Is the US economy in trouble? If it is how long will the crisis last? Will the elected representatives and traditional news media tell the American people the truth or hide the true facts? These are all the questions the American public wants answered and has the right to know.
Unfortunately, it is not being discussed openly and reported upon in the media in a transparent manner. The media conglomerates are parts of huge publicly traded companies whose sole purpose is to increase stock value for their shareholders. So if they start reporting on the true State of the American Economy, than the investors will start selling shares thus, pulling their money out of the market.
Herein, the stock value of many publicly traded companies (including the media companies) will decline. Of course that can’t happen hence, you find useless dribble like this being reported in the mainstream press and publications, such as the BusinessWeek article The Economy: Five Signposts to Recovery.
And of course our elected representatives aren’t being honest with us because they want us to spend money instead of saving money. The best example of this is the nonsensical policy of the Bush Economic Stimulus Package. Instead of telling people to save money for the future, our president and Congress in their wisdom want us to shop, hoping that mass consumerism will be an economic stimulant.
Unbelievable, isn’t it that the government and media are encouraging people to spend the tax rebate money instead of saving it or paying off debt. The current economic mess our nation is in is due to the irresponsible policies of President Bush, Congress, the Federal Reserve Bank, and Wall Street. The subprime mortgage crisis was mainly the result of Alan Greenspan’s Fed policies, Fed not holding Wall Street accountable, greedy Wall Street, the home builders, the mortgage lenders, and mortgage bankers.
The Fed is still afraid to penalize Wall Street for their role in the subprime mortgage meltdown. Wall Street can take all the asymmetric risk that it wants because it knows the Fed will come bail them out by injecting liquidity into the market. For example, the Fed injected $17.25 billion in August 2007 and $31.25 billion in September 2007 into the market to keep credit markets from drying up. Basically, the market can take all the risk it wants without fear of a downside because it knows that the Fed will come to its rescue.
The American economy needs to be rescued but the elected representatives guiding our policies and economy shouldn’t lay the onus upon the American people to bail the economy out, why should Americans bear the burden for misguided policies they had nothing to do with, in consultation nor implementation. If you really think about the true purpose of this new Economic Stimulus Package, Bush, Congress, and Wall Street want Americans to spend money, hoping to have a domino effect within the economy as new money gets pumped into it. So if you truly think about it THEY EXPECT THE AMERICAN PEOPLE TO BAIL OUT THE ECONOMY AND THEIR FAILED POLICIES. It is amazing to me when the people we entrust to look out for our interest, our elected representative tell us to go SHOPPING, instead of saving.
Is the US economy in trouble? If it is what can be the extent of the damage? What is unique about the subprime mortgage crisis? Will the elected representatives and traditional media tell the American people the truth or hide the true facts?
The authors draw parallels between the current US economic issues with five previous financial woes. These five past crises lasted longer than anyone had anticipated. The nations where the extended crises occurred were:
Japan (1992)
Spain (1977)
Norway (1987)
Finland (1991)
Sweden (1991)
It is abundantly clear that these nations vary from the US in many ways but a closer examination reveals some similar patterns.
The Chronicle of Higher Education did just that. In reviewing the Reinhart and Rogoff paper, they focused on the parallels to the Japan crisis. The Chronicle states that like Japan et al., the United States has seen:
A sharp rise in home prices the four years preceding the financial crisis (The U.S. increase was twice as large as the average of the five nations)
An extreme jump in equity prices (Larger in the U.S.)
A healthy rise in account deficits
A decline in per-capita growth in gross domestic product (In this case, the U.S. situation doesn’t appear as bad as in the five predecessors)
An increase in public debt (Here again, the U.S. situation isn’t as bad as in the historical examples – but Reinhart and Rogoff add that “if one were to incorporate the huge buildup in private U.S. debt into these measures, the comparisons would be notably less favorable”)
The federal government is the major driver of the idea of home ownership. Hence, it has become the biggest player in the residential mortgage market. Approximately one out five residential loans are either guaranteed or insured or by a federal agency. These types of loans are called government loans. The other 80 percent of residential mortgage loans are called conventional loans.
A Conventional mortgage must meet the underlying funding terms and other limits of Freddie Mac and Fannie Mae. For home properties in some states and U.S. territories such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the conforming loan limits are 50 percent higher.
2007 Single-Family Mortgage Loan Limits - Fannie Mae
Single-Family Mortgage Loan limits effective January 1, 2007:
First mortgages
One-family loans: $417,000
Two-family loans: $533,850
Three-family loans: $645,300
Four-family loans: $801,950
Note: One- to four- family mortgages in Alaska, Hawaii, Guam, and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country.
Second mortgages
$208,500
In Alaska, Hawaii, Guam, and the U.S. Virgin Islands: $312,750
Freddie Mac and Fannie Mae buy conventional loans that meet their guidelines and limits in the secondary mortgage market. The secondary mortgage market for conventional loans is very large and liquid. Majority of the conventional mortgages are bundled into pass-through mortgage-backed securities, which trade in a forward market known as the mortgage TBA (to be announced) market.
Due to the fact that a conventional loan is not given by the government, the lender obtains a lien or defeasible legal title to the property in return mortgage payment. Once the mortgage has been paid in full, you receive the title to your home. This loan may be fixed rate or adjustable rate mortgage.
Government loans are mortgage loans that are insured or guaranteed by the federal government. These loans are designed to aid home buyers who meet mortgage criterion that allow them to get into a home either with a lower down payment , a lower interest rate and/or with a lower credit rating.
In many instances consumers seek government loans because they do not qualify for a conventional loan.A conventional loan is simply any loan that is not a VA loan, FHA loan, RHS loan, state or local government loan.
The following three federal agencies provide government loans. Also, the homes purchased must meet certain standards to apply.
U.S. Department of Veterans Affairs (VA) Loans
Qualified military veterans are able to purchase a home under $203,000 with no down payment.
Federal Housing Administration (FHA) Loans
FHA does not provide home loans.
FHA provides the mortgage lender insurance that will compensate the lender for any losses in case of default on the loan
Very low down payment on your home. (between 3-5% based on the FHA appraisal value)
Maximum loan limit depends on the average cost of living in your local area
Flexibility in calculating household income to payment ratios
Rural Housing Services (RHS)
RHS does not provide mortgages, it simply guarantees mortgage loans made to rural residents
Low interest rate loans with no down payment to low to moderate income rural residents
Loans have lower closing costs than with conventional loans
State and Local Loan Programs
Special programs available for first-time home buyers.
Loan offers first-time home buyers with low down payments or lowered interest rates if specific income guidelines are met
Certain state or local agencies provide assistance with down payments and closing cost
A hybrid mortgage loan has combined features of fixed rate mortgage and adjustable rate mortgages. A hybrid loan is also known as a fixed-period ARM. A hybrid loan initially begins with a fixed period of a fixed interest rate (typically 3, 5, 7 or 10 years). The hybrid mortgage then converts to an adjustable-rate mortgage. It is a wonderful combination of the best features of a fixed rate and adjustable rate mortgage. This combination gives you an initial interest rate during the fixed period of the loan that is lower than a traditional fixed rate mortgage.
Generally, a shorter fixed period for the hybrid loan means a lower initial fixed interest rate. Most homebuyers prefer the 10-year fixed hybrid home loan even though savings might be larger in the short-run with an initial 3-year or 5-year fixed rate term.
Many studies have shown that most people refinance or sell their houses within 5 to 7 years. Therefore, it makes sense for many homebuyers to opt for a 10-year fixed after which they can refinance or sell their homes thus, never experiencing adjustable rate mortgage payments.
It is of critical importance that you become aware that many hybrid loans contain prepayment penalties. In many cases the prepayment penalty is applicable for the first three years of the loan. Hence, if you sold your home within the three years of your loan origination you would be liable for paying the prepayment penalty. It would be feasible to seek alternative mortgage loan options if you are considering selling your home in three years.
There are several varieties of hybrid mortgage loans:
Fixed Period ARMs
Two-Step Mortgage
Convertible ARMs
Graduated Payment Mortgages (GPMs)
So before you decide that a hybrid mortgage loan would make sense for you, take time to find out about any fees, potential penalties, and terms of the loan. Make sure you get a free mortgage rate quote from an expert Mortgage Consultant in your area and arrange for a complementary consultation to see if a hybrid loan is best suited for your needs.
The commercial real estate market has been doing extremely well for the last few years. However, its cousin the residential real estate market needs to take advantage of various opportunities for improvement. The housing and mortgage markets have been seeking to return to hey days of the recent past when home sellers couldn't keep pace with demand.
It is the demand for housing has slowed appreciably. Additionally subprime mortgages and foreclosures have raised concerns amongst the policy makers and Wall Street. Before it was a sellers markets, as buyers lined up to bid for houses; now the roles have reversed. Home buying is in the position of strength, as home buyers seek to leverage low home prices.
Whilst, some home buyers have decided to stay on the sidelines for the moment, many are looking for bargains. The home buyers can eventually help revive demand for mortgages such as fixed rate mortgages, adjustable rate mortgages, interest- only mortgages, 100 percent financing loans, second mortgages, subprime mortgages, and conforming loans.
The mortgage challenge can be rejuvenated as home buyers and real estate investors start buying homes and condos. The impetus is already starting, as many real estate investors are beginning to buy condos and use them to generate rental income. The mortgage and housing industry will benefit from the increase in real estate property purchase to be used for rental income generation because these investors and buyers will need mortgage financing.
Also, as interest rates fell this September, many homeowners opted to refinance their home to find their feet. The falling interest rates might have been the reason for the recent jump in mortgage applications. Mortgage application volumes rose by 5.5 percent during the week of November 9.
The Mortgage Bankers Association's (MBA) index increased to 707.3 from 670.6 recently. Many more homeowners are refinancing as reflected in the jump of 6.4 in refinance volume in the first week of November, while home purchase volume rose 4.8 percent.
The further positive effects of lower interest rates can be discerned, as 50.2 percent of total mortgage applications in the first of November were for mortgage refinance.
Many homeowners are choosing to convert their variable rate mortgages into fixed rate mortgages through mortgage refinancing. In the past, homeowners sought to flip houses but now they are looking to buy and hold for the long-term until they see home prices rebound.
This return to traditional real estate investing philosophy mostly means that the housing market won't see the unrealistic price appreciation of the last few years; which unfortunately, locked out many working families and middle class from owning their dream home. Many working families who were able to buy homes through subprime mortgages were unable hold onto their dream homes. So it goes to show homebuyers needs trusted mortgage lenders, mortgage brokers, and real estate agents looking out for their interests.
An interest only mortgage has scheduled monthly mortgage payments consisting of interest only. Generally, the length of the interest mortgage payments last for a period of 5 to 10 years. If you pay only interest during this period your proceeding balance will remain unchanged. However, you may choose to pay more than the minimum interest payment every month.
An interest-only home loan represents a higher risk for lenders; hence, your mortgage loan will have a somewhat higher interest rate. If you expect a substantial increase in income in the forthcoming years the interest only mortgage loan gives you leverage financially. The excess savings from a lower interest only monthly payment can be used for various purposes, ranging from investment into the stock market, to home renovations, among other uses.
Interest-Only Mortgage Loans Benefits
Lower monthly payments during the interest-only payment period
If you have irregular income, like bonuses, commissions, etc.; an interest-only mortgage gives you the flexibility to have increased cash flow to meet your other financial goals
Increase your cash flow, take the extra cash and invest the rest
Real estate investors can leverage the savings and invest in other properties
An interest-only mortgage gives you the option of leveraging your dollars by taking advantage of more affordable mortgage options. More new homebuyers are able to enter the housing market by using low interest-only mortgage payments. Also, if you are a current homeowner looking to upgrade you can leverage the interest-only mortgage loan into a more expensive home that otherwise would be unaffordable.
The mortgage industry has worked diligently to find loan solutions for home buyers who wish to purchase a home without a down payment. The industry wants not only to increase home ownership in the U.S., but also target a growing untapped market of consumers who desire home loan solutions that require no down payment. This type of "zero down" mortgage is popularly known as 100% financing.
It is essential to understand that the term, "100% financing," does not automatically signify higher interest rates. Actually, if your credit is good, you are eligible for equivalent rates that are applicable to most traditional mortgage loans.
Nonetheless, in order to obtain 100% financing with an interest rate that parallels a traditional loan rate, you must meet higher standards of credit worthiness. The standards for credit history have been set high by lenders because of greater risk on their part. Usually lenders want you to have a minimum 650 score on a scale range of 300 to 850, 850 being the best credit worthiness.
Also, many lenders due to the risk involved, require you to hold private mortgage insurance (PMI). Private mortgage insurance rates vary depending on the size of the mortgage loan. PMI should be maintained until home equity has increased to a certain level or until it can be verified that you can make payments in continual good standing.
However, if you like to avoid PMI altogether and still be eligible for 100% mortgage financing, an 80/20 loan is an alternative choice. An 80/20 mortgage allows you to receive two loans; the first one covers up to 80% of the home's purchase cost, while the second loan works as a 20% down payment.
If you meet any of the above criteria, 100% financing may be an option for you. This type of mortgage loan gives you flexibility of buying a home without need for immediate financing. You can get a quick rate for 100% financing and speak with a Mortgage Consultant to see if this is ideal for your specific needs.
Subprime mortgages are mortgage loans meant to help borrowers who are unable to qualify for traditional mortgages that require good to excellent credit histories. Due to the fact of higher risk of default inherent in subprime mortgage lending, subprime borrowers receive higher interest rates on their mortgage loans than their traditional counterparts. The subprime mortgage loan terms may also include additional regular fees, or up-front charges.
As defined by the U.S. Department of Treasury guidelines issued in 2001, subprime borrowers usually have weakened credit histories that are inclusive of payment delinquencies, problems such as charge-offs bankruptcies, and/or judgments. The borrower's credit history may reflect reduced repayment capacity as defined by credit scores, higher debt-to-income ratios, or other credit criterion. Borrowers are individuals with limited income or FICO credit scores below 620 on a range from 300 to 850. The different types of subprime mortgages include:
Initial fixed rate mortgages that soon convert to adjustable variable rates.
"Pick a payment" loans that allow borrowers to select their kind of monthly mortgage payment (interest only , interest and principal, or a minimum payment that might be lower than a payment essential in reducing the balance of the loan)
Interest-only mortgage loans, that permit borrowers to pay only interest for a fixed period, typically 5-10 years; after which the monthly mortgage payment may include principal and interest.
Subprime mortgages have become immensely popular over the years. Also, lenders are becoming more conservative in their subprime lending practices. However, it doesn't cost the borrower anything to get a free bad credit loan quote and to see if they can get a subprime mortgage.
The housing and mortgage market have been going through some difficult times in recent months. However, unlike the residential real estate cousin, the commercial real estate market has been doing well.
The construction spending on shopping centers, office buildings, and other nonresidential projects rose by 15.2 percent in August, led by strong growth in retail and office segments. Commercial retail sales jumped to $401 billion from $359 billion last year.
Unlike, residential real estate, where home loan mortgages, such as interest only mortgages, adjustable rate mortgages, and subprime mortgages have been a cause of concern, along with foreclosures; the commercial mortgage and real estate market has been growing.
The current home loan market has not had any residual effects on the commercial market. According to many experts, the commercial market has been able to sustain itself and grow because the buyers and sellers are more sophisticated and have more financial wherewithal to ride out any turmoil.
Just like the housing market, the commercial arena is a great place to look for opportunities for investment; although bargains are more readily available in the home buying market. The commercial mortgage and real estate market is a different animal than the residential construction business.
In the commercial arena, banks have a direct relationship with commercial real estate developers and other business leaders, not banks and homeowners as in the housing market. This by in itself creates more stability in the commercial market as commercial mortgage lenders are familiar with the real estate business history of the borrower, thus providing less risk to the banker.
But this doesn't mean that the market would be unaffected if economic progress didn't accelerate. If there is a correction in the economy, commercial real estate market may become vulnerable to the credit-risk contagion. This may lead some sellers asking for more money upfront if other mortgage-backed assets are financing the purchase.
In New York, Washington, San Francisco, and some other areas of the country, institutional and foreign investments have remained stable. The core fundamentals of the commercial market remain muscular with increasing occupancy and rent levels projected to grow, particularly in metropolitan areas.
At present there is no oversupply of commercial properties, a good sign for maintaining real estate price levels. In order to keep the prices adequate and occupancy high, it is better to have an undersupply, not an oversupply.
Herein, Host Hotels & Resorts Inc., the country's biggest lodging real estate investment trust, announced this month its third-quarter results which beat Wall Street analyst estimates due to superior occupancy and lodging rates. Also, the $22 billion acquisition of Archstone-Smith Trust, an apartment building operator by commercial real estate company, Tishman Speyer earlier this month gave another boost in the arm to the marketplace.
This shows there is still much confidence in the continued growth of the commercial mortgage and real estate market. Certainly, there is plenty of capital available from investors.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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