“It has failed and it has failed miserably,” said Representative Jackie Speier, a California Democrat”

Here’s why:

Since the program started in 2009 1.24 million people have enrolled into HAMP and of those 1.24 million people more than a third have dropped out of the program.  Last month alone 150,000 people dropped out of HAMP bringing the total to 436,000 since the start of this program.  Why is the program, that was estimated to help 3-4 million homeowners, failing so miserably?  The answer to that question is simple: banks gave loan modifications for people who did not even qualify for the program!  Sound familiar?  The Obama administration simply pressured banks to sign up people for HAMP without proof of income, then once in the program people were asked later for information regarding income and many troubled home owners were disqualified or simply dropped out!

According to estimates about 5.7 million home owners are 60 days delinquent in the 1^st quarter of 2010.  Basically, that means 5.7 million home owners have failed to pay their mortgage for 60 days (2 months).  Of those 5.7 million home owners ONLY 1.7 million are eligible for HAMP, leaving 4 million delinquent borrowers left to continue struggling to make payments or face foreclosure.

So really the only thing that this program has succeeded at is getting everyone’s hopes up and then kicking them to the curb.  Thank you, for nothing!

From Mint.com…an awesome personal financial management site, for free. Watch the short video and stay tuned for future releases!

The allure of readily available credit is hard to resist for many as they set off on their financial path. Join our hapless hero, in this all too familiar but somehow forgotten tale of temptation, responsibility, and reward. Like his father before him, he must ascend credit mountain in order to achieve his destiny. Credit gives you the power to make purchases, purchases that will build a credit history and will allow you to make future purchases. But remember, with great spending power comes great fiscal responsibility. Watch, in part one of our animated epic (it’s like the Lord of the Rings but shorter) as our hero succumbs to the dark side. What will happen next?

Greetings! This article serves as both a reminder of and an announcement for the Credit Card Accountability Responsibility and Disclosure Act of 2009, AKA the Credit CARD Act of 2009. We have other blog entries on this topic, and are reminding all that the CARD Act goes into effect TODAY, February 22, 2010.

Now, while this act has been enacted  on February 22, some other important changes went into effect during August, and others will not take effect until August 22, 2010. What this means is to keep an eye open about changes in your credit cards! And watch our BLOG for updates!

Briefly, the CARD act  requires that credit card companies provide disclosure about the majority of their fee generating activities, including: Account Activity, Payment Due Dates, and Transaction details. Some examples of the changes in the new rules are below:

• Except in certain circumstances, the card issuers cannot increase the Annual Percentage Rate (APR) on existing balances for one year after the account is opened.
• Monthly statements are now required to be mailed/delivered at least 21 days before the payment due date. This is an increase of 14 days! Further, statements must show how much interest and fees have been paid during the year.
• Due Dates now must be on the same day each month! This is intended to prevent customers from late fees caused by accidentally missing a due date, because it changes from month to month. But don’t worry, if the due date falls on a holiday or weekend, the deadline is the next business day.
• Now, in certain circumstances, no fees will be imposed for going over the credit limit!
• Also, companies will now be prohibited from issuing a credit card to anyone under 21, unless he or she submits a written application with the appropriate signatures. This is intended to protect college students and other young people from accruing significant credit card debt without the being able to pay them.

Some of the new rule changes for the CARD act can be useful, particularly at protecting those who cannot protect themselves. I am a fan of the change to not issue credit cards to those under 21 and of the changes to the bank statements. However, I am wary of what these changes may affect, particularly the APR, and the possibility of it increasing along with annual fees and lost rewards.

• Injecting capital (money) into the banks that need it.
• Purchasing “toxic” securities (bonds, notes, mortgages, etc.) from banks.
• Supporting banks to give out loans to businesses and people.

However, banks do not receive money just because they exist!  The Capital Assistance Program (CAP) decides who gets money by performing a stress test.  Here are the steps:

1. Banks with undergo stress tests: The stress test, performed on the banks, examines a bank’s capital requirements under two different economic forecasts.  The first forecast will examine the bank’s capital requirement under current average economic conditions of unemployment and the housing market.  Then, the second forecast will suppose that unemployment hits 10% and housing prices fall by another 25%, and these conditions will be used to examine a bank’s capital requirements.
2. If the stress tests indicates that the bank needs more capital, then the bank will have six months to raise the capital requirement in private markets- refers to holding stock in a company that is not public or not quoted on the stock exchange.
3. If unable to raise the capital:  The government will provide the capital required in a form of convertible preferred stock, which is convertible to common equity.  Basically, if the bank cannot repay the preferred shareholders (the government) back in the required time, then whatever is left will convert to common equity.
4. After capital is received:  After the capital is received by the bank, the bank has 7 years to repay the preferred shareholders (the government), and if they cannot do that the preferred stock will covert to common equity.

Thankfully, some of the largest banks (JP Morgan, Morgan Stanley) have already paid back the capital the government has given them, believe it or not.  It seems that the BIG banks are heading in the right direction for financial stability.

Who purchases the “toxic” securities? Both the private market investors and the government will be purchasing the toxic securities or assets under the Public-Private Investment Partnership (PPIP).  The private firms get the money from a select group of investment managers, chosen by the government, which will raise funds to invest into legacy securities (toxic securities or assets).  Whatever amount the private firm raises to buy toxic securities or assets will be matched by the government.  For example, if the private firm raises $100 million the government will match it, and provide the same amount towards buying toxic securities or assets: $100 million.  The partnership calls for the government and private inspectors to co-invest in the purchase of $500 billion of legacy assets (toxic securities or assets) that can grow to $1 trillion.

Once the bad assets or securities are bought the BIG banks can now focus their attention to preventing another crisis like this from happening again.

The objective…to loosen the purse strings for borrowing!

The act, passed by Congress and signed by President Obama Feb. 17, 2009, resulted in the government pumping $787.2 billion into the economy to help stop the longest economic downfall since the Great Depression.  The ARRA hopes to prevent a longer recession by using the $787.2 billion on individual and small business tax cuts, investments in a variety of sectors (science, education, public works, etc.), and aid for states and programs serving individuals (unemployment, insurance, etc.).  Basically the main goal of the ARRA is to jump-start the economy, with the $787.2 billion, and hopefully prevent a longer recession.

Goals of ARRA?

• To preserve and create jobs and promote economic recovery.
• To assist those most impacted by the recession.
• To provide investments needed to increase economic efficiency with technological advances in science and health.
• To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits.
• To stabilize State and local government budgets

Where is the money being spent? Of the $787.2 billion:

• $287 billion will be used in a form of tax cuts and breaks for individuals and small businesses (e.g. “Making Work Pay” tax credit, EITC, and First-time Homebuyers Credit).
• $308 billion will be used for discretionary spending (science, education, energy).
• $192 billion will be used for direct aid to states and for programs that help individuals in need (i.e. unemployment).

For a complete list of all of the government’s spending allocations please visit ARRA Spending.

There are many things that the Stimulus provides to small businesses that may be beneficial: five-year carry back provision, loan guarantees, accelerated depreciation of capital expenses, low tax payments for small businesses and small business owners, and finally, an incentive to invest into small businesses. Talk about a lot of HELP!

Five-Year carry-back provision: This provision allows small businesses to carry-back their 2008 and 2009 losses for 5 years (2003-2004) instead of two years.

Carry-back simply means that small businesses may carry net operating losses back to offset past taxable income.  The definition of a small business in this case is a business that does not exceed revenue of $15 million per year;  if this applies to your business,  then you are eligable for the five-year carry-back provision.  Other businesses that exceed the $15 million per year limit will still be able to utilize the two year carry-backs.

Loan guarantees: In order for banks to regain confidence and begin to lend money to small businesses,  the stimulus act increased its guarantees on loans backed by the Small Business Administration (SBA), and reduced/eliminated administration fees for certain kind of loans.  Small businesses that are eligible to receive SBA loans would apply for these loans directly through its lending company, who will ultimately determine whether a small business receives a SBA guarantee or not.  With the Stimulus provsions, small business loans up to $1.5 million are eligible to receive 90% of the requested amount from the SBA- the previous percentage small businesses were allowed to receive was 75%.  This larger guarantee will likely lead to more small businesses receiving a loans, which the government will fund with $375 million. To view the eligibility for SBA and the different types of loans visit SBA.

• Fun fact: In 2008, small businesses that were start-ups accounted for 35% of all loan guarantees;  minority owned or women owned businesses accounted for 32% and 23% respectively.  Basically if you are a one of the three: start-up business, a minority owned, or women owned business, you receive more loan guarantees than other small businesses.

Capital Expense Write-off and Increased Depreciation Expense: To help small businesses with their tax liabilities, small businesses will now be able to write-off up to $250,000 in capital investments in 2009.  In addition, small business are now allowed to accelerate the depreciation of capital purchases made the previous year. Translation: Small businesses can depreciate items faster, which allows them to receive greater tax deductions now, instead of later.

Lower Estimated Tax Payments: This will require individuals who are small business owners to only pay 90% of last years’ tax liability as estimated taxes, instead of the current /100%110% rate.  This will allow small business owners to retain some extra cash, which does not hurt to have during this economic crisis.

Incentive to Invest In Small Businesses: Investors that help fund small businesses will now be allowed to exclude from taxation up to 75% of their gains if they agree to maintain their investment for a minimum of five years!  By allowing this it should increase the amount of investors willing to invest in small businesses, and the intent is that confident investors will help others, regain confidence in the economy.

  Two benefits provided to individual tax payers through the stimulus act are the “Making Work Pay”-Refundable income tax credit and Expanded Earned Income Tax Credit (EITC).

“Making Work Pay”-Refundable income tax credit:   This credit is very simple to understand.  Basically, ANYONE who is paying taxes will receive this credit with $400 in tax credits going to single tax payers, and $800 going to married couples filing a joint return.  However, there are income restrictions that go along with this credit; for single tax payers their income may not exceed $75,000, and married couples filing jointly cannot exceed $150,000. Further, this is not a tax credit that you see on your tax return. This is actually an increase in take home pay that individuals saw throughout the year through smaller withholding dollars.  Be aware of it, and if your income is on the higher end, be prepared to pay it back!

Expanded Earned Income Credit (ETIC):  The ETIC provides relief in the form of a credit and is for tax payers who are earning less than $58,279.  In order for more people to qualify the stimulus act expanded the eligability by increasing limits and increases in the credit for families with three or more children.  Here is an example of this credit works:  Suppose you make $53,279 and you are a single tax payer with 3 or more qualifying children, the maximum amount of credit you can attain would be $5,657.   

ETIC and “Making Work Pay” Charts will provide you with complete charts that let you know how much credit someone can earn and what qualifications need to be met to earn the credit.

Credit card holders rights just took a turn for the worse.  Some banks, most notably Citigroup and Bank of America, have thought of other ways to make money in lieu of increasing interest rates to fairly new customers; which is just one of the many things that are prohibited under the “Credit CARD Act of 2009.”  Basically, credit card issuers are looking for other ways to offset income losses that will occur  when the full Credit CARD Act takes effect in February of 2010.

Most people these days are cutting expenses due to the state of the economy.  Citigroup is punishing their customers who are cutting expenses by charging a annual fee if they do not spend a certain amount on their credit card; this minimumn amount is around $2,400 a year.  Even worse Bank of America is punishing customers with a annual fee, ranging from $29-$99, even if you have paid your credit card off in time!  You could of never had a late payment in your life and might be charged for it.   You can be punished for being a good citizen.

These changes with fees being charged by the banks are deemed as “experimental,” and are only testing a small percentage of their customer base, and there are no permanent enactments, yet.  With the banks likely to lose some money due to the Credit CARD Act these “experiments” can turn into “permanent” rapidly. It is rare that the banks will revert to “no fee” credit cards any time soon!

What can you do? If you notice you are one of the small percentage of people being charged these fees you can:

1. Call and complain to your credit card issuer.  It would be better if you are in good standing with the creditor
2. Weigh the benefits of the rewards against the fee.  You need to determine if the benefit you receive from the rewards on your credit card exceeds the fee you are being charged.
3. Leave/cancel the card  This should be your last option, if you do not want to pay the fee ,because closing a bank account could lower your credit score.

Make your voices heard to make sure you are not being punished for doing the right thing.  Protect the rights you have as a credit card holder!

Retailmenot.com is dedicated to this whole purpose. Simply go to www.retailmenot.com before checking out, enter the web address of where you are shopping and it will provide you with a list of coupon codes to be entered at check out that can range from free items, free shipping or discounts. Its always worth it to check before completing the order.

Who knows, maybe you can avoid the choas that is holiday shopping this year! and save some money at the same time!

These numbers are FRIGHTENING! March 9th, 2009 marked the date that the future suddenly started to look bright for home owners when the details of the Home Affordable Modification Program (HAMP) were announced.

HAMP is a program that helps financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for the borrowers now and sustainable over the long term.  HAMP will apply to all mortgages originated before January 1, 2009; and is due to expire December 31st, 2012.  This program will allow financially struggling people who are down to get back on their feet again.  This program will also serve as what could be the turnaround in this economic crisis because of the estimated 3 to 4 million homes this program should be able to help while in effect.  If your home is currently notified that it will be foreclosed you can still apply for the HAMP and temporarily stop the foreclosure process.  The HAMP freezes foreclosure process because it is required that all mortgage lenders must review the application to see if you qualify.

Steps to applying:

1. Find out if your lender is participating in the program.  Participation is mandatory for servicer’s of loans owned or guaranteed by Fannie Mae or Freddie Mac.  However, participation in the program is voluntary for all other lenders. Lenders must be qualfied by December 31, 2009.
2. Find out if you qualify for the program.  You can simply fill out a questionnaire that will tell you if you qualify or not by going to http://www.makinghomeaffordable.gov/modification_eligibility.html
3. Apply for HAMP
4. Your mortgage lender/servicer will make a modification offer, or will reject your application.

General Qualifications:

1. You must be the owner-occupant of a one to four unit home.
2. Have an unpaid principal balance that is equal to or less than:  1 Unit: $729,750  2 Units: $934,200  3 Units: $1,129,250  4 Units: $1,403,400.
3. Have a first lien mortgage that was originated on or before January 1, 2009.
4. Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31 percent of your monthly gross (pre- taxable) income.
5. Have a mortgage payment that is not affordable due to a financial hardship that can be documented.

How does HAMP effect interest rates?  First, if accepted into the program your interest rates on the payment will be fixed for a minimum of five years.  At the start of the sixth year the rate may increase no more than one percentage point per year until it reaches the market rate at the time the modification agreement is prepared.  HAMP is so concerned with homebuyers making their mortgage payments that your servicer could write the interest down to as low as 2 percent, if that is what is needed to make sure you can afford your payments.

What’s next? After the application process if you are approved you go through what is known as a trial modification.  A trial modification usually lasts for 3 months (or 90 days).  Basically, after you agree to the terms of modification you MUST make your first three mortgage payments on time in order for you to continue using the program.  If the payments are late you will no longer able to continue the program.
HAMP is a step in the right direction to helping American home-owners regain confidence in making mortgage payments during these tough economic times.  More changes are coming. According to Fox Business,

Facing a rising tide of home foreclosures, the Obama Administration is pushing mortgage servicing companies to more than double the industry’s mortgage modifications by Nov. 1.

Administration officials said the Administration is considering new programs to help jobless homeowners temporarily make monthly payments until they find new employment.

“Nothing is really off the table at this point,” the official said.

The Administration also announced three new HAMP initiatives to keep up pressure on the companies to process more loan changes: First, the Treasury it will begin publicly reporting servicer-specific performance in the program, with the first report to be released Aug. 4. Second, it will work with servicers to set metrics that it hopes will better monitor the success of the program. Third, it will instruct Freddie Mac (FRE: 1.24, -0.13, -9.49%), one of the government’s mortgage-insurance companies, to take a “second look” at declined applications to make sure homeowners were not rejected by mistake.

We will keep you abreast of these changes as they occur!