After a couple of surprising reports, economists say the market may be heading toward a turnaround.

By Jessica Dickler, CNNMoney.com staff writer
Last Updated: May 6, 2009: 1:12 PM ET


NEW YORK (CNNMoney.com) -- In the midst of a recession, massive job loss announcements have become commonplace. But after some reports Wednesday, economists are starting to talk about a job market recovery.

Since the recession began in December 2007, the economy has shed about 5 million jobs, according to government data. Economists expect the Labor Department's report to show that the economy lost another 620,000 jobs in April when it is released Friday.

The unemployment rate is predicted to rise to 8.9% from 8.5%, which would be the highest since September 1983.

But there's a chance the numbers may not be so bleak.

Outplacement firm Challenger, Gray & Christmas Inc. reported Wednesday that the number of layoffs announced in April fell for the third straight month

And payroll-processing firm Automatic Data Processing said private-sector employment decreased by 491,000 in April, a 31% improvement from the revised 708,000 drop in March. Economists surveyed by Briefing.com had expected a loss of 643,000 jobs last month.

In a conference call with reporters, ADP spokesman Joel Prakken said the better-than-expected report bodes well for Friday's government number.

Economists share that sentiment. Along with other recent indicators, "this sharp turn of the ADP hints of a recovery," according to Robert Brusca, chief economist at Fact and Opinion Economics.
0:00 /2:38Recruiters: Jobs available now!

Brusca says once the economy begins to pick up later this year, jobs will bounce back quickly.

"The low point in employment generally comes one or two months into the recovery, there isn't much lag time." he said. Now, "we are laying the ground work for a good snap back in the economy."

Not so fast: Other economists agree that job losses may be more moderate going forward, but say a speedy recovery is unlikely this year.

Gad Levanon, senior economist at The Conference Board, says that although there have been some positive signs indicating a recovery in the job market, the real turning point is still a ways away.

In a recovery, employment is often a lagging indicator, he explained, because employers will wait until they feel certain the recession is over before they start hiring workers again. Once the economy improves, it could take another 3 to 6 months before employment picks up, Levanon said.

Weak consumer spending and a higher savings rate could further slow the engine for growth, he added.

But a speedy rebound in employer confidence is not out of the question.

"There has been a real sea change in the leading indicators over the last few months, which now gives us very objective reasons to be hopeful that the recession will be drawing to a close," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

While Achuthan predicts the pace of job losses should moderate through the end of the summer, he says the nation will lose well over an additional million jobs before this recession ends.

"It's great news that the end of the recession is in sight," he said, but "let's be clear, the pain is not over." To top of page

source: CNN]

Some large law firms are putting their incoming associates on hold until the economy picks up, in return for a stipend of up to $80,000.

By Jessica Dickler, CNNMoney.com staff writer
Last Updated: May 1, 2009: 9:48 AM ET

NEW YORK (CNNMoney.com) -- As many Americans are struggling to find a job, some are getting paid as much as $80,000 a year not to work.

A number of third-year law students on the brink of graduation are being asked by their future employers to stay home for now - with pay.

Over 100 large firms, or firms with 200 or more attorneys, have delayed the start date for at least a portion of their incoming first-year associates, according to Above the Law, a blog covering the legal industry. The majority of those firms have delayed start dates into 2010, and provided some financial assistance to those on standby, Above the Law said, a move that doesn't come cheap.

Some students have been offered hefty stipends of up to $80,000, and even full benefits in some cases.

"The firms want to keep these people and don't want to lose them," explained Andy Stettner, deputy director at the National Employment Law Project.

The normally recession-resistant industry of law has not been immune to the current economic downturn. So far over 10,000 jobs in the sector have been lost this year, according to the Labor Department's most recent data.

In previous years, well-performing summer associates have been extended offers in the early fall to start the following year, once they have completed school.

But in the past several months, some of the nation's largest law firms, including White & Case, Latham & Watkins and Skadden Arps are reaching out to their soon-to-be first years, who received offers last fall, and asking them to defer their start dates for several months, or even up to a year.

Instead of rescinding offers, as some large law firms did during the recession in the early 1990s, "the law firms are anticipating starting the 2009 associates when the economy gets better," according to Kim Fields, director of career services at Wake Forest University School of Law.
A paid vacation

For those eager to start their careers, and under the weight of hefty student loan bills, a deferment can be disappointing. The stipend may not be enough to cover the cost of living for a year in some expensive cities like New York or D.C., Fields noted.

Other students are considerably enthusiastic. Adam Rahal, 25, says he is "absolutely thrilled" about the opportunity to defer his start date until the fall of 2010. The Pace University third-year law student was offered $65,000 from Shearman & Sterling in New York to cover his expenses for the year.

"It's an awesome opportunity that they're willing to shell out that kind of money just to keep us happy," Rahal said.

"My friends in investment banking just lost their jobs. We're really lucky."

Over the course of the next year Rahal intends to volunteer at the international criminal tribunal or do environmental litigation instead of starting at Shearman & Sterling, earning $160,000 a year.

With signed contracts, deferrals are mandatory at some firms, while other deferment offers like Rahal's are voluntary. Some have a catch - that incoming associates are required to spend their deferment working at a non-profit or for one of the firm's pro bono clients. Other firms require no public interest work at all.

Overall, many agree that a paid deferment can be a win-win for students like Rahal and the firms that employ them.

"In the larger scope these students are quite lucky, they're going to be paid a perfectly decent salary and they can do what they want," said Rachel Littman, Assistant Dean for Career Development at Pace Law School in New York.

"It does give them an opportunity to do something they might not otherwise do, Fields said, particularly if that's "giving back to the community."
First Published: May 1, 2009: 9:34 AM ET

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The Small Business Administration is temporarily expanding its definition of 'small' to make more loans available to auto dealers, but potential borrowers face many obstacles.

By Emily Maltby, CNNMoney.com staff writer
May 1, 2009: 5:48 PM ET

NEW YORK (CNNMoney.com) -- Starting early next week, larger businesses will temporarily be eligible to apply for loans backed by the Small Business Administration, a move aimed at getting help to besieged auto dealers and industry suppliers.

Through September 2010, the SBA will raise the size standard of what counts as a "small" business, allowing slightly bigger companies to participate in its flagship 7(a) lending program. Typically, auto dealers haven't qualified for the program because most have annual sales in excess of $29 million, the SBA's cap for that industry. But from now through the end of the 2010 fiscal year, the SBA will disregard the revenue cap and use other criteria for eligibility. Companies with less than $3 million in annual income and a net worth of less than $8.5 million will qualify for the loans.

Though this new criteria is aimed at auto dealerships, the SBA anticipates that more than 70,000 small businesses nationwide from a variety of industries will now qualify for its 7(a) loans.

But it's not clear whether the new eligibility rules will actually make significant new financing available for auto businesses in need. There are a few hitches.


First, auto dealerships typically rely for their financing needs on automotive financing entities such as Ford Motor Credit Corporation, General Motors Acceptance Corporation (GMAC) and Chrysler Financial. None of the major automotive financiers are currently on the list of lenders certified by the SBA to make agency-backed loans.

Also, the most common type of loan an auto dealership takes out is what's known as "floorplan" financing, which allows the dealer to borrow money to buy vehicles from a manufacturer and repay the loan as the cars sell. The SBA's 7(a) loans are strictly for working capital and can't be used for vehicle inventory financing. The National Automobile Dealers Association is lobbying President Obama's administration to lift that constraint.

Finally, any 7(a) applicant still has to persuade a lender to actually make the loan - and right now, few banks want to take the risk of lending to a struggling business. The SBA's 7(a) program backed only half as many loans in the first three months of 2009 as it did a year earlier.

Auto dealerships are also fighting against deeper challenges that access to business loans won't solve. Nationally, the United States lost about 900 car dealerships last year, according the National Automobile Dealers Association.

"The two biggest obstacles we currently face have nothing to do with our own financing, but rather, our marginal-credit customers' ability to obtain financing, and even more importantly, our good-credit customers' willingness to buy new GM vehicles," says Eric Lash, owner of Lash Chevrolet in Johnstown, Ohio. Lash Chevrolet has a staff of 25 and typically sells 50 to 100 cars a month.

Lash hadn't heard about the SBA's new loan availability, but he doesn't think it would help his business much.

"Many [dealers] are not making ends meet, and the best way to solve that is to sell more cars. To sell more cars, we need customer confidence and the ability to get those customers financed," he says. "All of the SBA loans they can give will not help me or any other dealer overcome the obstacles we deal with every day."

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Between jobs? Good health insurance might not cost you as much - or be as hard to come by - as it used to.

By Amanda Gengler, Money magazine writer
April 27, 2009: 11:51 AM ET

(Money Magazine) -- The only thing more anxiety-producing than losing your job: losing your health insurance. Traditionally, post-pink slip coverage options have been pretty pricey. But in February, Congress signed off on a short-term premium subsidy for laid-off workers. This came on top of the fact that insurers have been responding to the needs of a "freelance nation" with a greater variety of individual-market plans.

Trouble is, the system is still pretty confusing. Need coverage till your next gig? Follow this guide.

First: ask for more. Over the past decade, exit packages have gotten less generous, says Bill Belknap of the Five O'Clock Club, a career counseling firm. It was once standard to include health benefits. But today 26% of large employers pay nothing toward former employees' insurance costs during their severance periods, reports benefits consulting firm Hewitt Associates. If yours offers little or no help, "it doesn't hurt to ask your boss for more," Belknap says. Longtime employees, senior-level staff, and those with sick family members may have the best luck, he predicts.

Second: piggyback. If your spouse has a group plan that will cover you, sign up fast: A job loss is a special circumstance in which you can be added - but you have only 30 days from your coverage end date to enroll. "It's the best option," says Paul Fronstin, director of health research at the Employee Benefit Research Institute. "It's the least costly and least disruptive, and you're guaranteed coverage."

Third: buy the status quo. Under the federal COBRA law, companies with at least 20 employees typically must give laid-off workers the option to extend group coverage for 18 months. Many states have continuation requirements for smaller employers as well. (Check at naic.org.) The catch: The company usually no longer pays any of the premium. Until recently that meant you'd foot an average of $400 a month for an individual and $1,050 for a family, according to Kaiser Family Foundation.

But with the new subsidy, Uncle Sam may pick up 65% of your bill for up to nine months (see the box above). You can keep benefits, at full cost, another nine. For most people - except, perhaps, the young and healthy - this is still cheaper than a comparable individual-market plan, says Tom Billet, a benefits consultant at Watson Wyatt. Besides, if you have an existing condition, you may have to exhaust COBRA to guarantee coverage of that health issue in a future plan.

You have 60 days to take COBRA, but it's retroactive over that time - so you can enroll at day 50 and file a claim for a doctor visit on day 49. Your employer or insurer will notify you about the subsidy (the companies get the money, so you're billed for only 35%). To qualify, you'll need to have been let go between Sept. 1, 2008, and Dec. 31, 2009; if you turned down COBRA already, you have a second chance to enroll. You can't be eligible for Medicare or a spouse's plan. And if your modified adjusted gross income for the year exceeds $125,000 - or $250,000 for couples - you'll pay some or all of the benefit back at tax time.

A final note: If your company goes under, so too does your COBRA coverage, unfortunately.

Fourth: go it alone. Research your next step well before COBRA expires: You want to avoid gaps in coverage to avoid exclusions on pre-existing conditions in your next plan. Check if trade groups in your field offer insurance. Also shop the individual market at sites like ehealthinsurance.com. (But know that premiums listed are estimates - your outlay will be based on medical underwriting, which figures in your health risks.)

The past five years have seen an explosion in plan types. On one end are policies with comprehensive benefits and low deductibles (premiums for a healthy family can exceed $1,000 a month); on the other, catastrophic plans with very high deductibles ($200 a month).

The decision comes down to what you can afford and how much risk you're willing to take. Just watch out for low coverage limits, which leave you vulnerable; and skip short-term options, which make you undergo new medical underwriting when you renew. Before you buy any policy, verify that it's licensed with your state department of insurance.

If you can't get coverage due to a health issue or will struggle to pay premiums while unemployed, check at naic.org for state-based last resorts, such as high-risk pools and subsidized programs for children.

And when you land your next job? Sign up for insurance posthaste.

Key strategies for maximizing your deductions and holding on to the cash your business needs.

By Justin Martin
February 18, 2009: 9:33 AM ET

(Fortune Small Business) -- When your accountant prepares your business tax, you may feel a bit like Bill Murray's character in Groundhog Day, only this time forced to relive the indignities of 2008 again and again. Yes, last year was a bummer for many American entrepreneurs. But like Murray's cynical weatherman, you have an opportunity to improve upon the past.

With smart tax moves, you may be able to recover some of the money you lost in a bruising 2008. Fortune Small Business talked with a dozen tax experts, who identified such savvy strategies as carrying a loss back to previous years, accelerating write-offs for equipment purchases and claiming deductions for unsold inventory. We also found small business owners who have effectively used each strategy to preserve much-needed cash rather than forking it over to the feds.
Profit From Losses


Foxfire Printing had a rough 2008. Based in Newark, Del., Foxfire creates in-store signage for clients such as Pep Boys and Supervalu. Last year many of its other retail customers closed stores and slashed marketing budgets - one valued client even went bankrupt. As a result, Foxfire's revenues fell from $25 million in 2007 to $23 million in 2008, and the company posted its first loss since 2000.

But founder John Ferretti plans to recoup some of that money by executing what's called a net operating loss (NOL) carryback. "Bankers aren't lending," he says. "So I'm grateful there's a piece of the tax code that will put some capital into my business."

Here's how the carryback works. Say you lost $1 million in 2008 after turning a $500,000 profit in each of the previous two years. You carry the loss backward by having your accountant amend your 2007 tax return to offset the entire profit for that year. You would then be due a refund on any federal taxes you paid on that profit - and state taxes in roughly a third of the states. You would still show a loss balance of $500,000, which you could carry back to 2006 and offset your profit for that year as well.
Talk back: How are you coping with taxes?

Generally you can carry a loss back for only two years. (In light of last year's red ink tsunami, the economic recovery bill President Obama signed Tuesday extended the carryback to five years for businesses with gross receipts of $15 million or less.) Some companies may still have a loss balance even after amending two years' worth of tax returns. Luckily, you can also carry a NOL forward to offset profits for up to 20 years.

Be aware that the IRS can take up to a year to refund money from a NOL carryback. But there's an expedited form (IRS 1139) that will get cash into your hands twice as fast, though it can be used only by businesses that are organized as C corporations.
Accelerate Write-Offs

Ordinarily you would depreciate purchases of, for example, equipment and machinery, both of which are treated in IRS form 946. The list is broad and allows plenty of wiggle room - it includes everything from drill presses and desk chairs to landscaping shrubs. The IRS sets depreciation schedules for these sundry items, typically ranging from three to 15 years.

Depreciation helps you recoup your money, but often in small increments over more than a decade. There's also a cunning and perfectly legal strategy that you can use to take a large write-off in a single year; it's called a Section 179 deduction.

"The name is dull," says Blake Christian, a C.P.A. with Holthouse Carlin & Van Trigt in Long Beach, Calif. "But Section 179 can really supercharge your deductions."

Taking a large one-time deduction makes sense, especially in the current economy. You get a bigger chunk of change to plow back into your business right now. And you won't lose ground to inflation, which happens when you depreciate a purchase over many years.

Peerless Saw manufactures round steel blades that are used by such companies as International Paper and Pella, the windowmaker. Based in Groveport, Ohio, Peerless is coming off one of its worst years since the company was founded in 1931. Revenues dropped to $9 million in 2008 from $9.5 million in 2007. Profits plunged as well.

During this challenging year, CEO Tim Gase chose to keep his firm competitive by buying new equipment. Among his purchases were two state-of-the-art grinders capable of crafting steel to tolerances of less than a thousandth of an inch. The total tab: $150,000.

Gase could have opted to depreciate the machinery over seven years in accordance with the IRS's schedule. Instead, thanks to Section 179, Peerless was able to write off the entire $150,000 in 2008. This will lower its tax bite, providing fast cash to the struggling firm.

"Why wouldn't you take the whole thing now if you need it?" asks Gase, adding, "We need it."

Section 179 is truly a small business tax break. It cannot be used by companies whose equipment purchases total more than $1,050,000 in a given year. (Businesses that have posted a net loss are also disqualified.) For 2008, firms can write off a generous amount under this section. Last winter, as part of an emergency economic stimulus package, Congress raised the limit from $128,000 to $250,000. The new economic recovery bill extends that higher limit through 2009.

Another write-off accelerator, bonus depreciation, was also created as part of last year's emergency stimulus package and extended through 2009 in this year's stimulus bill. Bonus depreciation allows you to write off half the cost of a piece of equipment during the first year. Say you spent $5,000 on a computer, an item that depreciates over five years. Under bonus depreciation, you could write off $2,500 in the first year and depreciate the balance over four years.

It's even possible to combine Section 179 with bonus depreciation. For example, if you bought $800,000 worth of equipment, you could write off the first $250,000 this year, maxing out your Section 179 deduction. For the remaining $550,000, you could use bonus depreciation to immediately write off half ($275,000). The balance would be depreciated over multiple years according to the usual schedule.

If your family business declined in value last year, now is the ideal time to pass some of it along to the next generation.

Estate planning is all about tax policy, which makes for uncertain planning given that the estate tax is slated for a one-year suspension in 2010. But it appears that Congress will act this year to freeze the estate tax at its current level. At death a person can pass along $3.5 million tax-free, but anything above that is taxed at rates as high as 45%.

By transferring as much of your business as possible to your heirs while you're still alive, you minimize any estate tax they may have to pay after you're gone. As of 2009 you can give $1 million worth of gifts during your lifetime, tax-free. The amount is cumulative, so you can make the gifts incrementally or all at once. You can also make tax-free gifts of up to $13,000 each to as many individuals as you choose in 2009. That's up from $12,000 last year.

So how does a family business that has declined in value take advantage of the gift-tax rules? It's simple. Right now you can give larger blocks of ownership shares to your children and still stay within the limits. Say your business is worth half what it was a year ago. That means a stock gift worth $13,000 equals twice as many shares as last year's.

If the business appreciates in the future, you'll have picked the perfect time to transfer some or all of the ownership. Your kids will think you're brilliant.

Of course, the IRS imposes detailed rules on these gifts. Tax experts advise having your business assessed by an independent valuation firm before transferring shares.
Put Unsold Inventory to Work

EnLiten markets novelty items that are sold at the checkout counter at such chains as Walgreens (WAG, Fortune 500) and Wal-Mart (WMT, Fortune 500). Unfortunately, beleaguered consumers weren't in the mood for many impulse purchases in late 2008. The Delray Beach, Fla. company had roughly $1 million in revenues but posted a deep loss. It also got stuck with a warehouse full of unsold doodads.

John Burke, a partner in the business, decided to donate some of the items to charity. During the holidays EnLiten gave 500 Unsound Advice dolls - battery-operated fortunetellers that answer questions with preprogrammed phrases such as "The prospects look good" - to a soup kitchen in Boynton Beach, Fla. Many of the soup kitchen's patrons are recent Latin American immigrants who don't speak English well.

"My company is struggling mightily, and this product didn't exactly fly off the shelves," says Burke. "Unsound Advice helps people new to America learn English phrases. At least we're doing something good with the dolls."

In exchange for donating this inventory, EnLiten will receive a tax deduction equal to the company's original cost. For goods manufactured in-house, the deduction is generally equal to the cost of producing the finished goods. EnLiten's Unsound Advice dolls are manufactured in China at a price of $9 per unit, so EnLiten will get a write-off worth roughly $4,500 for donating 500 dolls.

To claim a donated-inventory deduction, a company must provide goods that a nonprofit organization will actually use. "You could give unsold paper to a school," says Barbara Weltman, author of J.K. Lasser's Small Business Taxes. "But you could not unload a bunch of unsold steel ball bearings on said school."

If you can't find a charitable use for your leftover items, you can dispose of them and claim an abandoned-inventory deduction, which confers identical tax benefits. Take time-stamped photographs that show your goods were, in fact, discarded, says Weltman. In case of an audit, you'll want to show the photos to the IRS.

Finally, the tax experts we consulted said not to worry if you've already filed your 2008 taxes: These tips will all work next year as well. Here's wishing you better fortunes in 2009. To top of page

Should you use your retirement nest egg to pay down a mortgage? Gerri Willis answers viewers' questions.

NEW YORK (CNNMoney.com) -- Question 1. My husband is 62 and retired. I am 59 and working. Our mortgage payment is going to go up by $125 a month. We can barely afford it now. My husband thinks we should take out money from our retirement accounts and pay off the house. But we would only have $40,000 left in our retirement account. What do you think we should do? -- Irma, Texas

Wiping out your retirement money when you're both in, or near retirement isn't the best move you can make.

First, try to see if you can modify your mortgage at all. Otherwise, you may consider doing a reverse mortgage if you intend on staying in the home. A reverse mortgage is a type of loan where your equity is converted into cash. And you receive this cash either in a lump sum, a monthly payment or a line of credit that you can tap into.

There are a lot of nuances you should consider before buying a reverse mortgage. In fact, you are required to get counseling before buying this product. Contact the Housing Counseling Clearinghouse at 800-569-4287 to find a lender in your area. AARP.org also has a lot of information on reverse mortgages.

Question 2. I had two credit cards, but last month the issuer closed both of them. Now I received a "change in terms" notification from another credit card I've had for almost 15 years. If I do not agree to the terms, I can opt out and the account will then be closed. What is going to happen to my credit score? -- Sheila

Credit card issuers are more frequently closing accounts proactively if they haven't been used in a while. And unfortunately, your credit score has probably already taken a hit.

You should be wary of closing the account you've held for 15 years. That will just add to the damage especially since it's an older card. You can always try calling the credit card issuer to see if you can get your old terms back. Highlight your long history and good record with the company. And in the future, try to spread out your balances over a few credit cards so they're not inactive.

Question 3. I was left with several credit accounts that an ex-boyfriend "promised" he would pay for things he bought. He just walked away and said "too bad." It was $8,000. My credit is shot. I have been slowly paying back on the accounts but I have one that the company would not work with me. What are my rights for reworking this loan? -- Anonymous

Unfortunately your rights are limited to the terms of the agreement since the lender isn't doing anything other than attempting to collect, which is their right according to Credit.com. They can choose to work with you on a lower interest rate, lower balance or longer terms but that's completely up to them.

If your ex-boyfriend had promised to pay for the charges (via e-mail for example) then you might be able to recover the money through a civil lawsuit, but that's going a long way to collect a relatively small amount of money.

With slow sales and tight credit, many small businesses are caught in a death spiral that contributes to the hemorrhaging job market.

NEW YORK (CNNMoney.com) -- Employment at small businesses with 500 or fewer employees decreased by 614,000 positions in March, marking one of the sharpest drops yet in 14 consecutive months of declines, according to an employment report released Wednesday by payroll processor ADP (ADP, Fortune 500).

The magnitude of the losses indicates that the recession is ravaging the small companies that employ an estimated half of America's workers.

Compared to large firms with more than 500 employees, which shed 128,000 jobs, those with fewer than 50 employees lost 284,000 jobs.

"The resiliency displayed by these businesses earlier in the recession, as compared to medium- and large-size ones, is no longer apparent," says Joel Prakken, chairman of ADP's research partner, Macroeconomic Advisers.

Although shaving staff is often a last resort, many owners are finding themselves with no other choice if they want to keep their business alive. Credit is tight, consumer spending is down, entire industries are cutting back, and customers are paying their bills more slowly than they used to.

"It's the domino effect," says Pat Veesart, director of the Kansas Small Business Development Center at Garden City Community College. "In a city like Wichita, for example, there are layoffs in the aircraft industry and there's an ancillary effect with the suppliers, but also an ancillary effect with the bars and restaurants who cater to the employees of those firms when they are on lunch breaks."

Take Dorothy Gonzales, owner of A-Plus Counters in Clearwater, Fla. After five years of growth, she and her husband saw a dip in the demand for their countertops in 2007, as new home construction took a dive. Homeowners also held back on making renovations that would have spurred business.

"As the economy changed, we got hit hard. We started by pulling our salespeople because we couldn't afford them," she recalls.

In September she approached a lender to seek a Small Business Administration-backed loan but was told that because she had a loan for a company truck that was still active, she was ineligible for another loan.

"My credit isn't bad, I always made the payments on that loan, and I never had a great deal of debt," she says. "When the [loan officer] told me she couldn't help, my reaction was, 'Well, what's the point of the SBA if I can't go to them when I need help?'"

Gonzales has pulled $235,000 from her own savings to keep the business going. But paying employees continues to be a problem, and Gonzales had to lay off more of her staff. In 2007 she had 60 workers. Today she has 12, and is unable to offer them health insurance.

"You work your whole life, and in a blink of an eye - it's just not fair," she says. "The fear is that we'll lose everything, but we seem to be keeping busy enough to stay open because we're still a vendor for Lowe's and we get some word-of-mouth jobs."

Veesart says that as the job market remains grim, more people are walking through her the doors of her business development center asking for help starting up their own business. She's also talking with many established small business owners who are seeking expansion help, but they're doing it cautiously.

"Entrepreneurs are risk-takers, and many feel that this is the time to establish your name when others are leaving," she says. "But if they expand, they are being careful about it - they don't want to hire too many people and then have to lay someone off. They'd rather have solid jobs for three than shaky jobs for six."

Government efforts to revive the small business sector haven't yet had a significant impact. The Small Business Administration will soon release its loan statistics for the just-ended first quarter of 2009, a figure expected to be grim. President Barack Obama said last month that the agency was trending toward a loan volume of less than $10 billion for the year, almost half what it did last year.

"The Fed is working to heal the markets and the Treasury has details on proposals to buy toxic assets. But we have to see that they are actually working. We need to see credit flowing out of banks," says Macroeconomic Advisers' Prakken. "It'll [take] months for the stimulus to start having a larger influence. We're only on the leading edge of that now."

As for Gonzales' countertop business, she is not optimistic that it will rebound.

"We'll never be as big as we were. If we grow again, we'll have to hire again because our countertops require a certain craftsmanship and we need people with those skills," Gonzales says. "But right now we can't afford to grow the way we did before."

CNN

Gerri Willis helps you navigate the tricky path of financing a college degree.

NEW YORK (CNNMoney.com) -- Many students are now receiving their college acceptance letters and with that comes offers of financial aid. Here's how to compare your financial aid offers.

Getting the true cost of college can be a daunting task because comparing offers can be like comparing apples to oranges. Different colleges will have their figures and costs in different formats.

What you want to look for first is the "Expected Family Contribution." That's the bottom line - the amount of money your family will be expected to contribute.

Only you can judge whether you can afford this amount. But some colleges will include loans in your total financial aid package.

To get the true cost of any school, subtract out any loans from the financial aid package. Remember, these loans must be repaid says Kalman Chany of Campus Consultants.

Consider the cost of tuition and fees, out of pocket expenses like books and room and board and transportation. You can find calculators at the collegeboard.com and finaid.org to compare offers.

1. What to look for

Here's what you'll need to layout side-by-side:

First, look at the specifics of loan offer -- like interest rates and repayment terms. These provisions can vary widely from loan to loan.

Next, you'll want to analyze affordability over time. Make sure you ask how your financial aid package will change over time. The aid offered in the senior year may look very different from what was offered for the freshman year.

And finally, look at the cost of attendance. Make sure you're looking at the big picture, including the cost of health care and transportation.

Generally speaking, you'll want to accept grants and scholarships first -- that's free money. Then accept the loans that are interest free while you're in school, like the Perkins or the Subsidized Stafford loan or any work-study. Take the Unsubsidized Stafford and lastly -- only if you have to -- consider private student loans says Chany.

2. Get more aid

Your financial aid package isn't set in stone.

You can always ask for an appeal. It's called a professional judgment review says Mark Kantrowitz of Finaid.org.

If something changed in your finances, like you lost your job or you overstated your income when filing the FAFSA, you have the right to determine whether to give you more aid.

Experts recommend not going to the financial aid office in person since it's harder to negotiate, but rather writing a letter or phoning the financial aid office

CNN Money

The SBA's forthcoming loan-relief program can't be used to pay down existing SBA loans -- but past borrowers will still be eligible for help with other debts.

NEW YORK (CNNMoney.com) -- The Small Business Administration is still drawing up guidelines for its forthcoming emergency loans program, a stopgap measure intended to shore up small businesses struggling to keep up with payments on existing debt. But the agency this week confirmed an unexpected twist: Businesses with current loans backed by the SBA won't be able to use the new loans to cover payments on their existing SBA debt.

The upcoming program, tentatively dubbed the "America's Recovery Capital" (ARC) loan program, is a measure mandated by last month's stimulus bill. The bill requires the SBA to create a new "business stabilization" program to back loans of up to $35,000 to small businesses "experiencing immediate financial hardship." The loans are intended to be used to make interest and principal payments on a "qualifying small business loan" for up to six months.

In several announcements this week, SBA officials said that SBA-backed loans made before the stimulus bill's passage on Feb. 17 won't be eligible for ARC loan relief. The reason: The American Recovery and Reinvestment Act, the stimulus bill, forbids it. A provision Congress wrote into the bill explicitly prevents the new stabilization loans from being used to pay down SBA-backed loans made before the bill's enactment.

A staffer with the House Small Business Committee said that restriction was mandated by the Congressional Budget Office to comply with pay-as-you-go prohibitions against increasing the federal deficit through new direct-spending measures.

Still, both the House Committee and the SBA emphasized that businesses with existing SBA-backed loans can still apply for the new ARC loans. The only catch is that they'll have to use their new loans to pay down debt other than their SBA loan.

"Private loans made for any legitimate business purpose -- including credit card debts, bank loans and real-estate loans -- would be eligible for the program," the House Committee staffer said. "The Committee is also pushing the SBA to work with borrowers on loan modification and forbearance to provide relief to small business borrowers who have SBA-backed loans."
Talk back: Have you had trouble getting a loan?

The new ARC loans will be offered on extremely compelling terms for both business owners and lenders. The loans will come directly from banks, but the SBA will offer the banks a 100% guarantee on the loans -- something the agency has never done before. If the business owner defaults, the SBA will repay the bank for the full value of the loan.

The SBA will also fully subsidize the interest on the loans, making them essentially cost free for business owners. No payment on the loans will be due for a year, and businesses will have up to 5 years to fully repay them.

The SBA is still creating the guidelines for the new ARC loans program and doesn't yet know when the funds will be available.

"The details have not been worked out yet," SBA spokesman Michael Stamler said earlier this week. "It a very complex undertaking, but we are hurrying as fast as we can, consistent with making sure we have a thoughtful, effective program in place."

Congress allocated $255 million in the stimulus bill to fund the ARC program. That money will be used to pay for the program's loan guarantees and interest subsidies, so the actual lending volume it will support will be higher. The SBA is still working out the formulas to calculate how far the ARC funding will stretch.

It's also still determining what businesses will qualify for aid. The ARC loans will come directly from banks, and in a Web presentation this week, an SBA official said that only "viable" small businesses will be eligible.

That's an important caveat for a program that offers banks complete immunity against loans going bad. The SBA is already trying to cope with soaring default rates for its traditional loan programs, which only ensure banks against losses on a portion of their losses on qualified small business loans.

"A 'viable' small business is a business that has a demonstrated earnings history and proven record for success that may just need a little extra help to get through a short-term downturn," Eric Zarnikow, the SBA's associate administrator for capital access, said during the presentation. "We will be issuing additional guidance to lenders when the ARC program is released."

While many aspects of the program remain nebulous, small business advocates say it can't arrive soon enough.

"This stimulus, while small, will clearly help many existing small business borrowers to weather the storm," said Edward Tuvin, a former SBA lender who is now managing director of factoring firm Creative Capital Associates in Silver Spring, Md.

"It sounds like a good plan, but where is it, and why is it so difficult to put it into action?" asked Martin, the owner of Nu Wray Inn, a bed & breakfast in Burnsville, N.C.

Martin, who asked not to have his last name used because he's currently consulting part-time for a bank, has been hit hard by rising operating costs at the same time as sales dry up. To buy Nu Wray Inn three years ago, he took out a private bank loan, one not backed by the SBA. That loan is currently at a 10% interest rate, and the bank has turned down Martin's requests for a modification.

"I'm taking money from my other job to make those payments. If it wasn't for that, my business would be bankrupt," Martin said.

The SBA's ARC program could help his business -- if it gets moving in time.

"It frustrates me a lot to see banks and auto makers and these other companies getting a quick response, and small business as a whole getting a very slow response," he said. "The inn I run has been operating since 1833. If I go out of business, that's a hardship to my local community. I'm right in the middle of the town square." To top of page
First Published: March 20, 2009: 1:59 PM ET

CNN

Gerri Willis gives tips on how to save on air travel, gyms, clothing and even more by bartering.

NEW YORK (CNNMoney.com) -- If you're worried about getting laid off, there are companies out there dedicated to helping you overcome your spending anxiety.

Let's look at the details of JetBlue's Promise Program. You can get a refund on your flight if you've booked your trip with JetBlue between Feb. 17 and June 1 this year and you were laid off, by no fault of your own on or after February 17.

To get your refund, you will have to put the request in writing two weeks before you're set to fly. The program does not cover corporate or group travel bookings. For more information, go to jetblue.com/promiseprogram.

Gyms are also trying to make it easier for you to join or keep your membership if you were laid off. Some YMCAs for example have waived sign-up fees. You may qualify for a reduction in membership costs or your membership may be extended at no charge on a case by case basis. To see what offers may be available at your YMCA, visit your local branch.

Even clothing stores are marketing to the unemployed. JoS. A. Bank Clothiers announced a program that offers a full rebate on the price of a suit if you lose your job. The good news is that you can keep the suit.

And when you're out of a job - saving money is at the top of your priority list.

Here are some places to go on the Web if you want to exchange items or barter.

Check out Freecycle.org. This is a community recycling organization where you can find things for free locally.

Swapthing.com lets you post what you're looking for and you can swap with someone else.

And finally, Craigslist.com has a barter tab where you can trade your stuff.
CNN

Report says refinancing applications made up the bulk of last week's gain. Interest rates fall to historic lows.


NEW YORK (Reuters) -- U.S. mortgage applications jumped last week as record low interest rates spurred a surge in demand for home refinancing loans, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 32.2% to 1,159.4 for the week ended March 20. Refinancing accounted for 78.5% of all applications.

Interest rates on mortgages fell after the Federal Reserve last week said it would buy Treasury securities for the first time in more than four decades as well as more than double its planned purchases of mortgage-related securities, according to Orawin Velz, associate vice president of economic forecasting at the MBA in Washington.

"The drop offered a sizable refinance incentive for most homeowners, sparking a pick-up in refinance activity," she said in a statement.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.63%, down 0.26 percentage point from the previous week, reaching a record low, the MBA said. It has been conducting the weekly survey since 1990.

Interest rates were well below year-ago levels of 5.74%.
0:00 /02:30Fed's trillion dollar gamble

Leif Thomsen, chief executive of Mortgage Master in Walpole, Massachusetts, said his company is doing more business now than every before, with just over $1 billion in total mortgage lending since the beginning of the year, 85% of which has been in refinancing.

"The housing market is coming back, but not roaring back," he said. "We have gone from a crawl to a brisk walk and we will still have to navigate some pitfalls before we are able to get running again."

The Fed's purchases are part of its ongoing efforts to reduce mortgage rates to stimulate borrowing and boost the U.S. housing market, currently in the throes of the worst downturn since the Great Depression.

However, so far, the low rates have had only a moderate impact on demand for loans to buy homes.

The MBA's seasonally adjusted purchase index rose 4.2% to 267.8. The index, however, was 33.7% below its year-ago level of 403.7.

Overall mortgage applications last week were 20% above their year-ago level. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 13.9%.
Weekly refinancing activity surges

Mortgage Master, to keep up with sales, has hired over 100 people in the past 90 days alone, Thomsen said.

"There are some fantastic deals out there and as more people begin to realize that, competition will come back and drive a significant amount of activity," he said.

The Mortgage Bankers seasonally adjusted index of refinancing applications surged 41.5% to 6,363.2. The index was up 49.5% from its year-ago level of 4,255.2.

The refinance share of applications increased to 78.5% from 72.9% the previous week. The adjustable-rate mortgage share of activity decreased to 1.4% in the latest week, down from 2% the previous week.

Fixed 15-year mortgage rates averaged 4.48%, down from 4.52% the previous week. Rates on one-year ARMs increased to 6.22%from 6.2%. To top of page

CNN

Non-profit Kiva.org plans to launch system of small loans in the U.S.

By Jeffrey M. O'Brien, senior editor
Last Updated: March 23, 2009: 2:52 PM ET


SAN FRANCISCO (Fortune) -- When the economic downturn took hold last autumn, the management team at non-profit Kiva.org made a calculated bet to curb investment, anticipating that donors would slow the volume of small loans they make to entrepreneurs in the developing world. That slowdown never came. Now, the non-profit site is racing to keep up with user demand even while planning to bring its unique form of charity to the U.S.

Nearly 500,000 users have lent almost $65 million, interest-free, to developing-world entrepreneurs through Kiva.org. The nearly four-year-old site received a major boost during its early days from a wave of media publicity (including FORTUNE's The only non profit that matters) and the very public endorsement by former President Bill Clinton.


Media attention has waned in the last year or so, but growth has only accelerated due both to friend referrals and loyal users who repeatedly re-loan money rather than withdrawing it. The site distributed $3.5 million last month. "The good news is that we're doing more loans than ever," says Premal Shah, president of the San Francisco-based organization. "The flip side is that we under-estimated demand. [Our growth] rate exceeds the rate at which we can scale."

Kiva takes no cut of the loans allocated for entrepreneurs. Instead, it solicits an optional 10% fee of every loan to help pay salaries and keep the lights on. The organization uses microfinance institution partners to vet entrepreneurs before allowing them to solicit funding. By asking a series of questions to assess roots in the community and the legitimacy of a business, Kiva is able to establish a risk profile for each entrepreneur. Before offering money to, say, the proprietor of a Dominican fruit stand, any lender can read the entrepreneur¹s profile, history of defaults, and a bit about the business.

Default rates are low --­ 2% total ­-- and users can lend a minimum of $25 to any single person. Spreading loans across a series of entrepreneurs further lessens a lender's exposure to risk, and gives more people an opportunity to put money into the system. Lately, however, lenders are putting up more money than Kiva can distribute. Several times in the last month, the site has displayed a message saying there were no entrepreneurs to lend money to.

"This is pretty much a fault of management," says Shah. "We assumed things were really going to fall off. We didn¹t sign up enough microfinance institutions. That turned out to not be the right assumption. There are plenty of poor people out there."

Now, in addition to trying to keep pace in the developing world, Shah and CEO Matt Flannery plan to bring Kiva to the U.S. in the next few months.

They're signing on microfinance partners in the Bay Area and in the Northeast, and are targeting the 30 million or so Americans who don't have bank accounts and the 18 million or so "micro-enterprises" that often rely on high-interest loans or payday advances to buy supplies -- in Shah's words, "folks who don't have a FICA score or a credit history, but run a small enterprise. At least for the last year, we've been thinking, wealth is everywhere, poverty is everywhere. When I was out in West Africa, and I said 'we plan to let you loan to someone in U.S.,' they loved that idea, that money would flow both ways."

Shah is close to signing a partnership agreement with two microfinance institutions, but refuses to name them until the deal is official. The rules will be slightly different once the partners sign on. An American entrepreneur will be able to seek as much as $10,000 (versus just $1,200 in the developing world). And while Kiva has done very well in Africa and elsewhere, Shah isn't totally sure how the effort will fly domestically. "This is definitely a social experiment in the US. I don't know if the secret sauce in Kiva is that $25 goes really far in Uganda," he says.

"Another interesting challenge, you could go drive to south central LA. What if you don¹t get paid? Are you going to go bully those guys?" To top of page

CNN

As job cuts spread nationwide, experts say the key to maintaining health coverage is quick thinking and quick research.

By Parija B. Kavilanz, CNNMoney.com senior writer
Last Updated: March 18, 2009: 12:05 PM ET


NEW YORK (CNNMoney.com) -- With pink slips accelerating nationwide, health care experts say it's a good idea for everyone - even those who feel their job isn't at risk - to know about their health care rights and options.

"Being proactive about your [health care] coverage is vitally important, especially if you want to protect your family in these times," said Ankeny Minoux, president of the Foundation for Health Coverage Education.

Here are some tips to get you started:

Sign up for COBRA. If you are laid off, immediately ask the company exactly when your employer-paid coverage expires, according to Devon Herrick, health economist with the National Center for Policy Analysis.

By law, employers have to provide laid-off workers information about COBRA, a government mandate that gives workers who lose their health benefits the right to choose to continue coverage under their group plan for a limited period.

The typical monthly premium for COBRA is $300 for an individual and $1,000 for family coverage. You have to sign up for COBRA within 60 days of being laid off or you lose that option.

"People always think COBRA is too expensive," said Minou. But it's more affordable now under the stimulus bill" signed last month by President Obama. Specifically, the government will provide a 65% subsidy to businesses who continue COBRA premiums for laid-off employees for a period of 9 months. The subsidy will continue until Dec. 31, 2009.
0:00 /2:40Health care 2.0

COBRA coverage typically extends for 18 to 36 months. Once the COBRA coverage is exhausted, Minoux suggests people convert to an individual plan under HIPPA (Health Insurance Portability and Accountability Act) to avoid any gaps in their coverage.

Put the children in a CHIP plan. If you or your spouse can't afford the COBRA family premium, the parents can stay on COBRA but move the kids to the State Children's Health Insurance Program, which provides coverage for children living in families with income that is modest but too high for them to be eligible for Medicaid.

"Mix and match coverage options to keep the costs down," Minoux said.

This is also a good option to for low to mid-income families in which one or both parents are working but need to save money, Minoux said. In California, for example, families with a household income of $66,150, or 300% above the federal poverty level, can still enroll their children in a SCHIP plan.

In February, President Obama signed legislation extending the SCHIP program, expanding health coverage by an additional 3 million children, to 11 million children.

Put yourself on SCHIP. Some states offer programs that allow adults to enroll in SCHIP programs.

In Connecticut, the Health Care for Uninsured Kids and Youth program includes parents, relatives, caregivers and pregnant women in families that have household incomes between 185% to 235% above the federal poverty limit, or between $38,000 to $55,000.

Your job shipped overseas? Look into the Health Care Tax Credit (HCTC).

"If your company has moved overseas, or is outsourcing its operations, the government will pick up part of the [insurance] premium," said Minoux.

She said the "displaced" worker would pay 20% and the government would pay as much as 80% of the premium as long as the unemployed worker receives benefits under the Trade Adjustment Assistance (TAA) program.

About to retire? You have to be 65 years old before you are eligible for Medicare.

So what happens if you are 55 years old, are laid off and have a pre-existing medical condition? If you were on your employer's health plan, you will qualify for COBRA and subsequently for an individual plan.

However, if you weren't on your employer's health plan, then you won't qualify for COBRA. In that case, Minoux said people should look for "high risk pool" insurance options in their state, such as the MRMIP (Major Risk Medical Insurance Program) offered in California.

This is a 36-month program that provides coverage to people with pre-existing medical conditions.

Prescription assistance. Organizations such as non-profit Partnership for Prescription Assistance offer free programs to provide discounts of as much as 20% on prescription drugs, which can help save on drug costs, especially when there's no income coming in.

Lastly, Minoux said several of these state-funded programs have waiting lists, so it might be worth while to sign up for more than one.

"Don't be deterred," she said.


CNN

February jobless rate in the most populous state far exceeds national 8.1% unemployment rate.

SAN FRANCISCO (Reuters) -- California's unemployment rate increased to 10.5% in February from 10.1% in January as the most populous state's economy worsened, official data showed Friday.

California's February jobless rate far exceeded both the state's 6.2% rate a year earlier and the national unemployment average for February of 8.1%, according to the report by the state's Employment Development Department.

California lost 116,000 non-farm payroll jobs in February from January and 605,900 non-farm jobs from a year earlier, marking a 4% decrease in nonfarm payrolls, the report said.

0:00 /5:18Some jobs still available

The U.S. financial crisis has battered California's economy, the world's eighth largest, which already had been slowed by a prolonged housing downturn.

The report noted that only one industry category tracked by state labor market analysts expanded payrolls in February from January - 7,900 new information industry jobs.

Ten industry categories posted job losses between the months, led by construction, which shed 30,900 jobs.

CNN

Even with more credit-worthy applicants seeking loans, banks are reluctant to give them the money, despite near record low mortgage rates.


NEW YORK (CNNMoney.com) -- Mortgage interest rates are already flirting with record lows and the Federal Reserve's move to buy up government debt will send those rates even lower. But it doesn't look like it will get any easier for borrowers - even those with good credit.

Bankrate.com reported Thursday that the average interest rate on a 30-year fixed mortgage fell to 5.29%, compared with 5.37% in the prior week. In January, rates fell as low as 5.28%.


This week's Bankrate.com data do not even reflect the Fed's Wednesday announcement that it will purchase $300 billion in long-term government debt.

"This is a big commitment made by the Fed," said Mike Larson, a real estate analyst for Weiss Research, "like going all in in poker. The Fed is buying anything and everything to drive down rates."

The 10-year Treasury yield is used to help calculate 10-year mortgage rates, so as the yield falls, the corresponding mortgage interest rate follows.

Larson said he would not be surprised to see mortgage rates drop into the 4.5% range soon. If they do, that would surpass the 4.7% loans available just after World War II, the cheapest mortgages in American history, according to Larson.

However, one expert cautioned that mortgage rates may not fall as quickly as Treasury yields.

"Mortgage interest rates no longer move in lockstep with Treasurys," said Keith Gumbinger of HSH Associates, a publisher of mortgage information. "A half-point drop in Treasury yields will not translate into a half-point drop in rates. But there will be a big downdraft on rates."

Even before the Fed's move, rates were low and many borrowers were trying to take advantage of them. Applications for mortgages jumped 21.2% last week compared with a week earlier, according to the Mortgage Bankers Association (MBA), with homeowners seeking to refinance their old, higher interest rate loans accounting for nearly 73% of all applicants.

Most people who apply for loans generally receive them, according to Gumbinger, who said the pull-through rate - the percentage of applicants whose loans are approved - has been running about 60%.

Still, that's significantly lower than the pull-through rate the MBA recorded during the height of the housing boom a time when lenders set the bar for mortgage borrowers very low. In 2005, for example, more than 66% of all applicants were approved. In 2003, nearly 79% got their loans.

It's not like borrowers back then were more qualified. They were not. Credit scores for those who actually receive mortgages have been on the rise during the past few years.
0:00 /3:17Foreclosure Town, U.S.A.

Borrowers with scores of 750 or above accounted for 38% of loans issued during the second quarter of 2008, compared with just 23% two years earlier, according to the MBA. Those with low credit scores of 650 or less represented only 15% of loans during the first three months of 2008, compared with 28% during the first quarter of 2006.

During the bubble years, many borrowers weren't asked to prove income or assets or demonstrate that they could afford to repay their loans. Indeed, in many cases, it was obvious that they could not. So, they were given low teaser rates they could manage for the first couple of years and, after that, the thinking was, they could refinance the loan and start the process over again.

The housing bust ended all that and the people applying for loans now are of much better credit quality. But underwriters are so tough today that they still reject four of every 10 loans.

Sharp underwriting

0:00 /02:50The $75 billion housing fix

"The underwriters are being so careful," said Steve Habetz, a mortgage broker based in Connecticut. "The minutia they're asking applicants for is amazing."

He had a couple with a 750 credit score looking to refinance a loan, which would leave the clients with a 60% loan-to-value ratio; in other words, an excellent credit risk.

"It took weeks to get approval," said Habetz. "They kept asking for more and more detail about his assets."

Underwriting standards are so stringent, according to Gumbinger, many potential mortgage borrowers don't even bother considering buying a home because of all the hoops they have to jump through. "Borrowers understand they have to be better qualified to get a loan now so they don't even bother to try," he said.

They must repair their credit or come up with bigger down payments if they want to buy a home.

Habetz said, "A lot of people are listening to the media and not even coming in any more. As busy as we are, we should be a lot busier."

The increased underwriter scrutiny has forced him to screen his clients much more diligently. He weeds out all but the most credit-worthy borrowers before they get to the application stage.

"It costs applicants $600 plus for an application fee and appraisal and you don't want them to incur that expense if they don't have a good chance of getting the loans," he said.

One recent client purchased a home a couple of years ago for $260,000, did some work on it and wanted to refinance his loan based on a home value of $275,000.

But a similar house across the street was on the market for $219,000, said Habetz. He explained to the client that, while his house might be nicer, he would never get an appraisal high enough to make the refinancing work. It would just be a waste of money to try to get a loan.

"I never did fill out an application for him," he said. To top of page

CNN

Residential sales are cratering, which is making it more difficult to appraise homes. And that is making mortgages more difficult to obtain.

NEW YORK (CNNMoney.com) -- For real estate appraisers, determining what a house is worth has become increasingly difficult, which is making it even harder for buyers to purchase homes or for homeowners to refinance.

The main tool in the appraiser's kit is the sale prices of homes in the area. If they can find similar houses nearby in similar condition that sold recently for, say, $300,000, they can assume that the home they are appraising is worth a comparable amount.


But with sales volume falling, there are fewer homes with which to compare. In fact, sales of new homes crashed in January to the lowest level in 45 years, and existing home sales fell to a 12-year low.

And even when there are recent sales figures, they often don't hold up as a reliable baseline. Appraisals are estimates of market value at a given time, and with prices in free fall, values "age" quickly.

"We just don't have a flow of transactions to be able to come up with credible values," said Jonathan Miller, president of Miller Samuel, a noted New York appraisal firm. "Closed sales are now largely irrelevant because they're so far behind the market."

In fact, Marc Savitt, president of the National Association of Mortgage Brokers, recently had a bank underwriter object that none of the appraiser's comparable homes were near enough.

"They told him they wanted comps within a mile," said Savitt. "But, the market the way it is, there haven't been many sales and there were no recent comps within a mile."
Other options

So in lieu of good sales figures, appraisers often consider contract prices, the ones first agreed to between buyers and sellers. But those are not much better because many sales don't close.

And listing prices are "hit or miss," Miller said, because most sellers overestimate the value of their homes. Columbia business professor Eric Johnson calls that the "endowment effect," which causes people to place higher values on properties once they own them.

Sellers set their listing prices far too high, as a result, and that leads to a big chasm between list and sale price. In the New York region, for example, there's a 16% gap, on average.

During the boom, pressure was put on appraisers to inflate values so that sales would go through. Sellers, buyers, real estate agents, loan officers and mortgage brokers all had a vested interest in getting the sale completed. So if appraisers weren't cooperative and raise their values, they often got frozen out of deals.

Now, there's pressure on appraisers to be too conservative, so many homeowners are finding themselves unable to purchase a new home or refinance their existing mortgage.

"Lenders want the appraisal at the lower end of the range," said Joni Herndon, a Tampa, Fla.-based appraiser. "The lender may want it at $100,000 and the appraiser thinks it's worth closer to the high end of his or her range, say $115,000."

If the lender does reject the appraisal, one of three things usually happens. "Lenders can order a second appraisal, the seller can lower the price on the house or the buyer can come up with more cash," according to Jim Amorin, president of the Appraisal Institute, the industry's professional standards organization. "In some cases, none of those happens and the loan doesn't go through."
Making adjustments

One way appraisers are addressing stale comps is by using a "negative time adjustment." If a comparable property sold for $200,000 three months ago in a market where prices are falling at a 12% annualized pace, the comp can be reduced in value by 3% to reflect the market.

In some areas more than half the appraisals come in with these adjustments, according to David Adamo the CEO of mortgage broker Luxury Mortgage,

Another option is an "automated valuation model," which uses a mathematical formula to set home values. They establish a baseline home price by examining sales prices and the square footage of recently sold homes in the neighborhood. So if a house is 1,500 square feet in a community where the average home sells for $200 a square foot, the AVM puts the appraisal value at $300,000 and increases or decreases it as new sales data is recorded.

However, these valuations don't take into consideration a home's condition or appearance - or even verify the square footage - so the results can be very far off.

Plus, "those AVMs can have trouble keeping up with the market, too," said Nanette Traylor, an underwriter with Salt lake City-based mortgage lender Castle & Cooke Mortgage.
Impact on Obama's plan

But finding accurate appraisals is more important than ever now that the Obama administration has announced its Homeowner Affordability and Stability Plan. The first prong of this program allows homeowners with Freddie Mac or Fannie Mae loans to refinance into current record-low rates even if they are slightly underwater, meaning they owe more on their mortgages than their homes are worth.

However, eligibility will directly hinge on appraisals: Anyone who owes more than 105% of the value of the home won't qualify. That adds to the pressure appraisers may feel to "hit the number" so people on the bubble can slide in and refinance.

"There's clearly a heightened sensibility among lenders today," said the Appraisal Institute's Amorin. "They're saying, 'We better take a really good look at the collateral."

Even with banks failing and scandals hitting once-safe investments, there still are a few ways to protect your money.


NEW YORK (Fortune) -- Now that even the biggest banks are battling for survival, traditionally safe investments suddenly look fallible.

What happens to your money market account if your bank fails? Or even worse, if you buy a CD from someone like Stanford Financial, the bank that lured investors with above-average yields and allegedly funneled their money into a Ponzi scheme?


There's no need to panic: certificates of deposit and money funds are generally still safe places to stow your cash - even if they're a bit less lucrative than they used to be. But many of their issuers do face the possibility of going under, which is why you should investigate their fundamentals, not just their yields.

The easiest way to avoid a bank like Stanford Financial, says Greg McBride, senior financial analyst at bankrate.com, is to ask first whether a CD is FDIC-backed. Stanford's were not.

"Just because something's called a CD doesn't necessarily mean it's insured," he says. The FDIC coverage limit is $250,000, but investors can spread out protection by buying CDs at different banks.

Once you establish that a CD is insured and doesn't come with excessive penalties for early withdrawals, then you can comparison shop for yields. But keep in mind that high yields are like retail sales promotions - they may signify desperation. The top-yielding one-year CD on bankrate.com is issued by GMAC Bank, part of the struggling financing arm of automaker GM.

Many of the high-yielding CDs listed online come from lesser known issuers like Web-based brokers or regional banks. That doesn't necessarily mean that they're untrustworthy (even blue-chip banks are on shaky ground), but you should make sure that they're stable.

Even if a CD is FDIC-backed, its yield could change if its issuer goes bankrupt or gets bought. "When a merger occurs, the acquirer has the option of honoring the yields on the deposits," says McBride. Wells Fargo may have maintained the yields on the CDs it picked up when it bought Wachovia, but not all banks will do so.

With all those caveats, CDs still offer superior returns to most other secure investments. The highest yielding one-year CDs on bankrate.com - all of which are FDIC-backed - offer yields between 2% and 3%. While that's less than what it was last summer, it's still much higher than the 0.7% yields on one-year Treasurys.

Don Humphreys, president of Voyager Wealth Management, says his clients are clamoring for CDs. "The rates are relatively good for what you're getting," he says. Because inflation has decreased alongside yields, the real rate of return on CDs is actually better than what it was last year.
Liquid but less lucrative

If you want the option of withdrawing cash at any time, an alternative to a CD is a money market fund, which is a mutual fund that invests in safe assets like commercial paper and Treasurys. Because the rates on their underlying investments have plunged in recent months, fund yields have dropped to record lows.

"We've reached the point where 1% is a high yield," says Peter Crane, the president of money market research firm Crane Data. The yield on the largest money market fund, Fidelity Cash Reserves, recently dropped below 1% for the first time.

Unlike CDs, money market funds' yields fluctuate regularly. Humphreys says the current lows make them options of the last resort. "If you have money that can be locked up for a short term, I'd definitely recommend a CD," he says. "Even the money funds that invest in riskier assets aren't offering aggressive yields."

Money fund managers have waived fees in an attempt to keep yields above zero, but several funds have already closed or merged, and Crane predicts a continued wave of consolidation. When that happens, deposits are merged into a different fund - or simply sent back to investors.

While the funds themselves aren't FDIC-insured, the Treasury implemented a program in September that guaranteed their assets at the time. That program expires in April, but it's likely to be extended, says Crane.

"The government isn't going to let another money fund break the buck," he says, referring to the massive run on the Reserve Primary fund that precipitated the program's creation.

Still, Crane advises investors to avoid the highest yielding money market funds and opt for the third or fourth best yielding investments instead.

"In general, the highest yielding fund attracts the wrong crowd - people who take out their assets the second the yield is no longer number one, causing a run, which is what happened at the Reserve," he says. The lure of an extra tenth of a percentage point isn't worth the risk.

Investors who are willing to sacrifice some liquidity but still want the option of withdrawing money without penalties have a third option, which is a money market deposit account. These are essentially bank savings accounts that allow for limited withdrawals.

From a risk standpoint, money market deposit accounts are like CDs - they're FDIC-insured for up to $100,000 for individual accounts and $250,000 for retirement accounts. But unlike CDs, the yields aren't locked in.

"The yields on money market deposit accounts are a good deal better than those of money funds," says McBride. "But that yield can change any time." Crane thinks current yields, which are topping out at 2%, will drop closer to those of money funds soon.

But with all cash investments offering relatively low yields, the promise of safety may be alluring enough, says McBride.

"Right now, investors are more concerned with return of principal than return on principal," he says.

A rising jobless rate is an aggravating factor in efforts to bail out the financial system.
By Anthony Karydakis Contributor

NEW YORK (Fortune) -- When people talk about rampant job losses, it's usually in the sense of unemployment as a symptom. But in fact, unemployment can be an aggravating cause of the financial crisis as well, especially when it's as severe as we're seeing now.

The labor-market picture has deteriorated at a stunningly rapid pace in recent months. More than 3.2 million jobs have been lost since the onset of the latest phase of the financial crisis in September 2008, with the unemployment rate spiking by nearly two percentage points during that period to 8.1% last month.


The dramatic erosion of labor-market conditions has become a hurdle for the prospects of any turnaround in the economy over the next 9 to 12 months, as it severely weakens income growth and, by extension, consumer spending. The latter, following sharp declines of 4.3% and 3.8% in the two most recent quarters, is already on course to retreat by another 3% or so in the current quarter. This would represent a cumulative decline of about 11% in just nine months, which exceeds by a very wide margin any such pullback seen in past recessions, including the more severe one in 1981-82 (during which, in fact, consumption declined in only a single quarter). Differently put, a retrenchment in consumer spending of the magnitude we are currently experiencing can only compare directly to the depths of the Great Depression.


However, the effect of the sharp spike in the unemployment rate is not limited to its impact on household spending. What has attracted far less attention is the way in which rapidly increasing joblessness directly undercuts the massive efforts underway to stabilize the banking system. In fact, the pace and magnitude of further job losses is one of the most critical (and elusive) factors in the unrelenting struggle of policymakers to resuscitate the banking industry.

The ballooning ranks of unemployed are steadily feeding the near-tidal wave of homes on the brink of foreclosure as well as delinquencies on auto loans and other types of consumer lending. This process inevitably expands the already dangerously high levels of toxic assets on bank balance sheets.

It is not by accident that the unemployment rate is a key measure of the much-publicized "stress test" that the Obama administration is currently using to evaluate the needs of banks for additional capital. In the context of a series of "what if" assumptions, banks are being evaluated as to their ability to withstand the pressure stemming from a 10.3% unemployment rate in the current cycle, as a worst-case scenario.

Six months ago, at the start of the most intense phase of the financial crisis, the prospect of a double-digit unemployment rate would have been nearly unthinkable. It is appreciably less so now, in light of how quickly the rate is rising in the last few months and how fast economic growth forecasts are downgraded globally. As recently as a few weeks ago, in his semi-annual congressional testimony, Fed chairman Ben Bernanke submitted the forecasts of the Federal Open Market Committee members, which were pointing to an unemployment rate of between 8.3% to 8.8% at the end of 2009. This particular forecast seems already outdated.

With banks coming under steadily growing strain because of proliferating non-performing assets, the cost of stabilizing the financial system is bound to escalate from earlier estimates. That's probably why Treasury secretary Tim Geithner warned recently that the cost of the bailout for the banking system could significantly exceed the initially estimated $700 billion - something which had already started becoming increasingly obvious.

Another complication is that the skyrocketing unemployment rate recently will increase the cost of the widely publicized, and wisely structured, Term Asset-Backed Lending Facility program (TALF) that the Fed activated just a couple of weeks ago for the first time since its announcement last November. The program was designed to provide low-cost funds to investors willing to buy different types of securitized consumer loans, as part of the broader plan to take some of those assets off the banks' balance sheets and help restart lending.

The program was structured as a kind of joint project of the Fed and Treasury, with the Fed standing ready to provide as much as $1 trillion of such lending and the Treasury providing $100 billion of seed money to the program. With more securitized consumer loans getting into trouble in the midst of a spiking unemployment rate, the cost of the TALF program will move quickly to an appreciably higher range for both the Fed and Treasury.

The severity of the current crisis is such that it has blunted any conventional concerns about costs associated with addressing it. Both the Fed and the Obama administration have made it clear in various tones (the Fed much more openly so than the politically more sensitive Treasury) that they are prepared to pull out all the stops to deal with the economic recession and financial crisis. Still, on some level, it must be very disheartening to Bernanke and Geithner to realize that the cost of that undertaking keeps going up every time they look around.

Anthony Karydakis is a former chief U.S. economist for JP Morgan Asset Management and currently an adjunct professor at New York University's Stern School of Business To top of page

Taken from CNN.