March 2010


March 30, 2010

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Investors to Pick Up Slack in Mortgage Backs
Private investors are expected to begin purchasing mortgage securities after the Federal Reserve stops their program at the end of the week, which should keep rates about the same.
Read more >
Geithner: Commercial Troubles Can Be Managed
Though dozens of banks may collapse due to commercial real estate losses, Treasury Secretary Timothy Geithner says “we can manage through this process.”
Read more >
NAR Lobbies for Related Issues
In the first quarter of 2009, NAR spent $5.6 million lobbying the federal government.
Read more >
Aid Expanded to States Hit by Unemployment
The U.S. Treasury announced plans for a second round of funding from TARP for North Carolina, Ohio, Oregon, Rhode Island, and South Carolina.
Read more >
MLS Group Seeks Top-Level .MLS Domain
Fifteen multiple listing services have come together to form a nonprofit to build a .MLS for the Internet.
Read more >
Loan Changes Could Alter Market
Next week, the FHA will raise upfront mortgage insurance premiums, which could have an adverse effect on the market.
Read more >
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Market Update – March 29, 2010

Last week was not the best week for interest rates (including mortgage rates). Overall a combination of the increasing US Government budget deficit, continued problems with Greece and European debt were the primary culprits, along with some signs that our economy is picking up a little steam (stocks are hitting 18-month highs). Two out of the three auctions did not go well, and gee, what will the Fed do with the $1+ trillion of agency Fannie/Freddie product it has purchased? This week brings the end of the Fed’s buying program – and who is going to buy mortgages? Smart money is betting that the same institutions that invested in mortgages prior to the Fed will take up the slack: pension funds, insurance companies, hedge funds, money managers, and banks. Besides, origination is supposed to drop, right? And if rates go up too high, our housing market will get smacked – something that the Federal Government doesn’t want to see happen.

Unfortunately departments within the Treasury Department (OCC and OTS) said the percentage of current and performing mortgages fell to 86.4% at the end of the fourth quarter of 2009, falling for the seventh consecutive period. This means that serious delinquencies rose: a 21.1% increase in mortgages 90 or more days past due to 4.7% of all mortgages in the portfolio at the end of 2009. The increase in seriously delinquent mortgages was most pronounced among prime borrowers, which account for 68% of all mortgages. To continue the “good news”, home sales are slumping, with New Home Sales falling to an all-time low and Existing Home Sales dropping for the third consecutive month, and homebuilder sentiment has dropped.

What do we have to look forward to this week? Besides Easter coming up next Sunday, today we have Personal Income & Consumption and the PCE Price Index, Tuesday the S&P/Case-Shiller Home Price Index & Consumer Confidence, Wednesday the Chicago Purchasing Managers Index, Thursday we have Initial Jobless Claims, Construction Spending, and the ISM Manufacturing data, and then on Friday we’ll see the employment data – expected to show a pickup in jobs.

Personal Income was expected +.2% but came out as unchanged for February. Personal consumption expenditures were expected to rise, and did, coming out at +.3%. After the data, bonds and stocks didn’t do much. The 10-yr seems happy for the moment around 3.87%, and mortgage prices are about unchanged from Friday’s closing levels.

Previous Issues

In This Issue:

REALTOR® Insider: D.C. News and Events

Obama Administration Announces Enhancements to HAMP, FHA Refinances

Business Report

House and Senate Approve Second and Final Health Care Bill

Commercial Finance Report

NAR Requests TALF Extension in Letter to the U.S. House Financial Services Committee

Conventional Residential Lending Report

NAR Posts Webinar on Upcoming HAFA Program

Environment Report

Flood Insurance Update

Housing Report

NAR, ALTA call on FHA to Clarify Stance on Private Transfer Fees


REALTOR® Insider: D.C. News and Events

 
Obama Administration Announces Enhancements to HAMP, FHA Refinances
On March 25, 2010, the Obama Administration, including Federal Housing Administration (FHA) Commissioner David H. Stevens, announced changes to the Home Affordable Modification Program (HAMP) and enhancements to the FHA’s refinance program. The Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP).

Under the HAMP enhancements, unemployed borrowers meeting eligibility criteria will have an opportunity to have their mortgage payments temporarily reduced to an affordable level for at least 3 months and up to six months for some borrowers while they look for a new job. Eligible homeowners under HAMP must live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31 percent of their income) and demonstrate a financial hardship. Servicers are required to consider an alternative modification approach that emphasizes principal relief.

The FHA refinance option provides more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners and is primarily targeted to non-FHA borrowers refinancing into a FHA-insured mortgage. To be eligible for a FHA refinance homeowners must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market.

Total mortgage debt for the borrower after the FHA refinancing, including both first and any other mortgages, cannot be greater than 115 percent of the current value of the home. This will give homeowners a path to rebuild equity in their homes and an affordable monthly payment. Lenders must write down principal of the original first mortgage at least 10 percent to reduce the debt burden on borrowers and the loans may not exceed 97.75 percent of the value of the home. All mortgage debt including second liens must be written down to a maximum of 115 percent of the current value of the home.

HAMP Enhancements Overview >
FHA Refinances for Underwater Homeowners >
HAMP, FHA Refinances FAQ >
Helping Homeowners with Financial Hardships: Two Examples >

Contacts: Jerome Nagy, 202-383-1233

Contacts: Jeff Lischer, 202-383-1117

Business Report

 
House and Senate Approve Second and Final Health Care Bill
On Thursday, March 25th, 2010, the Senate and House of Representatives approved the last of two health reform bills. HR 4872, the Health Care and Education Reconciliation Act, makes changes to HR 3590, the Patient Protection and Affordable Care Act, signed into law by the President on Tuesday, March 23rd. HR 4872 now goes to the President who has indicated that he will sign the bill.

While the House had already approved HR 4872 on March 21st, 2010, a second House vote was required when the version of the HR 4872 passed by the Senate in the afternoon differed from the House version. (Two two student loan provisions were deemed in violation to the Senate’s rules and were removed from the Senate version.) . As a result, the bill had to be reconsidered by the House once again.

The amended version of the bill passed the Senate by a 56-43 vote and the House by a vote of 220- 207.

For more information on the bill’s provisions and the roll call votes, please go to NAR’s Health Reform webpage located at www.realtor.org/healthreform.

For more information on NAR’s advocacy efforts on health reform, please go to www.realtor.org/healthreform.

www.realtor.org/healthreform >

Contacts: Marcia Salkin, 202-383-1092

Contacts: Ken Wingert, 202-383-1196

Contacts: Scott Rinn, 202-383-7508

Commercial Finance Report

 
NAR Requests TALF Extension in Letter to the U.S. House Financial Services Committee
Last week, NAR submitted a letter before the House Financial Services Committee hearing on “Unwinding Emergency Federal Reserve Liquidity Programs and Implications for Economic Recovery.” Specifically, NAR asked policymakers to extend the Term Asset-Backed Securities Loan Facility (TALF) for legacy and new newly issued commercial mortgage-backed securities (CMBS) through the end of 2010.

Last November, the first CMBS in over 18 months was sold with assistance from TALF. Additional loans are now in the program’s pipeline. However, due to the long-term nature and complexity of putting together CMBS deals — often taking between six months and two years to complete — potential investors will be excluded from participation as a result of the March 31, 2010, and June 30, 2010, sunset dates for legacy and newly issued CMBS, respectively. Given additional time, TALF will to continue to help thaw the nearly frozen private commercial mortgage markets.

TALF was created last year in an effort to thaw the frozen $900 billion CMBS market, which has been a significant source of funding for the commercial real estate industry in the past decade. Under the program, the Federal Reserve provides investors with low-cost loans to buy securities backed by commercial real estate debt. It is estimated that roughly a dozen more CMBS deals are in the works, with most investors hoping to tap into TALF.

Read NAR’s letter to the House Financial Services Committee >

Contacts: Jeff Lischer, 202-383-1117

Contacts: Megan Booth, 202-383-1222

Contacts: Vijay Yadlapati, 202-383-1090

Conventional Residential Lending Report

 
NAR Posts Webinar on Upcoming HAFA Program
NAR has posted a Webinar on its short sales web page to give REALTORS® more details about the Home Affordable Foreclosure Alternatives Program (HAFA) that takes effect April 5, 2010. For homeowners unable to retain their home through the HAMP loan modification program, HAFA offers the possibility that they will still be able to avoid foreclosure with a short sale or a deed-in-lieu of foreclosure. The Webinar provides an overview, but REALTORS® who will sell property covered by the HAFA program will need to become very familiar with the process and the forms that will govern the transaction.

NAR’s HAFA Webinar (45 minutes) >
NAR’s Short Sales Website, including HAFA Guidelines, Forms, and FAQs >

Contacts: Jeff Lischer, 202-383-1117

Contacts: Tony Hutchinson, 202-383-1120

Environment Report

 
Flood Insurance Update
The Senate adjourned without approving H.R. 4851, which would have extended a number of programs including the National Flood Insurance Program (NFIP). Authority for the NFIP expires at midnight on Sunday March 28, which will delay real estate transactions where a new flood policy is required but has not been issued before the expiration date. Efforts to reach bipartisan agreement between the House and Senate failed over how to pay for the broader bill. A procedural motion has been filed in the Senate setting up a vote the week of April 12th. NAR has stressed with Congress the vital importance of flood insurance to the real estate market. We will continue to make every effort and advocate for legislation that extends the program for as long as possible.

Visit NAR’s Homepage on Natural Disaster/Flood Insurance >

Contacts: Austin Perez, 202-383-1046

Contacts: Russell Riggs, 202-383-1259

Contacts: Helen Devlin, 202-383-7559

Housing Report

 
NAR, ALTA call on FHA to Clarify Stance on Private Transfer Fees
On March 23, 2010, the National Association of REALTORS® (NAR) and the American Land Title Association (ALTA) sent a joint letter to Federal Housing Administration (FHA) Commissioner David H. Stevens to request that HUD clarify its position prohibiting the use of private transfer fees for FHA-insured mortgages and oppose private transfer fees for other mortgages as well. Both NAR and ALTA believe these fees generate revenue for developers and investors but often provide no service for home buyers.

A private transfer fee commonly occurs when a builder agrees to add a covenant to the deed of each new home, or a homeowner agrees to add a covenant to an existing home, that requires future buyers of the property to pay a percentage of the selling price to a designated beneficiary. The transfer fee rule is a covenanted mandate so it is extremely difficult to reverse the requirement once it is in place. NAR and ALTA have concerns about the transfer fee because it increases the cost of homeownership. There is also virtually no oversight on where or how proceeds can be spent, on how long a private transfer tax may be imposed, or on how the fees should be disclosed to home buyers.

NAR, ALTA Letter to FHA on Private Transfer Fees >

Contacts: Jerome Nagy, 202-383-1233

Contacts: Megan Booth, 202-383-1222

Contacts: Scott Rinn, 202-383-7508

Monday, March 29, 2010

Useful Info:

Government Affairs Homepage

NAR News

Health Insurance Reform

First-Time Home Buyers Tax Credit

Home Valuation Code of Conduct (HVCC)

Short Sales

FHA News and Resources

Government Sponsored Enterprises

All the other issues NAR Staff is working on

Contact Government Affairs staff

QUIZ: RESPA
  The Real Estate Settlement Procedures Act (RESPA) is a consumer disclosure and anti-kickback statute designed to inform consumers of their settlement costs and to prohibit kickbacks that can increase the cost of obtaining a mortgage. Take this quiz to find out how well you know about this important issue to stay on the right side of the law.
1. Which of the following is NOT a settlement service that is covered by RESPA?
Mortgage loan origination
Furniture moving
Real estate brokerage services
Lender’s credit report
   

2. Under RESPA, a real estate professional may give in return for the referral of real estate settlement service business:
A thank you
A thing of value
A kickback
A fee
   

3. To provide consumers with cost information about the mortgage process, RESPA created the good faith estimate (GFE) and the HUD-1 closing document. RESPA requires that the HUD-1 form be provided to the:
Tax assessor
Next-door neighbor
Real estate salesperson
Buyer
   

4. Substantially revised versions of the GFE and HUD-1 took effect at the beginning of 2010. Among other things, HUD’s goal was to reduce surprises to consumers at the closing table by restricting how much some costs could change between the GFE and the HUD-1. What is included among the costs that are allowed to change?
Loan origination fee
Title insurance
Transfer taxes
Credit charges such as points
   

5. In addition to reducing consumer surprises at the closing table, the revised GFE and HUD-1 are intended to make comparison shopping easier for consumers. To do that, the GFE lets consumers look at a proposed loan under all but one of these different scenarios:
The loan as proposed
The loan with a lower interest rate
The loan with different underwriting terms
The loan with lower settlement charges
   

6. To combat higher costs in real estate transactions, Section 8 of RESPA makes it a criminal act for settlement service providers to pay fees for the referral of business. One exception to this rule allows a real estate professional to pay a referral fee to:
A mortgage broker who refers a buyer who has been pre-approved
A previous customer who refers a neighbor
Another licensed real estate broker who refers a buyer from another part of the country
A relative who overhears a customer saying he or she is moving
   

7 . Another exception to the RESPA rules contained in Section 8 allows real estate professionals to receive compensation for:
Filling out a mortgage application
Telling the home inspector the address of the property to be inspected
The reasonable value of goods and services actually provided or performed
Doing the same thing they have been paid to do as a real estate professional
   

8 . RESPA allows title companies to provide real estate professionals:
$50 for every client referred to the title company by the real estate professional
An entry in a contest to win a car for every $1,000 in premiums paid by the real estate professional’s clients
Tickets to a baseball game once a week for the entire season
Notepads that have been imprinted with the title company’s name and phone number
   

9 . Two companies that provide settlement services and have some degree of common ownership are considered affiliated businesses under RESPA. When there is a referral from one of these companies to the other, RESPA requires the customer receive an affiliated business disclosure that contains specific information, including:
A statement that use of referred service is not required
Names of other providers of the same service
A statement that the property is pest-free
The commission being paid by the property seller
   

10. The affiliated business provision, which is an exception to the general RESPA rule regarding compensation for referrals, allows:
The real estate professional making the referral to receive a small referral fee
The party making the referral to receive a return on its ownership interest in the company receiving the referral
The buyer to avoid having to pay real property transfer tax
The seller to require buyers to use the seller’s attorney
   

11. RESPA is interpreted and enforced by the:
U.S. Department of Justice
Local U.S. Attorney
U.S. Department of Housing and Urban Development
State Association of REALTORS®
   

12. The penalty for illegally giving or receiving a kickback, which is covered in Section 8 of RESPA, is:
Up to 90 hours of community service
Loss of real estate license
Requirement to attend a RESPA education program
A fine of up to $10,000 or up to one year in prison or both
   

QUIZ RESULTS: RESPA


Brush up on this important topic and try the quiz again. To learn more about RESPA, review the Real Estate Settlement Procedures Act (RESPA) page and the Frequently Asked RESPA Questions, both at REALTOR.org.
1. Which of the following is NOT a settlement service that is covered by RESPA?
You chose not to answer this question.
Correct Answer: Furniture moving

Settlement services relate to the making of the federally-related mortgages that are covered under RESPA. Services that are provided after closing typically are not covered by RESPA and are not considered settlement services.

2. Under RESPA, a real estate professional may give in return for the referral of real estate settlement service business:
You chose not to answer this question.
Correct Answer: A thank you

RESPA prohibits any person from giving or receiving a fee, kickback, or “a thing of value” for referring business to a mortgage broker or banker, or a title company. Saying thank you is not considered a thing of value for purposes of the Act.

3. To provide consumers with cost information about the mortgage process, RESPA created the good faith estimate (GFE) and the HUD-1 closing document. RESPA requires that the HUD-1 form be provided to the:
You chose not to answer this question.
Correct Answer: Buyer

The person conducting the settlement needs to make the HUD-1 form available for inspection to the buyer (borrower) at or before settlement. The Act does not require that copies be provided to real estate professionals.

4. Substantially revised versions of the GFE and HUD-1 took effect at the beginning of 2010. Among other things, HUD’s goal was to reduce surprises to consumers at the closing table by restricting how much some costs could change between the GFE and the HUD-1. What is included among the costs that are allowed to change?
You chose not to answer this question.
Correct Answer: Title insurance

On the GFE, HUD identifies four charges that cannot change at all. These are 1.) the lender’s origination charge, 2.) the credit charges (points) for the specific interest rate chosen (after the interest rate is locked in), 3.) the borrower’s adjusted origination charges (after the interest rate is locked in), and 4.) transfer taxes. Title insurance costs can change up to 10 percent if the lender selects the insurer or the borrower chooses an insurer from a list provided by the lender, or they can change an unlimited amount if the borrower selects the insurer completely separate from the lender.

5. In addition to reducing consumer surprises at the closing table, the revised GFE and HUD-1 are intended to make comparison shopping easier for consumers. To do that, the GFE lets consumers look at a proposed loan under all but one of these different scenarios:
You chose not to answer this question.
Correct Answer: The loan with different underwriting terms

The GFE is intended to ease comparisons among costs (interest rate, brokerage fees, etc.) associated with a loan, not comparisons among different underwriting terms such as the loan-to-value ratio and length of the term.

6. To combat higher costs in real estate transactions, Section 8 of RESPA makes it a criminal act for settlement service providers to pay fees for the referral of business. One exception to this rule allows a real estate professional to pay a referral fee to:
You chose not to answer this question.
Correct Answer: Another licensed real estate broker who refers a buyer from another part of the country

Section 8(c) of RESPA includes an exception to the general prohibition on the payment of referral fees for payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate salespeople and brokers.

7 . Another exception to the RESPA rules contained in Section 8 allows real estate professionals to receive compensation for:
You chose not to answer this question.
Correct Answer: The reasonable value of goods and services actually provided or performed

Section 8(c) of RESPA states that nothing in the section prohibiting the payment of referral fees shall be construed as prohibiting the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.

8 . RESPA allows title companies to provide real estate professionals:
You chose not to answer this question.
Correct Answer: Notepads that have been imprinted with the title company’s name and phone number

The RESPA provision prohibiting the payment of a referral fee does not include normal educational and marketing activities that are not contingent on the referral of business. Since the notepads were not contingent on the referral of business and are typical marketing materials for a title company, they are not prohibited.

9 . Two companies that provide settlement services and have some degree of common ownership are considered affiliated businesses under RESPA. When there is a referral from one of these companies to the other, RESPA requires the customer receive an affiliated business disclosure that contains specific information, including:
You chose not to answer this question.
Correct Answer: A statement that use of referred service is not required

The disclosure must state the existence of an affiliated business arrangement between you and the company to which you are referring your clients. As part of the disclosure, your clients must be provided a written estimate of the charge or range of charges made by the company to which the clients are being referred and information that makes clear that your clients are not required to use that company.

10. The affiliated business provision, which is an exception to the general RESPA rule regarding compensation for referrals, allows:
You chose not to answer this question.
Correct Answer: The party making the referral to receive a return on its ownership interest in the company receiving the referral

The only thing of value that can be received from an affiliated business arrangement, other than the payments permitted under other subsections of Section 8 of the Act, is a return on the ownership interest.

11. RESPA is interpreted and enforced by the:
You chose not to answer this question.
Correct Answer: U.S. Department of Housing and Urban Development

The Act vests the HUD Secretary with the authority to interpret the Act, conduct investigations into violations, and bring actions for violations of the Act. Parties other than the HUD Secretary, such as customers, also may be authorized to sue for violations of certain provisions of the Act.

12. The penalty for illegally giving or receiving a kickback, which is covered in Section 8 of RESPA, is:
You chose not to answer this question.
Correct Answer: A fine of up to $10,000 or up to one year in prison or both

Penalties for violation of Section 8 of the Act may include a fine of up to $10,000 or up to one year in prison, or both.

 

Key Features of the New Housing Rescue Plan
The U.S. government announced renewed foreclosure prevention efforts with $14 billion aimed at helping underwater and unemployed home owners.
Read more >
Health Care Reform: What’s the Impact on You?
Expanded markets, changes in underwriting, and other standards will change the environment for those in real estate.
Read more >
HOAs Can’t Ban Sex Offenders
Bylaws or restrictions against sex offenders are likely unenforceable by the courts and could result in a civil rights claim against an HOA, according to a real estate legal expert.
Read more >
New Anti-Lead Rules on Home Renovations
The EPA has set new regulations to reduce lead poisoning and requires contractors to be certified by a government-approved trainer.
Read more >
Is a Short Sales Boom Coming?
New government incentives are making it easier for banks to give the green light on short sales, and real estate experts see a higher volume of these transactions coming down the pike.
Read more >
A Good Time to Buy a High-End Home
Now is the time to find great high-end deals, especially for cash buyers, as supply continues to outpace demand in many markets.
Read more >

Conventional 30-year fixed mortgages are available at 4.75% today for well-qualified consumers paying a standard .07 to 1 point  

Today’s 15-yr fixed rate is 4.125%, and the 5/1 ARM rate 3.625.FHA mortgage rates continue to mirror those of conventional loans. While FHA loans do offer similar rates, the closing cost associated with those rates is significantly higher. That cost is set increase when MI, a premium charged at closing to borrowers obtaining FHA financing, is boosted from 1.75 to 2.25% of the amount borrowed on April, 05.30-year fixed jumbo loans are available at 5.625% with slightly better rates (5.5) for borrowers with an extremely low LTV. Mortgage-backed securities prices, which drive mortgage rates in the opposite direction, have been flat in the month of March. As a result, mortgage rates have been stable, unchanged since dipping slightly at the end of February.Just one week now until the much anticipated end of government MBS purchasing. The Fed says ideally the end of buying, set for March 31st, will cause only a slight rise in mortgage rates.Current Mortgage Rates

  • 30-yr fixed rate – 4.750%  
  • 15-yr fixed rate – 4.125%  
  • 5/1 ARM rate – 3.625%  
  • FHA 30-yr fixed rate – 4.750%  
  • FHA 15-yr fixed rate – 4.500%  
  • FHA 5/1 ARM rate – 3.625%  
  • VA 30-yr fixed rate – 4.875%  
  • Jumbo 30-yr fixed rate – 5.625%  
  • Jumbo Conforming 30-yr fixed rate – 4.875%
  •  

Tech Investor Update

This 118-year-old technology is about to bring Microsoft
to its knees…

And when it does, well-positioned investors are going to make countless millions. You can join them — but you must act now. Read on to get all the details…

In this issue…

  • The two words that spooked Bill Gates into an early retirement
  • Why Google is a screaming buy — despite what the financial media is telling you
  • Two breakout stocks already up 94% and 136% — and just getting started

Dear Opportunistic Investor,

On October 30, 2005, something incredible happened…

In Redmond, Washington, one of the world’s richest — and most powerful — businessmen sent an urgent memo to his top engineers and most-trusted managers.

It sounded the alarm that a very disruptive “wave” was about to wash over the entire world — forever changing the way we get information and do business.

It also warned this would wipe out the $200 billion business empire he’d spent his life building.

Meanwhile, a few hundred miles south, on the banks of the Columbia River, a mysterious outfit known only as “Design LLC” quietly constructed two massive, windowless warehouses.

This mammoth undertaking was code-named “Project 2,” and the International Herald Tribune described the towering monolithic structures as “looming like an information-age nuclear plant.”

I realize this may sound like something out of a Tom Clancy novel, but I think you’ll want to bear with me, because…

Analysts estimate this “wave” has grown into a $160 billion tsunami

And experts say it’s going to upend a $1 trillion industry. Yet very few investors understand just how huge it’s going to be.

That’s why I urge you to take the next few minutes to read this report in its entirety.

At the very least, you’ll get the full story so you can decide for yourself if you’ll be front and center when the big money starts rolling in.

But I warn you, the smart money is already on the move…

A handful of investors are already quietly positioning themselves to cash in on this incredible economic shift. Soon, tens of thousands will be rushing to join them.

One of the most lucrative investment opportunities
we’ll ever encounter

This story is so big that we have to step clear back to February 28, 1881, to put it into perspective.

On that chilly winter night, a 21-year-old British stenographer named Samuel Insull arrived in the port of New York aboard the City of Chester.

Thomas Edison’s chief engineer had lured him to America to serve as Edison’s private secretary.

11 years later, Insull oversaw the merger that created General Electric, and shortly thereafter was offered the presidency of the Chicago Edison Company.

Little did anyone know, the world of electricity was about to drastically change.

At the time, cities like Chicago had dozens of small, privately owned power stations transmitting direct current (DC) electricity to neighborhoods within a small radius.

With due respect to Edison, Insull knew that the model Edison had created was flawed.

So he set out to transform Edison’s legacy into something far greater and more efficient than its creator had ever imagined.

In doing so, he forever changed the world

Insull realized if he could create a “utility” by building giant central power stations that would transmit alternating current (AC) electricity over great distances…

These power stations could be linked to form a giant grid that would serve homes, businesses, and industries in even the most remote locations.

Once electricity was readily available everywhere, more and more electric-powered devices would come to market — creating more and more demand for the electricity that the utilities produced.

And here’s the kicker…

Because these utilities could match supply with demand, realize superior economies of scale, and use their generating capacity much more efficiently, they could deliver electricity for a fraction of what it cost people to produce it on their own.

And Insull was right on the money!

By 1907, utilities produced 40% of the power in the U.S. In 1920, that number stood at 70%, and a decade later, it was over 90%.

What was once unimaginable had suddenly become reality.

Now history is repeating itself

118 years after Insull came up with the idea for a “utility,” this breakthrough technology has morphed and been reapplied to the world of computers — and now the next great technological revolution is under way…

Which is exactly why I’m writing you today.

You see, one of the most successful investors I’ve ever met is convinced that this technological shift will dump millions of dollars into the portfolios of investors just like you.

But in order to claim your fair share of the wealth, you have to know who the dominant players are — and you have to get invested now.

That’s why I want to introduce you to this legendary investor and tell you about three companies he’s identified as “top dogs” and “first movers” in this breakout industry.

These are the companies he believes will dominate their industries over the next 5 to 10 years and hand investors life-changing wealth along the way.

I’ll also reveal the six traits he looks for in a growth stock — and explain how they have led him to companies that have soared 215%, 232%, 275%, 411%, and even 644% in just the past five years.

But first, let me tell you a little bit more about this amazing technology and why, once again…

The unimaginable is fast becoming a reality

You probably remember when computers took up entire rooms and were used only by companies that needed to do intense mathematical calculations.

That all changed when Intel unveiled the microprocessor and a geeky college dropout started writing software with his former high school pal.

Thanks to the virtual desktop they developed, the PC quickly replaced the mainframe as the center of corporate computing and began showing up in homes across America.

Before long, companies began building intraoffice networks so that their employees could run programs like Microsoft Word and Excel on their PCs, and also access programs, files, and printers from a central server.

But, like Edison’s, this model was far from perfect.

Due to a lack of standards in computing hardware and software, competing products were rarely compatible — making PC networks far more inefficient than their mainframe predecessors.

In fact, most servers ended up being used as single-purpose machines that ran a single software application or database.

And every time a company needed to add a new application, it was forced to expand its data centers, replace or reprogram old systems, and hire IT technicians to keep everything running.

As a result, global IT spending jumped from under $100 billion a year in the early 1970s to over $1 trillion a year by the turn of the century.

Here’s the dirty secret behind this mind-boggling growth — and the two words that will put an end to the party

IT-consulting firm IDC reports that every dollar a company spends on a Microsoft product results in an additional $8 of IT expenses.

And one IT expert admits, “Trillions of dollars that companies have invested into information technology have gone to waste.

Yet, companies have had no choice but to run these obscenely expensive and highly inefficient networks.

But that’s all about to change…

And that’s precisely why the two words “cloud computing” scare the hell out of Bill Gates.

You see, he realizes that thanks to the thousands of miles of fiber-optic cable laid during the late 1990s, the speed of computer networks has finally caught up to the speed of computer processors.

As IT expert Nicholas Carr explains, “What the fiber-optic Internet does for computing is exactly what the alternating-current network did for electricity.”

Suddenly, computers that were once incompatible and isolated are now linked in a giant network, or “cloud.”

As a result, computing is fast becoming a utility in much the same way that electricity did…

“The next sea change is upon us.” — Bill Gates

Think back a few years — any time you wanted to type a letter, create a spreadsheet, edit a photo, or play a game, you had to go to the store, buy the software, and install it on your computer.

But nowadays, if you want to look at pictures on Facebook… find directions on MapQuest… watch a video on YouTube…  or sell furniture on Craigslist… all you really need is an Internet connection.

Because although these activities require you to use your PC, none of the content you are accessing or the applications you are running are actually stored on your computer — instead they’re stored at a giant data center somewhere in the “cloud.”

And you don’t give any of it a second thought… just like you don’t think twice about where the electricity is coming from when you plug an appliance into the wall.

But cloud computing isn’t going to be just a modern convenience — it’s going to be an enormous industry.

You see, everyone from individuals to multinational corporations can now simply tap into the “cloud” to get all the things they used to have to supply and maintain themselves. This will save some companies millions and make others billions.

“Is cloud computing the next big thing?”

That’s the title of an article in PC Magazine.

The answer was an overwhelming yes. And PC Magazine isn’t the only one taking note of this sweeping trend…

Ripped from the Headlines...

The Economist claims, “As computing moves online, the sources of power and money will increasingly be enormous ‘computing clouds.'”

David Hamilton of the Financial Post says this technology “has the potential to shower billions in revenues on companies that embrace it.”

And Nicholas Carr, former executive editor of the Harvard Business Review, has even written an entire book on the subject, titled The Big Switch. In it, he asserts: “The PC age is giving way to a new era: the utility age.”

He goes on to make this prediction: “Rendered obsolete, the traditional PC is replaced by a simple terminal — a “thin client” that’s little more than a monitor hooked up to the Internet.”

While that may sound far-fetched, in the corporate market, sales of these “thin clients” have been growing at over 20% per year  — far outpacing that of PCs.

According to market-research firm IDC, the U.S. is now home to more than 7,000 data centers just like the one constructed on the banks of the Columbia River in 2005.

And the number of servers operating within these massive data centers is expected to grow to nearly 16 million by the end of 2010 — that’s three times as many as a decade ago.

“Data centers have become as vital to the functioning of society as power stations.” — The Economist 

The simple truth is that cloud computing is becoming as big a part of our everyday lives as cell phones or cable television.

That’s why I’m so eager to tell you all about the three companies that are leading the charge and look poised to rule the post-Microsoft world.

One is the undisputed leader of the cloud computing pack.

You may already know who I’m talking about… and you may have even guessed that it is the real face behind Design LLC.

But what you may not realize is that right now is the perfect time to get invested — despite what many so-called “experts” in the financial media might be telling you.

Buying this tech juggernaut today is like buying Microsoft in 1990

Don’t forget, even after the dot-com collapse and the recent market sell-off, every $10,000 invested in Microsoft would now be worth over $483,000.

Even a modest $3,000 investment would have grown into more than $144,000!

Just imagine what you could do with that kind of money…

Now imagine being given a second chance to secure that kind of profit.

Well, look here… this is your second chance.

You see, like Microsoft in the early 1990s, Google is just getting started.

They’ve already won the search engine war, set the standard for online advertising, and turned the company’s name into a word tens of millions of people use daily.

And now they’re fast becoming synonymous with the future of computing…

Over 500,000 companies — including GE and Procter & Gamble — have already signed up for Google Apps.

This grab bag of business applications can be purchased and run over the Web for just $50 per year and is just one of many Google products now giving Microsoft a run for its money.

Considering that Google Apps costs just 1/10th of what a traditional business software suite does, it’s no surprise that more than 3,000 businesses are signing up per day.

No wonder the Financial Post says, “The cost savings in offering scaled-down versions of large enterprise software is making cloud computing a huge business.”

But at just $50 a pop, you might be wondering how big this business can really get.

Industry research firm Gartner Inc. says the market for Internet-based software recently hit $5.1 billion and conservatively estimates it will more than double to $11.5 billion by 2011.

But don’t forget, this is just one small part of the giant and highly profitable cloud computing world.

Given its dominance over the online world, massive network of strategic partnerships, and unmatched ability to innovate, you can bet the great majority of the fortunes generated by cloud computing will flow through Google’s coffers.

Even so, you may be wondering…

Isn’t it too late to buy Google?

Not at all!

In fact, as I mentioned, one of America’s most trusted stock pickers is convinced that right now is the perfect time to get invested in the future of cloud computing — and especially in Google.

But why should you trust him?

Well, let’s just say this isn’t the first time this maverick investor has recommended a stock after the hotshots on Wall Street declared it was “too late”…

Back in 2005, he recommended robotic surgery specialist Intuitive Surgical to a small group of opportunistic investors.

At the time, shares were selling for $44.17. One year prior, shares had sold for $17.46, and a year before that they were selling for just $8.68.

You read that right… Intuitive Surgical had risen 500% in the two years before he recommended it — and that scared lesser investors off.

But this visionary investor recognized that Intuitive Surgical was both “top dog” and “first mover” in its industry and still had plenty of room to run…

Shares recently traded as high as $367 — meaning investors who followed David’s lead have been able to rake in some truly meaningful profits.

And this wasn’t just some sort of lucky break or fluke, either.

You see, this world-famous investor first caught the financial media’s attention when he recommended AOL in the summer of 1994 — after it had quadrupled in just 12 short months.

Of course, the story is the same with AOL — he recognized it as both a top dog and a first mover in an important emerging industry and knew it was only getting started.

Six years later, AOL was a 100-bagger, turning every $10,000 invested into a whopping $1 million — and this growth investor into a living legend.

Here are just a few more of the top dogs and first movers he’s uncovered recently:

  • Myriad Genetics — Locked in 252% gains
  • Baidu.com — Up 411%
  • Vertex Pharmaceuticals — Up 275%
  • Green Mountain Coffee Roasters — Up 215%
  • MercadoLibre — Up 164%

By now, I imagine you’re ready to meet this legendary investor and find out exactly what I mean by “top dog” and “first mover.”  But first…

Allow me a proper introduction

My name is Mark Brooks, and I publish an award-winning financial newsletter that carries the same name as the small community of investors I mentioned a moment ago…

It’s called Motley Fool Rule Breakers, and it’s headed up by the extremely successful stock picker I’ve been telling you about…

You may have already guessed that I’m talking about David Gardner — co-founder of The Motley Fool. After all, he’s pretty well-known…

You’ve probably seen David on CNBC discussing his favorite growth stocks with some of the nation’s other top-tier equity analysts…

Or perhaps you’ve read one of his many best-selling investment books…

Or maybe you’re just familiar with some of his remarkable stock recommendations… eBay in 1999… Starbucks in 1998… AOL in 1994… Amgen in 1998… Amazon in 1997.

Regardless, it’s not hard to see why Money.com says he’s “among the most widely followed stock pickers in the world.”

And I’m sure you can understand why any time David gets excited about an investment opportunity, I stand up and take notice…

Well, let me tell you, right now David is extremely excited about what he calls…

“The 3 Kings of Cloud Computing”

These are 3 exceptionally well-run companies that David and his team of cutting-edge equity analysts have identified as both top dogs and first movers in their respective industries.

You’ve already heard a little bit about the first of these three, and I imagine you’re beginning to see why David thinks any serious investor should get it in his portfolio right this minute.

But as I mentioned before, you deserve to get the full story so you can decide for yourself whether or not to take advantage of this incredible opportunity.

That’s why I want to send you a complimentary copy of our brand-new special report: “The 3 Kings of Cloud Computing.”

This valuable report is jam-packed with patented in-depth analysis and investment insights and is available only to a select few individual investors.

Not only does it spell out exactly why Google could be your next monster winner in plain, easy-to-understand English, it also reveals 2 lesser-known companies that are poised to dominate the world of cloud computing and hand investors incredible returns.

Just ahead, I’ll tell you how to claim a complimentary copy of this report, plus I’ll give you a chance to join the Rule Breakers community at a limited-time discount rate, but first let me tell you a little more about the other two incredible companies that David’s so excited about…

First things first… what’s a “top dog” and a “first mover”?

It’s quite simple really.

A “top dog” is a company that dominates its industry… and a “first mover” is a company with a technology or product so revolutionary that it disrupts an existing industry and creates an entirely new one. 

On the rare occasion that you find a company that is both a top dog and a first mover, the chances are pretty good that you’ve found your next big winner

Just think of eBay in the online auction market… Amazon in the online retail market… or Netflix in the DVD-rental market (David led investors to big gains on all three).

These companies redefined the way business was done, launched entirely new industries, and continue to dominate those industries to this day. And you don’t need me to tell you how handsomely they’ve rewarded shareholders along the way.

So you can see why David and his Rule Breakers team work around the clock to find companies that are both top dogs and first movers.

But they don’t stop there… You see, David discovered long ago that in order to find companies that will deliver truly life-changing investment returns, you have to break the rules and go against much of what passes for “wisdom” on Wall Street.

That’s why he searches for companies with…

  • a sustainable competitive advantage that can be exploited for years to come
  • strong past price appreciation
  • excellent management
  • strong consumer appeal

And here’s the big one…

  • documented proof that the financial media thinks it’s “overvalued”

Remember, many of David’s biggest winners were recommended after all the fast-talking experts on Wall Street already declared you’d missed your chance to buy.

It’s the exact same story with the second company I’m going to tell you about today…

The company that makes the Internet fly

When David first recommended it to the Rule Breakers community back in 2005, he admitted it wasn’t “cheap.”

With the arrival of cloud computing, he’s more excited than ever about its potential to make investors rich. 

You see, this company works behind the scenes to make sure you can access everything the Web has to offer at lightning-fast speeds.

And thanks to the ever-growing number of people now using the Internet to do everything from watch movies to buy houses, this once-flailing refugee of the dot-com meltdown is now one of the most important tech companies in the world.

Apple, Microsoft, Best Buy, and Nintendo are among its top clients — and they’re all more than happy to pay up for the quality this company consistently delivers.

While this usually runs somewhere in the neighborhood of $275,000 per year, more and more complex applications are coming online all the time — giving this company greater pricing power.

At last count, it had more than 100 clients paying $1 million or more per year. So it’s no wonder that cash from operations has more than tripled from $83 million in 2005 to over $420 million today… Or that the cash on its balance sheet has grown from just $92 million to a whopping $566 million.

And you can bet that this growth will only accelerate as cloud computing becomes an even more vital part of our personal and professional lives.

You see, because this company is both a top dog and a first mover, it has been able to gain an almost insurmountable lead in market share, allowing it to sport superb operating margins.

The gross margin currently sits at an incredible 74%; meanwhile, the net margin has climbed to 17% — and continues to grow.

All things considered, I think you can understand why David thinks this will be one of the dominant players in the cloud computing world for years to come.

And it’s the exact same story with the third company he reveals in The 3 Kings of Cloud Computing

A bona fide Rule Breaker with very real profits

Not only does this rising tech superstar meet all 6 of David’s criteria for a classic Rule Breaker, but it also has a stranglehold on a niche market that’s absolutely essential to the future of cloud computing.

Whereas the last company I mentioned keeps the massive amounts of Web traffic flowing smoothly and efficiently, this company designs extremely complex software that allows central servers to function in the first place.

The market for this software is estimated to soar to $5 billion by 2011.

And thanks to various patents, a considerable head start, and immense technical know-how, there is very little chance competitors will be able to wrestle the lion’s share of that $5 billion away from this company.

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