USA Finance

Thousands of Brits looking to downsize

2009-02-02T03:19:00.000-08:00

From Yourmortgage.co.uk: Thousands of Brits looking to downsize
Research by Moneyextra has revealed that 595,000 Brits are looking to downsize within the next six months.

The research also revealed that over one million people in the UK are currently looking to make the most of falling prices and buy a property.

When looking at the typical house price of an average first-time buyer property (£130,000), monthly repayments can come in as low as £592.92, making this an affordable opportunity for many currently renting.

For ‘downsizers’, Moneyextra found that those extending the term of their mortgage and downsizing from a £200,000 mortgage on a £250,000 property to a £144,000 mortgage on a £180,000 property, could save as much as £555 per month on their monthly repayments, and free up some additional capital to boot.

Richard Mason, managing director at Moneyextra, said: “Our research shows that while 4% of homeowners are considering a move to a smaller property, a staggering 8% of homeowners are ignorant to the current economic conditions and still don't know what to do. The UK needs a wake-up call. Homeowners who are struggling with mortgage payments need to take their heads out of the sand or potentially face repossession.

“We’re urging people not to close their eyes to the opportunities and risks out there. There are still plenty of deals to choose from and significant savings can be made from downsizing. Our analysis shows that people who are struggling with their outgoings need to act fast - if they do so then collectively they could save nearly a third of a billion pounds every month - more than £550 each. Those looking to downsize now are making the right decision - move before you get into any serious difficulty to avoid the danger of repossession.”

Mortgage Loan Modifications Hit Record High, While New Home Sales Hit Record Low

2009-01-31T10:49:00.000-08:00

From Mortgageloan.com: Mortgage Loan Modifications Hit Record High, While New Home Sales Hit Record Low
Mortgage companies continue to move at an accelerating rate to modify trouble loans--modifying 122,000 loans in December. Meanwhile, new home sales in December went the opposite direction to hit record lows--only 23,000 Americans bought homes in December.

As housing inventories continue to bloat, housing prices fall, and unemployment climbs--Is the crisis funnel filling faster than it is emptying.

Hope Now, a coalition of mortgage lenders and servicers continues to report rising numbers of successful loan modifications and workouts. This coalition is reporting combined loan modifications and loan workouts topping a record 239,000 last month.

Loan modifications are permanent changes to the mortgage contract that typically lowers a borrowers payment. These modifications are intended to prevent foreclosures.

As economic conditions continue to deteriorate, loan modifications are expected to grow in importance and volume. Mortgage lenders andsubprime servicers are indicating that they are using lower interest rates to modify mortgages into lower payments with reduced interest rates and principle, not setting longer payment plans.

However, regulators and lawmakers are raising the pitch of their criticism of this model of foreclosure prevention. Citing reports from the Office of the Comptroller of the Currency and Credit Suisse, over 50 percent of these loan modifications are slipping back into default within six months. Supporting debate that modifying mortgages only delays the inevitable.

Despite marginal long-term success the need is certain. New data in December shows that foreclosure prevention is not just a subprime issue any longer. In December, total foreclosures rose 34,000 from the previous month, and 75 percent of that increase were prime loans. This marks the first time prime homeowners exceeded subprime borrowers in the foreclosure rolls.

The Federal Reserve's brought additional hope to the conversation in it comments this week. In statements from the recent FOMC meeting they assured the public that they would take steps to reduce foreclosures by encouraging the modification of $74 billion in loans it owns. They also reiterated their support for buying mortgage-backed securities and potentially long-range Treasuries.

$819 Billion Stimulus Passes House. Recovery or Pork?

2009-01-29T23:22:00.000-08:00

From Mortgageloan.com: $819 Billion Stimulus Passes House. Recovery or Pork?
The new Obama administration gets a first legislative victory with the easy passage of his $819 billion economic stimulus package. However, several questions and controversies plague the bills entry into the Senate. Is it spending the right areas? Will the effects be fast enough? Is that pork I see? Where did Obama's scalpel go?

The final House vote of 244-188 clearly demonstrated that partisan politics has not left Washington DC with the arrival of President Obama. Passing without a single Republican vote for the legislation and 11 dissenting Democrats.

However, Republicans and even some opposed Democrats are citing embedded pork, not partisian politics for their "nay" vote. Lets take a quick look at the items that have raised constituents eyebrows:
$200 million to rehabilitate the National Mall
$276 million to fix State Department computer systems
$650 million to repair Forest Service facilities
$50 million for the National Endowment for the Arts

Speaking to the Chicago Tribune, freshman Congressman Walt Minnick (D-ID) explained that he voted against the bill and his party because it was "Christmas treed" with unnecessary projects that are suspect as to whether they would create jobs.

As the legislation heads to the Senate it is expected to get bigger and more contentious. Well know conservative voices like Rush Limbaugh, Sean Hannity, and Matt Drudge are taking up the fight. Meanwhile, GOP operatives are releasing media blitzes in Democrat leadership, like Harry Reid's (D-NV) backyards.

The victory for the stimulus package seems assured, but the boundaries of partisanship and strong President Obama approval ratings are being tested with this enormous legislative package.

"Bad Bank" For Toxic Mortgages Gaining Support from Obama Administration

2009-01-29T07:50:00.000-08:00

From MortgageLoan.com: "Bad Bank" For Toxic Mortgages Gaining Support from Obama Administration
Lawmakers and Wall Street are buzzing about the prospect of a "bad bank." This plan would create an aggregator bank to acquire, rewrite, and liquidate these troubled mortgages. Sources indicate that the Obama administration is behind the proposal and the FDIC is lobbying to manage the operation.

The aggregator bank initiative, recalling historical references to the Resolution Trust Corporation, would allow the government to rewrite and gradually liquidating troubled mortgages. Thesetroubled mortgage assets underlie banks' bad debt and continue to stall lending.

However, the final solution will be a challenging balancing act. A viable aggregator program would need to distinguish between viable banks needing help and those that should be closed, minimizing public ownership of financial institutions, protecting taxpayer investment, and assisting homeowners directly with foreclosure prevention.

FDIC arguably has a primary role to play in running any aggregator bank. Reportedly FDIC Chairman Sheila Bair is pushing their bank management expertise. This does seem to align with their charter to take troubled banks and assets into conservatorship, restructure, and return them healthier to private markets. The FDIC is citing is recent success with failed IndyMac Bank.

Newly confirmed US Treasury Secretary Timothy Geithner, explained one of the major challenges to an initiative such as this--valuing the impaired assets. Geithner illustrated three distinct methods: market pricing, computer-modeled pricing, or bank supervisory pricing. Each have weaknesses to a successful result, which ledGeithner to propose a potential hybrid approach combining the three methodologies.

Wall Street already appears to be reacting positively to strengthening rumors and support--with higher global equities signaling higher US equities market open today. Further positive momentum is being stimulated by expectations that the Federal Reserve may lend support to the idea and announce further quantitative easing in today'sFOMC meeting statement. With Fed rates at an effective level of 0 percent, they will need to reveal other monetary tools.

Federal Reserve Chairman Ben Bernanke has already endorsed the idea of a bad bank. The Fed has participated in the Treasury-led initiatives to insure toxic assets still on the balance sheets of Bank of America and Citigroup.

Ultimately, the aggregator bank could give government control and expediency to workout contagion mortgage assets with loan modifications and prevent foreclosures--a crisis that has already reached 1.3 million homeowners.

State Deficits Leading to Tax Hikes

2009-01-27T03:10:00.000-08:00

From MortgageLoan.com: State Deficits Leading to Tax Hikes
Even if Barack Obama decides to shelve his tax increases, don't get too comfortable with your tax bill just yet. At the state level, lawmakers are struggling to overcome big deficits, and it looks like increased taxes may be the only solution.

If you've been thinking about writing a manuscript about the futuristic society that taxes citizens on the air that they breathe, you may have missed your opportunity. Now that the governor of New York wants to tax your music downloads, the air tax concept may lack comic punch.

There's no way to say it nicely: the recession is hammering state budgets. Unlike the federal government, which has no restriction on deficit spending, most state governments are legally required to balance their budgets. This is challenging enough in normal economic times, but it's downright ugly when the economy goes sour. As tax revenues decline and the demand for state-funded services increases, state deficits grow-and tough choices have to be made to close them. Slate.com recently reported that 22 different states were struggling to cover budget gaps.

Lawmakers in California and New York have proposed creative tax increases to solve their deficits. The California plan involves the establishment of various "fees," while the Governor of New York wants his residents to pay taxes on iTunes downloads, movie tickets, cab rides, cable television, and more.

How the West was won

California's budget negotiations seem to have disintegrated into political warfare. A law in the Golden State requires that all tax increases receive a two-thirds majority vote, which means that the controlling Democrats need to enlist some Republican support. Unfortunately, there's no meeting ground between the two parties; the Republicans want to cut spending and freeze taxes, and they aren't negotiating. To resolve the situation, the Dems have put together a comprehensive plan that gets around the two-thirds requirement, essentially by calling some of the increases "fees" instead of taxes. The convoluted plan incorporates some tax cuts, but they don't offset the additional taxes and fees that Californians will have to pay if the plan goes through. Highlights include:
A $0.39 per gallon fee on gas, which would replace an existing $0.18 gas tax and a half-cent gas sales tax
A state income tax surcharge of 2.5 percent
A 0.75 percent increase to the state sales tax

A bite out of the Big Apple

Lawmakers in New York are taking a different approach. Governor David Paterson says his state's in a bind because taxes generated by Wall Street have all but evaporated. He's proposing a whole slew of new taxes, including assessments that would increase the cost of downloaded music and movies, beer, wine, soda, cigars, and cab rides. He'd also reinstate the sales tax on clothes purchases that are currently exempt. Paterson's budget, which also incorporates a 1 percent increase in spending, requires legislative approval.

If the iPod tax goes through, who knows what could be next. Reality continues to be stranger than fiction.

Credit Card Changes to Help Consumers

2009-01-24T03:17:00.001-08:00

From MortgageLoan.com: Credit Card Changes to Help Consumers
Judgment day for credit card companies has come and gone. The federal government announced that the purveyors of plastic have been too harsh on their customers. A crackdown looms in 2010, one that will have severe consequences for credit card companies and consumers alike.

History may prove that bad credit led to the unraveling of the economy in late 2008. The U.S. has been too lenient on people with heavy consumer debt, and this "bad debt" has led to the poisoning of the overall economy.

That argument may have some merit, but some of the blame ultimately lies with the credit card companies. Charging steep late fees, increasing interest rates without proper notice, and other fine-print shenanigans have made a bad thing-credit debt-even worse for consumers.

The federal government has responded by passing a series of regulations that will affect all credit card companies in 2010.

Penalties less severe

One of the biggest consumer complaints concerned the practice of reacting to late payments by raising interest rates. The new regulations allow for a penalty, but limit its severity. First, the credit card companies must give consumers more advance notice of a penalty rate increase. Gone is the 15-day notice, to be replaced by a 45-day period. Second, if a credit card company advertises a fixed rate, they won't be able to increase that rate-no matter what the reason.

Stuck on zero

One common maneuver used by credit card companies is to entice consumers to transfer their bad credit into an account that charges zero percent interest on balance transfers. People with bad debt often fall for this pitch, but are later shocked to discover that the companies will issue a finance charge on any unpaid balance after the introductory period has expired. The charge is generally an interest payment for the previous six months. Under the new regulations, companies can't charge interest for the six months that have lapsed, but can charge interest on that balance moving forward.

Specifying where the money goes

Another tactic of credit card companies is to apply your payments to the portion of credit debt that's carrying the lowest interest rate. If you transferred a balance onto your credit card at a 6 percent interest rate, for example, and then were charged 12 percent for subsequent purchases, the credit card would apply your payments to the balance with the lower interest rate. They'd continue to collect finance charges on the balance with the 12 percent rate.

New regulations now specify that the companies must either allocate the payments to the balance with the higher rate, or spread it evenly throughout the entire consumer debt.

The new federal regulations will include sweeping changes for many credit card companies. It may also adversely impact consumers. Without being able to use penalties to recoup losses, credit card companies will now be more selective about whom they extend credit to. The end result: An industry with increased integrity, but decreased liquidity.

More Mortgage Relief Needed

2009-01-22T04:40:00.000-08:00

From MortgageLoan.com: Calling TARP: More Mortgage Relief Needed
As banks hoard Troubled Asset Relief Program (TARP) funds provided by the $700 billion bailout plan, the mortgage crisis continues. Advocates for foreclosure loan modification relief are now demanding that TARP money be spent to help homeowners rework troubled mortgages.

Treasury Secretary Henry Paulson is urging Congress to release the remaining funds in the original $700 billion TARP package; but this time, the money will likely come with specific strings attached. Half of the TARP money was spent in less than three months, but critics point out that it went primarily to banks that are now hoarding it, not to homeowners facing foreclosure. Now, with Paulson pleading for another $350 billion, lawmakers plan to force the Bush administration and President-elect Obama to apply more money directly to the mortgage crisis in the form of funds for proactive loan modification.

Mortgage crisis relief

Many lawmakers say that they'll only agree to release the funds in exchange for loan modification programs like those that are already being done at the FDIC. Under that type of approach, a mortgage heading toward foreclosure can be reworked in radical ways that include interest rate cuts, forgiveness of a portion of the outstanding debt, or extending the amortization period to reduce monthly mortgage payments. Fans of the FDIC mortgage crisis loan modification plan say that it could prevent 1.5 million foreclosures in 2009 at a cost of approximately $24 billion.

Other stipulations would require aid for auto companies, more consumer lending by banks to retail customers, and positive changes in the government's Hope for Homeowners mortgage crisis relief program that has so far not been successful. When it was passed by Congress in July of 2008, experts expected that it would save nearly half a million homeowners from foreclosure. Unfortunately, only a few people have even applied for the program because it's mired in red tape and prohibitive restrictions.

Effective loan modification: reduce rates

Under these new TARP mandates, the Treasury would also be prodded to cut rates on some fixed-rate home-loans in order to help stem the tide of foreclosures. The plan calls for Fannie Mae and Freddie Mac to lower the interest charged on 30-year fixed rate mortgages to 4 1/2 percent. The National Association of Realtors has said that such a cut could significantly stimulate home buying and put a floor beneath eroding real estate prices.

Perfectly Frank

House Financial Services Committee Chairman Barney Frank told reporters that legislation is already being drafted that will set out the conditions under which Congress will allow the remaining TARP funds to be spent. The first time the money was authorized, there was little or no Congressional oversight in terms of controlling how the money was used, and that has created a backlash of controversy from angry taxpayers. Agreement on these updated TARP conditions is expected soon, because the release of the $350 billion is urgently needed, and President-elect Obama seems determined to act swiftly to stop the mortgage crisis.

America's New Savings Plan: Mortgage Refinance

2009-01-21T11:03:00.000-08:00

From MortgageLoan.com: America's New Savings Plan: Mortgage Refinance
Mortgage rates are edging lower after the government announced a plan to purchase mortgage-backed securities. Homeowners are using the trend to save money on their monthly mortgage payments.

In 1998, long before the housing crisis, former Vice President Al Gore said, "Americans are resourceful people." Love him or hate him, you have to hope Gore was right-because for many, resourcefulness is what it will take to manage through this economic cycle.

Many American households are finding added financial security from an unlikely source: their homes. Even as the housing crisis grinds on and saps wealth from personal balance sheets, some homeowners are still able to tap the benefits of owning property. The trend is largely related to a big drop in mortgage rates, which was preceded by the Federal Reserve's announcement that it would buy $600 billion of mortgage-backed securities.

Lower mortgage rates create monthly savings

According to Freddie Mac's weekly mortgage rates data, the average rate on a 30-year fixed-rate mortgage has declined more than 1.3 points since October-from 6.46 percent for the week ending October 30, to 5.14 percent for the week ending December 24. A decline of that magnitude equates to savings of about $84 per month, or $1,008 per year for every $100,000 financed. The 15-year rates have shown a similar trend, dropping from 6.19 to 4.91 percent.

Monthly savings generated by a lower mortgage payment should be measured in light of the upfront closing costs associated with the mortgage refinance. Homeowners who can breakeven on the closing costs in two or three years may, however, end up saving tens of thousands of dollars in total interest over the life of the loan.

At a time when layoff worries and economic uncertainty are running high, homeowners are thrilled with the idea of saving money by lowering their mortgage payments. The interesting thing about this refinancing boom is that homeowners generally aren't looking to spend the extra money; they're more likely to tuck it away in an emergency fund.

Mortgage refinance requirements still tight

While many homeowners are interested in getting a piece of the mortgage refinance action, not all are qualifying. Declining housing values and tighter lending requirements make it difficult for those who purchased their homes when real estate was peaking. Lenders aren't budging on their conservatism either; borrowers will need to have 20 percent home equity along with good credit and a stable job history.

Homeowners who want to explore the possibility of a mortgage refinance should begin by getting a free online appraisal. If the online appraisal returns a home value that equates to at least 20 percent home equity, there's a chance the mortgage refinance can be done. The lender will, of course, require a full loan application and professional appraisal before offering a loan approval.

In the midst of a housing crisis, leveraging the home's borrowing power to save money is one way to get resourceful. It's just too bad this savings plan isn't available to everyone.

Second Wave of Mortgage Crisis to Begin

2009-01-20T02:49:00.000-08:00

From MortgageLoan.com: Second Wave of Mortgage Crisis to Begin
While the economy remains a shipwreck, many experts predict a second wave of the mortgage crisis involving Alt-A and Option ARM loans. But even more alarming is that some industry observers expect this new phase of the crisis to be worse than the original subprime fallout.

As the financial crisis spreads, and the housing market continues to limp along taking prices deeper into the basement, an entire new foreclosure tsunami is expected to hit in the next few months. A year ago, the word "subprime" reared its ugly head in the popular jargon of average Americans and was nominated by one literary club as the "word of the year." If things turn out the way many expert economists anticipate, the terms Alt-A and Option Arm may get added to that list of notorious mortgage industry expressions in 2009.

Trouble with Alt-A loans

Alt-A loans, which are mortgages that are one step up from subprimes in terms of their quality and resistance to problems, are failing in record numbers. That trend is likely to pick up steam going forward. These Alt-A loans are in many ways identical to subprimes, except for the fact that they're made to people who have relatively good credit. But plenty of people who had high credit scores two or three years ago are now in much worse shape because they've lost income, assets, and equity. They're slipping dangerously into the red, and as economic challenges expand, their ability to repay their Alt-A obligations will diminish.

Dangerous Option ARMs

Then there are the rather exotic loans known as Option ARMs, which are famous for giving homeowners more control of their payments. They're expected to tank in a big way, as ARM resets cause their rates of interest to spike, and make it much harder for homeowners to make their larger monthly payments. The Option ARM offers the choice of making payments of interest and principal, or smaller payments of interest only. Many homeowners have been making bare minimum payments, but that means that their principal hasn't shrunk. When the low teaser rates on those Option ARM products expire, automatic ARM resets may trigger a gigantic wave of foreclosures across the U.S., as homeowners find themselves owing much more than their homes are worth at a time when unemployment is leaving many Americans with no steady income. Typical payments will, for instance, go from $800 or $1,000 a month to $1,500 or $1,800 a month.

The perfect storm is brewing, in other words, but this time, it will pass through the heart of the real estate economy at a time when the nation is still trying to cope with the original disaster of the subprime crisis. Subprimes have cost our economy about a trillion dollars, and Alt-A loans may contribute another trillion in losses before 2010. Many will continue to reset into 2010, which means that the pain of foreclosures will be time-released and prolonged into the foreseeable future.

How Much will the Bailout Cost the American Taxpayer?

2009-01-18T08:25:00.000-08:00

From MortgageLoan.com: How Much will the Bailout Cost the American Taxpayer?
It started as a mortgage crisis and blossomed into a global economic recession. Now, the Federal Reserve, U.S. Treasury Department, FDIC, and FHA are putting all the cards on the table to fix it.

Apparently, stabilizing the U.S. economy follows that old rule that applies to starting up a business: it costs twice as much and takes twice as long as you had planned for. The tab of dollars committed to bailouts and stimulus programs is rising to staggering proportions. Do you ever wonder what your share is?

In the last year, the U.S. government has committed itself to funding a host of economic stimulus programs. According to Bloomberg, those commitments add up to a grand total of about $8.5 trillion. That sum is the joint responsibility of the Federal Reserve, FDIC, Treasury Department and FHA. Of those commitments, more than $3 trillion has been spent thus far.
Here's how Bloomberg breaks down the numbers:

* The Federal Reserve has committed $5.5 trillion and spent $2.1 trillion. These amounts relate to various initiatives aimed at the mortgage crisis and credit freeze, including the Citigroup bailout and the shotgun marriage of JPMorgan and Bear Stearns.

* The FDIC has committed $1.5 trillion and spent $149 billion to guarantee Citigroup assets, interbank loans, and prop up GE Capital.

* The Treasury has committed $1.1 trillion and spent $597 billion, not including the automaker bailout that will get tapped by GM before year-end. The Treasury's programs include the Troubled Asset Relief Program, tax rebate checks of 2008, tax breaks for banks, and a program to stabilize foreign currency exchange rates.

* The FHA has committed and tapped $300 billion to ramp up the Hope for Homeowners program.

True cost, budget deficit impact unknown

Given the nature of the various bailout initiatives, it's not possible to estimate the final true cost, or even the deficit impact of these programs. Several initiatives were structured as investments, allowing for positive returns over time. But allowing for positive returns, and achieving positive returns, are two very different things. The possibility of making a buck on these transactions, for example, seems dim:

* Citigroup bailout. Funds spent and committed far exceeded the company's current market value.

* Hope for Homeowners. The $300 billion initiative is expected to avert fewer than 14,000 foreclosures in its first year. At that rate, it seems doubtful that the resulting equity share arrangements could cumulatively cover the cost of the program-let alone heal the mortgage crisis.

Tallying your share

Since there's no consensus on the final bailout cost, you'll have to measure your share by the committed and spent amounts to date. Assuming an estimated U.S population of 305 million, your share of each is $28,000 and $10,000, respectively. That doesn't include any stimulus spending that the Obama administration might initiate. As for the total tab being twice as much as expected, let's just hope it doesn't go that high.

What Can We Learn from Japan's

2009-01-17T05:35:00.000-08:00

From MortgageLoan.com: What Can We Learn from Japan's
Banking disasters in other markets could help us understand the one we have here now.

In the 1980s, Japan was awash in economic success. The Rising Sun established itself as a technological powerhouse, and the local economy was bustling with opportunity. Real estate prices went through the roof, and Japanese banks loaned money to anyone who asked, secured against inflated property values.

Then, reality caught up with the boom. In the early 1990s, home prices crashed, and the Japanese government took a defensive approach to avoid a huge financial crisis. The federal lending rate was cut to zero, and the government bought large stakes in failing banks. But it didn't work.
Lost decade

The Japanese economy may have avoided a severe crisis of confidence by these measures, but what came instead was arguably much worse. Long years of deflation stacked atop low economic growth meant that Japan's Gross National Product was the same in 2003 as it had been in 1995-seven years of fruitless effort. The Japanese government started raising interest rates only recently, and some might say that the "lost decade" is still going on.
Counterpoint on the other side of the world

In stark contrast to Japan's recession, Scandinavia went through an economic crisis about the same time. But where Japan chose the softer way out and ended up in a lengthy economic downturn, the Nordic nations took their bitter pills quickly and worked out their disasters in a few short years.

Sweden, Finland, and Norway stepped in with higher interest rates, at one point as high as 500 percent, to discourage bad lending. They took over failing banks wholesale, posting government guarantees for unpaid debts, and boiled down sprawling banking systems to just a handful of strong banks under tighter regulation. Then, the rejuvenated banks were spun out on the public markets again, giving the governments direct returns on their investments.
America's compromise

The U.S. response to the housing meltdown of the past two years has been a compromise between the extreme solutions of Japan and Scandinavia. The government is injecting cash into a shaky banking framework, selling treasury bonds to support these investments. That's Nordic.

On the other hand, federal lending rates are going the Japanese way, hovering just above the 0 percent mark. Large banks, like Wachovia and Washington Mutual, have been guided into mergers with healthier banking giants rather than seized and restructured by the government itself.

The Scandinavian response seems more appropriate for America's crisis. Like citizens in the Nordic countries 20 years ago, the average American isn't saving much money-whereas Japanese savings were in good shape at the start of that recession and could therefore withstand a bit of deflation.

It's too early to tell exactly where we're going under a new government that's dramatically different from the one in power during this meltdown. Here's hoping that America gets closer to the sharp but short-lived pain seen in Northern Europe than to the long, slow agony of the Far East.

Plunging Mortgage Rates Have Lenders Hopping, But Not Celebrating

2009-01-16T06:03:00.000-08:00

From mortgageloan.com: Plunging Mortgage Rates Have Lenders Hopping, But Not Celebrating
As mortgage rates plunge below 5 percent mortgage lenders are being flooded with consumer inquiries about mortgage refinance.

But, don't expect big waves of hiring and refinance boom parties. This time around loan officers and mortgage businesses are playing it safe and working harder with less.

The average loan officer now has his stacks of new files where an empty desk and silent phone once stood. The new business is being fueled by past clients and new customers looking for the new, and almost daily dropping mortgage rates.

Although, mortgage rates have been descending steadily for some time, the recent Federal buying of mortgage-backed securities has kicked the market in, on the resulting lower rates.

You might expect that this would help a little with unemployment. Are out of work loan officers coming back to work? No, is the answer of most mortgage lenders. They are doing more with less and being cautious about the future.

Lenders are also aware that approvals for all of this refinance applications are still hit or miss. Credit standards are and continue to tighten. This means the frantic activity is not necessarily resulting in healthy profits that come from approvals. Still, most mortgage brokers and lenders are becoming more optimistic with the government's continued support and assurance to the mortgage market.

Tax Break for Refinancing or Selling Home

2009-01-14T07:38:00.000-08:00

From MortgageLoan.com: Tax Break for Refinancing or Selling Home
A tax lien can be a major roadblock during a property sale or mortgage refinance. The IRS has initiated a program to ease this process, thus helping some homeowners save their homes or otherwise avert financial disaster.

The taxman, formerly the financial hit man of the federal government, is getting involved in measures to help the economy and housing market recover. A new program establishes streamlined procedures for subordinating or discharging federal tax liens.
IRS: An unlikely source for help

The IRS recently announced a plan that would help distressed homeowners complete a home sale or mortgage refinance. This new program applies to homeowners who've temporarily fallen behind on their taxes as a result of the current economic downturn.

Typically, when a homeowner owes past-due taxes, the IRS will file a Notice of Federal Tax Lien on his property, informing other creditors that the IRS has a legal claim. That claim then has to be repaid when the property is sold or refinanced-which can be problematic if the homeowner owes more in mortgage debt than the property is worth.

The new program will ease this burden by allowing certain tax liens to take a secondary position to mortgage-related liens. In some cases, the tax liens may even be discharged. When announcing the program, IRS Commissioner Doug Shulman indicated that he didn't want his agency to inhibit distressed homeowners from taking steps to improve their finances.

It should be noted that discharge or subordination of a federal tax lien doesn't eliminate the tax liability.
Filing a formal request

Homeowners pursuing a mortgage refinance or loan modification should apply for a certificate of lien subordination. The application procedure is detailed in IRS Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien.

Homeowners who want to sell their properties may request a discharge of the tax lien. Usually, these requests are only approved when the homeowner is selling the property for less than what's owed on the associated mortgage debt. Sometimes, the IRS will also discharge a tax lien if the homeowner has other assets that can be claimed. Instructions for this request are included in IRS Publication 783, Instructions on How to Apply for a Certificate of Discharge of Property from Federal Tax Lien.

Subordination and discharge requests are handled by the IRS' Collection Advisory Group. Homeowners are asked to contact their Collection Advisory Group as soon as the sale or mortgage refinance process begins. Not doing so could delay the completion of the subordination or discharge, which would also hold up the closing of the property sale or refinance. Addresses and contact information for the Collection Advisory Group offices can be found in IRS Publication 4235.

Distressed homeowners who need to refinance or sell will certainly appreciate this new and softer side of the IRS.

Obama Embracing Treasury Plan to Drive Down Mortgage Rates

2009-01-13T06:10:00.000-08:00

From MortgageLoan.com: Obama Embracing Treasury Plan to Drive Down Mortgage Rates
There may soon be a new chapter added to the Obama economic plan; advisors are hammering out the details of a strategy to lower mortgage rates dramatically. The plan's target mortgage rates are expected to be well below 5 percent.

As the housing crisis continues, the forthcoming Obama administration is considering a new strategy for the formidable battle: driving mortgage rates into the ground.
New twist for the Obama economic plan

Treasury Secretary Henry Paulson is mulling over a plan to stimulate the housing market by lowering mortgage rates substantially. But more significantly, the Obama administration wants to hear more about it. Paulson's target mortgage rates are in the neighborhood of 4.5 percent, about 70 basis points lower than the national average mortgage rate as of mid-December.

Lowering mortgage rates to that level would reduce the cost of homeownership by trimming down the monthly mortgage payment. For example, at 5.2 percent, the monthly principal and interest payment on a $200,000, 30-year mortgage is about $1,098. But the payment on the same mortgage at 4.5 percent would be $1,013, roughly $85 cheaper. Reports indicate that with Obama's encouragement, development of the program is now being expedited.
Fannie and Freddie renewed

In its current form, the plan would use nationalized mortgage companies Fannie Mae and Freddie Mac to make the ultra low mortgage rates available to homebuyers. Fannie and Freddie would buy the low-rate mortgages from lenders, and pool those mortgages into securities, which would then be purchased by the federal government.

The plan's objective is to correct the longer-lasting impacts of the foreclosure crisis by using the lower rates to stimulate greater demand for home purchases. Luring in new buyers would put upward pressure on home prices and, hopefully, promote a healing of the housing market, which would be a small, but important step towards a broader economic recovery.

Since Paulson's vision doesn't involve offering the low rates on refinances, distressed homeowners wouldn't benefit directly from this plan.
Bigger picture

The current administration believes that offering the lower rates on refinances, as well as purchases, would increase the program's cost significantly, without providing a proportionate increase in benefit. Nicholas Strand, a mortgage analyst from Barclays Capital Inc., has estimated that a purchase-only program would cost $300 to $400 billion. But including refinances in the deal could send that price tag up to $3 trillion.

The Obama administration, however, will make the final call on whether to offer the low mortgage rates to existing homeowners. Some sources indicate that the President-elect favors a broader program, one that would provide direct assistance to everyone.

Helping Homeowners Refinance Mortgages takes Government Spotlight

2009-01-12T01:32:00.000-08:00

From MortgageLoan.com: Helping Homeowners Refinance Mortgages takes Government Spotlight
The foreclosure problem has stymied the feds. Treasury and Federal Reserve officials are now considering programs that would provide direct help to at-risk homeowners, as other foreclosure prevention efforts have failed to produce results.

Lawmakers and the U.S. Treasury have been working on the foreclosure prevention problem for months. Up until recently, they've resisted loan modifications and other programs that would address homeowners directly, for fear of sending the wrong message by bailing out those who made ill-advised financial decisions. Instead, the feds have pumped money into banks and the FHA in various attempts to force lenders and borrowers to settle their differences. Unfortunately, it hasn't worked.
If all else fails, help the homeowner

The tide appears to be changing, however. Ben Bernanke, chairman of the Federal Reserve, recently went on the record saying that the foreclosure problem is threatening the overall economy. Foreclosure prevention action is needed, Bernanke argued, to avoid a much wider circle of damage. The Fed's top official then proceeded to outline a surprising set of recommendations that would impact homeowners directly, including:

* Loan modifications

* Taxpayer-funded refinancing programs

* Treasury-managed subsidies to lower fees and interest rates on Hope for Homeowners mortgages

* Subsidies to share costs with mortgage servicers who reduce payments for borrowers

Further, Treasury officials are reported to be considering a plan to make low-rate purchase mortgages available to more Americans. This effort doesn't address foreclosures, but it would stimulate home sales. And that would work to offset the worst symptoms of the foreclosure crisis: an over-supply of homes on the market and their falling market values.

The plan, however, is still being debated. Some economists argue that offering cheap refinance mortgages as well would heal the housing market much more quickly. But such a foreclosure prevention strategy potentially increases the program's price tag tenfold.
A look back

The government has already spent hundreds of billions of dollars on various initiatives intended to alleviate the housing problem. There was the Housing and Economic Recovery Act of 2008, which included measures to modernize the FHA, establish Hope for Homeowners, and create a tax credit for home purchases, among other things. The FHA refinancing programs have been sharply criticized by the industry, and haven't gained any traction. Then the feds passed the Emergency Economic Stabilization Act of 2008, which established the infamous Troubled Asset Relief Program (TARP). The TARP has thrown more than $300 billion at the financial system, but it hasn't done much to alleviate the pain.

Many homeowners, falling behind on their payments, are simply waiting to get loan modifications or other foreclosure prevention strategies from the Federal Reserve and Treasury. If they do, the situation could be vastly improved.

Mortgage Crisis Silver Lining: Home Improvement

2009-01-11T03:45:00.000-08:00

From MortgageLoan.com: Mortgage Crisis Silver Lining: Home Improvement
The storm clouds over the housing market have a silver lining: Now's a great time to renovate your home. Instead of rushing out to get a home equity loan, however, consider the new trend in home improvement projects-paying cash.

Times may be tight and home equity scarce, but a home improvement project could be a great financial move. A typical homeowner may be surprised to learn that renovating in this economy is a brilliant idea for a number of reasons. First, home improvement specialists are desperate for work. Second, materials are less expensive than ever before. And third, you could generate quite a bit of home equity if and when the housing market turns around.
Work wanted: The ironic tale of home improvement specialists

Remember when you couldn't find a carpenter, plumber, or handyman to save your life? During the housing market boom, home improvement specialists would be booked three to six months in advance. Because the work was so plentiful, these tradespeople would cherry-pick the biggest jobs. They avoided smaller projects, leaving homeowners in need of basic maintenance high and dry.

With the housing market tanking, home improvement specialists are now willing to take on the smaller jobs. It's a nice match for today's homeowners, as most are only willing to pay cash while limiting the size and scope of the projects. Many homeowners are reluctant to tap home equity until the economy stabilizes.
Renovate cheaper than ever before

Home improvement specialists are looking for work, and they're also willing to slash their costs. Expect labor price decreases of 10 to 30 percent, with prices on materials lower than ever, thanks to the slumping economy and plummeting fuel costs. Petroleum-based products, such as vinyl and asphalt, are less expensive. It may be time to consider replacing the roof or your driveway.

Energy-efficient projects are also a good idea. The low cost of labor, combined with savings on electricity and heating, could make a furnace repair or a new refrigerator a timely purchase. A number of home improvement projects also qualify for tax credits, such as new windows, doors, insulation, and roofing. Check for a complete list at energystar.gov.
Spend today, see the results tomorrow

Adhering to the classic investor maxim, "Buy low, sell high," a home improvement project will result in significant long-term rewards when the housing market bounces back. You'll need a long-term perspective, as home values may continue to drop in the short term. In time, though, your property should recoup value. Many homes can't fall much further in value, so today's home improvement project could result in a higher amount of tomorrow's home equity.

It's hard to imagine something positive in this gloomy economy, but it may be the right time to seek out a home improvement project. If you have the cash, you'll have the good fortune of getting cheap labor and materials at reduced prices. Move today because, some time in the near future, home values may start moving again in an upward trajectory.

Financial Crisis Victims

2009-01-10T10:18:00.000-08:00

From MortgageLoan.com: Mutual Funds: Financial Crisis Victims
Skeptical and scared, investors are checking their personal finances and pulling out of the market.

When nobody trusts the stock market, good sense flies out the window. Even a small financial crisis can throw the market into fits of unreasonable up and down swings. A large one, like the great panic of 2008, can throw the safest of investments under the bus.

Incoming SEC chairwoman Mary Schapiro says that, "investor trust is the lifeblood of our financial markets." Oh boy...does she have a challenge on her hands!
Irrational swings

Mutual funds are a great way for individual investors to diversify their personal finances. Managed by professionals for a reasonable fee, no-load funds gives you an easy way to ride the fluctuations of the stock and bond markets without investing much of your own time into research and trading decisions.

Exactly because mutual funds are so comfortable and useful, they also serve as great barometers of the market. When times are good, investors pour bucketloads of money into stock funds; when the economy goes south, that cash flows right back out. Due to the mutual fund's popularity, these moves have a profound effect on the stock market itself.
No safe harbor in this storm

Given these facts, it's no surprise to hear that mutual funds have seen lots of money flowing in and out of their coffers in recent months. One week in November 2008, Wall Street staged a bit of a rally, and investors put $10.4 billion more into mutual funds than they took out. But the next week, fortunes reversed once again, and $12 billion flowed out of the stock mutual fund industry.

Usually, when that happens, the money moves over to bond funds, because they're supposed to rise when stocks fall, and vice versa. Not this time, however. Bond funds mirrored the stock mutual funds exactly, just on a slightly smaller scale. These days, investors don't seem to trust either stock or bonds any further than they can throw them. It's almost as if they're suggesting that it's better to stuff that cash into your mattress, or maybe an FDIC-insured savings account.
Mutual fund choices

Fund managers are forced to roll with the punches. When you look at your personal finances, and then at the markets, and finally decide to get out of that good old index fund, its manager has to pay out your share. Usually, they have cash lying around for that purpose; but when sales happen too fast, they have to start selling stocks and bonds to keep up. This drives market prices down even further, pouring gasoline on the fire. Investors eventually come to their senses and start seeing deep values everywhere they look, which creates the opposite overreaction.

A patient investor can wait for the inevitable mega-drops, buy in, and then sit out the irrational swings for months or years. Short-term traders with too close an eye on the newswire and ticker tapes are bound to get burned.

House Democrats to Submit TARP Reform Bill on Friday Afternoon

2009-01-09T13:18:00.000-08:00

From mortgagenewsdaily.com: House Democrats to Submit TARP Reform Bill on Friday Afternoon
House of Representatives Democrats will submit a bill to modify the terms detailed in the $700 billion Troubled Asset Relief Program to put additional constraints on how the U.S. Treasury disperses the second half of the funds.

Throughout the day, newswires have been reporting that the new bill, which will allow the Treasury to access to the second tranche of the funds, will require some minimum amount allotted to home foreclosure relief, funding to small U.S. banks, and aid to municipalities.

The bill also calls for quarterly disclosures of how firms will be spending the funds.

Earlier on Friday, the Washington Post said that incoming Treasury Secretary Timothy Geithner was working on an overhaul of the program to include some of the measures discussed by House Financial Services Committee Chairman Barney Frank.

However, much of the funding has already been promised to various institutions, with the Treasury having pledged billions to General Motors and its financing arm GMAC, which recently became a bank holding company.

U.S. Treasury Secretary Henry Paulson told Bloomberg Television that the root of the problem in the United States remains the housing sector. He defended his initial handling of the $350 billion of the TARP funds, saying that his actions were done to stabilize the financial system.

Timing is Right for First Time Homebuyers First Mortgage

2009-01-09T00:34:00.000-08:00

From MortgageLoan.com: Timing is Right for First Time Homebuyers First Mortgage
If you're a first time homebuyer, you're probably wishing for a crystal ball. In the slumping home market, it's hard to know if you should make that mortgage loan purchase on a new house. Mortgage rates are low, and could possibly get lower. Is this the right time to buy?

How low can mortgage rates go? That's the big question on the mind of the typical first time homebuyer. Home values have endured a precipitous drop, and many potential buyers are eager to make that mortgage loan purchase. But how long should you wait until you make a buy?
Low mortgage rates, good values

It's nearly impossible to pick the bottom of a bursting market bubble. The only time that you'll know when the housing bubble has struck bottom will be several years from now. Right at this moment, even the pundits are clueless, especially in light of the recent economic upheaval.

Nevertheless, there are some compelling reasons to consider making a home purchase now. First, mortgage rates are at historic lows. Many banks and credit unions are offering mortgage rates just slightly higher than 5 percent for a 30-year fixed-rate loan, and there's talk that the federal government may try to push mortgage loan rates down around the 4 percent mark.

Second, home values have already slid dramatically. In some areas where values skyrocketed during the housing boom, such as California, Florida, and New York, it's not uncommon to hear stories about home values dropping more than $100,000 below previous prices. Some pundits believe prices will drop even further.
Making the tough decision

How do you know when the time is right? Probably the best route to take, and the one that will allow you to sleep best at night, is to set your sights on a reasonable home price, and act when the market reaches that number. To find that figure, look at current home prices and compare them with previous highs. Sooner or later, home values should resume their upward climb. That means that you may lose some value in the short-term, but in the long haul, you could profit handsomely.

Another important question to consider: Are you financially ready to make a purchase, and take on a mortgage loan? Do you have a stable income, with decent savings, and minimal credit card debt? If you're in a profession that can make it through these tough economic times and you have good credit, this could be a perfect time to buy. Purchasing a house now, then waiting for a return to previous housing price levels would feel like a boom. It's the perfect case of buying low and selling high.

If you have bad credit and heavy consumer debt, it may not be wise to become a first time homebuyer in the current housing market. However, if you're in reasonable financial shape, it's the ideal time to take advantage of slumping house prices and low mortgage loan rates. There may never be a better time to buy.

Is Economy Headed for a Depression?

2009-01-09T00:29:00.000-08:00

From MortgageLoan.com: Is Economy Headed for a Depression?
The U.S. is in a recession, and some predict that it will turn into the next Great Depression. Before you get worried, however, remember the protections you have now that weren't available in the 1930s.

The economic road ahead is poorly lit. Voices from the backseat are whispering that this route is leading straight towards the dead-end of depression. How reliable are those backseat drivers?

In October, CNN/Opinion Research conducted a poll to measure Americans' thoughts on the possibility of another Great Depression. Survey respondents were told that the Great Depression was characterized by 25 percent unemployment, as well as rampant homelessness and hunger. They were then asked to measure the likelihood that these conditions could again befall the U.S. Nearly 60 percent of them indicated that a depression is either "very likely" or "somewhat likely."

Clearly, the media and Internet blogs have done a great job sewing the seeds of panic during the current recession. It's true that there are similarities between the events preceding the Great Depression and what's happening now. Back then, bank failures were common, the stock market was unstable, unemployment was rising, and the mortgage industry was working through increasing foreclosures. But it's also true that there are some major differences between 2008 and 1929-and those differences are likely to dictate the outcome.
A world without deposit insurance

During the Great Depression, more than 9,000 banks around the country collapsed. These failures resulted in depositor losses of $140 billion. The money simply vanished, and depositors had no recourse to get it back.

Compare that to what's happened so far in this current recession. As of mid-December, 25 banks have failed. Notably, depositors have been reimbursed by the FDIC for 100 percent of their insured funds. The FDIC has reimbursed a portion of uninsured deposits, as well. And, as a precautionary measure against additional failures, Congress raised the individual insurance limit significantly, from $100,000 to $250,000.
Unemployment insurance benefits

The 25 percent of American workers who lost their paychecks during the Great Depression were left to fend for themselves financially. Unemployment insurance didn't exist in this country before 1932, and it didn't become widely available until after 1935. Since most households during that era were supported by one wage earner, a single job lost would often put several people out on the street.

Today, U.S. workers can rely on unemployment compensation to cover their basic needs. And, because of the current recession, Congress recently took action in this arena also, lengthening the maximum unemployment assistance period by seven weeks. Those households that have two wage earners will have to lose two jobs and run out of unemployment eligibility before they'll feel the same kind of hardship felt during the Great Depression.

The protections of bank deposits and unemployment insurance, not to mention Medicare and Social Security, should go a long way towards limiting the destitution created by this current economic recession. The road ahead may be dark, but another Great Depression isn't likely.

Paulson Officially Turns Over the Mortgage Crisis to Obama

2009-01-07T23:02:00.000-08:00

From MortgageLoan.com: Paulson Officially Turns Over the Mortgage Crisis to Obama
In a Wednesday statement, outgoing US Treasury Secretary Henry Paulson pointed to President-elect Barack Obama as the "decision maker" for the allocation of the balance of $700 billion in TARP bailout funds.
Although a few weeks from inaugurationPaulson has handed off the bailout fund that has already injected $354 billion into capital for banks, loans to automakers, and various rescues to financial institutions and consumer credit.

The Paulson Treasury will continue to work on plans for the future allocation of the remaining TARP funds. However, Paulson was clear in asserting that these plan would be merely recommendations to the Obama transition team.

The Treasury Department must formally request the second $350 billion tranche of TARP funds from Congress--a task that will be left to the new Obama administration.Paulson assured the questioners following his speech that he would be collaborating with successor Timothy Geithner, and would help to expedite the request if asked.

Paulson's recommendations in today's statement included turning Fannie Mae and Freddie Mac in to a "public utility-like" mortgage guarantor andsecuritizer. This continues to raise the discussion as to the appropriate amount of government subsidy for a healthy housing market. Paulson in earlier statements, seems to believe there must be a firm decision between private or public stating, "any middle ground is a recipe for another crisis."

Short-term crisis demands Fannie Mae and Freddie Mac remain in government hands, but it will be interesting to see the direction Obama holds or turns on these recommendations.

Is Now the Time for a Mortgage Loan Refinance?

2009-01-07T22:59:00.000-08:00

From MortgageLoan.com: Is Now the Time for a Mortgage Loan Refinance?
Mortgage rates have fallen recently on the news of greater federal foreclosure prevention efforts. If you want to achieve lower monthly expenses, now's the time to evaluate the savings you might realize with a mortgage loan refinance.

When 5:30 rolls around every morning, the sound of your radio tells you it's time to get up. But while you can find an alarm clock that will dock your iPod, you can't find one that will sound an alarm when it's time to refinance. The good news is that you can answer the mortgage loan refinance timing question on your own-in a few simple steps.
Home equity hurdle

Given the way housing values have moved lately, your refinance mortgage analysis must begin with a quick calculation of your home equity. If you find that your home equity is minimal or even negative, you've answered your dilemma: unless you're willing to pay down your loan balance, you won't be able to refinance right now.

Calculate your home equity using a current estimate of your home's value. To complete a mortgage loan refinance, you normally need to maintain 20 percent equity in the property.
Defining your purpose

As a next step in your refinance mortgage analysis, clarify your objective. The two most common objectives are to lower your monthly costs, or to shorten your loan term. It's far easier to achieve one or the other, rather than both. So pick your priority, and remember that when you begin evaluating your mortgage loan refinance options.
Awaken your inner mathematician

Now you're ready to develop a working understanding of your refinance mortgage numbers. First, budget for closing costs. Conservatively estimate that they'll be 3 percent of the loan amount. If your current mortgage has a prepayment penalty, get an estimate from your existing lender, and add that amount to your closing costs. Any monthly savings you create by refinancing will go towards paying back those upfront costs. The trick is to pay them back within a few years, and definitely before you move or do a refinance mortgage again. Keep that in mind once you start receiving refinance offers.

Next, use a mortgage calculator to start running payment scenarios. Find the daily national interest rates, and then add or subtract 50 basis points to see how the rate will affect your principal and interest payment. Remember to add in estimated taxes and insurance, if applicable, when comparing the new payment to your existing one. If the savings potential looks reasonable, relative to the upfront costs of the refinance mortgage, you're ready to start shopping.
Shop around

The last step is to contact a handful of lenders and talk to them about your situation. Your income, debt level, and credit profile will dictate how much money you can borrow and at what rate. The lender will be the one who ultimately sounds the mortgage loan refinance alarm, by confirming that you qualify for the loan and rate that you want.

Are Home Equity Loans Good Options for Debt Consolidation?

2009-01-07T01:42:00.000-08:00

From MortgageLoan.com: Are Home Equity Loans Good Options for Debt Consolidation?
To consolidate debt or not to consolidate debt used to be a foregone conclusion. When housing prices were rising and home equity was plentiful, debt consolidation via a home equity loan was a no-brainer. Today's plummeting market, however, has changed the playing field.

Debt consolidation used to be the mantra of people with heavy consumer debt. With budgets squeezed tight from excessive spending, consumers used a variety of debt consolidation methods to lower their monthly payments.

On paper, the idea of increasing your cash flow every month seemed like a great idea. Indeed, it spurred millions to use their home equity to erase high interest credit card debt. Problems in subprime lending, and a poor housing market, however, have caused people to rethink the old ideas behind debt consolidation.
Home equity loan not always the answer

Using home equity for consolidation has significant advantages. If you take out a second mortgage-either an adjustable-rate home equity line of credit (HELOC) or a fixed-rate home equity loan-you'll generally have a loan at a very low interest rate. Furthermore, the interest you pay will be tax-deductible, as the loan uses your home as collateral. (Interest payments on a first mortgage are tax-deductible, too.) However, using mortgages for debt consolidation can be tricky. Just ask the millions of people in foreclosure.

The problem with using debt consolidation is twofold. First, your home is at risk. If you can't make your mortgage payments, you could lose your property to the lender. Second, you need to be particularly careful about the type of mortgage loan you use for debt consolidation. Many of the problems with the subprime lending crisis can be attributed to the fact that people used adjustable-rate mortgages. When these loans adjusted upwards from their low introductory rates, shrinking home values prevented homeowners from re-qualifying for a new mortgage loan. Use caution, and select a debt consolidation mortgage that makes sense.
Other methods of debt consolidation

If a home equity loan isn't the answer, what other choices do you have? Surprisingly enough, credit cards may be a good choice for consolidating debt. If you can find a credit card with an interest rate lower than the rate on your current cards, you'll instantly save money on interest charges. Unfortunately, while credit cards often offer a low introductory rate for balance transfers, these rates tend to increase after a six- or nine-month period.

Non-secured debt consolidation loans are another alternative, although some carry high interest rates. They may beat the rates on certain credit cards, but you should approach this type of loan with caution.

The best choice for debt consolidation is to pay off your debts in a regular, disciplined manner. More importantly, resist the temptation to max out your plastic once they're clear. Recovering from heavy debt is extremely difficult, and it's a painful process that you don't want to experience twice.

Fed Begins Buying MBS, Pushing Down Mortgage Rates

2009-01-07T01:40:00.000-08:00

From MortgageLoan.com: Fed Begins Buying MBS, Pushing Down Mortgage Rates
Yesterday the Fed bought their first round of mortgage securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. This kicks off the Federal Reserve's plan to buy $500 billion in mortgage-backed securities by mid-2009, right on schedule. One of many historically unique programs to drive down the affordability of home buying and return much needed buyers to the market.

Early indications in bond markets are that the buying is having its intended effects. Yield spreads are tightening as mortgage bond yields continue to move downward. The net effect is mortgage rates are expected to decline. The simple announcement of the program on November 25 sent the average 30-year fixed-rate down to near 5 percent from 6 percent. The actual buying is expected to take even more out of that rate, potentially down to the much discussed 4.5 percent.

Despite the good news on mortgage rates some pundits are hesitant to celebrate. Rates are simply one component of getting mortgages closed and housing inventory moving. Already experiencing a record jump in mortgage applications, lenders are struggling with capacity. Of course, a surge without capacity and aggressive capital markets leads to little incentive to open up lending, or approval guidelines.

However, there are signs that the securities is moving in the right direction. Reports from bonding trading insiders are indicating that the momentum is flipping from unloading mortgage securities to looking buy them back.

The markets are certainly at a consensus that recovering the housing sector is a pre-requisite to recovering the broader economy. And, buying a ninth of agency-owned MBS market seems like a bold way to purchase recovery.

Low rates, government guarantees, and return of investor confidence in mortgage assets seems to be moving the needle on the housing market.

Are Lower Mortgage Rates Key to Success?

2009-01-05T23:35:00.000-08:00

From MortgageLoan.com: Are Lower Mortgage Rates Key to Success?
To put a floor under home prices, the Treasury may take direct steps to reduce mortgage rates. Doing so could spark a real estate buying spree. On the other hand, it might have no real impact, since rates are already low and people still aren't buying.

One of the newest strategies under review in Washington is for the Treasury to possibly "buy down" interest rates. That means that the Treasury-and ultimately the taxpayer-would inject money into banks and mortgage lending companies to pay down rates. In return, lenders would then offer lower mortgage rates of just 4.5 percent to homebuyers.

The idea is getting lots of support and attention, and has strong backing from the National Association of Realtors (NAR), among others. The NAR recently conducted a study that they say validates the idea that even a 1 percent lowering of mortgage rates would translate into half a million home sales. The surge of sales activity, the NAR believes, would happen regardless of which Treasury plan caused mortgage rates to fall. Plans include a buy down program, or the Treasury's purchase of mortgage-backed securities.
Contrarian mortgage rate view

Many people are not as optimistic as the NAR. They cite fresh evidence that Americans aren't in a buying mood, but are instead starting to save and conserve money, something most citizens haven't done for years. They claim that pushing mortgage rates down to 4.5 percent isn't even a full percentage point cut from current levels, so it may not have a significant impact on the housing markets.

By mid-December, for example, mortgage rates on 30-year fixed loans from major lenders, including Wells Fargo, were down to just slightly higher than 5 percent. That level is already an historically attractive one in any market cycle. As a result, pushing them down an extra half or three quarters of a point now, while people worry that we're heading into the worst economic period since the Great Depression, may not make a dramatic difference in consumer spending.
Credit problem still exists

Then again, a half-percentage drop in mortgage rates recently sent mortgage applications up more than 37 percent, according to the Mortgage Bankers Association. But that doesn't mean that all of those loan applications were actually approved. There's still a serious credit freeze problem, as banks remain reluctant to lend, and borrowers face tighter loan application guidelines and bigger down payment demands. Without accessible credit, it doesn't matter how cheap loans become. Nobody will be able to borrow if, as the saying goes, "the more things change, the more they remain the same."

What may be even more important to note is that the Treasury buy-down concept being discussed now would only apply to mortgage rates for those wanting to buy a home. It would do nothing to make it more affordable for those wanting to refinance out of bad loans into more manageable ones, which is at the heart of the real estate crisis.

Low Mortgage Rates and Sale of IndyMac Bank Ring in New Year

2009-01-05T23:34:00.000-08:00

From MortgageLoan.com: Low Mortgage Rates and Sale of IndyMac Bank Ring in New Year
In a mortgage market clamoring for good news, homeowners and investors get a couple of silver linings to kick off 2009.

Mortgage rates start the year at 37 year lows and promise to head lower, giving hope to homeowners. Meanwhile, investor confidence shows its return in $14 billion purchase of IndyMac Bank by private equity. Together these events signal strength in the two critical sides of the mortgage market, supply and demand.

Mortgage rates plunging into the low 5 percent range was the intended consequence of the Federal Reserve's plan to buy $500 million in mortgage-backed securities. First announced in late November, the 30-year fixed-rate mortgage has quickly descended from 6 percent. This is prior to any actual buying of securities by the Federal Reserve. Actual buying of mortgage-backed securities is expected to trigger even lower rates--potentially into the 4.5 percent range often mentioned as a Federal "target" mortgage rate.

These historically unique mortgage rates have triggered a refinancing frenzy driving up mortgage applications to equally historic levels. Lawmakers and monetary policy analyst are hoping for similar strength in new home buying. The core objective of federal subsidies is to engineer this floor to falling housing prices.

Giving strong Federal support to the mortgage market is having another beneficial effect. The enormous taxpayer investment into financial and mortgage markets is creating a very attractive risk environment for private investors.

There was no bigger indicator of that than the $14 billion acquisition of IndyMac Bank. This move signaled two important markers for long-term recovery. First, and most important, is that private investors are again interested in the mortgage market. This sends an indicator that investors believe in a recovering market for mortgage assets--reversing some of the fears of illiquid "toxic" assets. Second, the FDIC has sufficient confidence in their clean-up and the overall market to return IndyMac Bank back to the free markets.

These are certainly two important benchmarks in hopes for a mid-2009 economic recovery.

From Gratitude to Rage

2009-01-04T23:58:00.000-08:00

From MortgageLoan.com: Taxpayers and the Bailout: From Gratitude to Rage
Love it or hate it, the $700 billion bailout is here to stay. Tempers are flaring on both sides of the issue, as responsible homeowners feel slighted, and at-risk homeowners feel gratitude.

Nineteenth century poet Josh Billings once wrote, "I hate to be a kicker, I always long for peace, But the wheel that does the squeaking, Is the one that gets the grease." Right now, our Congress is using taxpayer money to grease a whole collection of squeaky wheels-and that's not sitting well with those who aren't going to get any of the help.
A growing rift

Federal efforts to shut down the foreclosure crisis are causing a rift between two classes of taxpayers: those who pride themselves on making responsible decisions, and those who don't. The former group includes renters and homeowners who remain financially solvent because they've been deliberately conservative with their finances. The latter includes those who stretched their budgets impossibly thin to buy a home, or who drained their home equity to buy cars, fund expensive home remodels, or go on nice vacations.
Bailout wars

At issue is a $700 billion taxpayer-funded bailout known as the Troubled Asset Relief Program (TARP). In its short life, the TARP has logged a history that's as troubled as the mortgage-related assets for which it's named. So far, half of the TARP money has been used to fund equity investments in various banks. The investments haven't produced much in the way of measurable results. Now, Rep. Barney Frank (D-Mass.) has said he won't release the remaining bailout funds unless some of it can be deployed directly to prevent foreclosures.

The recipients of that direct help will be at-risk homeowners. Likely uses of the TARP money include various measures designed to convert an unaffordable mortgage into an affordable one: interest rate reductions, debt forgiveness, and principal deferrals. These actions will create big monthly savings for those at-risk homeowners, but those savings will be partially funded by the tax dollars of the responsible homeowners-the folks who won't get a dime of government relief.
Tempers rage online

A dialogue is now raging online between the two camps. Blogs and financial media websites are collecting emotional comments from the taxpayers who want the help, and the taxpayers who feel punished for being responsible. In early-December, for example, Yahoo! Finance columnist Laura Rowley outlined a bailout proposal that would stimulate the economy by giving assistance to responsible mortgage borrowers. In less than two weeks, her piece had collected more than 550 fervent responses from readers who either hailed or skewered the idea. News stories pertaining to the TARP are generating a similar frenzy of commentary and blogging.

Try as they might, the responsible homeowners aren't going to squeak as loud as their at-risk counterparts. And at the end of the day, our lawmakers will continue down the only path they know: bailing out those in need, and asking everyone else to pay for it.

Mortgage Loan Delinquencies and Foreclosures

2009-01-04T01:54:00.000-08:00

From MortgageLoan.com: Upward Trend: Mortgage Loan Delinquencies and Foreclosures
Delinquencies and defaults on mortgage loans, as well as foreclosures on homes, are soaring, despite the well-advertised efforts of politicians and economists. New waves of foreclosures and delinquencies could be up ahead, too, as the recession continues.

According to the Mortgage Banker's Association (MBA), the number of people in the U.S. who are behind on their mortgage loans hit a new record in the third quarter of 2008. Now, almost seven out of every 100 home loans is in delinquency. That means that the volume of pending foreclosures is also rising as the housing crisis continues to steam ahead without signs of stopping.

Although MBA reports also show a slowdown in the number of actual foreclosure filings, the positive news was little consolation. The MBA still projects more than 2 million foreclosure proceedings for the year-despite the positive impact of efforts such as foreclosure moratoriums.
Aggressive programs saved mortgage loans

Many experts interpret positive numbers with a grain of salt, pointing out that many more loans would have gone into foreclosure had it not been for aggressive programs, such as loan modifications, that have been instituted by lenders and government agencies.

While mortgage loans are under review for these kinds of programs, they remain reported as delinquencies that haven't turned into full-fledged foreclosures yet. And while fewer foreclosures were recorded, the volume of mortgage loans that are at least 90 stays into default has gone up dramatically.

Twenty states showed declines in the rate of foreclosure activity between the second and third quarters of this year. But at the same time, every state in the Union, with the exception of Alaska, saw a significant increase in the number of delinquent loans that are at least 90 days past due.

Sooner or later, many of these delinquencies will push homes to the auction block and will, in turn, add to the overall number of actual foreclosures.
Future sees more delinquencies

The real estate business doesn't operate in a vacuum, and the problems that began in the housing sector are now spread across the entire economy. That translates into higher rates of unemployment as job losses mount, and less spending as the availability of credit dwindles. With less money to spend, Americans are more inclined to avoid purchases-especially homes, which are the biggest ticket item for most people.

In some of the hardest hit foreclosure regions, like California, Florida, Michigan, and Nevada, a dismal job outlook is stoking the fires of foreclosure, just as those states are trying to recover from the real estate whiplash. Within the past 12 months, Florida racked up more than 150,000 job losses, California tallied at least 100,000, and Michigan surrendered in excess of 70,000. Across the U.S., job losses for the month of November topped half a million--the worst performance since the 1970s. Unemployment is now the highest it's been in 15 years, and the numbers keep growing.