Avoiding Another Mortgage Meltdown

It's easy for Democrats to portray America's subprime loan crisis as a massive failure by a Republican led government and now 2 million American families could be about to lose their homes.

Perhaps democrats have a point.  Many borrowers were confused and deceived by the tactics used to sell subprime loans.  Largely unregulated mortgage brokers falsified borrowers' incomes, reaped steep commissions for steering them into unnecessarily costly loans, and misled them about the true cost of borrowing.  Homeowners ignored the risks they were taking; government neglected its duty to warn them.  There was a failure of individual responsibility but, much more than that, a failure of minimalist regulation.

Congressman Barney Frank, Democratic chairman of the powerful House financial services committee, recently introduced a bill that could help prevent a repeat performance.

The bill would eliminate some of the perverse incentives that warped the market for such loans.  Mortgage originators would have a "duty of care" to make only those loans a borrower has a "reasonable ability" to repay.  The bill would ban the bonus fees paid to brokers for putting borrowers in overly expensive loans.

Homeowners would be able to sue over improper loans, but investors who buy securitised mortgages would not be liable.  The bill bars costly class actions and excessive damages, and offers a safe harbour from liability for loans that meet certain criteria.

This is a good first step towards responsible regulation.  Pretending government has no role in the crisis is simply irresponsible.

What role do you think government should take in preventing another mortgage meltdown and foreclosure crisis in the future?  We'd love to hear your opinion.  Use the comment link below to tell us what you think.  Your email address, although needed to send us your comment, will NOT be posted with your comment.  We respect your privacy and do not publish anyone's email address here.  We look forward to hearing your comments.

Greenspan's Thoughts  

Alan Greenspan issued bearish comments about the U.S. housing industry recently, saying that "prices of homes will continue to go down" until housing inventory starts to shrink.

The former Federal Reserve Board chairman, speaking at an investment conference in Bermuda, said "we're nowhere near" the point where inventories of new homes are set to drop, noting that home builders continue to discount new homes and add other inducements to try to cut their inventory.

During the housing boom, new-home builders were like the hosts with the hottest invitation in town.  They could raise prices with every newly opened phase of a development and display a "take it or leave it" attitude toward buyers.  Now, amid the downturn, homebuilders are the hosts everyone avoids.  In July, new-home sales nationwide were down 10% from the previous year, and the National Association of Home Builders expects them to continue falling until the second half of 2008.

Builders generally don't advertise price cuts, except for quick-move-in properties, lest they scare off nervous buyers and antagonize current owners who bought at higher prices. The closer builders are to finishing a development, the more likely they are to discount prices, either directly or through upgrades.

On a more upbeat note, Greenspan said that while the recent surge in oil prices is clearly having a "significant impact" on the economy, he has mixed feelings because the climb in prices is "forcing us to break our addiction to oil" at a time when the world is getting closer to the point where it is becoming harder to extract oil around the globe.

Repeating his recent comments, Greenspan said the odds of a recession are less than 50 percent, but higher than they were earlier this year.

What are your thoughts about what Greenspan says about the housing industry and the economy in general?  Leave us your comment below.  Note that an email address is required to comment, but we respect your privacy and your email address will NOT appear with your comment.

Choosing a Moving Company

Here are some tips to help avoid the pitfalls of making the wrong choice when it comes to moving, whether it's locally, or across the country.

1. Is the moving company known to you, either through past experience or recommendation/reputation?
2. Have you seen their vehicles and do they and the occupants present a good image?
3. Have you seen the Company's premises and do they have adequate security? (Particularly important if your possessions are to be stored either short or long term).
4. Does the company have any recognized quality standards such as ISO or FAIM?
5. Does the company have sufficient resources to handle your move, or will they sub-contract part or all of it? (Beware of Brokers!)
6. Does the company belong to any recognized association whose criteria include meaningful requirements for membership?
7. If you're moving Internationally have you been informed of what shipping line your move has been scheduled on, the vessel's ETA, and whether transhipment is involved?
8. Have you been given details of the destination agent who will be responsible for clearance and delivery of your shipment?
9. Are you satisfied the insurance coverage offered is comprehensive and underwritten by a reputable Insurer?

If there is a moving company tip that we've overlooked, we welcome your added comments by using the comment link below.

Refinancing Your Home

Refinancing your home can be an excellent way to lower your monthly mortgage payment, raise cash, or consolidate debts with high interest rates.  However, you need to do your homework before deciding to refinance. 

One important factor is the difference between current interest rates and the rate of your original loan.  You also need to take into account the amount of time it will take to recoup the costs of refinancing.

Keep in mind - refinancing usually lengthens the time it takes to pay off your mortgage.  If you are 3 years into a 30-year mortgage and then refinance with a new 30-year loan, you'll end up making payments on the house for 33 years.  Nevertheless, if the monthly savings are substantial enough, you still could end up paying much less over the long haul with the new loan.

Be careful of lenders offering 100 or 125 percent home equity loans, as their rates are often markedly higher than traditional lenders.  In addition, any amount you borrow that is above the market value of the house is NOT tax deductible.  Check with your tax professional on this.

Talk with your lender about the different types of refinancing loans available today.  You should take some time to shop around and speak with several lenders before making a decision.  Be sure to discuss all the expenses and benefits, as well as what will be expected of you, in advance.  The more you educate yourself, the better your chances of finding the right refinancing package.

Have comments about this article?  Please use the comment link below to share your thoughts.

Real Estate: No Light in Sight

For those in the real estate industry and for those looking to buy or sell a home, it could take until 2009 to catch a break.

That's the forecast from Doug Duncan, chief economist for the Mortgage Bankers Association (MBA).   Duncan expects national median home prices to fall between 2 percent and 4 percent both this year and next. Prices will be held back by an oversupply of homes for sale, an increase in foreclosures and continued uncertainty among mortgage investors.

For this year, Duncan is predicting a 22 percent drop in new home sales and a 12 percent drop in existing home sales, followed by a 10 percent drop in each next year.

What? No good news?

There's one group of home buyers, home sellers and loan originators who will have an easier time of it than everyone else: those dealing with "anything that's conventional and conforming," Duncan said. In other words, 30-year fixed rate mortgages for borrowers with good credit under the "jumbo" cutoff of $417,000.