Posted: December 4th, 2009 | Author: Joe | Filed under: Economy | Tags: Mortgage Mess, Mortgage Rates, refinancing home mortgage | 1 Comment »
It seems like only a few weeks ago that mortgage rates were near all time lows, but now they’ve actually hit new lows. The new record low rate for a 30 year fixed mortgage is 4.71%. Much of the cause for this record drop is the historically sluggish housing market and government efforts to spur an increase in home buying.
For example, the Federal Reserve has released over $1 trillion into mortgage-backed securities in an effort to lower mortgage rates. It seems like those efforts are working, but that infusion of cash is set to end next spring. It’s unlikely that home sales will be sustainable if unemployment also remains a record levels, so we’ll have to see if the fed will try something new at that point or just leave well enough alone.
Even though rates have dropped, qualifying for a loan is tougher than it has been in a very long time. Still, if you have good credit and 20% for a down payment, you should be able to snag rates close to these for some time to come.
Other rates.
The average rate for a 15 year fixed mortgage is also at a record low 4.27%, down from 4.29% just a week ago.
5 year ARMs average about 4.19% and this is actually up from 4.18% last week. 1 year ARM rates also fell to 4.25%, so it’s interesting that 5 year ARMs were up, albeit a very small amount.
All of this rate dropping has led to increased mortgage applications and refinancing. The Mortgage Bankers Association reports that mortgage applications are up 2% from a week earlier, due to an increase of more than 4% in purchase applications, and a 2% increase in mortgage refinancing applications on existing loans.
source
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Posted: November 3rd, 2008 | Author: Joe | Filed under: Economy, Real Estate | Tags: Mortgage Mess, Real Estate, underwater | No Comments »
7.5 million homeowners "underwater"
CNNMoney had an article last week titled 7.5 million homeowners ‘underwater’. It’s primarily a breakdown, by state, of what percentage of mortgages are higher than the value of the underlying asset. The technical term for this is negative equity, but it’s also know as being underwater or upside down on a loan.
No one wants to find themselves owing more on their mortgage than the house is worth, but is it as big a problem as people feel it is? Negative equity is obviously a problem for the investor, but are you a homeowner first or an investor first?
Negative equity is not necessarily a problem for a long term homeowner. I think too many people have become accustomed to using their homes as ATMs; constantly withdrawing the equity from value appreciation, all the while thinking it will go on forever upward. That’s when negative equity becomes a BIG problem. For those old school home owners who never built their financial lives upon such a flimsy premise, negative equity is hardly a factor. For the fixed rate mortgage holder, declining home values don’t affect his ability to make his mortgage payments.
Negative equity is a requirement for foreclosure, and here we venture into the debate over how many people are simply going to walk away from their obligations to pay back their mortgage. But again, if these people bought the house thinking it was an investment, then they should pay the price. But if they were looking to buy a home to settle down in for the long term, and they’re upset they paid too much – just accept the timing was bad, and that the market will turn back up again over time. It’s only a problem if you have to sell in these conditions.
I am reminded of something a local financial planner once told me:
“The reason the stock market is so tough psychologically is that you get constant feed back on what your portfolio is worth. With a house, you don’t see the day-to-day changes because it’s a relatively non-liquid investment. Mr. Market isn’t coming to your door at the end of every day offering to buy your house for more or less than he was yesterday.”
I think with all the news of sub-prime foreclosures and borrowers being underwater, we’ve found ourselves in an environment where we do get daily feedback on the values of our homes. But how relevant is that feedback?
Just because the news is largely negative on a national scale, doesn’t mean it’s representative of what your home is worth. Homes are not stock certificates. We don’t all own a piece of the same house.
We must focus on why we buy real estate, and remember that real estate is largely a regional investment.
Photo by lorkatj
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Posted: October 14th, 2008 | Author: Joe | Filed under: Economy | Tags: Mortgage Mess | 2 Comments »
In case you haven’t yet heard the term Liar Loan….
From Investopedia:
“A category of mortgages known as low-documentation or no-documentation mortgages that have been abused to the point where the loans are sometimes referred to as liar loans. On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application.”
I love terms like “low-documentation” loan programs, don’t you? Sounds much better than give money to anyone with a pulse loan program.
“On other loan programs, such as no income/no asset (NINA) loans, no income and assets are given on the loan application form. These loan programs open the door for unethical behavior by unscrupulous borrowers and lenders.”
“Open the door”? It’s practically sounding the dinner bell! This is exactly the sort of loan that Casey Serin took advantage of when building his flipping fortune, only he ended up getting flipped and walking away from his mortgage obligation, leaving the honest tax payers holding the bag. He’s a real class act.
Investopedia goes on to say:
“These loan programs are designed for borrowers who have a hard time producing income and asset verifying documents, such as prior tax returns, or who have untraditional sources of income, such as tips, or a personal business.”
Am I missing something here? How hard is it for honest people to produce income verifying documents? Either you have an income, can afford the loan and have the documentation to prove it, or you probably can’t afford the loan. In which case, hasta la vista baby.
Well, that’s how it would work in my world. Obviously, I’m not the one running things or we wouldn’t have been giving home loans out like candy in the first place.
“Low-documentation mortgages usually … depend heavily on a borrower’s credit score (FICO score) and the mortgage’s loan-to-value ratio (LTV) as tools to determine the borrower’s ability to repay the mortgage.”
I don’t care if you have a picture-perfect credit score and the value of the property is assessed at $1,000,000 when you’re taking out a $250,000 loan – if you have no income and no assets, how are you going to pay the loan off?
What wizard of smart thought this one up?
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Posted: August 7th, 2008 | Author: Joe | Filed under: Economy, Investing, Real Estate | Tags: Economy, Mortgage Mess, news | 1 Comment »
I stumbled on this video a few days back, and it made me wonder: how representative of the housing crunch is this guy?
For those of you who haven’t heard of Casey Serin, he was a self made real estate speculator. A guy who watched a video, read a couple of books and became a real estate flipper – at precisely the wrong time.
I wonder if the majority of those hit by the crunch were speculators or flippers… I have heard that bandied about a bit, but it’s surprisingly difficult to find any hard data on just who is in foreclosure. I feel pretty confident however that there are a fair number of people like Casey in the mix.
Think about it – this guy is potentially responsible for 8 foreclosures alone! Maybe the spike in foreclosures isn’t really a bunch of families struggling to make ends meet, but inexperienced speculators caught in the collapse of the real estate bubble.
The video outlines a bunch of mistakes he made:
- He paid $15k for “seminars” on flipping.
- Bought at the top of the market (an over priced one too!)
- He lied to lenders.
It’s mostly the last one that irks me most. Guys like this not only run up the prices of homes, but they also game the system making it harder for honest home buyers to afford a home they might need. And they factor in that this guy will probably get bailed out by congress if he doesn’t go to jail first. It really burns my bacon.
I think he’s just a kid who got into something he didn’t understand to a point where he was way over his head before he realized what was happening. But there needs to be some personal responsibility somewhere as well.
Casey Serin had his own blog for a time at iamfacingforeclosure.com, but he seems to have let it go so he can “move on” from the experience.
Technorati Tags: casey serin, housing crunch, foreclosure
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