Prime Rate Credit

You’d think that the government intervening to save people from increased ARM mortgage loan interest rates and bailing scores from impending foreclosure would be welcome. To those that is bails out, it most certainly is, but to those of us that pay the taxes to help bail those out of trouble that may not have exactly done their homeword when signing up for loans they inevitably couldn’t afford, it’s really not so great.

We all know that the government may step in to subsidize certain things, like crops of fruits and veggies from America’s farmers, but when they stepped in recently to help bail out subprime mortgagees who couldn’t handle their payments and were either going to need lower payments and less interest, or an iminent foreclosure, some people got downright mad.

You see, it is your tax dollars, and you could get angry about that, but also you may want to look at it more in a “cup half full” way as well. First of all, you are keeping homes occupied in neighborhoods, and hopefully driving up property values in that area, and second of all, on a purely altruistic level, you are charitable and willing to help your fellow man in crisis for making a not so sound financial decision.

Third, from a purely practical point of view, you are helping (hoping) to educate people and financial institutions that borrowing money is serious business and when it is borrowed irresponsibly, or loaned out irresponsibly, it can have dire consequences. What side of the fence do you think you’re on? I’m on the fence a little on this one. I feel like people should be made accountable, but also believe in the greater good. Use a mortgage calculator to make sure you know what you’re getting into.

We’ve been hearing so much about the “Fed” possibly cutting those rates lately on and off, and you were probably wondering what that really meant for regular folks like you and me. At least I know I was.

That is, I was wondering if it really meant anything to me personally or your personally if you were to say, apply for a mortgage loan and pursue the American dream of owning your own home, or maybe selling your home, or upgrading to a newer, better home. After all, when the Fed cuts rates, it is mostly the mortgage lending market that is impacted. Right?

Well, yes, it is largely impactful to the mortgage lending market when there is a rate cut, and since much of the focus on our failing economy is on the miserable mortgage crisis, that is what we will focus on.

Well, the answer kind of surprised me, and if I understand it correctly, when the Fed cuts rates, even at the smallest or seemingly largest percentage - well, make that a fraction of a percentage point, it really does not affect what you personally are going to pay or what you are able to be offered by banks competing for your business.

In other words, it is really the prime rate that is set and considered the bar by which all banks adhere to, which is more or less decided on by what is called the bond market. Since banks use this a benchmark for offering competitive rates to their customers (prospective loanees), because they know this percentage is publicized, and the educated consumer will use this percentage as a measuring stick by which to shop for a new general loan, mortgage loan, and even some credit card.

Apparently things might be softening up a bit for mortgage companies, or at least for homeowners, in the arena of mortgage foreclosures that we seem to hear about in the news now all the time. A company that started tracking foreclosure rates and housing trends back in 2005 (I know, that’s not that long ago really, so how valid are these statistics, I don’t know?) called RealtyTrac, has now come out and said that foreclosure rates have significantly dropped for the month of September.

As for the reason they are unsure, and are also quick to point out that although the September numbers appear to have dropped, in a good way, they are still significantly higher than any other stats the company has tracked in its short history of tracking mortgage foreclosure trends.

The worst hit state still remains California, where properties and the cost of living is sky high. Heck, you practically have to make at least a half a million a year just to live comfortably in California, whereas in my home state of Ohio, this would afford you a very nice house and property, plus a comfortable disposable income.

Other hard hit states are Florida, and also my hometown of Ohio, who follows with much less of a staggering figure, but still ranks as one of the worst foreclosure states for the time being. I’ve seen a lot of empty lots at developments, and it seems like way too many new ones are coming in, so I can see why we have a high foreclosure rate here, or at least an occupancy problem.

The FTC, or Federal Trade Comission, has announced that it is currently investigating several mortgage lenders for what they called misleading and sometimes downright deceptive advertising practices. Their findings could, in the end, lead to several civil lawsuits from people complaining that they have been detrimentally affected by extremely misleading advertising.

Some of the complaints undoubtedly stem from what is called an ARM loan. An ARM mortgage loan is an Adjustable Rate Mortgage loan, and many times it sounds like a great option to someone who wants a lower mortgage payments, since, when the mortgage rates are low, their monthly payment can be substantially lower than it would be with a fixed rate loan.

However, the problem is, many say that with these ARM and other unconventional loans that are not a fixed rate or term, it is not adequately explained how high their payments could go in the event of an extreme increase in the mortgage interest rate on the loan. This increase in the interest, and subsequent increase in mortgage payment, which many times can mount to hundreds of dollars a month additional and squeezes family’s budgets, is what is being called unjust and inadequately explained by the advertiser.

The FTC cites those ads that we all see every day online, advertising mortgage loans on a $250,000 home for just $615 a month, when in fact, when that loan is amortized, and with a low interest rate, the payment would really mount to more than double that. The FTC is looking to crack down on ads like this that make it sound like people can get a great monthly payment, without explaining the very real possibility of the downside, that is, if it increases, which it invariably will, especially with today’s volatile economy and fluctuating mortgage interest rates.

So, we’ve talked a lot of the past few months about the mortgage and housing situation currently going on here in the US, and how it is a prime opportunity for buyers to think about shopping around for a house.

What we haven’t talked about is other types of financing for home buyers, specifically, mobile home loans. Mobile home loans provide a mortgage plan, with varying interest rates depending on who is offering the loan, just like your typical mortgage loan that we’ve talked about in the past.

I happened upon a business while doing some online research which actually specializes in offering mobile home refinancing and manufactured home loans. The benefit to going with a company like this who specializes in this somewhat niche market is, they have the expertise it takes to find the right loan at the right rate for you, and can give you the guidance and experience you need when refinancing your mobile home, or when purchasing your first of second mobile home or manufactured home, unlike traditional mortgage lenders who may not have as much, if any, experience in this field.

The company, called Aaron Financial Services, offers several different services for the mobile or manufactured home buyer, including mobile home appraisals, loans and refinancing for home improvements, refinancing for debt consolidation (one of my favorite topics, and something that can help people’s financial situations immensely since they can pay off high interest “bad” debt and get it out of the way). They also offer mobile and manufactured home insurance, service contracts, and buyer-agent services.

Buyer-agent services can be of a huge benefit to those that may be more inexperienced with the buying and negotiating process. They can help you determine fair prices, and also help in the price negotiations between yourself and the sellers or the agent who is selling for them. All in all, this company offers a wide range of services and expertise if you are in the market for a mobile or manufactured home - a lot more than just mobile home loans, it seems like it’s more of a comprehensive service.

The continued free fall in real estate can not persist forever, but for right now the effects on the economy and lending institutions are profound. There are a number of different causes for the ongoing slump. The recent increase in the number of foreclosures have tightened credit and financing. Even people with good credit have less attractive financing options available to them when applying for and comparison shopping for a home mortgage loan.

The supply and demand is way off balance in the real estate market. There have been too many existing homes on the market for too long with no pending sales in sight. This factor has forced home prices down. According to the U.S. Census Bureau, housing starts are at a 10 year low. Construction companies that build new homes are often focusing on remodeling jobs and building additions to existing homes just to stay afloat.

Another ripple effect in the economy is a decrease in availability of home equity loans. Second mortgages are being viewed as higher risk as the credit crunch continues. Job losses and department cutbacks ensue in home equity divisions at banks. Fears over credit problems spreading and the credit crunch are effecting stock market activities. The Dow is plunging and volatile as emotion and psychology seem to be dictating the state of the stock market.

Countrywide Financial Corporation has borrowed 11.5 billion to avoid bankruptcy. Countrywide is one of the top mortgage lenders and they are trying to use these resources to ride out the present credit crisis.

Well, in the already struggling home buying and home selling business, more bad news strikes, in the form of record ten months mortgage loan rate highs. That means the mortgage loan interest rates have gone up, to the detriment of both home buyers and home sellers alike, in an already struggling home market which has been plagued by too many houses for sale with not enough buyers on the market for the past two years or so. So how much did the mortgage rates go up?

Well, on paper, it doesn’t look that significant, but believe me, these few little decimals can add up big time if you buy a home, for the simple fact that most interest is charged up front and the second simple fact that you are paying on your mortgage loan for a very long period of time, comparatively speaking with other forms of credit lines, so the seemingly small difference can add up to thousands more dollars paid in interest over the life of the loan unfortunately.

That is, unless you’re independently wealthy and can afford to pay cash for a new home. But how many of us are in that lucky boat? Not many! And that’s not the worst of it either, analysts are forecasting that the mortgage rates may reach nearly 7% by the end of this year, which could really put a damper on things for prospective home buyers, not to mention the mortgage and home buying business as a whole.

I think my gosh, you know, we got a secondary loan to pay for just twenty five percent of our home, and that secondary loan is almost eight percent interest, and believe me, that is the first loan we are paying off, because the primary loan we got at nearly the prime rate going for home mortgage loans calculations at the time we purchased the home, so that loan will be paid normally, we won’t be trying to accelerate that one because it is at a lower interest. With a nearly seven percent “norm” it will be tough for people to rationalize buying a home when the rates are so high.

Also, what about people with ARM loans, won’t they be hurting when their mortgage skyrockets because the rates have increased? Just another reason why ARMS are not a good idea for most folks, unless you are in a unique position.

To rent or to own, that is the question on many 20 and 30 something year olds right about now. With the home buying market still at a buyer’s advantage, it’s still a good time to buy a home, but the sellers market is still struggling amidst a lot of uncertainty in the housing market, and plummeting prices.

But, what are some of the reasons that many young people do not opt to buy homes right away nowadays, as was customary back in the day?

Well, I for one, considered a few things. Renting meant that I didn’t have to worry about maintaining the structure of where I lived, nor the grounds. If something major went wrong like with the heating system, AC units, or hot water heaters, all I had to do was call my landlord who was ultimately responsible for the upkeep of the home and property, not me.

Another consideration was that I did not have to pay property taxes. However, you do have to consider that many times property taxes are a tax deduction at the end of the year.

What about the fact that when you own you don’t have to answer to a landlord, or that you can also usually decorate and garden however you’d like. These things are very appealing. To have a house, there are so many little expenses that you have to consider before you can figure out if your budget allows for home ownership or not.

What is mortgage reform? Well, I think since the amount of bank foreclosures on homes that the owners simply cannot pay for is alarming to many, and has been so bad in these past few years, that it is drawing attention on Capitol Hill from lawmakers who are concerned that people are being sold mortgages that the mortgage companies are not looking at the risk assessment thoroughly enough.

Also, they are looking at curbing and eliminating something called predatory lending, which is basically where mortgage lenders are “preying” on those that they know have a high chance of defaulting on a loan who do not have adequate income or a higher than desired debt to income ratio, just in order to get more mortgages and get their numbers higher.

Here’s the scary figure that prompted this congress interest : National foreclosure rates supposedly jumped about 47% in March from just one year ago. That was just two short months ago, and the new figures aren’t mentioned yet, but those are some very startling figures.

The problem many say congress is having in weighing in on this complicated issue is figuring our who all the players are and considering any legislations effects that may be unintended, and for that, lawmakers have to understand the complex mortgage industry, which many say is not an easy task. However, they still want to step in where public interest is at stake, so they are really looking at a catch 22 situation here if you ask me.

We all have heard personal stories that are pretty close to home about someone who had their home foreclosed by the bank they borrowed the money from for their monthly mortgage. But why have these stories significantly increased, and why is everyone walking on eggshells when they go to buy a house now, for fear they are “getting in over their head”?

Well, a friend of ours was over last night, and he had an interesting theory of why the rate of home foreclosure has gone up. First of all, what is a foreclosure? Well, a home foreclosure is when you have not made your payments for a designated amount of time to your mortgage lending institution, and they exercise their right to do what’s called foreclose on your home loan.

They legally seize your property and you are basically forced to move out of your home because you could not make your monthly payments. Fair enough, right? The bank has lost money on you, and you are essentially backing out of a contract that you signed (numerous, headache-inducing documents) saying and promising that you are going to repay this loan in good faith.

When you don’t pay, or are unable to pay, the bank has the right to seize your home and property and put it up for sale to try to gain the money back that they have lost by you breaking your financial obligation with them.

And now, back to my friend’s theory. He thinks that one of the primary reasons were these ARM mortgage loans, where the rate is variable, not fixed. When the rates were low, everything was great, the people who had the Adjustable Rate Mortgage were paying lower payments, maybe even lower than what they expected.

But when the interest rates went up, many people’s mortgage payments were going up in the hundreds, monthly and many people just simply could not handle this huge wrench being thrown into their financial situation, and were not able to make the newer astronomical payments thanks to the high interest rates. The mortgage they calculated in their minds as a feasible payment for their monthly budget was suddenly blown out of the water. This is a huge consideration if you’re thinking about gettin an ARM for your mortgage loan.