Sep 15

Let’s start this week’s roundup at Mighty Bargain Hunter’s blog. He posted Money Smart Guide’s scariest money mistake. It’s great to learn from someone else’s mistakes and avoid making your own.

Next, Kristina at Dink’s Finance just saved me $10. In her Weekly roundup: Sugar Daddys, Apple and Unwinding for Free, she explained that the movie Jobs was just awful, and I’ll take her word for it. Too bad, it had potential. I guess I’ll catch it on DVD.

At Surviving and Thriving, Donna Freedman wrote Termination Dust, a piece on how she lost her writing gig with MSN money. It wasn’t personal, so did all the other finance writers, but I liked Donna and her writing. looking forward to finding her works at other sites.

Money 101: How to Measure and Track Wealth was the subject at Free Money Finance. People tend to focus on income, but as FMF points out, wealth is the key number to determine if one is rich or not.

At My Personal Finance Journal, Travis asked How Much Should Children Know About The Family Finances? A great question, one I often ponder, myself. How much do your kids know about your finances?

And we’ll wrap up the week with How Much to Budget: Do Household Budget Percentages Work, I like Andrea’s line “The only “rule” you should be following is that you do not spend more than you make.  All other budget decisions are up for debate” A budget is a tool to help guide but not so rigid that it can’t be adjusted along the way. A nice article which offered a sample budget that makes a great starting point.

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Apr 09

The debate continues about how the subprime mess occurred. Let me tell you how it would not have occurred:

  • Maximum Loan to value: 80% any higher requires PMI (Private Mortgage Insurance)
  • Debt ratio permitted: 28/36 – This means that one’s mortgage payment and property tax cannot exceed 28% of one’s gross monthly income and all one’s monthly debt burden cannot exceed 36%.
  • Income must be verified, i.e. ‘no doc’ loans not allowed.
  • ARMs must be qualified at the maximum adjusted payment 3 years hence. This would insure that a year or two of rising rates would not be an economic time bomb.
  • All documentation must follow the loan, no matter how it’s sold or repackaged

Would these rules eliminate foreclosures? Hardly. People still lose their jobs, and if unable to find work soon may be unable to make payments. People get sick and are unable to return to work, their disability pay not adequate enough to pay the mortgage. The rules above were broken, and the subprime mess resulted. Follow the rules above and it would take a 20% decline in prices for the lender‘s capital to be at risk. With the permitted debt ratio above, a family earning $60,000 can pay $1400/mo toward mortgage and property tax. A $1200 payment can support a $200,000 loan at 6%, 30yr fixed. 20% down, and this results in a $250,000 home. Now, the median price of a home is $206,200 per the latest CNNMoney report, down from $219,300 in the prior quarter. Seems reasonable to me.


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