Home Prices Drop 18.6 Percent in Feb.

In another sign the housing crisis could be reaching the bottom, home prices dropped sharply in February but for the first time in 25 months the decline was not a record. The Standard & Poor's/Case-Shiller index released Tuesday showed home prices in 20 major cities tumbled by 18.6 percent from February 2008.

Index shows housing prices falling by 18.6 percent in February, but didn't set annual record.

All 20 cities in the report showed monthly and annual price declines, but half recorded annual records. In fact, Phoenix home prices have lost more than half their value since peaking in July 2006.

"We will certainly need a few more months of data before we can determine if home prices are finally turning around," said David M. Blitzer, chairman of the S&P index committee.

Existing home sales fell just 3 percent from February to March, and new home sales seemed to have hit bottom. Consumers overall are becoming more optimistic about the economy.

By J.W. ELPHINSTONE AP Real Estate Writer
NEW YORK April 28, 2009 (AP)

Sources:
ABCNews

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Federal Loan Or Private Student Loans

Congratulations. You got into college and start in the fall. Now comes a bitter dose of reality. Perhaps the value of your parents' college savings has tanked and maybe the home equity loan they'd been counting on to cover tuition didn't go through and the summer job you thought was in the bag didn't materialize after all.

"Federal loans are cheaper, they have fixed [interest] rates as opposed to variable rates and they're more easily available" than private student loans, says Mark Kantrowitz, publisher of FinAid, a Web site that tracks the college financial aid industry.

Whatever the reason, millions of students rely on student loans to pay for some or all of college. In total, two out of three leave college with student debt. The average: A sobering $22,700 per graduate. (At least they have a degree to show for it; half the students who enter college never graduate, though many are still on the hook for student debt.)

Often, it takes these newly minted graduates one to three decades to pay it off. Given how much, and how long, the commitment is, it pays to know what you're getting--and whether it's the best deal going--before you sign any loan papers.

There are important distinctions between federal and private student loans, but they have one thing in common: neither is likely to be forgiven if you have to file for bankruptcy, making them lasting financial commitments. Unless, of course, you pay them off.

Before you take out a loan, throw aside the cliché that "college always pays" and ask yourself some tough questions. Will salaries in your desired field of study allow you repay the loan?

Put away the rose-colored glasses too. While every law student dreams of making $175,000 as a first-year associate, the reality is that very few earn those eye-popping salaries. Let a large salary be a pleasant surprise, rather than a requirement to pay off debt.

Research the average pay of the field you've chosen by going to the Bureau of Labor Statistics, a federal office that publishes the Occupational Outlook Handbook. Here, you'll find information on projected earnings, expected growth rates and typical work environments for most occupations.

Next, ask potential lenders for monthly loan repayment estimates in writing. It makes little sense to take out $100,000 in student loans to go into a field where you will be making $20,000 a year.

To make sure that you're not getting in over your head, limit the total amount of student debt you take on to the salary that you expect to make the first year out of college. That way, your monthly payments will likely be less than 10% of your take-home salary.

The right choices can save you thousands of dollars from the loans.

What to do if the numbers don't add up? See if there are other ways to finance some or all of your education. The first, and best, way is to limit what you pay in the first place. That means searching for scholarships and grants that may reduce the costs of college. The federal government lists grants (which do not have to be repaid) at studentaid.ed.gov. Private Web sites, such as FinAid, FastWeb and NextStudent, list scholarships.

Once you've minimized how much you'll have to borrow, it's important to keep in mind that there are two main types of student loans: those backed by the federal government and those issued by banks and other private lenders. In almost all cases, federal loans are the better deal for student borrowers.

One key difference between federal and student loans is how they charge interest. All federal loans written after July of 2006 have a fixed-interest rate, which means that the rate that you are quoted will not change for the lifetime of the loan. Private loans, in contrast, typically carry variable interest rates, meaning that they often reset every quarter based upon the interest rates that banks pay each other. Lenders will then add a percentage on top of this baseline rate to your monthly payment. There is no legal limit to the interest rate that private lenders can charge you.

The average private loan currently carries an interest rate of 12%, which is about double what federal loans charge, Kantrowitz says. Though both federal and private loans accrue interest while you are in school, you generally won't have to begin making payments until six months after you graduate.

The best bet? Don't let your enthusiasm for college overwhelm you. Instead, be methodical and have your parent or trusted adviser read over everything and render a second opinion. read more...

Sources:
David K. Randall from Forbes.com More on this article...

Is it time to buy American Express?

American Express is feeling the consumer's pain. In the fourth quarter of 2008 the credit card giant's earnings fell 79% from the year before as consumers spent less, more customers failed to make payments, and charge-offs for unrecoverable debt increased.

Of its four main businesses - including international and corporate credit cards, and expense management - the U.S. credit card business has been hit hardest.

The credit card giant has been hit hard by consumer woes, driving the stock down to 1997 levels.

To adjust, the company has slashed expenses and reduced credit limits for some cardholders. But still, its stock, down 52% over the past year, now trades at 1997 levels.

Is AXP (AXP, Fortune 500) a value at this price? We asked two analysts for the answer.

Bear: Don Fandetti, Citigroup

The first words out of any investor's mouth about American Express are, "They grew too fast from 2005-07." We rate it a hold.

They have more exposure than other credit card companies in hard hit regions like California and Florida. And they tend to service the higher-end consumer. That's where this downturn is different than others. Spending, in particular discretionary spending, is slowing on the high end.

One key is that AmEx did not take a big write-down last quarter. It needs to do that at some point in 2009 to account for higher charge-offs. Charge-offs are going to go up to around 12% in mid-2010, from 8.6% in February.

The other problem is the consumer. AmEx's billings will fall by a high single-digit number this year. In the last quarter it was down 10%. There's going to be an extended period of less spending. And AmEx is very leveraged to spending trends - half of its revenues come from its billed business and the fees charged to merchants when members make purchases. The savings rate already moved up to the 5% range from being negative. The consumer is deleveraging, just like a hedge fund.

One positive is that there is anywhere from $8-$15 of per-share value from the card network processing business. That will support the stock.

Once investors get comfortable with the economy, they're going to want to buy this stock - it's a great brand and company. But it's still too early.

Bull: Robert Napoli, Piper Jaffray

The key, and what people are missing, is that American Express can handle high charge-offs and still generate profits. Historically, it has traded at 20 times normalized earnings. If you believe earnings power is $3 a share when the economy stabilizes - in mid- to late-2010 American Express should be earning at historical levels as we get through this - we're now trading at five times earnings power.

American Express can remain profitable at a 12% U.S. unemployment rate for a full year. It's not easy. But because fee income from its credit card processing business is 80% of revenues, they're much less credit sensitive than other credit card companies like Capital One (COF, Fortune 500), for example. If unemployment goes up 1%, and spending goes down, that has three times the negative effect on Capital One's earnings than it does on American Express's because of all the fee income that American Express generates.

I admit American Express screwed up. It grew too fast from 2004 through 2007. Still, it did not loosen credit to a significant extent. Its customer base is a premium customer base, and its average FICO score has not changed much from prior to the cycle to today.

The economy is not free falling like it was three months ago. So as that $3 earnings power becomes clearer, the more dangerous being bearish on it is.

Also, the company is cutting out $1.8 billion of expenses this year and restructuring. These are permanent expense cuts. I'm not saying it all goes to the bottom line, though it could. Our target price is $36.

Source:
By Scott Cendrowski
Fortune Investor Daily

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How To Nab A Low-Rate Home Loan

On paper it seems like the perfect time to refinance. The average rate on a 30-year fixed mortgage recently hit a 20-year low when it fell below 5% in mid-March. And the Fed has said that it will spend $300 billion to buy back government-backed Treasury bonds; that will probably keep loan rates low for months to come.

Getting a new loan can save you a bundle, but cautious lenders will make you jump through hoops. These strategies can help.

But wade into the mortgage market, and you may quickly feel as if you're trying to grab a dollar in a game-show booth where the money is blowing around: Those ultralow rates are right in front of you, yet maddeningly elusive.

Lenders, grappling with deadbeat homeowners and shifting regulations, have pared back on mortgage products and upped credit requirements. Still, you have a good incentive to try: If you took out a mortgage two years ago, when rates were in the mid-sixes, you stand to drop your rate nearly two percentage points, saving almost $300 a month on a $300,000 loan. Here's how to navigate the roadblocks.

Figure out if you qualify. Nowadays, credit score and equity are king. To land the best rates, you'll probably need a credit score of at least 740, and 20% equity. "Banks are looking for reasons not to lend you money," says Mark Miskiel of Lighthouse Mortgage in Sedona, Ariz.

If you don't have 20% equity, a refi isn't out of the question - President Obama's housing package allows homeowners who owe as much as 105% to receive government-backed loans. To qualify for that program, however, your original mortgage must be held by one of the government-sponsored entities, Freddie Mac or Fannie Mae; you must prove that you can keep up with payments; and you'll get stuck with fees that tack 0.25% to 3% onto your rate.

Get rid of the HELOC. Home-equity loans and lines have become the enemy of would-be refinancers. Before you can close on a new loan, your home-equity lender must agree to "subordinate" the secondary loan (meaning that your primary lender will get repaid first in the event you run into financial trouble). That can take at least a month, says Bob Moulton of the Americana Mortgage Group in Manhasset, N.Y.

One way to speed up the process is to do a consolidation refi through your home-equity lender. If that's not possible, aim to submit the subordination paperwork as you start shopping for a primary mortgage. And know that other lenders may add up to 0.25% to your rate to cash out the secondary loan.

Know where to look. No matter how stellar your credit, you won't get a great rate without doing some serious shopping. That's because every bank is using different standards for underwriting loans, so while you may look like a risky borrower to one, another may welcome you with open arms. In general, says Keith Gumbinger of mortgage data firm HSH Associates, you're likely to get the best rates from small local banks and credit unions.

Unfortunately, if you need a jumbo loan (typically $417,000, but it can go up to $729,750 in high-cost areas), you can kiss those super-low rates goodbye. While jumbos normally run about half a percentage point higher than smaller ones, today the spread is a point and a half.

Pay a point upfront. A point, which equals 1% of your mortgage amount, typically buys you an eighth to a quarter of a percentage point drop in your rate. Today some overloaded lenders are knocking half a percentage point off for those who pay a point, hoping this extra initial cost will deter serial refinancers.

If you're planning to stay put for about five years, it may be worth it. Conversely, consider adding an eighth of a percentage point to your rate to lock it in for 45 days. Banks and lenders are putting a lot more effort into vetting applications, so it can take up to two months to close a loan, vs. about 30 days in the past; you don't want to risk rates' moving against you while you wait. The payoff for patience: a loan you can live with, for a very long time.

Not so long ago, having a pulse qualified you to take out a mortgage. These days lenders are vetting applicants with the ardor of a Senate committee grilling an AIG executive. Here's a summary of what's changed.

Sources: Carla Fried, Money Magazine

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Personal Finance Do's and Don'ts

Every single one of us, no matter our location, age, gender, hair color, family background or race has to manage our personal finances.
For some, it’s an exciting passion, a never-ending game of “how much can I accumulate in one lifetime”. For others, it’s just part of life, something that needs to be dealt with but doesn’t border on obsession. And finally, for many of us, personal finance is nothing but drudgery at best and an emotional trigger at worst.

Every single one of us has to manage our personal finances. Fortunately, there are a few simple rules that will help anyone stay on track, and reduce the amount of stress involved when it comes to making sure personal finances are well in order.

Fortunately, there are a few simple rules that will help anyone stay on track, and reduce the amount of stress involved when it comes to making sure personal finances are well in order.

Do get organized: Even if you’re a “messy”, this is crucial. You’ll miss important due dates, pay exorbitant late fees and possibly get into serious debt (or credit trouble) if you don’t have a handle on what you owe and when you owe it. A simple rule of thumb: the messier you are, the simpler your system.

Do draw up a spending plan: Every dollar that comes into your household goes out in one way, shape or form, even if it’s to a savings account. Know where your money’s coming in and where it’s going. Without this information, you can’t possibly make wise financial choices. Overwhelmed by the thought? Ask a financially responsible friend or relative (whom you trust) to do it for you. You can’t argue with success and they can help you make the hard decisions when it comes to having to “trim” spending in certain areas.

Don’t cut out all your fun: Decide, along with your family, what’s most important to you in terms of living a happy life. Then divide up your budget accordingly. If your family really enjoys eating out, plan for it. Just keep in mind you may have to spend a lot less on groceries or clothing. If none of us are the same then our spending plans shouldn’t be the same. If you love to read then cutting back on cable TV wouldn’t be a problem. If you love to watch sports, then cutting back on cable TV would be a serious problem.

Do allow impulse spending: You read it correctly. Unless you plan for a certain amount of miscellaneous, unexpected expenses in your spending plan, you’ll always feel as though you’re blowing your budget when you pick up items you weren’t planning to buy. Just like anything else, give yourself a “buffer”. A side benefit: you get to skip the guilt when you pick up that neat velour Elvis on the boardwalk.

Don’t use your local bank: Unless you absolutely have to. Check out all available credit unions first. In most cases, they’ll have better rates and more friendly policies on everything from fees to lending practices. Each dollar you deposit buys you a share, or membership, in the credit union. So instead of being a customer you’re actually a “member”. Like the ad says, membership has its privileges.

Do use a debit card with protection: Before you use a debit card, make sure your checking account is safe in case you lose your card or it’s somehow stolen. Also make sure you have the right to reverse charges in case merchants don’t provide the goods or services you purchased.

Don’t buy a new car: Considering the fact that new cars depreciate thousands of dollars as soon as you drive them off the lot, can anyone explain why buying a new car would be a good idea?

Do run numbers before every major financial decision: Conventional wisdom works most of the time. But there are always exceptions. For example, in most cases, it doesn’t make sense to borrow from a 401(k). But there are instances where it’s financially beneficial. You’ll hear it preached from the rooftops that you shouldn’t use a home equity loan to pay off credit cards, or that debt consolidation loans are nothing but trouble. But if you’re financially responsible and ran into some tough circumstances, a HELOC or debt consolidation could be a lifesaver. Search online for calculators that will help clarify the situation. Numbers don’t lie.
And finally, perhaps the most important “Do” of all…

Do remember that personal finance is just that personal: Everyone loves to give advice, and everyone loves to share their opinions. What worked for your mom and dad may not work for you. On the other hand, they probably have years of wisdom you can draw from.

Consider your personal finances an extension of who you are and where you’re going. Study the topic, and take the time to develop your own unique strategies when it comes to saving, spending and investing. During this information age there’s never been a better time to find the facts you need, in record time.

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