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.

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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 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.

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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.

 Back to the post. The new construction housing market actually spent more this month than the month previous, ok so it was just .1% more, but anything at this point is a positive. The previous month recorded a .4% drop. The increase is due in large to an increase of monumental size projects such as schools, power plants, and factories according to bloomberg.com. At this point in time I would imagine that moderately priced new construction will begin to pick up to make way for the spring season. Where this article resides from  (Belvidere, IL), there has been a recent increase in land/ lot sales, and construction companies building quite a few spec homes, or homes that are speculated to sell upon completion.

Now there isn’t much room for error with these newly constructed homes, in fact, this time last year as I was looking for a new home to purchase on the “good” side of the city, the new construction was reasonably priced at $199,900. This year the prices have indeed dropped. The same house with the same amenities is now $187,900. Whether the materials are actually less expensive is a mystery, but somehow they have managed to pull out about 7% of the value of the home and lower the price to entice growth and home sales. ALSO….. (more…)

If you do end up having your home foreclosed on, at least you wont have the IRS breathing down your neck. Here is a video of the news story from CCTV.

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The fed recently lowered the short term borrowing rates a quarter point this week to help to try and do its part to relieve the subprime crisis. Lowering this rate is good for some, who seek to refinance, but is it good for you?

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In an article by the National Association of Realtors, although slightly biased, they announced the following on December 10, 2007: 

“The National Association of Realtors’ index of pending home sales climbed 0.6%, the second month in a row the number has increased. The latest figure, which measures contracts signed in October, was ahead of economists’ forecasts of a 1.0% fall. September’s reading was revised up to a 1.4% increase as well. “We’re not likely to see any further collapse at this point,” said Richard DeKaser, chief economist at National City Corp, who had actually fore-casted a gain. “I’m not optimistic about the outlook for the housing market, but we’re scraping bottom in the fourth

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The ARM freeze plan presented by the Bush administration today should help some borrowers with their loans. Borrowers can call 1-800-HOPE-NOW (toll free) to receive counseling with mortgage problems. Once you, the borrower make contact the Hope Now Alliance will use a flowchart like the one above to determine if you qualify for the mortgage adjustment.

The plan is not designed to give handouts to folks, but to minimize the damage to the economy. Housing statistics are a major indicator of the health of the economy because the industry is intertwined with so many others. This plan is important to all of us whether or not we hold an adjustable rate mortgage because the “credit crunch” also affects the abilities of banks to lend to other institutions, such as businesses. If you are looking to borrow in the near future, and the bottom of the credit industry falls out, you can bet your bottom dollar higher interest rates will be charged to make up for the lost money in bad credit and foreclosures. Our first article on this issue can be found here, and our first follow up here.

Update:  Seeing as how not everyone who is in a terrible mess with their mortgage will qualify for the rate freeze, there is another option available that would allow your to keep your home from going into foreclosure and save your credit as well.

The way the bills is being signed is such that it will affect those that are currently not defaulting on their loans, but would not be able to survive a future increase in interest rate. Those that are currently defaulting on their loans will not qualify. This should help millions of Americans keep their homes, while we should see a decent amount of foreclosed homes until all the kinks of the system are worked out. Foreclosed homes are expected to increase next year, but should eventually taper off if this bill serves its actual purpose.

 Expect a follow up as the bill is signed and dissected.

It looks like more people are spending more time online. From October 2006 to October 2007, the amount of time an average user spends online has increased by 24.3%.

I would think that this means it is becoming a better idea to advertise your house online.

Chart provided by Complete.com

He fell short of announcing a 90 day moratorium on foreclosures, which both the Bush administration and Hillary Clinton are toying with.

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Thousands upon thousands of subprime loans have yet to reset to higher interest rates, but when they do, you can expect the market to continue its decline. It looks like the bulk of the subprime loans will reset in 2008.

The increase in reset loans will likely mean more foreclosures if refinancing doesn’t take place, or the lending companies decide to reset rates to what borrowers are currently paying.   Some money has to be better than putting your company out of business, right?

Take a look at this chart from Bank of America Securities and you tell me when this housing funk we’re in might end.  Hopefully we’ll find a way out of this mess soon!