Resiliency of hope

Hope Now is a non-government coalition of mortgage industry professionals whose primary goal is to prevent foreclosures. The group operates a toll-free hotline that provides free counseling and guidance to at-risk homeowners. Hope Now counselors are trained to help homeowners understand their particular situations, and the foreclosure prevention options available to them.  

It also manages a letter campaign that reaches out to individuals who may be in danger of losing their homes. These letters have successfully encouraged thousands of homeowners to contact their mortgage providers and negotiate loan workouts.

Promising milestone

In October, Hope Now announced that the mortgage industry had reached an encouraging milestone: 212,000 foreclosures were prevented, just during the month of September alone. The bulk of these preventions-some 113,000, were achieved with repayment plans; the remaining 98,000 involved loan modifications.

The industry, aided by the alliance's efforts, has averted roughly 1.6 million foreclosures this year, already exceeding the 1.5 million homeowners that received workouts in 2007.

An uncertain future

Despite the efforts of Hope Now and others, certain challenges continue to impede the progress of foreclosure prevention. It can be difficult, for example, for mortgage servicers to obtain approval to forgive debt or alter the terms of a loan. Because mortgages are pooled and sold off in shares, servicers may first have trouble tracking down who actually has the authority to approve the modification. And even when the right decision-maker is located, cooperation may not be forthcoming.

That may be one reason why repayment plans are outpacing loan modifications. The former gives the homeowner the right to pay back past-due amounts over time. In this scenario, no changes to the original mortgage are necessary. But homeowners must have sufficient income to participate.

Repayment plans and loan modification workouts aren't intended to be temporary stays against foreclosure; they're supposed to be long-term, realistic solutions. Creating such solutions can be problematic in situations where the home's value has decreased significantly below the loan balance, or when the homeowner simply doesn't have the income necessary to support the debt payments, even after the loan has been modified.

These factors are, unfortunately, still creating momentum for the foreclosure crisis. Realistically, Hope Now and the mortgage industry may not be able to stop that boulder-but they remain dedicated to pulling more and more homeowners out of its destructive path.

Housing prices attractively low

The improved home sales can likely be attributed to attractively low housing prices, as the median price of a new house on the market is down almost 10 percent from last year's levels.  That means that new homes are cheaper than they have been since the end of 2004. Other encouraging news for housing prices also came in the form of a report that home sales of existing houses also rose.

In September, they climbed by 5.5 percent, racking up the best monthly gain in more than five years, and giving real estate professionals reason to become genuinely optimistic about a possible housing bottom.

Pending sales on the rise

The National Association of Realtors says that the number of sales pending grew from July to August, and that is yet another piece of good news for the housing market.

The good news was met with restraint, however, because it was based on statistics that were compiled before the stock market crashed in October. Until economists have more time to verify a pattern of gains, it's probably premature to start talking about reaching a valid housing bottom. Any positive news is welcome at this point, though, and with interest rates low, and both new and existing homes available at fire sale prices, buyers are definitely paying attention. Sales rose by more than 22 percent in the western part of the country, where some of the steepest price declines have been recorded.  They also improved in the south.

Sign of good things to come

Perhaps the most important signal of a potential housing bottom is that the inventory of unsold homes seems to be shrinking. Builders are continuing to cut back on the number of homes they build, in an effort to eliminate some of the burdensome excess. Their strategies are helping, because within the past couple of months, the nation has seen the fewest number of new single-family homes in 26 years, as the volume of permits to build fell, indicating future shrinking of the construction sector.

But new foreclosures are coming online every week, and that could offset any shrinkage in the number of listings. To add insult to injury, housing prices are so low compared to a few years ago, that 7.5 million homeowners owe more on their mortgages than their homes are worth.  That could translate into more foreclosures flooding the market.

The sky is falling

The mortgage industry isn't what it used to be. Defaults are astronomical, and foreclosures continue to rise. Housing values are still sliding, and banks are saddled with properties they can't sell. Illiquid mortgage-related securities threatened to shut down our financial system. And now that lenders have realized the problems associated with exuberant lending, they've overhauled their underwriting requirements, leaving many qualified borrowers without access to funds.

A return to personal savings

Amid this chaos, consumers are cutting back on spending, and adding money to their savings. While this trend may slow down an economic recovery in the short term, it's a positive development for the long-term financial health of American households.

The U.S. Bureau of Economics tracks a metric known as the personal savings rate; this is the percentage of one's income that's saved rather than spent. Between 2002 and mid-2004, the personal savings rate in this country hovered around 2 percent. In 2005, the rate shrank to 1 percent, and then turned negative mid-year. A negative savings rate indicates that Americans outspent their income, using debt to fill the gap. Between 2006 and early-2008, the rate remained depressed, only ticking more than 1 percent in one quarter.

In the second quarter of 2008, the personal savings rate jumped dramatically to about 2.7 percent. That's the highest it's been since 2002. It's likely that the data was influenced somewhat by the economic stimulus checks that were mailed out to taxpayers earlier this year. But even so, the change indicates a movement towards more prudent financial management.

Stability in the making

Broad-based growth in personal savings has its advantages. Financially stronger consumers are less dependent on credit cards, and better able to manage through unexpected circumstances. Plus, increasing bank deposits can fuel job growth-as banks have more money to loan, businesses will have an easier time financing their growth initiatives.

Of course, these positive impacts won't be felt in the here and now. In fact, the near term effect is likely to be negative. When consumers spend lower percentages of income, businesses feel it in reduced sales and profits. That's a reality that can't be avoided.

The LA Galaxy is now tasked with retooling the team in the off-season for bigger and better things next year. Hopefully, the growth in personal savings will help the U.S. economy make its own comeback, too.

Blueprint for change

Last March, the Department of the Treasury published a weighty document entitled Blueprint for a Modernized Financial Regulatory Structure. The report called for a massive overhaul and consolidation of the multiple government agencies currently tasked with regulating different segments of the financial industry.

Few would disagree with the contention that the existing regulatory system has its inefficiencies. But even so, Blueprint was not widely supported. Proponents had a variety of complaints: the proposal lacked any power to alleviate the current crisis, the regulatory system wasn't broken and didn't need to be fixed, the production of the document was politically motivated, and so on.

That was eight months ago. Since then, an already weak financial industry has faced several significant events. Lehman Brothers went bankrupt, AIG was bailed out by the feds, Washington Mutual became the largest bank failure in U.S. history, and the Treasury Department was authorized to purchase worthless mortgage-related securities en masse.

A starting point

As the mortgage meltdown drags on, the voices calling for regulatory reform are getting louder and greater in number. At some point, legislators will have to tackle the issue head on. When they finally sit down to hammer out the options, Blueprint will probably get a second look-if only to serve as a starting point for the discussion.

One of Blueprint's primary arguments is that the current regulatory system is too fragmented to provide a consistent level of oversight. The document recommends consolidation, replacing highly focused agencies with streamlined, multifunctional units that have broader scopes of authority. Some key parts of the strategy include:

• Establishment of a federal Mortgage Origination Commission (MOC) that would support state licensing and regulation of mortgage originations

• Enactment of federal legislation that specifies licensing qualifications for the mortgage industry

• Consolidation of federal banking regulation into one agency that would be supervised by the Federal Reserve or FDIC

• Creation of a federal charter system and regulatory agency for insurance companies

• Consolidation of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC)

• Organization of financial industry regulation under three agencies (market stability regulator, prudential financial regulator, and business conduct regulator), which would be supported by the FDIC and a corporate finance regulator

In short, Blueprint argues for a sweeping overhaul of the regulatory framework. It's up to lawmakers to decide if the concept is workable, or if some other solution might be more appropriate. In any case, they'll have to do something-because at this point, the mess is too big to ignore.

Citigroup becomes the latest to announce a foreclosure moratorium and extensive loan modification program. In a recent statement Citigroup says it is halting most foreclosures as it attempts to modify about $20 billion in mortgages.

Citigroup's plan involves reaching 500,000 homeowners in the next six months, targeting borrowers that are at risk of falling behind in their mortgages. Citigroups says it will not only try to help homeowners with mortgages that Citigroup directly owns, but also mortgagees that it services on behalf of other lenders.

The Citigroup announcement follows similar programs launched by its rivals. JP Morgan Chase began its loan modification program in late October, attempting to prevent foreclosure on loans as it works out $110 billion in troubled mortgage assets. Meanwhile, Bank of America says it has already modified 226,000 loans this year, include many from its Countrywide acquisition.

These loan modification actions can't come fast enough. A total of 765,558 homeowners received a default or other foreclosure action notice in the third quarter of this year.

Each of these large banks seem to be using similar strategy to maximize the effectiveness of their loan modifications--targeting borrowers that live in their homes and have sufficient current income to pay more affordable mortgage payments.

JP Morgan's loan modification program will assist 400,000 homeowners with $70 billion in mortgage work-outs over the next two years. This is in addition to the 250,000 borrowers and $40 billion in mortgages that have already been refinanced under the existing loan modification programs. These programs include mortgages in the recently acquired Washington Mutual, EMC, and Bear Stearns.

Bank of America has launched two similar programs to reduce $11 billion in mortgage payments, to include Counterywide--covering more than $120 billion in outstanding balances.

FDIC Chairman Sheila Bair continues to strongly advocate a plan to guarantee these types of mortgage modifications, helping to stop foreclosures. The significance of this plan is the impact it will have on stemming the continued flood of bank sales on the housing marketing--pushing down housing prices. Bair's plan would include using $50 billion of the $700 billion Troubled Assist Relief Program (TARP) already approved by Congress and the President.

It looks like loan modifications are becoming the consensus mortgage meltdown rescue plan, with or without the government endorsement.

Illegal evictions

According to the sheriff, many of the evictions he was sent to enforce were not legal, because mortgage companies failed to comply with eviction rules.

"These mortgage companies only see pieces of paper, not people, and don't care who's in the building," Sheriff Dart told reporters. "They simply want their money, and don't care who gets hurt along the way. On top of it all, they want taxpayers to fund their investigative work for them. We're not going to do their jobs for them anymore. We're just not going to evict innocent tenants. The people we're interacting with are, many times, oblivious to the financial straits their landlord might be in. They're the innocent victims here, and they are the ones all of us must step up and find some way to protect."

Local foreclosures and evictions

The Illinois Bankers Association objected, protesting that Dart was elected to uphold the law and execute the legal duties of his office, which include serving eviction notices. The banker's group insinuated that the sheriff was acting like a vigilante, and could be held in contempt of court unless he resumed enforcement of court-mandated eviction orders.

Evictions were suspended October 8th, and then resumed about 10 days later, after a deal was struck between the sheriff's department and the local court. Sheriff Dart succeeded in his original goal of protecting innocent tenants, and foreclosure evictions will now include these provisions:

• The bank must provide the court a detailed description of the building, and names of all occupants at the time of the initial foreclosure filing.

• Banks must provide a date that their representatives last inspected the property.

• Banks must prove that they informed tenants of a 120-day grace period.

The stipulations ensure that mortgage companies will follow the law before ordering a foreclosure eviction, and that tenants losing homes due to mistakes of their landlords are given as much notice as possible. To help tenants affected by a sheriff's sale to find alternative housing and get other services, Dart also plans to employ a full-time social worker.

Foreclosure workouts not successful

Other sources report that the total number of workouts-or successful renegotiations of mortgages to save homeowners from foreclosure-has actually fallen. These days, about 200,000 homes per month enter foreclosure, in neighborhoods all across the nation. One of the most disturbing indicators is that foreclosure data gathered by some experts shows an increase in foreclosure activity of nearly 20 percent in the month of August alone.

Initiatives like Hope Now, which is a voluntary coalition of mortgage industry representatives and housing advocacy groups, were originally launched to target subprime borrowers. Last year, when the first signs appeared that a housing rescue was needed, most industry observers thought that the problem was isolated to the subprime sector, where high cost loans were made to millions of people with bad credit. But earlier this year, the problem of massive defaults spread to the Alt-A category of mortgages. These are loans made to people who have good credit, but don't require strict underwriting to verify income and assets. Soon, Alt-A loans became so troublesome, that Fannie Mae stopped trading in them, a move that shocked the industry.

A spreading mortgage virus

The crisis was, however, far from finished. Finally, the same kinds of default problems that plagued lower quality loans spread to the prime loan category, as well. Now, even those cream of the crop loans made to people with adequate income, strong assets, and excellent credit are heading to foreclosure, and need their own mortgage bailout plan. But most economists agree that the national credit crisis can't be resolved until the housing market stabilizes, when foreclosures are halted and home price declines level off. The outlook is anything but good, and predictions are that the housing rescue will have to continue for at least another year. That view is validated by the respected Standard & Poor's/Case-Shiller housing index, which charts housing activity. The Case-Shiller index reveals the worst housing and home construction market in recorded history.

When the Hope Now alliance was first formed, many critics pointed out that efforts to rework loans were voluntary and that investors would not go along for the ride because it meant financial losses that they weren't willing to accept. Congress was reluctant to demand compliance, and now it appears that critical time was lost, as the avalanche of foreclosures has gained momentum.

Lowering home energy costs

You can't blame the typical U.S. consumer for being confused.  After all, this consumption-based society has problems grasping the concept of "saving."  What Americans do understand, however, is simple economics.

With inflation rising, and a financial crisis impeding lending, consumers are looking for ways to lower energy bills.

Energy efficiency is a perfect place to start.  Don't confuse "efficiency" with "conservation," even though you should practice both.  Efficiency doesn't require reducing your energy usage by behavioral change, such as switching off the lights when you're not using them (as unreasonable as that may sound).  Efficiency refers to using less energy to accomplish the same task.

Affordable ways to save

There are a number of affordable energy savings tactics that don't cost much at all:

• Get with the program: For $35 to $50, you can buy a simple programmable thermostat.  It automatically adjusts your furnace temperature when you're not home or sleeping.  Savings can equal 1 percent of heating costs for each degree you lower the temperature per eight hours.  The thermostats are also relatively easy to install.

• Seal the deal: For $10 to $15, you can seal gaps around windows and doors with sealants and insulating foam.  To check for gaps, turn off the furnace, close windows and doors, and run the exhaust fans in your bathrooms.  Then hold an incense stick up to the edges of doors, windows, and chimneys.  If there is a leak, the smoke will be sucked out.

• Go fluorescent: Swap your standard incandescent bulb for a compact fluorescent one.  Fluorescents can last up to 10 times as long as standard light bulbs, and use less energy to power.  The savings can equate to as much as $30 per bulb, which will more than pay for itself in the end.

Home energy costs are rising, but there are economical ways to achieve lower energy bills.  Start small with energy savings techniques.  A little bit here and a little bit there will help a great deal.  Consumers have officially migrated to energy efficiency.  It's one trend that you can't afford to miss.

Tell us some of the things you do to help lower your energy costs in your home.  We'd love to hear what you have to say!

Getting hit from all directions

Parents can try to shelter their children from the woes of the economy, but it may be tough. The combined impact of rising unemployment, slowing consumer spending, tight credit markets, and volatile equity markets can affect kids of all ages in a variety of ways. For example:

• Less free time. Teens may be forced to get part-time jobs to contribute to the family budget. Typically, working youths are less likely to get into trouble-but they'll also feel the stress of balancing a job with homework and social activities.

• Fewer choices after high school. Gone are the days when parents could fund a private school education with home equity debt. Many high school students will find their options for college are far more limited than they might have been just two years ago. The problem is exacerbated by the condition of the equity markets. Those students who had sizeable college funds may have seen their account balances decline significantly in the past 12 months.

• Stressed-out parents. Some studies indicate that domestic violence increases when economic conditions are bad. Family members get laid off and spend more time at home together; tempers flare as everyone tries to adjust to the new situation. Stress can also build if one parent is working two jobs. Lack of sleep combined with feelings of despair can contribute to family arguments that quickly spin out of control.

• New living situations. Foreclosure is still an epidemic in this country. The kids involved have to absorb the stresses of relocating, and possibly switching schools. Inevitably, they'll have to explain to someone why they're moving-which is awkward conversation even for an adult to have.

Stability is the key

Unfortunately, there's no formula that protects kids from the stresses of a bad economy. Parents have to focus on keeping the home life as stable as possible, no matter what happens. Younger children won't understand what's going on, and they'll need reassurance that they haven't done anything wrong. Teenagers will benefit from seeing their parents making responsible budgeting decisions to manage the crisis. Most importantly, parents should resist the urge to lash out under the stress. Kids don't need to see their parents reacting violently or irrationally to circumstances that they can't control.

In this changing economic climate, most American households will have to make adjustments. Parents have the added responsibility of keeping emotions in check, and insulating their kids from excessive stress. Family turmoil is fine for prime time TV, but that's where it should stay.

Let us here what you have to say!!

The numbers are in

Two recently published surveys indicate that a large number of American workers are living the paycheck-to-paycheck lifestyle. More than 70 percent of the respondents in the National Payroll Week's 2008 "Getting Paid in America" survey indicated that it would be 'somewhat difficult' or 'very difficult' to get by if their paycheck were delayed for one week. Similarly, a CareerBuilder.com survey revealed that 47 percent of Americans are on a paycheck-to-paycheck schedule.

Characteristics of paycheck-to-paycheck living include:

• No emergency cash fund

• Using credit cards to cover unexpected expenses

• Spending every dime of one paycheck before receiving the next one

• Putting off paying bills until the next paycheck arrives

This lifestyle doesn't leave you any breathing room for unexpected expenses. If a car accident or legal problem taps out your available credit, you may have trouble paying for essentials, like food and gas.

Getting out of the maze

Breaking out of the paycheck-to-paycheck lifestyle requires commitment on your part. You have to be willing to stick with a more frugal financial program for the long haul, even if you can only increase your savings by $10 or $20 a month. And if you have debt, you'll have to find a way to pay it off.

There are only two ways to make a positive change in your financial situation: earn more, or spend less. In some situations, it might make sense to hold down two jobs temporarily. Look for a second job that's ultra flexible, such as blogging for cash, or selling your old toys on eBay. Send every penny you earn to your credit accounts first, and to your savings account second.

You can spend less by doing without the things you don't need. For example, you don't need to go to the movies every Friday night. And you don't need to have unlimited voice and messaging on your cell phone, plus call waiting and caller ID on your home phone. In addition, you might want to replace that gym membership with a good pair of running shoes.

Another tactic is to have money transferred automatically from your checking account to your savings account. Ask your bank if you can schedule the transfers to occur the same day your paycheck arrives.

Finally, if you get a raise at work, send the extra cash to your savings account. You can wait until your next raise to increase your standard of living.

You can't keep feeling like a lab rat forever. It's time to get frugal and start saving your money.