Under previous programs by the Bush administration, lenders were urged to voluntarily modify mortgages. Even though a large number of mortgages were modified, there were 2.2 million foreclosures in the U.S. in 2008.

Most of the largest mortgage-servicing corporations in the country are expected to participate in the program. Pending legislation, which would allow judges to modify mortgages and protect services from lawsuits, could also influence their participation.

Also, any bank that receives additional funds from the TARP would be required to participate.

Here are some specifics:

• Borrowers with mortgages as high as $729,750 will be able to participate.
• Fannie Mae and Freddie Mac will be allowed to refinance loans at lower interest rates, even if they lack 20 percent equity in their homes.
• Fannie Mae and Freddie Mac will receive up to $200 billion in additional capital to finance the program.
• For servicing companies, the government will pay $1,000 upfront for every loan they modify, and then pay an additional $1,000 per year for the first three years if the borrower stays current with their payments.
• The government will also directly reduce the borrower’s principal balance by $1,000 per year if they stay current with their payments.

The government believes that this program could prevent as many as 5 million foreclosures.

An additional program, designed to help with “piggy-back” mortgages is said to be under development.

Borrowers who wish to participate in the program should contact the company servicing their mortgage.

Originally posted on pfhacks.com: Details on the New Foreclosure Prevention Program

Here’s how that works: The value of the trade-in is $8000; balance on the loan for that trade-in is $10,000. That leaves a $2000 deficit that either a) the dealer eats (unlikely), or b) you have to cover with an extra cash down payment as well as the trade, or c) gets rolled into the new car loan. The last option means that you are essentially refinancing the remaining debt on the car you just sold back to the dealer, along with the price of the new car and whatever add-ons get added on back in the F&I office.

I know from several acquaintances in the automobile retailing industry that this type of thing happened a lot.

As cars get more expensive, and loan terms get longer (to keep those monthly payments affordable!) that increases the odds of negative equity caused by left-over debt from the trade-in. In theory, the lenders financing those loans would want to know if the car was going to be underwater due to negative equity before it even drove off the lot. But in practice – just as with the mortgage industry, the only thing worse for your monthly numbers than an undersecured loan was no loan at all.

This is classic example of misaligned priorities: it was better to do a bad deal than no deal at all.

Originally posted on pfhacks.com: Drive One, Pay for Two

Gasoline is now down $2.50 per gallon since its record high of $4.114 in July of this year.

The falling price of oil is behind the drop in gasoline.  Oil now costs $100 per barrell less than it did in July.  This decline is due to less demand from abroad and from Americans driving less.

Originally posted on pfhacks.com: Gasoline Near Five Year Low

The Gallop organization recently completed a poll that shows about 40% of Americans are worried about money.  The same poll at the beginning of the year showed the number at 30%.

While the 40% number is high, it is actually down from its peak of 45% in October.

Another interesting point from the poll was that Americans had a significantly worse opinion of the U.S. economy as a whole (80% negative) that they did of therir own personal finance situation.  Gallop sees this as a sign of resilience on the part of Americans, in the face of bleak economic news.

Lastly, the Gallop poll shows Americans worry less about money on the weekends. It appears we take a break from work and worry on the the weekends.  As you can see from the chart below, Americans worry significantly more about money through the week than they do on weekends.

Originally posted on pfhacks.com: Gallup Poll Shows 40% of Americans Currently Worried About Money

“I also know that we live in a society that has lived beyond its means. Much of the wealth around us was created by a huge increase in debt. Now, with the economy shrinking and credit tightening, much of that debt is going to disappear. Like it or not, America may once again become a place where people watch every penny.”

There is no doubt that being frugal can be hard on family members that don’t share the same sensibilities when it comes to money.  This was especially true when the whole nation was going crazy with debt.  Now that a lot of the big spenders are facing foreclosure or other severe financial strain, it is important to point out to your family what can happen if you over-extend.

Originally posted on pfhacks.com: On the Virtues of Being Cheap

Citigroup has hired a number of new collectors and have increased the frequency of calls to delinquent account holders. American Express is offering to cut interest rates and fees, while Bank of America has begun contacting customers with late accounts earlier than in the past.

This effort is in response to an increase in delinquencies brought about by a number of factors including decreasing home prices, increased gasoline prices, and rising unemployment. The banks are also facing pressure from other areas of their business and are aggressively trying to keep credit card debt from being the next banking crisis.

Total revolving debt in the United States, which primarily consists of credit card balances, was $969.9 billion at the end of July.

The banks recommend that if you see yourself getting into trouble, it is best to go ahead and contact your credit card company in order to work out a plan as soon as possible.

Originally posted on pfhacks.com: Banks Working Harder to Collect Credit Card Debt

Very nice infographic from the New York Times showing a visual representation of how much the average American spends on each of the 200 categories that make up the Consumer Price Index (the most common measure of inflation).

The largest component – by far – is “Owner’s Equivalent Rent”, which seeks to estimate the amount of rent a homeowner would be required to pay if they were renting their home. This represent 23.9% of the model American’s spending.

Another point of interest is spending on gasoline. The chart shows this number as 5.2% of spending. This is up a massive 26% from 2007.

Originally posted on pfhacks.com: All of Inflation’s Little Parts – The New York Times

One of the highlights of my week is seeing a new episode of “This American Life” pop into my podcasts folder in iTunes. For those of you not familiar with the show, it is a one hour radio program produced by Chicago Public Radio and hosted by Ira Glass.

This weeks show “The Giant Pool of Money” should hold special interest for readers of this blog. It is a wonderful explanation of the housing crisis, going step by step how it developed, and who were the players, from the borrowers to the ultimates purchasers of the mortgages.

If you are looking for more “This American Life” content after listening, you can check out this list of staff favorites.

Originally posted on pfhacks.com: The Giant Pool of Money

Image: RealtyTrac

RealtyTrac has released their March, 2008 “US Foreclosure Market Report”. It reveals that foreclosures were up 5% from the previous month, and 57% from March 2007!

The report also shows that one out every 538 US households is now in foreclosure. Additionally, foreclosures are highest in Nevada, Florida, and California.

Click here to read the report.

Originally posted on pfhacks.com: US Foreclosure Activity Map

Many financial experts, including Dave Ramsey recommend that you set aside money in an easily accessible account of, at least, three to six months of expenses.  You should probably increase this amount if your income may be irregular (i.e.  You earn a large percentage of your income from commissions, or you, or your spouse, is self-employed).

That’s very sound advice, that I think everyone should follow.  But, if you have steady employment and believe you can set aside your emergency funds at a slow, but steady pace, there’s something else you need to consider:  Does your employer have an emergency fund?

The items I am going to list below will vary greatly by the size and industry of your employer, but I think they are all very important in making sure you have a strong personal finance plan. 

Here are some questions to consider:

1. Is your employer highly leveraged?  By leveraged, we mean is the company dependent on borrowed funds to operate.  In an economic slowdown, like we are currently experiencing, banks tend to tighten their lending standards.  If you business is dependent on that source of cash to operate, it may have to drastically scale back, or cease, operations should the bank refuse to continue lending.
2. Is your company in a "consumer discretionary" business?  For instance, during hard economic times, consumers will cut back on non-essential purchases such as dining out, or purchasing jewelry.
3. Is your company facing up to International competition?  Virtually all manufacturing businesses in the US are facing tough competition from other parts of the world with lower labor costs and less regulation.  If you are in one of these industries, has your employer made the necessary adjustments needed to compete?  If not, they will eventually need to, or go out of business.
4. Does a large percentage of your company’s profits come from a single customer?  If so, your company could find itself in dire financial straights should their number one customer cut back on its spending.

If you answered yes to any one of these questions, you need to find out – in a non-pushy way – whether management has set aside an "emergency fund" for the company.  You can consider a company to be similar to a person in that cash comes in, and goes out, every month.  You know that when times are good, it’s easy to spend the windfalls, but being prudent you set aside a portion of your income for the times aren’t so good.  Similarly, a prudent management would realize that good economic climates should be used to stockpile some capital in order to survive, or even thrive, in economic downturns.

If your company’s management is spending like business will never have bad periods, you should consider cutting back on non-essential spending in order to aggressively build your emergency fund.   As Warren Buffett says: "The time to build Arks is before it starts raining."

In summary, building an emergency fund is an essential piece of any smart personal finance plan.  If you are employed by a company, it is essential for to understand where it stands financially, in order for you to have confidence that you are prepared regardless of which way the economic winds are blowing.

Originally posted on pfhacks.com: Does Your Employer Have An Emergency Fund?