LIVING OFF DIVIDENDS & PASSIVE INCOME

You must have read the recent post about the New York Times economics reporter who is facing foreclosure himself. Edmund Andrews covered the US economy and Alan Greenspan for over six years, but despite his financial accumen still got suckered into a loan he couldn’t really afford. He hasn’t made a mortgage payment in 8 months and is wondering when the bank is going to throw him out of his house. Instead of making his payments, he has been busy spending money on a beach rental, clothes, gifts and other necessary expenses. At some point, I think foreclosure is inevitable.

But could he have avoided foreclosure?

I think so. Let’s review some of the financial mistakes he made. The real ones, not the excessive spending that set in once he stopped making house payments!

1. He divorced his wife of 21 years  Read more... (707 words, 9 images, estimated 2:50 mins reading time)

With mortgage rates at historic lows, you might think first time buyers will be falling over themselves to buy entry level homes. In California, condos count as entry level homes.  But starting April 1st, Fannie Mae and Freddie Mac have just changed their guidelines for mortgages when it comes to condos.

It may now cost borrowers between 3 and 5% more to finance a condo versus a single family home!

Fannie Mae now has a mandatory fee of 3/4th of a percentage point on all condominium loans, no matter how high the applicant’s credit score. For a once-popular interest-only condo loan with a 20% down payment and a borrower credit score of 690, Fannie imposes the following ratcheted sequence of add-ons:  Read more... (344 words, 8 images, estimated 1:23 mins reading time)

• 0.25% as an “adverse market” fee
• 1.5% for the below-optimal credit score
• 0.75% for the interest-only payment feature
• 0.75% fee since the property is a condo

John Mauldin is an investment adviser and president of Millennium Wave Investments. He sends out an interesting weekly newsletter, which most recently focusedon the current real estate market.  It seems like the bottom isn’t in sight yet:

Analyst contend that much of the bad news in the subprime-loan and housing market has been written off. And one would have to admit that a lot has been; and with the relaxation of mark-to-market, there may indeed be some truth to that suggestion. But there are still some issues that remain for housing. Take a look at the graph below. (Not sure where it is from, as it was sent to me, but I have seen the same data elsewhere.) Notice that monthly mortgage-rate resets declined markedly in 2009 from 2008, but are expected to rise again in 2010 and 2011. There is still some heartburn in the mortgage market.

 Read more... (929 words, 9 images, estimated 3:43 mins reading time)

Here’s a very interesting video from TheStreet.com.  James Altucher asserts that owning a home isn’t the American Dream. It’s just a marketing scam perpetrated by Home Builders!

Check out this interesting 2 minute video. He makes some valid points.

It’s true, if you’re not paying cash, then you’re renting the money to buy a house, so you’re still technically a renter. However, home ownership has some advantages:  Read more... (193 words, 8 images, estimated 46 secs reading time)

• You can decorate your place any way you see fit.
• You get tax breaks which in some situations might make the cost of owning lower than renting.
• But most importantly, owning real assets (like real estate and gold) protects you against inflation. Of course, if you believe that inflation is and always will be 2% then you should just rent.

Mortgage rates have hit record lows. You can get a 30 year fixed-rate mortgage for 4.85%. The 15 year is at 4.58%. I don’t think mortgages have ever been this cheap. According to Frank Nothaft, Freddie Mac chief economist, “The Federal Reserve’s announcement that it intends to purchase Treasury securities over the next six months caused bond yields to drop and mortgage rates followed.”

Meanwhile, home sales are up for the 2nd month in a row. Some people think this is a sign of a stabilizing of the housing market and higher prices are likely to follow.

So are home prices really bottoming out? Some of the things to consider are  Read more... (225 words, 8 images, estimated 54 secs reading time)

• Foreclosures made up a significant portion of all home sales.
• Prices are still dropping.
• There is significant inventory overhang in many markets

Straight from NYU finance professor Nouriel Roubini’s blog (the RGE monitor), here is the latest update on the housing sector:

The fourth year of housing recession – and the worst housing recession since the Great Depression – is well on course.

Total housing starts have plunged from the 2.3 million seasonally adjusted annual rate (SAAR) peak of January 2006 all the way to the 466 thousand SAAR of January 2009 (the last data point available), an all time low for the time series that started in January 1959. Single-family starts built for sale are down 81% from their Q1 2006 peak (since seasonally adjusted data is not available, we performed our own seasonal adjustment).

On the demand side, new single-family home sales are down 76% from their July 2005 peak. Both demand and supply of homes are therefore still falling very sharply which does not bode well for inventories. Inventories are the mortal enemy of prices for any goods-producing sector, including housing.  Read more... (389 words, 8 images, estimated 1:33 mins reading time)