By Bill Rice
There is a good possibility that you may be one of these negative housing statistics, or will be in the near future. The good news is that banks, mortgage lenders, and servicers have never been more willing to help you avoid foreclosure.
Loan modifications are becoming the new mortgage refinance. With an increasing number of homes sinking into double-digit depreciation and many mortgages upside-down, most homeowners lack the necessary home equity to complete a traditional mortgage refinance.
Loan modifications are just as the term implies, a renegotiation or modification of your existing loan. Unlike traditional mortgage refinance you are not getting a new mortgage. In the loan modification process you are simple modifying the terms of your existing agreement.
Most major banks, as well as government controlled entities like Fannie Mae and Freddie Mac have adopted generous guidelines to renegotiate troubled mortgages. Generally, these loan modifications were targeted at borrowers that had already become past-due. However, the deepening mortgage crisis is making these options available to an ever expanding group of borrowers.
So, why might you consider a loan modification? There are certainly a variety of reasons you might qualify for or simply consider a loan modification.
Here are a few of the most compelling reasons to renegotiate your mortgage:
* You have missed a mortgage payment
* Your mortgage rate or payment is set to adjust
* Your home has lost a significant amount of value
* Your income has been negatively impacted
* One or more household earners has lost a jo
* Your mortgage payment exceeds 37 percent of your income
Note that missing a mortgage payment is no longer a pre-condition to considering renegotiating your mortgage. If your financial circumstances have changed, start talking to your lender about modifying your mortgage.
Anytime there is despair in the market it is time to be cautious. Those seeking a loan modification should heed this warning. Loan modification scams and rip-offs are proliferating in this troubled market. So, carefully follow some simple steps to manage your search for a loan modification.
Start with your mortgage statement. Your mortgage servicer is ultimately the only organization that can modify your mortgage loan. That is why you should call them first. This will help you understand your specific options with the lender with which you have a mortgage contract.
The next step is to gather up complete documentation of your income and expenses. A simple calculation of your debt to income ratio will give you a good indication if your "hardship" will be considered by your servicer. If your debt exceeds 37 percent of your income, most lenders will consider your request to modify you loan.
With this basic information call your servicer--this is the name and telephone number on your loan statement. They will most likely request a "hardship letter" and all of the documentation you just collected (i.e., W-2's, 1099's, bank statements, and mortgage statements), estimates of debts and expenses, and some estimation of your home value.
This will kick off your loan modification process. This process will be long and frustrating. There are millions of homeowners in your same situation. This is causing an immense queue of homeowners. Therefore, make sure that you keeping calling and following up on your inquiry. This is the only way to get it done.
There will be fees involved in completing your loan modification, but careful scrutinize every item. You can reasonably expect your lender to request a "Good Faith Payment" and fees related to attorney and processing fees. You may also be asked to "impound" insurance and back property taxes.
The most important consideration in accepting any loan modification is can you afford the new payment. It is amazing how many early renegotiations of mortgages had borrowers accepting higher payments. Your new mortgage, by extending the term, lowering the mortgage rate, or reducing principle should make your payment more affordable.
Mortgage Cram-Down Bankruptcy Legislation Passes in House
By Bill Rice
According to reports from the Congressional Budget Office this law will help 1 million homeowners remain in their homes. The proposed law would give Federal judges the authority to modify mortgage contracts by lengthening terms, cutting mortgage rates, or reducing loan balances. It would also permanently increase the Federal Deposit Insurance Corporation (FDIC) coverage of deposits to $250,000.
Although this law would arguably give judge more tools to help consumers recover from crushing debt, it will continue to apply pressure to banks and housing prices.
The bill stalled in the House earlier this week amid significant opposition from the banking industry. Industry groups, like the American Banker, claim that this legislation will just further destabilize housing prices. There was also concern with the earlier version of the bill being too attractive; therefore, ceasing to be a true "last resort."
As a result, the House tightened the legislation with the provisions such as a equity share that would be paid back to the bank if the property was sold later at a profit.
Experts believe that this will significantly increase Chapter 13 bankruptcy filings. Chapter 13 bankruptcy code allows individuals with regular income to pay all or a portion of their debts and avoid losing their homes in foreclosure.
Friday jobless numbers that continue to climb give us reason to believe that this bankruptcy provision is likely to get a lot of exercise, if passed. February jobless claims reported another 651,000 jobs lost. This raises the unemployment rate to 8.1 percent from 7.6 percent in January, the highest level since 1983. Total job loss since the recession began in December 2007 reaches 4.4 million.
According to reports from the Congressional Budget Office this law will help 1 million homeowners remain in their homes. The proposed law would give Federal judges the authority to modify mortgage contracts by lengthening terms, cutting mortgage rates, or reducing loan balances. It would also permanently increase the Federal Deposit Insurance Corporation (FDIC) coverage of deposits to $250,000.
Although this law would arguably give judge more tools to help consumers recover from crushing debt, it will continue to apply pressure to banks and housing prices.
The bill stalled in the House earlier this week amid significant opposition from the banking industry. Industry groups, like the American Banker, claim that this legislation will just further destabilize housing prices. There was also concern with the earlier version of the bill being too attractive; therefore, ceasing to be a true "last resort."
As a result, the House tightened the legislation with the provisions such as a equity share that would be paid back to the bank if the property was sold later at a profit.
Experts believe that this will significantly increase Chapter 13 bankruptcy filings. Chapter 13 bankruptcy code allows individuals with regular income to pay all or a portion of their debts and avoid losing their homes in foreclosure.
Friday jobless numbers that continue to climb give us reason to believe that this bankruptcy provision is likely to get a lot of exercise, if passed. February jobless claims reported another 651,000 jobs lost. This raises the unemployment rate to 8.1 percent from 7.6 percent in January, the highest level since 1983. Total job loss since the recession began in December 2007 reaches 4.4 million.
Mortgage Crisis Expands as Economy Weakens
By Bill Rice
According to First American CoreLogic's data 1 in 5 homeowners owe more than their properties are worth. This number represents 8.31 million homes with negative equity at the end of 2008. A number that is up 9 percent from 7.63 million at the end of September 2008.
The real alarm is in the report's analysis that 2.16 million more homes could be added to those already under-water is home prices drop another 5 percent--a real possibility give current economic indicators.
The aggregate value of residential properties in the US fell from $19.2 trillion from $21.5 trillion in 2007. The housing markets currently impacted the most are California, Florida, and Nevada. However, as the economy continues to weaken housing markets in multiple States are feeling consistent declines--Arizona, Georgia, Michigan, and Ohio are starting to feel even larger percentage declines resulting from job loss impacts.
Mortgage Bankers Association data is showing the first order effect of these job loss models. Released today, the MBA default statistics show 5.4 million behind in payments or in foreclosure. This represents 12 percent of US mortgages.
Mortgage defaults and foreclosures are up 10 percent in the July-September 2008 quarter, up 8 percent from a year prior.
The sharpest increases in mortgage defaults and foreclosures are in Louisiana, New York, Georgia, Texas, and Mississippi--all States facing massive job loss.
According to First American CoreLogic's data 1 in 5 homeowners owe more than their properties are worth. This number represents 8.31 million homes with negative equity at the end of 2008. A number that is up 9 percent from 7.63 million at the end of September 2008.
The real alarm is in the report's analysis that 2.16 million more homes could be added to those already under-water is home prices drop another 5 percent--a real possibility give current economic indicators.
The aggregate value of residential properties in the US fell from $19.2 trillion from $21.5 trillion in 2007. The housing markets currently impacted the most are California, Florida, and Nevada. However, as the economy continues to weaken housing markets in multiple States are feeling consistent declines--Arizona, Georgia, Michigan, and Ohio are starting to feel even larger percentage declines resulting from job loss impacts.
Mortgage Bankers Association data is showing the first order effect of these job loss models. Released today, the MBA default statistics show 5.4 million behind in payments or in foreclosure. This represents 12 percent of US mortgages.
Mortgage defaults and foreclosures are up 10 percent in the July-September 2008 quarter, up 8 percent from a year prior.
The sharpest increases in mortgage defaults and foreclosures are in Louisiana, New York, Georgia, Texas, and Mississippi--all States facing massive job loss.
Fannie and Freddie Extend Foreclosure Moratorium
By Catherine Brock
In the late-80s, a children's television comedy series called Out of This World featured a main character who could freeze time. It's an enviable skill, one that would be particularly appealing to homeowners who are skidding towards foreclosure. Fortunately, with respect to mortgages, there's a next best thing-time can't be frozen, but foreclosures can.
No evictions 'til March
Nationalized mortgage giants Fannie Mae and Freddie Mac have once again extended the foreclosure moratorium. The move pushes out the foreclosure freeze deadline to February 28. The mortgage companies are still proceeding on early-stage foreclosures, but they're stopping short of locking people out of their homes. A temporary foreclosure prevention measure, the foreclosure moratorium has been in effect since November 26 of last year.
Fannie and Freddie, under government control since last September, own or guarantee roughly half of all U.S. mortgage loans. Given that breadth, the two companies have been heavily pressured to develop and initiate programs to lead the country out of this mortgage crisis.
New landlords in town
At some point, the foreclosure moratorium will be lifted. When that happens, Fannie Mae and Freddie Mac will have a list of evictions to process and foreclosed homes to seize.
Both companies have announced a new rental program that will hopefully ease that transition. The program allows foreclosed homeowners to stay in the home under month-to-month lease agreements. The ex-mortgage borrowers would pay market rents, but would not be responsible for the home's maintenance costs.
Although the rental program doesn't pursue the goal of foreclosure prevention, it does offer some advantages. It will minimize the household disruption associated with foreclosure, while keeping the homes occupied. The latter is important because empty homes often fall into disrepair and become targets for vandalism; this impacts the quality of life in the neighborhood and puts downward pressure on housing values. Both factors have contributed to the record decline in housing prices over the last two years.
Fannie Mae and Freddie Mac will also benefit by generating income off these properties until they can be sold.
Foreclosure prevention kudos
The Center for Economic and Policy Research (CEPR), an independent and nonpartisan group, supports the decision to implement the rental policy. Co-Director Dean Baker believes Fannie and Freddie could improve on the program by offering five- or 10-year leases on those properties. In a press release, he indicated that a longer-term program would provide a strong incentive for lenders to renegotiate mortgage terms so that those loans don't fall into foreclosure.
Fannie Mae and Freddie Mac don't have Out of This World powers at their disposal, but they do have access to a very large number of distressed homeowners. That puts the onus on them to implement foreclosure prevention and housing recovery programs that will make a difference going forward.
In the late-80s, a children's television comedy series called Out of This World featured a main character who could freeze time. It's an enviable skill, one that would be particularly appealing to homeowners who are skidding towards foreclosure. Fortunately, with respect to mortgages, there's a next best thing-time can't be frozen, but foreclosures can.
No evictions 'til March
Nationalized mortgage giants Fannie Mae and Freddie Mac have once again extended the foreclosure moratorium. The move pushes out the foreclosure freeze deadline to February 28. The mortgage companies are still proceeding on early-stage foreclosures, but they're stopping short of locking people out of their homes. A temporary foreclosure prevention measure, the foreclosure moratorium has been in effect since November 26 of last year.
Fannie and Freddie, under government control since last September, own or guarantee roughly half of all U.S. mortgage loans. Given that breadth, the two companies have been heavily pressured to develop and initiate programs to lead the country out of this mortgage crisis.
New landlords in town
At some point, the foreclosure moratorium will be lifted. When that happens, Fannie Mae and Freddie Mac will have a list of evictions to process and foreclosed homes to seize.
Both companies have announced a new rental program that will hopefully ease that transition. The program allows foreclosed homeowners to stay in the home under month-to-month lease agreements. The ex-mortgage borrowers would pay market rents, but would not be responsible for the home's maintenance costs.
Although the rental program doesn't pursue the goal of foreclosure prevention, it does offer some advantages. It will minimize the household disruption associated with foreclosure, while keeping the homes occupied. The latter is important because empty homes often fall into disrepair and become targets for vandalism; this impacts the quality of life in the neighborhood and puts downward pressure on housing values. Both factors have contributed to the record decline in housing prices over the last two years.
Fannie Mae and Freddie Mac will also benefit by generating income off these properties until they can be sold.
Foreclosure prevention kudos
The Center for Economic and Policy Research (CEPR), an independent and nonpartisan group, supports the decision to implement the rental policy. Co-Director Dean Baker believes Fannie and Freddie could improve on the program by offering five- or 10-year leases on those properties. In a press release, he indicated that a longer-term program would provide a strong incentive for lenders to renegotiate mortgage terms so that those loans don't fall into foreclosure.
Fannie Mae and Freddie Mac don't have Out of This World powers at their disposal, but they do have access to a very large number of distressed homeowners. That puts the onus on them to implement foreclosure prevention and housing recovery programs that will make a difference going forward.
Republicans Move to Fix Mortgage Crisis
By Catherine Brock
If only Angus MacGyver were here! Certainly he could solve this mortgage crisis, and with nothing but a Swiss Army knife and a stick of chewing gum. Unfortunately, since MacGyver was cancelled in 1992, we have to rely on politicians and legislation to do the trick.
Fueling demand for new homes
When President Obama's economic stimulus plan was put before the Senate, Republican senators criticized it for being stuffed with spending proposals that ultimately won't help the economy. Since the House version of the plan passed without a single Republican vote, they took a stand to put their own spin on solving the mortgage crisis. The Republican vision included three key strategies:
* Government subsidies to push mortgage rates down to 4 percent
* $15,000 tax credits to homebuyers
* Assistance to homeowners whose mortgage loan balance was greater than the market value of the mortgaged property
The core of this vision is the belief that the housing market can be healed by driving demand for home purchases. Mortgage rates of 4 percent, along with $15,000 tax credits, could fuel that demand by significantly reducing the cost of home ownership. A $300,000 mortgage financed at 5 percent carries a principal and interest payment of about $1,610. But lower that rate to 4 percent, and the payment drops to about $1,432. For those households with high annual tax bills, the tax credit would cover the closing costs of the purchase.
Playing party lines
Not surprisingly, Democratic senators weren't wholly supportive of the Republicans' housing push. Some, in fact, questioned the Republicans' motives for becoming suddenly concerned with the mortgage crisis. The Democrats also argued that the economic stimulus plan passed by the House already addressed housing, by way of a $7,500 tax credit for homebuyers.
The version of the economic stimulus plan that the Senate approved on February 10, 2009, did include the $15,000 tax credit. But Republicans were unable to win support for the subsidized mortgage rates.
Mortgage rates could fall anyway
In December, James Lockhart, Chairman of the Oversight Board of the Federal Housing Finance Agency, stated publicly that the government's efforts to fix the mortgage crisis could send mortgage rates to "well below 4 percent." This commentary came after the Fed's announcement that it would buy up mortgage-backed assets, but before the Republicans began pushing for the mortgage rates subsidy.
MacGyver's not around anymore to weigh in on whether 4 percent mortgage rates actually would fix the housing problem. It may be that the right solution is the action plan nobody wants to consider: waiting for housing prices to fall back down to where they'd otherwise be, had the bubble never happened.
If only Angus MacGyver were here! Certainly he could solve this mortgage crisis, and with nothing but a Swiss Army knife and a stick of chewing gum. Unfortunately, since MacGyver was cancelled in 1992, we have to rely on politicians and legislation to do the trick.
Fueling demand for new homes
When President Obama's economic stimulus plan was put before the Senate, Republican senators criticized it for being stuffed with spending proposals that ultimately won't help the economy. Since the House version of the plan passed without a single Republican vote, they took a stand to put their own spin on solving the mortgage crisis. The Republican vision included three key strategies:
* Government subsidies to push mortgage rates down to 4 percent
* $15,000 tax credits to homebuyers
* Assistance to homeowners whose mortgage loan balance was greater than the market value of the mortgaged property
The core of this vision is the belief that the housing market can be healed by driving demand for home purchases. Mortgage rates of 4 percent, along with $15,000 tax credits, could fuel that demand by significantly reducing the cost of home ownership. A $300,000 mortgage financed at 5 percent carries a principal and interest payment of about $1,610. But lower that rate to 4 percent, and the payment drops to about $1,432. For those households with high annual tax bills, the tax credit would cover the closing costs of the purchase.
Playing party lines
Not surprisingly, Democratic senators weren't wholly supportive of the Republicans' housing push. Some, in fact, questioned the Republicans' motives for becoming suddenly concerned with the mortgage crisis. The Democrats also argued that the economic stimulus plan passed by the House already addressed housing, by way of a $7,500 tax credit for homebuyers.
The version of the economic stimulus plan that the Senate approved on February 10, 2009, did include the $15,000 tax credit. But Republicans were unable to win support for the subsidized mortgage rates.
Mortgage rates could fall anyway
In December, James Lockhart, Chairman of the Oversight Board of the Federal Housing Finance Agency, stated publicly that the government's efforts to fix the mortgage crisis could send mortgage rates to "well below 4 percent." This commentary came after the Fed's announcement that it would buy up mortgage-backed assets, but before the Republicans began pushing for the mortgage rates subsidy.
MacGyver's not around anymore to weigh in on whether 4 percent mortgage rates actually would fix the housing problem. It may be that the right solution is the action plan nobody wants to consider: waiting for housing prices to fall back down to where they'd otherwise be, had the bubble never happened.
Mortgage Tax Deduction May Be at Risk, Quietly Wounding Mortgage Payers
By Bill Rice
Currently, households taxed at the 33 and 35 percent rate can claim mortgage deductions. However, under the newly proposed Obama Federal budget the deduction would be eliminated for anyone over the 28 percent tax bracket. In the 2009 tax year that would mean those households making more than $208,850 in taxable earnings will not be eligible to claim a mortgage deduction.
The elimination of the mortgage deduction for this income tax bracket seems to tie to the president's campaign promis to increase taxes on households earning over $250,000.
In a statement from the Mortgage Bankers Association, CEO David Kittle says the timing couldn't be worse. "This proposal could have an adverse effect on a market that is already in trouble, and this is not the time to reduce incentives for buying or refinancing a home."
Advocates of eliminating the tax deduction argue that first-time home buyers are rarely at the high-point of their earning potential. Therefore, it will have little impact on the recovery of the housing market.
However, consulting IRS data shows the disincentive may be larger than expected. Lower-income households rarely itemize deductions, so the incentive only applies to the upper two-thirds of income levels. And according to the most recent IRS study, conducted in 2003, 36 percent of those claiming a mortgage deduction had adjusted gross incomes exceeding $100,000.
The National Association of Realtors (NAR) battled a similar Bush proposal in 2005 that would have eliminated the deduction in exchange for a 15 percent tax credit. NAR argued that removing the deduction would directly decrease the value of homes, especially in high-cost areas like California. Some econometric studies demonstrate that the tax beliefs of homeownership add 5 to 7 percent to the value of a home.
Taking away key incentives for those that can afford to own homes seems counterproductive. Meanwhile, the government is considering incentives for lower-income home buying--bringing back seller down payment assistance. A program that is documented by FHA to directly correlate to increased mortgage defaults.
It seems that where the government is placing the incentives on mortgages and housing may make the housing crisis worse.
The Obama administration appears to be agressively battling the mortgage crisis with foreclosure prevention aid packages, while quietly wounding folks that continue to pay their mortgages--the only strength in the mortgage market.
Currently, households taxed at the 33 and 35 percent rate can claim mortgage deductions. However, under the newly proposed Obama Federal budget the deduction would be eliminated for anyone over the 28 percent tax bracket. In the 2009 tax year that would mean those households making more than $208,850 in taxable earnings will not be eligible to claim a mortgage deduction.
The elimination of the mortgage deduction for this income tax bracket seems to tie to the president's campaign promis to increase taxes on households earning over $250,000.
In a statement from the Mortgage Bankers Association, CEO David Kittle says the timing couldn't be worse. "This proposal could have an adverse effect on a market that is already in trouble, and this is not the time to reduce incentives for buying or refinancing a home."
Advocates of eliminating the tax deduction argue that first-time home buyers are rarely at the high-point of their earning potential. Therefore, it will have little impact on the recovery of the housing market.
However, consulting IRS data shows the disincentive may be larger than expected. Lower-income households rarely itemize deductions, so the incentive only applies to the upper two-thirds of income levels. And according to the most recent IRS study, conducted in 2003, 36 percent of those claiming a mortgage deduction had adjusted gross incomes exceeding $100,000.
The National Association of Realtors (NAR) battled a similar Bush proposal in 2005 that would have eliminated the deduction in exchange for a 15 percent tax credit. NAR argued that removing the deduction would directly decrease the value of homes, especially in high-cost areas like California. Some econometric studies demonstrate that the tax beliefs of homeownership add 5 to 7 percent to the value of a home.
Taking away key incentives for those that can afford to own homes seems counterproductive. Meanwhile, the government is considering incentives for lower-income home buying--bringing back seller down payment assistance. A program that is documented by FHA to directly correlate to increased mortgage defaults.
It seems that where the government is placing the incentives on mortgages and housing may make the housing crisis worse.
The Obama administration appears to be agressively battling the mortgage crisis with foreclosure prevention aid packages, while quietly wounding folks that continue to pay their mortgages--the only strength in the mortgage market.
Obama Returns to Message of Hope:
by Bill Rice
Obama brought an enormous agenda to the table in Tuesday's speech. Obama heralded Congress for delivering his economic stimulus package by President's day, but is not ready to stop.
Quickly rattling off the campaign promises that this first piece of legislation satisfied--projected creation of 3.5 million jobs and 95% of working households receiving a tax cut--he moved to set the forward pace. Again, calling for bipartisan support for the next leg of his recovery agenda--acknowledging skepticism that his plan will work.
President Obama reiterated his focus on breaking a "destructive cycle" of tightening credit, shaken confidence, and job loss. His speech set out to explain the governments efforts to re-start lending, prevent foreclosures, and restore confidence in banking. His statements stressed accountability, but warned it would continue to require significant Federal (taxpayer) resources.
In addition, to selling the recent economic stimulus Obama set forth new agenda items. Prefacing his coming budget agenda he outlined three major challenges:health care reform, energy independence, and expansion of education. Adding these priorities to an already swelling legislative agenda and ballooning national deficit, left some asking what isn't onObama's task list.
Obama's promises to continue funding the economic and banking recovery and adding three major budgetary requirements to the mix, drove many analyst to consult their calculators to understand the final promise of the evening--"cut the deficit in half by the end of my first term in office."
However, to prevent debate he announced he had already identified $2 trillion in waste he is looking to slash:
"In this budget, we will end education programs that don't work and end direct payments to large agribusinesses that don't need them. We'll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we're not paying for Cold War-era weapons systems we don't use. We will root out the waste fraud, and abuse in our Medicare program that doesn't make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."
President Obama left a big agenda behind in the chambers of Congress. The remaining two questions left in most American's mind on Wednesday are: Is it too much? And will it work?
Obama brought an enormous agenda to the table in Tuesday's speech. Obama heralded Congress for delivering his economic stimulus package by President's day, but is not ready to stop.
Quickly rattling off the campaign promises that this first piece of legislation satisfied--projected creation of 3.5 million jobs and 95% of working households receiving a tax cut--he moved to set the forward pace. Again, calling for bipartisan support for the next leg of his recovery agenda--acknowledging skepticism that his plan will work.
President Obama reiterated his focus on breaking a "destructive cycle" of tightening credit, shaken confidence, and job loss. His speech set out to explain the governments efforts to re-start lending, prevent foreclosures, and restore confidence in banking. His statements stressed accountability, but warned it would continue to require significant Federal (taxpayer) resources.
In addition, to selling the recent economic stimulus Obama set forth new agenda items. Prefacing his coming budget agenda he outlined three major challenges:health care reform, energy independence, and expansion of education. Adding these priorities to an already swelling legislative agenda and ballooning national deficit, left some asking what isn't onObama's task list.
Obama's promises to continue funding the economic and banking recovery and adding three major budgetary requirements to the mix, drove many analyst to consult their calculators to understand the final promise of the evening--"cut the deficit in half by the end of my first term in office."
However, to prevent debate he announced he had already identified $2 trillion in waste he is looking to slash:
"In this budget, we will end education programs that don't work and end direct payments to large agribusinesses that don't need them. We'll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we're not paying for Cold War-era weapons systems we don't use. We will root out the waste fraud, and abuse in our Medicare program that doesn't make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."
President Obama left a big agenda behind in the chambers of Congress. The remaining two questions left in most American's mind on Wednesday are: Is it too much? And will it work?
College Financing 2009: Tips for Getting Aid
By Catherine Brock
Here's a tip about paying for college: starting up your own university, like Bartleby Gaines did in the movie Accepted, isn't a reasonable action plan. It's much easier to secure the money you need by learning how to navigate through the college finance system. To help you out, here are the top college finance tips for locking in aid in 2009.
Know what's out there
It can be difficult to qualify for federal need-based aid, but that's not the only source of funding available. There are also student loans, via government and private channels, as well as merit scholarships, community scholarships, grants, and even sponsorships.
Be first in line
The federal government, state government, and each school impose their own deadlines on submitting financial aid applications, but waiting until the last minute is a bad idea. Always apply as early as possible. You can sit down with your parents and fill out the Free Application for Federal Student Aid (FAFSA) on January 1 for the school year that begins the following September. You may have to use estimated figures for income and year-end assets, but this is acceptable as long as you provide updated information once you and your parents have completed your tax returns. It's worth the extra step, since those who submit the FAFSA sooner have a better chance of securing financial aid.
Another document to complete right away is College Board's PROFILE, which is used by private schools and scholarship programs to determine eligibility for non-federal aid. For more information, visit CollegeBoard.com.
Read the fine print
Don't rush through the FAFSA; you could radically reduce your eligibility just by filling out the form incorrectly. Your list of total assets, for example, shouldn't include exempt retirement accounts. If it does, you could miss out on a very large chunk of aid.
Pay off debt
Cash balances hurt your eligibility for financial aid, but debt balances make no difference. Use your stash of cash to pay off the debt; you'll improve your eligibility profile and reduce your cost of living at the same time.
Keep your student loan options open
The number one rule of college finance is to keep your options open. If you have good grades, don't get hung up on the idea of an Ivy League education-particularly if you can earn high-dollar merit awards elsewhere. As an example, California State University, Long Beach offers a President's Scholars Program that awards full scholarships (including tuition, housing, and books) to selected students who meet certain academic qualifications.
Student loans are usually a paying-for-college option, too. But make them your last option-that is, just before you decide to establish your own school, a lá Bartleby Gaines.
Here's a tip about paying for college: starting up your own university, like Bartleby Gaines did in the movie Accepted, isn't a reasonable action plan. It's much easier to secure the money you need by learning how to navigate through the college finance system. To help you out, here are the top college finance tips for locking in aid in 2009.
Know what's out there
It can be difficult to qualify for federal need-based aid, but that's not the only source of funding available. There are also student loans, via government and private channels, as well as merit scholarships, community scholarships, grants, and even sponsorships.
Be first in line
The federal government, state government, and each school impose their own deadlines on submitting financial aid applications, but waiting until the last minute is a bad idea. Always apply as early as possible. You can sit down with your parents and fill out the Free Application for Federal Student Aid (FAFSA) on January 1 for the school year that begins the following September. You may have to use estimated figures for income and year-end assets, but this is acceptable as long as you provide updated information once you and your parents have completed your tax returns. It's worth the extra step, since those who submit the FAFSA sooner have a better chance of securing financial aid.
Another document to complete right away is College Board's PROFILE, which is used by private schools and scholarship programs to determine eligibility for non-federal aid. For more information, visit CollegeBoard.com.
Read the fine print
Don't rush through the FAFSA; you could radically reduce your eligibility just by filling out the form incorrectly. Your list of total assets, for example, shouldn't include exempt retirement accounts. If it does, you could miss out on a very large chunk of aid.
Pay off debt
Cash balances hurt your eligibility for financial aid, but debt balances make no difference. Use your stash of cash to pay off the debt; you'll improve your eligibility profile and reduce your cost of living at the same time.
Keep your student loan options open
The number one rule of college finance is to keep your options open. If you have good grades, don't get hung up on the idea of an Ivy League education-particularly if you can earn high-dollar merit awards elsewhere. As an example, California State University, Long Beach offers a President's Scholars Program that awards full scholarships (including tuition, housing, and books) to selected students who meet certain academic qualifications.
Student loans are usually a paying-for-college option, too. But make them your last option-that is, just before you decide to establish your own school, a lá Bartleby Gaines.
Mortgage Meltdown and Bankruptcy Laws
By Catherine Brock
In the 2004 film The Butterfly Effect, character Evan Treborn realizes he can travel through time. He uses this skill to correct the mistakes of his past-until he realizes that each correction creates new problems for the future. A similar dynamic may be happening today with financial regulations, as efforts to stabilize the banking and lending sectors threaten to cause bigger waves for borrowers.
Opinion split on court-ordered modifications
There's a war raging in Washington regarding bankruptcy legislation and mortgage market loans. Here's the background in a nutshell: Bankruptcy judges currently have no authority to modify mortgage terms to help a distressed homeowner. If the bankrupt homeowner can't afford the mortgage payments, foreclosure is the likely outcome.
Lenders have long argued that this system keeps mortgage rates low-because no matter what happens, the lender can take the home if the borrower can't pay. Allowing bankruptcy judges to change mortgage terms would put lenders at risk of having to absorb forced and unexpected losses. And that would have to be a consideration when pricing new mortgage loans.
Critics of the no-modification policy say that prohibiting bankruptcy-related modifications makes the foreclosure problem much worse than it needs to be. They also believe that lenders are overstating the impact that such bankruptcy legislation would have on mortgage rates. The national average mortgage rate for a 30-year fixed loan is about 5 percent; the average unsecured consumer credit card rate is about 14 percent.
Bankruptcy reform and the mortgage meltdown
A new report, however, supports the notion that conclusions on both sides may be radically oversimplified. A team of researchers at the Federal Reserve Bank of New York believes that the bankruptcy reform laws of 2005 essentially triggered the subprime mortgage meltdown that began in the following year.
The 2005 laws, intending to stem bankruptcy abuse, made it much more difficult for consumers to have unsecured debt discharged by the court. In practice, this also made it more difficult for distressed homeowners to avoid foreclosure. This makes sense: a borrower whose required monthly debt payments are measurably lowered through a discharge has a much easier time keeping a mortgage current. But take away that clean slate option, and the mortgage loan remains impossible to manage.
Certainly those who supported bankruptcy reform were not expecting a mortgage crisis to result.
Tinkering may not be best solution
Now that Congress is again looking to tinker with bankruptcy laws, you have to wonder if our lawmakers will proceed cautiously enough. It's simple to say that mortgage rates will or won't be impacted-but the truth is that no one really knows.
There's one conclusion, though, that both sides can support: the last thing the mortgage market needs right now is a rash of unintended consequences.
In the 2004 film The Butterfly Effect, character Evan Treborn realizes he can travel through time. He uses this skill to correct the mistakes of his past-until he realizes that each correction creates new problems for the future. A similar dynamic may be happening today with financial regulations, as efforts to stabilize the banking and lending sectors threaten to cause bigger waves for borrowers.
Opinion split on court-ordered modifications
There's a war raging in Washington regarding bankruptcy legislation and mortgage market loans. Here's the background in a nutshell: Bankruptcy judges currently have no authority to modify mortgage terms to help a distressed homeowner. If the bankrupt homeowner can't afford the mortgage payments, foreclosure is the likely outcome.
Lenders have long argued that this system keeps mortgage rates low-because no matter what happens, the lender can take the home if the borrower can't pay. Allowing bankruptcy judges to change mortgage terms would put lenders at risk of having to absorb forced and unexpected losses. And that would have to be a consideration when pricing new mortgage loans.
Critics of the no-modification policy say that prohibiting bankruptcy-related modifications makes the foreclosure problem much worse than it needs to be. They also believe that lenders are overstating the impact that such bankruptcy legislation would have on mortgage rates. The national average mortgage rate for a 30-year fixed loan is about 5 percent; the average unsecured consumer credit card rate is about 14 percent.
Bankruptcy reform and the mortgage meltdown
A new report, however, supports the notion that conclusions on both sides may be radically oversimplified. A team of researchers at the Federal Reserve Bank of New York believes that the bankruptcy reform laws of 2005 essentially triggered the subprime mortgage meltdown that began in the following year.
The 2005 laws, intending to stem bankruptcy abuse, made it much more difficult for consumers to have unsecured debt discharged by the court. In practice, this also made it more difficult for distressed homeowners to avoid foreclosure. This makes sense: a borrower whose required monthly debt payments are measurably lowered through a discharge has a much easier time keeping a mortgage current. But take away that clean slate option, and the mortgage loan remains impossible to manage.
Certainly those who supported bankruptcy reform were not expecting a mortgage crisis to result.
Tinkering may not be best solution
Now that Congress is again looking to tinker with bankruptcy laws, you have to wonder if our lawmakers will proceed cautiously enough. It's simple to say that mortgage rates will or won't be impacted-but the truth is that no one really knows.
There's one conclusion, though, that both sides can support: the last thing the mortgage market needs right now is a rash of unintended consequences.
Credit Markets Finding New Life
By Catherine Brock
High-level signs indicate that a slight recovery may be underway in the credit markets. Experts hope that this is the start of a broader mending in business and consumer credit, as well as in mortgage lending.
Spring is just around the corner, but U.S. economists aren't watching the hillsides for early wildflower blooms. They'd rather keep their eyes glued to bond activity, mortgage rates, and LIBOR rates to see if the latest signs of life in the credit markets are going to blossom into a larger economic recovery.
Credit markets warming up
No one's ready to say a recovery is in the making, but improved activity in the credit markets is raising some eyebrows. On the corporate side, high-grade companies are being welcomed to the bond market by return-hungry investors; Bloomberg reported $41 billion in corporate bond sales for the week of January 9, the highest weekly total since last spring. On the banking side, interbank loans have become strikingly less expensive as the LIBOR has fallen from 4.8 percent in October to just below 1 percent. And on the consumer side, national mortgage rates dropped below 5 percent, from nearly 6.5 percent in August.
Bank, corporate, and taxpayer bailouts
These improvements follow several months of intense action by the federal government to get the economy moving again. Multi-billion dollar programs funneled money into banks and automakers. Corporate debt issues were guaranteed. To drive down mortgage rates and jumpstart mortgage lending, the Federal Reserve made plans to buy toxic mortgage-related assets. And taxpayers have been benefactors too; the FDIC increased its deposit insurance coverage and rolled out a money market fund guarantee program. A taxpayer bailout may be included in Obama's new stimulus package, as well.
Loss of faith
The credit markets had been progressively less welcoming since the subprime crisis blew up in 2007. But things really went sour when Lehman Brothers, a respected, established financial services company, declared bankruptcy. That event created big losses for the many financial, corporate, and municipal entities that had loaned Lehman money. Worse though was the psychological impact: Lehman's bankruptcy, along with the string of bank failures and other bad news, cemented the idea that it simply wasn't safe to lend money.
That extreme risk phobia hit corporate lenders immediately. When corporations can't get financing, they have to lay off employees, cancel expansion plans, and cut back on benefits. When that happens, consumers spend less money, which eats away at the profits of retailers and consumer credit card issuers. More layoffs follow, businesses start shutting down, and unemployed borrowers can't keep up with their mortgage and consumer credit payments. Indeed, the most frightening aspect of a problem in the credit markets is how quickly that problem can spread to other economic sectors.
The recent improvement in credit activity represents a large ray of economic sunshine. After all, when things are getting better, it means that they're definitely not getting worse.
High-level signs indicate that a slight recovery may be underway in the credit markets. Experts hope that this is the start of a broader mending in business and consumer credit, as well as in mortgage lending.
Spring is just around the corner, but U.S. economists aren't watching the hillsides for early wildflower blooms. They'd rather keep their eyes glued to bond activity, mortgage rates, and LIBOR rates to see if the latest signs of life in the credit markets are going to blossom into a larger economic recovery.
Credit markets warming up
No one's ready to say a recovery is in the making, but improved activity in the credit markets is raising some eyebrows. On the corporate side, high-grade companies are being welcomed to the bond market by return-hungry investors; Bloomberg reported $41 billion in corporate bond sales for the week of January 9, the highest weekly total since last spring. On the banking side, interbank loans have become strikingly less expensive as the LIBOR has fallen from 4.8 percent in October to just below 1 percent. And on the consumer side, national mortgage rates dropped below 5 percent, from nearly 6.5 percent in August.
Bank, corporate, and taxpayer bailouts
These improvements follow several months of intense action by the federal government to get the economy moving again. Multi-billion dollar programs funneled money into banks and automakers. Corporate debt issues were guaranteed. To drive down mortgage rates and jumpstart mortgage lending, the Federal Reserve made plans to buy toxic mortgage-related assets. And taxpayers have been benefactors too; the FDIC increased its deposit insurance coverage and rolled out a money market fund guarantee program. A taxpayer bailout may be included in Obama's new stimulus package, as well.
Loss of faith
The credit markets had been progressively less welcoming since the subprime crisis blew up in 2007. But things really went sour when Lehman Brothers, a respected, established financial services company, declared bankruptcy. That event created big losses for the many financial, corporate, and municipal entities that had loaned Lehman money. Worse though was the psychological impact: Lehman's bankruptcy, along with the string of bank failures and other bad news, cemented the idea that it simply wasn't safe to lend money.
That extreme risk phobia hit corporate lenders immediately. When corporations can't get financing, they have to lay off employees, cancel expansion plans, and cut back on benefits. When that happens, consumers spend less money, which eats away at the profits of retailers and consumer credit card issuers. More layoffs follow, businesses start shutting down, and unemployed borrowers can't keep up with their mortgage and consumer credit payments. Indeed, the most frightening aspect of a problem in the credit markets is how quickly that problem can spread to other economic sectors.
The recent improvement in credit activity represents a large ray of economic sunshine. After all, when things are getting better, it means that they're definitely not getting worse.
Rethinking your Mutual Fund Investment
By Catherine Brock
Knowing when to sell a mutual fund position is as important as knowing when to buy one.
Many lounge singers have serenaded you with the fact that breaking up is hard to do. But that's no reason to hang on to a mutual fund longer than you should. The only trouble is, how do you know when enough is enough?
Do you remember the days when practically everything in the stock market seemed inevitably to go up? You could almost throw a dart at a list of mutual funds to make your winning picks. And, if you owned a position that didn't produce, you could just sell it and buy something else that did.
Now, when so many investments are in the red, you can't just automatically dump the mutual funds that aren't producing. That strategy would leave you holding bear funds and cash-and that's no way to grow your savings over the long haul. A better idea is to re-evaluate your funds in relative terms: Are they still a good fit for your Risk-tolerance">risk tolerance and investment timeline? Are they performing in line with their peers?
Know your investment risk
It's pretty common for an investor to overestimate his own appetite for risk. Generally, the mistake isn't revealed until a brutal bear market appears and ravages that individual's invested savings. If this stock market cycle has prompted you to rethink your risk parameters, you need to rethink your mutual funds, as well. If you don't have the stomach for the small cap tech fund or the emerging markets fund anymore, it's perfectly acceptable to sell them and move on.
Older and wiser
During the last 12 months, many investors have been waiting, hoping to ride out the market downturn. If the wait has moved you within five years of needing to tap that invested savings, however, it's time to consider overhauling your investment strategy. Granted, it's tough to get conservative at a time when your portfolio balance is in the tank, but sometimes that's the way it goes. Talk to your financial advisor about switching out some of your equity mutual funds for fixed-income investments such as high-grade bonds.
Rogues and bad apples
Just as there are mutual funds that performed relatively well last year, there are also some that performed relatively poorly. According to Morningstar, the Legg Mason Opportunity Trust was one of the worst mutual funds of 2008; it lost a shocking 65.5 percent. If you own a fund that radically underperformed its peers, it's probably time to break the ties. The fund manager may recover this year, but the fund itself will face an uphill battle: regaining lost ground while trying to cover rising redemptions as investors move elsewhere.
Finally, remember that when the market comes back, you'll want to be prepared with the right positions in your portfolio. If that requires a few break-ups and some realized losses, so be it.
Knowing when to sell a mutual fund position is as important as knowing when to buy one.
Many lounge singers have serenaded you with the fact that breaking up is hard to do. But that's no reason to hang on to a mutual fund longer than you should. The only trouble is, how do you know when enough is enough?
Do you remember the days when practically everything in the stock market seemed inevitably to go up? You could almost throw a dart at a list of mutual funds to make your winning picks. And, if you owned a position that didn't produce, you could just sell it and buy something else that did.
Now, when so many investments are in the red, you can't just automatically dump the mutual funds that aren't producing. That strategy would leave you holding bear funds and cash-and that's no way to grow your savings over the long haul. A better idea is to re-evaluate your funds in relative terms: Are they still a good fit for your Risk-tolerance">risk tolerance and investment timeline? Are they performing in line with their peers?
Know your investment risk
It's pretty common for an investor to overestimate his own appetite for risk. Generally, the mistake isn't revealed until a brutal bear market appears and ravages that individual's invested savings. If this stock market cycle has prompted you to rethink your risk parameters, you need to rethink your mutual funds, as well. If you don't have the stomach for the small cap tech fund or the emerging markets fund anymore, it's perfectly acceptable to sell them and move on.
Older and wiser
During the last 12 months, many investors have been waiting, hoping to ride out the market downturn. If the wait has moved you within five years of needing to tap that invested savings, however, it's time to consider overhauling your investment strategy. Granted, it's tough to get conservative at a time when your portfolio balance is in the tank, but sometimes that's the way it goes. Talk to your financial advisor about switching out some of your equity mutual funds for fixed-income investments such as high-grade bonds.
Rogues and bad apples
Just as there are mutual funds that performed relatively well last year, there are also some that performed relatively poorly. According to Morningstar, the Legg Mason Opportunity Trust was one of the worst mutual funds of 2008; it lost a shocking 65.5 percent. If you own a fund that radically underperformed its peers, it's probably time to break the ties. The fund manager may recover this year, but the fund itself will face an uphill battle: regaining lost ground while trying to cover rising redemptions as investors move elsewhere.
Finally, remember that when the market comes back, you'll want to be prepared with the right positions in your portfolio. If that requires a few break-ups and some realized losses, so be it.
Increasing Unemployment Creating New Wave of Housing Problems
By Bill Rice
Today the Obama administration releases details on how they plan to spend $50 billion, from the remaining TARP funds, to help borrowers in trouble. Most expect another round of loan modification proposals, maybe even some standardization in how to renegotiate these troubled mortgages. Unfortunately, the housing crisis of 2009 may have more to do with jobs than payment.
After multiple months of 500,000+ people losing jobs, millions of homeowners may have trouble making any mortgage payment. This rapidly growing loss income is opening another front in the war to recover the US housing market.
Neither the Obama administration or Congress has considered this issue for immediate action. Although the economic stimulus is positioned to create long-term jobs, the immediate impact on mortgages may require more immediate action.
This is precisely what the Federal Reserve Bank of Boston has been considering. Under this plan, $50 billion would be used to subsidize between a quarter and a half of mortgages for those who lose their jobs. This form of national unemployment insurance would provide assistance for up to two years or until new employment was found. Assumptions in the plan forecast up to 3.5 million homeowners using the government mortgage assistance.
The Boston Fed plan would not require any modification to mortgage terms. This fact overcomes one of the major stumbling blocks to widespread loan modifications--gettingservicers and lenders to participate. Other advantages are the limits to long-term taxpayer liability and borrowers having to cede potential long-term home appreciation to the government.
One of the main concerns of mortgage payment subsidies or loan modifications are the moral hazards they may create. Will homeowners have incentive to not seek work or those considered rich seeking assistance? According to the proposal these hazards would be controlled by caps on income and total payment contribution.
Early statistical data is indicating that loss of home equity and income are the top drivers of foreclosures. This is in contrast to many assumptions that adjustable-rate mortgages and payment adjustments are large contributors to default. CreditSuisse is currently estimating that 8.1 million, or 16 percent of all mortgages will end in foreclosure in the next four years.
National foreclosure policy is quickly rising to the top of the stack as the latest crisis that needs immediate attention from the new Presidential administration.
Today the Obama administration releases details on how they plan to spend $50 billion, from the remaining TARP funds, to help borrowers in trouble. Most expect another round of loan modification proposals, maybe even some standardization in how to renegotiate these troubled mortgages. Unfortunately, the housing crisis of 2009 may have more to do with jobs than payment.
After multiple months of 500,000+ people losing jobs, millions of homeowners may have trouble making any mortgage payment. This rapidly growing loss income is opening another front in the war to recover the US housing market.
Neither the Obama administration or Congress has considered this issue for immediate action. Although the economic stimulus is positioned to create long-term jobs, the immediate impact on mortgages may require more immediate action.
This is precisely what the Federal Reserve Bank of Boston has been considering. Under this plan, $50 billion would be used to subsidize between a quarter and a half of mortgages for those who lose their jobs. This form of national unemployment insurance would provide assistance for up to two years or until new employment was found. Assumptions in the plan forecast up to 3.5 million homeowners using the government mortgage assistance.
The Boston Fed plan would not require any modification to mortgage terms. This fact overcomes one of the major stumbling blocks to widespread loan modifications--gettingservicers and lenders to participate. Other advantages are the limits to long-term taxpayer liability and borrowers having to cede potential long-term home appreciation to the government.
One of the main concerns of mortgage payment subsidies or loan modifications are the moral hazards they may create. Will homeowners have incentive to not seek work or those considered rich seeking assistance? According to the proposal these hazards would be controlled by caps on income and total payment contribution.
Early statistical data is indicating that loss of home equity and income are the top drivers of foreclosures. This is in contrast to many assumptions that adjustable-rate mortgages and payment adjustments are large contributors to default. CreditSuisse is currently estimating that 8.1 million, or 16 percent of all mortgages will end in foreclosure in the next four years.
National foreclosure policy is quickly rising to the top of the stack as the latest crisis that needs immediate attention from the new Presidential administration.
The Mother of Bear Rallies: Obama effect to rally Stock Markets?
by Brian Turner
Wall Street rallied today in a dazzling return of investor confidence only a day after US financials were slaughtered.
The Dow Jones gained 279.01 point (3.51%), the S&P 500 35.02 points (4.35%), and the Nasdaq was up 66.21 points. (4.60%).
Marketwatch makes and interesting point with Jeffrey Kleintop, chief market strategist, LPL Financial, as saying:
But some analysts see silver linings in President Barack Obama’s economic stimulus plans, saying the new administration’s proposals are reminiscent of those in play in March 1933, when Franklin Delano Roosevelt took office at the height of the Great Depression.
“The most significant piece of legislation in the next few weeks will be the fiscal stimulus program. It may bolster confidence in the economy and markets or it may fall short and disappoint the market by not being put to work quickly enough,” said Jeffrey Kleintop, chief market strategist, LPL Financial.
During the first 100 days of FDR’s term, the stock market climbed about 80%. Whether history repeats itself remains to be seen. “Uncertainty and potential for negative unintended consequences of the policy actions may weigh on the market,” said Kleintop.
In which case, we could be looking at a much more positive few weeks or even months, as enthusiasm for the US stimulus plan becomes feverish - after all, Barack Obama is a strong charismatic character who has projected a professional and intelligent business approach to addressing the economic crisis.
As he warns, though, this isn’t about stopping the crisis, as much as stopping it becoming the mother of all crisis.
In that regard, today’s boost on the US stock markets may become seen as the mother of all bear rallies, with major gains to be had.
This is likely to positively impact the FTSE 100 while investor confidence can be maintained.
I was speaking to a stockbroker, specialised in technical analyses, and he pointed out a chart showing that on a 200-day average, stocks definitely appear oversold, allowing for a significant bounce back.
But he also pulled up a chart of the S%P 500 showing that the whole index is falling off a precipice.
In other words, no matter what excitement investors may show over the next few weeks and months, the underlying economic data remains terrible - the US and UK are consumer-driven economies, and there’s nothing driving consumer spending at present. In fact, massive layoffs and unemployment indicate a significant constriction, with further concerns that the lack of bank lending to business will amplify the problem.
Even still, this is a moment investors can use to their advantage to re-organise portfolios and set up minimised risk profiles.
For example, I personally have a few thousand shares in RBS, and while I think the bank cannot be nationalised by the government because of the massive economic damage taking on that banks debt would do, it still remains a risky stock to hold too much of.
While I’m happy to hold onto some, I avoided the panic selling that would have left me selling at 10.8p earlier in the week, incurring significant losses. If the markets do continue to rally, then I can sell off some RBS shares at a more reasonable price once the price rises to lessen my portfolio’s risk profile. I’ll still be holding some - after all, what is any investor’s portfolio with some seemingly higher risk holdings?
For new investors, this rally could be an opportunity to ride the wave for a while and profit from it - for existing investors, an opportunity to reorganise. For the daring, a chance to widen exposure to financials which could be otherwise seen as high-risk in the short-term, but big-gainers in the long-term.
There’s no illusion here - the US recession could easily become a depression. The UK is likely to suffer more from ailing economic indicators.
But for investors, the moment may yet have arrived to pause and gain a little breath after so many months of stock price falls, restructure battered portfolios into something more robust, and steel themselves for come what may.
Wall Street rallied today in a dazzling return of investor confidence only a day after US financials were slaughtered.
The Dow Jones gained 279.01 point (3.51%), the S&P 500 35.02 points (4.35%), and the Nasdaq was up 66.21 points. (4.60%).
Marketwatch makes and interesting point with Jeffrey Kleintop, chief market strategist, LPL Financial, as saying:
But some analysts see silver linings in President Barack Obama’s economic stimulus plans, saying the new administration’s proposals are reminiscent of those in play in March 1933, when Franklin Delano Roosevelt took office at the height of the Great Depression.
“The most significant piece of legislation in the next few weeks will be the fiscal stimulus program. It may bolster confidence in the economy and markets or it may fall short and disappoint the market by not being put to work quickly enough,” said Jeffrey Kleintop, chief market strategist, LPL Financial.
During the first 100 days of FDR’s term, the stock market climbed about 80%. Whether history repeats itself remains to be seen. “Uncertainty and potential for negative unintended consequences of the policy actions may weigh on the market,” said Kleintop.
In which case, we could be looking at a much more positive few weeks or even months, as enthusiasm for the US stimulus plan becomes feverish - after all, Barack Obama is a strong charismatic character who has projected a professional and intelligent business approach to addressing the economic crisis.
As he warns, though, this isn’t about stopping the crisis, as much as stopping it becoming the mother of all crisis.
In that regard, today’s boost on the US stock markets may become seen as the mother of all bear rallies, with major gains to be had.
This is likely to positively impact the FTSE 100 while investor confidence can be maintained.
I was speaking to a stockbroker, specialised in technical analyses, and he pointed out a chart showing that on a 200-day average, stocks definitely appear oversold, allowing for a significant bounce back.
But he also pulled up a chart of the S%P 500 showing that the whole index is falling off a precipice.
In other words, no matter what excitement investors may show over the next few weeks and months, the underlying economic data remains terrible - the US and UK are consumer-driven economies, and there’s nothing driving consumer spending at present. In fact, massive layoffs and unemployment indicate a significant constriction, with further concerns that the lack of bank lending to business will amplify the problem.
Even still, this is a moment investors can use to their advantage to re-organise portfolios and set up minimised risk profiles.
For example, I personally have a few thousand shares in RBS, and while I think the bank cannot be nationalised by the government because of the massive economic damage taking on that banks debt would do, it still remains a risky stock to hold too much of.
While I’m happy to hold onto some, I avoided the panic selling that would have left me selling at 10.8p earlier in the week, incurring significant losses. If the markets do continue to rally, then I can sell off some RBS shares at a more reasonable price once the price rises to lessen my portfolio’s risk profile. I’ll still be holding some - after all, what is any investor’s portfolio with some seemingly higher risk holdings?
For new investors, this rally could be an opportunity to ride the wave for a while and profit from it - for existing investors, an opportunity to reorganise. For the daring, a chance to widen exposure to financials which could be otherwise seen as high-risk in the short-term, but big-gainers in the long-term.
There’s no illusion here - the US recession could easily become a depression. The UK is likely to suffer more from ailing economic indicators.
But for investors, the moment may yet have arrived to pause and gain a little breath after so many months of stock price falls, restructure battered portfolios into something more robust, and steel themselves for come what may.
Credit Versus Debit Cards: Know the Differences
By Greg Mischio
As the economy continues to crumble, consumers are becoming increasingly mindful of their financial options. Understanding tools like credit cards and debit cards is smart money management. It can keep you out of debt and actually save you money.
Consumer debt has reached unprecedented levels, producing a situation so dire that consumers are finally embarking on a crash course in financial literacy. One financial topic that's worth learning is the difference between credit card and debit cards. Taking a close look at these two options may actually be the first step to take to reduce a mountain of consumer debt.
Tight budget? Choose the debit card
The key difference between the debit and credit card is speed. With a debit card, any purchase made is instantly deducted from your savings or account">checking account. With a credit card, you won't have to make a payment for 15 to 30 days after purchase, and even then, you don't have to pay the entire balance.
The debit card is simply a plastic substitute for cash or check. It only provides funds if you carry a large enough balance in your account. If you don't, the card won't work. There are some banks that allow you to exceed your balance and draw from an overdraft account, but you'll pay interest on any funds you tap.
Debit cards are ideal for someone prone to compulsive shopping. If you've had consumer debt problems in the past, it can help you keep your spending in check. The only negative is that you don't have access to the rewards programs and the security benefits offered by credit cards.
Benefits (and pitfalls) of credit cards
Credit cards offer a bevy of attractive benefits in comparison to debit cards. Most credit card companies offer rewards programs, which offer you points for every purchase you make. Points can eventually be redeemed for airline tickets, gifts, or even cash. You can tailor the rewards programs to your personal tastes.
When you use a credit card, you also have the luxury of being able to delay the payment on an item. This gives you added flexibility when you're making purchases; you only need to pay the card's minimum balance, so it can effectively act as a short-term loan.
The smartest option is to carry a credit card but treat it like a debit card: Pay off all your balances in full every month. It's the smart way to have your cake and eat it, too, as you'll have the flexibility of a credit card, but still be able to cash in on the rewards. The benefits of a credit card are lost, however, if you fail to make those minimum payments. Picking the right option is meaningless if you don't have the discipline to make it work.
As the economy continues to crumble, consumers are becoming increasingly mindful of their financial options. Understanding tools like credit cards and debit cards is smart money management. It can keep you out of debt and actually save you money.
Consumer debt has reached unprecedented levels, producing a situation so dire that consumers are finally embarking on a crash course in financial literacy. One financial topic that's worth learning is the difference between credit card and debit cards. Taking a close look at these two options may actually be the first step to take to reduce a mountain of consumer debt.
Tight budget? Choose the debit card
The key difference between the debit and credit card is speed. With a debit card, any purchase made is instantly deducted from your savings or account">checking account. With a credit card, you won't have to make a payment for 15 to 30 days after purchase, and even then, you don't have to pay the entire balance.
The debit card is simply a plastic substitute for cash or check. It only provides funds if you carry a large enough balance in your account. If you don't, the card won't work. There are some banks that allow you to exceed your balance and draw from an overdraft account, but you'll pay interest on any funds you tap.
Debit cards are ideal for someone prone to compulsive shopping. If you've had consumer debt problems in the past, it can help you keep your spending in check. The only negative is that you don't have access to the rewards programs and the security benefits offered by credit cards.
Benefits (and pitfalls) of credit cards
Credit cards offer a bevy of attractive benefits in comparison to debit cards. Most credit card companies offer rewards programs, which offer you points for every purchase you make. Points can eventually be redeemed for airline tickets, gifts, or even cash. You can tailor the rewards programs to your personal tastes.
When you use a credit card, you also have the luxury of being able to delay the payment on an item. This gives you added flexibility when you're making purchases; you only need to pay the card's minimum balance, so it can effectively act as a short-term loan.
The smartest option is to carry a credit card but treat it like a debit card: Pay off all your balances in full every month. It's the smart way to have your cake and eat it, too, as you'll have the flexibility of a credit card, but still be able to cash in on the rewards. The benefits of a credit card are lost, however, if you fail to make those minimum payments. Picking the right option is meaningless if you don't have the discipline to make it work.
Low Mortgage Rates may not Last Long
By Tom Kerr
Mortgage rates have hit a 50-year low, but many economists warn that low interest rate loans may not be here for long. With the Federal Reserve and Treasury spending freely to save the economy, inflation may put an end to inexpensive mortgage rates before the end of the year.
The Federal Reserve has been injecting billions of dollars into the mortgage markets in an effort to lower mortgage rates, thaw credit channels, and stimulate the economy through increased consumer spending. In addition, the Fed has cut key interest rates to a level that's virtually zero. During normal economic cycles, a fraction of a point decline in rates will usually translate into more affordable mortgage rates. And while loans are getting cheaper, they're nowhere near levels that should typically correspond with cuts to zero at the Federal Reserve. In fact, some economists predict that mortgage rates will soon start to go up instead of down.
Inflation and mortgage rates
The biggest concern regarding higher mortgage rates is economic inflation, a condition that's exacerbated by government debt and weakness of the dollar. When the Federal Reserve cut rates to their lowest possible level, it immediately triggered inflationary worries. On top of that, the Treasury has been spending unprecedented amounts of money to attack a failed economy. About $3 trillion, for example, has already gone out the door in the form of stimulus packages and rescue plans.
Meanwhile, despite the fact that the federal budget was balanced 10 years ago, the government is running a deficit that could rise to the multi-trillion dollar level this year, while tax revenues to support government expenses are falling due to a huge surge in unemployment.
Rising mortgage rates
None of those factors contribute to strengthening investor confidence in the U.S. In order to lure investment money into this economic climate, it's necessary to offer higher rates of return to offset the perceived risk of throwing good money into a bad economy. That's done by raising interest rates, and it's almost certain that they'll go up significantly within the next few months because of this perfect storm of contributing negative influences. This includes mortgage rates, as well.
Moody's Economy, for instance, forecasts rates of just under 4.5 percent by late summer. But in the last half of the year, they expect to see them climb back up in excess of five percent. By the beginning of 2010, mortgage rates could be gaining ground and approaching the 6 percent level.
For that reason, people who are thinking of taking out a mortgage or doing a refinance may want to act swiftly. If rates go higher in the middle of a severe recession, lenders won't be offering mortgages to customers who don't have excellent credit and vast assets and income. The last chance to capture bargain rates may be now. As the saying goes, those who snooze may lose.
Mortgage rates have hit a 50-year low, but many economists warn that low interest rate loans may not be here for long. With the Federal Reserve and Treasury spending freely to save the economy, inflation may put an end to inexpensive mortgage rates before the end of the year.
The Federal Reserve has been injecting billions of dollars into the mortgage markets in an effort to lower mortgage rates, thaw credit channels, and stimulate the economy through increased consumer spending. In addition, the Fed has cut key interest rates to a level that's virtually zero. During normal economic cycles, a fraction of a point decline in rates will usually translate into more affordable mortgage rates. And while loans are getting cheaper, they're nowhere near levels that should typically correspond with cuts to zero at the Federal Reserve. In fact, some economists predict that mortgage rates will soon start to go up instead of down.
Inflation and mortgage rates
The biggest concern regarding higher mortgage rates is economic inflation, a condition that's exacerbated by government debt and weakness of the dollar. When the Federal Reserve cut rates to their lowest possible level, it immediately triggered inflationary worries. On top of that, the Treasury has been spending unprecedented amounts of money to attack a failed economy. About $3 trillion, for example, has already gone out the door in the form of stimulus packages and rescue plans.
Meanwhile, despite the fact that the federal budget was balanced 10 years ago, the government is running a deficit that could rise to the multi-trillion dollar level this year, while tax revenues to support government expenses are falling due to a huge surge in unemployment.
Rising mortgage rates
None of those factors contribute to strengthening investor confidence in the U.S. In order to lure investment money into this economic climate, it's necessary to offer higher rates of return to offset the perceived risk of throwing good money into a bad economy. That's done by raising interest rates, and it's almost certain that they'll go up significantly within the next few months because of this perfect storm of contributing negative influences. This includes mortgage rates, as well.
Moody's Economy, for instance, forecasts rates of just under 4.5 percent by late summer. But in the last half of the year, they expect to see them climb back up in excess of five percent. By the beginning of 2010, mortgage rates could be gaining ground and approaching the 6 percent level.
For that reason, people who are thinking of taking out a mortgage or doing a refinance may want to act swiftly. If rates go higher in the middle of a severe recession, lenders won't be offering mortgages to customers who don't have excellent credit and vast assets and income. The last chance to capture bargain rates may be now. As the saying goes, those who snooze may lose.
One in five homeowners face negative equity
by David Masters
One in five homeowners could find themselves in negative equity as the recession tightens its stranglehold, the Financial Services Authority (FSA) has warned.
House prices could potentially drop by as much as 30% compared to 2007 levels, the FSA said, leaving 2.5 million mortgage holders owing more than the value of their house. This is around 21% of people with a mortgage.
Around 500,000 of these would be people who bought the property for letting.
The statistics were released in the FSA’s annual Financial Risk Outlook report.
Mortgage arrears and repossessions are ‘already significant’, the report said, and worryingly were on the increase when the economy was still stable.
“To date, mortgage arrears and repossessions have been rising among less creditworthy and buy-to-let borrowers,” reads the report.
“The problem is likely to become more widespread as the impact of the recession is felt by households via higher unemployment and lower incomes.”
Most concerning of all is the FSA’s conclusion that the scale and length of the economic downturn are ‘very difficult to predict’.
One in five homeowners could find themselves in negative equity as the recession tightens its stranglehold, the Financial Services Authority (FSA) has warned.
House prices could potentially drop by as much as 30% compared to 2007 levels, the FSA said, leaving 2.5 million mortgage holders owing more than the value of their house. This is around 21% of people with a mortgage.
Around 500,000 of these would be people who bought the property for letting.
The statistics were released in the FSA’s annual Financial Risk Outlook report.
Mortgage arrears and repossessions are ‘already significant’, the report said, and worryingly were on the increase when the economy was still stable.
“To date, mortgage arrears and repossessions have been rising among less creditworthy and buy-to-let borrowers,” reads the report.
“The problem is likely to become more widespread as the impact of the recession is felt by households via higher unemployment and lower incomes.”
Most concerning of all is the FSA’s conclusion that the scale and length of the economic downturn are ‘very difficult to predict’.
Falling Home Equity: Should You Walk Away?
By Catherine Brock
Voluntary foreclosure may be the next disturbing trend in housing, as homeowners rebel against falling home values and negative home equity.
Home values have been on a downward slide for more than two years. According to data compiled by Zillow.com for the third quarter of 2008, the national average home value of $202,966 is down nearly 13 percent from its recent peak. A dozen markets around the country show home value declines in excess of 40 percent.
Zillow.com also reports that 14.3 percent of homes nationwide have negative home equity. Looking at just those homes that were purchased in the last five years, the underwater percentage is more than double at 29.5 percent.
As home values continue their historic slide, more homeowners are considering the radical strategy of walking away from their existing mortgages. But the consequences can be severe.
Foreclosure prevention costly
Consider a homeowner named Susanna who purchased her home in the Los Angeles metro area at the height of the real estate boom. She's a white collar professional earning a healthy six-figure salary, who borrowed $387,000 in 2006 to purchase a modest, three-bedroom home for $430,000. Today, that home is worth about $220,000, and she owes $365,000 on her mortgage. Her monthly principal and interest payment is $2,452.
From Susanna's perspective, she's losing about $1,500 every month that she makes a mortgage payment. Why? Because if a new owner purchases a home in her neighborhood for $210,000, with an 80 percent mortgage at a fixed rate of 5 percent, she'll end up with a monthly payment of about $900. Since Susanna can't sell the property for anywhere near what she paid, friends have suggested that she avoid those losses by walking away and letting foreclosure run its course.
Experts believe that as home values slide further, more homeowners like Susanna will give up on their clean credit ratings and walk away. It would be another negative turn for the housing market because rising foreclosure inventories will push home values down even further.
Not a clean analysis
If you're in Susanna's position, don't assume that the numbers automatically lean towards foreclosure; unfortunately, the calculation isn't quite that simple. Since a foreclosure wrecks your credit rating for seven years, you'll have to absorb 84 months of higher borrowing costs or lower consumption (if you can't obtain credit). You'll also lose your mortgage interest tax deduction. Finally, there's no telling where home values will be once you're ready to purchase again. If the market recovers, you may not end up saving much, particularly if you consider the money lost to rent in the interim period.
If you can't currently afford your mortgage, however, the analysis gets more complicated. In that case, see if your lender will consider a short sale or loan modification to ease the strain. Walking away may be an option-but only after you've exhausted every other potential solution.
Voluntary foreclosure may be the next disturbing trend in housing, as homeowners rebel against falling home values and negative home equity.
Home values have been on a downward slide for more than two years. According to data compiled by Zillow.com for the third quarter of 2008, the national average home value of $202,966 is down nearly 13 percent from its recent peak. A dozen markets around the country show home value declines in excess of 40 percent.
Zillow.com also reports that 14.3 percent of homes nationwide have negative home equity. Looking at just those homes that were purchased in the last five years, the underwater percentage is more than double at 29.5 percent.
As home values continue their historic slide, more homeowners are considering the radical strategy of walking away from their existing mortgages. But the consequences can be severe.
Foreclosure prevention costly
Consider a homeowner named Susanna who purchased her home in the Los Angeles metro area at the height of the real estate boom. She's a white collar professional earning a healthy six-figure salary, who borrowed $387,000 in 2006 to purchase a modest, three-bedroom home for $430,000. Today, that home is worth about $220,000, and she owes $365,000 on her mortgage. Her monthly principal and interest payment is $2,452.
From Susanna's perspective, she's losing about $1,500 every month that she makes a mortgage payment. Why? Because if a new owner purchases a home in her neighborhood for $210,000, with an 80 percent mortgage at a fixed rate of 5 percent, she'll end up with a monthly payment of about $900. Since Susanna can't sell the property for anywhere near what she paid, friends have suggested that she avoid those losses by walking away and letting foreclosure run its course.
Experts believe that as home values slide further, more homeowners like Susanna will give up on their clean credit ratings and walk away. It would be another negative turn for the housing market because rising foreclosure inventories will push home values down even further.
Not a clean analysis
If you're in Susanna's position, don't assume that the numbers automatically lean towards foreclosure; unfortunately, the calculation isn't quite that simple. Since a foreclosure wrecks your credit rating for seven years, you'll have to absorb 84 months of higher borrowing costs or lower consumption (if you can't obtain credit). You'll also lose your mortgage interest tax deduction. Finally, there's no telling where home values will be once you're ready to purchase again. If the market recovers, you may not end up saving much, particularly if you consider the money lost to rent in the interim period.
If you can't currently afford your mortgage, however, the analysis gets more complicated. In that case, see if your lender will consider a short sale or loan modification to ease the strain. Walking away may be an option-but only after you've exhausted every other potential solution.
Bailout Offers Auto Loan Relief
By Catherine Brock
Auto financing just got easier for consumers with less-than-stellar credit scores.
Do you want a piece of the federal bailout action? Now may be your chance. GMAC, the financing unit of General Motors, is passing Troubled Asset Relief (TARP) funds onto its consumers, in the form of looser credit standards on auto loans. There's just one tiny catch-you must buy GM.
Auto industry secures bailout funding for car loans
The troubles of American automakers have been well documented. It's bad enough that they're coping with high labor costs, cars that don't appeal to consumers, and insufficient liquidity. But when you add in a tight credit environment that can't support consumer auto loans, it's a recipe for disaster.
The situation was so severe that the feds finally stepped in with two separate bailout deals. One of them provided much-needed cash to GM and Chrysler. The other bolstered GMAC, the primary provider of auto financing for GM dealers, with cash. The manufacturers will use their money to reposition their operations for future profitability, while GMAC will deploy its newfound capital to fund more car loans.
Lower standards for auto loans
To improve its car loan production, GMAC will lower its minimum credit score requirements. The move marks a return to GMAC's traditional underwriting standards. Two months ago, when the credit markets nearly grinded to a halt, GMAC was forced to increase its minimum approvable credit score from 621 to 700, because it didn't have access to the capital required to service those below-700 borrowers.
In late-December, however, GMAC secured a capital contribution from TARP. This money allows the company to reinstate the lower credit score minimum of 621.
In a public statement, GMAC President Bill Muir said, "We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."
Aggressive auto financing promotions
GMAC also ran an aggressive 0 percent car loan promotion between December 30 and January 5. Inclusive of that promotion, GM's December sales were still down more than 31 percent. Full-year sales were down 22.9 percent.
TARP was established in early October when Congress passed the Emergency Economic Stabilization Act of 2008. To participate in the program, GMAC applied for bank holding company status in November; that application was approved by the Federal Reserve Board in the following month. GMAC subsequently received $6 billion in government bailout funds. Auto manufacturers GM and Chrysler received bailout financing under a separate arrangement by President Bush.
If your credit score is between 621 and 700, you can technically take a slice out of the bailout pie. Just head over to your nearest GM dealer, and finance an auto purchase.
Auto financing just got easier for consumers with less-than-stellar credit scores.
Do you want a piece of the federal bailout action? Now may be your chance. GMAC, the financing unit of General Motors, is passing Troubled Asset Relief (TARP) funds onto its consumers, in the form of looser credit standards on auto loans. There's just one tiny catch-you must buy GM.
Auto industry secures bailout funding for car loans
The troubles of American automakers have been well documented. It's bad enough that they're coping with high labor costs, cars that don't appeal to consumers, and insufficient liquidity. But when you add in a tight credit environment that can't support consumer auto loans, it's a recipe for disaster.
The situation was so severe that the feds finally stepped in with two separate bailout deals. One of them provided much-needed cash to GM and Chrysler. The other bolstered GMAC, the primary provider of auto financing for GM dealers, with cash. The manufacturers will use their money to reposition their operations for future profitability, while GMAC will deploy its newfound capital to fund more car loans.
Lower standards for auto loans
To improve its car loan production, GMAC will lower its minimum credit score requirements. The move marks a return to GMAC's traditional underwriting standards. Two months ago, when the credit markets nearly grinded to a halt, GMAC was forced to increase its minimum approvable credit score from 621 to 700, because it didn't have access to the capital required to service those below-700 borrowers.
In late-December, however, GMAC secured a capital contribution from TARP. This money allows the company to reinstate the lower credit score minimum of 621.
In a public statement, GMAC President Bill Muir said, "We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."
Aggressive auto financing promotions
GMAC also ran an aggressive 0 percent car loan promotion between December 30 and January 5. Inclusive of that promotion, GM's December sales were still down more than 31 percent. Full-year sales were down 22.9 percent.
TARP was established in early October when Congress passed the Emergency Economic Stabilization Act of 2008. To participate in the program, GMAC applied for bank holding company status in November; that application was approved by the Federal Reserve Board in the following month. GMAC subsequently received $6 billion in government bailout funds. Auto manufacturers GM and Chrysler received bailout financing under a separate arrangement by President Bush.
If your credit score is between 621 and 700, you can technically take a slice out of the bailout pie. Just head over to your nearest GM dealer, and finance an auto purchase.
What interest rate will you pay on your loan?
By Marcie Geffner
If you've decided to buy a home or refinance your mortgage, you may be puzzled by the different interest rates you've seen advertised for home loans. You're not alone: Many home buyers and homeowners are confused when they discover they don’t qualify for these rock-bottom interest rates.
The reality is that the interest rate you’ll pay on a loan is determined largely by your own personal situation. Even if you don’t meet the requirements for the best-of-the-best rates that you've seen advertised, that doesn't mean you won't be able to qualify for a loan or won't be offered an attractive interest rate that you'll be able to afford.
The interest rate you'll be offered will depend on:
● Credit score. Your credit history and credit score will have the greatest effect on the interest rate you'll be offered. The higher your score, the lower your interest rate likely will be. A credit score is a numerical representation of how well you've handled other loans and credit cards in the past.
● Type of property. The interest rate you'll be offered also depends on the type of property you want to purchase. You'll generally pay a higher interest rate to buy a second home or a property you want to rent out to tenants than you will to buy a home you intend to occupy yourself.
● Loan term. Interest rates tend to be higher on 15-year loans than they are on 30-year loans. That means you'll likely be offered a higher rate if you choose the shorter term.
● Loan amount. If you want to borrow more than $417,000, your mortgage may be considered a non-conventional or even "jumbo" loan, in which case, you'll pay a higher interest rate due to the larger loan amount.
● Loan-to-value (LTV) ratio. Your loan-to-value ratio is the total amount of your mortgage divided by the appraised value of your home or the home you want to buy. If you have only a small downpayment, or not much equity, you'll likely pay a higher interest rate. Taking out cash can raise your interest rate as well. Read more about LTV ratios.
● Location. Interest rates vary from lender to lender and state to state. Some states simply have lower borrowing costs on average.
When you compare the interest rates you’re offered with advertised interest rates, keep in mind that some advertised rates require payment of discount points, which makes those rates appear to be cheaper than they actually are. A point is an upfront fee that's equal to 1 percent of the loan amount. Points don't directly influence the interest rate you'll be offered, but you can pay points to reduce the interest rate on your loan. Use the LendingTree Discount Points calculator to figure out whether paying points up front will be worth the cost over the term of the loan.
Since the interest rate you'll pay on your loan will depend largely on your own situation, make sure you’re comparing apples to apples when you’re shopping for the best loan product and interest rate. It's a good idea to get loan offers that are customized to your needs and financial profile from multiple lenders. That way, you'll be able to make a smart decision about your mortgage options.
If you've decided to buy a home or refinance your mortgage, you may be puzzled by the different interest rates you've seen advertised for home loans. You're not alone: Many home buyers and homeowners are confused when they discover they don’t qualify for these rock-bottom interest rates.
The reality is that the interest rate you’ll pay on a loan is determined largely by your own personal situation. Even if you don’t meet the requirements for the best-of-the-best rates that you've seen advertised, that doesn't mean you won't be able to qualify for a loan or won't be offered an attractive interest rate that you'll be able to afford.
The interest rate you'll be offered will depend on:
● Credit score. Your credit history and credit score will have the greatest effect on the interest rate you'll be offered. The higher your score, the lower your interest rate likely will be. A credit score is a numerical representation of how well you've handled other loans and credit cards in the past.
● Type of property. The interest rate you'll be offered also depends on the type of property you want to purchase. You'll generally pay a higher interest rate to buy a second home or a property you want to rent out to tenants than you will to buy a home you intend to occupy yourself.
● Loan term. Interest rates tend to be higher on 15-year loans than they are on 30-year loans. That means you'll likely be offered a higher rate if you choose the shorter term.
● Loan amount. If you want to borrow more than $417,000, your mortgage may be considered a non-conventional or even "jumbo" loan, in which case, you'll pay a higher interest rate due to the larger loan amount.
● Loan-to-value (LTV) ratio. Your loan-to-value ratio is the total amount of your mortgage divided by the appraised value of your home or the home you want to buy. If you have only a small downpayment, or not much equity, you'll likely pay a higher interest rate. Taking out cash can raise your interest rate as well. Read more about LTV ratios.
● Location. Interest rates vary from lender to lender and state to state. Some states simply have lower borrowing costs on average.
When you compare the interest rates you’re offered with advertised interest rates, keep in mind that some advertised rates require payment of discount points, which makes those rates appear to be cheaper than they actually are. A point is an upfront fee that's equal to 1 percent of the loan amount. Points don't directly influence the interest rate you'll be offered, but you can pay points to reduce the interest rate on your loan. Use the LendingTree Discount Points calculator to figure out whether paying points up front will be worth the cost over the term of the loan.
Since the interest rate you'll pay on your loan will depend largely on your own situation, make sure you’re comparing apples to apples when you’re shopping for the best loan product and interest rate. It's a good idea to get loan offers that are customized to your needs and financial profile from multiple lenders. That way, you'll be able to make a smart decision about your mortgage options.
Mortgage Refinance Boom
By Catherine Brock
Mortgage rates are almost as low as they've ever been, and savvy, qualified homeowners are taking advantage of the trend to lower their monthly payments.
It's the sale of a lifetime and it's happening now. Better than the Macy's one-day sale, or the half-yearly sale at Nordstrom, this promotion could save you thousands of dollars over time. All you have to do is call up your mortgage lender and ask if you qualify.
On sale now: mortgage refinances
Remember back in 2004, when the financial media was harping on the "historically low" mortgage rates? At that time, average rates on 30-year fixed mortgages were floating around 5.50 percent. It was indeed significant: according to Freddie Mac's data (which only goes back to 1972), the annual average rate on 30-year fixed mortgages did not dip below 6.5 percent between 1972 and 2002. The highest annual average during that time was 16.63 percent, which happened in 1981.
But a new era is here. "Historically low," in terms of mortgage rates, no longer means less than 6 percent-now it means less than 5 percent. Recent announcements and actions taken by the feds have pushed rates down to as low as 4.75 percent for the most creditworthy borrowers. For the week ending January 8, 2009, the national average rate was 5.01 percent.
Saving money always fashionable
Homeowners are clearly dialed into the rate trend. Mortgage refinance applications picked up substantially in December, as homeowners jumped at the opportunity to save some money. According to the Mortgage Bankers Association (MBA), mortgage refinance activity increased by more than 60 percent during the week ending December 19, 2008. This increase is measured by changes in MBA's Refinance Index, which tracks refinance loan applications. Not all of those refinance loan applications will become funded mortgages.
Taking advantage of the trend
A refinance loan is generally appropriate when the available rate is at least 1 percent lower than the homeowner's existing mortgage rate. A smaller differential may still result in savings, but it probably won't be enough to justify the upfront closing costs associated with the refinance.
Homeowners also have to consider whether they can qualify for a refinance mortgage right now. Lenders are favoring good credit borrowers who have 20 percent equity in the mortgaged property. Those with less than 20 percent equity will be required to carry private mortgage insurance, the cost of which will offset savings generated by the lower rate.
With unemployment on the rise, job history may be a hot button, as well. Mortgage lenders want stability, and they're likely to shy away from loan applications that carry even hints of risk.
Experts say the sale on mortgage rates could continue through most of 2009. If that prediction holds true, some homeowners will have the opportunity to get their finances in order before they put in their refinance application. Mortgage borrowers are advised to talk with their lender about the requirements so they can plan accordingly.
Mortgage rates are almost as low as they've ever been, and savvy, qualified homeowners are taking advantage of the trend to lower their monthly payments.
It's the sale of a lifetime and it's happening now. Better than the Macy's one-day sale, or the half-yearly sale at Nordstrom, this promotion could save you thousands of dollars over time. All you have to do is call up your mortgage lender and ask if you qualify.
On sale now: mortgage refinances
Remember back in 2004, when the financial media was harping on the "historically low" mortgage rates? At that time, average rates on 30-year fixed mortgages were floating around 5.50 percent. It was indeed significant: according to Freddie Mac's data (which only goes back to 1972), the annual average rate on 30-year fixed mortgages did not dip below 6.5 percent between 1972 and 2002. The highest annual average during that time was 16.63 percent, which happened in 1981.
But a new era is here. "Historically low," in terms of mortgage rates, no longer means less than 6 percent-now it means less than 5 percent. Recent announcements and actions taken by the feds have pushed rates down to as low as 4.75 percent for the most creditworthy borrowers. For the week ending January 8, 2009, the national average rate was 5.01 percent.
Saving money always fashionable
Homeowners are clearly dialed into the rate trend. Mortgage refinance applications picked up substantially in December, as homeowners jumped at the opportunity to save some money. According to the Mortgage Bankers Association (MBA), mortgage refinance activity increased by more than 60 percent during the week ending December 19, 2008. This increase is measured by changes in MBA's Refinance Index, which tracks refinance loan applications. Not all of those refinance loan applications will become funded mortgages.
Taking advantage of the trend
A refinance loan is generally appropriate when the available rate is at least 1 percent lower than the homeowner's existing mortgage rate. A smaller differential may still result in savings, but it probably won't be enough to justify the upfront closing costs associated with the refinance.
Homeowners also have to consider whether they can qualify for a refinance mortgage right now. Lenders are favoring good credit borrowers who have 20 percent equity in the mortgaged property. Those with less than 20 percent equity will be required to carry private mortgage insurance, the cost of which will offset savings generated by the lower rate.
With unemployment on the rise, job history may be a hot button, as well. Mortgage lenders want stability, and they're likely to shy away from loan applications that carry even hints of risk.
Experts say the sale on mortgage rates could continue through most of 2009. If that prediction holds true, some homeowners will have the opportunity to get their finances in order before they put in their refinance application. Mortgage borrowers are advised to talk with their lender about the requirements so they can plan accordingly.
House prices could fall 40% without rise in lending
by Gill Montia
The desperate need for increased mortgage lending has been highlighted by a report from the Centre for Economics and Business Research (CEBR), which is predicting that UK house prices could fall by a further 25% in 2009.
Taking into account last year’s 16% decline, the forecast gives a peak-to-trough fall of 40%.
The independent consultancy is a little more optimistic about the slide in values if government measures can increase new mortgage lending volumes to 50,000 a month, up from the 31,000 recorded in December by the Bank of England.
In this case the CEBR expects the average property to see 32% of its value wiped out from the peak of the market in summer 2007 through to the first quarter of 2010.
According to the body’s economist, Benjamin Williamson, current price and interest rate levels could lead to substantially increased activity in the housing market, if lending can be freed-up.
However, if new mortgage approvals remain close to today’s levels Mr Williamson warns that the fall in prices could accelerate.
Earlier this month the Royal Institution of Chartered Surveyors (Rics) reported that buyer interest is increasing but warned that without mortgage finance prices will continue their downward trend.
The Rics, Council of Mortgage Lenders and others continue to call on the Government to implement the recommendations of the Crosby Review and provide guarantees for the mortgage-backed securities that can help generate funds for new lending.
The desperate need for increased mortgage lending has been highlighted by a report from the Centre for Economics and Business Research (CEBR), which is predicting that UK house prices could fall by a further 25% in 2009.
Taking into account last year’s 16% decline, the forecast gives a peak-to-trough fall of 40%.
The independent consultancy is a little more optimistic about the slide in values if government measures can increase new mortgage lending volumes to 50,000 a month, up from the 31,000 recorded in December by the Bank of England.
In this case the CEBR expects the average property to see 32% of its value wiped out from the peak of the market in summer 2007 through to the first quarter of 2010.
According to the body’s economist, Benjamin Williamson, current price and interest rate levels could lead to substantially increased activity in the housing market, if lending can be freed-up.
However, if new mortgage approvals remain close to today’s levels Mr Williamson warns that the fall in prices could accelerate.
Earlier this month the Royal Institution of Chartered Surveyors (Rics) reported that buyer interest is increasing but warned that without mortgage finance prices will continue their downward trend.
The Rics, Council of Mortgage Lenders and others continue to call on the Government to implement the recommendations of the Crosby Review and provide guarantees for the mortgage-backed securities that can help generate funds for new lending.
New mortgage approvals down 58%
by Gill Montia
The Bank of England has reported a slight rise in new mortgage approvals.
During December, 31,000 home loans were approved for new purchases, up from 27,000 a month earlier.
However, the figure is the second-lowest on record, having edged ahead from the nadir of November.
According to the Bank, new mortgage approvals fell by 58% during 2008 with a total of 519,000 approvals during the year.
The figures sit alongside those published by the British Bankers’ Association, which recently reported that its members sanctioned 22,000 new home loans in December, up from 17,000 in November.
Year-on-year, the association’s figures show a 52% decline in new mortgage lending during 2008.
The outlook for 2009 is bleak; the recession is set to deepen and unemployment to rise.
Confidence in the UK housing market is at an all-time low, with analysts predicting price falls of up to 15% this year and a peak to trough fall of around 30%.
Meanwhile, Nationwide Building Society estimates that 1.2 million households are already in negative equity, compared to less than 100,000 a year ago.
The only good news on the housing market for this week came from mform.co.uk, the mortgage search engine, which reported that first-time buyer mortgage applications have increased in response to a small rise in the number of lenders offering deals with loan-to-value ratios of 90%.
There are now 21 such providers, up from 18, according to mform.
The Bank of England has reported a slight rise in new mortgage approvals.
During December, 31,000 home loans were approved for new purchases, up from 27,000 a month earlier.
However, the figure is the second-lowest on record, having edged ahead from the nadir of November.
According to the Bank, new mortgage approvals fell by 58% during 2008 with a total of 519,000 approvals during the year.
The figures sit alongside those published by the British Bankers’ Association, which recently reported that its members sanctioned 22,000 new home loans in December, up from 17,000 in November.
Year-on-year, the association’s figures show a 52% decline in new mortgage lending during 2008.
The outlook for 2009 is bleak; the recession is set to deepen and unemployment to rise.
Confidence in the UK housing market is at an all-time low, with analysts predicting price falls of up to 15% this year and a peak to trough fall of around 30%.
Meanwhile, Nationwide Building Society estimates that 1.2 million households are already in negative equity, compared to less than 100,000 a year ago.
The only good news on the housing market for this week came from mform.co.uk, the mortgage search engine, which reported that first-time buyer mortgage applications have increased in response to a small rise in the number of lenders offering deals with loan-to-value ratios of 90%.
There are now 21 such providers, up from 18, according to mform.
Bad Bank Out, Limiting Executive Pay and Expanding Mortgage Lending In?
From MortgageLoan.com: Bad Bank Out, Limiting Executive Pay and Expanding Mortgage Lending In?
Wall Street reveilled briefly in the prospect of "bad banks," aggregating toxic mortgage loans into a government controlled bank. Likewise, they reacted aggressively on the hint that the plan is shoved to the back burner.
The same questions that plagued the original plan to buy up troubled mortgages, hits this new plan. Pricing of these illiquid assets clogging bank balance sheets and restricting lending is problematic. Pricing too low hits banks with massive writedowns, potentially weakening more banks. However, pricing too high leaves taxpayers with generations of debt.
In exchange President Obama tells Matt Lauer, during an NBC Super Bowl pre-game interview, he was focused on getting lenders receiving TARP and other government assistance to lend. President Obama also scolded Wall Street for paying out over $8 billion in executive bonuses in 2008. This and similar remarks coming from the White House and House Democrats indicate a goal to place more accountability on firms receiving taxpayer money.
Speaking on Sunday's This Week political talk show, House Financial Services Committee Chairman Barney Frank said, "You're going to see the Obama administration push for much more lending...There are going to be some real rules in there." What will this mean for implementation of these programs? Many banks may be reticent about participating with significant bureaucratic overhead being proposed.
Newly appointed Treasury Secretary Timothy Geithner is headed to a Democratic congressional retreat this week as he works on a TARP overhaul that is expected to have much stricter rules. Tops on that list of new rules is executive pay restrictions.
Geithner, during his confirmation hearing, told the Senate Finance Committe that participating banks would have to lend in exchange for additional TARP funding. "As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending," said Geithner.
Although there is a lot of motion in Washington, lawmakers are heading down all the same paths reviewed during the original October 2008 crisis. Will these actions emerge with different results?
Wall Street reveilled briefly in the prospect of "bad banks," aggregating toxic mortgage loans into a government controlled bank. Likewise, they reacted aggressively on the hint that the plan is shoved to the back burner.
The same questions that plagued the original plan to buy up troubled mortgages, hits this new plan. Pricing of these illiquid assets clogging bank balance sheets and restricting lending is problematic. Pricing too low hits banks with massive writedowns, potentially weakening more banks. However, pricing too high leaves taxpayers with generations of debt.
In exchange President Obama tells Matt Lauer, during an NBC Super Bowl pre-game interview, he was focused on getting lenders receiving TARP and other government assistance to lend. President Obama also scolded Wall Street for paying out over $8 billion in executive bonuses in 2008. This and similar remarks coming from the White House and House Democrats indicate a goal to place more accountability on firms receiving taxpayer money.
Speaking on Sunday's This Week political talk show, House Financial Services Committee Chairman Barney Frank said, "You're going to see the Obama administration push for much more lending...There are going to be some real rules in there." What will this mean for implementation of these programs? Many banks may be reticent about participating with significant bureaucratic overhead being proposed.
Newly appointed Treasury Secretary Timothy Geithner is headed to a Democratic congressional retreat this week as he works on a TARP overhaul that is expected to have much stricter rules. Tops on that list of new rules is executive pay restrictions.
Geithner, during his confirmation hearing, told the Senate Finance Committe that participating banks would have to lend in exchange for additional TARP funding. "As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending," said Geithner.
Although there is a lot of motion in Washington, lawmakers are heading down all the same paths reviewed during the original October 2008 crisis. Will these actions emerge with different results?
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