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12 March 2009

Stock Market Extends Rally

The stock market is managing to rally three days in a row. Is this the beginning of a new bull market or just a bear bounce?

In order for the market to make a sustained rally it is said that the financial sector has to recover and hold its gains. Recently Citigroup and Bank of America have announced profits for the 1st quarter. This is encouraging news, but does it mean a turnaround or is it just an aberration.

In fact, when the government gives a behemoth corporation $45 billion and they turn it into a $8 billion profit, I have to wonder if things are getting better.

At any rate, the stock market has gained 700 points since last Friday. The charts don't necessarily look like a bottom has been made, but a decent money making bounce is in progress.

04 March 2009

Foreclosure Relief Ready to Go

President Obama's foreclosure prevention program is ready to begin saving homeowners. The plan is set to help 4 million owners who are behind on payments by lowering their payments to 31% of income and 5 million owners who are not yet behind on payments, but may be in danger of missing scheduled payments.

The $75 billion plan will provide incentives to borrowers, lenders and investors. The government will also subsidize interest rates.

It is estimated that 8 million homeowners are under water with their mortgages, meaning they owe more than their home is worth. It is unclear if this number is part of the 9 million owners that the bailout plan is supposed to help.

To participate in the program, borrowers must:

  • have obtained their mortgage before Jan. 1, 2009;
  • have a primary mortgage of less than $729,500;
    live in the property;
  • fully document their income by providing tax returns and pay stubs;
  • sign a statement of financial hardship; and
  • go for counseling if their total household debt - including auto loans, credit cards and alimony - totals more than 55% of their income.

The modification program will be in effect until 2012, but loans can only be modified once.

Servicers must try to modify a loan to at least 38% of income and the government will subsidize the rest to 31%. Interest rates can go no lower than 2%.

The new interest rate will remain in effect for 5 years then increase 1% per year until it reaches the original rate of the prevailing rate at the time of modification, whichever is lower.

If the rate modification isn't enough to get the payments to 31% of income the servicer can extend the loan to 40 years or shift principle to the end of the loan with no interest. Also, servicers can reduce the principle.