Practical Real Estate advice that can creat and protect your wealth.

Many people ask why if the fed cuts interest rates why did mortgage rates go up???

Another one, Why if the EU cut its interest rate why did the US dollar get stronger against the Euro and the Canadian and Against the yen etc.

Another question, why did the global stock markets gain yesterday when Australia cut its interest rate with 3/4, more then expected?

Here it is. I hate to break it to you but the truth is that the Fed's mission is not to provide low mortgage rates.

Copied from the Federal Reserve site itself and here it is,

"Today, the Federal Reserve's duties fall into four general areas:

• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system"

Reading through their mission statement in their own words did you see anywhere the word mortgages?

Here is the real story, we live in a world economy and we compete in a world economy, the players are the common people and the governments of the world. As in matter of fact there is a World bank where the big boys like USA federal reserve, and The bank of England, and the European Union etc. have accounts and pay membership dues.

 The US has income just like we all are trying to have. The US income Consist of,

• Interest rates that it gets from Banks who borrow from them.
• The tresury bonds.
• Consumers and business taxes.
• Customs taxes.

Now if the US would to cut its interest it charges the banks who they lend to, would that limit the income for the US? Of course it will and if the US has less income they are perceived as weaker.

But if all your competition all cut their interest rates at the same time, the you are as strong as your competition! therefore when the EU cuts its rate, Australia cut its rates the US dollar strengthens.

Of course the interest rate cuts is intended to stimulate the US economy and it is a wise investment of the governments part, the short term is still a major factor and investors play by it daily.

Now back to the first question, Why when the fed cuts the Interest rates it does not reflect in mortgage rates?

And the answer is it that the fed does not directly control that!  eventually it will reach a point where the mortgage rates are influenced and will follow the US interest rate trend, but it has no real correlation.

I hope I clears it up a little and if you have question or comments please do so and lets get educated.

Sincerely

Joel Silberstein
Certified Mortgage Planner,CMPS

Consumer Aleret on the Federal Reserve Website

Release Date: November 4, 2008

For immediate release

The Federal Reserve Board on Tuesday alerted the public to instances of questionable solicitations directed at consumers. These solicitations promise consumers access to personal loans through a nonexistent Federal Reserve lending program.

Under this fraudulent scheme, targeted individuals are told that that they can work through a broker to access a Federal Reserve program that extends sizable secured loans to consumers. Consumers are encouraged to deposit large sums of money into a bank account, under the guise of a security deposit, in order to receive the purported loan.

The Federal Reserve is advising consumers that it has no involvement in these solicitations and does not directly sponsor consumer lending programs. The matter has been referred to the appropriate authorities for action.

Consumers are strongly urged to verify the legitimacy of potential service providers before entering into a business transaction. Individuals seeking personal finance options are encouraged to do business only with reputable lenders and to shop around for the most favorable loan terms.

Consumers with questions about solicitations that they suspect may be fraudulent are encouraged to contact the Federal Reserve Board Consumer Help Center at http://www.federalreserveconsumerhelp.gov or by calling 1-888-851-1920.

Hindsight is always 20/02 But the problem is you can only see what you understand. in example looking at struggling businessman coming out shining through a rough market, the person who does not understand business principles does not how he pulled it through. Versus a business knowledgeable person does know and can identify the principles that this struggling business person cling-ed to that help him through the rough market.

I just heard today about a 59 year old executive in the jewelery manufacturing business expressing fear that he will loose his job. He never bought a house because he was always afraid that if he might looses his job, where is he going to pay the mortgage from.

He never invested in real estate due to lack of knowledge of the real estate business.

He never invested in the stock marketdue to his lack of knowledge of the stock market.

You see the theme? He was always holding to his job and being good at what he was doing, but he wasn't growing,which brings us to the following financial principles.

1. Buy assets (Real estate or Stocks Bonds etc)that will go up in value.
2. Educate your self about these assets.
3. Change is inevitable, growth is a choice so the choose to grow and change will be easy!

Rich dad says: the difference between the poor and the rich is, The poor buy liability's, and the rich buy assets.

Owning your House is vital to your total financial picture the time to buy is now!

For Real estate financing advice please call me at 917.660.3630

or send me an email to Joel@joelsilberstein.com

Sincerely

Joel Silberstein
Certified Mortgage Planner, CMPS

The Silberstein Group
Brooklyn NY 11219

When you buy property you ought to be concerned and plan accordingly with the following

Potential liability = Slip and fall in the front of property etc.

Taxes

•  To be able to deduct the Mortgage interest from your paycheck.
• If you buy multiple properties you might be considered an investor exposing you to additional taxes like small business and self employment tax.

Estate Tax = anything above 2 Million dollars of value will be taxed at 37% to 45% in the event of your death. Whatever is being left over to the spouse is not taxed but this is not something you might want to do if your spouse is to remarry and you have family and  relatives of your own you might want to leave the property to them.

Being that the property is appreciating in value  you need to determine what the potential of value is going to be and to what value will your estate be brought up to control exposure. For that Trust's and  other entities set up by a estate and tax attorney is vital.

Life Insurance = In the mortgage documents you sign, there is a clause which stipulates that in the event that a transfer of ownership takes place, In example Death, the loan is due to be repaid within 30 days. For that reason you need to plan for that at the time of purchase. One possible solution and quite a simple one is to buy term life insurance for the full amount of the loan(a little more to cover the estate tax exposure mentioned above) from where your heirs will repay the loan from.

This is a little example why you shouldn't treat your loan as an isolated transaction. you need a professional who is aware and trained to look out for all the mentioned above. 

I am trained as a CMP, CMPS Which stands for Certified Mortgage Planner and Certified mortgage Planning Specialist. I work with a team of qualified estate and tax attorneys qualified life insurance Specialists  and Financial Planners who will anticipate and look out for your needs.

Sincerely,

Joel Silberstein, CMP CMPS
The Silberstein Group
917.660.3630
Joel@joelsilberstein.com

Business week had a segment on their video cast how much 1 dollar can buy you today versus how much one dollar was able to buy in 1948.

Back in 1948 one dollar bought you a cup of coffee hamburger ice cream and some other desert.

These days, one dollar can get you a small can of Pringles. Pretty negative huh?

Well they left out one pretty significant piece to the puzzle.

Looking at the US wages history chart on the US labor department website you can clearly see that back in 1948 the minimum wage for an hour was 0.40 cents. That means that if you spend a dollar for lunch which was more then twice the minimum hourly wage then one dollar would have gotten you all these mentioned above.

These days Minimum wage is $7.25,lets have a look on what 1 hour of earnings can buy us today.

Looking just on the McDonald's Dollar menu you can have a

McChicken sandwich $1

Double Cheese Burger $1

2 Pieces of Pie $1

Fruit and yogurt farfait $1

12 once Soft Drink $1

Side Salad, $1

And golden French fries $1 or you can get all of it for just the price of minimum wage!

Pretty similar to 1948 huh or better of?

What does that have to do with real estate?

Great question! and the answer is that people are always hearing how cheep real estate was 20 years ago, how easy it would have been if we where only around then or would have bought then. But people often neglect to look at the income you had back then, See it is relative to your income.

I can bet you that in 20 years from now prices of houses will be allot higher then it is currently and the same chant of shoulda woulda coulda will be repeated..

In Summary

Act Now don’t cry about the past. l

Live in the here and now, plan for the future and learn from the past. At least make sure then in the future you will not have to cry about the past.

WAITING FOR THE MARKET TO BOTTOM OUT IS LIVING IN THE PAST TOO!

Recession Inflation blah blah blah... if you can afford it now and your current income and future income will be able to support your purchase then buy now and enjoy the upside we are going to enjoy soon once again.

Get in touch with a financial professional , Real estate professional and make things happen

For the US minimum wage history chart click here

I will write about the most frequently asked questions by many of my clients with regard to real estate financing, and let this serve as a general guide.

•1.    I have $300,000 cash should I put it all down to get a lower mortgage or better yes to have no mortgage at all?

Answer it depends. If you will buy a more expensive home just because you have $300,000 cash and without putting down more money you will not afford the payments then you should consider putting it down

However if you can afford the mortgage payments, and the only reason you are putting down more money is because you don't want to deal with the mortgage bills let me ask you these questions.

Would you burry money in a tight sealed pot somewhere on community property?

By paying for the house all cash you did just that! You paid for an asset that doesn't belong to you essentially the government can foreclose on your property if you owe them $2500 in water charges or environmental fees, in my book that's community property.

Would you deposit money in a bank account that does not always allow you to withdraw it? Well it's not to say that you will not be able to withdraw your money only to say that you have to qualify before you do. Would you? Or when coming to the bank to withdraw your money a very pleasant person will politely tell you we are very very sorry but the bank is tight in cash now and we cannot give you your money back at the present time. Would you invest in such a place?

That's exactly what you do if you pay off your house, most people go back to their property when they are in need of cash thinking they have enough money in it. But guess what the bank will deny you a loan if the market is though will you put $300,000 in such a position? Staying liquid is key Look at all the banks that survived this crazy market only the ones that remained liquid so you do the same!

But I hate bills what should I do?

By having this money invested you can have money paid to you monthly basis for as long as the money stays invested and that can even help you pay your mortgage.

        2. I am a Senior Citizen and I want to buy a house what type of mortgage should I get?

Answer. You should get a Reverse Mortgage, even if you have money to put down for the house don't use that money, have that money invested and out away for case of emergency. In addition, let it earn for you a rate of return.

A reverse mortgage is a mortgage that is in reverse. Normal mortgage you borrow lump sum and pay it off (exactly what amortization) A reverse mortgage is the bank gives you a lump sum or smaller monthly sums, and you balance slowly grows upward reverse from paying it off. The bank will give you a reverse on either a house you want to buy or on a house you already own to free up some cash. What A great way for freeing up cash for people on a fixed income i.e. retired folks.

3. Would you advise to take out an Interest only?

Answer. It depends why you want and interest only loan. If you want an interest only loan because otherwise the payment is too high I would say NO way! Rather don't refinance or purchase the house its way to expansive for you.

However if you want an interest only loan because you want more flexibility with your money for example to save the deference in payment, I would say yes please, and tell your friends too. As in matter of fact I advise my clients to get an interest only loan and keep paying the same like a full interest and principle loan. The interest you pay to the bank and the principle part to pay to themselves and deposit it into a side fund that yields at least a rate of 4% and let it sit as an emergency fund.

4. Is it a good time to buy now?

Again let me answer it with a question! Will it be a good time to start saving money now or should I wait a little? Are there seasons when it pays to save and when not to? Ludicrous! Always, start saving right now!

When you buy a house especially to live in it, you are essentially saving money! You are deducting the whole mortgage interest and it is like if you never earned that money when it comes to taxes. You can deduct up to 1,000,000 dollars on mortgage interest and yes you heard me right! So if you are paying taxes and paying rent you seriously need to rethink your financial structure. A person, who earns a $150,000 income and is a renter, will pay an average of 1500 dollars a month rent in the area I live in. That is 18,000 dollars a year spend on rent that is not deductable. That means if you are in a tax bracket of 34% that will be 6,400 dollars to the IRS. If the 1500 would be payment to mortgage interest, there will be no 6,400 to the IRS. Now are you ready to save money?

5. But shouldn't I wait until the market bottoms out!

Oh yeah? What is the bottom? How much should a single family cost for you to see that it is already rock bottom? There is no answer to this. Many times the in markets like this we notice the bottom when it already passed us.

And every house has a different bottom depending what the previous owner paid for it or borrowed against it. The owner doesn't care about the market, he wants to wrap around his debt in the selling price. Which marked bottom will persuade him? So the bottom you should be focused on, is your bottom line

Ask yourself the following question to determine if it is time to buy.

Can I afford this mortgage payment?

Can I save in taxes on this purchase?

Will this property go up in value in the next 5 to 10 years?

If the Answer is yes then grab it!

Another Announcement calmed fears in the financial markets. The Office of Federal Housing Enterprise Oversight, (Makes me wonder how do they come up with these names?) Just announced that they just  lifted a capital restriction they kept Fannie Mae and Freddie Mac that kept them from buying to much mortgage bonds, or some other restriction I do not know exactly-what it was, that is now lifted thereby making available yet another 200 Billion dollars for the mortgage market.

In My yesterdays post I mentioned the feds are not responsible for making the mortgage market better but for the general economy in all market as a whole. The Announced by the OFHEO is a measure that exclusively impacts the mortgage market, Just like the TSLF mentioned in my previous post

Make it a great day!

Sincerely

Joel Silberstein

The feds Primary Job is to monitor and control to some extend the economy as a whole. there job is not just to provide low interest rates to the housing market.

One of the ways the fed can stimulate the economy is by cutting their rates. By cutting their rates money is cheaper so banks can borrowand lend out. Not necessarily for home-loans but for business loans, etc.  If there is more money available housing will enjoy something as well.

The side-effects of a rate cut is

• the potential loss of value to the dollar.
• Inflation
• and higher mortgage rates.

Benefits of the rate cut is primarily for

• Commercial banks that are in business of checking and savings type of banking.
• Home equity loans that are typically have a 10 year life.
• Auto Loans
• credit cards.
• Business loans

As I wrote above the benefits are intended for the economy in general and not necessarily to the housing market. The housing market can initially suffer by getting higher interest rates due to bonds being enemy #1 of inflation.

An example-of a recent fed move to benefit the Housing market exclusively was the Treasury Securities Lending Facility introduced for the first time last week.

It is Amazing what is happening in the financial markets.

History repeat itself. Well it surely does, but not always exactly the same way, and not always to the same people.

There is a well known proverb that a smart person learns from everyone and everything around him.  By learning from some else's mistakes. He spares the painful ordeal of experiencing it himself.

A Quick look at History

During the great depression, banks where foreclosing houses in record numbers. Taking away the homes of good paying Americans, people who were on time with their bills were stripped of their homes since the banks who where lending the money where short on cash, because investors withdrew all of their money from the banking system due to the stock market crashing and the investors had to pay back money they borrowed to invest. With the banks being out of money they had no choice and they called all  their loans due.

On the news today is Bear Stearns. What's happening now is sort of the same thing that happened in the great Depression. Bear Sterns was in big trouble due to having a lot of exposure to the sub-prime loans that generated great loses. and as investors lost confidence in bear Stearns, that created a run on the bank situation, where investors are rushing to withdraw their money from bear Stearns, only to further exacerbate the liquidity crisis (shortage of cash).

What does this mean to the Consumer

This means that there is going to be a lot less money available to consumers in terms of loans, despite the feds cutting rates. Since money is primarily available to consumers by lenders like bear sterns or Fannie Mae, who get their money from individual investors and not from the government. If investors lose confidence in mortgage back securities, there will be a lot less of it and that means less money for real estate loans even if the fed cut rates. With the fed cutting rates that will be a good infusion and temporary cushion, however not the complete solution.

Action item for this market

Is to realize that the house /equity is not  the best place to keep your money in. First of all, it is  because you are essentially locking your money into an asset where you cannot withdraw it from there only in a lending favorable situation, or in times when there is a credit crunch or liquidity crunch. In times like these when lenders don't have cash, (like Bear Stearns) you are not going to be able to cash out! Even if that means not sending your son to collage, even if that mean money for a liver transplant!

Second reason why equity is not the best place to store cash, is because you are not diversifying your risk. Real estate markets are directly related to the lending and interest rate environment. If it is harder to finance , prices come down. That means keeping your money in a vehicle that might be in a depreciating state when you need it most. But by diversifying your equity instead of paying off one house, you have a better chance of having the money available when you need despite temporary market depreciation.

Lets learn from the lenders who weathered the storm, They weathered it by diversifying their assets. Lehman the close rival and competition to Bear Stearns is well positioned. They have a line of credit of 2 Billion dollars! And they achieved that by diversifying their assets globally, and in many different market unlike Bear Stearns who primarily focused on Mortgage Backed securities in the US.

Action Items in summary,

Do not dump all your money into the house, Instead diversify throughout markets and international markets.

The reasons are

•1.       Because you want to remain liquid regardless of lending landscape

•2.       Because you want to diversify your assets in order to diversify your risk (like Lehman)

There are many more reasons but to start out with these 2 is quite powerful!

Click here for the LA Times Article

Call me if you would like to weather proof your situation .

By the time I was done with proofreading this article, Bear Stearns was already acquired by JP Morgan Chase for pennies on the dollar.