Bush’s Bailout Plan Bursts
Those hoping to leverage a 2nd mortgage loan towards a mortgage bailout may want to do so now before interest rates skyrocket.
According to Naked Capitalism:
Note we have doubts about “rescue debtor” operations. Iin many cases, these borrowers had little to no equity in their home, which begs the question of why it is so awful for them to lose their home. Indignity, yes, tragedy, no.
But a cynical plan to do nothing while pretending to offer relief is even worse than standing pat. It gives homeowners and possibly mortgage investors false hope and forestalls discussion of the tough choices that need to be made (the residential housing market is simply too large for the Feds to rescue), But then again, if your aim is merely to leave this problem in the lap of the incoming regime, a Potemkin program like this is exactly the sort of thing you want.
Not much of a surprise there. The bailout plan is not going to drive rates downwards.
Foreclosure House with a “Surprise” inside
The Chicago Tribune reports the new buyers of a rundown graystone on the South Side showed up on Jan. 9th to look at a house they won at a foreclosure auction but found a “surprise” inside. The surprise came in the form of a dead Randy Johnson, a middle aged man who lived alone in the house.
Somehow, Johnson’s house was transferred three times to new owners without anyone noticing he was inside. It’s a story involving forged deeds, a corrupt title company and a South Side family that has been under investigation for mortgage fraud.
The intrigue surrounding the Oakenwald house offers a glimpse into the strange and murky world of mortgage fraud. Lenders duped into making loans have every incentive to unload the properties, and almost none to blow the whistle on wrongdoers. If borrowers or government watchdogs fail to cry foul, the same home can change hands again and again before anyone is the wiser.
“They foreclose. They don’t care. They just foreclose,” said Daniel Lindsey, a supervisory attorney with the Legal Assistance Foundation of Metropolitan Chicago. Most of the time, he said, the foreclosures go through because no one with an interest has the legal firepower to stop them.
This story carries a dramatic twist with the scandal of mortgage fraud. The death of Randy Johnson comes as a surprise not because of his demeanor and odd personality, but because the house was exchanged three times to different owners. The mortgage company involved in the transaction of this house is under investigation, but it was wise for Country Wide to refund the payment to the most recent buyers from the legal suit brought upon by Cook Country officials.
Often borrowers can be so concerned with seeking out a 2nd mortgage that they find themselves overwhelmed with the details, as mentioned here.
Second Mortgage Debt Confusing?
Many Americans find Debt, and the causes of Debt to be confusing. This can often lead to families finding themselves in more debt than they can handle. Cnn reports the latest:
Americans don’t understand debt, which may be one reason that they have too much of it, according to a survey released Tuesday.
The survey presented 1,000 people with a hypothetical scenario about credit card debt and asked them to compute how long it would take to pay it off. Only 35.9% of the 1,000 respondents could figure out how many years it would take for the amount they owe on their credit cards to double. A full 18.2% did not know how to respond and 31.9% of those surveyed over-estimated the timeframe.
The survey by Harvard Business School and Dartmouth College professors and TNS asked respondents to assess their debt levels. Those who said they felt they were carrying too much debt were found to be “wildly wrong” when it came to using compound interest to calculate how long it would take to pay off that debt.
Understanding how a second mortgage works can help you reduce consumer debt. Often, creative use of such a loan can help pay off a debt much faster.
U.K.’s 2nd Mortgage Lender Northern Rock on the rocks?
A surprise decision hit taxpayers in the U.K. as the government decided to purchase the struggling mortgage lender Northern Rock PLC. Northern Rock grew quickly into one of the largest mortgage lenders in the U.K. by relying on securitization; however, that source of financing dried up when the U.S. subprime crisis hit Europe. Northern Rock is still on the market as the government continue to fund and operate the company’s finances. According to MarketWatch:
The British government, including Chancellor Darling, had been in talks with potential bidders for Northern Rock, including a consortium led by Virgin Group Ltd., private-equity group Olivant Advisers Ltd. and Northern Rock’s board. But those offers stalled last month because of uncertainty over financing.
“In current market conditions, we do not believe that they deliver sufficient value for money for the taxpayer,” Darling said in a statement on Sunday. “Under public ownership the Government will secure the entire proceeds from the future sale of the business in return for bearing the risks in this period of market uncertainty.”
Will Bernanke Succeed?
After only two years, it would appear that Ben Bernanke has failed to rescue the economy, but some are now arguing for patience with the chairman of the fed.
Two weeks ago, the Federal Reserve chairman’s critics complained he was standing idly by while the markets sank, and they clamored for more-aggressive action. Last week, when he did what they asked, they called him a pawn of fickle investors. Had he done nothing, the same critics probably would have said he was ignoring the potential economic damage of a stock-market collapse.
In the end, all this hand-wringing about Mr. Bernanke’s style and demeanor will be long forgotten if the Princeton professor gets his economics right. He’s betting he can head off a recession by quickly lowering interest rates, possibly again tomorrow after the Fed meets. And he’s betting he can do it without igniting inflation.
If things fail to recover, those with set rates on 2nd mortgage loans will be better off than those taking them out in the future.
Who Needs a 2nd Mortgage?
Chances are high, if you’re in the middle class, that the recent inflation and mortgage meltdown has left you slightly strapped for cash. Factoring in holiday debt, many are wondering what can be done to payoff all this consumer debt.
This is affecting people the world round, as debt continues to climb. The Wallstreetexaminer reports:
The world economy has reached a new dangerous point. It is best explained in simple terms. Basically the blowup of fictitious capital has wiped out the leveraged capital Riskloves. Simply put, ABC Risklove or XYZ Pig Man once had $1.0 billion in capital, and made spread bets on $10 billion in suspect “assets”. He (she, it) took on $9 billion in liabilities to do so. Now hypothetically the assets are worth at best $7 billion (no one really knows, as market has broken), and that’s only if a further panic can be avoided. A panic is averted by pretending the assets are still worth $9 billion, leaving $2 billion in fictitious capital (FC) on the books. FC spins are conducted by spewing out propaganda that only subprime is the problem. The credit agencies meanwhile act like they are on the old case files playing some catchup, but ignore the next tsunami wave two feet off shore. Fitch, who moves quicker, is downgrading some of the second wave, but it is slow motion. All the other blowups like commercial mortgages, and unsecured consumer loans are largely ignored.
Thankfully, at least for US consumers in debt, there is the 2nd mortgage option. Essentially, one can leverage the equity in their home to payoff their credit card debt, at a lower interest rate, though now secured with property.
45,000 Homeowners Request Aid
The soup kitchen line keeps growing as more and more homeowners seek government aid for loans they can’t afford.
MarketWatch has the latest:
In a speech in New York, Paulson said the Treasury-backed plan to prevent subprime foreclosures has now been joined by firms representing 90% of the subprime market. Within a few weeks, the industry will begin “fast-tracking” some qualified borrowers into new, affordable loans, Paulson said.
The effort could be extended to other adjustable-rate loans, not just subprime loans, Paulson suggested.
“A housing correction was inevitable and necessary,” Paulson said.
In brief remarks on the economy, Paulson said he expected it to “continue to grow.”
“Our economy remains resilient,” he said.
Why thousands of people requesting government aid is a sign that the housing market is in trouble is debatable; when the government is offering hand outs, why wouldn’t homeowners desire to take advantage of such?
Those unable to qualify for government aid often consider other solutions such as 2nd mortgage loans.
Bear Stearns Still Struggling To Recover
Bear Stearns, which posted its first loss ever this past fourth quarter has a lot of work left to do in order to get out of the red.
Bloomberg is reporting:
Bear Stearns Cos., the securities firm that helped trigger the collapse of the subprime market, reported its first-ever loss after writedowns for mortgage holdings and declines in trading and investment banking.
The fourth-quarter loss of $854 million, or $6.90 a share, was almost four times wider than the average estimate of analysts surveyed by Bloomberg. Moody’s Investors Service cut the firm’s credit rating one level to A2, the lowest since 2003. Bear Stearns, which has fallen almost 44 percent this year in New York Stock Exchange trading, rose 0.9 percent today.
Barring a recovery, Bear Stearns could have a rough 2008 along with most others working with investments. Keeping this in mind, a 2nd mortgage may prove a better investment than playing the market this year.
2nd Mortgage Rates May Increase
Those that have been sitting on the fence considering a 2nd mortgage may soon wish to lock in, as rates are currently lower than normal.
The Wall St. Journal has the following hopeful news for the new year:
U.S. fixed-rate home mortgage rates fell to the lowest level in a month, according to a Freddie Mac survey.
The national average interest rate on the benchmark 30-year, fixed-rate loan averaged 6.07% in the week ended yesterday, down from 6.17% a week ago and 6.18% a year earlier.
The 15-year fixed-rate loan averaged 5.68%, down from 5.79% a week ago and 5.94% a year ago. The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.78%, compared with 5.90% a week ago and 6.02% a year ago.
“The new year has begun with mixed signals on the direction of the economy and mortgage market,” said Frank Nothaft, Freddie Mac vice president and chief economist.
While rates are this low, a mortgage loan will likely appear a solid bargain when they jump back up later in the year.
What is a 2nd Mortgage?
A 2nd mortgage is a mortgage loan produce that can one of several forms. Some 2nd mortgages are just that, mortgages used to help a home owner purchase a home, often utilized to make up for a lack of a 20% down payment. The 80/20 loan has become a common method for those with little to put down on a home purchase. Using a second mortgage, the buyer is able to use another lender to help cover the cost of the downpayment.
A 2nd mortgage can also refer to a loan given to a homeowner based on home equity. Such a loan can either be a one time loan (a home equity loan) or a variable loan (like a credit card) called a home equity line of credit.
Choosing the right 2nd mortgage is an important step towards managing one’s budget well. 2nd mortgages carry lower interest rates than most other loans due to their backing by home equity.