Special offer

Scary Times In the Financial Markets Could Lead to Opportunities

By
Mortgage and Lending

These last few weeks have been scary times in the financial markets. It felt like an earthquake a little over a week ago when the government stepped in and Wall Street, Illinois mortgage company, Chicago IL mortgage company took over mortgage giants Fannie Mae and Freddie Mac. The ground shifted on Wall Street again this weekend as the feds declined to save Lehman Brothers, letting one of the biggest players on Wall Street go bankrupt as a result of its exposure to bad mortgage loans. Bank of America also bought out Merrill Lynch this weekend for pennies on the dollar, avoiding another big name bankruptcy. The earth moved again Tuesday night when the US government stepped in to save AIG, a huge international insurance company that was overloaded with credit swaps linked to mortgage debt. The AIG deal is structured as a 2 year loan of 85 billion dollars in exchange for 80% of the company's equity. AIG has a tremendous amount of assets, but if it was forced to liquidate quickly at fire sale prices, it would wreak havoc on the financial markets. So unlike Lehman Brothers it was considered too big too fail, and chances are good that the Fed will get our money back. The earth is still shaking, and with companies like Washington Mutual and Morgan Stanley still on the brink, we know there are still many aftershocks to come. Is it time to panic yet?

This mortgage crisis is showing how interlinked our financial system is. This isn't just happening here, repercussions are being felt across the globe. The stock market has had an awful week, and even the safest investments like money market funds are affected. This is a crisis of confidence in our entire financial system. The use of derivatives, complicated financial instruments like collateralized debt obligations and credit default swaps which slice and dice a pool of mortgages or other financial assets into a variety of new investments, is at the heart of this crisis. The goal of these products was to increase return and cut the risk for the investor. But the truth was that the derivatives were so complicated that most investors had no idea what they were really buying, and what the true risk of the underlying assets were. These derivatives were sold based on the confidence that someone knew what they were doing, and that the risk and returns were as advertised. That has turned out not to be the case, and investor confidence is shaken. There is no doubt that these are scary times.

But this isn't the end of the world if you are able to look at this with a long range perspective. The government was late figuring out that this was a problem, but they are now very actively managing the crisis. This morning the Fed stepped in with a consortium of foreign central banks and pumped another 247 billion into the financial system in an effort to increase liquidity and boost confidence. The impression is that what ever needs to be done will be done.

So the question is, how does this affect you as a home buyer or home owner, and what can you do now?

Time machine, Illinois mortgage company, Chicago Il mortgage company Don't panic - If I could go back in time, I'm sure I would have done some things differently. But what is done is already done and it is too late to change. There will be more bankruptcies and more shocks to the system in the weeks and months to come. But I'm guessing that we are a lot closer to the bottom now than we were before.

Focus on the long term - I try not to look at my stock accounts or 401k balance too often, especially lately, because I know I'm not going to like what I see. At the same time I'm not planning on spending the money anytime soon, so the loss now is just on paper. It is the same with my house. I know it was worth a lot more a few years ago than it is now, but I don't plan on moving any time soon, so the paper loss I have now is no more important than the paper gain I could have sold it for a few years back.

Take advantage of opportunities - In every crisis there is an opportunity. The old saying is that the time to buy is when there is blood in the streets. The housing market has seen its share of blood lately, and if you are willing to go against the crowd, this is a time where you can find some real bargains. House prices are much lower than they were over the last several years, and sellers are starting to accept the reality of the market. Interest rates are also near their low for the year, so you can buy more of a house at a lower interest rate than you could before.

The same thinking applies if you already own your home and have no intention of moving. The bad news in the economy could be an opportunity for you to improve your own financial position. The low interest rates we are seeing could allow you to refinance your higher rate mortgage for a lower interest rate mortgage. Or get out of your adjustable rate loan and into a more stable fixed rate. You should also look at your over all debt structure. If you have a lot of credit cards and consumer debt, the equity in your home could be restructured to pay off your debts and roll it into your mortgage, which could save you hundreds of dollars per month, giving you some extra breathing room. Rates are low now, take advantage of the low rates while you can.

Put yourself in the best situation for later - With the problems in the financial industry, it is harder to qualify for a mortgage than it used to be. Maybe you aren't able to take advantage of the opportunities now, but you can work on improving your position so you can be in a better position soon. That could mean fixing some problems with your credit, or saving for a down payment. Working on your problems now will help you get where you want to go later.

There is no question that these are scary times, but my guess is that we will get through this and our financial system will be stronger in the end. If you take advantage of the opportunities as they present themselves, you could be in a stronger position, too.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and a breakdown of current Illinois mortgage rates, please visit Illinois Mortgage Rates and News. 

Comments (15)

Deanna Casalino
Realty World J. Pavich R.E. - Estero, FL
Fort Myers Florida Homes,

Great, when the newspapers and television catch on to this, everyone will be much better off.

Sep 18, 2008 04:20 AM
Kristen Wahl
Re/Max Plus - Rochester, NY
CBR

Fantastic post, Peter. I think we would all go crazy if we focused on the negatives in today's financial market! It's great to give people strategies to concentrate on.

Sep 18, 2008 04:24 AM
James G. Pycha
James Pycha (R) - REMAX KAUAI - Princeville, HI
(R), REMAX Kauai Broker

Hello Pete. . . .   Thank you for your interesteing blogg-post. We have a similar "mind-set" among investors here in Hawaii. Hey . . .   what's the current market condition in your "neck-of-the-woods?"  Our market is pretty flat with many Buyers merely sitting on the sidelines awaiting for dramatic Bargains and steeper listing price cuts.

Jim Pycha (R)

Sep 18, 2008 04:44 AM
Nicole Weidauer
Keller Williams Greater Seattle - Shoreline, WA

I absolutely loved this blog entry! You made SO many good points!

"This is a crisis of confidence in our entire financial system."

"Take advantage of opportunities - In every crisis there is an opportunity. The old saying is that the time to buy is when there is blood in the streets. The housing market has seen its share of blood lately, and if you are willing to go against the crowd, this is a time where you can find some real bargains."

"Working on your problems now will help you get where you want to go later."

"There is no question that these are scary times, but my guess is that we will get through this and our financial system will be stronger in the end. If you take advantage of the opportunities as they present themselves, you could be in a stronger position, too."

Really great job analyzing the current financial and real estate situation and hitting the issue right on the nose. Right now is a great time to buy or sell if it makes sense and is right for you.. and if not, now is the time to prepare to get you to be in the right place when things improve in our market place.

Again, thank you so much for sharing! Best of luck with your business!

Kind Regards, Nicole Weidauer

The Egerer & Weidauer Team, Keller Williams Realty North Seattle

Sep 18, 2008 04:44 AM
Laura Karambelas
Baird & Warner Downers Grove - Downers Grove, IL
Realtor - Downers Grove

Peter-

Great post!  We all need to look at some positives in all this negativity!  People may think I am crazy, but I think we are nearing the bottom of the market and actually thought about buying some builder stocks.

Laura Karambelas

Sep 18, 2008 04:48 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Thanks, Peter. Good post. In challenging times the ones who keep their chins up prosper! Have a great day!

 

Paul

Sep 18, 2008 05:06 AM
Brian Wray
Wray Realty - Holly Springs, NC

I hope this market brings buyers, but when people are worried about their Jobs and their money, it is hard to make a move.  Good Post

Sep 18, 2008 05:14 AM
Peter Thompson
Downers Grove, IL
Chicago Mortgage Insight

Deanna - Thanks for coming by. I think part of the problem is that the media doesn't fully understand the story.

Kristen - I agree, we need to focus on the positive. And even in this tough market there are positives.

James - I think our markets are pretty similar. There are a lot of people who want to buy but are afraid to pull the trigger. The buyers who are actually buying are getting great deals though. I think some people will be kicking themselves down the road and wishing they had bought when they had the chance.

Nicole Thanks for the comments, and I wish you the best in your business too.

Hi Laura - I think it's going to be a while before prices start heading up, but here in the Western suburbs I think you are right. I think we are closer to the bottom than most people think.

Paul - Thanks, and keep your chin up.

Brian -There is a lot of fear and it is tough when money is tight. But there are buyers out there, and the key is to focus on those who are.

=

Sep 18, 2008 11:14 AM
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Peter,

Your posts always very well written. You give a well-balanced information, adn this is very helpful. Really very good post.

Sep 18, 2008 04:17 PM
Dave Thomas
William Raveis Real Estate - Mystic, CT
Realtor

Peter,

Great post...thank you for sharing.

Sep 20, 2008 11:01 AM
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Peter, I like optimists. I always see the "opportunities" presented by problems. I don't understand why everyone doesn't see them.

Now is the time to buy real estate. Prices will rebound. Interest rates will go up. Inflation will kick in. You would have to be a fool to wait.

Bill Roberts

Sep 21, 2008 08:18 AM
Flemington, NJ

I agree, now is a great time to stick to the fundamentals and keep plugging along.

Sep 21, 2008 10:11 AM
Peter Thompson
Downers Grove, IL
Chicago Mortgage Insight

John - Thank you, I'm glad it is helpful.

Dave - thanks, and thanks for stopping by.

Bill - I think you have to be an optimist. I can understand why buyers are staying on the sidelines, but in the long run real estate has always done well.

Mike - Thanks. All we can control is what we do, and you are right, keep plugging along. 

Sep 22, 2008 08:29 AM
Jason Roebuck
Springfield, OR

Peter - You make some great points.   Thanks for taking the time to write them out.  Jason

Sep 22, 2008 09:12 AM
Jane Page Thompson
Aiken Properties - Aiken, SC

I hope people will find this post and realize that there are some positives in the market.

Sep 22, 2008 09:28 AM