Refi Now Before Rates Climb

This is my Bloomberg column on how to refinance your home mortgage:

Commentary by John F. Wasik

Oct. 29 (Bloomberg) -- If you need to refinance your home mortgages, don’t wait.

It’s not time to play chicken. Lock in the best deal now. Mortgage rates have climbed over the last two weeks, according to mortgage buyer Freddie Mac of McLean, Virginia. At a 1960s- like national average of 5 percent, the 30-year rate isn’t far from its historic low of 4.78 percent, reached in April. As the economy heats up, it’s far more likely that rates will climb.

Not only can you save every month with refinancing, over the life of the loan your total interest payments drop substantially. Increased cash flow could be the single-best excuse to refinance if your total loan expenses are reasonable.

Let’s say you have a $300,000 mortgage and you are paying $1,847 a month on a 30-year, 6.25 percent loan.

You can obtain a 5.25 percent, 30-year loan and knock down your monthly payment to $1,656, according to the Bloomberg mortgage calculator. The $2,292 annual savings would do nicely in an emergency, college or retirement fund.

If you stay in your home for 30 years, then you will save almost $69,000 in interest by refinancing. On the 6.25 percent loan, you will pay about $365,000 in interest alone -- in addition to principal.

When I got a refinancing offer letter from my bank recently, I was excited. Instead of paying 6 percent on my 30- year loan, I could refinance to 5.24 percent.

Initial Offer

My monthly payment would drop from $714 per month to $572 for annual savings of more than $1,600.

I called the bank with great hope. They also offered to waive the origination, appraisal and credit-report fee.

Upon inquiring further, it became clear that not all of the loan costs were disclosed in my cheery little letter.

Total expenses would be about $3,000 and the bank would need $750 cash upfront just for an application fee.

Of course, I could add the closing costs to the loan’s principal, which my loan specialist suggested. Since I wanted to reduce my total debt, I wasn’t happy with this option.

I was peeved at paying high closing costs, since they don’t give me a bigger equity stake and have little tangible benefit. Paying $1,000 or less to refinance a mortgage is fairer.

Besides, in an age of massive automation and bank bailouts, closing costs needn’t be that high. My bank can borrow from the Federal Reserve at less than 1 percent and has received $25 billion from taxpayers. It can afford to cut borrowers some slack. I’m shopping around for a better rate and lower costs.

When It Won’t Work

With these low rates, though, only a select group of homeowners should be refinancing.

Are you facing a job transfer or plan to move within a few years? You may not be able to recoup the closing costs or realize those huge long-term interest savings. And if you don’t have much equity in the home (less than 20 percent) or below- average credit, you may pay a higher rate or not qualify at all.

What if you plan to stay for a while?

Should you consider a 15- or 20-year loan to pay it off earlier and save on total interest?

While the rates on these mortgages would be lower, the monthly payments would be higher than 30-year notes. And there would still be those nagging closing costs.

One thing that my broker didn’t pitch was a way to pay off the loan earlier without refinancing. That would save me thousands in interest costs -- without having to pay a dime of onerous closing fees.

It’s simple: Prepay principal with every monthly payment.

Hidden Truth

You could effectively turn your existing 6.25 percent, 30- year note into a 20-year mortgage by applying an extra $350 a month to principal.

Over the life of the loan, you would save almost $140,000 in interest payments alone. Even paying an additional $208.50 would save $100,000 in total interest.

If you don’t care about building equity or paying off the loan, focus on lower payments and recouping the closing costs.

Since the Federal Reserve is subsidizing these low rates by buying as much as $1.25 trillion in securities from the government-seized mortgage entities Freddie Mac and Fannie Mae, they will not last.

Market forces, inflation or a new government policy will eventually force rates up. The Fed’s purchasing is slated to end in the first quarter of next year.

Clearly this is one situation in which patience probably isn’t a virtue.

(John F. Wasik, author of “The Audacity of Help: Obama’s Economic Plan and the Remaking of America,” is a Bloomberg News columnist. The opinions expressed are his own.)

Mind the Infrastructure Gap

This is a piece I wrote on how much money is needed to fix up America. It originally ran on Huffington Post.

Closing The $1.5 Trillion "Fix-Up" Gap in Obama's Economic Plan

By John F. Wasik

Let's face it. America is one giant fix-up project. Bridges are crumbling. Public transportation systems are rusting. Water mains are leaking. Getting everything repaired and modernized is perhaps the largest and most expensive "honey do" list imaginable.

As I discovered in researching my new book Audacity of Help: Obama's Economic Plan and the Remaking of America (www.audacityofhelp.net), there's a large dollar gap between what was committed in the American Recovery and Reinvestment Act and what needs to be done.

While it's undeniable that the stimulus funds are slowly trickling into communities and creating jobs -- although not enough to offset the employment lost in the past year -- the actual amount of money needed is far short of what's needed. The infrastructure repair bill is estimated to be more than $1.6 trillion, according to the American Society of Civil Engineers, which published a report card on infrastructure conditions a few weeks after Obama took office. So the stimulus plan comes up about $1.5 trillion short.

What about all of those annoying barricades you see everywhere for road construction? Crumbling or inadequate roads cost American motorists some $67 billion a year or $710 per motorist -- that's just to fix the highways and bridges. We collectively lose the equivalent of 4.2 billion hours just sitting in traffic, costing the economy about $78 billion a year in terms of lost working hours (not to mention lost family time).

Are you a conscious commuter and take public transportation? Federal spending on public transportation systems lags the amount needed by about $6 billion annually. That makes the highway repair number loom even larger since nearly half of Americans don't have access to public transportation.

You don't need to go far to notice that America's skeleton has some major osteoporosis. New York's water tunnels are leaking millions of gallons of precious water. Los Angeles can never seem to get enough of this elixir of life. Chicago's ancient "El" elevated-rail system is rusting away. Just miles from the White House, suburban Maryland's 5,500-mile system of water pipes sprang a few leaks -- more than 4,000 over the past two years (252 leaks were reported just a few days before the inauguration). Nearly every municipality has something that needs to be fixed or updated.

The Obama Administration's stimulus plan set aside about $100 billion for infrastructure improvements. Of the $48 billion for all transportation projects, $27 billion of that has been allocated to the US Department of Transportation for mostly road/highway improvements.
Here's a more detailed breakdown:

*$30 billion for electrical system improvements. This money would be divided between modernizing and creating a "smart" grid, advanced battery technology and energy-department grants.

*$29 billion for public works. This covers everything from street repairs to bridge reconstruction.

*$18 billion. More funding for public works that will cover toxic waste clean-up, municipal water systems and flood prevention.

*$8.4 billion for Public Transit. Sorely needed by cities, this will help repair and upgrade public transportation systems.

*$8 billion for High-Speed Rail. This was a long-sought down payment on creating intra-state systems to reduce the reliance on air travel.

One glaring subject that Obama avoided in the campaign and early days of his presidency is how to pay for infrastructure over time and how it will dovetail with an overall strategy to address climate change. While conservative Democrats and Republications generally object to increasing the federal deficit, they also oppose taxes. Unless huge cuts are made to other large budget items -- unlikely during a recession -- the Treasury will need to sell more notes to pay for the new spending, most likely to the Chinese, Japanese and Europeans.

At a certain point, investors in our debt may decide that the the political benefits don't outweigh the paltry after-inflation returns. No one knows when that day will come, but it will happen and may shut down the debt-financing juggernaut that's keeping the world's largest economy afloat.

There may be no way of getting around the fact that gasoline taxes (or carbon-based levies on fuel, vehicles or buildings) need to be added or raised. The 18.4-cent levy on gasoline on 24.3-cent surtax on diesel fuel has been unchanged since 1993. That brought in about $39 billion in 2007. The CBO projects an economically justifiable investment of $132 billion in highways alone. Filling this funding gap will have to involve some sacrifice and extra dollars from those using the roadways. A $44 billion kitty could be created annually by boosting the fuel tax by 25 cents a gallon. The money has to come from somewhere. Plunging the nation ever further into debt and saddling future generations with it just isn't sustainable.

A national infrastructure bank or trust fund, as proposed in the 2011 budget, could become a permanent institution overseen by trustees who are independent of Congress. This entity, if managed prudently and free of political earmarking, might be able to avoid the pork-barrel process of awarding federal dollars to the well-heeled few. Until then, the first wave of federal dollars may be a short-term boost, but won't address the long-term aging of the nation's backbone.

John F. Wasik, author of "The Audacity of Help: Obama's Economic Plan and the Remaking of America," is the author of twelve books, including "The Cul-de-Sac Syndrome" and "The Merchant of Power." He speaks widely and writes a weekly Bloomberg News column that reaches readers of five continents and which earned him the 2009 Peter Lisagor award for journalism. He lives in Chicago.

For more information please visit www.audacityofhelp.net.

A Recent Profile

The Daily Herald, a suburban Chicago newspaper, was kind enough to profile me:

	Author John Wasik stands outside his Grayslake home with his latest books. Paul Valade | Staff Photographer
	Author John Wasik draws on his suburban roots when writing his books. Paul Valade | Staff Photographer

Author John Wasik of Grayslake looks at writing in different ways.

"Writing a column is like a sprint, you do it in a specific period of time," he said. "But writing a book is like a marathon with writing, editing and promotion."

With more than a dozen published books, Wasik's marathon has focused on a variety of consumer and economic issues, including his latest releases: "The Audacity of Help," about President Obama's economic plan and the remaking of America, and "The Cul-De-Sac Syndrome," about the sustainability of neighborhoods during the real estate downturn.

While the former newspaper reporter has worked for various publishing houses, the latest two books were under Bloomberg Press. They are available through Amazon.com, Barnes & Noble as well as other book stores.

"In some ways, John follows in the footsteps of Jessica Mitford, especially with 'Cul-De-Sac,'" said his agent Robert Shepard of Los Angeles.

Mitford, one of the famous and politically active Mitford sisters from England, hosted author dinner meetings in San Francisco many years ago that Shepard attended. Wasik had interviewed Mitford for a story and mentioned how he was looking for an agent for his books. Before she died, Mitford connected Wasik to Shepard in the late 1990s.

Still, Wasik draws much on his suburban roots for his books and has even touched on his own neighborhood in "Cul-De-Sac." That book examines what caused the housing meltdown, how sprawl and tax breaks contributed to unaffordable homes and what could happen next.

As part of his examination, he even coined the term, "spurb," or the sprawling urban area that's not conveniently located near anything, like suburbs that seemingly spring out from the middle of a corn field, he said.

His life here has helped to guide his career, like a sprint around the suburbs.

Wasik was born in South Suburban Chicago Heights and grew up in Matteson. After he married, he and his wife, Kathleen, moved to Libertyville and then to Wauconda before settling into a home in Grayslake. They're raising two daughters: Sarah, 12 and Julia, 8.

He earned a bachelor's degree in psychology at University of Illinois-Chicago, but later decided to go into journalism. He started his reporting career at the Star Publications, a weekly chain that covers the South Suburbs. He often covered mob-related activities connected to a Chicago Heights city council, he said.

He later joined Consumer Digest magazine and produced several award-winning investigative projects involving treatment of the elderly and financial fraud. That work led him to writing a column for Bloomberg News and writing books, starting in 1987.

Since then, he has won numerous awards and appeared on NBC, NPR and PBS. He's also a regular speaker around the area. He appears regularly for promotional spots, including at 7 p.m. Wednesday, Oct. 14, at Common Ground in Deerfield, and at 7:30 p.m. Tuesday, Oct. 20, at the Schaumburg Library.

Colleagues believe Wasik has the unique ability to dissect complicated financial problems and explain them in a way that makes sense to everyone.

"I really enjoy having him as a guest on my radio shows because I know we'll have fun exploring the topic of the day and I'll wind up thinking a little differently about the issue because of a point he has raised," said Ilyce Glink of Chicago, a syndicated real estate and finance columnist and commentator.

Green Deal Can Help Small Business

The Green Deal: Obamanomics can do more for small business

October 6th, 2009

By John F. Wasik

There’s something glamorous about a couple of bright souls in an American basement or garage. They tinker around a bit, apply their imagination and creativity to a project, and voila, they’re the next Stephen Jobs or Bill Gates, reinventing the way the world works. Are those days over? Can America still foster the culture of innovation that helped it launch the second industrial revolution, land on the moon and seed the information age? Is President Obama’s “Green Deal” going to foster this kind of growth?

Durable small companies that do everything from manufacturing forklift parts to specialty contracting have been creating the bulk of new jobs in recent years. It’s these “high-impact’’ firms that have been generating employment at a surprisingly robust pace over the past decade. As defined by the U.S. Small Business Administration, these companies generally have less than 20 employees, are 25 years old or less and represent about 3 percent of all firms.

As I discovered in researching my book The Audacity of Help: Obama’s Economic Plan and the Remaking of America, it’s the small shops, factories and firms that are producing new jobs, accounting for 33.5 percent of employment growth for firms of their size from 1994 through 2006. In contrast, during the same period, firms with 500 employees or more accounted for nearly all of the job loss in the U.S. economy. Yet the stimulus plan and budget do little for small businesses; they didn’t get the kind of cheap-credit bailout that the largest mismanaged financial institutions received.

Obama’s stimulus program will benefit specialized contractors in the building trades, alternative power and energy efficiency. While the initial plan will not be a substitute for a comprehensive climate change policy, national green building standards or a renewable energy portfolio mandate (required use of clean energy by a certain date), it will likely seed thousands of businesses and create jobs. Here’s a breakdown of the nearly $42 billion that will be made available:

• $11 billion for smart-grid research and development
• $6.3 billion for energy efficiency and conservation grants
• $6 billion for loan guarantees for electricity generation and renewable projects such as wind and solar (bringing them online and feeding clean power into the grid)
• $5 billion for weatherization assistance (for low-income residents)
• $4.5 billion for making federal buildings more energy efficient
• $3.4 billion for fossil energy research and development (carbon storage and “clean” coal)
• $2.5 billion for energy efficiency and renewable energy research
• $2 billion in grant funding for advanced batteries systems (making them lighter and store more power over time)
• $1 billion for other energy efficiency programs (alternative fuel trucks and buses, smart appliances)

There’s little doubt that the stimulus package will be the largest portion of seed money ever devoted to remaking the economy in a more sustainable mold. Provided the general economy doesn’t collapse, there will be reasons to be optimistic about the green sector. Renewable energy/efficiency industry grew three times faster than the general economy in 2007.

Mostly creating jobs that can’t be outsourced, this employment boom buoys states that have already embraced alternative energy such as California, Oregon, Colorado and Washington. Ironically, the biggest consumer of solar panels is Germany, which has a long-term tax incentive program in place for residents and businesses to buy and install them. Green-collar jobs in the U.S. will never grow substantially without a comprehensive policy that funds a smart grid with net metering, a national renewable energy standard (Al Gore would like to see all electricity generated from renewable sources in 20 years), job training and national building mandates that directs owners to do energy-efficient retrofits.

While the number of new business start-ups (around 600,000 annually) will not be directly effected by the Obama plan, it may spur new growth in companies specializing in creating a green building industry. Even traditional jobs (see below) will flourish if Obamanomics funds a multi-year construction or rehabilitation or maintenance boom.

There’s one other small-business linchpin that the Obama plan leaves out: Cheap and available credit. Small businesses are still being pinched by the credit crunch. They should be able to garner interest-free loans and get the same kind of deals the big banks got during the bailout. It’s also essential that Congress pass a universal, affordable health care plan. Such a national program would immediately make small businesses more productive and profitable.

John F. Wasik, author of Audacity of Help: Obama’s Economic Plan and the Remaking of America (Bloomberg Press), is a personal finance columnist for Bloomberg News and the author of several books. Wasik has won more than 15 awards for consumer journalism including the 2008 Lisagor and several from the National Press Club. He has appeared on such national media as NBC, NPR, and PBS. He lives in Chicago. For more information, visit www.johnwasik.com.

Copyright © 2009 John F.Wasik

The Monster Truth on Green Jobs

Here's a Q&A I did with Monster.com, the major jobs portal:

Stimulus Check 2009: How Will It Reshape America?

How has the Stimulus impacted American industry? And what lies ahead for future funding? Author John Wasik provides insight.



Launched with great expectation and much political debate in early 2009, the American Recovery and Reinvestment Act sought to lift up the beleaguered American economy. Five months later, that expectation was tempered by realism and a plea for patience.

As the country looks ahead to better days in 2010, the Economic Stimulus will continue to play a role in the nation’s economic recovery. What might that role – and its impact – entail? And what might a “son” of Stimulus plan include?

For answers, Monster turned to John Wasik, author of The Audacity of Help: Obama's Economic Plan and the Remaking of America.

Monster: What size businesses have most benefited from Stimulus funding?

Wasik: At this point, mostly large road and building contractors have benefited, although energy-related firms are receiving grants as well. Large to mid-sized companies seem to be doing the best.

Monster: Will this allocation evolve in the coming months?

Wasik: Yes. Some of the largest funding in medical and energy research takes months to wind its way through the process. There’s a lot of vetting to do and certainly a ton of bureaucracy.

Monster: How would you rate the government’s efforts to distribute Stimulus funding?

Wasik: Fairly good, although the government needs to disclose more on exactly who is getting the money and why.

Monster: Will the education and training programs included in the Stimulus significantly reshape the profile of the US workforce?

Wasik: No, not at this point. The new education bill that Congress is considering will have more of an impact. Sending more money (President Obama has approved $12 billion) to community colleges is key. Congress also needs to do a major overhaul of college aid. There should be more grants and less loans. The House just approved a measure to make the loan program direct, which will save billions. That’s a good first step. Tax incentives for college financing need to be consolidated and broadened if college is to become affordable for the middle class.

There aren’t enough retraining programs for President Obama’s “Green Deal” to make a difference now. They need more funding.

Monster: Will the Stimulus enable US industries to be more competitive globally?

Wasik: Yes. The Stimulus plan effectively makes the US government the largest venture capital entity in the country, especially the Department of Energy. Billions have been committed to alternative energy, new battery technology, electric cars, high-speed rail and a digital electric grid. But the Stimulus is just seed money. A sustained effort and trust fund for research and infrastructure is needed if we’re to compete long-term with the Chinese, Japanese and Europeans, who are planning decades into the future.

I would bet that any profession tied into energy research and development will do the best. There will be a pressing need for nano-technology engineers, systems analysts and integrators, auditors and intellectual property lawyers.

Monster: What areas of the economy might a “son of Stimulus” plan focus on?

Wasik: Manufacturing is still essential. The US still has considerable prowess in making things, but our expertise is in high-end products like machines that make silicon wafers. Biotechnology and nano-technology are two areas where the US has a tremendous advantage. We need to build more partnerships between research universities and Department of Energy Labs and the private sector. We could also lead the world in building technologies, building affordable, green buildings and communities.

Monster: Besides the Stimulus, how else could the government help employers successfully manage the current downturn?

Wasik: Provide more re-training programs, temporary support for lost benefits (COBRA extensions) and affordable universal health care.

Monster: How long do you project it will be before we see a steady improvement in the unemployment numbers?

Wasik: Unemployment will probably turn around early next year. There are a few wild cards, though. Interest rates need to remain relatively low, employers need to regain confidence to hire again and we definitely need a healthcare program that will cover everyone -- particularly small businesses, students and those between early retirement and Medicare. Financial reform is absolutely essential to avoid another blow-up on Wall Street. Global regulation of derivatives is needed. The housing market is still a mess as well. Congress needs to find a more effective way of shutting down foreclosures.

John F. Wasik is author of The Audacity of Help: Obama's Economic Plan and the Remaking of America and twelve other books, including The Cul-de-Sac Syndrome and The Merchant of Power. He speaks widely and writes a weekly Bloomberg News column that reaches readers of five continents and which earned him the 2009 Peter Lisagor award for journalism. He lives in Chicago.