The Trouble with Mortgages

August 4, 2008

Have you been looking for a new home lately? If you are one of the lower numbers of Americans looking for a new home and a new mortgage, you might be in for a surprise. New mortgages have gotten more difficult to secure as the housing sector fights to eliminate the defaulting mortgage disasters that have dictated the market activity lately.

While new mortgages might be more scarce, the long-term impact of more stable mortgages cannot be underestimated. Much of the trouble in the housing market currently is due to poor choices by uneducated home buyers and shady practices by lending businesses who were looking for a quick profit without regard to the overall impact these unstable mortgages would have on the economy.

The recent troubles of Freddie Mac and Fannie Mae are in direct result to the ailing mortgage market. Borrowers are paying for the mistakes of others by paying roughly 10% more in monthly mortgage costs. Why the higher costs for people that have not defaulted on their own payments? These additional costs are the answer to the lack of confidence in the real estate market. In other words, not only are new mortgages more scarce, they cost more as well, doubly hitting new home buyers. Unfortunately, these negative aspects do nothing to stimulate the stagnant real estate market as a whole.

The cost of borrowing money has increased as businesses like Fannie Mae and Freddie Mac have had to borrow money in the bond market to pay for the current mortgages they have received from lenders. As the negative financial situation of Fannie Mae and Freddie Mac sustains, the additional costs are filtered down to lenders looking to establish a new home mortgage. Also, as it is more expensive for Fannie Mae and Freddie Mac to obtain mortgages, it will increase overall mortgage rates as well.

Last summer, the 30-year, fixed-rate mortgage was roughly 1.5% higher than the yield on a 10-year Treasury note. Now, the rate is about 2.5% points and have increased .3% since late June alone as a reflection of the troubles of Freddie Mac and Fannie Mae.

More and more lenders are tightening their standards, either because of their own reluctance to get brought into the current mortgage mess or because of new government standards that will most likely dictate the new regulations. Some of the new standards include escrow accounts for taxes and a more thorough review of the future home buyers income and ability to pay the full mortgage payment each month. As more and more lenders are scared they will lose mortgages, they are demanding that current applicants provide a very clean and precise application to avoid future complications.

Initially, when the mortgages problems began, the government called on Fannie Mae and Freddie Mac to help with assisting lenders whose loans were defaulting. Now with the questionable status of the Fannie Mae and Freddie Mac government sponsors, there is a risky and worried feeling in the marketplace, calling into question the ability of these sponsors to help lenders at all.


Get More from the House You’re Stuck With

July 2, 2008

You want a bigger and better home. However, with the current housing market the way that it is, you might not be able to sell your house for what you want. There are homeowners that have spent billions of dollars renovating their homes during the better times. Many home investors see their renovations as necessary steps to increased home prices and a higher possibility of faster sales.

Why not take that concept and apply that to your home now? Rather than see home improvements as a way to appeal to your future seller, why not use home improvements to make you happier…right now! With home sales down almost 18% in just the past year, you probably will not make the right decision by putting your home on the market. However, you can make your existing home more sensational now to make your daily living enjoyable. With more and more home prices stagnating, homeowners are making their current homes the places they want to live rather than trade up to another place.

Give your home the features that it needs to improve value. You can have an upgraded bathroom or higher end kitchen installed in your home now to help with future house sale and daily living now. However, to enjoy the most from your home improvements, do not focus on the financial future growth, but instead concentrate on how much you are enjoying the changes.

What are the biggest complaints by current homeowners? You can address these common concerns to help your existing home situation. Of course, the first solution is to create a home extension on your home to make bigger rooms, kitchen, etc. Of course, this upgrade can be financially difficult. Many homeowners say they want at least a 30% increase in home value square footage size with their new home. If this is not possible, you can at least create the illusion of more space. Take off unneeded doors or install glass French doors in their place. Light the walls with brighter color paints or knock down a half wall. If your wall is not load bearing, it is decorative and able to disappear.

Removing a wall can vary in cost. You can pay as much as $4,500 and as little as $1,500. Load bearing walls will be the most difficult to move and will cost the most for your home. However, the end result could be the most dramatic and potentially convince you to stay in your home for longer than initially predicted.

Do you have wasted space or rooms that are infrequently used? Look at them in a new light and see if you can add them more efficiently into your current floor plan. Finish a basement or turn a sunroom into part of the living room. In addition, you can expect to recoup 75% of your costs and will add to your home value.

Just a few modern conveniences can turn around your bathroom or kitchen. Best of all, when it comes time to sell your home, the bathroom and kitchen upgrade will significantly help in the future sale of your home. Invest for yourself now and you can benefit with your sales in the future.


Will Home Owners Insurance Protect Your Home in a Storm?

June 30, 2008

The news has been filled with stories on environmental disasters lately. As more and more storms roll over the country, citizens in the coastal communities and in the Midwest alike are asking the same question: Is my house safe? And if not, will my home owners insurance cover me for my house value?

For most people, their home is their biggest source of financial equity and the biggest part of their portfolio. To lose a home in a vicious storm not only puts the family on the street, it can be financially devastating as well. Many homeowners are overly confident in their home insurance and the coverage it provides. But will your home insurance really protect you and your home after a storm devastates your property?

Mudslides are typically covered by the standard home owners insurance policy. After all, mudslides are often associated with California, but nowhere else in the country. However, many homes that live on the banks of rivers are in direct threat of losing their home to a mudslide after a tremendous storm with flooding. If your home washes away in a mudslide, you can effectively lose everything, even if you have been a patient and conscientious insurance payer for decades.

Look to see what your home insurance coverage provides. Many standard home owners insurance programs do not take floods, mudslides and earthquakes into account, meaning that if the home is damaged this way, their home value will not be covered.

One of the biggest reasons why home owners insurance does not cover these possibilities is due to the risk factor. Many homes are not located in high risk areas where a mudslide is probable and for this reason, the insurance companies do not want to take on the coverage. Secondly, this type of insurance coverage can be very costly and expensive. If you live in an area that does not have the risk of mudslide and the addition coverage is expensive, chances are you will forego that coverage. And just like that, if your home floats off the riverbank and down the river, you will have lost everything.

Ask your home insurance provider about potential options with your coverage. There are some insurance companies that will offer flood insurance at a discount rate for homes that are not located within a flood zone. You can potentially get coverage for just a few hundred dollars a year and eliminate that risk for your property.

Another smart option is to talk with the experts. Get a mud engineer to come out and look at your property. If you are located on a river bank or on the side of a mountain or hilly area, you might be concerned about mudslides in general. Have an expert come to your property and do an analysis on the mud and soil located under and around your home. With his or her results, you can make a more educated decision about the likelihood of a mudslide happening to your property and adjust your insurance coverage accordingly. Of course, if a mudslide is more likely than you thought, you might want to consider moving!


What to Do about the House Next Door

June 26, 2008

When it comes time to sell your home, curb appeal can be tremendously important. From the start, your home needs to make a solid first impression that will carry the future home buyer into the house on a positive note. Even if your home looks wonderful, however, your neighbors house and the surrounding community can play a role in curb appeal. No matter how much fresh paint or new landscaping dots your front lawn, you will need to worry about your future buyers seeing the eyesore next door.

Eyesores are a common problem. Studies have shown that more than 60% of all homeowners think they have a neighbor that is making their street look bad by not taking care of their home fronts. Roughly 20% of these individuals even claim that they are the cause of the problem! Life can be busy and things like tall weeds and grass, dying lawns, junk in the lawn or peeling paint can be projects that are pushed from one weekend to the next, until the home is an official eyesore.  In turn, affecting the your house value.

The crumbling house next door might be something to avoid when you live in your home, but when you are trying to sell your house, that eyesore now becomes a liability to you. Especially in buyer driven real estate markets, the eyesore next door can translate into lost revenue for you. They will become yet another negotiating tactic for the appraiser and the future home buyer.

How much can you stand to lose from living next to an eyesore? Some calculations go as high as 10% off the value of the home. Of course, different markets will see a different percentage taken off, but all in all, the eyesore is a poor value assessment for your property. What is a homeowner to do?

There are two types of people that have homes that are in disrepair. The first type cannot physically or financially afford to maintain their home and the second are those who are ignoring the common courtesy and trend of maintaining a home. If the home is rented out, you can try contacting the owner well in advance of putting your home on the market. In addition, you can build a group effort that will allow homeowners with limited funds the ability to apply for funds to keep up the exterior of the home.

There are laws that will prohibit certain behavior that can help you address the issues your eyesore has created. For example, there are certain municipal codes that will not allow you to stockpile wood on your property for fear of attracting animals.

However, the smartest move can be to raise your asking price above what you had originally planned. That way, you can negotiate down due to the eyesore next door, but still come out on top with the price that you had initially aimed for. Just a little upkeep can significantly improve the outer appearance of any home, but dealing with an eyesore can be an important part of your home price negotiations when selling your home.


$1.7 Billion of Tax Payers Money to Stop Foreclosure Crisis

June 9, 2008

Currently, there is a bill in Congress that could change the financial futures of 500,000 homeowners. For these individuals who are facing foreclosure, the bill could have significant influence. Since the bill has already passed in the House, chances are good that the bill could go into effect, helping the financial situation of half a million homeowners facing a potential foreclosure.

The bill would allow borrowers who were struggling with their monthly mortgage bills to refinance easily. They would be able to see more affordable and more financially stable mortgage choices through the use of federal aid. They would get a mortgage that was federally guaranteed by the government.

This bill has been created to help only homeowners avoid foreclosure. If an individual is an investor or speculator, they are not eligible for help with this home financial situation. Specifically, this bill is set to help the homeowners who are doing their best to cover their mortgage payments, but falling short due to unrealistic settings, not the speculators who are trying to make more money in the real estate market.

There is a catch to the federal bill, however. If the homeowner takes advantage of the effort and aid given by the government, the homeowner will have to split any future home profits on the sale of the home in half with the government. For those homeowners who do not plan to move from the home for quite some time, this is less of an issue than for those homeowners who plan to move from the home in 3 to 5 years. Cutting the profits from the sale of the home in half can have a significant impact on the homeowners profit margins, especially since most individuals see the majority of their equity in the home they own.

There are arguments from taxpayers as well, and for good reason. The bill will cost taxpayers 1.7 billion dollars, according to the Congressional Budget Office. Although the price seems high, it could have been worse when you analyze the impact of increased foreclosures in the country. However, many taxpayers are arguing that we are having to pay for the mistakes of these individuals who took a mortgage when they were not eligible and the taxpayers are paying for the mess now. In essence, the taxpayers argue, they will be paying for the greed of the financial institutions whose unrealistic mortgages and subprime interest rates attracted the wrong individuals to purchase a home.

However, foreclosures can have a tremendously negative impact on the economy and the overall quality of life in an economy with higher foreclosures will drop significantly. Rising foreclosures erase future profits in nearby properties and in the economy overall. This bill has been created to avoid the big picture fallout that occurs when more and more foreclosures happen in the real estate market. The sacrifice is the taxpayer dollars to help alleviate whatever economic crisis would have evolved from the higher number of foreclosures. Something needs to be done to prevent more foreclosures and this bill is the band aid that is thought to alleviate and reverse the trend in foreclosures.

So the Question is, as a tax payer do you agree that we have some responsibility to help out the over 500,000 home owners who are facing foreclosure and saying, how can I sell my house fast? Are you comfortable with our tax dollars helping stop the foreclosure crisis?