Why Delay Mortgage Acceleration?
Due to refinances and frequent moves, many Americans spend far more than 30 years paying off their home mortgage loans. Why does it take so long to payoff mortgage debt?
Why are Americans so slow to payoff mortgages? Sydney Financial has found that traditional U.S. spending and saving structures make it difficult for consumers to leverage their money.
According to Sydney Financial, American consumers may be able to payoff mortgages more quickly by adopting some of the spending and saving habits practiced in countries such as Australia, the UK, and New Zealand. Homeowners in these countries often payoff their mortgages by opening specialized checking accounts that apply excess money to their home loans.
It certainly seems silly to spend more time than necessary paying off a mortgage loan.
Countywide’s Stability Under Scrutiny
An article published on the site, The Truth About Mortgage, talks about the scrutiny over Countrywide, despite its assurances that the company is financially sound. According to the article:
- “We said it back in August, we said it in September, we said it last week, we’ll say it until we turn blue in the face, but we have ample liquidity to fund our growth and operational needs,” David Bigelow, managing director of investor relations, said at an FBR Capital Markets conference in New York.
- The statement follows a Wall Street Journal report that revealed Countrywide had borrowed a whopping $51.1 billion from the Federal Home Loan Bank in Atlanta as of the end of the third quarter.
- The substantial borrowing led Senator Schumer to remark that Countrywide was using the FHLB system “like its personal ATM,” saying the mortgage lender’s deteriorating loan portfolio “poses an unreasonable risk.”
- But Bigelow rejected scrutiny from Schumer, who yesterday ordered a probe into the Federal Home Loan Bank’s lending to Countrywide, and also brushed aside concerns that capital issues at Fannie and Freddie would limit its ability to make loans.
It should be easy for Countrywide to see why it is being subjected to such scrutiny. So many companies have already fallen under this credit crisis as they fail with debt consolidation. If Countrywide truly is as financially sound as it claims to be, it shouldn’t feel threatened by any scrutiny. If, however, the company does have something to hide, the people deserve to know about it.
Foreclosures to Result in Major Economic Loss
An article published by CBS News talks about the billions of dollars projected to be lost in economic activity next year. According to the article:
- Rising foreclosures will lead to billions of dollars in lost economic activity next year in major U.S. cities, but homeowners and financial institutions have the ability to work together to contain the effects, said a report released Tuesday.
- Prepared by forecasting and consulting firm Global Insight, the report said weak residential investment, lower spending and income in the construction industry and curtailed consumer spending because of falling home values will combine to hold back the nation’s economic activity.
- The biggest losses in economic activity are projected for some of the nation’s largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.
An estimate of losses, though quite discouraging, is good because it can help us know how to prepare ourselves against the storm to come. What’s great about this article is that it gives the facts as they are, neither glossing over them nor over dramatizing them. It’s nice to see figures, to know exactly what we’re facing. Such a desire to understand whats coming leads many to embrace plans for a bi weekly mortgage.
Dollar Weakens as Credit Fears Continue
An article published by Market Watch talks about the continued decline of the dollar as fears heighten and stocks fall. According to the article:
- “Even though the early indications from the weekend U.S. retail sales were not as poor as feared, and [third-quarter gross domestic product] is expected to be revised significantly higher later this week, the anticipation of more write-downs and losses related to the leveraged lending-subprime and otherwise-the credit-crunch to undermine growth in [the fourth quarter] and early 2008 weighs on the dollar,” wrote currency analysts at Brown Brothers Harriman.
- The dollar index, which measures the greenback against a basket of six major currencies, slipped to 74.815, down from 75.050 Friday.
- The euro rose to $1.4870, compared with $1.4834 in U.S. afternoon trading Friday. Toward the end of Friday’s holiday-thinned trading session, the European unit rose as high as $1.4966, its highest level since it began trading in January 1999.
- The dollar dropped to 107.41 yen, down from 108.20 yen Friday.
What we have here is a vicious cycle of negative factors that only exacerbate each other. The fears about the credit crisis are leading to falls in stock. The decline of the market leads to depreciation of the dollar. The failing currency of the U.S. adds to the fears about the credit crisis. This may result in a mortgage acceleration induced reduction for homeowner’s debt. And thus we see how things will only get worse if they keep in the direction they are going. If we don’t break the cycle soon, an economic collapse may very well be in store for us.
Credit Crisis Continues to Worsen
An article published by Financial Times takes a look at the ever worsening credit crunch. According to the article:
- The opaque black hole of losses at the heart of the dollar markets can not be penetrated by the outsider’s gaze, but the signs are that conditions are worsening fast. While the publicly quoted financial institutions have gone quite a long way down the road of acknowledging mortgage derivative losses, not a squeak has been heard from hedge funds, though they have massive exposure. Hedge fund investors know that the devil will take the hindermost: to the extent they can cash out before the hedge funds have disclosed their losses on CDOs, etc., they may escape their share of them – leaving their share of the losses to the guys left holding the baby. Meanwhile, hedge funds are no doubt sliding out of as much exposure as possible – and selling anything else they can get value for.
- Are we heading into 1982 – the worst recession since the war – or the revivalist, highly leveraged boom-bust of 1988- 91? The deflationary alternative looks more probable.
- The credit spread plague is spilling over to junk bonds – so the collateral damage from the mortgage crisis that has blighted private equity since the summer may not ease much soon.
- Small wonder the euro hit a new $1.48 high on Tuesday – this is beginning to smell of crisis.
We’ve had lots of problems up to this point, but this is just the tip of the iceberg. It’s hard to believe that things will get much worse, but history (as well as analysts) tells us that they will. This may be bad news, but don’t forget the other important lesson that history teaches us: after things are done getting worse, they will get better. This isn’t the end of the world, just another hard time in the history of the United States. Those worried about obtaining further credit may want to explore bi weekly mortgages.
Subprime Crisis Far From An End
An article published by Bloomberg takes a look at the pessimistic outlooks shared at “The Survivor’s Conference” earlier this month. According to the article:
- The subprime crisis, which has claimed the jobs of three chief executive officers and prompted more than $45 billion in writedowns at the world’s biggest banks, may end up spilling into 2009.
- “These events tend to become deeper and play out longer than most people initially expect,” says Michael Mayo, an analyst who covers securities firms at Deutsche Bank AG in New York.
- The tumbling U.S. housing market will continue to inflict the damage. Mortgage-backed securities and collateralized debt obligations containing those securities are falling in price and won’t find their footing anytime soon.
- Whalen says defaults will soar as the rates of low-interest “teaser” mortgages held by borrowers with poor credit move up.
- Banks’ writedowns include assets that they classify as level 3, an accounting category which indicates the holdings are so illiquid that they can only be priced using the firm’s own valuation models. The total global loss from the subprime mess, Deutsche Bank’s Mayo said on Nov. 12, may reach $400 billion.
- “Credit is a huge driver of growth, and it’s hard to see how this isn’t going to have an impact on the economy,” George says. “Things are going to get worse.”
If you weren’t already scared for the fate of the economy, now is a good time to start. It’s hard not to be so pessimistic when all the evidence is pointing at the worst. No, analysts don’t predict that this crisis will go on forever. The question that has everyone worried is who will survive this incredible mess? Unfortunately, only time will tell. In the mean time, many of us are left struggling with debt consolidation.
Foreclosure Crisis Confronted by Mayors
An article associated with the Detroit Free Press takes a look at the growing crisis and what mayors are planning to do to face it. According to the article:
- With thousands of such foreclosed homes eating away at Detroit’s neighborhoods, Mayor Kwame Kilpatrick will announce today that several mayors from across the country will convene in Detroit next week to brainstorm ways to confront a crisis plaguing communities everywhere.
- Kilpatrick, who heads up the committee that handles the foreclosure issue for the U.S. Conference of Mayors, said the foreclosure crisis is hammering the city in many ways — from morale in stable communities now stuck with vacant homes to having fewer homeowners who have less equity.Among the mayors coming to Detroit will be those from Trenton, N.J., Louisville, Ky., and Columbus, Ohio. Southfield Mayor Brenda Lawrence also will participate.Key areas for discussion will be ways for the city to work with lenders and community advocates to help homeowners in danger of losing their homes, get borrowers in adjustable-rate mortgages into a lower fixed-rate mortgage and confront the security and blight issues created by vacant houses.
- One source of angst that will be a topic of the mayors’ meeting is how to address maintenance of homes in foreclosure.
The foreclosure crisis is now involving all levels of government. The federal government is working to stabilize the economy and set up regulations to prevent further damage from this crisis. State governments are working specifically with lenders to come up with solutions. And now local government is working with people on an individual basis to avoid foreclosure. There is always a debate as to how involved the government should be in people’s lives. Given the current circumstances I think that the government is doing a pretty good job at knowing how much they need to be involved, and I think most people would agree. Those looking to get out of a mortgage can always consider mortgage acceleration.
Rising Risk of Systematic Shock
An article published by Reuters takes a look at the factors that may lead to a systematic shock to the financial system. According to the article:
”At the root of our near-term negativity is the alarmingly high potential for a systemic shock, as well as concerns on the financial system and economic environment due to the derailment of the securitization process,” they said.
Rising delinquencies in the mortgages backing the structures has dried up all demand for the products, leading to massive writedowns in the value of the deals. Many have also carried the safest “AAA” ratings, and confidence in this rating system has now completely eroded.
By passing on loans, banks have been able to free up capital for further lending, which has been a key factor in the ability of consumers to obtain loans. Now, as demand for the repackaged debt dries up, banks in turn have less capacity to lend and the cost of borrowing is also set to rise.
“In addition to our above concerns, if we begin factoring in escalating energy prices, the collapsing U.S. dollar and a possible wobbling in the emerging markets, we become even more convinced that the markets aren’t braced for the downturn,” Morgan Stanley said.
With the increasing problems only adding to the magnitude of each other, it is no wonder that analysts are less than confident about the future. The risk for an economic collapse grows every day as the factors multiply. At this point, there may not be much that anyone can do to stop the snowball effect. Sounds like a good time to start with mortgage acceleration.
Downgraded Shares for Fannie Mae
An article published on CNN discusses the downgraded shares of the mortgage company Fannie Mae. According to the article:
A Lehman Brothers analyst downgraded shares of mortgage companies Fannie Mae and Freddie Mac on Monday, expecting lower home prices to cause continued turmoil in the credit markets.
“The question is what ultimate losses will be at Fannie Mae, which still seems highly uncertain given we are still in the early throws of the housing downturn and it seems like management’s forecasts for housing and credit trends are not overly conservative,” Harting wrote in a client note.
“We now believe the impact of rising credit cost will outweigh earnings growth in the guaranty business in the next few quarters,” Miller wrote in a note to investors.
Fannie Mae is yet another big name plagued by losses in the mortgage industry. While the credit crisis will undoubtedly have a negative effect on the company, it may not be too late for Fannie Mae to make the necessary changes to keep its head above water and prevent a collapse. Mortgages will become harder to get, which will make having a bi weekly mortgage a good thing.
Credit Fund Agreed Upon by Banks
An article published by CNN gives some of the details of the new credit fund that was agreed upon to help banks with debt consolidation. According to the article:
JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. have agreed on a simpler structure for a $75 billion fund to steady credit markets, The New York Times reported Sunday, citing a person close to the talks.
Under the agreement, pools of assets or structured investment vehicles won’t need the approval of at least 75 percent of their investors to participate, the newspaper said in a report published on its Web site. The fund also will assign the same risk level to all securities in the SIVs.
The fund could restore some liquidity to the market for asset-backed securities by establishing a buyer, even if no SIV uses it, the newspaper said. The proposed still must obtain the approval of credit-rating agencies.
It is reassuring to see banks trying to do something to get us out of the credit crisis. Yes, this is an expensive solution, but if it works, it will be for the better in the end. The question comes down to how much the health of the financial system worth to us. It will be interesting to see if the fund is approved by credit-rating agencies, and what effects this fund will really have on the current crisis.