I may have lost faith in Wall St., but today I regained faith in Congress.  The House shot down the $700 billion bail out… and I could not be happier.  And you wanna know why… Ok, but first let me lay the groundwork just in case

The gist of the bailout plan

HR 3997 would have allowed the Secretary of the Treasury to establish the Troubled Asset Relief Program.  This program would have been allowed “to purchase and to make and fund commitments to purchase, troubled assets (shaky mortgages and mortgage-backed securities) from any financial institution.”

My president, our president decided that it would be a good idea to use $700 billion of our tax dollar to save the finance industry.  He wanted to buy shaky mortgages and mortgaged-backed securities.  We all know what a mortgage is, but…

What is a mortgaged-based security?

It is sort of like a bond… an IOU.  Potential homeowners go to banks to apply for a home loan.  The bank issues the mortgages.  And then, the bank pools the loans into neat little packages and sell them on the market.  The people who buy these neat little packages receive interest and principle payments every month whenever the homeowners pay their mortgage.  In essence the investors are lending the money to homeowners and expected to receive payments every month.  The bank’s role in this is as the middleman.  For its services of connecting the buyer and lender, the bank receives a service commission.

Plan English…

Ok I got 10 friends who need a hundred dollars each.  They all ask me if I can loan them the money.  I shell out the $1,000 at 15% and get them to sign an IOU.  Then I turn to my friend Joe Blow and I say look Joe, buy these IOUs from me for $1,000. And when my 10 friends pay the bill, I’ll send you all the principal ($1,000) and interest ($150).  All I want is a small services fee of $2.

So I make $2 and Joe gets $148.  However, Joe now assumes all the risk.  If any of the friends don’t pay the bill, it is Joe who will be shafted, not me.

The problem with mortgage-backed securities

Generally, there is no problem.  Most times mortgage-backed securities are a safe bet.  Yeah, there is some risk involved, but usually not much.  The way it works is that the IOU is secured by an asset… the house.  The house is appraised by the bank, the applicant has adequate income to repay the loan, and the bank verified the homeowner’s financial credibility.

But… What happens if the house is over-valued, if the applicant overstates his ability to repay the loan, and if the banks did not adequately qualify the mortgages? 

So here enters the problem…

Well what happens is… that those mortgage-backed securities are worthless and investors will lose a lot of money.

Lately, investors have been taking a lot of losses on these mortgage-backed loans because the mortgage pools are filled with subprime products, foreclosed properties, soon to be foreclose properties… just a mess of worthless assets.  (I’m not really sure if “assets” is the right word to use here because asset implies value.)

Who are these investors?

Mortgage-backed securities are big business.  And because of the perceived low risk, many entities buy them…banks, hedge funds, pension funds, mutual funds.

Alright now back to why I am glad that this bailout was voted down. 

The bailout would have rewarded corporation for bad behavior

The bailout would have alleviated the mortgage risk exposure of financial institutions (and only financial institutions).  Aren’t these the people started this mess in the first place?  Financial institutions were being careless and greedy.  They knowingly exposed themselves to subprime lenders in order to increase short term profits.  Not only did these financial institutions give money to those with questionable financial credibility, but they also engaged in other greedy and deceitful behaviors.  They overvalued houses so that they can issue first and second mortgages.  They came up with all these colorful ways to qualify borrowers… balloons, no interest mortgages, one year ARMs, etc. They made stupid choices in order to fatten their pockets, but it backfired. 

I hate to get on the Harper story again, but just think about this… JP Morgan Chase loaned a family a half a million dollars.  The borrowers… a house wife and a home security alarm installer (not wealthy people).  The loan was secured with a house that cost almost a million dollars to build (the house was a free gift from Extreme Makeover: Home Edition).  At one point the family was trying to sell the house for $950,000.  It did not sell.  Why… because regardless of how much the house cost to build… a house (or anything else for that matter) is only worth as much as someone is willing to pay for it. 

The house is Lake City, GA.  The median income in Lake City $38,000, the median house value, $125,000… both less than the medians for the state of Georgia. 

Now granted I don’t know much about the neighborhoods in Lakeland, GA… but the Harper’s old house was ummm… a dump (I’m not trying to be ugly, but it was).  The dump was torn down and replace with a mansion.  Great! 

But if the Harper’s old house was a dump… then chances are that the houses around it are dumps too.  What sane person with a million dollars or even a half a million dollars would buy a mansion that was surrounded by dumps? I know if I had that kind of money to spend on a house, I would not be looking to buy a mansion that sits in the middle of dumps.  I would want a mansion that is surrounded by other mansion. 

No matter now much it costs to build, nobody is going to buy that house for so much money.  The house is not worth a half a million, it is only worth what someone is willing to sell it for.  Location, Location, Location - that is what the realtor says.  I am no realtor and I understand that.  So why would JP Morgan Chase value that house at a half a million dollars plus. 

Anyway, the family could not repay the loan and it went into foreclosure.  The house went up for auction.  I am not sure what it sold for, or if it even sold at all… but either way, that was a horrible business decision on JP Morgan Chase’s part. 

Taxpayers should not have to foot the bill for the bad decisions of borrowers and lenders.

The federal government has never come to my rescue when I did something stupid.  So why should they help stupid… (greedy) banks? And anyway a bailout out does not solve the problem.  It is just a band aid.  Bailing out banks just frees them to go out and make poor bad decisions.  So way to go House!  I think you all really voted for the people on this one.

Friday as I was getting ready to go to work, I heard a brief comment on the local news about Washington Mutual being sold to JP Morgan.  They did not mention much else… just that simple one liner. As soon as I got to a computer, I went to CNBC.com to see what was going on.  And OMG!  What was going on was a mess! That one liner definitely did not suffice to explain the gravity of what happened.

Washington Mutual… the WaMu Whoo Hoo… gone! What the @#%$?!?!

A 120 year old bank disappeared over night.  According to what I hear… this is the biggest banking failure in history.  This seems like a bit of déjà vu.  I could have sworn I heard the same story last week, last month.  It seems that everyday… we are seeing the “biggest failure in history”.  How many more “biggest failures” can we endure?

Really people, I must be sleeping.  I am going to wake up any day now and realize that the collapse of the financial industry is a bad dream… a horrible nightmare.  But sadly, I know that I am not sleeping and no pinch is going to cure this mess.

So what happened to WAMU?

Basically, Kerry Killinger, former CEO of Washington Mutual, was paid more than $10 million dollars a year to run the bank into the ground.  And he did a great job.  A bunch of bad judgments and greedy decisions later… WaMu no longer Whoo Hoos.

Killinger left WaMu in utter ruin earlier this month.  Towards the end, he tried to redeem his egregious mismanagement by resigning his position as Chairman of the board, raising capital (TPG raised $7 billion dollars - $2 billion of their own money), laying off employees, and restructuring business lines. And to be honest, I thought his attempts to save WaMu might actually work.  (But boy was I wrong!) Apparently using bicycle patches to fill a gigantic hole ain’t enough to keep the Titanic from sinking.

But what finally took the stern under… since the fall of AIG, Lehman Brothers and Merrill Lynch on September 15^th, WaMu customers withdrew nearly $17 billions dollars in deposits.  The run on the bank rendered it virtually insolvent.  And as we learned from the recent descend of Indy Mac, for a bank… no liquidity means the feds will be arriving soon to put it out of its misery.

The FDIC came in, took over Washington Mutual, sold it to JP Morgan for $1.9 billion dollars… it was all a rather seamless transition for accountholders.  But for WaMu stockholders, for WaMu bondholders, for TPG who had just invested $2 billion dollars in WaMu… well they are up the creek without a paddle.  Or to describe it more accurately, the value of their portfolio is as deep as Atlantic seafloor… (Yeah…  chilling with the Titanic.)

But seriously this is the one thing that really bothers me about WaMu’s downfall… stockholders and bondholders got screwed.

You see… When you buy a company’s stock, that means you are buying equity… ownership in the company.  For WaMu shareholders… holding equity in a company that no longer exists means you are left with nothing.  The value of the stock… $0!

And… When you buy a company’s bonds… that means you are giving the company a loan.  The bond is like an IOU.  For WaMu bondholders… having bonds from a company that no longer exists means that the paper it is written on has more value than the bond itself.  The value of the bond… $0!

And just because you may own individual WaMu stocks and bonds… don’t think this will not impact you.  It will.  Many institutional investors, such as pension funds, mutual funds and other banks and insurance companies, owned the majority of WaMu stocks and bonds.  These pension funds are in charge of our retirement security.  These mutual funds are a part of our 401Ks… our children’s 529 accounts! If you have any money invested anywhere… then odds are you held some stake in WaMu’s success or failure.  And because WaMu failed, the value of your assets dropped.

And aside from the financial impact, the psychological impacts are more far reaching.  If consumer confidence wasn’t completely shot before, you can be guaranteed that it is now.  Consumer confidence measures how consumers feel about the current and future state of the economy.  When consumer confidence is low, then people stop spending (which contributes even more to the economic depression) and start stockpiling money… just in case.

But this situation is different in that consumers no longer feel confidence in the finance industry.  This means that instead of stockpiling money in savings accounts, folks feel more security with stockpiling it under their pillows.  And when people began taking their money out of banks… well you know what happens next (IndyMac, WaMu).

The whole thing is cyclical and as it  continues the problem gets worse.

I, for one, tend to be an optimist.  And I am certainly a strong believer in free enterprise and the ability of the market to correct itself.  But even I, with my typically rosy outlook, am getting worried.  I keep looking for the plunge to end, but the end is nowhere in sight.  Every time I think it can’t get any worse. ..  it gets worse times 2.  I just hope that WaMu will be the last to sink, but for some reason I feel that the dominoes have just begun to fall.

The Navy Federal Credit Union offers excellent benefits to its more than 3 million members. Navy Federal has been around since 1933 and as of today holds over $34 billion in assets and $23 billion in member savings.  The credit union offers a wide array of financial services and great rates on its products.

Auto loans

Refinance your auto loan and get $100.  And what makes the deal even more attractive… the interest rate on used car loans are as little as 4.75% for 36 months.  The average right now is 7.14%.  At this rate, the savings can add up quick.  Also if you are in the market for a new car, you can get a great rate through Navy Federal.  The new car loan rate is as low as 3.75%.  That is about half of the national average.

Mortgage loans

Navy Federal offers an excellent rate on home mortgage loans.  The 30 year fixed rate is 5.375% with .75 points.  The going rate everywhere else… 5.97%.  That may not seem like much of a difference, but .6% makes a huge difference on a $500,000 or even $200,000 loan. And if you use a RealtyPlus approved agent to help you search for and buy your new home, you can get a rebate of up to $5,050 (depending on the purchase price).  This rebate also works if you use a RealtyPlus approved agent to help you sell your home.

Certificates of Deposit

Navy Federal offers 4% on its one year CDs.  With the declining market, it can be comforting to know that your money is guaranteed to earn 4%.  But the best part… you only have to make a minimum deposit of $100.  Most CDs required much higher minimums of $1,000, $5,000 or even $10,000 or more.

Credit Cards

Navy Federal issues several different credit cards. But two I like the most… the Platinum Visa and the nRewards Visa.  There is no annual fee for either card. And the credit limit can range from $1,000 to up to $50,000.  The APR on the Platinum is 7.9%. The APR on the nRewards card is 8.9%. Plus you can earn 1% back on every purchase made with the nRewards card.

Free Seminars

Even with all of the great products and low rates, the thing I like most about Navy Federal is that they offer free seminars to it members.  The seminar usually last 1 to 2 hours and center around different financial topics that are very useful.  They regularly host home buying seminars.  But other seminars focus on investing, estate planning, retirement planning, and taxes.

In addition to those few that I have mentioned, Navy Federal also provides services for small business and investment and insurance services. However, the only way you can benefit from what Navy Federal has to give is to become a credit union member. Until recently, membership was limited to only those with an affiliation with certain branches of the military.  However as of May of this year, membership eligibility has been expanded to include all branches.  So to join the Navy Federal Credit Union, you must be a civilian or non-civilian employee of the Department of Defense, be a Department of Defense reservist or be enrolled in a officer candidate program.  Else you must be a family member of anyone who fits into one of these categories.

Unfortunately, I am not eligible to join.  But if you are, you should seriously consider giving Navy Federal a shot.

Everyone has heard the big financial news of this week.  Bank of America acquired the troubled Merrill Lynch for $50 billion dollars. With this acquisition, Bank of America as upped it ranks as the biggest and largest everything… brokerage, mortgage lender, credit card issuer, bank. For just about every segment in the finance business… Bank of America is now the biggest.  They can easily be called thee monopoly of the finance industry.

Is this good…?  Is this bad…?

Ok I am going to tell you all my opinion… but first I must preface this with a disclaimer.

Neither am I nor have I ever been a big shot corporate executive.  And actually… I have no desire to be one.  It is too much responsibility and stress. And there too many people sneering down your back waiting for your next screw up.  Even with the millions in compensation, the loss of peace and sanity is not worth it to me.

Anyway, my opinion about Bank of America’s situation is entirely that of an outsider.  I am just the little man (woman) at the bottom of the totem pole who has something to say.

With the being said… I would like to present you all with a scenario. (I like to put things in simple terms so that I can get a better perspective.)

Ok for a moment… let’s pretend my name is America and I have a 10 year old Honda Accord.  It runs ok for now.  I have had a break down here and there.  But the mechanic had to put some patches on it and it is still rolling (for now).  And even though I get a clicking sound here and a clacking sound there, it gets me to where I need to go.

Now enters my friend… let call her Merrill.  Merrill has an Accord too.  Her car has also had some break downs here and there, the mechanic tries to put on a few patches… but the patches do not work.  As Merrill drives away from the mechanic shop, the wheels fall off and the engine drops to the ground.

So Merrill calls me (America) and says…

“Hi, my good ole’ buddy, America!  How are you today?…

Barely surviving yourself, huh? Yeah… good, good!…

Look America, I need a favor from you.  I am having problems with my little jalopy.  The wheels are gone, the engine is gone… all that is left is a shell of a car… and even that has dents and scratches…

No silly, I don’t need a ride.  What I need is for you to buy this jalopy from me for… umm… $50 billion dollars.

No, I am not kidding.  Seriously, $50 billion for a shell of a car is a bargain. You ought to jump on this deal while it is hot.  I’ve got three other people lined up waiting to buy it, but since you are my friend… I am making the first offer to you.”

My response… Yeah Merrill, I think I’mma have to pass on this one.  My little Accord is not in the best shape.  It’s getting me to where I need to go, but just barely.  I still hear a lot clicking and clacking coming from the transmission.  I need to get my car back to pristine running condition before I can take on your jalopy.  Thanks for thinking of me, but no thanks.  But, hey, maybe we can do lunch next week.

You see where I am going with this.

No PFA, I am not opposed to mergers and acquisitions.  It is usually a good thing because it creates opportunity and synergy.  But what opportunity does Bank of America have here?  The opportunity to add nearly $6 billion dollars of subprime assets to its portfolio.  Ain’t enough synergy in the world makes to make this a good deal.

September 15, 2008 was a sad day on Wall St.  Yesterday, three well respected, heavy hitters died.  Lehman Brothers, AIG & Merrill Lynch were all taken out in one foul swoop.

As I reminiscence about the better days, I can hardly hold back my tears.

The Lehman Brothers… high hopes, big dreams and endless optimism.

One of the world’s largest investment banks, Been around over 158 years, Managed over 280 billion dollars in assets, 30,000 employees, named one of Business Weeks best performing companies in 2008… as of yesterday BANKRUPT.

I can remember when AIG just a baby waddling around, trying to make his way to the top of the finance world.

One of the world’s leading insurance corporations, been around 41 years (the baby of the group), over 100,000 fulltime employees, made it to number 10 on the 2007 Fortune 500… One foot in the grave, the other on a banana peel.

Merrill Lynch, ahhh… Merrill, there are so many things I can say about Merrill.  He was the tenacious, strong willed… the driven type.  There was never an obstacle he could not overcome.

Another one of the world’s largest investment banks, been around over 94 years, 60,000 employees, Fortune 500 company… and as of yesterday SOLD to Bank of America.

The Lehman Brothers, AIG & Merrill Lynch each had their own methods, but they all had the same goal… to be industry leaders in the world of finance.  And they were the leaders… and this is why I am deeply saddened by their untimely demise.

The collapse of these three highly respected mega giants has got me seriously thinking about the poor state of the US economy.

What is the cause of this economic crisis?

Yeah, we all understand that the market must correct itself every now and then, but these current economic conditions are unheard of. We are living through the most massive market collapse since the Great Depression.  And why?

Well there have been several major events that lead to this.  The one that gets the most attention is the real estate market.  Call it incompetence, call it greed… but for whatever reason bankers were handing out loans to anyone who walked in the door.  This was their dastardly attempt to milk consumers and increase the bottom line…. And the plan backfired.

Even if you overstuff a money bag, it will start busting at the seams.  Eventually, the bag will have to give way and all the money will start flying out.  But the bankers gave no regard for the eventual consequences.  And my goodness… what a destructive consequence it has been?  Financial institutions are crumbling all around us.  And not just the little local bank in Podunk, KY… no I am talking HUGE - everybody knows their name - institutions are being chopped at the knees… one after another, falling all over each other… it is like they are in a competition to see who can hit the ground the fastest… and the hardest.

And what else contributed to this crisis… the unveiling of creative accounting that exists to create an illusion of financial stability.  Believe me folks, creative accounting is alive and well.  In the midst of the crisis, executives are doing everything they can to make their companies appear stable.  I do not see how Lehman Brothers can be on the Fortune 500 list a few months ago and bankrupt today.  It just sounds fishy to me.  But in the end… it will all come to light (Enron).

Another contributing factor… a loss of investor confidence.  With all the trickery, lies and deceit… how can and why would investors be optimistic?  I, for one, have lost complete confidence in those companies I once admired and respected.

The culmination of all of this has resulted in the worse financial crisis in history.

The government has made some modest attempts to save the economy…  brokering deals between drowning institutions (Merrill Lynch) and damn near drowning institutions (Bank of America), coming to the rescue of Fannie Mae and Freddie Mac, insuring billions of losses from deposit accounts. But is it not just the financial markets that have us in a rut… our own federal government is in a four billion dollar… no, I am sorry… I mean four hundred billion dollar deficit!  With a $400 billion dollar deficit already, the Iraqi war that seems as if it will never end, rising unemployment rates, and the domino effects of bank failures…  how many more hand outs can the feds afford to give?

Can the economy be revived?

The economy will fixed itself.  It has no choice… eventually it will hit the bottom and the only place to go is up.  By the time the market rebounds it would have shaken off all of the dead weight… no more greedy executives, no more careless boards of directors,  more accountability, and  many new lessons learned from those companies that did not make it.

This massive market correction is a test.  The survival of the fittest… and in the end… the best of the best will be revealed…  badly damaged and bleeding all over… but stronger, more learned and ready to propel back to the top.

I purchased my first home 9 years ago.  It was an exciting and scary time for me and my family.  I had always dreamed of owning my own home.  Most people think of it as a great financial investment.  While that is true, I never thought of it as an investment in the monetary sense of the term. I viewed it as an investment in improving the quality of life for my family.

At the time, my son was 5 years old… and while living in an apartment was ok… it was time for him to have his own yard so he could run around and play with the dogs.  It was time for me to have my own patch of grass so I could experiment with gardening.  It was time for the DH to have his own space… a little outdoor workshop so he could channel his inner Bob Vila.

You know a place to call our own… a home with the white picket fence so can raise I can raise my 2.5 kids and a dog. Well I don’t really have a white picket fence… it is more like black wrought iron.  I don’t have 2.5 kids… I have 2. And I don’t have a dog… I have a poodle and a terror (also known as a Jack Russell Terrier).

Anyway you get the point… the all American dream!

But buying a home is a big decision.  There are so many things you need to consider.  Which subdivision?  How many square feet?  How many bedrooms?  Which school district?  And so on… and in addition to making those choices, there is also a lot you must learn.

Buying a home exposes you to a world of other little issues that you never had to worry about before… adjustable rate mortgages… fixed rate mortgages… interest only mortgage… and other fancy mortgage loan products, PMI, home warranties, property taxes, homeowner’s insurance, home maintenance, neighborhood associations… this list could extend for pages, I will stop here because you get the idea.

However, of all the issues, I think the biggest one that you should understand before you sign on the dotted line is: How much house can you afford?

They say that your mortgage loan should be no more than three times your annual household income.  So if your household income is $60,000… then your mortgage loan should be in the $180,000 range. But depending on your part of the country… $180,000 can equate to merely a shack (California) or a mini mansion (Mississippi).

But even this 3 times your income rule is relative.  If you have a low interest rate… 3 times your income may be fine… but if you have a high interest rate or get one of these questionable mortgage loans… 3 times your income many not be enough when payments begin to balloon.

Besides the mortgage payment, you’ve also got to take into account the other expenses of owning a home.  A safe estimate is that other expenses will run about the same as other mortgage payments.

Utilities such as electricity, gas, water… $400 a month

Lawn maintenance… $75 a week

Those communication services we can’t do without, phone, high speed internet, cable/satellite… $200 a month

Property taxes… take a pick… this can range anywhere from $1,000 to $8,000 or more per year depending on your state and country laws and the value of your home.

Regular maintenance… cleaning air ducts, shampooing carpet, power washing the exterior to remove mildew, applying fertilizers, spraying for insects, weatherproofing outdoor furniture… and on and on.

And of course… you’ve got your occasional emergencies… plumbing backs up, air conditioner goes out, Hurricane Gustav blows half the shingles off the roof but you’ve got to meet a $5,000 deductible before the homeowner’s insurance kicks in (this is the little emergency I recently encountered).

Then you’ve got the one time expenses… furniture, appliances, and curtains… don’t forget about the curtains.  Some people may not realize how expensive it can be to put up window treatments in every window of a house.

Use a good online calculator to figure how much house you can afford, but don’t forget to consider all the other expenses that come with home ownership.  That will help you understand how much house you can really afford.

Bear Sterns was founded in 1923 by Mr. Bear and Mr. Sterns.  The trading company eventually grew into a multi billion dollar, international corporation that employed over fourteen thousand people and specialized in a gambit of corporate finance and investment services.  Several times the company had been honored by Forbes magazine as one of American’s most admired companies.

Boy, how things have changed… America’s most admired company is admired no more… actually it’s exists no more.  Bear Sterns is yet another former financial warrior that has succumbed to the mortgage crisis of 2007.  As of May 30^th, the company was acquired by power player, JP Morgan Chase for only $2 dollars a share.  This equates to just over $236 million dollars - nearly a fraction of Bears Sterns market value a year ago.

Throughout the entire year of 2007, the now defunct Bear Sterns was thrown hurdle after hurdle.  Aside from the billions of dollars in losses resulting from lending in the subprime mortgage market… Merrill Lynch seized nearly a billion dollars of Bear Sterns assets.  The assets were used as collateral in a bail out loan… a loan for which the company could not repay.

Also before the acquisition, the company had been sued by investors and the Federal Trade Commission.  Last week the FTC suit was settled for $28 million. EMC Mortgage, a subsidiary of Bear Sterns, was the named defendant in the FTC suit.

EMC Mortgage was the subprime/ \alt A mortgage lending arm of Bear Sterns and serviced nearly a half a million loans with balances totaling $86 billion dollars. Subprime lending is when banks loan money to those with bad credit.  Alt A lending is when banks loan money to those bordering on bad credit.)

So what is EMC guilty of? A bunch of dirty tactics which involve deceiving and defrauding mortgagees… FTC Act Violations, Fair Debt Collection Practices Act Violations, Fair Credit Reporting Act Violations and Truth in Lending Act’s Regulation Z Violations.

FTC Act Violations

The FTC Act makes it illegal to use unfair or deceptive practices in business.  EMC disregarded this act by charging unnecessary fees.  They charged late fees, inspections fees and other fees with provocation.  They also were careless in ensuring that the amount due as shown on mortgage billing statement was actually the amount due.

Fair Debt Collection Practices Act Violations

Debt collectors have been known to play dirty.  They would call at midnight, 2 am and 4, they’d swear, falsely threaten to take legal recourse that strong arm people into paying, lie about being a debt collected… all kinds of stuff.  EMC engaged in similar ploys.  But the Fair Debt Collection Practices Act exists to protect consumers from such abusive debt collection practices.

Fair Credit Reporting Act Violations

The Fair Credit Reporting Act entitles consumers to a free annual credit report.  It also spells out what must be reported to credit agencies and how long negative items can appear on a credit report.  EMC reported that consumers owed a debt, however it failed to report when a consumer disputed a debt.

Truth in Lending Act’s Regulation Z Violations

The Truth in Lending Act requires a lender to fully disclose terms and conditions of a loan. EMC charged its borrowers a loan modification fee, rolled the fee into the principal balance and never disclosed to the borrower that they were doing so.

I think it is horrible that EMC chose to prey on the American people.  What is even worse, the people they preyed on were those who could least afford it.  Subprime and Alt A borrowers were duped once with all of these creative mortgage products… no interest loans, teaser rate adjustable mortgages, and so on.  Shame on EMC for sticking it to consumers a second time… charged unauthorized fees, not disclosing all fees and being a bullying debt collector. And what is so disappointing about the whole thing… EMC was a subsidiary of Bear Sterns… American’s most admired company.

Extreme Makeover Home Edition… have you seen it?  It is the cousin to Extreme Makeover (People Edition).

Anyway, the premise of the show… they select a family that has a very sad and heart wrenching story (disabled children, poor living conditions, too many children, you name it, they’ve shown it).  The show pays off the family’s mortgage.  Then a team of architects, plumbers, designers, electricians, builders, and hundreds of other volunteers demolish the family’s existing home.  After that, the team rebuilds a luxurious, mammoth-sized, fairytale like dream home in its place.

The fantasy home, all of its contents, and usually other gifts like scholarships, cash, cars, etc. are bestowed onto the family… scot-free! This copious gesture serves to uplift the family and to help them better cope with their unfortunate circumstances.  Well… at least for the time being…

Recently stories have been surfacing about how some Extreme Makeover Home Edition families have been losing their mansions!  So they no longer have their extravagant made over house, but they also no longer have the shabby house that it replaced.

Case # 2382G - The Harper’s

Patricia and Milton Harper of Lake City, GA, married 24 years, three children, the wife - a homemaker, the husband - works in the home security business.

Their tragic story: They lived in the projects of New York.  They lost a child that choked to death while eating his food.  The incident motivated them to seek something better.  They decided to work hard, save up and finally moved to Georgia and purchased their first home.

The house, however, was a doozy.  Every time it rained, raw sewerage would back up into their house. The horrid conditions forced the family to live in their van.  The van was totalled in an accident. Long story short… they got dealt a bad hand.

Three years ago, Extreme Makeover decided to help them out.  Nearly 1800 people took on the task of overhauling the Harper’s house. And what an overhaul it was? 6500 square feet, 5 bedrooms, 7 bathrooms, stone fireplaces (with an “s”), a music room, a theater room, an office… a castle! On top of the house, they also received nearly a quarter of a million dollars in cash.

How’s that for a gift?

But apparently the Harper’s fell onto hard times.  Back in May, they put the house up for sale… asking price, $950,000.  The house did not sell back then.  However, due to some unfortunate circumstance, the house will be up for sale… or rather up for auction on August 5^th.  The house is being auctioned off as a result of a foreclosure.

This auction comes as the sad and final end to an unbelievable story.  But I am left to ponder… who is to blame?

Most people are blaming the Harper’s.  Some have called them ungrateful… and even stupid.  While I feel that they are partially to blame… I also want to point a finger at the bank, Chase, and at the show, Extreme Makeover.

Here is my question to Chase… Why would you loan nearly a half a million dollars to a couple that survives on the income of a home security worker?  Seriously, did you really think they were going to be able to pay you back?

And to the Extreme Makeover folks… Ok, so you want to help a family that is down and out. Really, I applaud your philanthropy.  But have ya’ll ever heard the old Chinese proverb: Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.  For an extra four or five hundred dollars, ya’ll could have thrown in a financial planning class as a part of the package.

Well that’s my 2 cents, for what it’s worth.

Nearly 30 years ago, back when it was Norwest, Mark Oman began his Wells Fargo career as manager in the consumer finance department.  Since then, he has worked his way up to nearly the last rung on the ladder.  Today, as the Senior Executive Vice President, he oversees Wells Fargo’s Home and Consumer Finance Group.  This group is comprised of Wells Fargo Home Mortgage, Wells Fargo Financial, and Card Services and Consumer Lending divisions. 

During his tenure, Mr. Oman has been recognized are a powerful leader, a man of integrity and excellent businessman.  Actually, he holds the honor of being a member of the Iowa Business Hall of Fame.

And to his credit, he was wise enough to limit Wells Fargo from finagling in the subprime mortgage lending.  While nearly every other major mortgage lender is scrapping by on pennies, Wells Fargo’s financial strength sustains.  Five years ago, their shares were trading at $25, today there are trading at $30.  Countrywide should have taken a lesson from this guy.

Anyway, next year, Mr. Oman will call it quits.  After 30 long years of triumphs and successes, he’s retiring.  But what intrigues me most about Mr. Oman… well, besides the fact that he is worth millions… he’s only 53!

53, retired, and a multimillionaire… who hasn’t dreamed of that?  I know I do all the time.  Forbes has this series called Millionaire in the Making. I read it religiously. They profile all of these regular people who are on their way to living my dream. 

According to some figures I ran, if I save $2,200 a month then I can be a millionaire by 53.  When I start making $6 million a year like my old buddy Mark… socking away $2,200 a month would be a breeze.  But since that ain’t about to happen no time soon… for now, I have to do the best I can with what I got. 

And so to be a Milli by 53… I present to you the best plan I got

Max out my 401K contributions - This is an easy one.  Most employers match an employee’s 401K contribution up to a certain percent of your income.   I have seen the match range from as low as 25% to as high as 200%.  (Rumor has it that Exxon matches 300%!)  But whatever the match, I’m taking it!  It’s free money!  I’m promised a 25% return.  What other investment can promise that?  Plus, the IRS gaves me a tax break.

Max out my IRA contributions - After I max out the 401K, then I start piling on the IRA contribution.  Why?  Cause with this little doggy, I get tax free compounding interest. Compound + Interest, toss in a dash of tax free… now that is the perfect recipe for becoming a millionaire

Find ways to generate passive income - Which means, I make money without working, now that is my kind of gig!

Or to get the cash flow moving more quickly, I can…

Become a rapper

Or better yet, a skateboarder

Sell short shares of SunTrust Banks, Inc

Find an alternative use for the trailer at work such as… ummm… turning it into my personal punching bag

Get in the mortgage fraud business

Take advantage of not so on-the-up-and-up tax shelters 

Rob a bank (or two)

Ok, well… maybe I do need to work on this a little more… but at least I’ve got a plan, right?

HSBC can easily be considered a global financial institution.  The London based company parents over 9500 offices throughout 85 countries.    Their two primary US subsidiaries are Household International, Inc and HSBC Bank USA.  Though their US assets measures in the hundreds of billions of dollars, the company is also seeing its share of losses amidst the mortgage collapse.  In 2006, their losses from bad mortgages were nearly 10 billion dollars.  But as we move into the belly of the collapse, their annual losses are even more staggering.

HSBC has been making efforts to mitigate these losses.  One plan of action is to shut down offices and lay off employees.  The most recent lay off is happening in Chesapeake, VA right now as I am writing this blog.  Their mortgage services unit is reducing its staff by 48 employees. 

Forty eight may be a lot, but it is only a small fraction of the HSBC lay offs that have been occurring over the past couple of years and that will be occurring in the future.

Just this May, HSBC laid off 70 San Diegans.  And over the next three months, 400 more HSBC Auto Finance workers will be let go from San Diego area offices. And another 200 Lewisville Texans are on the slate as well. 

In June of this year, 460 employees at White Marsh, MD HSBC call center were notified that their jobs would soon be gone.  Plus, in Jacksonville, FL, another 240 call center jobs are being eliminated.

Late in 2007, HSBC execs decided to completely abandon its Decision One Mortgage company, which specialized in the subprime wholesale lending market.  This move resulted in the loss of 750 jobs throughout South Carolina, North Carolina and Arizona.  However, dumping these risky wholesale lending sections is the growing trend in the finance industry.  WaMu and other major lenders have been doing the same thing.

These kinds of massive lay offs are a pity, but this is what typically happens during a recession.  If you are unfortunate enough to get caught up in one of these “restructurings”, don’t panic.  Just make sure you have a good plan.

First, don’t take it personal.  It’s just business, right?  (That’s kind of easy to say if you are the one handing out the notices.)  When people are laid off, they may sometimes feel as if it was a personal slap in the face.  Though it may feel that way, don’t let this affect you mentally or emotionally.  Because now, more than ever, is the time you must be strong.

Sometimes, people are given severance packages to help them survive until they find a new job.  But if severance pay is not a part of your lay off package, make sure you apply for unemployment right away.

And think about what you want to do.  This can be an excellent time to take a different career path, learn a new trade or become that rock star you always wanted to be.  Also, look for alternative ways to earn income.  

However, this is not the time to begin making hasty financial decisions.  Put the MasterCard away.  Leave the 401K alone (unless you plan to roll it over into an IRA).

In this worsening economy, it is best to have a plan and to be prepared to put that plan in action in the event you are taken by surprise.