Devoted to interest rates, loans, and lending institutions

Despite the fact the US dollar is making something of a recovery, and some officials have said that we're nearing the end of our economic troubles, Fed chair Ben Bernanke insists that financial markets still need help.

Bernanke listed some actions that have been taken to promote liquidity in the financial markets, and pledged to continue to take extraordinary steps (including those connected with the term auction facility) until the crisis has been weathered.

Will his comments commiting to liquidity help stimulate a flagging housing and mortgage market? That remains to be seen.

image credit: US government

One of the worries that has been plaguing the financial sector is that different mortgage lenders and banks would have to cover large losses due to subprime mortgages. This morning's news about HSBC is providing the stock market with a level of optimism.

Europe's largest bank, HSBC, is reporting earnings, and data is showing that the bank doesn't have as much set aside to cover bad US loans as thought. And that is being taken as a positive sign that things may not be so dire.

Not to long ago, I spoke with William Jordan, a Laguna Hills Financial Advisor with Sentinel. He pointed out that even now, with home values falling, it might be a good time to use your home equity.

But not for just anything. Credit cards and vacations are out.

"Taking money out of your home depends on your reason. For consumer purchases or spening, it's rarely a good time to do that...But if you are taking the money out for investment -- like cash to buy other real estate or to diversify your portfolio -- it can nearly always be a good time," Jordan says.

Jordan also points out that it doesn't pay to get too worked up about negative equity in these situations, as long as you keep the long view in mind. "If you're going to be in the house for 10 years, it makes more sense than if you are going to move in two years. No one really disputes that your house is going to be worth more in 10 years."

Instead of focusing on negative equity, think about your debt load, Jordan advises. "If you can handle the payments, and if you can make investments that make up some of the difference, then you should consider using the equity in your home. This is especially true in a declining real estate environment."

Here is a great parody of D-I-V-O-R-C-E, called H-E-D-G-E. Now that our economic problems are nearing an end (according to the Bush Administration), I guess we can laugh about it.

Happy Friday!

President Bush is promising that if the current housing relief bill makes it to his desk, he will veto it. The New York Times reports on the President and the housing relief bill:

“I will veto the bill that’s moving through the House today if it makes it to my desk,” the president said at the White House, after meeting with Republican House leaders. “I urge members on both sides of the aisle to focus on a good piece of legislation that is being sponsored by Republican members.”

The housing relief bill in question would expand the number of people with access to using federally insured mortgages to refinance homes that are in danger of foreclosure. The government, however, would retain a stake in the sale of property in the future, and the loans could only be made for 90 percent of the home's value.

President Bush says that the bill would "reward speculators and lenders" who made poor decisions. Maybe. But what does the JP Morgan and Bear Stears agreement do? Oh right. It limits losses for speculators who made poor decisions and puts taxpayers on the hook...

image credit: US government

One of the issues when it comes to buying a home is the mortgage payment. Can you afford it? This is an especially important point in the wake of the all the foreclosures from the subprime lending crash. You want to make sure that you can afford your mortgage payment, especially if you are considering an ARM and it will reset down the road.

How much of your income should go to a mortgage payment?

While mortgage lenders were fudging it for a while, things are coming back to the 28 percent rule: Your mortgage payment should account for no more than 28 percent of your monthly income. So, if you make $4,000 a month, your mortgage payment should be no more than $1,120.

But that's not all. You also need to figure that you will have to add in mortgage insurance, interest charges and property taxes. So, while you can use a mortgage calculator to figure your basic payment (with the interest), you still need to account for taxes and insurance. In many cases, these expenses can add $200 or $300 -- or more -- to your mortgage payment.

Take your mortgage payment for a test drive

You want to make sure you really can afford your mortgage payment, so take it for a test drive. Take the expected mortgage payment, plus taxes and insurance, and figure how much more it will be than your current payment. If you are currently paying $900 in rent, and your new expenses will be $1,500, that is a $600 difference.

Take that $600 and put it in an account (preferably high yield savings). Don't spend it. If you can go six months without that $600, then you can probably afford the mortgage payment. You can use that money as an emergency fund, or add it to the down payment.

The Federal Reserve is reporting that mortgage lenders are requiring tighter lending standards for home loans. Calculated risk reports on the Fed's statements regarding lending standards for home loans:

Compared with the January survey, the net fractions of banks that tightened lending standards increased significantly for consumer and commercial and industrial (C&I) loans.

Additionally, demand for mortgage financing is falling as well. This makes sense, since many who would normally consider buying a home are hanging back. Whether they are worried about passing muster with the new lending standards, or whether they are worried about the real estate market, fewer people are interested in buying a home.

image credit: sxc.hu

Even with the added difficulty of getting qualified for a second home mortgage, there are still those peddling home equity for debt consolidation. And while debt consolidation can be a good move for many people (and even using home equity has its advantages), it is not for everyone.

Putting your home on the line for credit card debt

When you use a home equity loan to get out of debt, you are exchanging your unsecured debt for secured debt. This means that your home is now collateral for your credit cards. 

In the current climate, where home values are still falling in many markets, this could easily tip you into an upside down mortgage within a few months. And if you run into recession-related troubles, then you might start having trouble with your payments. And if that happens, you could lose your house.

Before choosing debt consolidation -- especially home equity debt consolidation -- consider your other options as well.

image credit: sxc.hu

I love this parody of "We Didn't Start the Fire." It's about the Wall Street, uh, issues the past few months. Quite enjoyable.

Happy Friday!

When it comes to second mortgage financing, things are getting difficult. You thought it was hard to for someone to buy a home? It's even hard to get the financing for a second mortgage.

With home values declining, mortgage lenders are reluctant to give out second mortgage financing becuase of how quickly negative equity could become a reality. Not to mention the "economic slowdown" means that things could ugly for a borrower really fast -- leaving mortgage lenders with no choice but to foreclose.

The Industry Report offers this example of a letter from underwriting about a second mortgage application:

"The second mortgage market is very volitile at this point and we had eliminated second mortgages altogether for a good 6 months or so.

Since the reinstation of the program we decided that we would only offer the second mortgage product to current customers as a benefit to them, but since the market is weak for second mortgages we have not opened the option back up to all borrowers only current customers.

Thank you

       Flagstar Bank
      Underwriting Support Desk 

This is becoming a rather standard practice as the mortgage market tries to figure things out.