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July 9, 2008

My Equity Freedom: Risking Your Equity

A relatively new kid on the block in terms of mortgage loan programs, My Equity Freedom (MEF) is an unconventional twist on a home equity loan.

Developed by mortgage vet Anthony Hsieh, formally of Lending Tree, MEF allows homeowners to borrow a percentage of their home's value in one tax-free, lump sum. The loan requires no payments for between 5-50 years. At the end of the term, or when the owner sells the home, the loan becomes due --- including the amount borrowed -- plus typically 50% of the home's appreciation from the time the MEF was issued. There is a penalty for paying back the loan in less than five years.

In today's unstable housing market where lenders are issuing fewer home equity loans, MEF loans are appealing, offering borrowers one large lump sum and no structured payments. A MEF loan can be a worthwhile investment for homeowners who choose to invest their borrowed money in say a business, rather than spending it on a boat.

HSH Vice President Keith Gumbinger warns against these types of loans for the simple fact that borrowers will never have a clear picture of their debt or equity. For example, with a fixed-rate mortgage, a homeowner can easily and clearly calculate their payments, mapping out their amount of debt and interest cost . Although borrowers are committing nothing against their monthly income, with a MEF they run the risk of depleting their home's equity.

Rex and Co. and Equity Key are other companies that offer a similar product. When the housing bubble pops and begins to turn around, MEF my not look as good to borrowers. Hsieh says he's less interested in the nature of the borrower than he is in the value of the home.

July 8, 2008

Fed: Securing the Financial Future

In a speech today at the Forum on Mortgage Lending for Low and Moderate Income Households, Fed Chief Ben Bernanke announced the central bank will issue new rules next week designed to protect homebuyers from shady lending practices that contributed to the ongoing mortgage and credit crisis.

The new rules will prevent lenders from penalizing borrowers who pay off their loans early. Lenders will now be required to verify a borrower's income before they begin to process their loan, and determine whether or not the borrower has funds available for taxes and insurance. Lastly, lenders must consider the borrower's ability to pay back the loan through a source other than the home's value.

In order to promote economic stability and confidence through investors, Bernanke announced the Fed may continue to allow investment firms to borrow directly from the central bank. The Fed's dedication to economic stability led to the orderly liquidation and ultimate sale of Bear Stearns earlier this year. Bernanke urged federal law makers and agencies to develop preventative systems and delegate new responsibilities in order sidestep future economic crises.

The creation of the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF) -- structures that allow investment firms to borrow directly from the Fed -- have served to stabilize the market, assuring creditors that their lenders have sufficient access to capital in order to pay off their debt. The TSLF and the PDCF were both designed with a six month window of availability; both are due to expire in September. According to Bernanke, the extension of both facilities will serve to promote additional economic growth and confidence.

July 8, 2008

G8 Countries Strive for Global Compliance

This year's G8 meeting, where the world's largest industrial countries meet to address world issues, was held in Japan with the hopes of ratifying last year's consideration of reducing carbon emissions 50% by 2050. President Bush was hesitant to sign onto the numeric commitment unless China and India, two of the world's largest consuming countries, agreed to regulate their carbon emissions. The United Nations urged the eight nations to agree upon the 2050 goal, as well as setting intermediate goals.

In a statement due to be released later today, the eight countries are expected to address global issues including stemming global warming, increasing aid to Africa, and reducing soaring food and energy costs. Rising costs of food and energy are affecting individuals in every corner of the globe. A study conducted by the World Bank reported that soaring food costs could send 105 million people below the poverty line; 30 million of those Africans. The UN reported that their goal of reducing world poverty by 2015 is being seriously affected by global warming.

A Newsweek article by Fareed Zakaria explains how certain countries are striving towards achieving these environmental goals sooner than others. Experts agree that the issues debated by the G8 will only prove successful if all the world leaders agree upon the problems, and work together to fix them.

July 7, 2008

Cheap Gas Could End Up Costing You

MyGallons.com, a website that allows consumers to save money by purchasing gallons of gas at a fixed price -- based on the assumption that gas prices will continue to rise -- has received a lot of attention by many since its unveiling last Monday.

By signing up and paying an annual fee of either $29.95 or $39.95, members are notified of the average price of gasoline in their area, and are given the option of purchasing their desired quantity of gallons at the local fixed price provided by MyGallons.com. After signing up, customers are supposed to receive a debit-like card that handles the fixed-rate purchase at participating gas stations, and monitors the member's available balance.

The Better Business Bureau recently gave the Miami-based company an "F" rating. MyGallons.com had originally claimed they had partnered with the Voyager Fleet network, a bank card processing service owned by U.S. Bank. Today, MyGallons.com displays a different message at the top of their site:

"MyGallons has learned that its prior vendor, GoGas Fleet, the reselling partner for US Bank's Voyager Network, is no longer able to honor our agreement to provide its services to our members. MyGallons is currently in negotiations to team with one of the competing national payment networks to support our exciting program to ease the pain of rising gas prices."

With no card service in place to allow its members to take advantage of its only service, the Better Business Bureau said its rating was justified.

MyGallons owner Steven Verona claims the site has already signed up 6,000 members. While sites like www.consumerworld.org caution their visitors about joining MyGallons, others paint a darker picture through detailed bankruptcy, property, and previous business reports concerning Verona.

July 7, 2008

Comment on Credit Card Regulations

The Fed is inviting the public to comment on their latest proposal of rules aimed at cleaning up the credit card industry. Already more than 9,300 opinions have been expressed, and with an August 4 deadline, time is running out to let your voice be heard.

HSH published a news story back on April 25, dubbed "The Credit Cardholders' Bill of Rights," which detailed a proposal by Rep. Carolyn Maloney, D-NY. Along with proposals from other various lawmakers, these amendments will help shape the Fed's new regulations;

The Bill of Rights aims to corral such practices as unannounced rate increases, unannounced changes in due dates, universal default -- in which a non-payment to another creditor increases the card's interest rate -- and two-cycle billing, in which interest is charged to the previous month's balance even if the bill has been paid off.

The Fed released a statement back in May which detailed the five main regulations of the proposal. Banks will be prohibited from increasing rates on pre-existing credit card balances, applying payments aimed at increasing interest charges, and imposing two-cycle billing. Banks will be required to provide reasonable time for consumers to make payments -- Senator Chris Dodd, D-Conn., proposed that banks mail credit-card bills 21 instead of 14 days before the bill is due -- and banks must allow customers full benefits to discounted promotional rates. While consumers are praising the initiative, banks are criticizing the regulations, fearing consumers will face higher prices, fewer choices, and less competition that won't allow credit-card companies to offer better deals.

The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate," said Federal Reserve Chairman Ben S. Bernanke.

To comment on the latest regulations click here. All comments are available to the public, along with names and addresses.

July 3, 2008

Retail Race for the Cheapest Drugs

Since Wal-Mart's inception of the four dollar prescription in 2006, discount retailers across the country have been forced to match price cuts on prescriptions in order to compete.

Like every other discount retailer, Costco has followed closely behind Wal-Mart's lead, offering their members a wide range of inexpensive pharmaceuticals. Costco's new prescription incentive allows non-insured members and their dependents to receive discounts on medications. Costco reports that more than 100,000 of its members have enrolled in the Costco Membership Prescription Program (CMPP). To qualify for the CMPP, beneficiaries must be Costco members with no drug insurance coverage. All brand name and generic drugs are covered under the program. The retailer says the program is designed for new employees whose medical coverage has not yet begun, or part-time employees that do not qualify for medical coverage, recent college grads, and small business owners.

While the savings are not always substantial, Costco claims that CMPP customers will always pay less than if they paid cash at a pharmacy. Average savings are between three and five dollars per prescription, but could be as much as $15 to $50.

Just this week, Kmart expanded the number of prescription drugs they offer to 500, from 300, as well as cutting prices on 90-day prescriptions from $15 to $10.

July 3, 2008

States Offering Green Energy Options

The New Jersey CleanPower Energy Program is a statewide initiative established back in 2003 by the New Jersey Board of Public Utilities with the goal of reducing greenhouse gas emissions 20% by 2020.

New Jersey residents can either contact their local energy provider, or fill out a simple one page form to covert the energy that supplies their residence into a natural, renewable source. Under the CleanPower Program, customers will continue to receive only one bill that details their chosen amount and source of renewable energy.

CleanPower's renewable energy options add additional charges on top of the existing bill, since renewable sources are relatively new and still being established. Customers can cancel their renewable resource option with CleanPower at any time with no fee. According to the program's website, each household has the ability to eliminate over 10,000 lbs. of CO2 emissions per year, the equivalent of planting 1.35 acres of trees.

Close to 90 percent of the state's greenhouse gas emissions comes from the combustion of fossil fuel. Global warming, a consequence of increased greenhouse gas emissions, is a serious threat to New Jersey's environment and coastal communities. By investing in clean power resources, New Jersey residents and businesses are playing an important role in improving air quality and reducing pollution. Lisa P. Jackson, Commissioner, NJ Department of Environmental Protection

The Database of State Incentives for Renewables and Efficiency (DSIRE) provides federal, state, and local renewable energy information and resources for all 50 states. Contact your local energy provider to inquire if they participate in renewable energy plans.

July 2, 2008

Old School Energy

From woodheat.org: "It's been said that a long straight row of firewood standing in the yard in springtime is like money in the bank. It is indeed. As it dries in the summer sunshine, you're collecting interest."

At this point it sounds like a broken record: Rising oil prices have propelled the price of gasoline to record numbers, shifting summer travel plans from vacations to staycations.

But now, worry over oil prices has already begun to drift toward the future, past the summer driving season, into the realization that heating bills are going to be a lot higher this winter. Home-heating oil is up 84% since last year. With constant debate circling around the development of alternate forms of energy, many Americans are stockpiling the world's oldest form of energy: firewood.

Firewood and wood-burning stove retailers, who have been forced to raise their prices for a list of reasons, are already struggling to keep ahead of orders.

Where there's smoke there's fire, and where there's fire, there's something getting burned. If you decide to burn wood for fuel this winter, do it safely.

July 2, 2008

Wachovia to the Rescue

The Senate and Congress have debated over a housing rescue bill, designed to help businesses and homeowners who have been affected by the housing crisis, for months now. With each set of lawmakers passing their own versions and amendments to the bill, and the president's threat of veto hanging overhead, the purported rescue has gone nowhere.

Wachovia, on the other hand, issued a press release this week outlining the bank's current initiatives designed to help keep their customers out of foreclosure and in their homes.

The bank has eliminated all prepayment fees for its Pick-A-Pay mortgages. Pick-A-Pay is a type of Adjustable Rate Mortgage which allows borrowers to select among four options (minimum payment, interest only, 30-year fully amortizing, and 15-year fully amortizing) for their monthly payment.

Wachovia announced they will no longer offer products that include payment options that cause negative amortization. Within the last year, Wachovia says they have assisted 18,000 homeowners in making affordable payments that prevent foreclosure.

July 2, 2008

ADP Report: Unreliable Indicator?

According to a report released today by ADP Employer Services, 79,000 private-sector jobs were slashed in June. Some economists view the ADP report as an indication of the more detailed and reliable Department of Labor employment report to be released tomorrow.

HSH's Vice President Keith Gumbinger says, "At least at this point, the ADP report is not exactly indicative of the Bureau of Labor Statistics employment report." Gumbinger noted the current lack of correlation between the two reports.

While ADP reported a revised increase of 20,000 jobs in May, the government's report announced a decrease of 49,000, beating expectations of a loss of as much as 70,000. The ADP report is based off of payroll data of approximately 24 million employees in every sector of the industrial industry. The report excludes government jobs.

July 1, 2008

Florida Sues Countrywide

Florida became the third state to sue Countrywide Financial yesterday over predatory lending practices. In a lawsuit filed by Florida's attorney general, the state accused the mortgage lender of deceiving borrowers into taking loans that Countrywide allegedly knew they could not afford. Illinois and California sued the mortgage financer last Wednesday, the same day Bank of America took over the troubled lender.

Florida's lawsuit claimed Countrywide knowingly loaned money at higher subprime rates to borrowers who qualified for prime rates. Managers were encouraged to approved subprime loans that the company's underwriters had previously rejected. The lawsuit claims underwriters were threatened with termination if they investigated into a borrower's ability to effectively pay back their loan.

Florida and California have the highest mortgage default rates in the country.

June 30, 2008

Senate Passes ARM Amendment

The Senate unanimously passed an amendment regarding Adjustable Rate Mortgages (ARMs) to the ongoing housing rescue bill last week. Senator Christopher S. Bond's (R-Mo.) amendment requires lenders and brokers to provide clearer information to consumers regarding ARMs with -- teaser -- rates. Senator Bond explained ARMs with teaser rates played a large role in our current subprime mortgage crisis.

The amendment requires that both lenders and brokers properly explain how high the borrower's payments might rise after the initial fixed rate expires. Additionally, lenders and brokers must also stress that there is no guarantee they will be able to refinance before the lower, initial rate expires. Senator Bond said many borrowers were unaware of the loans' specifications, and were falsely assured they would be able to refinance.

June 30, 2008

Smart Meters are Saving Money

US utility companies are expanding a pilot program that allows consumers to monitor their energy consumption on a regular basis in order to save power and money. Advanced meters, called "smart" meters, are usually installed in conspicuous locations like the kitchen or living room. When consumers are constantly reminded of how much energy they are using, they tend to use less.

Utility companies that install smart meters are also enacting rebate and rate increase programs, aiming to save money and reduce usage at peak hours. Certain utility companies raise their rates at peak hours, forcing their customers to cut back. Other companies offer consumers rebates for each kilowatt per-hour saved.

One New Jersey couple whose home was equipped with a smart meter saved $350 in an 18 month period, and reduced their energy expenses by 10%. The couple received email notifications that their hourly rate would increase the following day, which allowed them to alter their energy usage.

Smart meter programs are also an incentive for utility companies that must compete with escalating costs. The advanced meters have allowed major utilities to cut back on other expenses like meter reading.

June 27, 2008

The Debut of Hydrogen

California unveiled the first retail hydrogen fuel station in the United States yesterday. Hydrogen, an eco-friendly alternative to gasoline, emits no carbon dioxide, only water vapor. There are very few hydrogen fuel-cell vehicles on US roads. The nearly 100 hydrogen vehicles in California, produced by Chevy and BMW, are all part of demonstration and promotional programs; Honda is set to release their hydrogen model very soon. Auto Manufacturers will not be able to mass-produce hydrogen vehicles at a reasonable cost, until there are more hydrogen fuel stations.

With oil prices reaching over $142 a barrel today, a 40% increase this year alone, many vehicle companies are investing in alternate-fuel models, as well as phasing out larger-size models that are not selling well. General Motors, the world's largest auto maker, has witnessed their shares drop to $12, their lowest level since 1955. GM shares peaked at $94.62 in 2000.

Full-size pickup truck sales have dropped by over 21% in May. Despite those dismal numbers, Chrysler/Dodge is optimistic about their new 2009 Dodge Ram model, that executives says will compete well with the competition. Although Ram sales have slumped by 27% through May, Chrysler defends their continued production of pickups saying there still are a lot of people that use and depend upon trucks.

June 26, 2008

Spending and Exports Increase GDP

The US economy improved slightly in the first quarter of 2008, according to a report released today by the Commerce Department. The Gross Domestic Product (GDP), a gauge of goods and services produced in the US, rose by one percent. Larger growth in consumer spending and exports spurred the GDP past initial estimates of a 0.6% gain.

The weak dollar has expanded US exports, keeping export prices low, and remains one of the last sectors supporting the struggling economy. Meanwhile, imports have decreased 0.7%. Retail sales more than doubled original forecasts in May thanks to billions of dollars doled out in stimulus checks.

The GDP's price index, a closely monitored measurement of inflation, rose at a rate of 3.6%. The "core" price index, which excludes food and energy costs, rose by 2.3%. In a statement released yesterday's by the Fed after the Federal Open Market Committee (FOMC) meeting, the central bank said they expect "inflation to moderate later this year and next year."

June 25, 2008

Fed Leaves Interest Rates Unchanged

As predicted, the Federal Open Market Committee (FOMC) voted today to keep the federal funds rate unchanged at 2%. A press release issued by the Fed following their two-day meeting expressed concern over an unpredictable economy, matched with an outlook that inflation will remain high, and thus problematic.

The next FOMC meeting is scheduled for August 5, 2008.

June 25, 2008

NAHB Calls for Help

New home sales along with home prices have decreased once again in May. Despite an encouraging increase in April, new home sales are down for the sixth time in seven months. In May, new homes were sold at a seasonally adjusted annual rate of 512,000, a 2.5% drop since April. The median price of a new home dropped to $231,000, a decline of 5.7% from a year ago.

Existing inventory of unsold units grew to 10.9 months in May. Economists predict the rising inventory of unsold homes will only cause home prices to drop even further, prompting less and less buyers to enter the market.

The National Association of Home Builders (NAHB) is steadily urging law makers to pass a housing rescue legislation that has been in front of the House and Senate for some time now. The 235,000 members of the NAHB is using a media campaign that has targeted ads in the Washington Post and USA Today which calls upon the policy makers to pass the housing rescue bill that could curb the housing crisis that continues to be one of the biggest threats to our economy.

The bill calls for, among other things, a tax credit for home buyers, a modernization of the Federal Housing Administration, and reform of Fannie and Freddie Mac. The hope is the tax credit will stimulate buyers to enter the market, thus depleting the built up inventory of unsold homes at a faster pace. The goal of the NAHB is to have lawmakers pass the bill prior to their July 4 recess.

June 24, 2008

FOMC Meeting: No Surprises Expected

The two-day Federal Open Market Committee (FOMC) meeting begins today, and will most likely end the way nearly every expert has predicted: no change in interest rates. The Fed's constant concerns over inflation and a weak dollar have many investors expecting a rate increase sometime later this year. Market observers are concerned that if the Fed raises interest rates too soon it will weaken an already shaky economy, and banks will struggle even more to recover from losses suffered from the subprime mortgage and credit crises.

Inflationary concerns circle around the ever rising price of oil. According to AAA, gas prices have increased 37% in the past year. In the 12 months leading up to May, the weak dollar has led to the largest rise in import costs since 1988.

June 23, 2008

Rise in Rates = Incentive for Some

The recent trend of rising mortgage rates has prompted some potential homebuyers to lock in an interest rate before they rise any higher. Many potential buyers are realizing that locking in now on a lower interest rate will save them more money in the long run, rather than waiting to buy a home until sale prices drop further.

This recent incentive has so far only appealed to potential buyers who are actively looking. Home sales continue to sputter, down 17.5% in April from a year ago. Home starts were down in May, as building permits declined 1.3% from April to May.

Experts agree that, as soon as home-sale prices bottom out and begin to rise, the housing market will see an influx of buyers taking advantage of low prices. Until then, many potential buyers seem content waiting for prices to keep falling.

For more information on mortgage rates be sure to read HSH's Market Trends Newsletter.

June 19, 2008

China Will Increase Gas Prices

It's not well known that China subsidizes the cost of gasoline paid by its citizens :

China, the world's second largest oil consumer, will increase retail gasoline and diesel prices by 1,000 yuan ($145.50) per tonne from Friday, according to industry sources.

Fuel subsidies have helped propel China's demand and supported a six year rally in crude oil rally that has sent prices up nearly seven-fold.

That's just a small fraction of the subsidy, but nonetheless, oil prices fell by $3 per barrel following this announcement. Will it help reduce the price at US gas pumps? That remains to be seen -- but one of the reasons for the runup was vastly increased demand from China (among other countries). If the laws of economics hold, reduced demand for a commodity should affect the price.

June 18, 2008

Bush Calls for Off-Shore Drilling

In a follow-up to a story written last week:

President Bush plans to call upon Congress this morning to lift the nearly three-decade-old ban placed on off-shore drilling for US oil reserves. A Senate subcommittee voted against the proposed bill last Wednesday. Experts say Bush could lift the ban himself by issuing an executive order, but will not do so today when he makes his statement this morning. The president is not endorsing a specific bill; rather he is encouraging Congress to merely accomplish the initiative in order to help lower gas prices.

A White House spokesperson said that off-shore drilling is both safe and environmentally friendly. In addition to drilling off US coastlines, Bush and Republican lawmakers have pushed to begin drilling in the Arctic National Wildlife Refuge. In what has turned into a battle between political parties, Democratic House Speaker Nancy Pelosi argued that drilling in the Arctic National Wildlife Refuge would only decrease US gas prices by one cent per gallon. Bush has blamed Democrats for stalling efforts to increase oil production.

Cuba may soon begin drilling for oil 50 miles off the Florida coast with the help of ally China which means the US could potentially lose control of reserves it once had access to.

This issue is already a hot topic between presidential candidates. Republican candidate John McCain supports off-shore drilling, while Democratic candidate Barack Obama supports establishing alternate forms of energy rather than drilling off shore.

June 17, 2008

Food and Energy Rising

Escalating food and energy costs have driven up wholesale prices in May to their highest mark in six months. In a report released today by the Labor Department, the Producer Price Index, a measurement of the cost of goods sold to retailers, jumped 1.4%, up from a 0.2% rise in April.

Energy prices rose 4.9% in May, Diesel prices rose 11.2%, gas 9.3%, home heating oil 8%, and food prices jumped 0.8%. As food and energy continue to rise, companies will be forced to increase prices, and pass along their increased costs to consumers.

Removing the unpredictable monthly costs of food and energy, "core inflation" rose just 0.2%, an improvement from April's 0.4% gain.

Market observers are almost positive that the Fed will leave interest rates unchanged at next week's two-day meeting. Fed officials believe inflation is still under control, and increasing interest rates too quickly will disrupt and damage the already fragile housing market.

June 16, 2008

Saudi Arabia Will Pump More Oil

In an effort to stem prices and aid the world's economies, Saudi Arabia's king announced that the country will step up oil production by 300,000 barrels per day within weeks. By next month, the kingdom plans to ramp up production to 500,000 barrels a day, the highest level ever.

June 13, 2008

OCC: Loan Underwriting Standards Tightening

OCC News Release, 6-12-08:

The Office of the Comptroller of the Currency released today its 14th annual Survey of Credit Underwriting Practices and reported that commercial and retail underwriting standards tightened after four consecutive years of eased underwriting standards.

The 2008 survey included examiner observations and assessments of credit underwriting standards at the largest national banks. The survey reflected that the disruption in financial markets that began in 2007 led to an abrupt change in risk appetite of the majority of the banks and a renewed focus on fundamental credit principles by bank lenders.

Examiner assessments found that risk in both the commercial and retail portfolios increased over the past year and they expect portfolio risk to continue to increase over the coming year. Key factors that contributed to the rise in product and portfolio credit risk were the weakening economy, rising energy costs, turbulence in the secondary credit markets, the downturn in the housing market, and the anticipated impact of relaxed underwriting standards over the past few years on payment performance.

The 2008 survey included the 62 largest national banks and covered the 12-month period ending March 31, 2008. The aggregate total of loans was $3.7 trillion, which represented over 83 percent of all outstanding loans in the national banking system.

The survey can be found on the OCC's Web site at: http://www.occ.gov/cusurvey/2008UnderwritingSurvey.pdf

June 13, 2008

Recession-Proof Products

US consumer prices rose 0.6% in May, largely due to escalating food and energy prices. Although the price increase was higher than experts predicted, core consumers prices, excluding food and energy costs, rose 0.2% as expected.

While inflation is taking its toll worldwide, there are certain industries that are profiting, and products that have gotten cheaper here in the US.

The US video-game industry grossed $1.12 billion in sales during May, up 37% since last year. Netting $6.6 billion in sales already this year, the US video-game industry has already surpassed 2007's totals, and is on pace to gross $21-$23 billion by year's end.

Advances in technology naturally drive down the prices of electronics as the "new" becomes the "old" all too quick. Within the year, low-priced gadgets have seen more than typical price reductions as companies reinvent popular products for lower cost in order to attract buyers.

The average price of a digital camera fell $28 this year. In 2008, Canon produced three digital cameras under $200, the cheapest costing $129, the least expensive camera Canon has ever made. Instead of pricier iPods, customers are opting for cheaper MP3 players. In response, Apple Inc. released two smaller versions of their iPod Shuffle for under $70.

Women's clothing has gotten cheaper since last year; hotel rooms fell about a dollar on average in April, tickets prices to some theme parks like Six Flags have decreased $10 to attract patrons, and toys prices are down 5.3% since last year.

June 12, 2008

A Chance to Lower Gas Prices

A Senate subcommittee rejected a key bill yesterday that had the potential to help Americans move towards energy independence, and significantly lower gas prices. The bill would allow drilling for oil and natural gas reserves 50-200 miles off the Atlantic and Gulf shores. Estimates predict the off-shore reserves contain up to 8.5 billion barrels of oil and 29 trillion cubic feet of natural gas, as well as the potential for undiscovered resources of up to 86 billion barrels of oil and 420 trillion cubic feet of natural gas.

Economists believe the only way to lower gas prices may be to increase oil production. The US is currently 67% dependent on foreign oil. That percentage is sure to climb if Americans do not increase oil and natural gas production. Supporters of the bill warn that since current gas prices have climbed so high and so fast with out a major disaster, a terrorist attack on supply lines, a major storm in the Gulf, or a topple of a major oil producing country could rocket gas prices to $200 a barrel. US oil reserves used to hold 8-10 million barrels, but today that number has shrank to much less.

While a majority of the country remains fixated on soaring gas prices, Senator John Peterson, R-Pa, warns that the rising cost of natural gas should become a greater cause for concern. Nearly every major US industry depends on natural gas to produce products such as steel, fertilizers, and plastics. In 2007 Dow Chemical paid $8 billion a year for natural gas, today Dow pays $8 billion a quarter.

Environmentalists and animal rights activists are obvious critics of the bill, fearing the ecological devastation off-shore drilling could cause. The US is exploring wind and solar energy alternatives, but even if America doubled its wind and solar power within the next five years, it would still only account for less than one percent the country's energy needs.

The bill will have two more chances to pass, next Wednesday in front of the Appropriations committee, and then in front of the House of Representatives.

June 12, 2008

Different States, Different Gas Prices

How can neighboring states like New Jersey and New York have such different gas prices? Why does California have the most expensive gas, while Missouri has the cheapest?

There are various reasons. Each state's gas tax, proximity to distribution points, and different blends of gasoline are just some factors that explain why each state charges different prices for gas. New Jersey's gas tax is one of the lowest in the country at 14.5 cents, which help keeps their average prices under $4 a gallon. Yet their prices are still higher than in other states.

Despite having no oil refineries and accounting for zero percent of crude production, Missouri's proximity to pipelines running through neighboring states, and delivery ports along the Mississippi and Missouri rivers, keep prices lower.

On the other hand, California pumps gas that can peak at 40 cents above the national average. Environmental regulations require California to pump a unique blend of gas that is more expensive. Also, California is isolated from all suppliers east of the Rocky Mountains.

Early this morning Connecticut law makers voted to halt a hike in their state gas tax that could raise prices at the pump by five cents. Connecticut has the third highest gas prices in the country.

June 11, 2008

Energy Efficient Mortgage Program

The US Department of Housing and Urban Development's (HUD) Energy Efficient Mortgages Program allows homebuyers to finance, or homeowners to refinance, home loans to include the cost of energy-saving home improvements. Energy efficient improvements lower monthly utility bills, making more money available for mortgage payments.

The Federal Housing Administration (FHA)-approved loans are available in 15-and 30-year Fixed Rate or Adjustable Rate Mortgages through any FHA-approved lender. With at least three percent down, the total home loan equals the home's value plus the cost of making the energy efficient improvements. The maximum amount that can be added to the home loan for improvements is either $4,000 or five percent of the property's value (not to exceed $8,000). All work must be completed within 90 days of closing.

Energy efficient improvements make homes affordable to more people, help homes sell more quickly, and increase potential resale value. Examples of energy efficient home improvements include:

- Replacing furnace / cooling system

- Insulating attics, crawl spaces, and air ducts

- Replacing doors and windows

- Installing solar technology

- Fixing / replacing a chimney

Be sure to read HUD's Energy Efficient Mortgages Home Owner Guide. For links to websites with more information on making your home more energy efficient, click here.

June 10, 2008

Copycat Crisis

Just as the mortgage crisis has depleted home sales and deflated resale values to record lows, high and ever increasing gas prices have done to the same to the value of SUVs. Their lack of fuel efficiency has proven them undesirable, dropping the number of new and used SUVs for sale nationwide. A three-year-old SUV is worth $2,000-3,000 less than a year ago. Nearly 36% of people who tried to trade in a large SUV in May owed more than what the vehicle was worth.

The auto industry has seen sales of SUVs and trucks plummet, as drivers are turning to smaller vehicles with better gas mileage. Last week General Motors announced they will be closing four North American plants that produce large trucks and SUVs. GM also announced they will increase car production to 60% up from 50%, and had approved production funding for the Volt, a much anticipated hybrid-electric car.

June 9, 2008

What's Fueling High Oil Prices?

In 2003 the price of oil was $30 a barrel. Last Friday oil spiked to nearly $139 a barrel. Why? Oil's steady and at times drastic increase over the last six years has many explanations both here and abroad. At a two-day meeting this weekend, countries from around the globe discussed how increased global demand -- especially from China, South Korea and India, which consume half the world's oil -- has boosted gas prices for everyone. Global production of oil has been holding at 85 million barrels a day for three years now.

Members of the International Energy Agency (IEA), comprised of energy advisors from 27 industrial countries, encouraged China, South Korea and India, whose gas prices remain cheap despite their increased demands, to participate and cooperate with other countries in managing oil reserves and tightening demand. Every one percent increase in demand translates into a 20% increase in prices.

A lack of US oil production and a weak dollar have prevented American gas prices from dropping. Drilling restrictions in the Arctic National Wildlife Refuge and in waters of the east and west coast have muted US production. An IEA report last weak urged governments to participate in an "energy technology revolution" that should increase wind turbines, nuclear power plants, and other ways of harnessing alternate forms of energy.

June 6, 2008

Beware of Foreclosure Scams

As in any time of crisis, frauds and con artists prey upon the desperate and vulnerable. The situation is no different during the subprime mortgage crisis. As a record number of Americans face foreclosures, advertisements began appearing offering a saving grace to homeowners behind on their payments.

For anywhere from $1,000 to $2,500 upfront, mortgage-rescue companies offer to renegotiate the terms of your home loan to lower your monthly payments; others offer homeowners the option of deeding their home to the company in order to allow owners time to get back on their feet financially.

Rescue companies are, for the most part, non-profits which homeowners seek out. Scammers sift through public records seeking those in danger of foreclosures, and bombard them with phone calls and official-looking mail.

Eighteen states have enacted laws against foreclosure-rescue scams by preventing the practices that lead to them. The laws include provisions for canceling contracts, and receiving fair value for the home if sold. Certain states like Maryland and Massachusetts have outlawed foreclosure-rescue transactions completely.

June 6, 2008

Bleak Unemployment Report

Employers cut 49,000 jobs in May boosting the nation's unemployment rate to 5.5%, according to the Labor Department. Defying expectations of a 0.1% increase, the unemployment rate lifted 0.5%; the largest monthly increase since February 1986. According to the report, 324,000 jobs have been lost this year so far.

As more people enter the workforce, primarily a large number of teenagers looking for summer work, the number of unemployed grew by 861,000, lifting national totals to 8.5 million. In 2007, the economy produced an average of 91,000 new jobs every month.

June 5, 2008

Stimulus Checks Making a Difference

Shopping trips by consumers increased in May thanks in part to the economic stimulus checks now being sent out; 57% of retailers' sales reports for May were higher than predicted. Manufacturing also unexpectedly rose in May to 49.6, up from 48.6 in April.

"Value retailers" Costco, BJ's, and Wal-Mart have continued to be the exception to the retail industry, watching their stocks, sales, and memberships increase as consumers are buying in bulk to save money. Wal-Mart, the world's largest retailer, cashed in about $350 million in stimulus checks. While it is unknown how much of that money was spent in their stores, Wal-Mart saw same-store sales, excluding gasoline, increase 3.9%; including gas, sales rose to 4.4%.

Warehouse clubs Costco and BJ's exceeded May estimates as well. BJ's same-store sales increased 13.4% against predictions of 8.9%, and Costco's sales increased 9%, besting expectations of 6.9%. Both retailers were helped by gas sales.

Cooler temperatures in May kept warm-weather clothing sales below expectations. Big-name clothing retailers Gap and Limited both posted losses for the month.

June 4, 2008

Inflation's Influence on Bonds, Mortgage Rates

Bond prices dropped last week on the news of continued inflation woes. In a speech last Tuesday, Federal Reserve Chief Ben Bernanke suggested that further interest rate cuts were unlikely as inflation remains at the forefront of economic concerns. Experts predict the Fed's next move will be to raise interest rates to fight inflation.

Inflation is the ultimate enemy of the dollar, lowering the value of everything from groceries to bonds, and thus mortgage rates. Both mortgage rates and bonds are a fixed return investment: when inflation rises, it cancels out the dollar's value, and investors are set to make less money on their investment.

Last week brought on some better economic news than we are used to; when positive news and trends seep into the market, investors shift their funds out of safe and stable bond investments into riskier stocks with higher yield returns. The same goes for the mortgage market: as positive trends continue, mortgage interest rates rise to entice investors.

June 3, 2008

Food and Inflation: International Concerns

The United Nations Food and Agriculture Organization is meeting in Rome for a three-day summit to address short-term solutions to heal international food shortages caused in part by rising prices. The US Agriculture Department predicts that food prices will rise by 43% globally by the end of the year.

The US is focusing on a three-pronged attack that includes increased humanitarian aid, an increase in food production levels, and the elimination of trade barriers and export restrictions to combat the high food prices and shortages felt around the globe. The US has boosted exports of corn, meat, and poultry, and expects exports to total $1 billion by year's end. The U.N. says that world food production must increase by 50% by 2030 to meet the ever-increasing demand.

Critics have criticized the US for aspects of its biofuel production and its effect on raising food prices. US Secretary of Agriculture Ed Schafer defends the US biofuel policy and its goal for energy independence, saying production has only increased food prices by 2-3%. International organizations like the International Monetary Fund suspect biofuels production has increased food prices by 15-30%. Biofuels have allowed the U.S. to save an estimated 1 million gallons of petroleum use.

June 2, 2008

Student Loans Failing in Certain Schools

Citibank, JP Morgan Chase, PNC, and Sun Trust are among the lenders dropping or cutting funding for student loan programs at community colleges and smaller, less exclusive four-year universities. Students at these institutions who do receive loans, face stricter and more complicated terms. As a result, the risk of default grows because many students are forced to find new lenders, costing them more time and money.

According to lenders, the credit crisis has made it more difficult for them to raise money; banks are targeting high-default schools which have minimal loan applicants with smaller loan amounts, resulting in less profitable ventures. Currently 40% of the nation's undergrads attend community colleges.

According to College Board, a not-for-profit association that assists potential students find and pay for school, one-third of their students take out loans, most federally backed. The fact that banks are defending their drop of risky loans is puzzling, since most student loans are backed by the Federal government. The government already has certain criteria and restrictions, such as low default rates, that colleges must adhere to when participating in federal student loan programs.

In contrast, student loans at elite and prestigious colleges have grown much more generous and accommodating in recent months. More profitable loans to less risky applicants who are deemed to have higher earning potentials have been a much better gamble for lenders.

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