Home Loan Bubble

5 Reasons Why Subprime Loans Will Affect You

Seeking Alpha says that news reports that the subprime loan problems in the US are "contained" is only evidence that we're all living in denial.  Read Markham Lee's 5 reasons that the subprime situation will affect all of us.

Honolulu Advertiser Reports Subprime Loan Troubles

Trouble in paradise?  Looks like Hawaii is not immune from the mortgage troubles brewing on the mainland as reported yesterday in the Honolulu Advertiser:

The subprime loan debacle that has roiled global financial markets could lead to a rise in home foreclosures in Hawai'i and a possible decline in home prices, experts say.

About 1,600 subprime loans issued last year in Hawai'i could wind up in foreclosure, according to a recent study. What's more, the collapse of subprime lending could lead to fewer buyers in the market.

Hawaii See Mounting Subprime Loan Failures - via Honolulu Advertiser

 

Interest Only Mortgages – Stupid or Savvy?

By Louie Latour

Are there ever any situations where interest only mortgages are a smart choice?  There are situations where an interest only mortgage could save you from losing your home.  Here are smart ways to use interest only financing.

Interest only mortgages have one virtue: low monthly payments.  The problem with an interest only mortgage is that you build no equity in your home; the mortgage lender is going to eventually want the principal balance repaid.  This means a balloon payment or a significant increase in your monthly payment down the road.

When is an interest only mortgage a smart choice?

The obvious answer to that question is for the real estate investor.  Interest only mortgages allow investors to flip homes while minimizing out of pocket expenses.  This also holds true for the homeowner in need to temporary financing to secure a property.  For any short-term situation that requires minimum monthly payments without the need to pay principal, interest only mortgages are a good choice.

If you find yourself in a situation where your cash flow is sporadic and need to make smaller payments, an interest only mortgage could be a temporary fix to the problem.  This could be due to a temporary loss of part or all of your income due to illness or loss of employment.

Interest only mortgages should only be used as a short-term solution to a financial need.  Abusing interest only mortgages could result in a financial nightmare and ultimately losing your home.

Tucson Mortgage Refinance

Louie Latour has twenty years of experience in the mortgage industry as a mortgage broker. He is the owner of Mortgages Refinance Advisor, a mortgage help site devoted to saving homeowners money with a free guidebook “Mortgage Refinance: What You Need to Know.”

link: Article Source

Is a Risky Mortgage Right for You?

By Martin Lukac

The use of nontraditional mortgages, such as interest-only and payment-option, has risen along with home prices and the real estate market. Should you take the risk?

The Federal Reserve and other government regulators are concerned that these nontraditional loans may be a little too risky for the average consumer. They feel that too many borrowers are putting a lower monthly payment and more expensive home above the risks associated with these loan programs, such as large jumps in monthly payments. There are many different new loan products to choose from out there.

One of the most popular is the payment-option mortgage. Though this type of mortgage has been around since the 80's, many borrowers had to be in tip-top financial shape to take one out. But now they have become more main stream.

Payment-option mortgages are the most risky type of mortgage. They remind me of a credit card. You get to choose how much you pay each month. You can pay the principal and interest, the interest only or a minimum payment that is less than the interest you owe. The difference in interest is added on to your principal balance. This causes what you owe to actually go up instead of down. You will owe more after a year than you borrowed if you pay only the minimum payment. The risk is that your home may not be appreciating as fast as you are racking up money on your mortgage.

If you have had problems with credit cards, budgeting or making ends meet, this is not the loan program for you. But if you are very very financially disciplined, but need to make a smaller monthly payment once in a while, you could make it work. But these loans are also adjustable in rate, another added risk.

Interest-only mortgages are the second highest risk mortgage. You only pay the interest for the first three to ten years of the loan. Then you will begin to pay both the interest and principal after the interest-only period expires. You have to keep in mind that in a few years, your payment is going to practically double. You have to be able to handle the payment and plan for it.

If you know that in, for example, three years your income will not increase, what would make you be able to afford the payment. The monthly payment on a 30-year interest-only loan after the principal is tacked on will be higher than a traditional 30-year fixed-rate mortgage. This is because you are paying your principal back over a shorter amount of time. Think of it as renting your home from the mortgage company for a few years before you start to pay for it.

This type of loan is best for those who know they will be moving before the interest only period is up. But remember, you aren't building equity when you aren't paying down the balance. If you know that you will be making significantly more money in a few years because your wife is getting her law degree, then the risk may be less for your family.

New Low-doc mortgages are also risky. You take a higher rate in exchange for not having to prove that you qualify for the loan. In some cases, you don't even need to show proof of income. The risk is that you take out more mortgage than you can afford.

Low-doc mortgages might be a good choice for those who are starting their own business or just starting a new job. You should be sure that you will be able to make the payments.

The 40-year fixed-rate mortgage is the least risky of nontraditional mortgages. In some areas of the country, you can even find 50-year fixed-rate mortgages. You have the security of a fixed rate, but the lower monthly payment you may need. The payments will be lower, so you may qualify for a more expensive home.

The downside is that you will be paying a lot more in interest over the years and your equity in the home will build very slowly. You have to make the decision for yourself. A 40-year mortgage could give you the security of a lower monthly payment and a fixed rate, and if there is no prepayment penalty, you could pay it off quicker by making extra payments when times aren't financially tight.

In the end, only you know what works for you and what doesn't. But make sure that you fully understand what will happen with any type of mortgage. You can really only afford these type of mortgages if you can pay them in the worst case scenario, such as the mortgage hitting the highest possible interest rate and having to pay the principal back too.

Martin Lukac, represents Rate Empire, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Visit Rate Empire today.

link: Article Source

A world view of the housing bubble

From this summer's Economist magazine, we found an article on the worldwide rise in housing prices.  Seems like that concern over a housing bubble is global, and keeping tabs on the international market may provide signs of how we can prepare ourselves for a real estate slowdown or bubble burst in the U.S.  It seems that the U.S. is behind the slowdown curve that has occurred in red hot markets in Britain, Australia, and the Netherlands, and we can learn quite a bit from the slowdown in their countries.  Interesting reading, for sure.

In come the waves  |  via Economist.com

Real Estate Price/Risk Tracking Tool

Earlier this week, PMI Group of Walnut Creek, introduced a new statistical tool to detect real estate pricing bloat in major US real estate markets.  Tracking historical long term home price trends against the price appreciation of the past few years, PMI calculated the price differentiation to indicate what locations were most at risk to a pricing bubble adjustment.

 

Read PMI's Valuation Report  |  via PMIGroup.com

9 Ways to Protect Yourself from a Real Estate Bubble

With lots of talk about a real estate bubble bursting around the corner, here's some tips on preparing and protecting yourself from its consequences. 

The Center for Housing Policy reports that in the last five years the number of working families paying more than 50% of their gross income for housing has jumped by 76%.  The people most at risk are those with adjustable rate mortgages. As interest rates rise, many people with adjustable-rate mortgages and low monthly payments that allowed them to buy a home they couldn't really afford will not be able to make the rising payments.

How to Survive Housing Bubble Trouble  |  via financialplan.about.com

Myth or Reality? Homeowners Stretched Thin

According to a recent survey of home loan owners by Ditech, it seems that most homeowners are responsible creditors who don't carry lots of debt on their homes and have equity built up from making their payments.  On time, in fact. 

So, this responsible homeowner portrayal begs the question--are the stories of a housing bubble and pending loan defaults due to rising interest rates make good media copy?  Is it bad news that sells newspapers and make the evening news?  Yes, it could be--just like how this site could be guilty of - is the sky really falling?  Well, we hope to always bring you both sides of the real estate and mortgage home loan story.  Our objective to make you forewarned and informed.

Rising Mortgage Rates Suggest Some Perspective and Patience

Rising loan rates last week might have made many home owners a bit nervous.  Both prospective new home buyers and adjustable rate loan holders.  Yet with 6% rates at historic lows compared to the 1980's, and close spreads between fixed and adjustable loan rates, it's a good time to take a deep breath and study your home loan situation.  Are you staying in your home for a long time?  Are you close to your teaser rate or adjustable rate expiring?  These are a few questions asked by Sandra Block of USA Today.

Read full article:  Rising mortgage rates: What's a buyer to do?

Risky Home Loans Targeted by Fed

The warning drum continues to beat on adjustable rate and interest only loans.

With the outlook of interest rates only continuing to rise, the Federal Reserve reiterates its messages of risky home loans in the midst of a housing bubble.  Certainly, with most major US markets showing signs of a cooling real estate market, those speculative buyers who are holding interest only loans are certainly under the gun when a combination of risky loans and dropping home prices squeezes profit scenarios that might no longer exist.

WASHINGTON | Federal Reserve Chairman AlanGreenspan is turning up the volume on his warnings about the potentialperils of certain risky mortgages if the high-flying housing marketloses significant altitude.

There are signs some companies are getting the message. A few have begun scaling back some types of those mortgages or making them less appealing by raising costs.

Nation's most well-known economist sounds caution about risky loans  |  via Mcall.com