Mike Mueller, Social Media.ist

Put your money in a soon to be failed bank.  Just make sure you are FDIC insured and you'll be safe.

I'm kidding of course, but there is also a bit of truth in that.

Washington Mutual just offered a 1 year CD that is paying a full 1% higher than anyone else. 

Why is that? 

Are they just trying to be nice? 

Are they "giving back to the community?"

Have they made enough money this year already?

Or are they strapped for cash (capital) and need to raise some serious dollars?

That's more likely the case.

Wamu has a very large lending exposure in both California and Florida.  Both of these states have experienced some of the highest yearly declines in value.  That's not a good thing.

Wamu also has a high percentage of Alt-A and Option ARM loans on their books.  Experts agree, this is the next wave of borrowers to default. 

A homeowner that stops paying their mortgage becomes a Non-Performing Asset.

Here's what concerns me the most.

Prior to their collapse, many banks (Indymac is a prime example) offered high yielding CD's in a last ditch effort to raise capital. 

I just hope I'm wrong.  We need more lenders not fewer.

If there was, the FDIC would have taken over at 5 PM or so today.

They have a list on their website: http://www.fdic.gov/bank/individual/failed/banklist.html

And yes, it looks like they closed

The Columbian Bank and Trust Company, Topeka, KS

Did you have money in the bank?  Are you covered by the FDIC?

Did you know there's a hierarchy to who get's paid first?

Priority of Claims

In accordance with Federal law, allowed claims will be paid, after administrative expenses, in the following order of priority:

Depositors

General Unsecured Creditors

Subordinated Debt

Stockholders

Now depending on your point of view, a bank failure may be a good thing.

See:  http://activerain.com/blogsview/652272/My-Bank-Just-Failed

Good Times!

For those that have a Mortgage with the bank, there is no change in your note and terms.   You still get to make those monthly payments.  Sorry.

For those that had Uninsured Deposits in the bank - You may get up to 50% of your money back.  Really!  It may take a bit but the feds are working on it.

That may be good news for those that are working on a Short Sale with the bank.  Why?  Because the Feds are actively looking for anything that can convert to quick cash. 

Case in point.  We had a buyer looking at an Indymac REO (bank owned property).  They made the offer and were told by the bank "We'll get back to you and let you know within 45 to 60 days". 

The offer was made right before the bank went under.  Suddenly they get a call from their Agent, "The bank has accepted your offer IF you can close in 11 days!" 

This wasn't 45 days it wasn't 60 days, it was closer to 14.  The dust hasn't settled on the bank failure but the Feds have lit a fire under certain files hoping to yield quick cash.  They (the Feds) want their money back.

So if you have a short sale in progress - your banks failure may be a very good thing. 

Is your bank set to fail?  That's a hard one to say.  One of the keys is the amount of Non-Performing Assets it holds on it's books.  What's a NPA?  The biggest pile might be the mortgages it holds that borrowers are no longer paying on.  You might hear words like Subprime, Interest Only and Option ARM. 

I'll explain more about the NPA in the next post.  In the meantime you can read all about how they hide those assets on their books:

"Level 3, FASB 157, and My 10 Taxi's"

*  All images courtesy of The Fail Blog one of the funniest sites on the planet!

The Media can be misleading.

Yeah I know, no surprise there!

But let's talk about HR 3221, H.R. 3221 or if you want to call it by it's really long name, the Housing and Economic Recovery Act of 2008

It was signed into law Monday July 28th, 2008. It was reported all over the world. it's the talk of the town. I've been interviewed on radio shows, quoted in articles and blogs. Ok, now what?

Just about nothing. We're waiting.
There's quite a few facets included in the bill that still need to be hashed out. Here's a quick peek at just some of the facts.

The $7,500 Tax Credit

It's a tax credit (not a rebate). It's for purchases made between April 9, 2008 and July 1, 2009. It's essentially an interest free loan for 5 years that has to be paid back.

Down Payment Assistance Programs

HR 3221 wipes out the ability for down payment assistance on an FHA loan starting October 1, 2008. Think you have till then? Think again. The Lenders are already not allowing DPA on the loans they are accepting.

Skin in the game

FHA used to finance up to 97%. That meant that the buyer had to pony up the other 3%. As of October 1st, under the new rules, the borrower will have to 3.5%.

Reserve Requirements for Second Homes

Thinking about buying a second home? Vacation home? How about Rental Property. It's a great time to find bargains. How much liquid reserves do you have in the bank? There wasn't a minimum reserve requirement before. Now there is.

Have less than 30 % equity in the second home? You'll need to prove you also have 6 months worth of PITI reserves for both properties in the bank (liquid). Yeah I said SIX months! Have more than 30%? You'll just need to prove you have two months reserves.

Capital Gains Exclusion

Are you good at percentages? Remember when you were entitled to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided you lived in the residence for at least 2 of the preceding 5 calendar years? Not any more.

Now that exclusion is calculated by taking the capital gains on the sale of the home and multiplying it by a ratio (percentage) of how long you lived in the home and how long you owned the home.

Loan Limits Increased!

Nope. Matter of fact, depending on where you live, FHA, Fannie and Freddie Conforming Jumbo loans will decrease.

The Mandatory Refinance at 90% of Present Value

I saved the best for last. First of all it's not mandatory. It's actually voluntary on the lenders part. Should a lender decide this is in their best interest, they'll still hold the note. They'll reduce the size of that note to 90% of the present value and that's what FHA will be on the hook for. Then again, nothing here is in concrete. The details still have to be hammered out by HUD. Until that happens, nothing really has changed.

So there you go. You know know more about HR 3221 than the next guy at the water cooler.

What should you do if you think any of these changes will involve you in the future? Contact your trusted mortgage professional today.