No.  ARMs are not bad loan products.  But they do have a time and place, a specific purpose and use.  The problems that we are seeing right now are a result of the ARM loan products being used incorrectly.  So what would be the appropriate use of an ARM loan?

The ARM loan product was designed to be a short term program to assist those who are otherwise financially challenged (bad credit mostly) to be able to get into a home and begin rebuilding their credit.  A person with bad credit could get a home loan which is the single best credit building credit line available.  Then over the course of those first 2-3 years this person could restore their credit worthiness in order to get into a standard fixed-rate mortgage at market rates.

The problems that we see today are the result of those ARM loan products being marketed to everyone regardless of ability to repay.  Many people were given ARM loans and their ability to repay was based on the introductory rate.  Once the rate adjusted these people were unable to afford their mortgages any more.  The shorter the time frame to an adjustment the shorter the time frame before default.

Should we keep ARM loan products on the market?  Absolutely.  But they should be used for their intended purpose, a time for a person to improve their credit so that they can get a good fixed rate mortgage on their home.  It may be appropriate to require home buyer education and financial literacy before an ARM loan is originated to guarantee that the borrower understands what kind of loan they are getting and to help them make appropriate plans to improve their credit within the time frame of their loan product.

Realtors, home builders and consumers hoping not just for an extension of the $8,000 tax credit, but an expansion to all buyers in 2010, shouldn’t hold their breath.

That’s because it’s looking more likely that Congress will only agree to a continuation of the current credit beyond its scheduled November 30 termination date.

But that’s not bad news. Just a few weeks back the key question was: will Congress extend the credit at all? Now that looks like a pretty safe bet.

When it comes to tax issues, you’ve got to follow what New York Congressman Charlie Rangel is saying. He’s the chairman of the Ways and Means committee, and no tax legislation has even a chance of getting anywhere without his say-so.

On the other hand, bills he supports, they just about always make it at least to the House floor, and usually beyond.

Here’s what Rangel told reporters last week about the housing tax credit: “There’s no question I think it should be extended,” he said. How long, I haven’t discussed.” Rangel also said he doesn’t thing that “eligibility should be expanded beyond the first-time home buyers,” according to Dow Jones Newswires.

That’s probably the kiss of death for lobbyists pushing for an increase in the maximum credit to $15,000, and expansion of coverage to nearly all buyers of homes in 2010, and an increase in the income limits for eligible purchasers.

The National Association of Realtors and the National Association of Home Builders have been the most outspoken advocates of a year long extension and expansion of the credit, up to a maximum $15,000.

Informed of Rangel’s comments, home builders president Jerry Howard said he’s no longer as “optimistic about expansion” as he once was.

But, on the other hand, chairman Rangel’s endorsement of an extension of the credit — for a yet-to-be specified period of months — has got be a lifesaver for thousands of buyers who’ve been worried they’d miss out on this year’s credit because they can’t close their transactions by November 30.

The politics of the tax credit, and the likely rejection of a bigger credit, are all about the budget deficit. Lawmakers on both sides of the aisle are looking for ways to cover the multi-billion-dollar revenue costs of an extension of the credit. Some estimates go as high as $15 billion.

One idea advanced by Georgia Republican Sen. Johnny Isakson: tap into some of the unspent economic stimulus bill money still sitting in the $800 billion economic stimulus bill.

Traditionally there were two places a person would go if they needed a mortgage, to their local “mortgage broker” or to their local depository bank or credit union. Having worked at both, let me discuss a few of the advantages and disadvantages of each medium:

Depository Banks and credit Unions:

PROS:

CONS:

Mortgage Brokers:

PROS:

CONS:

As you can see, the pros of a bank are cons of the broker, and visa versa. 
But what if there was a better way, a “hybrid lender” so to speak, one with the advantages of both bankers and brokers, with none of the disadvantages?  Wouldn’t that type of lender be ideal?

So let’s look at how a “hybrid lender” will benefit you:

PROS:

CONS:

Some Hybrid Lenders:

Security Home Mortgage
Rick Anderton
(801) 414-8055
rick@lendutah.com

City1st Mortgage
DJ Gardner
(801) 226-7018
djgardner@city1st.com

In order to qualify you must use an “approved” lender like Rick Anderton at Security Home Mortgage. You can reach Rick regarding the Home Run 2 Grant at (801) 414-8055 or by email at rick@lendutah.com. He can answer any further questions about qualifications but you need to hurry. Only about 1,000 grants have been authorized for the entire state of Utah. And don’t forget to tell Rick that Khayyam sent you!!!

Picture your life as a five-step stairway, with you standing at the top and Fulfillment waiting for you at the bottom. Complete this picture by placing a large, empty bucket on each of the five steps and labeling the buckets from top to bottom:
Survival, Financial Stability, Quality of Life, Financial Security, Financial Independence. Your objective is to fill each bucket with dollars as you progress down the stairway, so that when one bucket overflows, it begins to fill the next bucket.

Survival:
The Survival bucket is how you can pay for your basic needs of food and shelter. Once you’ve taken care of these, any extra money flows into the second bucket, which is Financial Stability.
Financial stability is the ability to keep solvent in the event of sudden, unforeseen changes and emergencies in your life – insurance against catastrophic loss.

Financial Stability:
To be financially stable, you must have an emergency fund in a savings account equal to a minimum of three month’s income, and preferably six months’ income. You also must have adequate permanent and transferable medical insurance that remains in force, regardless of your employment status, as well as life insurance, including some whole life, in addition to term, that accumulates cash value and has a level premium
Another critical component of financial stability is non-cancelable, individual permanent disability income insurance, equal to at least 70 percent of your monthly pay, but preferably 100 percent. One of the greatest financial blunders most people make is to forget that the possibility of loss of income resulting from an injury or illness is much greater than that of loss of life. Not only are you without income when you are sick or injured, you also do need to be cared for during that period, and the expenses continue even though you’re not able to work.

Quality of Life:
When bucket two is filled with contingency dollars for your financial stability, you can sit down with your inner circle and determine what standard of living will give you the quality of life you want: your home, family, education, recreation, possessions, etc. These considerations should be budgeted with a monthly amount of savings, however small.

Financial Security:
If you can fill your Quality of Life bucket, a little extra discretionary income will trickle over the lip and fall into bucket four. This is the Financial Security bucket. Financial security is defined as the amount of assets that will give you the amount of after-tax income you need to maintain the standard of living necessary to have the quality of life you want, at some predetermined point into the future, without having to depend upon day-to-day employment.
Less than 10 percent of Americans ever fill this bucket. Your goal is to be in this 10 percent. It is not based on salary. Many individuals in the top income brackets never reach financial security. Many middle-income Americans do. To get in the top 10 percent, you need to put 10 percent of your spendable into an appreciating investment fund every month, just like a mortgage payment.

Financial Independence:
The fifth and final bucket is Financial Independence. This is achieved when you beat the target date you set for retirement. The object of creating personal assets is to be financially independent of having to work, while you still have your health and are still young enough to enjoy those assets. Many individuals set their financial security target date at age 65. Using compound interest over time, you can beat your target date and set yourself free.
See your life as a stairway to fulfillment. Put your dollars in the right buckets, in the right order. You’ll be amazed at the way cash flows from bucket to bucket, like a river down a mountain.

– Denis Waitley