A few months ago, President Barack Obama announced a foreclosure prevention plan called Making Home Affordable. The plan included provisions for those who wanted to refinance, but couldn’t because of their loan to value ratio. Refinancing would be encouraged for those who had a loan to value ratio of between 80% and 105%. The idea was to help those whose home values have dropped in response to housing market troubles.

Unfortunately, the program has been seeing limited success. It relies on voluntary help from mortgage lenders, and it excludes those with even higher loan to value ratios. Yesterday Obama made a move to expand the Making Home Affordable program. Now, those with a loan to value ratio of up to 125% are eligible. There are also continuing incentives to encourage mortgage lenders to deal with homeowners.

As far as the housing market is concerned, this new move is unlikely to have a huge impact immediately. It probably won’t even arrest falling home values, or do much in terms of stabilizing the overall housing market. But it does have the potential to help prime borrowers who are looking to refinance to a lower rate. Mortgage interest rates are still relatively low, and refinancing could save folks who made good homebuying decisions a great deal of money.

It even benefits people like me. I bought my home two years ago with 5% down and a 30 year fixed rate. Obviously, I haven’t had time to make up a lot of ground in terms of home equity. My home has lost some value in the last two years, and I have a loan to value ratio of about 94%. (The new rules don’t change my eligibility.) We can easily afford our mortgage payment, but I wouldn’t mind if I got an interest rate that is 1 percentage point lower. Plus, there are places in town offering no-fee refinancing. We could refinance to a 15-year loan and only pay $200 more per month, saving us a great deal over the long haul.

Image source: woodleywonderworks via Flickr

Today, the Federal Reserve released its quarterly report on household wealth. According to MarketWatch, the report contained this information on net worth:

Household net worth fell at a 9.9% annual rate in the first three months of the year to $50.4 trillion, the lowest in more than four years. Net worth — assets minus liabilities — peaked at $64.4 trillion in the spring of 2007, the Fed said in its quarterly flow of funds report.

This is the 7th consecutive quarter that saw a decline in household wealth. While there are some bright spots in the report (more disposable income, lower credit card debt), the fact remains that many people are seeing their overall net worth decline. Home values are declining and investment portfolios are experiencing losses. Since many people have a great deal of their assets tied up in their homes, it is little surprise that the bursting of the real estate bubble has hit net worth. Additionally, with the losses to the stock market, the assets many had in their retirement accounts are dwindling. As I see it, there are two things you can do to reduce the psychological burdens that come with these losses:

1. View your primary residence as a purchase: Instead of thinking of your home as an investment, think of it as a long-term purchase. Consider the intangibles that come with your home (a yard for your kids, your own space, etc.).
2. Remember the long-term value of the stock market: Even though your retirement account may be suffering now, over time stocks gain overall. If you keep investing now, there is a good chance that in 10, 15, 0r 20 years, you will see significant gains.

This still doesn’t change the fact that your net worth may have fallen. However, if you stick with the sound personal finance fundamentals of reducing debt, building your savings, engaging in prudent investing and making your mortgage payments, your net worth will recover — and eventually thrive.

How has your net worth been affected by the recession?

image source: Wikimedia Commons

Sometimes we wonder whether our leaders are like the rest of us. In the case of Treasury Secretary Timothy Geithner’s attempts to sell his home, however, we can see evidence that there are some who are affected by the current housing market troubles — even in their lofty positions. After spending $1.601 million to buy a home in New York in 2004, the Geithners have been trying to sell. Originally put on the market for $1.635 million, the price has come down. CNN Money reports on Geithner’s real estate troubles:

It’s a familiar story as the housing crisis continues to unfold across the country. Indeed, after Geithner’s house sat unsold for nearly 3 months, the price dropped to $1.575 million. Still there were no takers, so Geithner listed it as a rental for $7,500 a month, and has since found a tenant.

But it’s unlikely that even such a steep rent will be enough to cover the mortgage, in addition to the $27,000 in annual property taxes.

Of course, many people facing a similar situation aren’t trying to sell million-dollar homes. And many of them lack a job that pays more than $190,000 a year. At any rate, it is somewhat comforting to know that some of our leaders really are running into some problems.

Going forward, it is important to recognize that a primary residence is rarely what one would call an investment, and that it is indeed possible for real estate to lose value.

image source: Wikimedia Commons

If you have lived in more than one place, you know that your dollar goes further in some locations than in others. Right now, my dollar is going much further in my small Utah town than it went when I lived in Syracuse, New York.

Over at Bizzia Personal Finance, I have a list (from Forbes) of the 10 best cities to live if you want to stretch your dollar. Right now, I offer the Forbes list of the 10 most overpriced cities in America:

1. Los Angeles, California (why doesn’t this surprise me?)
2. Chicago, Illinois
3. Miami, Florida
4. New York City, New York
5. Providence, Rhode Island
6. Riverside, California
7. Long Island, New York
8. Cleveland, Ohio
9. Newark, New Jersy (tie)
10. San Diego, California (tie)

Do any of you live in these cities? Do you feel they are overpriced?

image source: Lucas Janin via Flickr

Right now, there is a lot of talk about foreclosure. Naturally, it is best if you can avoid foreclosure to begin with. Talking to your mortgage lender when you think you are in trouble and working to avoid missed payments is the best way to proceed. But in some cases a foreclosure notice is served, and the process begins before you can really take the steps needed to prevent foreclosure.

It is possible to stop foreclosure once it starts, but it can be difficult. You will have time, however: In most states, the foreclosure process takes between 90 and 180 days, giving you some time to try and save your home before you are evicted. Check your state laws to see how long the foreclosure process lasts, and figure out a plan of action that might help you save your home. Remember: If you have to let something slide, it’s better to miss payments on unsecured debt rather than put your home at risk.

Option #1: Refinance the house

If you have 60% to 70% equity in your home, it is sometimes possible to refinance your home. Your mortgage, plus the missed payment amount, is paid to the bank by the refinancing institution. This requires specialty financing, and can be expensive in terms of fees in some cases. And it can be difficult in this climate to find someone willing to refinance your home.

Option #2: Pay the amount you are in arrears

Your next option is to make up all of your missed mortgage payments. This can be a daunting task. Many banks require an “all or nothing” payment to make up the entire amount you owe. Additionally, it can be even more difficult because you will have to make your current month’s mortgage payment on top of what you are behind with.

Option #3: Payment plan for the amount you owe

Another options is to negotiate a payment plan for the amount you owe. You can get a third-party to help you with this. If you can scrape together a partial payment for what you owe, you can — in some cases — arrange with your mortgage lender to set up a payment plan to cover the rest. This payment plan can be separate from your regular mortgage payment, or it can be added to your mortgage payment as part of a loan modification that extends the term length of your mortgage loan. Missing a payment under such a plan, however, can result in immediate resumption of the foreclosure process.

Option #4: Declare bankruptcy

Bankruptcy should always be the option of last resort. However, there are cases in which you can save your home by going through Chapter 13 bankruptcy — if you qualify, and if only in certain cases. Chapter 7 bankruptcy can delay a foreclosure, but you will still need to save up your money to save the house.

Look at your options and try to work with your mortgage lender and/or mortgage servicer in order to work out an agreement. Unfortunately, because loan modification or stopping foreclosure is voluntary on the part of the mortgage lender, you might not be able to do anything. But you can learn more about your options — and improve your chances of success — by visiting the HUD Web site and getting a list of approved foreclosure counselors in your state.

image source: respres via Flickr

I know everyone is all about whether now is the time to buy, but I’ve already got a house. So, of course, my current concern is whether or not to refinance. Here my refinancing considerations:

1. A lower interest rate would mean less money paid over all.
2. If I kept a 30-year mortgage, my monthly payments would be much lower. I could invest the difference.
3. I could refinance to a 20-year mortgage or a 15-year mortgage, gaining equity faster and paying less interest overall.
4. On the down side, I might have to pay loan origination and other fees, depending on who I refinance with. (Prepayment penalties are not an issue; I won’t have any.)
5. Will I even qualify for a mortgage refinance? We did just buy a car, and we’ve only been in the house for a year and half.

Refinancing: Rule of thumb

The rule of thumb on refinancing is that you should refinance when the going mortgage rate is at least 1% below what you are currently paying. And with rates where they are at, we’re pretty close to that. Our rate is 6.02%, and last week’s rate was 5.04% for a 30-year fixed. 15-year rates are even lower. So it’s looking like it might be a good time refinance. Unfortunately, we haven’t been in our home very long (about 18 months) and we just bought a car. We may not get approval.

But I’m going through the checklist anyway. I want to see if refinancing would be a good idea, so I’m doing my research on refinancing, and on our situation. I’m really liking the 20-year mortgage thing. Using a mortgage refinancing calculator, I discovered that if we get a 15-year fixed mortgage, we would be paying about $200 more per month with a 4.86% interest rate, but save about $19,000 in interest. With a 20-year fixed mortgage, at 4.96% interest, we would actually be paying about the same amount as we are now. And we’d save more than $16,000 in interest. I’ve been leaning toward a 20-year lately, because I don’t know if I want to add another $200 obligation on top of that new-acquired car payment.

Fees and the erosion of refinancing savings

Of course, if there are fees to pay, the savings will be eroded. I think, though, if I call around (especially to the credit union we belong to), I could probably get away with avoiding loan origination fees, appraisal fees, credit check fees and documentation fees. Some of the local banks are really looking to attract business. And even with paying some of the fees, we’d still be saving thousands over the life of the mortgage.

Of course, we still have to get approved. But I think I’ll at least go talk to someone about it. After all, these rates are a once-in-a-lifetime chance.

What do you think? Is now the time to refinance?

One of the big flaps of the John McCain campaign was his recent ignorance regarding how many homes he owns. After doing his best to paint Barack Obama as an elitist (for some reason, we as Americans really, really hate it when people are “elite”), it turns out that John McCain is pretty elitist himself.

The Washington Post has this quote from the Obama campaign regarding John McCain and his homes:

“The fact that John McCain can’t keep track of how many houses he owns is a telling moment that helps explain why he thinks ‘the fundamentals of our economy are strong’ and why he’s just offering more of the same economic policies that we’ve gotten from President Bush for the last eight years,” said Sen. Barack Obama spokesman’s, Hari Sevugan.

Really, his wife technically owns the bulk of the property, but the fact remains that he is certainly reaping the benefits of the good life. Americans care about that sort of thing.

After all, part of the reason that George W. Bush got elected was because he presented himself as someone that “you could have a beer with.” It didn’t matter that he was filthy rich, a Yale man or that he had been living it up — because of the image he presented. So, with the economy front and center, and with people looking at their personal finances, the elitist image raises it’s head again. Only this time it’s not about preferred alcoholic beverages, perceived intellectualism or being a down home kind of guy.

It’s all about who can better sympathize with the financial plight of the ordinary American.

But what makes one a financial elitist? Is there a number that you pass in terms of dollars that makes you “rich”? (There’s an interesting discussion about this at AllFinancialMatters.) Or is being rich merely a state of being, in which you have enough for your needs, many of your wants and some left over to provide for the future?

The other question you have to ask yourself, in terms of your individual financial situation, is this: Who will better understand your personal finances? Both of the presumptive presidential candidates are probably wealthier than you in terms of net worth. It goes without saying that neither can probably really relate to your financial situation.

But, do you think that one of them has a better grasp of the situation and what can be done to help the economy?

image credit: U.S. government

Last year we bought a house, new construction (like all the houses on the street — we’re all original owners). We’ve been slowly improving the property. We wanted to put in a fence, and neighbors on both sides said that they couldn’t afford to chip in. However, they both offered that, if they decided at some point down the road that they wanted to link to the fence, they would pay to do so. By the way, this is what you are supposed to do. If you want to link to someone else’s fence, you should offer to pay.

We built the fence entirely on our property so that there would be no dispute over whose fence it is. Good thing we did.

After less than a year, one of the neighbors moved out and less than two weeks ago we got new neighbors. Recently, we noticed fence posts set up. It was clear that the new folks expected to hook onto our fence. We waited for them to come over and do the right thing. They didn’t.

Last night, they started nailing boards to the bottom of the fence. So, even though they haven’t hooked on yet, it became necessary to have a conversation with the neighbors. It went something like this (awkward):

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The last personal finance tip was about buying a home. And when you do buy that home, the best thing to do is to:

Get a traditional mortgage.

The subprime mortgage crash has taught many of us valuable lessons. One of those should be that “creative” products like ARMs and interest only home loans should be avoided by most people. You’ll be better off with a traditional fixed rate mortgage with a 15, 20 or 30 year term.

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Your most valuable asset is probably your home. But can you afford it?

Buy a home you can afford.

Just because you can get approved for a big loan, doesn’t mean that it is a good idea. Stick with a home you can afford. Do you really need a McMansion?

This post is part of the b5media Business Channel Great Blog Off! Find out more about the Blog Off here: http://www.b5media.com/b5media-blogs-for-a-cause-and-raises-money-in-support-of-charity/

The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion (http://www.accion.org/b5media). Donations are tax deductible.