Housing Credit of $7500 to First Time Home Buyers passes
There is now a $7500 tax credit to those purchasing a home in the next year. This should help some of us with mortgage acceleration.
HudAuctionWatch is reporting that the:
Housing and Economic Recovery Act passed, and it offers select homeowners eligibility for a tax credit equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. This credit is $3,750 for married couples filing separately. Unmarried people who jointly purchase a home will be able to divide the $7,500 credit.
Sadly this amount has to be paid back to the government through 15 yearly payments of $500. But at least it’s an interest free loan!
Mortgage Applications Drop heavily
Perhaps more consumers are exploring mortgage acceleration, or so it would appear after recent news from the housing wire:
Refinancing activity continued its recent freefall, dropping another 16.7 percent last week, the MBA said; refis fell 20.2 percent one week earlier — meaning that refinancing activity has fallen nearly 34 percent in the past two weeks alone.
Purchase activity, often seen by economists as an important directional indicator for housing, also fell last week. The MBA reported that its index of purchase applications fell 4.8 percent, marking the third straight week of declines for purchase applications. FHA purchases also fell for the second consecutive week, dropping 3.7 percent after a torrid run-up in application volume in the back half of the first quarter of 2008.
Reflecting the dearth of refinancing activity, refinance share of total applications decreased to 45.7 percent of total applications from 49.2 percent the previous week, the MBA said. ARM share continued its steady decline as well, decreasing to 5.9 from 6.6 percent of total applications from the previous week.
The end results of this mortgage meltdown may be quite sour, and leave little hope for this nation’s financial future.
Variable-rate note now harder to sell
Reuters reports that major banks including UBS AG and Citigroup are now making it harder to sell what used to be one of the safest alternatives to cash — so-called variable-rate demand notes — sources familiar with industry practices say. Major banks are now being more cautious due to their desire to reduce risk. The new procedure is costing sellers a loss in business and profit models are at an all time low.
“I heard everybody’s doing it,” one of the sources said on Monday.
Previously, investors who wanted to sell these floating- rate notes just had to contact the banks, which would either resell the debt or salt it away in their inventory.
But now, because banks are afraid of taking on any more risk, they are taking advantage of the slower and more cumbersome procedures spelled out in the debt’s legal papers, which oblige would-be sellers to go through the tender agents.
As a result, this $400 billion market is starting to freeze up — much like the market for auction-rate paper — as the banks put their need to save cash ahead of the investors’ desire for them to buy their debt to keep the market liquid.
One of the main culprits causing the market for variable-rate demand notes to seize up is the troubled bond insurers that guarantee them. This is the same factor that has caused the $330 billion auction-rate note market to get hit with billions of dollars of failed auctions every day since late January.
I’m surprised to see that these notes will no longer be treated as “safe”, but rather with a bright yellow “caution” sign written all over them. Although I can understand that banks don’t want to take on the higher risk along with the deadweight from these notes if would-be sellers do give them away, but making it harder for these notes to go back into the market will surely hurt the market in which these notes are sold and bought. Hopefully, this will only be temporary as within the near future, our market economy will become more stable. Variable rates are often one of the driving motivations behind mortgage acceleration decisions. Homeowners do not want to pay rates that they cannot control or predict, and thus budget for.
Fed Offers Huge Mortgage Bailout
The US Fed has bailed out several large investment firms, which has led to a wide array of criticism. According to the daily telegraph:
The Fed’s dramatic step came after an emergency conference call by governors on Monday night. It followed the melt-down of the US chartered agencies — Fannie Mae, Freddie Mac, and other lenders — which together guarantee 60pc of the entire US home loan market. Fannie Mae’s share price fell 19pc in panic trading on Monday after Barron’s magazine said it may need a rescue package.
“The agency crisis was a Tsunami event,” said Tim Bond, global strategist at Barclays Capital.
“The market was starting to question the solvency of bodies that stand at the top of the credit pile. These agencies together wrap or insure $6 trillion of mortgages. They cannot be allowed to fail because it would cause a financial disaster. The fact that this sector has blown up has caught everybody’s attention in Washington,” he said.
This means over $200 BILLION dollars worth or junk housing debt has been purchased, in a useless attempt to head off economic disaster.
Those working steadily on mortgage acceleration may find this latest even frustrating, as those who need assistance most are being ignored, while banks and investors are getting the real bailout.
Asian Markets Begin to Feel Strained
While many may recall the financial disasters narrowly averted in the nineties, it looks as if the Asian markets may yet again be affected negatively by the world’s downward market trend.
This will likely have a very negative effect on interest rates worldwide and result in increased interest rates on adjustable rate loans, something which would make mortgage acceleration significantly more difficult to accomplish.
Home Ownership Accelerator Calculations
Prior to purchasing any sort of home ownership accelerator, one should carefully examine their own ability with a calculator and decide whether the numbers work. The average American moves every seven years. As such one should always calculate with a long term savings as the primary goal. This is similar to the points situation. Often, if you’ve paid points to lock in a good rate, it can be beneficial to keep ones house and rent it out rather than selling when you move.
Use of a third party financial consultant can in the end pay off if you find yourself unable to reasonably budget or calculate for your own financial future.
Calculating for a second mortgage
Planning for a second mortgage loan can take some work.
When a lender gives you money and places a lien against your home for that amount, it is called a second mortgage. Because the lender uses your home as collateral for the loan, you will probably be given an amount that is much larger than any credit card’s limit and an interest rate that is much lower than any credit card’s rate (more money + a lower interest rate). Second mortgages generally offer fixed interest rates, so you’ll never have to worry about your rate going up.
Keeping that in mind, one may sometimes find it useful to utilize a second loan in order to obtain a bi weekly mortgage.
Credit Crunch Hurts Prosper
Prosper, a lender that allows users to make micro-loans to one another, is facing default rates of up to 10% or more during these troubling months. Once a source of easy money for those seeking to accomplish some form of Mortgage acceleration, the service is now causing concern to some investors.
Prosper’s performance statistics report that as of April 21, 2007, 636 of 6570 (9.68%) active loans over three months in age, are “1+ months late”.Over 400 (over 6%) of these are “three plus” months late, and Prosper’s best collection agency has historically cured only a small fraction of those.
As a group, E and HR borrowers have resulted in negative return on investment for loan buyers. Lenders and group leaders who contact late borrowers requesting payment will be banned from the site, as most lack the necessary knowledge of collections law to make appropriate collections contact.
As of November 8, 2007, the median estimated return on investment (”ROI”) for Prosper lenders with more than 20 loans and an average loan age greater than 6 months is 4.89%.– after taking into account Prosper’s servicing fee charged to lenders (1% annual fee on A-HR loans)
As traditional banks are currently struggling to handle the mortgage collapse, it will be truly interesting to see how Prosper weathers this storm.
Paying for college may get tougher
Debt Consolidation to Pay For College?
As reported by CNNMoney, paying for college may get tougher for both students and parents as lenders crunch down on higher rates. Student loans are now being affected by the credit crisis, which happened last year with mortgages and is now affecting other areas. In addition to the rising interest rates, lenders are scrutinizing their procedure to applicants, which now makes it even harder to apply. This will force some to boost interest rates on private loans by up to 1 percentage point, raise minimum credit scores to 650 and require parents to co-sign the loans.
“If lenders are not able to securitize, they are not getting the capital to make new loans,” said Mark Kantrowitz, who runs FinAid.org, a college funding Website based in Cranberry Township, Pa. “It’s an issue of liquidity and cost of capital.”
With little incentive for small private lenders in the federal loan arena, many are exiting the business.
San Diego-based College Loan Corp., the eighth largest federal loan originator in 2006, recently announced it would stop making these loans as of March 1, though it will continue originating private loans. Lincoln, Neb.-based Nelnet Inc. (NNI) last month issued a statement saying it would “be more selective” in the loans it originates as it lays off 300 people, or 10 percent of its workforce. And on Tuesday, the Michigan Higher Education Student Loan Authority said it would stop making private loans, known as MI-LOAN.
As college costs skyrocket, a growing number of parents and students rely on private loans to cover the gap between tuition and federal loans, which are limited to between $3,500 and $5,500 a year. Private loans made up 24% of education borrowing in 2006-07, up from 6% a decade earlier, according to the College Board, a New York City-based nonprofit higher education access group.
These loans, however, are much more expensive than their government-backed peers and will become even more so. For 2008-09, students will pay a fixed 6.0% on a subsidized federal loan, while the rates on private loans are as high as 13%, depending on the borrower’s credit profile, and are inching upward, according to Kantrowitz. Rates on private loans change quarterly or annually, and two-thirds of borrowers pay the highest rate, he said.
“Most students will be able to get them, but they will have to be careful,” said Sandy Baum, senior policy analyst at the College Board. “There will be an even greater risk of high interest rates and unfavorable terms.”
Students and Parents alike are in for a rude awakening come spring as many are now applying for the new semester or quarter loan credit. As lenders are crunching down on their return, students and parents may find it harder to enter the loan arena and will find paying back the higher interest rates unpleasantly difficult. Debt consolidation will likely be necessary.
Homeowners may benefit from reformed tax code
The IRS may actually cut taxpayers a break this year, assuming they own a home. Mortgagenewsdaily writes:
’There are two small changes in the tax code this year that may benefit some homeowners. If you think you qualify for these changes, research the guidelines at www.irs.gov or contact your tax advisor. ‘
Probably worth checking for these when filing your taxes, as it may mean a few hundred extra dollars to put towards mortgage acceleration.