The ‘real estate bubble burst’ has been identified as the major contributory factor towards the current economic meltdown. The real estate industry tumbled as the home values dropped below the purchase prices, forcing many homeowners to foreclose. In order to stabilize the situation the Obama Government has introduced the Home Affordable Modification Program or HAMP. This program is expected to benefit around 5 million American homeowners.

The objective of the program

The principal objective of the program is to offer the much needed relief to homeowners. It’s also aimed at stabilizing the real estate market. For this purpose, the program is being offered free of cost and the borrowers are discouraged to use any third party negotiator to join the program. A fund worth $75 million has been set aside as an incentive for the participating lenders. The three main targets that the program aims to achieve are,

• Bringing the interest rate down to as much as 2%.
• Bringing the debt-to-income ratio of the participating borrowers below 31% of their earning. This has been targeted to achieve even by forbearing the principal amount.
• The amortization period can be extended to 40 years to accomplish the DTI target.

Mortgages that would qualify for HAMP

• The loan should have been taken before January 1st 2009.
• The mortgage shouldn’t have been considered before for modification under HAMP.
• Only primary residence (owner occupied) would qualify for this program. Size of the property may vary from one unit to four units.
• The value of the property mustn’t exceed the amount $729, 750 for a single unit home. However, there is a relaxation in limit on properties with more than one unit.

Qualification for the owner

There are some criteria set for the owner too in order to qualify for the Home Affordable Modification Program.

• The owner needs to be current on her mortgage payment while applying for HAMP.
• She mustn’t also file bankruptcy if she seeks to join the loan modification program.
• The debt-to-income ratio of the household must be more than 31% of its current monthly income.

Home Affordable Modification Program has been strongly opposed by investors, who have heavily invested into mortgage securities. Further, the lenders are asked to enroll in HAMP within 31st December, 2009, which will then require them to offer modification to all eligible borrowers.

It won’t be wrong to say that the economy is gradually recovering from the second most severe depression after the great depression of 1930′s.

According to the recent study of consumer data, both personal income and consumer spending, the two main driving forces of an economy, have registered positive growth rates as compared to the significant drop of 1.3% during June last year.

Now, when we may let the economy heal at its own pace we need to evaluate what we have learnt from this experience and how can we save ourselves from slipping into another economic meltdown in the coming time. Here are some measures that can help us prevent another depression in the future.

We need credit cards wisely – The total consumer debt in USA alone stands at trillion of dollars and it has been recognized as one of the major contributing factors towards the economic slowdown. We need to learn how to leave within our means. Our greed and desire to ‘live life king size’ have put the economy to this jeopardy.

Practice the habit of saving – Yes, this is very important. US households were severely hit since they hadn’t had enough savings to survive through the bad days. Saving is important even if it means curtailing your existing expenditure to some extent.

Investing prudently – We seriously need to consider the ways to stop waste and methods to secure our investments for the future. Taking risk is important for any investor but more risk doesn’t always ensure more return. Hence, distribute risk evenly within your portfolio and if you’re not confident, don’t be over aggressive.

Be thankful that you are employed – Around 6.5 million jobs were lost during this period. So, if you haven’t suffered unemployment in this recession, be thankful even if you hate your job.

Buy house when you can really afford it – Yeah, owning house is known to be the ‘greatest American dream’ but not until you can actually afford it.

Just when the economy was trying to bounce back from recession, swine flu broke out. Now, it’s almost taken the form of pandemic with the number of victims rising and more and more countries reporting positive cases everyday. The outbreak of swine flu is likely to take a toll on the ongoing economic crisis thereby slowing the recovery process further. Following are some of the effects of this disease on the economy,

• The economy is likely to experience a further drop in the production rate as many workers may stay at home in the fear of contamination.
• Travel and tourism, one of the worst affected victims of recession, is likely to face yet another slack in business since travelers may avoid visiting the infected countries. Already the industry is losing in terms of canceled trips and hotel bookings. The travel insurance industry would also get its share in terms of losses.

Diseases and their effects on economy

In recent times the economy has suffered largely during the outbreak of SARS (Severe Acute Respiratory Syndrome) and bird flu (avian flu) though the severity of those diseases was much less than that of swine flu in terms of affecting nations. The travel, tourism and services industries in the South-East Asian countries were totally ruptured during the pandemic alarms. The travel industry alone had lost around $30 billion during the SARS outbreak.

A different proposition
Some experts, however, are suggesting that the effects this time won’t be too drastic since the market is already low. Both the production and consumption rates are at their lowest rates in years. However, the fear isn’t irrational. Swine flu can still cause damages serious enough to mop-up the signs of economic recovery. Here’s what the economy is likely to experience:

• A further drop in the rate of consumption as people would tend to avoid malls and departmental stores in fear of contamination.
• Governments in certain countries have raised serious alarms and have decided to keep the schools and offices closed till further notice.
• Tourists are canceling their vacations to affected countries thereby leaving the aviation and tourism industry to absorb losses in terms of billions of dollars.
• The companies too would suffer losses as their marketing executives won’t be able to fly to affected places.
• If the situation worsens the workforce may choose to stay indoor even braving the fear of job loss; mean the unemployment rate would rise.

We mustn’t also undermine the aftereffects of the disease. In 1918 about 2.5% of the world population had succumbed to flu epidemic. With today’s world population that would mean the death of 150 million (approx) people. This may result in a shortage of workers in the global economy and probably would lead us to yet another economic recession.

Hi all,

At Debtconsolidationcare, we always try to help you win over your financial challenges. As such, we have come up with a financial tool in the “My Debts” section. The purpose of this tool is to help you manage your debts better. It would also help you to find out the best debt relief plan, so that you can save more and get out of debt faster.

How do you use the tool?

You need to be a registered member if you’d like to use this tool. Once you click on the “My debts” tab, you will be taken to the login page, where you need to login with your email id and password. If you are not yet a registered user, you can sign up for free and use the service.

Once you login, you will be directed to the welcome page where you will get a tab – “Click here to start”. When you click on the tab, you’ll be taken to a section which offers 3 steps to update your personal details, outstanding debts and your personal income. On entering these details, the system will automatically help you to find out the debt relief plan which is most suitable for you.

For further details on how to use the tool, you may check out a live demonstration given on the My Debts section.

Reaching a Financial Independence at the age of 30 is a great achievement for Jacob Holmes of Earlyretirementextreme. He is a man who is right now focusing on his “retirement” and for that reason he has come up with his blog on the same theme. A very different person, unlike others, he does all unusual things. Let us find out what are his unusual views on Personal Finances from the interview below.

Jason: From where did you get the idea of blogging ?

Jacob: I started “blogging” on myspace several years ago. At that time I did not even know what a (we)b-log was, so I simply used the profile blog to write opinion pieces on this and that. A couple of years ago, I realized that there were “real” blogs on the internet that were accessible by search engines and not just limited to my small circle of friends on myspace, so I started a real blog to reach more people. And it seems to have worked!

Jason: In your entire blog you have given importance to retirement. Why is that so?

Jacob: Even though I write about many different things, successful blogs seem to have at least one focus area. Also, obviously, you need to have some material, something you did, something you’re doing, or something you thought or know a lot about. I, therefore, decided to focus on early retirement, where by early I mean extremely early: People, who retire in their 30s or before. If you want to retire in your 40s you can easily find examples in the money and finance magazines, but retiring in your 20s or 30s is rare. This also meant very little competition, which always helps.

Jason: What do you do in real life and how’d you get started?

Jacob: I set my own schedule and do whatever interests me. Some things, I get paid to do, most things I do for free, there are few things I pay to do, like sports. Most of the things I do thus started as hobbies or projects that developed into something bigger. For instance, I have had an interest in geopolitics and strategic resource depletion for a long time—I even wrote a chapter for a book—and at some point an opportunity presented itself to couple this with my interest in sustainability, extreme early retirement is really about sustainability in many ways when you think about it, and so we started a non-profit to bring some of these things together.

I also work for a scientific publisher for half an hour a day on average editing papers; I guess this started when I was editing papers for my friends in high school. It’s like doing crosswords except I get paid. I don’t think I could do it full time though, my head would explode.

I usually have 4-5 big projects going on at the same time; I’m also writing a book, working on a facebook app, and joining a blogging network. Then there are projects currently on the back burner, like financial analysis, watch making, and bicycle repair. It seems that if you stick with something for 1000 hours or more it serendipitously turns into an opportunity eventually as long as you keep your eyes open

Jason: Whom do you think is responsible for the bankruptcy of General Motors? Do you really think it is a death of an American Icon?

Jacob: Think of it this way: Suppose someone dies of diabetes. Who is responsible? Did the deceased mismanage his insulin? Did the doctor not explain the disease well enough? Was it a lack of treatment? Insufficient insurance? Did he eat too much sugar? Was it a culture that emphasized sweet foods made from corn syrup and starch? Did he exercise too little? Was it genetic?
In a complex collapse, you can never pin down one cause since the collapse has multiple interdependent causes. Sometimes, you can see the problem coming from a mile away.

The problem is that when it’s a mile away it gets ignored because you think it will change course and mostly it does. Smaller problems get solved with band-aids and duck tape. In GM’s case, it failed to adjust to the new reality of higher oil prices quickly enough; this could have been misfortune. A more secular problem was the lack of quality and later lack of perceived quality when car buyers wanted quality. Also add the cost of past promises, like pension benefits, unionization, which could no longer be afforded. Always be careful about making promises 30 years into the future. GM died a death by a thousand nibbling ducks!

Jason: How do you feel by attaining financial independence at the age of just 30?

Jacob: For one, I’m free to do whatever I want, naturally this does not mean the same as being free to buy whatever I want. There is a difference although for those who are used to solving all their problems with a credit card and a couple of phone calls, this may not be obvious. So yes, there’s this feeling of freedom, like every day is a Friday … or a Saturday, so I sleep a lot better and I’m generally a happier person.

Financial independence is, however, just a necessary but not a sufficient requirement for full independence. I spent a long time battling expectations and pressures from traditions that say that you need to work (and shop) until you drop to be a valuable citizen … I think they really mean profitable consumer, and so I kept working for longer than I otherwise would have, merely to meet other people’s expectations.
In that regard, financial independence is easy. True independence is somewhat harder.

Jason: What are the three biggest finance mistakes you have ever made?

Jacob: 1) Investing in AIG, I should have seen that one coming from a mile away. 2) Buying a car when I had successfully lived without one for many years. I don’t want to think about how much money that car has already wasted in terms of depreciation, insurance, repairs, and gas.
3) Not learning about investing until I was 28-29, if I had known what I know now when I was 18, I could have been a lot further today.

Jason: Where do you see yourself in 10 years down the lane?

Jacob: This is a difficult question to answer correctly, because if you had asked 10 years ago, I would have gotten it very wrong. One way to see it is to say that if you could really tell, it would mean that you are not developing as a person. A lot can happen in 10 years. You can get a PhD. You can move to another country. You can get married. You can change your career. I did all that. If I may venture a guess, in 10 years, maybe I’m an associate at Wall Street, maybe I’m a diesel mechanic on a yacht in the Caribbean, maybe I work for a watch company, maybe I run a dojo, or maybe I got run over by a bus. You never know.

Jason: Do you think blogging has changed your life in some way or the other?

Jacob: I don’t know if it has specifically impacted my life but it has changed the way I see traditional careers and employment as a way of “making a difference”. For instance, blogging might just be the most meaningful I have ever done in terms of benefiting other people. A few people have told me that they have sold their toys, cars, dusty jet skis, and electric fly swatters, and moved into places with fewer bathrooms to be more free to do what they want. Others make fewer changes and that is good too. Conversely, in my career, I would write papers that would be read by maybe about 50 total, and I would get an inquiry every other month or so, and I think this is normal.

Yet for the blog I get about 10 comments on average for each post and I have more than 40000 page views from more than 18000 visitors a month coming from many different places to read what I have to say: Exxon, Goldman Sachs, Wells Fargo, Raytheon, Center of Disease Control and other agencies, (I have yet to see whitehouse.gov on the list of inbounds yet though ), different countries, and so on. Sometimes when I write a post, somebody will tell me that the person I just talked about is his neighbor’s grandfather, say, it’s a small world. I think blogs tend to form their own little (or big) communities; I probably have more in common with my readers than with my colleagues and neighbors for obvious reasons, and the readers I have met in real life seem to confirm that.

Jason: Please advice our readers how to pay off the debt?

Jacob: Aside from catastrophes like medical events, debt happens much like gaining weight. It creeps up on you as you eat too much and move too little over a long span of time. There is only one thing to get back to normal. You must move more than you eat to “pay off” the excess fat. Similarly, with debt, you must spend significantly less, that is, not even just what you earn now, but what you spent but did not earn before plus the interest. You can try to earn more, that is good. However, a much stronger effect comes from decreasing the interest either by renegotiating the rate or much more effectively, by making payments that are as large as possible and make them as fast as possible.

Depending on how large the debts are, consider living in something smaller, getting around on foot, bicycle, or public transportation, cooking your own dinner, entertaining yourself with other means than a cable TV subscription, and not “shopping for fun”, in short, live like you did when you were a student. All things being equal you probably aren’t much happier now than you were then and yet if you’re in debt, you probably spend and spent way more than then.

Jason: Lastly, How you do feel about becoming a part of world’s largest debt consolidation community now?

Jacob: Well, I hope that after paying off the debt some will consider saving enough money to retire early. You could do it in say 10 years—5 years for the retirement part—if you really wanted to.

Jacob has given us an excellent advice on how to pay off debts. If you have anything else to add on his advices then please leave a comment.