Who is the Federal Reserve | What does the Federal Reserve do
(1) Who owns the Federal Reserve System?
If it’s a private bank, presumably it’s privately owned.   And, if its privately owned, its private owners presumably profit from their ownership.   So, who owns the System, and how do they profit from it?

The System is owned, or can be owned by three sets of stockholders:
(1) Banks in the System must contribute 6% of their contributed capital and retained earnings on an ongoing basis in exchange for stock.
(2) The public can buy stock in $100 increments up to $25,000 per individual.
(3) The US Government can buy stock if the System is in need of additional capital.

Categories 2 and 3 are non-voting stock.  The System isn’t in it for the profit.It was established in 1913 and operates under the authority of the Federal Reserve Act, as amended.  It’s four responsibilities include;
(1) establishing the System
(2) to afford a means of re discounting commercial paper
(3) establish the supervision of banks in the US
(4) Other duties

Think of it as a trading company in the Japanese tradition.  It provides banks with the liquidity they need to stay open daily.  The System buys up the commercial paper (90 day maturity) banks issue that tie up their liquidity.  The System provides new cash for old, lends money to banks in a liquidity bind and requires banks to charge off bad debts and holds them accountable to strict accounting standards.  It also insures deposits, operates as a bond trader for the Treasury and a myriad of other duties such as buying up commercial debts and replacing cash in the market via its open market committee and setting rates on short term debt transactions between banks. 

(2) Is the Federal Reserve System owned by other private banks who are system members?
Yes
Do private banks, for example, purchase equity interests in the Federal Reserve System?
Yes

If so, does the System pay them dividends or interest or what on their equities in the System?
The System pays a dividend of 6% established by law.  After paying its expenses, the System turns the rest of its earnings over to the U.S. Treasury.

(3) From whence does the Federal Reserve System get its capital?
Capital is obtained from the three categories of stockholders discussed above. 

Does its capital stem exclusively from member private banks purchasing the System’s equity issues?

It does but it doesn’t have to.  It can go to the public or the US Government. 

Or, as I suspect, does the System get much or most of its capital from the U.S. Mint’s printing presses?

No it does not.  It serves as a conduit to introduce fresh cash into the system in exchange for cash retired by its members.

(4) When the System ”pumps billions of dollars into the financial system”, whose dollars is it “pumping”?

It is exchanging debt for cash. 

Presumably, these “pumped” dollars aren’t the dollars of the System’s private member banks, because its private member banks are the recipients into whose capital the “billions of dollars” are required to be ”pumped”.

The money is not being given away it is exchanged for debt which is then repaid.  I seriously doubt the first real dollar is used, it is all done electronically.

So, whose “billions of dollars” are being “pumped”?
If push came to shove it would be the capital of the members.

Is it “billions of dollars” from the U.S. Mint’s printing presses?
No.

And, if so, what’s the functional relationship between the U.S. Mint devaluing the dollars in my pocket and the dollars which wind up either in the Federal Reserve System’s pockets or the pockets of its private member banks?

The US Mint does not devalue the dollars in your pocket.  The market price of goods and services simply goes up and your dollar buys less.  The System turns over its profits to the Government, the private member banks make 6% on their investment.

In other words, who really profits from whatever Holy Money Machine is increasing the Nation’s money supply (either because it’s grown too small to conduct the society’s business or because private banks have screwed up and need the Government to “pump” their liquidity)?

Profit is not the intent from open market transactions, stimulating the economy without triggering inflation is the intent.  Inflation, by the way is not so bad.  If you are in investments, such as real estate you can do real well.  The value of your home will go up and conversely the amount you owe will decrease.  Rich liquid investors don’t worry about inflation, they simply change their strategy to constantly reinvest at the higher interest rates.  People on fixed incomes or those who cannot raise their own prices (or wages) to keep up are the ones that lose big time.  If we had a bout of 15% inflation your house would go up 15%, your debt would drop 15% and your inflation adjusted income would go up 15%.  Not bad.  Also the national debt would go from $6 trillion to $5.1 trillion without paying a dime. 

Correspondingly, who really picks up the tab?
There is no tab and quite possibly a benefit.

The devalued dollars in my pocket?
Cash investments, like money in your pockets is a bad investment in inflationary times.

The lending community in general (which, functionally, is to say the borrowing community in general)?

The Government (which, functionally, is to say the taxpayers)?

(5) Who pays the System’s expenses and by what market mechanism is its officers’ remuneration determined?
The System pays its own expenses and reports annually to Congress and to independent auditors concerning its salary structure.

Presumably the System has no competition, so what determines its operators’ rewards?
See above.

(6) Why is a central private bank, rather than the U.S. Treasury, the prime abiter of the Nation’s financial destiny?
It isn’t, it reports twice yearly to Congress on its strategy.

Who elected the members of the System’s Board of Governors, and why are they in control of the Nation’s financial destiny?

The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate.  A full term is fourteen years. One term begins every two years, on February 1 of even-numbered years.  A member who serves a full term may not be reappointed.  A member who completes an unexpired portion of a term may be reappointed.  All terms end on their statutory date regardless of the date on which the member is sworn into office.

The Chairman and the Vice Chairman of the Board are named by the President from among the members and are confirmed by the Senate.  They serve a term of four years. A member’s term on the Board is not affected by his or her status as Chairman or Vice Chairman.

They do not control the Nation’s financial destiny.  The Nation’s financial destiny is controlled by Congress.
© 2007, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®
The Fed is expected to cut rates again when it meets on the 21st.  This will immediately reduce the prime interest rate on Home Equity lines of credit, however, fixed mortgage rates may actually stay the same or go up slightly.  If you are thinking of refinancing, lock in a low current rate before they start going up again.

Protecting your credit during a divorce
Unfulfilled promises to pay bills, the maxing out of credit cards, and a total breakdown in communication can lead to the demise of a spouse’s credit.  Depending upon how finances are structured, it can sometimes have a negative impact on both parties.  Take a proactive approach and create a specific plan to maintain your credit status.   Create a spreadsheet, and list all of the accounts that are currently open.  Have your loan officer pull your copy or pull a free one online.  List creditor name, contact number, the account number, type of account (e.g. credit card, car loan, etc.), account status (e.g. current, past due), account balance, minimum monthly payment amount, and who is vested in the account.

When it comes to your secured accounts, your best option is probably to sell the assets.  This way the loans are paid off and your name is no longer attached.  The next best option is to refinance these loans.  In other words, you buy out your ex’s equity.  The purchasing spouse must qualify for the loan on their own.  Your last option should be to keep your name on the loan.  If you’re not the one making the payment, your credit is truly vulnerable and it’s so easy for you to get hosed.  If you decide to keep your name on the loan, make sure your name is also kept on the title so you’re not stuck paying for something that you don’t legally own. 

Know which spouse (if not both) is vested on your unsecured accounts.  If you are merely a signer on the account, have your name removed immediately.  If you are the vested party and your spouse is a signer, have their name removed.  Close any joint accounts (both parties vested) that do not carry a balance.  Freeze any jointly vested accounts that carry a balance to ensure no future charges can be made to the accounts.  If you do not have any credit cards in your name, obtain one before freezing all of your jointly vested accounts so you may transfer any joint balances into your account, guaranteeing they’ll get paid.

One 30-day late payment can drop your credit score as much as 75 points.  Know that a divorce decree does not override any agreement you have with your creditors.  Regardless of which spouse is ordered to pay by the judge, not doing so will affect the credit score of both parties. 

Subprime ARM borrowers needing to refinance
The fate of homeowners holding subprime adjustable rate mortgages that have or will reset at higher rates will continue to weigh on the housing and mortgage markets in 2008.   While there is no one-size-fits-all solution for ARMs holders facing big resets, many individuals will find they do have options, including a number of refinancing alternatives.  One group of homeowners with subprime mortgages will be eligible for help under a plan that was negotiated by the the Treasury Department with loan servicers and mortgage investors.   The loans that are eligible are ARMs with fixed-rate periods of three years or less (mostly 2/28s or 3/27s), originated between January 1, 2005 and July 31, 2007, that have an initial reset date scheduled for between January 1, 2008 and July 31, 2010.  The program applies just to loans held in securitized pools (which will be most loans).  Loans held in portfolio by a financial institution are not covered by the plan.  An individual institution may choose to adopt the plan’s principals or institute a more or less liberal version for portfolio loans.  Some servicers have already instituted in-house plans. If yours contacts you about one, by all means hear them out.  Under the negotiated plan, homeowners will fall into three categories: 

(1) Those who are able to continue to make their payments as contracted.  These homeowners generally will be expected to keep their current mortgage or refinance.  Many subprime loans were made to people with good credit who fell short of meeting the standards for prime mortgages because they made a smaller downpayment, did not want to document their income or assets, or needed high debt-to-income ratios to buy the home they wanted.  Because many subprime loan borrowers do have good credit, one Federal Reserve official has estimated that more than half of homeowners with subprime ARMs should be able to refinance into a less-costly loan by taking advantage of existing programs.  In fact, many of these borrowers might now qualify for a prime mortgage having successfully met their mortgage obligations for a period of time.  A number of mortgage options should be available for these homeowners.  Because their current servicers may not offer all the available mortgage products, the homeowner may need to look outside their servicer to have access to the greatest number of choices. 

(2) Borrowers who it is determined can continue to make their payments so long as their rate stays the same.  These are homeowners who may be eligible for a “fast-track” loan modification that would keep their existing rate in place for five years following the reset.  Homeowners in category three must not be more than 30 days delinquent currently or have been more than 60 days delinquent in the last 12 months.  Any current loan that has a loan-to value exceeding 97% would be considered ineligible for refinance into any available product and, thus, fall into category 2.   Generally, category three homeowners must not be eligible for an FHA Secure refinance (see below for more on this program).  Homeowners in this category must also meet tests with respect to their FICO credit score (for instance, a FICO score under 660 that is less than 10% higher than the score when the loan was originated qualifies!).  If the FICO test is not met, then an alternate analysis will be employed.  The plan will apply only to first mortgages for borrowers who occupy the property as a primary residence andhave resets that would increase the mortgage payment by more than 10%.  What if you have an equity line or other 2nd mortgage on the home?  The guidelines say that servicers of 2nd  liens “should” agree to subordinate the loan to the new 1st trust, but they are not required to. 

(3) Those who are already behind on their payments even before their first adjustment.  Sadly, at present there is no program available to these homeowners.  Generally, they will be subject to “appropriate loss mitigation.”  They will be on their own to try to work with their servicer to try to get a loan modification, appeal for forbearance, opt for a short sale or simply succumb to foreclosure.  What about homeowners who fall outside the parameters of the plan?  For those who were current on their adjustable rate mortgage before a reset, but have since fallen behind, FHA has a new program called FHASecure that will refinance non-FHA ARMs that ARMs that have reset, even if you are now in default.   Contact a Choice Finance® loan officer for more information.
© 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®
  Alex Echeandia, Choice Finance®

..more Mark Zaidan testimonials
“Mark took very good care of us.”
Alicia Baiocchi & Erik Espinoza– Gaithersburg, MD

“Mark was fantastic to work with. He offered careful and concise explanations for all questions we posed to him. He was very perceptive to our concerns and needs and helped us obtain the right loan package for the purchase of our first home.  We will certainly call Mark for our next loan and we will not hesitate to recommend him to our family and friends!”
Dr. Erin and Dr. Edward Ramos– Rockville, MD

“Mark Zaidan is a professional in every sense of the word.  He is extremely personable, asks the right questions, possesses an expert knowledge of the lending process and not only did he come to our house to process paperwork, but also had the lending institution’s representative come when we executed the loan.

We have not only obtained a loan that meets our financial needs, more importantly, we have made a friend.  We have already referred people to Mark, and will continue to do so.  If we had a need for another loan, we would not hesitate to contact Mark.”
Rich Hoffheins and Katherine Wise– Kensington, MD
  Mark Zaidan of Choice Finance®

Maryland homestead deduction
The State of Maryland has decided to make all of their property owners re-apply for their Homestead Deduction. This deduction limits the increase in your property assessment on which the State can make you pay taxes, and thereby curtailing the amount of the increase in your property taxes.  Property owners should have received or will be receiving their assessments for 2008.  The deadline is 4/1/08.  You can also go to this website https://sdathtc.resiusa.org/homestead/
  Bob Kearns, Loan Officer

Why will I need 4 months taxes for my new escrow account?
The title company will collect what they collect and I have no say nor does any other Loan Officer of what that number will be. They don’t have to be paid until September but they are due in June, so there must be 6 months taxes in the account by June. If you close in January, your first payment is March 1st so that means only 4 months will have been paid into that escrow account by June plus the lender will want at least 2 months’ reserves. So figure at least 4 months will be needed and not 8. Make sense? We can further clarify with the title company once we’re further in the process to make sure we’re as accurate as possible.Once we have your payoff from your current lender I can plug that into the Good faith estimate and then we can be very accurate with what you’ll need at the table.

If you owe 435 and you close on January 25th, you will need to add interest from the 1st through the 15th to your 435 AND you will be bringing interest to PRE PAY your new lender from the 25th to the end of January AND all of February’s interest for the new loan. That’s why your first payment isn’t until March 1st. Also, the title company always collects for about 10 days of interest on top of that as a cushion which you get back if they didn’t need the cushion for some natural catastrophe that occurred and therefore docs couldn’t be delivered.

Mortgage outlook for ‘08
Mortgage shoppers will find a more difficult landscape to navigate in 2008 than in recent years. Borrowers will find loan standards have been tightened for many products and costs are going up for other. Some mortgage products have vanished entirely, along with many lenders.  In fact, in the wake of a turbulent year, you may not find your previous mortgage specialist under the same banner, as many have relocated… however, Choice Finance® is still here for you.   As a  lender, we have new products that are only available in-house.  

You may have also noticed the continuation of historically low mortgage rates, especially this week and last.  Thirty-year conforming fixed-rate mortgages actually dipped the first week of December.  Rates had not been lower since September 2005.  A week later they were again higher, but that was almost exactly where they were at the same time in 2006.  What do these rate differences really mean?  For each $100,000 of loan amount, a 5-year ARM would save about $14 and a 1-year ARM about $38 (for one year, anyway).  The lower interest rate for the 15-year mortgage will require that you make a payment $225 higher than with the 30-year mortgage.  To calculate the effect for a higher loan amount, just multiply. For a $250,000 loan amount, you would multiply by 2.5, giving you a savings of $35 for the 5-year ARM, $95 for the one-year ARM and a $562 payment increase for the 15-year fixed. 

The 2007 conforming limit of $417,000 will stay the same in 2008, the third year in a row at that level.  Conforming loans are eligible for purchase by Fannie Mae and Freddie Mac, which makes them more marketable and thus cheaper and more widely available than “jumbo” loans that exceed the conforming limit.  Good credit scores, always important, will be even more so for homebuyers in 2008. Likewise, downpayment money from your own pocket is once again highly valued. Fannie and Freddie are, in general, demanding higher scores and bigger downpayments. 

What is a good credit score?  That has gotten stricter. A score of 620 used to demarcate subprime territory, but that dividing line is getting muddied.  Scores into the upper 600’s now can carry significant penalties versus those closer to 700 and up.  One example of the new credit score inflation is that Fannie Mae and Freddie Mac are adding new fees to the pricing of mortgages in which the credit score is less than 680 with a downpayment of less than 30%. Fannie Mae and Freddie Mac both posted losses for their last quarter and are looking to this “risk-based” pricing to help get them back in the black. The fees take effect on March 1st, but most lenders are already charging them. 

Similarly, some private mortgage insurance companies are also raising premiums on borrowers making low downpayments who have credit scores in the mid- to upper-600s. Again, the companies have suffered losses on just these types of loans, they say, so higher premium prices are their answer.  It has long been understood that having little downpayment money in a home creates a situation where the homeowner has less commitment to working things out if problems arise.  For that reason, FHA has sought to end a practice by which sellers could make a contribution to a nonprofit group, which then grants the money to the homebuyer for a downpayment, technically bypassing rules that prohibit direct seller downpayment assistance.  A federal court blocked the FHA move temporarily, keeping the program in place for now, but FHA is a good bet to get its way eventually, either winning in a higher court or through other administrative action. If you intend on using this program to purchase this year, understand that it is vulnerable.
© 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®
  John Burley of Choice Finance®

2008 Real Estate market preview | foreclosures, declining markets, inventory, low rates
The housing market is grappling with one of its most difficult periods in recent memory but it will eventually stabilize and once again begin to move forward. The question on everybody’s mind, of course, is exactly when that will be. The answer may be later, rather than sooner.  From all the attention on the market’s woes, you might think homes are no longer getting bought and sold, but of course that’s not the case.  They are. Just not quite so many as in recent years.

When the totals for 2007 are in, the National Association of Realtors projects that some 5.67 million existing homes will have sold, the lowest number since 2002. But, despite all the drama, that is a falloff of only 12.5% from 2006. Looked at another way, for every eight homes that sold in 2006, seven sold in 2007, a difference that seems pretty modest.   The NAR, understandably one of the more optimistic assessors of the market’s future, says it sees the slump in sales of existing homes having bottomed out in the last few months of 2007. The bottom, it thinks, came as the credit and mortgage disruptions that struck in August took its toll on September and October sales.

With that behind, sales will trend up in 2008, the NAR says. Others are less optimistic, seeing the weight of foreclosures and tight mortgage availability taking longer the work through. For example, the Chairman of Fannie Mae recently said he sees home sales beginning to stabilize in the second half of this year, with “signs of progress” in 2009. But he also said that there are so many uncertainties that it is hard to tell how this
will play out.

The current sales slump is rooted in high home prices and in the mortgages that enabled them.  The current sales slowdown is not a typical one.  Instead of being the product of an economic recession or high interest rates, the usual case, the current sales slump is rooted in high home prices and in the mortgages that enabled them.  An inevitable adjustment in prices is starting to show itself in the latest home price indices. For the first time since 1995, house prices nationwide in the 3rd quarter of 2007 showed a quarter-to-quarter decline , but the drop was only 0.4%.  These figures are from the OFHEO, a federal agency that tracks prices changes from repeat sales or refinancings of the same property, which is the most accurate way to track home prices.  However, the OFHEO only tracks homes up to the conforming limit of $417,000, so it does not reflect the more volatile high end of the market. The recent slide aside, over the year beginning in the 3rd quarter of 2006, prices were still up 1.8% nationally.  And while the quarterly declines were widespread (20 states had lower prices), it was far from universal (prices in 30 states were flat or up!)Over the 12-month period, so far only ten states have had declines: California, Nevada, Arizona, Florida, Minnesota, Michigan, Ohio, Massachusetts, Rhode Island and New Hampshire.  The not-so-dire statistics probably don’t fully reflect all the stress being felt by home sellers. Individual home sellers of more expensive homes in some readjusting markets will want to take issue with the stats. Averages don’t mean much if you are one of the ones having to deal with a drop in the value of your home. And understand that the 3rd quarter 2007 figures were not registered in the full grasp of the credit crunch, so a more gloomy number is likely ahead.  The last quarter of 2007 was likely more negative as mortgage financing dried up and home sales plummeted. 

FICO score changes in 2008
You may see a significant change in your FICO credit score this year once Fair Isaac Corporation has fully rolled out the scoring revision it calls NextGen.  Fair Isaac says the new scoring model, which retains the old 300-850 score range, has 80 predictive variables, more than twice the number in its Classic FICO model.  The variables are used to create many multidimensional mini-models, the company says. The company also says it is increasing the number of segments into which consumers fall, from 10 in he Classic model to 18 in the new one.  We’re guessing that one certain result will be to make the scores even less transparent to consumers.  The model was also to contain a much-publicized change in the way that individuals who are not the actual owner of a credit card owner, but are “authorized users,” are treated.  In the past, individuals could be added as authorized users and get the benefits of the good credit history of the card holder, a practice called “piggybacking.”  That is to end when NextGen goes to the three credit bureaus. Experian was to be the first to get the new scoring last September, but its activation has been delayed. Equifax and TransUnion are scheduled to receive NextGen sometime this year.