Today on the Ilyce Glink show, Ilyce talked about HUD Secretary Shaun Donovan’s announcement this week that first-time buyers would be able to use their $8,000 tax credit to offset some FHA loan program costs and then put the rest toward a larger down payment – after coming up with the initial 3.5 percent downpayment in cash.

Jerry called with a question about how the stock market will treat the upcoming GM bankruptcy, which is expected to be filed this week. I think that there has been so much telegraphed about this pre-planned bankrutpcy, that there will probably be very little reaction in the stock market.

Danny called to say that he finds I’m a little more pressimistic than I was last fall, and he is more optimistic. He’s working in construction and says May was the worst month he’s seen with his company in the last 12 years. The only construction he sees going on is with schools and hospitals and some government buildings. When do I think the market will turn?

Right now, I’m most worried about a double-dip recession. We’ll come out of this probably next March (maybe sooner), but it isn’t going to feel like we’re out of the recession until well into next year. Once we’re out, if we don’t solve the jobs situation and housing market crisis, I’m concerned we’ll fall back into trouble again.

The fact that the Chicago Mercantile Exchange’s volatility index is at 20, rather than 80 (where it was in September 2008) is interesting. But it could increase, which would indicate that the stock market is going to go through a little more volatility (meaning ups and downs).

Linda called to ask whether she should pay down her last three years of a 15-year fixed-rate mortgage at 6.25 percent with cash or with low-cost funds in a home equity line of credit. I think that would be a smart move, and she has the $20,000 in a bank account just in case she decides to make a different move.

Vic called asking what happens when a loan is modified. Great question. There’s a 3-month period after the loan is modified before the loan modification becomes finalized. The lender wants to see you make 3 on-time payments in a row. After that, the modification becomes permanent. But, if your interest rate was decreased to, say, 2 percent when it should have been 5 percent, the missing money does not get tacked onto the loan balance. What does get tacked on, and is the reason I think so many loan mods are going bad, are any missing payments from before the loan was modified.

Paul called to ask why his property tax bill is going up while the value of his house is going down. A conundrum, isn’t it? I told him to contact his local tax assessor to find out the details about when he can contest the value they have put down for his property and how they would prefer to have him contest it.

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P2P Lending

I got several calls in the second hour of the show about better ways to pay off credit card debt. You may want to look into something called P2P lending. P2P stands for “person to person” lending and it is a new idea in personal finance. Several websites are making this happen. As an investor you sign up and choose how much risk you want to take when you agree to finance someone’s debt. As a person with debt, you are looked at as a credit risk, and your credit score is assessed. Typically one person’s debt will be divided amongst a whole host of investors.

Choose your P2P company carefully. I’d look at and, but before you do anything, you should go to Google and search “P2P lending” and read the stories that pop up to familiarize yourself with this industry. I think there are some books on the subject as well, including a new P2P for Dummies that just came out.

May 31, 2009