Jul 31 2008

Mortgages, Subprime Mortgages, Mortgage Bailout

Published by at 11:04 pm under Debt and Credit,Global Economy,Real Estate

If you are like me, you have read and heard these words so many times recently you could scream!  That being said, there is clearly a good reason for this.  Most of us have a mortgage on the house we live in – unless we rent.  When I was in the process of buying my first house, the financial institution I dealt with required verification on nearly every detail I self-reported to determine if I was a worthwhile credit risk.  I didn’t necessarily appreciate being challenged in this manner at the time but I understood why it was necessary.  This was just the way it was and if it had been my money that I was considering loaning to someone else, I certainly would have done the same or possibly I would have been even tougher.

 

Between five and ten years ago, a whole bunch of brilliant people (that just happen to occupy positions of great influence) decided that it should be much easier for people with a less-than-satisfactory credit history to qualify for a mortgage.  This was apparently important because home values were shooting towards the stars in many markets and potential buyers needed bigger loans to buy these homes.  Fast forward to present day and guess what we have…you guessed it…all this easy money has resulted in an international mortgage meltdown – and desperate times call for desperate measures!

 

So President Bush and Congress just signed off on a mortgage bailout at the tax payers’ expense.  According to Congressman John Hall from New York, “The Centerpiece will help many homeowners refinance their mortgages into lower-cost government-insured mortgages that they can afford to repay, preventing the economic pain that further foreclosures would inflict.  The law will also give states and municipalities access to resources they can use to buy and rehabilitate foreclosed properties so they will not depress property values and destabilize neighborhoods.”  This bailout will not undo the hundreds of thousands of foreclosures that have already occurred, nor will it help ease the billions of dollars in losses that many banks are dealing with.

 

In the United Kingdom, the Treasury is considering giving “a taxpayer guarantee to billions of pounds of bonds known as mortgage-backed securities created by banks out of high quality mortgages, in a radical attempt to revive Britain’s rapidly shrinking mortgage market” according to Robert Preston of BBC News (see Treasury’s mortgage rescue plan).

 

As individuals, what do we need to know?  Hopefully you are sitting pretty with a nice 30-year (or less) fixed mortgage and you have no trouble making your monthly payment.  If you are struggling to meet your financial commitments, and have some form of exotic adjustable rate mortgage, contact your mortgage company as soon as possible to find out what your options will be once the bailout is implemented.  Until you know the options, you should do everything you can to stay current on your mortgage payments to avoid foreclosure.

 

If you will soon be applying for your first mortgage, I strongly recommend you consider a fixed-rate mortgage before anything else.  You should compare offers from several lenders, including banks, credit unions, and mortgage companies before selecting one.  Compare and consider the following features: interest rates and points; interest rate lock-ins; required down payments; mortgage insurance requirement; prepayment penalties; and estimated closing costs.  If you do decide to go with an adjustable rate mortgage (ARM), you should know what financial index is used and the lender’s margin (% markup) over the index.  You will also want to know the rate caps and payment caps – and of course any provisions and fees for conversion to a fixed-rate loan.  The good news about the mortgage meltdown (if there is any good news) is that you are less likely to be approved for a mortgage you can’t afford.  These are interesting times…aren’t they?

3 responses so far

3 Responses to “Mortgages, Subprime Mortgages, Mortgage Bailout”

  1. […] Lending Profits wrote an interesting post today onHere’s a quick excerpt If you are like me, you have read and heard these words so many times recently you could scream!  That being said, there is clearly a good reason for this.  Most of us have one (or two) mortgages on the house we live in – unless we rent.  When I was in the process of buying my first house, the financial institution I dealt with required verification on nearly every detail I self-reported to determine if I was a worthwhile credit risk.  I didn’t necessarily appreciate being challenged in this ma […]

  2. Tallison 04 Aug 2008 at 1:54 pm

    I don’t know if this is the correct approach but something had to be done! Credit has become too difficult to come by lately and if it doesn’t get better soon we will be in for much more pain. On the brighter side, a friend of mine who has been trying to sell his house for 18 months finally has a contract!

  3. mortgage brokerson 31 Oct 2008 at 8:56 am

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