The Home Blog

This American Life explains "The Giant Pool Of Money"

Looking to understand the realities and history of the current housing mortgage crisis? Author and trend spotter Kevin Kelly recommends a recent episode of This American Life.

By far the best explanation I've heard of the Housing Mortage/Credit Crisis is -- improbably -- a podcast from the motherlode of story-telling on NPR, This American Life. This podcast is a bit different from their usual slice-o-life stories in that they try to explain something extremely complex and abstract -- but in personal stories. The episode is called The Giant Pool of Money and it's worth at least an hour of your time on your next commute.

A terrific and terrifying episode. If anyone else out there is collecting personal stories of how the housing mortgage crisis is affecting people and communities around the nation, I'd love to have those links.

Now even traditional mortgages are hard to get

In the market for a new home? Do you have a good credit rating? Even if you do you may find it hard to get a mortgage loan at rates anywhere near the current average (5.96% today). The credit crunch has come home to roost and Mortgage originators are now finding it hard to sell even the best rated loans as securities.

Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart. Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.

Be prepared to pay more upfront as well. Most borrowers must now but 5% or more down on the cost of their house.

My question is, if even these traditional mortgages are going away? What is going to replace them in order to get the housing market moving again? Until something does, the market will not equalize and home prices will continue to drop. (Read)

Pity The Poor Home Lender Worker

The Orlando Sentinel reports on how the housing bubble burst has affected related industries.

Linda Rovetto is a property-title agent in west Orlando hasn’t taken a salary since the summer. She’s working fewer hours because there’s simply less business to handle. "We used to do anywhere from 13 to 20 [closings] a month," said Rovetto, who owns Florida Lakes Title & Closing in MetroWest. "In September, I did two."

"I sit here and I play solitaire" on the office computer, she said. "Even the junk work that everyone hates to do is done."

Cancellations have doubled or even tripled during the slump, Rovetto said. Some people change their minds about refinancing property; others can’t get approval for a mortgage.

More evidence why you should always save for a rainy day or have a counter economy business plan ready to go. You'd think re-financing would be hotter than it is with the interest rate dropping.

Lenders might be forcing foreclosures to collect questionable fees.

It's not enough to screw over home buyers with hidden fees, unreasonable restrictions that force buyers into sub-prime loans, and more, but now we're finding out that some lenders have inserted fees that might make it more profitable for them to foreclose on a property than to work with the buyer.

As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Questionable practices by loan servicers appear to be enough of a problem that the Office of the United States Trustee, a division of the Justice Department that monitors the bankruptcy system, is getting involved. Last month, It announced plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged.

Nice. (Link)

Confession time at the Church of the Housing Bubble

I can't think of a more accurate way of describing the actions in the market than this:

“All of the old-timers knew that subprime mortgages were what we called neutron loans – they killed the people and left the houses,” said Louis Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo. “The deals made in 2005 and 2006 were going to run into trouble because the credit pendulum at the time was stuck at ‘Easy.’”

Killed the people and left the houses. And yet, it's the people who will pay for this and not the companies that made the unsustainable loans. (Link)

Mortgage Rates Drop, time to re-fi

Found yourself in one of those adjustable rate mortgages or interest only mortgages with a 5-year balloon then you'll be happy to hear that Mortgage rates have slid to a 7-month low. It might be time to slip into something more comfortable, that you know won't suddenly double your monthy bill when interest rates rise again. Or will gamble and bet that the Federal Reserve will either hold or lower the prime rate at its next section and that Mortgage rates might drop again.

Mortgage Rates Falling?

CNN reports that Mortgage Rates are in a slow slide. The question is will this help the housing market or is the process toward a lower prices and a popping of the housing bubble unstoppable.

Allen Hardester, a senior executive with a Maryland-based lender, Hyland Financial Services, says most of the demand for homes is in the affordable price range - $200,000 to $300,000 - and that's where lower interest rates will help. Many buyers are stretching the limits of their budgets. Lower interest will make those limits a bit more elastic.

This might help a few families looking to make their dollar go farther, but it's not going to help those investors who are losing their shirts while trying to offload homes in markets with a glut of houses.

Exotic ARM Mortgages coming due

I'm predicting a run on depression counseling as many of the exotic mortgages, ARMs and others, are beginning to come due. Many homeowners are in for a shock and banks might be too as they try to resell anything they foreclose on. MSNBC looks at the sad state of affairs.

In order to get the $800,000 house he bought early last year in California's Silicon Valley, Joe got an "option ARM," an adjustable-rate loan that lets him choose from a variety of payments every month. The smallest payment included no principal and less than 100 percent of the interest due. The unpaid interest was tacked onto the principal, creating "negative amortization..."

The [lender's warning] letters contain hypothetical examples of what lay ahead. One is a California homeowner making only minimum payments on a $402,000 loan. The current full interest rate on the loan is 7.6 percent, but the borrower has been paying just $1,348.47, far less than what's needed to fully amortize the mortgage over its 30-year term. If the loan reset at today's rates, the full payment required would be $2,887.50 — more than double what the homeowner is currently paying.

The best advice, don't be an ostrich and hide from the ballooning payments. Try to refinance into a 30 year mortgage now or get ready to sell and downsize to something more affordable. If you wait the new bankruptcy laws could paint you into a very dark corner.

(via BoingBoing)

Weak Housing Market could put economy in Peril

The Federal Reserve Chairman Ben Bernanke is keeping an eye on the housing market, but does that make you feel better? There's an abundance of For Sale signs, a combination of investors trying to cash out and ARMs that have come back to bite home owners who can't refinance and can't afford the mortgage. At least the recent decision by Bernanke not to raise the Fed Rate should help them a bit. It also means new home construction should taper off freeing up construction workers for some of those commercial buildings, apartments and condos, and home repair jobs, that have been backburnered for the last few years. (Link)

Quiet Period Over

So, the quiet period is over. I didn't want to talk about my new home while we were in the throes of escrow.  But we're out of those dark waters now and already working on the upgrades we've planned for the new home.

We're learning lots of fun stuff along the way. Such as using a wide chisel to help pry up the carpet tack strips before you user a 'wonderbar' to remove them the rest of the way. Much easier. We also learned that rain collects in a dump bin and since you pay by weight, that's a bad thing.

More coming soon as we embark on making our new house a home.