall in the years ahead, and Fed leaders decided they need to drain money from the financial system by selling off some of their portfolio, the central bank would lose money. "If they do enough asset sales and rates go high enough, that could eat into future profits pretty substantially," said Michael Feroli, an economist at J.P. Morgan Chase.

Question is, I wonder if the tax payer will recieve a refund?

WHY AMERICAN CONSUMERS CAN'T ADD

Came accross the following article this morning from CNBC. The first question which came to mind was, are we really at a 10% unemployment or much worse. Who's adding the numbers...

http://redtape.msnbc.com/2009/12/when-i-published-gotcha-capitalism-two-years-ago-i-was-in-for-a-big-surprise-as-i-talked-about-systemic-hidden-fee-fraud-al.html

When I published "Gotcha Capitalism" two years ago, I was in for a big surprise. As I talked about systemic hidden fee fraud all around the country, many, many friends (and even co-workers) found me and asked in hushed tones, “What’s a mutual fund?” “What’s comprehensive and collision?” “What’s a mortgage point?”

It was obvious from these conversations that millions of Americans are severely lacking in financial basics, and this shortcoming played a major role in the housing bubble and the resulting economic collapse. I wanted to know why.

I'm the hidden fee guy, the “Gotcha” guy. People like me usually rant about dreadful banks are and how unfair big companies are, about how corporate greed caused our economic collapse and about how rampant unfairness built the house of cards that just collapsed all around us and sent the world into a global recession.

But it's impossible to ignore the fact that individual consumers made a lot of really bad choices in the past decade. They bought homes with $2,000 mortgages when they only earned $3,000 a month. They borrowed money at 30 percent interest to buy granite countertops. Aren’t they to blame for their own demise? To be an honest journalist, I had to ask: Why are American consumers so gullible, so seemingly out of control? Is there something wrong with us?

Yes, several things. But most important is this: Americans are terrible at math.
I know you know that. But my research shows we are far worse at math than you think.
Exhibit A: Think about the last time you had lunch with four or more friends. What happened when the bill came? Everyone pulled out calculators, there was a lot of murmuring and head scratching and still some of your friends just ended up throwing down a $20 bill and hoping for the best. Now, imagine that crowd in a car dealership or with a mortgage broker. They wouldn’t stand a chance.

Turns out, there's an entire field of study -- albeit a small one -- devoted to this subject. It's called “innumeracy” -- or mathematical illiteracy. It’s a hidden epidemic in our society. And the consequences are dire.

Just as there is a hidden epidemic of people who are functionally illiterate in our country, there is big problem (bigger, by my reckoning) with people who can’t do basic math. There’s no way to function in our society without understanding money, percentages, interest calculation and so on. Yet in a recent government study, less than one in seven American adults ranked “proficient” at math.

Here are a few examples of innumeracy in action:
According to the Department of Education’s National Assessment of Adult Literacy, U.S. adults are terrible at solving real-world math problems, like calculating tips or comparing prices in grocery stores. Some dismal results:
*Only 42 percent were able to pick out two items on a menu, add them, and calculate a tip.
*Only 1 in 5 could reliably calculate mortgage interest.
*1 in 5 could not calculate weekly salary when told an hourly pay rate.
*Only 13 percent were deemed “proficient.” Worse yet, only 1 in 10 women, 1 in 25 Hispanics and 1 in 50 African Americans made the grade.
*Americans are terrified of numbers when it counts most: 20 million Americans pay someone to file their 1040EZ, a one-page tax form with around 10 blanks to fill out.
Also, these numbers show up in U.S. student math scores, which are abysmal:
*The U.S. ranks 25th among 30 industrialized nations in math scores, down near Serbia and Uruguay. U.S. students thought they had the highest grades of any nation in the study, however.

*Half of 17 year olds couldn't do enough math to work in an auto plant, according to President's National Mathematics Advisory Panel.
*Study after study shows U.S. achievement falls off the cliff during middle school, when subjects like fractions and percentages are introduced -- exactly the skills you need as a consumer or, for that matter, to move on to algebra, calculus and advanced sciences.
But here’s another essential point. How can Johnny learn to add if Johnny’s teachers can’t?
*In 18 U.S. states, not even one elementary math class is required for certification.
*Some teaching colleges allow admittance as long as students have math skills equal to their future students -- that is, as long as they could pass a 5th grade math test.
*It's possible in some states to pass the teacher certification exam (Praxis) without answering a single math question correctly.
*In Massachusetts, there's a special program to reacquaint teachers with math. The man who runs the program says half of teachers can't answer basic questions involving fractions and has concluded that many elementary teachers are "phobic" about math.
*Teachers seem to be math-averse from the start. College bound seniors headed for elementary education have math SAT scores significantly lower than the national average (483 vs. 515).
There are many, many other reasons why U.S. consumers tripped and fell down a mine shaft during the past two years. In my new book, "Stop Getting Ripped Off," I lay out a series of other explanations: Greed, laziness, lack of government regulation and magical thinking. And I offer up my own handy guide to solving today’s consumer puzzles, from buying a home to saving for retirement. But innumeracy is the biggest culprit.
Two years ago, I would have had to lay out a doomsday scenario to draw attention to this ticking time bomb. Well, the bomb’s gone off. People who were bad at math could hardly have been expected to see through the consequences of an adjustable-rate mortgage, or to make a sound bet on their future earnings potential. These consumers didn’t stand a chance against mortgage brokers, real estate agent and an overheated market. They can’t fight with financial planners over fees that are swallowing one-third of their retirement savings. Heck, they can’t even stop taking out 250 percent APR payday loans, 1,000 percent overdraft protection loans or paying tax preparation firms $100 for three minutes work to fill out simple tax forms. Now, millions of individuals are losing their homes and are on pace to become destitute in old age.

If I only shine a light on only one topic with this book, I hope it will be the hidden epidemic of innumeracy in America. Because if we can’t add, if we continue suffer from an extreme lack of mathematical self-confidence, any recovery we begin is surely doomed.