The Holiday's

All year I have been writing about mortgages, and real estate, and the economy. Well I thought I would change my ways just for this month, it is a special month isn't it? This is the month where we treat each other nicer, where we think about the homeless, where we think about what we did or didnt do this year, its the month where we are more patient with people.

My thoughts are as follow, yes that is all fine and dandy and we should continue to do these thing, actually we should try to do these things all year round instead of waiting for December.

Ok to my thoughts, this year I have read articles and seen actions pass in which people at work places, schools, airports etc. are not being allowed to celebrate Christmas as they want to.

Just becuase it insults some one else or it has to do with religion. Let me ask your opinion, why is this happening, are we now going to change the word Christmas to december 25th is gift day. Lets get something clear here!! this holiday came about for one reason and one reason ONLY, to celebrate the birth of our savior Jesus Christ, hence the word "CHRISTmas". I can continue to ramble on but I think I have made my point, and to end my point of view here is my suggestion

anyone that is against Christmas, calling it christmas, or anyother silly idealogy, lets CANCELL THE HOLIDAY AND MAKE IT only for Christians and people that believe in christ and christmas everyone else get your asses to work, dont ask for time off, and december 25th for you will be just another day!!!

The 'Mark to Market' Accounting Rule:What it is and why it is important to you now!
The financial crisis we are in today was not caused by mortgages or housing, although they were both catalysts. The real reason was an accounting rule called "Mark to Market" (also known as FASB 157).

Few people have a strong grasp of this rule, and even those who do have a tough time explaining it on air due to time restrictions. So let's take a few minutes to break it down, so you can have the inside track on this very important concept and understand why it represents some great opportunities.

Why does 'Mark to Market' exist?

Let's go back to the stock market crash, which occurred between 2000 and 2002. With the S&P down 49% and the NASDAQ down 71%, many people lost much of their life savings and they were very angry.

Companies like Enron and Arthur Andersen were able to find ways to make their books look more attractive, which was reflected in an artificially inflated stock price

Both the public and Congress had a call for more transparency in business and hastened the passage of "Mark to Market" accounting.

This is the notion that all assets should be valued as if they were sold on a daily basis. Under the letter of the law, failure to do this conservatively can now result in jail time.

So what's the problem?

Before we get into what this means for banks, let me make a quick analogy using a scenario that should make perfect sense to you my clients.

Let's imagine that you own a house in a neighborhood where all of the houses are priced at around $300,000. Unfortunately, your neighbor, who owns his home free and clear, falls ill and needs emergency cash quickly. Because he is under duress, he must sell the home for $200,000 in order to get the cash he needs right away, even though the home is worth considerably more.

Now would this mean that your home is now worth the same $200,000 that your neighbor sold his for? Of course not, because you are not forced to sell under duress. It just means that your new neighbor got a great deal.

However, if you were a publicly traded company and had to abide by Mark to Market account rules, you and the rest of your neighbors would now have to say, by law, that your home was worth only $200,000 - not the $300,000 you would get for it if you actually sold. So what's the big deal? Read on.

Let's say we decide to start a bank . . . call it XYZ Bank. We raise $2 Million to open our doors. Remember that our capital account is $2 Million. Banksmake money by taking in deposits and paying low rates of interest to those depositors (maybe throw in a toaster too). We then take that money and make loans with it at higher rates. We keep the difference.

So, we turn the $2 Million worth of deposits into $30 Million worth of loans. This puts our ratio of loans to capital (our Capital Ratio) at 15:1 ($15 Million in Loans to $1 Million in Capital). This level is acceptable, as long as we can shoulder some losses and recover.

Because we are very conservative here at XYZ Bank, the loans we make require a minimum down payment of 30%, a credit score of 800 or better (that's nearly an 850 which is perfect), proof of income and assets, a reserve of at least two years of mortgage payments (normal is two months) and income requirements that only allow 10% of monthly income to cover all expenses (normal is 40%).

We do this and our loans perform perfectly. We make lots of money. Nobody is paying late and our clients are sending us holiday cards. They love us . . . it's a party. You and I are celebrating as we see our stock price soar.

But real estate values decline and, even though all of our loans are paying perfectly, we must re-assess the loan portfolio to account for the decline in real estate values, which leaves us with less of an equity cushion. We had a minimum 30% down payment, which means the loans were 70% of the value of our assets - until we account for the decline in the market. Now, our position goes from 70% to 90%. That's riskier and, therefore, worth less than when our loans had a 70% safety position.

Our accountants tell us that we must "Mark to Market" or risk jail. They say our value is now reduced by $1 Million. Whoa!

We must take or write down this loss against our capital account. It is a paper loss - we don't write a check, we have no late payers, no defaults, no bad business decisions. Still, we must reflect this $1 Million paper loss in our Capital Account, which drops from a $2 Million to $1

does this make sense? more to come , stay tuned