Cyrillic Partners

Dean Calbreath has a neat editorial comparing the current “credit crisis” to that of the great depression.

When FDR took office, the nation was seeing an average of 1,000 foreclosures a day.

During his first year in office, Roosevelt created the Home Owners Loan Corp., or HOLC, to help debt-laden borrowers pay off their mortgages. The HOLC took borrowers out of their high-interest loans and put them into 15-year loans – financed through federal bonds – with rates fixed at about 5 percent. Unlike many government bureaucracies, this was specifically designed to be a short-term program, intended to extend loans for three years and then oversee those loans for an additional 15 years.

With the HOLC and the Federal Housing Administration, the Roosevelt administration virtually created the long-term loan, which soon evolved into the 30-year, fixed-rate mortgage.

It’s unlikely such a plan could pass today’s government–but no matter how dire times seem, they’re not as bad as the great depression days. At least not yet…

[Image from AMNY.com]

Apartment hunting in San Francisco is both daunting and depressing. V and I looked at a one-bedroom place in my building over the weekend and were stunned to find that it was going for $2350 a month! We found ourselves wondering how we could ever afford to actually own a place of our own.

The Boston Globe recently ran an interesting case study on the difference between renting a place and owning it. A lady wrote to the paper asking for help assessing the deal her land lady had offered her. Broad is the paper’s evaluator and Pennucci is the lady looking to rent or buy:

Although the assessed value was $300,000, the online real estate service Zillow set the town house’s value at $240,000. Broad chose the lower number, checked out current mortgage rates, and looked at Pennucci’s tax return to calculate potential tax savings. The result: With a 6.25 percent fixed-rate 30-year mortgage, with no money down, monthly costs would come to $1,892. Given Pennucci’s 15 percent marginal tax rate, tax savings would drop the monthly expense to $1,738.

But when Broad moved on to Pennucci’s current living expenses, the benefits of home ownership began waning. Given the current $1,200 monthly rent, which Pennucci said accurately reflected the Medford rental market, ownership would increase monthly housing expenses 45 percent, costing an additional $538 a month.

“No matter how wonderful owning the place might be, right now renting is the better deal,” Broad said. The case for renting became even more compelling when Broad reviewed Pennucci’s cash flow and retirement savings.

Turns out that the extra $500+ was going to put a serious squeeze on Pennucci’s pocketbook, especially as she was looking at the cost of adopting a second girl from China.

The case study is a little misleading, though. The paper mentions Pennucci’s 15% marginal tax rate in passing. I imagine it is significantly lower than what two young professionals might expect to pay…

[Image from CartoonStock.com]

(Imagine the following Lol Quote: “Dude, ur economies–deh iz groovy.”)

Federal Reserve Chairman Ben Bernanke is going to throw down in front of Congress Thursday and say why he thinks the risks of inflation and the risk to growth are balanced, MSN reports.

The speech will come a day after Gov. Mishkin told the House Small Business Committee that although market conditions have improved during the last several weeks from “rapid deterioration” in August, “problems could spill over to the market for small business loans,” according to a report by The Washington Post. Catch the YouTube video of his address here.

From the W.Post: He said about 37 percent of small business loans in 2003 were collateralized by real estate assets and 15 percent was secured with personal real estate. “Looking forward, a reduction in the value of their real estate assets clearly has the potential to substantially affect the ability of those small businesses to borrow.”

The Fed is still exploring the link between real estate and business. Might make for an interesting thesis topic for someone.