Lonnie Glessner

•· Beginning January people 62 and older will be able to use a FHA Reverse Mortgage to buy a home. Yeah! A reverse mortgage requires no monthly payment, no income or employment information is needed or verified, bad credit is no concern either. They are very easy loans to get approved and closed. But, you must 62 years old and be putting a large amount of money down and will plan on living in the house.

Financial News Update

•· 3^rd quarter GDP shrank by .3% which is a smaller drop than expected. Consumer spending within the report had its biggest drop since 1980 with a drop of 3.1%, which lowered the GDP number by 2.25% as consumer spending makes up 70% of our economy.

•· For September personal income grew by .2%.

•· For September personal spending dropped .3%. What this means is that people are saving more. Imagine that!

•· The Core PCE, the Fed's favorite inflation gauge, rose just .2% last month is now up only 2.4% in the last 12 months.

•· Commercial paper sales rose 6.9% this week for first time in 7 weeks. Yeah! This is great news and hopefully a sign of the credit markets thawing out.

Mortgage rates continue to remain sticky at higher levels at 6.50%. The Stoachistic Indicators for mortgage bonds tell me that mortgage bonds are becoming over-sold. Plus, mortgage bonds have formed a strong floor of support. What does this mean in English? I think mortgage rates should drop next week; however recent history tells us that mortgage rates won't drop below 5.875%.

The third solution to keep this Mortgage Mess from ever happening again is by addressing the policy of "Too big to fail". In the last 15 years we have allowed and even encouraged companies to grow too big for the public's good.

Fannie Mae and Freddie Mac are the poster children of this policy. Together they own or guarantee $5.3 TRILLION in mortgages or roughly 50% of the market place. These companies are way too big and were allowed to do so by our politicians (please see my previous posts on this issue).

Personally, I think Fannie and Freddie need to be split up into at least 6 different companies and maybe 10 once they are financially healthy. Second, take away all explicit and implicit federal government guarantees from these companies and make them totally public corporations. This way we as taxpayers are not at risk again. Third, allow them to borrow from the Fed as a bank can at cheap rates of interest to keep the costs of mortgages affordable. Fourth, have FHA be the lender for "Affordable Mortgages".

Thankfully it appears that Treasury Secretary Hank Paulson understands this as his plan in 2010 begins to shrink the size of Fannie and Freddie's loan portfolios by 10% a year. But will he be around long enough to implement his plan?

I am afraid if Obama is elected he will be dismissed and a Democratic Crony will take his place and not address this issue and in fact allow Fannie and Freddie to grow even larger with another push for affordable home ownership for people who should be renting.

Will we ever learn?

Earlier this week a first time home buyer called me looking for help with buying their first home with no money down. Neither one of them are a veteran of the military, so a VA loan is not possible. Second, their income is too high for any down payment assistance loans except for CHFA loans.

Here are two things I learned about CHFA loans this week. First, their interest rates are incredibly high right now at around 8%. Ouch! Why? They usually run out of money near the end of the year and maybe the credit crunch is hitting them too.

Second, I learned that first time home buyers who use CHFA funds which primarily come from tax exempt bond sales do NOT qualify for the $7,500 first time home buyer tax credit. That really sucks!

So, be aware and educate your clients.

The second solution to the Mortgage Mess is happily beginning already. Finally, at both the state and federal levels of government the government is starting to police the mortgage industry better.

Here are the changes that I recommend for my industry at the grass roots level-

•1) Licensing for all mortgage loan originators in the country, including employees of banks and credit unions.

•2) Mandatory education each year including basic financial and money classes. A college degree in business, finance, or accounting would be great to enter the industry.

•3) Mandatory E&O Insurance and Surety Bond. These are required in the state of Colorado if you don't work for a bank or credit union. But, the requirements could be higher and required for everyone.

•4) Ethics classes and rules with enforcement.

•5) Requirement that all mortgage loan originators do what is in the best interest for the client. We DO HAVE a fiducial responsibility to our clients in my opinion.

•6) Require that all mortgage loan originators be approved to offer FHA loans. Now, this will put small mortgage brokers at a disadvantage; but it is needed for the greater good of society. What do I mean? Millions of people I believe got put into a sub-prime ARM only because their mortgage loan originator could not offer them a FHA loan. I believe that I could have helped a large majority of them get a great FHA fixed rate loan instead. This is why in over 10 years of business I have only done 6 sub-prime loans and I have done hundreds of FHA loans.

•7) Further development of professional designations such as the Certified Mortgage Planning Specialist, Certifed Mortgage Lender, etc.

Next, we need to address the "Too big to fail" syndrome.

In my previous 12 posts I talked about the 21 reasons for this Mortgage Mess. Now I want to discuss how we as Americans can make sure it does not happen again.

The single most powerful idea that each of us has direct control over is our own financial literacy. In just 4 or 5 hours of writing time I have come up with 130 different financial mistakes that hundreds of millions of Americans make every year, year after year. And I have made and am currently making some of these mistakes myself. So, I am not immune to these mistakes.

Why are we making these mistakes? First, we are passing on what I call generational "sins" of the financial type to our children and grandchildren. We are teaching them what we know and believe to be true, often without realizing that what we are teaching them has not worked for us.

Second, our education system in this country does not teach and has not taught for decades, if ever, financial literacy. Our children learn lots about sex education; but nothing about money, finances, savings, credit, debt, etc. We are leaving them to the wolves as they graduate from high school.

Third, a large majority of Americans I believe are lazy about learning after their formal education. We would rather watch American Idol or Survivor than read a financial book, magazine, or website. Because of this we get taken advantage of by unscrupulous lenders, over promising financial advisors, and crafty politicians.

We have ourselves to blame! But, we can do something about it! We can take back control of our lives, our futures, our kids and grandkids' futures, and our country's future IF we educate ourselves and seek to learn.

Subscribe to a magazine like Money or Kiplinger's Personal Finance, buy and read books such as in the Rich Dad Poor Dad series, etc. I am also thinking seriously about writing a book on the financial mistakes we make.

In my next post, I will talk about my second idea that is starting to take place already. Thank God!