Most of us know by now how severely damaged the mortgage and real estate financial industries are; but what is still to come? And what measures can be taken to avoid a collapse that would be classified as a depression-like economic society? These are broad questions, and I am looking to both real estate professionals and consumers for their thoughts and ideas.
For example, will simply lowering interest rates stimulate the housing industry to rise above the current crisis? And what future ramifications would such a move create? What else should government do? What should government not do? Is too much government good or bad for our economy and our industries? Jay Leno joked that in Cuba, when Castro rose to power, he instantly demanded all private business and commerce was now public-owned, which we define as communism. In the U.S., however, we call that a bailout. As extreme and funny as that statement sounds, is there any truth to it? Recently, 60 minutes reported we are only in the 1st wave of the financial meltdown, and this crisis could snowball for the next 2-5 years.
There are also some scary similarities of the conditions of today compared to those during the great depression (ex. Obama policies compared to F.D.R policies). In fact, the depression did not end when F.D.R. took office. The economy (national and global economy) continued to worsen for years to come until after world war II (actually, the horrible global economy enabled one opportunistic dictator to rise to power - Adolf Hitler).
This blog is not intended to evoke political party affiliations or opinions towards either party. The goal is only to hear the every day American's opinion on how this can be corrected, if it can be at all. We also want to hear how future waves of credit demise could effect your presonal life and well-being. Think auto-loans, student loans, credit cards, etc... Thank you for your posts and thoughts. - JB
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What is your interpretation of Fed's rate move today short and long term?
ReplyDeleteAgain, it appears the Feds are plugging holes in a dam that has sprung one too many leaks. It should increase some spending over the next few months, if not longer, but the trade off is like the cliche "cutting off your nose to spite your face". Yes, refinacing should increase. Home loans will be more affordable (not exactly easier to get though). But will that lower home prices? No. And what about all of those depositors with money in higher yield money market accounts? Instead of increasing liquidity we are focusing again on easing credit woes. Stocks may rally on the news, but that will not change the state of economic problems most companies are facing. With a trillion dollar deficit and Europe's recession worsening, the storm is far from over, but it may help us ride through it a little easier.
ReplyDeleteInterestingly the euro rose once news of the 0% from the feds. Seems investors may be pulling money out of US and into European Banks for higher returns. Feds know this and this may improve exportation of US goods = some jobs.
ReplyDeleteAll is not doom and gloom. 2009 could be a better year for real estate in the Philadelphia area for a few reasons. One, the lowering of interest rates should open up some financing to home buyers that could not afford the home they wanted in 2007. Second, Obama's proposed job stimulus plan could see more than a hundred million dollars of infrastructure investment in the city, particularly towards schools, market street and convention center revitalization and the child detention center. Philadelphia was ranked by Forbes.com as one of the top 3 cities that would benefit from Obama's proposed plan. And finally, it appears some lenders (though many of us do not know this) are increasing their hardship modification loans to existing borrowers to prevent default. Some of the options they are offering are rate reductions on ARMs and interest only loans and restructuring the balance to 95% of current appraised value, to name a few. Borrowers need to be proactive and continue to try to communicate with their lender to take advantage of new programs.
ReplyDeleteAs a mortgage loan officer and supreme pessimist, I see the negative side to everything these days. The current drop in rates should lead to a refi boom. But I don’t think there will be as many loans closing as there should. Here's my opinions why:
ReplyDelete1. The obvious - credit criteria more strict then it was when the borrower bought the house.
2. Risk based pricing. Last year there wasn’t "price adjustments" for lower credit scores and higher Loan-to-values. A recent example I came across: my client had a 650 fico score and was at a 80% LTV. When he bought the house a year ago the going rate was 6.5%. Today, the par rate is 5.5%, but because of his score and LTV he is being charged 2 points. With the closing cost and points rolled into the loan, he would be at a 85% LTV and have to pay Mortgage Insurance, raising his monthly payment. This scenario is hoping the value of his house (and comparable sales) hasn't dropped. Which leads to my next point
3. There's no equity. With all of the 100% financing loans in the past or even 95% LTVs combined with falling housing prices, there's not room for a refi. Even if our area wasn't hit as hard as the rest of the country, a 3- 5% reduction in value eats away any possible equity a first time home buyer has to refi. In years past, if the buyer had 100% financing (or a 80/20) the appreciation in value gave the client the opportunity to refi.
Are people finding it easier to stop paying their mortgage and get bailed out like everyone else?
Enough of my belly aching, I'm out to search for the ever elusive borrower with 700 credit scores and 25% equity left in their home!
Chris illustrates the current problems we face in the housing industry. To answer some of Chris' concerns, some lenders are beginning to establish modifcations to meet alleviate some of these problems and keep borrowers right side up in the house. In a previous blog, I proposed modifications funded by a government agency (like HUD's mortgage insurnance) where good standing borrowers could modify out of their current high risk loans and into fixed-rate (at current rates) loans. Conditions would apply, such as good pay history and owner-occupied status. Also, an appraisal would re-establish the value, and the original LTV the borrower took out would apply to the new modification. The government agency would lend the lender the difference, and in essence take a 2nd mortgage on the property at a low rate only paid back once the borrower's income increases. Also, the difference would be paid back when the property sells or if the borrower refi's.
ReplyDeleteI think we need to educate people (and hopefully the government edcuates banks) the need to try and work out the current situation. We built our society on a credit-based system, and we can not turn away from it without a complete depression. Imagine if 90% of lending in the following areas halted for good:
-Mortgages
-Business lines of credit
- credit cards
- Auto loans
- School Loans
- Construction Loans
- Commercial Loans
How many people would the "trickle down effect" hit?