Credit Card Debt Adds to Crisis

An article published on Newsroom America takes a look at the national credit card debt that is accompanying the mortgage crisis. According to the article:

Americans now owe nearly as much on their credit cards as the estimated $1 trillion subprime loan debt that has sapped the housing industry and put a squeeze on the U.S. economy.
Credit card companies wrote off 4.58 percent in payments between January and May, almost a third more than in the same period in 2006, according to Moody’s Investors Service.
As a result of that action lenders like Citigroup, Bank of America, American Express and others already in trouble from the subprime mortgage collapse are being further weakened.
The U.S. economy itself is in danger as well, since it depends on consumer credit spending. Seventy-two percent of the U.S. economy rides on consumption alone.
With oil and gas prices up and the U.S. dollar falling, some analysts see economic disaster looming on the horizon.

The financial situation of America seems to be getting worse by the day. How long will they go on discovering more bad news that will only add to the crisis? With declining credit, a falling dollar, and decreased opportunities for loans, it’s hard to imagine a happy ending to the market crisis.

Many take out 2nd mortgage loans to offset financial problems. This can occasionally prove useful.

November 7, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Federal Reserve Cannot Afford Drop in Housing Prices

An article published by Reuters focuses on the steep decline in housing prices and the Federal Reserve’s reactions. According to the article:

 The Federal Reserve “cannot afford” to let U.S. housing prices fall sharply and will have to cut interest rates aggressively to prevent that from happening, said the manager of the world’s biggest bond fund on Monday.

“A Fed cannot afford to let homes go down by 10 to 15 percent like we saw in Japan,” said Bill Gross, chief investment officer of Pacific Investment Management Co. or Pimco, on CNBC Television.

Gross expects the Fed to move aggressively into the new year. “Ultimately, the Fed has moved down to what we measure as a 1 percent — or lower — real interest rate in order to support the economy and revive it again,” he said. “A 1 percent real interest rate when tacked on to a 2.0-2.5 percent inflation rate is really a 3.5 percent short-term rate. Ultimately, that’s at least where they are headed.”

One can only speculate what the Federal Reserve and consumers will do as the housing prices continue to fall. Some consumers have sought a 2nd mortgage loan as a means to prevent the worst from happening.  It will be interesting to see if they do in fact follow through with what seems the only option to critics.

November 6, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Foreclosures Nearly Doubled Since Last Year

An article published by Reuters reports that residential foreclosure filings have almost doubled from 2006. The foreclosure rate is expected to continue rising over the next few years even though programs are being implemented to help borrowers. As reported in the article:

 The foreclosure rate will likely stay high until 2010, when it will gradually decline as credit stabilizes and good loans remaining represent a larger percentage of the total, Credit Suisse said.

Curbing foreclosures has become a priority of many mortgage companies, which under guidance from the U.S. Treasury last month formed a coalition to help hard-pressed homeowners. Mortgage servicers are being pushed to modify existing loans where possible to prevent foreclosure, which can be more costly for lenders and investors.

Countrywide Financial Corp, the biggest U.S. mortgage lender, recently announced a program that would refinance or modify up to $16 billion in adjustable-rate loans for more than 80,000 borrowers, including those already delinquent after interest rate resets.

So the good news is that once credit stabilizes, borrowers will be less likely to have to file foreclosure. But will these new and expensive programs really solve the problem? Or will they just encourage more people to take out loans that they cannot repay, resulting in more foreclosures? Modifications by mortgage companies can only go so far if people are unwilling to live within their means.  Those able to budget however, can often use a 2nd mortgage to avoid foreclosure.

November 5, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Falling Land Prices in Las Vegas

According to the Las Vegas Review Journal, land price are continuing to drop after only one of 31 auctioned parcels was sold. Two different viewpoints are represented in this excerpt:

 Anna Wharton, supervisory realty specialist for the BLM, said the federal agency contracted with an appraiser in Las Vegas who sets the fair market value of the land based on comparable sales of similar-size properties in the area.

The parcels are nominated for auction by the city or county government in which the land is located, usually based on someone’s expressed interest in buying the land, she said.

“People who were interested, whether they’re still interested today, who knows,” Wharton said. “The market does play a big role at the sale. We’re just going to have to wait and see what happens. The market is still correcting.”

The BLM’s appraised values were simply too high, said Ofra Gelman, director of commercial studios for SH Architecture in Las Vegas. Many of the properties had encumbrances such as underground telephone and power lines and road easements, she said.

The situation can be extrapolated to the falling land and house prices nationwide. Sure the higher appraisals may be “fair,” but the fact of the matter is that they are too high for purchasers. In a business like real estate, it is ultimately the customer who decides the selling price. If purchasers refuse to pay the higher costs, prices will have to continue to drop until the customers are happy. While this may be good news for buyers, it is certainly bad news for sellers.

Many in Vegas are currently evaluating whether to manage their adjustable loan with a 2nd mortgage, or to sell now.

November 2, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Bank of America to Fire 3,000 Employees

In the wake of massive losses, Bank of America has announced that they will be ‘laying off’ roughly 3,000 employees. While carefully downplaying the layoffs as little more than coincidental removal of under performing employees, it seems clear that these firings are a result of housing incurred losses.

With one of the largest lenders of 1st and 2nd mortgage loans slicing staff, there seems to be a clear trend towards an banking breakdown in America. Yahoo has further details:

The cuts will affect less than 2 percent of the company’s staff. Most of them will be from Bank of America’s Global Corporate and Investment Banking unit, the company said.

The Charlotte-based bank also said Wednesday that it is launching a strategic review of its investment banking business.

Gene Taylor, head of Global Corporate and Investment Banking, will retire at the end of this year and be replaced by Brian Moynihan, who ran the company’s Global Wealth and Investment Management business.

Taylor, who had a 38-year career with the bank, will help Moynihan with the transition. Moynihan will be replaced by Keith Banks, who runs the Columbia Management mutual funds arm, which is part of Bank of America’s asset management organization. As of Wednesday night, no successor for Banks had been named.

October 25, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Countrywide Intends to Refinance $16 billion in Loans

In a surprise move by Countrywide, the 1st and 2nd mortgage lender has announced its intentions to purchase a huge number of  subprime loans.  Considereing the down market currently being experienced by mortgage companies worldwide, this strategy seems odd to say the least.

Bloomberg reports:

 Countrywide Financial Corp., the biggest U.S. mortgage lender, will make it easier for customers to keep their homes by changing the terms on $16 billion of adjustable-rate mortgages.

About 52,000 customers with subprime loans can refinance into prime or government-backed mortgages through next year, the Calabasas, California-based company said today in a statement. Such loans usually have lower rates. Another 30,000 who may miss payments, or are already late, will get more affordable terms.

Treasury Secretary Henry Paulson last week called the housing slump “the most significant current risk to our economy” and urged lenders to modify more loans. Countrywide, which funded more than 1.8 million mortgages this year, has been criticized by housing advocates who say the company has done little to stem record U.S. foreclosures.

There is some degree of irony here considering the clamor which mortgage companies have been making for Federal aid as a result of bad mortgage loans they ‘mistakenly issued’.

October 23, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

SEC Investigates Countrywide Executive!

Another bit of bad news for Countrywide, on of America’s largest primary and 2nd mortgage lenders.

Amidst a wave of profits from stock sales during a down market, many have begun to demand that the authorities investigate the leadership of the lender.

The Guardian writes:

Under a programme of sales which began in October last year and continued until the summer, Mr Mozilo (Countrywide’s Chief Executive) cashed in at least $132m in shares. As the credit market seized up due to defaults on mortgages by low-income families, Countrywide’s shares collapsed by more than half during July and August.

Last week, the state treasurer of North Carolina, Richard Moore, wrote to the SEC demanding an inquiry into Mr Mozilo’s stock sales. North Carolina’s public pension fund owns more than $9.6bn in Countrywide stock and Mr Moore said the timings “raise serious questions about whether this is mere coincidence”.

A butcher’s son from the working class New York borough of the Bronx, Mr Mozilo has complained that his company was “demonised” over its role in the subprime crisis. Critics say predatory lending tactics led to the sale of unsuitable mortgages to millions of homeowners who found themselves unable to refinance this year because of falling property prices and are facing foreclosure.

While executives are generally bound by a structured plan to help them avoid accusations of manipulating a company’s share price, Mr.Mozilo repeatedly modified his plan in order to permit a surprisingly profitable strategy of stock sales.  It is therefore, quite understandable that this would appear suspicious to others.

October 22, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Use Care When Defaulting on a Mortgage Loan

Consumers facing foreclosure frequently make bad mistakes when dealing with lenders.  Often, borrowers will find themselves in trouble with multiple lenders as a result of multiple mortgage loans.  Perhaps they needed some extra money and so they took out a second mortgage, or maybe they wished to avoid PMI.

Whatever the reason, the more lenders which one defaults on, the more trouble they will find.  Paying the primary lender while ignoring the second can just as easily result in foreclosure.

Many falsely believe that only primary lien holders can foreclose a property.  This is not always the case.  For example:

One potential issue can play out as follows:

One should always do their best to work with all mortgage lenders to avoid the above situation.  Often, simply selling the home, and paying off both lenders will leave the borrower with a better credit score, and hopefully some money.

October 18, 2007 | Filed Under Second Mortgage, 2nd Mortgage | Leave a Comment 

Rates Unlikely to Decline

The Fed, a private group in charge of setting the federal interest rate charged banks, has indicated that their last rate cut may be the last one for some time.

Should this be the case, it could indicate that interest rates on 1st and 2nd mortgage loans will not be declining as well.

Bloomberg has the latest report:

Federal Reserve policy makers signaled they are in no hurry to reduce interest rates again because they aren’t convinced the U.S. economic expansion is coming to an end.

The Federal Open Market Committee avoided foreshadowing its next move after lowering the benchmark rate on Sept. 18, minutes of the meeting, published yesterday, showed. Officials didn’t want investors to conclude extra cuts were guaranteed, the records said.

Economic reports since then have justified their caution: manufacturing and services industries continued to expand last month, while employment picked up. The Dow Jones Industrial Average has climbed 3 percent to a record since the meeting.

While a rate drop in the fed does not always indicate a drop in mortgage rates, it can frequently indicate the general direction which the market heads for.

If the fed keeps rates high, then banks will likely keep their funds tighter, and lend less out.

October 17, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Rent vs Own, What to do in California?

Home sales continue to plummet across the state of California as buyers begin to contemplate renting over buying a home as a result of falling home prices. Unlike in Utah, prices in the golden state have taken a beating. Purchasing a property now could result in a loss of tens if not hundreds of thousands for a buyer. While buyers in Utah can easily acquire a Utah Home Equity loan as a means of dealing with unexpected dips in home value, such loans are increasingly difficult to obtain in California.

Frankly, banks do not like losing massive amounts of money by having to foreclose on homes. This leads to higher interest rates and higher down payment requirements which prohibit, or at the very least prevent many potential buyers from purchasing a home in California. Often home buyers decide that it is simply more affordable to rent rather than to purchase a home. Others choose to rent simply because they are frightened off by high interest rates. Second mortgage loans can occasionally be used to pay down a loan early as a means to avoid 30 years of high interest.

Here’s one blogger’s take on the debate:

But what about the tax benefits of owning? Aren’t all renters simply flushing their money down the porcelain toilet of perpetual loserville? First, there is a mistake in believing renting provides no economic benefit. Everyone needs shelter unless you are going the way of the nomad and living under the San Gabriel river. Renting provides the same economic substitute as owning a home aside from tax benefits, equity buildup, and the ability to take a sledge hammer into your kitchen wall should your heart desire. The only problem in hyper bubble markets like Southern California, renting an equivalent place will cost you 2 times less than owning. So for example, you may be able to rent a home for $2,200 that would cost you $4,000 if you were to buy it. And that $1,800 is being invested ideally at a rate outpacing inflation. The way housing is currently going, you’d be better off playing Keno at your local Indian casinos.

This is certainly a valid point. Well, the analysis regarding the cost of renting vs buying is (I wouldn’t advocate the Keno). If one looks at a home as a thirty year purchase with a high interest rate, it could seem like a lifetime liability in which a homeowner can never possibly get out of debt.

Few realize that the proper use of a 2nd mortgage loan could easily reduce a thirty year loan to a 15 year loan. Obtaining such a home equity line of credit can be extremely rewarding for a homeowner who dislikes debt.

October 10, 2007 | Filed Under Get Out of Debt, Second Mortgage, 2nd Mortgage, Home Equity Line of Credit, Utah Home Equity Loan | Leave a Comment 

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