Inevitable Market Crash

An editorial published on Seeking Alpha takes a look at the declining market and draws the conclusion that no one wants to hear: there’s no stopping it. This is particularly alarming for those in strong housing markets such as Utah. Here is an excerpt:

Friends, this is the tech wreck all over again. This is just a rehash of the same sorry lies and greed run amok that we witnessed from 2000 – 2003. These bigwig CEOs are all in CYA mode. Don’t be surprised to see some very high profile corporate names going down in flames and some very big executives going off to jail.

The key to the subprime mess is that housing prices are declining, and if the asset that you have pledged to secure a loan goes below the value of the loan, you can’t refinance. If you can’t refinance, you can’t repay the loan. If you can’t repay the loan, you default.

These rate cuts are not going to boost housing prices, and that’s what needs to happen if you are going to stem the subprime bleeding.

The reality is that housing and the subprime market is in a death spiral; nothing can stop it from crashing. There isn’t a force on earth that can turn this housing bear market into a bull market.

Is this editorial driven by realism or pessimism? Can the financial crisis really be so far out of hand that we cannot pull out of it? It will be interesting to see which of all the speculations circulating will actually prove correct. Should the worst occur, a Utah Home Equity Loan could be a lifesaver.

November 5, 2007 | Filed Under Utah Home Equity Loan | Leave a Comment

Barclays Takes a Drop in Share Price

According to an article published by Financial Times, Barclays suffered from a significant drop in share price. The reporter speculates the reason for this drop in the following excerpt:

Three names to scare you: Sheffield Recievables Corporation, Stratford Receivables Corporation and Surrey Funding Corporation; three ABCP conduits which Barclays runs, and has significant funding commitments to.

In the last reports available from the rating agencies, all three conduits boast high ratings and intricate credit protection arrangements. But all have very high exposure to the mortgage market - directly, through MBS, and through CDOs. Given what Moody’s have been doing with mortgage-related ratings in the past few days, it may be that Barclay’s conduits will suffer.

Which might go some way to explaining Barclay’s share price pain this morning. All three conduits buy securities from Barclay’s as well as other banks.

As the author R. L. Stine puts it: Reader beware, you’re in for a scare. It’s not enough to worry about which mortgage lenders are at risk. You have to know which companies are affiliated with which banks, and vice versa. With all this interdependency with companies exposed to risks, its no wonder people are becoming wary of the banks as well. Many in Utah have been taking out a Utah Home Equity loan as a means to preparing for possible disaster.

November 2, 2007 | Filed Under Utah Home Equity Loan | Leave a Comment

Problems in California

Further troubles are expected from the golden state, as startling statistics have been compiled. Here’s a blurb from the OnlineJournal:

Keep in mind, when studying the ARM reset graph that a “study commissioned by the AFL-CIO shows that nearly half of homeowners with ARMs don’t know how their loans will adjust, and three-quarters don’t know how much their payments will increase if the loan does reset. 73 percent of homeowners with ARM’s don’t even know how much their monthly payment will increase the next time the rate goes up.” (Calculated Risk)

The unwinding of the housing bubble is now beginning to show up in other areas of the economy. Credit card debt has skyrocketed to 17 percent annually now that homeowners are no longer able to tap into their vanishing home equity. Americans already owe over $500 billion on their credit cards. Now that debt is increasing faster than retail sales, which suggests that many people are so overextended they are using their cards for basic necessities and medical expenses. Industry analysts now expect an unprecedented wave of credit card defaults in the next six to 12 months. Unfortunately, for the tapped-out consumer, the credit card represents his last access to an unsecured loan.

We can also expect the downturn in housing to swell the unemployment lines. Oddly enough, while home sales have declined 40 percent from their peak in 2005, construction-related employment has only slipped 5 percent. That is really astonishing. It could be that the BLS is fabricating the numbers using its Birth-Death model, which magically produces millions of fictitious jobs. But we know that construction has accounted for two out of every five new jobs in the US for the last six years, so we are sure to see a significant rise in unemployment as the bubble deflates. The financial and mortgage industries have already experienced significant layoffs.

While here in Utah, many can avoid arm adjustments by simply taking out a Utah Home Equity Loan, it will be next to impossible for many Californians to do so with their larger jumbo loans.

October 25, 2007 | Filed Under Utah Home Equity Loan | Leave a Comment

Greenspan Worries About US Credit Market

The former chairman of the Federal Reserve has certainly kept himself busy preaching doom for US Markets.

In his latest public conference, he revealed a decreased amount of hope for US credit markets. Here’s a blurb from Bloomberg:

Former Federal Reserve Chairman Alan Greenspan said credit markets are in a “state of fear,” instead of a “state of euphoria” where investors are buying.

“We’re now in a state of fear,” Greenspan said in Chicago at the Midwest ACG Capital Connection conference, a gathering of investment bankers and private-equity companies. Greenspan was discussing commercial paper and structured investment vehicles.

Fed and U.S. Treasury officials have also said that it will take some time for confidence to return to markets for complex securities. Investors who depended on credit ratings companies to assess the debt now must struggle to come up with their own prices, Fed Chairman Ben S. Bernanke said Oct. 15.

Should credit supplies shrink, it will become hard to find affordable credit such as a Utah home equity loan.

October 23, 2007 | Filed Under Utah Home Equity Loan | Leave a Comment

Changing Middle Class

MSNBC has run an interesting article regarding the changing middle class divide. It indicates that those who live in midwestern or central states have a far more affordable lifestyle than those who live in coastal or metropolitan areas. The article proceeds to suggest that Congress get involved:

Congress to the rescue?
With the campaign season gearing up, there’s a great deal of talk about the need for government to take a greater interest in this key demographic group. In theory, that’s where the bulk of American voters are. So earlier this year, Congress asked its research service to come up with a definition of middle class.

The researchers started by looking at income levels. Based on 2005 Census Bureau reports, some 40 percent of the nearly 115 million households in the U.S. earned less than $36,000 a year. That represented just 12 percent of all income. The 40 percent on the next rung up the economic ladder took in between $36,000 and $91,705 — or about 37.6 percent of all income. The top 20 percent, who made $91,705 or more, collected half of all income.

But those numbers don’t adequately reflect the state of mind of those who consider themselves middle class. Surveys have shown that, while people consider $40,000 a year to be the low end of what it takes to buy a middle-class life, some people who make as much as $200,000 a year still consider themselves middle class, the researchers said.

Few seem to realize that even outside of Utah, one can manage debt through creative debt management and live a more affordable lifestyle. Those here sometimes choose to use a Utah Home Equity Loan to pay down excess debts and enable saving.

October 22, 2007 | Filed Under Utah Home Equity Loan | 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

Kahre Tax Trial - Pay no Taxes if Paid in Gold

An interesting trial recently came to a conclusion with over 100 defendants fighting off an IRS instituted litigation regarding their unreported income (in the form of gold and silved coins). Surprisingly, the defendants were all let off with not guilty verdicts, a result which may affect gold investors.

The ruling indicates that gold coins can only be taxed at their face value rather than their market value. According to Rense.com:

Attorney Hansen cited two Supreme Court cases bolstering Defendant’s monetary argument at the heart of the defendants “willfulness” defense.

The essence of the argument is that under the Constitution Congress is obligated by law to mint and circulate such coins as demand requires, and must establish the value of coins as they are used as legal tender, but the coins’ market value, arising as valuable personal “property,” is a distinct, separate attribute of such coins, and is of no legal consequence if the coins are used as legal tender.

In other words, if a worker is paid with such coins, his taxable “income” (if any) can only be the face value indicated upon the coin money paid — i.e., $1.00 for a circulating silver dollar or $50 for a circulating gold U.S. coin. Not surprisingly, the IRS has never issued any public guidance regarding this significant issue. The first case, Ling Su Fan v. U.S., 218 US 302 (1910) establishes the legal distinction of a coin bearing the “impress” of the sovereign:

“These limitations are due to the fact that public law gives to such coinage a value which does not attach as a mere consequence of intrinsic value. Their quality as a legal tender is an attribute of law aside from their bullion value. They bear, therefore, the impress of sovereign power which fixes value and authorizes their use in exchange.”

Those who’d prefer to invest in their home rather than in gold can do so with a Utah home equity loan.

October 5, 2007 | Filed Under Utah Home Equity Loan | Leave a Comment

Lease to Own - A Worthwhile Method for Purchasing a Home?

Leasing to Own is a creative method of essentially writing a long term purchase contract on a home with two big differences. You can move into the home immediately, and you lease the home until the contract closes.

Such ‘Lease to Own’ options tend to appeal to a few select groups:

1. First time homebuyers with low-credit, no down payment, or are in some way unable to afford/obtain a mortgage or even a second mortgage loan.
2. Illegal aliens, persons seeking citizenship, or persons who need time to find a family member to cosign with them.
3. Investors who wish to gamble that a home will go up in value, but don’t want to risk too much if it does not. They will occasionally make use of a home equity line of credit or a 2nd mortgage loan in order to float the rental costs.
4. The constantly evicted who otherwise cannot find places to rent. (Sellers sometimes get desperate to fill the property and as a result are not as thorough in background checking)

For most first time home buyers leasing-to-own is a BAD IDEA. Chances are that almost every lease to own property you find will be constructed to result in one of the following outcomes:

1. Buyer agrees to rent the house for more than it would normally rent for, with the understanding that a small amount per month will be applied to the purchase price should you purchase in a year or more.

2. Buyer spends all kinds of money fixing up the house, making repairs, and so on. Buyer generally believes he or she will own the house so they take better care of it than if they were just renting.

3. X year(s) pass, and it’s time for the buyer to buy the house. One of three things happens:

a) The property has decreased in value —–> so the buyer walks away, losing a few thousand dollars in what was paid to extra rent, plus all the repair costs, new carpet, custom blinds, paint, landscaping etc.

b) The property is worth less —–> buyer stupidly buys at originally negotiated price because of money already sunk into the home.

c) The property has increased in value —–> seller then tells buyer about the new, higher price. Buyer threatens to sue, seller laughs. Seller sells for higher price, either to buyer…or a new sucker.

Keep in mind that smart real estate investors use the lease-option scam to extract extra money out of their investment properties. If you own investment property, a carefully constructed rent-to-own option can make you several thousand dollars AND get you a good renter.

Leasing to own is usually a BAD idea for illegal aliens, and others who are currently unable to get a loan, but think they might be able to find someone to cosign or get the loan for them in a year or two.

Having someone else own your home is just asking for trouble. Also, since home loans can be such a complicated process, it is very difficult to predict accurately that you will be able to get a loan or even a Utah home equity loan in time to purchase the home.

That said, if you find a deal (which investors often do) locking it in a long term lease to own contract could be a wise way of gambling. Should home fall in value, you can walk away relatively unscathed (vs actually owning it).

Doing so REQUIRES a good attorney to help you construct a bullet-proof contract so that you can actually purchase the property should it increase in value. You should also try to contract the option of subleasing, as you may not actually want to live in the home, and subleasing is an easy way to minimize loss, and possibly even break even. Sellers may resist this (for obvious reasons, as you could potentially sublease to a very destructive renter)

Always be creative when approaching a seller, as proposing a rent-to-own could be an excellent method of buying a property with minimal risk. For the reasons already listed above, a buyer should generally avoid properties already being marketed as lease-to-buys.

October 3, 2007 | Filed Under Second Mortgage, 2nd Mortgage, Home Equity Line of Credit, Utah Home Equity Loan | 2 Comments

Banks Like Washington Mutual Finally Crack Down on Brokers

Far too late to save the world from it’s housing slump, banks such as Washington Mutual are finally pursuing policies to keep mortgage brokers a bit more honest. Thetruthaboutmortgage reports:

This morning Seattle-based Washington Mutual unveiled a new set of standards for mortgage brokers to adhere to, largely focused on improved disclosure.

The bank said it would require mortgage brokers to supply evidence that they provided disclosures to borrowers early on in the loan process in an effort to “help ensure that borrowers fully understand the terms of the loan their brokers are requesting in addition to the total compensation the borrower will pay to the broker for their services.”

These disclosures include, “key terms of the loan requested by the broker such as loan amount, loan term, whether the interest rate and mortgage payments may change, and whether the borrower’s pricing package carries a prepayment fee…”

The new measures will also force brokers to make their compensation more clear to borrowers upfront, another disadvantage they face, as banks avoid similar disclosure because they don’t need to reveal profits until resale on the secondary mortgage market.

According to the new set of rules, brokers must tell borrowers early in the application process “the amount of all compensation the borrower will pay the broker for their services, including broker points, or administrative or processing fees, and whether the broker has requested a yield spread premium.”

It’s wonderful to see banks finally realizing that honest brokers make for less foreclosures. Sadly, as long as it was profitable, most lenders looked the other way to predatory lending. Some states such as Utah still have a fairly high level of primary mortgage and Utah home equity loan programs being funded. It remains to be seen whether such lending reforms will touch the state.

October 2, 2007 | Filed Under Utah Home Equity Loan | Leave a Comment

Utah Home Equity Loan - Possible Solution For Debt

With the US dollar falling in value, one method for hedging against inflation is to take out a Utah Home Equity Loan.

Loose mortgage standards in recent years — especially among lenders catering to subprime borrowers — have resulted in a spike in home loan defaults.

A worthwhile method to paying down debt or saving for a home purchase is through the use of a second loan.

October 1, 2007 | Filed Under Utah Home Equity Loan | 1 Comment

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