What happened to personal accountability?

The $700 billion bailout package has raised a lot of eyebrows on Main Street. After all, isn't it Wall Street's fault for making all these risky investments that went bad? If so, why on earth would the government want to use taxpayer money to bail them out? Well, I've listened to a lot of radio commentary and read a whole host of opinons and articles on the topic and I am disheartened by one key thing that is missing in all of these pieces; where is the personal accountability in all of this?

Let me make this a bit more clear for you if you are having trouble following me. If you were walking down the street and a drug dealer popped out and offered you some drugs for free, would you take them? You know it's bad for you even if it is free. You know this decision is not likely to have a good outcome for you, but you decide to give it a shot anyway because everyone else is doing it and the dealer tells you it's good for you and you can handle it.

Is it the dealer's fault that you decided to take something you knew was bad for you? Now we all know that the dealer is a bad guy and should be punished for breaking the law and dealing drugs. But, aren't you also somehwat responsible for your bad choice? Shouldn't you shoulder some of the blame?

By now, you know where I am going with this. Sketchy mortgage brokers and slick Wall Street types told you that you could afford that $500,000 house even though you had not saved for your down payment and you only made $50,000 per year. After all, all your friends and neighbors were doing it, right? Even though it was available to you, you knew it did not make sense that you could get such a loan. But, you took it anyway. Then, when your house rose to $700,000 in value, another slick mortgage broker told you take take a second mortgage for $200,000 so you could put in a pool, go on that nice vacation and buy that expensive car. Or maybe you could just refinance your first mortgage and "Pick Your Payment" so that you could cover the new GIGANTIC mortgage (at least for 12-24 months until the payment adjusted). Hey, you deserve it and everyone else is doing it. Never mind that you couldn't affored the first mortgage payment much less the second mortgage payment.

Now that all of these loans are going bad (not really a shocker, by the way), banks and mortgage companies are going under and the securities issued to allow these silly loans are defaulting, people are trying to blame everyone but themselves. Greedy CEOs, lying mortgage brokers, etc. are the only ones to blame. It's not my fault that my payments are TWICE AS MUCH as my income!!

Why don't people start to take a little responsibility for their decisions and actions. Sure, there are plenty of cases of legitimate fraud, lying, cheating and stealing and the corporations that profited from all of this mess should also be severely punished. But, if that were the only problem, we would not be in this mess. The bottom line is that Americans have spent more than we make for over a decade now (think negative savings rate) and it is catching up to us. So, here is who I blame (in my opinion):

1) Individuals: if you are not diligent enough to read your own loan documents and understand them, then you probably shouldn't be taking on the debt required to buy a house, car, etc. While the small print is mind numbing for sure, the Truth in Lending Disclosure is actually pretty easy to read (shows the costs of the loan and your payments over time). If your paycheck was only $2,000 per month, you can't afford a $4,000 per month payment (now or 24 months from now)! It really is that simple! Spend less than you make (that's called saving, by the way) and don't get duped into believing it's OK to do otherwise.

2) Congress/Federal Reserve: The knuckleheads in Congress and the Fed have promoted easy money for so long now that we all believe we are entitled to it. When a number of Congressmen raised the issue that Fannie and Freddie might be a disaster in the making (in 2004 and 2005), most folks in Congress buried their heads in the sand. "We are meeting our housing objectives" (this is code for people that can't afford homes are getting loans for them - this is also known as "subprime" and the initial shoe to drop in this mess). Even Alan Greenspan (who shoulders a good chunk of the blame for his easy money and 1% interest rates) noted that Fannie and Freddie were a potential ticking time bomb. No one in DC listened and now they want to spend $700+ billion to try to fix the problem (I'm skeptical this will work, by the way).

3) Wall Street/Ratings Agencies: We were all convinced that the smart guys on Wall Street had invented a way to make risky borrowers less risky. Somehow, through financial alchemy, Lehman Brothers, Bear Stearns, UBS, etc. all convinced us that you could take a bunch of risky loans, wrap them up into a nice little bow, slap some insurance on them and call them AAA quality. Then, the ratings agencies, who were being paid to provide ratings on these securities (no conflict there), called them "Investment Grade" which allowed pension funds, retail investors and others to buy them up. As if that weren't bad enough, the investment banks et al decided to borrow 30 TIMES their equity capital to buy these toxic securities (for every $1 of capital they had, they would borrow $30 and buy these bad securities). When it came time to borrow more money as loans came do, the investment banks imploded.

So, what can we learn from all of this? First of all, people need to take responsibility for their own decisions and the consequences for those decisions. If you bought more house than you could afford, you have to live with the consequences of that decision. If you are spending more than you make on your credit cards, that too has a consequence for you. Just because you got a great 0% APR offer (think free drugs - see above) that doesn't mean it's a good decision to load that card up. I fear that the government bailout only reaffirms the dangerous and increasingly pervasive cultural phenomenon that individuals are not responsible for their own decisions. If there is always someone to bail you out when you make a bad choice, then is it really all that bad a choice to make in the future? The corollary to this is that good decisions are not rewarded, but rather penalized (think higher taxes). Until we return to the basic economic principals of freedom, individualism and true capitalism, I fear there is going to be a lot of economic pain in our great country.

Tax Payer ALERT! The Gov't Wants To Bail Out Troubled Homeowners

Is there a tax-payer funded (err... "government sponsored") bailout coming for honeowners? Momentum appears to be building for a broad-based program to bail out folks that bought homes in the boom times and can no longer afford to make their payments (e.g. are approaching or are already in foreclosure proceedings). This has been a topic of much debate. For those that made smart, sound financial decisions (e.g. didn't borrow more than they could afford to pay back, and read the fine print on their mortgage documents, etc.), this seems like it might be unfair since the taxpayers will potentially be bailing out these folks. But, as the outline below reflects, the current debate in Congress revolves around structuring a compromise that enables any eventual program to pay for itself. P2P-Loans.com is encouraged by some of the provisions being discussed (especially the payment of insurance premiums to the FHA and a sharing in any equity gains to homeowners upon a sale). We would hope that the equity gain sharing is substantial and not a pittance given any gain will be made entirely on the backs of tax payers (errr...the "government-sponsored" program). Generally speaking, the government has a terrible track record on projects like this (they underestimate the total costs, botch the execution and mess up a market-based system that works pretty well in the long run).

Here is a summary (from an article at Money.com) of what's being debated (P2P-Loans.com will report back on this issue once a program is passed):

While critics worry that an FHA rescue plan could amount to a bailout, supporters say it's not since everyone involved - lenders, borrowers and mortgage investors - would make a sacrifice.

Lenders get 100% backing from the FHA if a loan goes south. In exchange, the lender takes a "haircut" - reducing the principal owed and converting adjustable-rate loans to fixed-rate mortgages.

Borrowers get to keep their homes, but they would pay a premium to the FHA for the mortgage insurance and they would have to give a small portion of their equity to the FHA when the house is sold. They would also have to show they can afford the newly refinanced loan.

Mortgage investors - while they would sacrifice some future income from loans that have been reduced - would have more confidence investing in the new loans since the refinanced loans will be affordable and the borrower therefore will be more likely to pay them back.

Rebate for the Rich? Stimulus Plan Has Something For the Wealthy, Too!

P2P-Loans.com came accross this Fortune magazine article and thought our readers might like to know more about the stimulus plan (even if you don't qualify for the rebate check, READ ON). In a previous blog post, we wrote about the tentative stimulus plan (at the time of our posting it was not a done deal) and what it might mean to taxpayers. But, we didn't know about the details (and impact) of the change in the conforming mortgage amounts (discussed in the article below). The bottom line is that if you are an owner of an expensive home, but do not qualify for the tax rebate, this could be a huge money saver for you!

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A gift from the Beltway

High-income folks like me don't qualify for rebate checks. But we're getting so much more.

By Allan Sloan, senior editor at large
(Fortune Magazine) -- I won't be getting an economic-stimulus tax rebate check, but I'm not complaining about it. Not only am I fortunate to make too much money to qualify for a rebate, but I'm getting something far more valuable than the maximum $1,200 my wife and I could have gotten. Thanks to a relatively little-noticed portion of the stimulus package, we'll be able to refinance our house more cheaply than we otherwise could, or presumably sell it for more.

This means that higher-income couples like us who don't qualify for rebates because we have adjusted gross income of more than $174,000 ($87,000 for singles) are arguably getting a better stimulus deal than the 130 million taxpayers to whom Uncle Sam is sending payments.

Let me take you through it. The stimulus package raises the maximum size of a "conforming" mortgage to $729,750 from the previous cap of $417,000. A conforming mortgage is a mortgage that can be sold to Fannie Mae (FNM) or Freddie Mac (FRE, Fortune 500), and it carries a lower interest rate than "jumbo" loans that exceed those limits. Similarly, the maximum mortgage that can be insured by the Federal Housing Administration has also risen to $729,750. For people in high-home-price areas, including mine, these maximum mortgages are now high enough to matter.

Doing the math
Being able to borrow $417,000 on the cheap doesn't help much when you're hoping to sell or refinance your house for, say, $750,000. But a $729,750 limit works out just fine. This higher limit translates into cheaper refinancing or a higher sales price, because the lower interest rate means buyers can presumably afford to pay a higher price.

If we assume a 5% down payment, we're talking about houses in the $450,000 to $765,000 range becoming eligible for these loans. The range rises if people make larger down payments or put second mortgages on top of these loans.

We're talking major money here, folks. In today's market, the interest difference between a conforming loan and a non-conforming loan for a 30-year fixed-rate mortgage is a whopping 1.27% a year, according to Keith Gumbinger, a vice president at HSH Associates, a mortgage research firm. So a $700,000 conforming loan at 6.01% would carry almost $9,000 less annual interest than a nonconforming loan (at 7.28%).

Gumbinger says that's an artificially high difference caused by the current freeze-up in credit markets. "The spread was about 20 basis points [20-hundredths of a percent] before things got ugly in June," he says. So even if normalcy returns - alas, that doesn't seem imminent - having a $700,000 conforming mortgage would cut a borrower's interest costs by $1,400 a year. Call it $1,000 a year after taxes if you itemize. That's worth much more than a one-time $1,200 nontaxable rebate payment.

READ THE REST OF THIS ARTICLE ON FORTUNE.COM...

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Free Software & Other Stuff - No Need To Pay Anymore (PhotoShop, Google, Tax Prep, Coupons and More)!

There is nothing like free to get my blood flowing. There is a reason that this single word is one of the highest cost words on Google AdWords since I don't know of anyone in this world that doesn't like free stuff. So, I thought I would try to summarize some of the coolest free stuff I've found on the web (mostly software, but there is tons of free stuff that everyone should know about). Please feel free to add cool, free stuff you've found in the comments section.

Free PhotoShop Software
Adobe USA (the parent company of Photoshop) just announced a free version of its famous Photoshop software online, Photoshop Express! I've used Photoshop for years and can tell you it is a truly excellent program. In fact, they are also throwing in 2GB of free online storage so you can upload your pictures and use the free software.

Google Apps
It seems like Google is adding something new to its free online applications on a daily basis. Google offers some of the coolest applications on the web. From the more boring stuff like Google Docs and Spreadsheets to really cool stuff like Google Picasa, Google SketchUp (really cool 3D software), and, of course, the best of all, Google Earth (WARNING, if you download Google Earth, I can promise you endless hours of lost productivity).

Free Tax Prep Software
I wrote about this in an earlier blog post, but wanted to touch on it again since we are rapidly approaching the dreaded April 15th. Why pay for this service when you can get it for free (if you meet certain income levels). If you can't get it for free because of your income, check out the tons of low cost online options (that's what I use). P2P-Loans.com has also created a quick and dirty webpage to give you a few good options on the Tax Prep software side of things.

Coupons (online and offline)
You have to be careful when searching the billions of free coupon sites on the web because it's very easy to get lost. But, never buy anything online without a coupon. It's as simple as searching Google for "Name of Store/website Here" + "coupon code". For example, I recently bought something at Dick's Sports at their local store. I found a great printable $10 off any $25 purchase coupon. I've used this coupon 10 times already saving me $100 in total! I bought my wife a present from Nordstrom's the other day (online) and saved 25%! This is free money, people, so don't miss out. It only takes 2 minutes to find a legit coupon.

Other: Endless Hours of Searching for Free Stuff
There is no shortage of websites that offer free stuff, so I would encourage you to search for this stuff online (Click Here to get started). I've actually found some pretty neat things online, so I would encourage you to check it out. Good luck, happy hunting and thanks for checking us out.

GOOD NEWS - Your Home's Value is Falling! (huh?)

The rapid decline in housing values has been a bit shocking for many folks and has resulted in a lot of lost wealth (did we ever really have that money to begin with)? According to Standard and Poor's Case-Shiller index, home prices have dropped an average of 14% since March 2007 and more than 30-40% from the peak in some areas (viva Las Vegas condo living). But, there is a silver lining in all of this morass - your property taxes should be falling, too! In Florida, for example, property taxes have soared along with home prices. A $500,000 home in Tampa, Orlando or Miami, which is a 3-4 bedroom home in a reasonably nice area (hardly a mansion) will set you back some $10,000 in taxes per year (yes, you are renting your home from the government despite being told you are a "homeowner" - but that's another posting)! That same house would have cost you $200,000 and $4,000 per year in taxes a recently as 2002 and is now worth $400,000 or less (if you can find a buyer).

But, there is a catch! It's not the "true value" of your home that matters when it comes to taxes, it's the assessed value. This is where it gets tricky - places like California have wierd laws such as Proposition 13 and Proposition 8, which serve to confuse the heck out of homeowners. I have a friend that had to take his local property appraiser to court TWICE! in order to get his property taxes reduced. He won on both occasions, but it was not without a fight. In this time of strapped municipal budgets and a slowing economy, I would encourage you to do your homework and be sure that your property is assessed at the proper value since your government is more likely to leave your values too high. With prices expected to continue to fall over the next 1-2 years (especially in once hot markets like Florida, Las Vegas, California, etc.), now is a good time to make sure you aren't paying your local government too much of your hard-earned money.

If you'd like to learn more about your state's property tax system, go grab a six-pack and get hammered because you must be crazy...just kidding. You can visit http://www.assessor.com, which offers quite a bit of information on this topic as well as links to many local property appraiser offices. If your office is not on this page, head to www.P2P-Loans.com and use the Google search box at the bottom of the page. Enter "'your county name' property appraiser website" and you will most likely see your local site pop up.

What Does the New $150 Billion Fiscal Stimulus Package Mean to You?

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Today, Congress and President Bush announced a tentative agreement on a fiscal stimulus package to help avoid what many believe is an impending recession. So, what does this package mean to you? Well, there is something in this package for most everyone except for folks that make more than $75,000 (singles) or $187,000 (married couples, although the rebates are phased out beginning at $150,000 of income). Here's the quick and dirty:

Approximately 117 million American families will get some tax rebate including low income workers that currently pay no income tax (although they do pay payroll taxes).

Individuals would get rebate checks of $300 to $1,200 depending on a number of factors including income level and number of children in a household. Low-income workers who earned as little as $3,000 and paid no income tax would also get rebates. Workers who paid income taxes would receive up to $600 in rebates, or $1,200 for a couple. Taxpayers with children would get an extra $300 per child.

Businesses also get in on the action; they would get a 50% write-off on capital investments made in 2008. This is likely to help create some number of new jobs this year, so say the politicians.

Finally, the package provides for the definition of a "Jumbo" mortgage to change such that mortgages that are the larger of $417,000 or 125% of the median home price in the area. This is significant because it will reduce the costs of homeowners who need to take out a jumbo mortgage to pay for a loan (thus helping the flagging real estate market).

All in all, this looks like a reasonable plan. I am sure some will argue that folks that don't pay income taxes should not get a rebate (fair point). The other side will argue that these folks need the help the most. Whether you like this package or not, it should help give the economy a short-term boost.

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