Congress will consider three suggestions.

A fundamental reform for the housing market. For two-and-a-half years, economists and housing industry analysts have wondered what would happen with Fannie Mae and Freddie Mac. On February 11, they got an answer: the Obama administration announced plans to shut down both of the troubled mortgage giants by 2018 or sooner.

As he met with the press, Treasury Secretary Timothy Geithner cited the “very broad consensus” that thegovernment should play “a much smaller role” in the housing market. Capitol Hill Republicans would agree, pointing to the $154 billion price tag for the 2008 bailout of both firms. (That is the Treasury’s estimate.)

The choices on the table. The Obama administration’s white paper offers three proposals to Congress, with the hope of legislation emerging by 2014.

• Option 1. The government walks away from the mortgage market except for the FHA, VHA and a few other programs designed to help low-income and moderate-income homebuyers.
• Option 2. The government offers a kind of downside protection. In addition to backing home loans via the entities mentioned in Option 1, it would also provide “reinsurance” to guarantee private mortgages in the event of a real estate downturn and/or recession. But the guarantee would only apply in a crisis.
• Option 3. A variation of Option 2 that would provide a “reinsurance” backstop for a range of mortgage investments already guaranteed by private insurers. The “reinsurance” would take effect if a private insurer couldn’t pay (i.e., if its shareholders were wiped out).

The timeline. The Obama administration may be long gone by the time all this plays out, but here is the three-stage conception of how it will wind down both agencies.

• Stage 1. Between now and 2014, the government gradually reduces its subsidy for the housing market. The conforming loan limit for Fannie and Freddie – now $729,000 in some metro areas – is scheduled to shrink to $625,000 in October. In addition, Fannie and Freddie would start to require 10% down for all loans and fees would rise for the government guarantee.
• Stage 2. Starting around 2013-2014, the federal government will “accelerate the pace of transition” (in Geithner’s words) to a mortgage market based in private capital with government intervention occurring only as needed.
• Stage 3. This stage depends on Congress. The idea is that by the middle of this decade, legislation emerges spelling out Option 1, Option 2 or Option 3 above in detail and a new law is passed.

The big picture. By the end of this decade, it could be considerably harder to buy a home. If the government gets out of the mortgage market (or at least drastically reduces its role), a major influx of private capital needs to flow into the housing system to replace the federal subsidy, with the following possible effects:

• A 30-year fixed rate mortgage could become significantly more expensive. How much more expensive? In early February, Credit Suisse projected that interest rates on a basic 30-year FRM could rise by up to 2% if Fannie and Freddie disappeared.
• If the Option 1 scenario occurs, you could see considerably fewer FRMs and more ARMs. In fact, you would likely see fewer fixed-rate mortgages if Options 2 or 3 were chosen by Congress.
• Big banks could grab a bigger chunk of the mortgage market.
• Higher mortgage rates could negatively impact home sales – and in turn, home prices.

We’ll have to wait and see how this all plays out, all while hoping it won’t lead to a decline in home ownership.

#1: The Bureau of Consumer Financial Protection. This new consumer agency answering to the Federal Reserve would supervise mortgages, credit cards, student loans and the banks, credit unions and private lenders that issue them. Institutions holding less than $10 million in assets wouldn’t be regulated by the BCFP – but they would have to follow its rules. The BCFP would aim to make these products easier to comprehend for consumers and crack down on any possible deceptive practices.

#2: See your credit score for free. If you are turned down for a mortgage or a loan, the new reforms would give you the power to see the credit score supplied to your lender. Right now, you can request three free credit reports each year but you can’t see your actual score.

#3: Tougher rules for mortgage lenders. These rules should have come into play years ago, of course, but better late than never. Mortgage lenders would need to verify the assets and income of borrowers, thwarting any surreptitious comeback for “liar loans”. Loan officers and mortgage brokers would not be able to receive bonuses for guiding you into this or that loan. Borrowers with ARMs and other types of complex home loans could not be hit with prepayment penalties should they want or need to pay off a mortgage before the end of its term.

#4: Retail minimums for the use of credit cards. Score one for retailers, who don’t want to see people make $2 credit card purchases when the swipe fee alone cancels out the revenue. Under the new legislation, stores could set minimums for credit card use. The minimum transaction level could be as high as $10 if a store chooses; the Federal Reserve could raise that $10 limit on the minimum with time. Alternately, stores could offer consumers discounts if they pay for items with cash or debit cards. (They wouldn’t be able to vary the discounts for different debit cards.)
Additionally, the proposed reforms could allow colleges and universities and the U.S. government to set maximums for credit card transactions.

#5: Brokers could be held to a fiduciary standard. Under the new reforms, the Securities and Exchange Commission now has the chance to hold brokers to the same fiduciary standard common to financial advisers – that is, investment brokers would have to put a client’s best interest first and not simply recommend a “suitable” investment to a client. That new standard may or may not come into play, however; the SEC is undertaking a six-month study to see if such a rule would amount to regulatory overlap or not.

#6: The “Volcker Rule” would be put into play. This is the rule that would prevent banks from trading with their own money. It would kick in with small concessions. While the reforms would halt most proprietary trading by banks, some limited investment would be permitted – they could provide up to 3% of a fund’s equity, and invest up to 3% of Tier 1 capital in hedge or private equity funds.

The big banks got another key concession from Congress: they don’t have to get rid of their swaps-trading desks (some legislators had contended that this decision would drive such trading to foreign markets). They can still be involved in foreign-exchange and interest-rate swaps dealing.

#7: An Office of Credit Ratings would appear. It would oversee the actions of Moody’s, Standard and Poor’s and other big names, and one of its objectives would be to flag potential conflicts of interest that could influence ratings judgements.

#8: The SEC would no longer regulate equity-indexed annuities. The promotion and sale of these annuity contracts has generated much flak in recent years. Interestingly, they would be overseen by state insurance regulators if the reform bill passes, and treated strictly as insurance products.

Now, what about Fannie Mae and Freddie Mac? Good question. Nothing made it into the final reform bill to address that dilemma. Some analysts expect another bill will emerge in 2011 to propose their restructuring or elimination.

The other day I read a puzzling report about how mutual fund inflows were the highest in nearly two years. Strategic Insight, a firm specializing in mutual fund consulting reported that over $136 billion flowed into stock and bond funds during the 2nd quarter of 2009. The money going back into the market isn’t the troubling part; it’s the amount going into mutual funds, especially retail mutual funds. Retail mutual funds tend to have layers of hidden fees.

Here are 5 reasons why mutual funds may be a bad idea for your family:

1. The fund manager’s values and interests often are in direct opposition of yours

When I think of investing, I am often reminded of Mark 8:36, “What good is it for a man to gain the whole world, yet forfeit his soul?” I believe this verse has much wisdom that can be applied to one’s portfolio. What is more important the amount of profit or the source of that profit?

Mutual fund companies seek one major goal: to make a profit. This profit often comes at your expense. In 2008, almost every equity mutual fund lost money yet mutual fund companies kept collecting their fees. They make money regardless of whether or not you ever see a profit.

On top of that, many funds invest in companies that directly oppose your values. They are free to invest in companies supporting abortion, pornography, alcohol, tobacco, homosexual activism, and embryonic stem cell research. Do you really want to profit from these industries? The heart of faith-based investing is seeking companies you could be proud to own: companies making a positive difference in our society all the while avoiding companies that are morally polluting our culture. Though the question you must ask yourself…is…will God bless your investments if they go to support efforts that are contrary to the bible? That’s the one that should keep you up at night…

2. A lack of transparency

It is very difficult without proper tools to have any understanding of what you truly own inside of your mutual fund. The lack of transparency essentially leaves you in the dark as to where and in what you are investing. Do you own assets that violate your values? Do you have exposure to companies going bankrupt? The lack of an ability to “know what you own” is a major disadvantage for those seeking to align their faith and values with their investment plans.

3. Supersized fees

The biggest problem I have with mutual funds are the high-level of fees. Even when you “think” you are paying 1 percent a year, you may be shocked to “know” that the fees you are paying actually exceed 4 percent. Over time, this can mean thousands or even millions of dol­lars. The longer you invest in mutual funds, the more you pay in fees. In The Faith-Based Millionaire, I wrote about how a 1 percent fee quickly turns into a 4 perfect fee.

So how does 1 percent become 4 percent? If you look at the fixed expenses of a mutual fund, they are included in what is known as the Annual Expense Ratio (found online or in the fund’s prospectus). Every mutual fund and exchange-traded fund (ETF) charges this fee. “No-load” funds (no commissions when you buy or sell shares) still charge annual fees. The expense ratio pays for the fund’s recurring operating costs (such as salaries, research costs, technology, and service, to name a few), but it does not cover trading and other costs. Morningstar, the leading independent third-party mutual fund rating company lists the average expense ratio as 1.56 percent per year.

What are not listed in the expense ratio are variable costs. The biggest variable costs are brokerage commissions and trading expenses. When­ever the fund manager buys or sells a security, he pays brokerage com­missions–just as you would if you were to buy or sell a stock or bond. Typically, funds spend tens of millions of dollars in trading costs per year, and these expenses are not included in the Annual Expense Ratio or even disclosed in the prospectus. To find these and other expenses, you must look in the fund’s Statement of Additional Information (SAI).

These additional expenses are difficult to determine, but a 2007 analysis by Virginia Tech, the University of Virginia and Boston Col­lege revealed that the average SAI charge is 1.44 percent per year. This is in addition to the 1.56 percent charged by the average Annual Expense Ratio. In other words, the total charge of the average mutual fund is 3.00 percent per year. If you pay an advisor 1 percent or more per year to manage your assets in what is known as a “wrap account,” you may be paying total annual costs that exceed 4 percent per year. In this down market, the last thing you need is to be hit with layers and layers of fees!

4. All chips on the table all the time

Though I do not recommend market timing (trying to predict short-term stock market movements), I do believe it is prudent to be more cautious or defensive at times. Most mutual funds stay 100% fully invested in the market at all times and do not account for changing economic conditions. The charter of most equity mutual funds requires the fund manager to maintain high exposure to stocks indefinitely. Whether there are good buys available or not, said manager has to keep buying companies knowing full well that the timing may not be right. Worst yet, he may have only 20-25 stocks he feels have good upside yet his charter requires more diversification so he is forced to buy “losers” to spread out risk.

5. One size fits all bad advice

Mutual funds get paid to keep you invested all the time. Marketing materials can be sliced and diced to tell you the story you want to hear. The fact of the matter remains that most mutual funds underperform their respective indices. Good money managers are hard to find yet there are thousands of mutual funds lining up to handle your money.

So where do you go?

It starts with find a team of financial professionals you can trust. If you are a faith-based investor, a great place to start is seeking out a qualified Kingdom Advisor, who specializes in faith-based or biblically responsible investing. There are many faith-based options that can support both your family’s goals and values. Mutual funds aren’t the only game in town. Stocks, bonds, ETFs, real estate, commodities, and gold offer additional choices to diversify your portfolio and help you have a better understanding of exactly what you own.

Jay Peroni

Author, The Faith-Based Millionaire

Recently, US retail giant Wal-Mart made a big announcement relating to its plans to create a database which would reveal how environmental friendly its suppliers, manufacturers, and their products are.  According to Wal-Mart they would create what is called a sustainability index that would be implemented over a series of three phases. This would include analyzing over 100,000 of its suppliers and understanding how they operate, where a product is made, and its environmental policies (such as greenhouse gas emissions, water use, and solid waste disposal).

This is a huge step in what ultimately may influence how people shop and what brands and products they support.  Over the past few years, I have been a huge advocate of knowing what you own in your portfolio as well as the products and services you buy.

Every day you vote with your wallet.  Where you work, where you spend, donate and even invest is a reflection of your values.  With this comes a huge moral responsibility.  Just because you turn a blind eye to where your money is going doesn’t mean you are not supporting companies that contradict your value system. Hosea 4:6 reads, “My people are destroyed for lack of knowledge” (niv). It is often are lack of knowledge that destroys our ability to create change in our society.

Who is the Owner?

What we possess is not ours. The Bible tells us God created everything between heaven and earth. He owns everything. We are responsible for managing our lives, our money, and our possessions on God’s behalf. Because everything we possess is ultimately His, we are essentially God’s managers. Many believe that only the first 10 percent belongs to God (a tithe), but in reality, He owns the other 90 percent as well. He graciously loans us resources based on our ability to manage. Will you become a faithful manager?  Will you seek to better understand where your money is going and what your money is voting for?

The parable of the talents (see Matthew 25:14-30) illustrates the power of being a faithful manager. With each level of responsibility, the amounts given to the servants differed, but each was entrusted with something. The rewards were not based on the amounts given, but rather on the increase that resulted from the amount given. God gives you responsibility based on what you can handle. You have been given something that is important to God; you can please Him through being faithful with what He has provided and called you to do.

Being a faithful manager encompasses more than money. It involves management of every single area of our daily lives. Do you believe you or God is the owner of everything? Your belief is illustrated each time you make a decision. Are you in control or is God? Either we attempt to take God out of the picture (the reason for the fall of Adam in the garden), or we seek to move closer to God (the triumph of Jesus).

It goes Beyond Spending…

There are many companies that produce products and services that blatantly oppose what you believe in. You may be knowingly or unknowingly investing in companies that are fighting against moral issues, social issues and causes dear to you. You may not even realize that you have a choice as to where you invest and that you can avoid investing in companies that contradict your belief system.

The following is a list of causes and concerns that may affect your moral decisions. These hot buttons are the most common examples of issues that generate strong emotional responses. If any of these issues are of concern to you, I strongly advise that you begin to consider the implications of investing in companies that violate your internal moral compass. There are tools and research available to help you eliminate or minimize your involvement in these hot buttons.

Moral Issues

Abortion

Homosexuality

Pornography

Human Rights of the Poor

Embryonic Stem-Cell Research

Social Issues

Alcohol

Antifamily Entertainment

Gambling

Poor Environmental Record

Tobacco

Here is a question to ponder: Would you purposely invest money in companies involved in any of the areas listed above? After taking some time to examine this list, what issues, if any, most resonated with you? Are there any areas in which you wish to avoid investing in your financial life? If any of these issues ignite strong emotional responses, is your passion strong enough that you want to do something about it?

July 31, 2009:  For more, here is a link to the article:  http://www.crosswalk.com/finances/11606779/

Starting July 31, 2009, you can find Jay’s weekly financial articles at www.crosswalk.com, one of the premier Christian web sites with nearly 1 million visitors each month.  Jay is excited about the new relationship with Crosswalk!  Jay will discuss faith, money, and timely topics on faith-based investing.  Each week we will send a link so you can keep up with his articles.

For the most part, making changes in your life takes time. The good news is that when you work on something day in and day out, you will eventually achieve huge positive changes in your life. If you don’t stick with a solid plan through the bumps, however, your results will often be disappointing. Identifying and developing God’s purpose for your life is also a gradual process. Most of us don’t wake up one morning with perfect clarity about who we are, and what we should be doing. But as you make a daily conscious effort to find your calling, you will see an impressive difference in your life over time.

I wish I could say that creating wealth is easy. It often takes many new habits to change direction. It will take hard work, dedication, and most of all, your commitment. Your determination will be your ultimate key to success. Make your goals personal and stick to them!

Form better habits!

You have the power to achieve faith-based wealth. It begins with your will. You can continue to sleepwalk through life and just go through the motions, or you can wake up and begin anew. Take the road less trav­eled and discover that your financial life can take on new meaning. How do you start now? Do not let another day pass you by. Commit to fol­lowing the ten principles below for the next month. Once you have been following them for a month, this new routine will quickly become habit. Once you have formed new habits, financial progress can begin.

Ten Habits to Create Wealth

1. Make it your daily mission to find your true financial purpose. Your priorities may shift over time and you may find new purposes. Always fully understand why you are saving, what you are saving for, and what the end results mean. Have this purpose engrained into your mind and do not lose focus. Always look to ignite the flame.

2. Make new choices daily. Remember that each dollar that comes into your hands is won or lost by the choices you make each day. Choose to be wealthy instead of letting endless dollars slip away.

READ MORE HERE

Exchange-traded funds (ETFs) have become fundamental instruments in the pursuit of tax-efficient investing. ETFs have low operating costs, so they represent intriguing alternatives to garden-variety mutual funds that can gradually “nickel and dime” an investor.

Four Reasons ETFs may make some sense for you:

1. The fees are minimal. With their very low charges and management fees, ETFs give you a cheap and convenient way to build a portfolio of index funds. The annual expenses of an ETF (which come out of dividends) range from 0.1-0.65%. If you search, you may find an index mutual fund that charges 0.1% – but some charge more than 3%.Besides being more tax-efficient than index mutual funds, ETFs are easier to manage when it comes to tax loss selling (the swap of short-term capital gains or income tax liabilities for lower long-term capital gains liabilities). And of course, they give you tax deferral to aid in compounding.

2. They trade like stocks. Unlike a conventional mutual fund, ETFs trade throughout the day. They can be bought or sold at any time of the market day. Compare that to mutual funds – you can only redeem them at the closing price of a trading day.

READ MORE HERE

With investment property priced to move, some IRA owners are buying actual real estate properties. Did you know you could do that? Most people don’t. Not everyone can do it; not everyone should do it. However, some people are doing it – particularly high net worth IRA owners who see great deals in a buyer’s market.

Everyone assumes IRA assets have to be invested in securities, but it is fully possible to invest in real estate with retirement funds. IRS Code Section 401 IRC 408(a)(3) prohibits life insurance contracts from being held in IRAs, and IRS Publication 590 states that your IRA will be hit with additional taxes if you invest in collectibles. Those warnings aside, IRA assets may be invested in other options, such as real property.

Careful, not all IRAs are created equal!

You can’t buy real estate with any old IRA. You have to create a self-directed IRA or an IRA LLC. You also have to find an IRA custodian that will let you make non-traditional investments. This custodian has to be a registered trust company. One I have had a lot of success with is Pensco Trust.

If you set up an IRA LLC, you retain control over the invested IRA assets held with said custodian – that is, you have “checkbook” control and don’t need IRA custodian approval to make the real estate investment.

READ THE FULL ARTICLE HERE

Roth 401(k)s?

Simply put, more firms are recognizing their advantages – especially when it comes to the retirement planning of professionals, business owners and executives. Your company may offer a Roth 401k option that allows you to contribute after tax dollars that will potentially grow tax-free! If you are a business owner, you may have the flexibility to set up a Roth 401(k) for you and your employees.

Here are six reasons to consider a Roth 401k

   1. Tax-free growth. Roth 401(k) assets grow without being taxed, as employee contributions are made with after-tax dollars. When you withdraw the money in retirement, you don’t pay taxes on it – provided you’ve owned the account for 5+ years and are 59½ or older when you start withdrawing. With this tax-free growth, a Roth 401(k) can help professionals, business owners and executives save more to get their retirement planning back on track.

   2. No income limitations. Income limits prevent high-salaried individuals from having a Roth IRA. There are no income barriers preventing you from having a Roth 401(k).

   3. No required withdrawals. You don’t have to withdraw money from a Roth 401(k) at age 70½, unlike with a traditional 401(k).

READ ALL SIX REASONS HERE

In 2010, you have the opportunity to convert your traditional IRA to a Roth IRA. The usual income limitations that stand in the way for converting will not apply. So, should you convert? Let’s look at why this may or may not be a good idea.

Here’s why a Roth IRA conversion may make sense for you

Consider this: a Roth IRA allows tax-free growth and tax-free income distributions at age 59½ or older and as long as you have held your Roth account for 5 years or longer. While your contributions to a Roth IRA do not allow a tax-deduction, the younger you are, the longer time frame you have for tax-free growth.

Now realize converting to a Roth IRA comes with a price tag. You will have to pay ordinary income taxes on the amount you convert. Whatever amount is converted is added to your income for the year. However, there may be a silver lining: With the market being down, most likely your account value may be the lowest it has been in years. This means by converting now you may pay lower taxes.

It is also worth noting that with all of the reckless government spending, there is a great chance that tax rates could increase in the years ahead. This is another reason why now may be as good time as ever to convert. If converting may send you into a higher tax bracket, you could consider doing a partial conversion (only converting a portion of your Traditional IRA to avoid going into the next bracket).

Even if you are older, a Roth still may make sense. Normally with an IRA, at age 70 ½ you are required to withdraw from your IRA through mandatory required distributions. However, with a Roth, there is no mandatory withdrawal rule allowing you more time to accumulate tax-free. Also, under the present tax laws, converting a traditional IRA to a Roth can lower the size of your taxable estate. This type of prudent estate planning could allow for decades of tax-free growth for those converted assets.

A few additional estate planning points: If you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. This allows those Roth IRA assets to keep compounding untaxed across the rest of your spouse’s lifetime.

READ MORE HERE