Some of the most important personal finance items that will affect your children as they transition into the "real world" include those items that have to do with credit and debt. If you give them a good start in responsible money management, they will be well placed to establish their own credit later in life — making it that much easier to get a home mortgage loan.

At the Banks.com credit card blog, Hayli Morrison makes this excellent point:

Also, loan them money when they’re older, but consider tagging on interest and late payment fees.

Rather than just giving your kids money for what they want, work out a loan system (of course, this only works if they have a way of earning money on their own). Decide what you will pay for as parents — parents are obligated to pay for food, shelter, some clothing and other items of course — and what your children will be responsible for.

If your kids want a luxury item they can’t afford, creating a loan is a good way to help them get it, as well as get a good taste for what it means to borrow money and have to pay it back.

Do you have any tips for teaching your children about money and credit?

Yesterday, President Bush signed the housing relief bill into law. The bill has been a source of controversy for weeks, but with people clambering for something to be done in terms of shoring up the housing market, and amidst calls to "save" Fannie Mae and Freddie Mac in order to prevent a huge mortgage debacle, President Bush reversed his objections to the bill and decided to sign.

However, some of the more controversial measures remain (along with the disturbing requirement for electronic and credit card payment processors to report transactions), and there is very little the bill is likely to do for distressed homeowners facing foreclosure.

The other issue is that the bill does very little, practically speaking, in actually fixing the causes of the current housing market crisis.

The latest attempt to help stimulate the mortgage market is encouraging what are known as covered bonds. The Wall Street Journal reports that covered bonds are already used in Europe as a source of funding:

Washington’s interest in pushing covered bonds stems from the success
of Europe’s $2.75 trillion covered-bond market. Such bonds are the
primary source of mortgage-loan funding for European banks.

What are covered bonds?

Covered bonds are types of mortgage backed securities, but they are considered safer than the types of securities that brought the whole mortgage market down. The reason that covered bonds are considered safer are as follows:

* Bonds remain on bank balance sheets.

* High quality mortgages make up the "cover pool." (These are mortgages that are up to date in payments, and meet other criteria.)

* Bank must make sure that bond holders receive interest if the mortgages go bad.

Our Senators aren’t known for working on the weekend (they also aren’t known for working more than three or four days a week on the "country’s business"), but they made an exception to pass the housing relief bill. President Bush is expected to sign it - possibly very soon - after weeks of threatening not to. It’s amazing what can happen when you add provisions for keeping the two largest mortgage lenders afloat into a divisive bill.

At any rate, here are some of the key highlights of the housing relief bill:

*Provisions are made for the government to bail out Fannie Mae and Freddie Mac if we get to that point.

*A regulator to oversee government sponsored enterprises is created.

*Homeowners get more tax breaks.

*Underwriting standards for mortgage borrowers in trouble are loosened considerably.

*FHA gets portion of profitable sales on homes that it refinances.

*Credit card processors and electronic payment facilitators (like PayPal) have to report transactions.

*Congress raises the "acceptable" limit for government debt to $10.6 trillion.

While some provisions make sense (regulating GSEs, for example), others are likely to create a headache. I’m still wondering why we even pretend to have a ceiling on federal debt.

What do you think of the housing relief bill?

You’ve probably already seen this. But it’s so worth watching again. And again.

Happy Friday!

You’ve probably already seen this. But it’s so worth watching again. And again.

Happy Friday!

One of the more interesting trends right now in the housing market is the increasing number of vacant homes for sale right now. I am well-acquainted with this trend on a personal level. The house behind mine is vacant, and has been for more than six months.

It is for sale, and occasionally we see potential buyers poking around, trying to decide if they want it. (This is becoming increasingly difficult, though, as the weeds have taken over the yard and are growing to a height — almost six feet — that makes it a veritable jungle.)

The count across the country, for vacant homes for sale, is 2.2 million. CNN Money reports on this trend in the housing market:

"They are still not showing a downward trend," said Christian
Menegatti, U.S. lead analyst at RGEMonitor.com, an economic research
and consulting group. "That’s the bad news. The numbers are telling us
that prices have to fall more.

Have you seen an increase in vacant homes for sale in your neighborhood?

One of the most important things you can do for your personal finances is to get rid of your non-mortgage consumer debt. This debt can be hard on your credit score, and it weighs you down with interest payments. one way you can start saving money on interest charges and pay down your debt is with a credit card balance transfer to a 0% APR card. (This can be especially helpful now, since home equity loans are harder to come by.)

However, there are some things that you need to watch out for when you decide to do a credit card balance transfer. Trees Full of Money offers these insights into issues related to a credit card balance transfer:

*Balance transfer fees: High balance transfer fees can destroy some of the value of your 0% APR offer. Try to find a credit card that doesn’t charge balance transfer fees.

*Credit score: Another thing to consider is the impact on your credit score. If you close your other credit cards after a balance transfer, this can hit your score in two ways. First,  closing the accounts can cause a slight dip. Second, your new available credit is severely reduced when you move everything to one card and cancel the others, since it looks like you are using up most of your available credit.

Another thing I would add is to watch out for late fees and over the limit fees. If you do not pay on time, or if you go over your limit, many credit card companies will revoke your special interest rate and immediately charge you the "default" rate, which is often much, much higher.

One of the things you need to consider, what with the recent collapse of IndyMac, is whether or not your bank is FDIC insured.

What is the FDIC?

The FDIC is the Federal Deposit Insurance Corporation. It is a government insurance program designed to protect your money. If a bank fails, then your money, if the bank has been paying for FDIC insurance, is safe — up to $100,000 for an account.

It is important to note that only checking, savings, retirement and money market accounts are covered by FDIC insurance. Even at an FDIC insured institution, investments like bonds, mutual funds and stocks are not covered. Nor are money market funds.

If you have more than $100,000 in an account, you can spread your money to other FDIC insured banks. And if you have a money market fund, it is relatively easy to transfer the money into a money market account, so that it is covered.

Last week, the government revealed a contingency plan that could help keep Fannie Mae and Freddie Mac, the two biggest buyers of home mortgage loans (and government chartered banks) afloat should things get dire. But an interesting alternative solution is being suggested by BloggingStocks, based on which home mortgage loans are likely to be good, and which are likely to be bad:

If we analyze that split, we may be able to lower the cost of bailing
them out by putting the good assets in a "good bank" and the bad assets
in a "bad bank." Shareholders would probably be happy to buy stock in
the good bank. And owners of the bad bank could either write off their
holdings or seek to refinance them. Similarly, the holders of
mortgage-backed securities (MBSs) around the world would no doubt be
delighted to know what proportion of their MBSs are good and what
proportion are bad.

This is an intriguing idea. It would, of course, result in some losses for those holding mortgages sent to the bad bank. But, on the other hand, it would be a way to separate the bad from the good, and move on after cutting losses and forcing investors to deal with the consequences of their bad decisions. (Remember when the tech bubble burst? No one was willing to have the government bail out those overly enthusiastic investors.)

Do you think mortgage back securities should be divided up into "good" and "bad"?