Clark Howard's Tips

A bust, a bailout and new mortgage lending rules

July 14, 2008

Another day, another wrinkle in the mortgage crisis and its impact on other sectors of the economy!

First off, we had the second-largest bank failure in U.S. history with IndyMac on Friday. Just a day later, Clark got a call from a relative who wanted him to talk to a family friend. Clark had to difficult task of explaining what happens when you have money that's not FDIC-insured in a failing bank.

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The latest stats show that 37% of people have money above FDIC limits --$100,000 in a bank account and $250,000 for retirement accounts. If this train wreck has already happened to you, here's the scoop: If there are assets left over after all depositors have been reimbursed up to $100,000, then you'll get a portion of your unprotected money back.

Hopefully, you're not in this situation. Heed Clark's advice now and reduce your accounts to $90,000 so you don't forfeit a penny of interest in the event of a collapse.

Second, let's address the mortgage crisis involving Fannie Mae and Freddie Mac. These are both private corporations that created money for mortgages with a wink and nod and the understanding that taxpayers would back them up in the event of any difficulty.

Well, now the difficulty has arrived and Pres. Bush, Treasury Secretary Paulson and the folks at the Federal Reserve have agreed to bailout private stockholders with taxpayer money. This is unacceptable. The only reason it's happening is because Fannie Mae and Freddie Mac are politically connected.

Third, the Federal Reserve has issued new rules for banks making mortgage loans. The first rule states that they can't make a loan if you can't pay it back. Duh! That took a federal regulation?! Under the new rules, they have to make sure you can pay at the highest rate that your monthly payment could adjust for 7 years. In addition, there will be no more pre-payment penalties (in most instances) and escrow accounts will be required for property taxes and insurance.

More Clark Howard Home Tips Capitulation has benefits for buyers and sellers  Inflated home values are in the eye of the beholder  Is it time to raise your homeowner's coverage?  A bust, a bailout and new mortgage lending rules  Pay attention to foreclosures at the risk of missing other deals  Hawaii, California mandate new green energy measures  Jumbo loan relief finally hits the market  Consumers win the battle of Real Estate commissions  Investors to hand you a mortgage reduction?  Occupancy fraud stalls housing market recovery  Full list