Countrywide Drops & Foreclosure Filings Rise At Record Paces
The bad news for the U.S. economy continues to come out in mass. On the eve of another meeting by the FOMC, the countries largest mortgage lender reported losses totaling near 800 million dollars. Countrywide is continuing to be hit hard by the fall out in the real estate markets and their is little hope that the market will improve any time soon. There is a strong possibility that the U.S. housing market will continue deteriorating at record paces as the number of foreclosed homes on the market grows. RealtyTrac today announced that foreclosed home filings are now at the largest level in history and that they were up over 25% from the fourth quarter of 2007.
It is becoming more apparent that the U.S. housing market will not rebound simply based on lower mortgage rates. This puts the government in a tough position as they are going to be left with two choices allow the market to continue to fall until all of the bad loans have worked their way through the system (potentially 2-3 years from now) or offer a true stimulus package that will provide the necessary components to help the market. If the government offers a stimulus package it will need 3 key ingredients. Financial incentives for lenders to offer loan programs for lower qualified applicants (increase demand base), tax incentives for purchasing foreclosed homes, and a true strategy for dealing with home owners facing foreclsoure.
Mortgage rates continue to trend around six percent and the balance of the economy is still producing above expectations, but one is left to wonder how long this can last.
Ten common refinance mistakes
The window to refinance your existing mortgage for a low fixed rate home loan is still available. There are some simple things every home owner should know to ensure they get the best loan for their refinance scenario. Some of the most common mistakes made by home owners who want to refinance their loan are as follows:
- Not knowing what their credit (Fico) score is
- Avoiding calling their existing loan servicer
- Increasing their house payment by shortening their loan term. ( you can always add extra on a 30 year term)
- Focusing too heavily on the rate and not examining the cost and loan apr
- Shopping with multiple lenders, but not calling them on the same day
- Trying to find a deal that does not exist in the market
- Accepting a loan with a prepayment penalty
- Ignoring the benefit of buying down the mortgage rate through discount points
- Failing to eliminate ineffecient debt (credit cards/revolving debt)
- Not working with a professional who establishes a plan and review your goals in detail
This list could certainly go on and on as home owners have discovered over the years that shopping for a mortgage can certainly be a stressful process. The best advice to anyone who may be considering refinancing their mortgage is to start with a complete review of their finances, closely examing all of their debts and establishing a long term financial plan for their debts as well as growing their assets.
Refinance Rates Moving Up!
This year has provided a unique opportunity for home owners to refinance their mortgage into fixed mortgage rates at levels last seen in 2003. In January of this year fixed mortgage rates reached their lowers levels of the past five years and were around 5.25% as the yield on the ten year bond dropped to 3.33%. This brief opportunity to lock into near historical low levels did not last long as mortgage rates jumped shortly their after.
Since early January the market has been under enormous stress following further fallout in the credit markets. Mortgage interest rates have been under pressure due to the tightening of the credit markets and the spread in mortgage securities has increased as investors are looking for a larger premium to hold mortgage loans. This larger spread has elevated the rates on mortgages, even as the yiled on bonds has declined with the turbulent movements in the stock market.
The market is now under further strain as rising oil prices are adding enormous strain on the markets through inflationary pressure. The yield on the ten year bond has moved well above the January lows and mortgage rates are now trending above six percent. The Federal Reserve will be meeting again in a few weeks and may further reduce the Fed Funds rate which would be good for home owners with adjustable raete mortgages or home equity loans, but it is unlikely to aid in helping bring down the rates of fixed rate mortgages. Those homeowners who have been on the fence when considering a refinance should explore locking into a fixed mortgage or securing a fixed mortgage with a float down option.
Credit Squeeze
You can not open a newspaper without hearing the term credit crunch and falling home prices. The financial mess is going full circle, first from main street down to wall street and now back to main street…
The worst time to borrow money is when you really need it desperately, and as many American home owners are finding out, even if they had planned for tough times, lenders are now pulling in their options. This past week Wachovia made headlines for freezing open lines of credit on home equity loans. Large lenders such as Indymac and Countrywide began doing this earlier in the year. The default rates on second mortgages have spiked to such high levels that most lenders are no longer offering second lien products. This puts homeowners in a difficult spot, already banks are being flooded with calls from customers who are trying to pull out all of the equity they can from the home equity lines in fear that the lender could freeze them out.
Complicating matters is most mortgage lenders have now also reduced the amount of equity a home owner is eligible to reifnance. In years past it was not uncommon for home owners to refinance at 95 to 100% of their homes value. Those options are long gone, most lenders now cap the loan amount at 90% of the homes value and even lower if your zip code is categorized as being in a “declining market”. The only option a home owner has to cash out refinance above 90% is through an FHA backed mortgage.
Many economists are predicting the limited access to home equity will result in a dramatic rise in the default of consumer credit cards. Homeowners who have historically used their homes equity to pay off their revolving debt have run out of options and will be stuck to make difficult financial decisions if the market does not improve in the near future.
The biggest obstacle facing the real estate market is excess inventory
The housing crisis is a daily headline on almost every website, newspaper and blog. The fact that American home owners have lost billions of dollars worth of equity is very concerning and one of the largest items on politicians agendas heading into the elections. Our country is growing at a rate of about two million people per year. This is a key statistic that is often overlooked but will be a major factor in eventually helping to fix the housing market.
The largest challenge facing the real estate market today is excess inventory. The fallout from the sub prime mortgage crisis has been an over abundance of foreclosed homes. This has had a significant secondary impact on the market that is contributing to the ongoing problem. As home values have declined, lenders have tightened their guidelines making it more difficult to not only refinance but to qualify for loans to purchase homes. The net result is that we have a marketplace where inventory is continuing to grow and the demand for the inventory is restricted. Like every major economy this causes prices to decrease.
The solution that should be the major focus of congress is to encourage new forms of lending to stimulate the real estate market. Fixing the demand side of the equation will go a long way towards improving home values.