Archive for the ‘Solutions for Mortgage Crisis’ Category
Democrats As Bad as Republicans- Bad Solutions for Sub Prime
Over the last seven years the Republican administration of George Bush and the Republican led Congress (up until 2006) were so bad at managing the nations finances that it was hard to conceive that anyone, anything or any other party could be worse. Democrats seem to be working to prove that they are just as bad at helping Americans and the US economy as their Republicans cohorts on Capital Hill.
This week, the two sides are arguing over a Sub Prime bail out that seems designed to bail out no one, yet it will spend $300 billion dollars.
What it might do
1. Give funds to local communities to go fix up empty foreclosed homes.
Why? Who knows, maybe it will give the mice and the looters something fresh to compete over.
2. It will replace a borrowers existing mortgage with an FHA backed mortgage and will give the Federal Government partial ownership of your home.
Why? Who knows, maybe the Federal Government hopes to get a foot in the door on legal grounds in case they want to perform a search or seizure of your property without a warrant with a warrantless wire tap. The last thing the fed wants to do is go into the real estate business again having to comply with local ordinances and bylaws on maintenance and upkeep. Wasn’t the United States set up in part so that people could get away from governments that owned all the land?
3. It would require banks to write down the principal amount of a mortgage balance to recognize new home loan values in various areas.
Why? If you currently owe more on your home than it can be sold for in the market, financially you will have the incentive to walk away and leave the bank with the bad deal. That increases defaults, drops property values further and creates more instability for all of your neighbors who might soon fall into the same problem.
What it will not do
1. Allow Bankruptcy Judges to do what they used to do and negotiate better interest rates and principal amounts to avoid a total default and loss by the home owner and the banks.
2. It will not help people facing foreclosure avoid foreclosure. (But they will fix up your house real nice after you are kicked out by the local sheriff)
3. It will not bail out speculators that gambled on the value of your home as collateral. But it will back their remaining investments with an FHA guarantee so that they can take their money and run to another investment arbitrage opportunity, maybe something in grape seed extract commodity contracts.
Related Stories on this Topic
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Posted in Mortgage Industry, Mortgage Legislation, mortgage system pitfalls, Solutions for Mortgage Crisis, Sub Prime | 
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Schizo Market – UK Raises Mortgage Rates – US Drops them
If you thought the mortgage industry was crazy well you are probably right. You need look no further than a comparison between the United States and United Kingdom mortgage industry markets. In the United States mortgage rates dropped slightly on 30 year fixed-rate mortgages last week coming up after several drops in interest rates by the Federal Reserve to the bank that actually make the mortgages happen for consumers. After the feds dropped a total of about two points, borrowers are benefiting with about a half point mortgage rate dropped so far.
In the United Kingdom things are much different. Thanks there do not have the support of the central bank, and the credit crisis there is forcing banks to raise their mortgage interest rates to borrowers in order to deter people from taking mortgages out at all. If you are shopping for a new home in the United Kingdom and you have 10% or less to put down of the home, you will be looking at an interest rate above 7%. The banks don’t want to take any risk at all the United Kingdom right now especially as the number of banks face the potential of bankruptcy.
In the United States the Federal Reserve is loaning money directly to the investment houses that secure mortgages and it helped to bail out and raise caps for Fannie Mae. It remains to be seen which method will stand the test of time. The bail out method of the United States or the free-market method of United Kingdom. In some ways this is kind of like watching a schizophrenic on a diet, one minute eating cheeseburgers and the next minute they’re popping weight loss pills.
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Wall Street Journal – Mar 27, 2008
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U.S. News & World Report, DC – Mar 28, 2008
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Mortgage rates lifted as lenders feel pain
Financial Times, UK – Mar 27, 2008
Millions of home loan borrowers now face higher interest rates as banks pass on higher wholesale funding costs as conditions worsen in money markets. …Mortgage rates stabilizeINTEREST RATE ACTIVITY
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Home Loan Focus adds Finance Calculation Tools
We previously tried adding some credit and finance calculation tools a couple weeks back. The tools were sponsored by credit companies, and they did not deliver what we were looking for. You’ve probably seen teaser calculation tools in the past. They ask you for some information to calculate a new payment or what if scenario on your finances and before you know it, you have no answer and they are sending your personal information off like a loan application. Well, we think that is bogus.
If you want to check out our sponsors, more power to you, but we want you to do that with your eyes wide open and preferably when you have all the facts in front of you and all your ducks in a row. When you negotiate a new mortgage or even a refinance, you need to have everything in your finances straight and tight if you are going to actually get the highest rate possible.
With that in mind we have established several tools to help you with this without having to send any information at all to a sponsor. If you have ideas about additional tools that we should add, please let us know and we will try and develop it. The bottom line is that we want you prepared to get the best deal no matter if you are financing a jumbo mortgage in San Francisco, looking into the real estate Branson market for a possible relocation, or refinancing credit cards into a home equity loan (not a good time to do that in general.)
Posted in Credit Improvement, financing, refinancing, Renting v Buying, Saving Money, Solutions for Mortgage Crisis |
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Home Loan Companies to Face New Oversight on Home Appraisals
The two largest backers of home loans in the United States have agreed to new over site. New standards will be effected to increase the quality of home appraisals.
A long-term investigation by New York State Attorney General Andrew Cuomo’s office has led the two largest purchasers of home loans in the U.S. — Fannie Mae and Freddie Mac — to enter into cooperation agreements.
The pacts require the companies to only buy loans from banks that meet new standards designed to ensure independent and reliable appraisals. Cuomo’s office had been investigating fraud in the home appraisal process.
Deal reached with home loan companies – Business First of Buffalo
Home appraisals and fraud related to those appraisals were and are a significant part of the problem that has created the sub prime mortgage scandal. Many banks performed appraisals or hired appraisals that never took place. Many appraisers only viewed comparables and never set foot in the neighborhood of the home let alone the house. In extreme cases, some houses were not even confirmed to exist at all.
The loans that were made on these properties were very risky. Banks essentially sold mortgage backed securities that were more risky than taking a bet in a Las Vegas hotel. This is likely to be just one of many reforms that will continue to come and be developed.
Posted in Mortgage Industry, Mortgage Legislation, Solutions for Mortgage Crisis, Sub Prime |
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How Can You Benefit from a Lower of Cost or Market Mortgage Write Down
In many areas of investments and accounting when a company has an assets on the books and the market value of the asset drops below the original cost of that asset, the company must write down the value of the asset on their books. Writing down that asset requires taking an expense which can result in a loss for the company involved. Good accounting principles require this move as it does most companies and especially investors no good to keep a fictitious value on their books. Plus, the recognition of the loss can enable the company to save a little on taxes, a small condolence for losing asset value.
Fed Chairman Bernanke is essentially calling for something similar to help solve the mortgage crisis. He’s calling on Treasury Secretary Paulson of the Bush Administration to take action to push lenders to write down the value of the mortgages that you might hold.
Bernanke said “more can, and should, be done” to limit foreclosures. He added that principal reductions “may be a relatively more effective means of avoiding delinquency and foreclosure” than renegotiating interest rates. … “the current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions.” Bloomberg.com: U.S.
For example, if you have a mortgage in San Francisco for $800,000 and the real value of your property is now $650,000. People are not companies and do not keep a lower of cost or market basis in their homes. Banks however, take those mortgages and sell them to investors in a process known as securitization. Banks would have to decrease the value of the mortgages they hold before the sale to investors and possibly after as well. Think of it like Wal-Mart providing you a credit on a receipt if the price of a TV goes on sale within 30 days of buying it at their store. Banks would essentially, have to give investors a credit on their investment, take a loss and let mortgage holders off the hook for the loss in home value and readjust the monthly mortgage payment downward.
That is definitely a tough pill to swallow for banks, but they may have no option. If they do not make such an adjustments, a homeowner that holds a property worth $650,000 with a mortgage of $800,000 might quite logically make the investment decision themselves to walk away from the house and allow a foreclosure to happen. Every day they stay in that over mortgaged house, they are essentially making the decision to over pay for their own house by $150k. That’s a bad financial move for a home owner thinking like an investor.
This same process could unfreeze credit from investors too. If they get a refund on their investment, they could conceivably invest in new mortgages at more appropriate values. Investors need to see that foreclosures are stopping, that people are buying houses, that the real estate market correction is over and most importantly that banks can be trusted again!
The Fed, the Treasury Secretary, banks, investors and home owners are all essentially trying to find a way to put some baby clothes back on the baby after throwing the baby out with the bath water. The downside to this proposal is that it essentially puts the blame and the cost on bankers. Except in the cases where banks created or contributed to fraud, homeowners are the ones that made the initial bad investment decision of buying a house that subsequently later devalued. The fraud of the banking industry does appear substantial, but buying into a bubble can not be ignored either. This will definitely be a difficult concept to pass through Washington DC during an election year.
Posted in foreclosure, Mortgage Industry, Mortgage Legislation, Solutions for Mortgage Crisis |
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