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Student loan rates may rise soon.  The reason: the sub prime mortgage crisis.  Some states, including Utah, securitize student loan funding in an effort to raise the capital necessary to provide loans for all the students desiring them without having to raise taxes.   UHEAA, provider of loans to students in Utah, has long held a AAA bond rating, meaning it has one of the highest credit rankings around, providing for a low interest rate payout on the bonds.  This low interest rate is passed along to students, lessening their overall financial burden to receive a higher education.

This, historically has been a fantastic idea, but the problem is the bonds are insured by a company called AMBAC, which has in recent years taken into insuring subprime mortgage bonds.   Their balance sheet is now comprised of about 70% subprime mortgage bonds.  The fear is that the shakey subprime industry with out of control foreclosures may soon cause a cash flow problem for AMBAC, causing them to lose their AAA credit rating.

Such a drop in the credit rating would cause the Student Loan interest rates to rise considerably.   Nearly every facet of the economy has been affected by the subprime mortgage crisis, and now the crisis may affect the long term economic outlook with marginally fewer people finishing their education.

I did a little searching and found a chart showing when many sub prime ARM loans will reset. The chart shows that in about 6 months we should see a reprieve in the number of loans going into foreclosure and we will all start trying to put this crisis behind us. Life probably won’t be much easier for those of us with homes going into foreclosure already. For those of you waiting to buy a home, this may be an indicator of when the market will be the most saturated with homes in foreclosure. For those of you who have had your home value slashed due to foreclosures in the area, this should show the point which abandoned houses quit appearing in your neck of the woods. Continue Reading »

I had an interesting conversation today with a friend of mine we’ll call Ed. His family is in the same situation of a lot of other people: his ARM interest rate has reset to over 10%, making it difficult to make mortgage payments on time or at all. He had been more than 30 days late on a mortgage payment 6 months ago, but he has been trying to improve his credit rating to refinance and get out of the mess he is in.

Lenders are rarely willing to take a chance in a market like this. Within a few months, Ed would have lost his home. I envisioned his situation as if he were in a movie, hanging onto a small plant just off the edge of the cliff hoping somehow he could keep his home. Luckily, someone reached out their hand.

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According to FoxNews.com, there have been reports that we are entering the worst new housing market in nearly 20 years.  If you want a more staggering number, new house starts are down over 38% from the previous year. This amount to a great amount of homes not being built. One of the statistics that strikes me odd is the month to month changes we are coming across. If you are down 10% one month, the next month you are down 8%, these are compiling numbers. So in essence (if I do the math right) say there are 100,000 homes built in December, January there are 90,000, and February there are 82,800 homes being built (8% less, but 17.2% less that December) and it continues in a downward spiral. Not a good thing.

 Numbers can be confusing, but one thing is very obvious right now, the market is in horrid shape, and there is no sign for change anytime soon. There is news of Bush trying to infuse the market with money, basically giving us a rebate for taxes paid, and cutting payroll taxes on a temporary basis. The market/ economy is not strong, and even when there are signs of good market health, there is a huge drop off or correction shortly following.  Expect a follow up article on that issue in the next couple of days.

I ran across an article on MSN giving some suggestions on how to upgrade your home.  The article seems to be decent, with a different way of looking at things than your normal fix it first articles.  The article is actually from bankrate.com, but since I don’t want to take the time to find the same article again, here is the link to the MSN version.  Read on if you just want the highlights.

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Yes, deceptive practices do work to catch people’s attention, but in this case there is no reason to deceive. Going through my daily routine of house hunting for bargains on the market, I came across a home that I had walked through last July of 2007. The house was then priced at $188,900. The house was decently nice and had some nice features including a fenced in yard, a dining room and all bedrooms on the 2nd floor. There were also materials left in the basement to finish it off. I knew the house was overpricedwhen I walked through it, but aparantly no one told the realtor or home owner that until it was too late. (just as an FYI I moved across the street) Continue Reading »

For those of you already up to your necks in trouble, this post is not for you. The federal reserve has put together a piece of regulation to prohibit lenders from offering loans that consumers will have troubles paying off. This regulation is in the commenting phase, after which we’ll assume a few minor changes are made and the regs are implemented. I have included the highlights of the regulation and the link to the Federal Reserve site.

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If you are the unlucky holder of an Adjustable Rate Mortgage, stay on top of things.  In an article last week by the Seattle Post-Intelligencer, they suggest taking out your loan paperwork and checking out the terms of your loan if you are unsure as to the date and amount of the reset.

Knowing when your loan resets may cause some undue stress, but it does help you to put your ducks in a row.   Many mortgage lenders look at the housing crisis and blame it on the consumer.  I think I would too if I were a mortgage lender, I wouldn’t want this mess pinned on me either.  Here is the issue:  Lenders look at people as intelligent beings who should care about their own welfare enough to read and understand paperwork before signing loans.  Whether you fall into this category or not, you should be trying like the dickens to get out of your loan, and showing some initiative is a good start.

If you are hopelessly lost when you read your loan agreements, ask a friend or even a mortgage broker.  The rate will reset on an ARM on a specific day at a margin over what the market rate is at that day (probably the LIBOR rate).  This means that if the LIBOR rate, or the London Interbank Offer Rate, is 5%, and your margin or markup is 2.5%, your new payment will be 7.5%.  Use a mortgage calculator on the Internet to figure what your monthly payment will be.   If you are in trouble, do something if you still can.  Perhaps you qualify for the ARM rate freeze, perhaps not, but get talking to professionals who can look at your situation and offer some advice.   Do what you can even if it isn’t easy.  Foreclosure is not fun.