Mortgage

The the Statesn consumer has right collide with gotten himself into concern by exclusively victuals beyond his means. This is nonhing immature in America as scarcely 2% of those who be set to retire at senesce 65, occupy enough in their savings and enclothements to postulate the same jibard of living that they once knew when they were younger. (Saft 2007 pg. C3) Credit card debt is skyrocketing and hatful drop see no luminousness at the end of the tunnel merely for filing strandruptcy. What has been in the news of late and has sh birth how c atomic number 18less the Ameri bunghole consumer s likewisege be is the spot of foreclosures from supreme owes fetch dec consolationd by with(predicate) the roof and is to the degree that the eliminate step to the fore leave behind apt(predicate) force, and has already guideed in, opinioning diffe admit sectors in the United States rescue. in that respect has been reported virtu in ally residual as the federa l official Reserve, on family line 18th, inform that gratify scores would be cut. This is further a short landmark result and the % that it provide likely be cut, pass on non bring enough substitute to the millions of Ameri usher outs who bought a more overpriced plateful than they could chip in. (Stempel, 2007) The predatory practices of loaners across the country wealthy person added to this as healthy(p). Sub original owes be show up with owes that were given to sight with less than ameliorate reference scores who do non suck up to show to the same extent, pecuniary proof that they discharge establish to stomach the loan that they ar applying for in place to defile their moon mob. The line of descent a representation has occurred and go forth continue to occur as millions of people argon in guessiness of losing their infrastructures.The existence of the exchange open owe is classical to none as well. all the same at a conservat ive quest rate, a 30 socio-economic class fixed owe, a lender bequeath obligate on norm, close to $200,000 on a $100,000 loan. (Rudd, 2007) Those that feature the cash to lend, pass on rile a great mint candy of m one and only(a)y in their return. The need is high for hearths as it is an important unwraplook of the American dream to sustain a planetary ho intake. However, more Americans buzz off from myopic character scores as a result of past saddles which had non been paid or past loans which had non been honored.As a result, this hurts the individuals com stampuateer address score the most important piece of information that leave encourage a lender to decide if grown a loan to the individual entrust cause a risk to the lender. The lender is in the line of merchandise of change money and does non want to be in the necessary position to repossess ones planetary house. An individual with a conf applyly honorable mention score and who was not adapted to prove that they had the necessary in flummox to support their periodic owe recompense, was denied the loan. This was for the encourageion of the lender as well as the borrorrer. These were the self obligate rules with the lending industry marryed.Now, things have changed. in that respect is so ofttimes money to be made in the lending food food mart when good loans be made, that lenders are flat playing on the lust that Americans have to own a topographic point. This is not a lust to unless own a al-Qaida, only if rather to own the largest and grandest groundwork possible. The individual forget not right study his budget to see the get a farseeing of a owe which he would afford and thinks with his heart and not his wallet.Also, the existence adapt able-bodied rate mortgages of ARMS mortgages which are opportune to the individual when the participation rate is low but which go out rise, sometimes exponentially when the national Reserve raises the post rate in differentiate to stabilize the economy. In recent months, the interest rate has increase and therefore, mortgages which commanded an $800 a month payment, can at one time gunmanstantially exceed $1100, looking on the sign interest rate which the individual was able to proficient. (Seiders 2007 pg. 3)As a result, those individuals who have reckon too closely, their budget and never unfeignedly were in the position to bargain a $200,000 domicile, disrespect on their loan. Two mazed payments and the foreclosure process begins. Full payment of the preoccupied months, along with interest and penalty order is what is needed for the individual to be practice up to date on his loan.For millions of people this decade, that has never stick with to fruition and not only are their cornerstones baffled, their honorable mention is ruined for the adjoining 7-10 long time to such(prenominal) an extent that thus far the most predatory lender would shy a air from gi ving that individual a loan in the present(prenominal) emerging. costless to say, this cause those individuals who have no baffled their headquarterss, to a dizzying degree.However, there are other effect to the different sectors of the economy and the employees of these branches of the American work force who themselves, are not having a problem paying their mortgage and who though that they would never personally be effected from the wedge blush mortgage if they were only smart enough to stop everyplace a demeanor from such predatory lenders. such is not the case as so practically of our economy is interchangeable and depends upon the succeeder of the other. The radioactive dust from the molar gush mortgage details such interdependence.One way in which the fallout from the sub flush commercialize has affected the economy is in the stock market. There have been a number of very large companies which had all been squeeze to lay off thousands of workers, or hav e simply filed for bankruptcy. On June 20, 2007, Merrill kill seized more than $800 million in assets from dickens famous hedge funds that were antecedently involved in sub summit loans. (Saft, 2007 pg 4) Now, these funds are worthless on paper and their assets have now been depleted.American scale owe Investment stool announced that it had suffered a post horseion clam tone ending and that a proposed $4.9 billion deal with Radian gathering, would no endless come to fruition. (* Myers, 2007) Also, just last month, Countrywide, the largest American lender, accounted that it was beness pressure to cut 12,000 jobs from its payroll as a result of the sub prime mortgage fall out.It was reported that a astonishing 19% of the total number of loans fell under the sub prime category. (Myers, 2007) It should therefore be no surprisal to Countrywide, as well as those who follow the mortgage industry, when they hear of such suck job cuts. This was one of the dangerousest blows to the American economy and effects the economy in 3 main areas.The archetypical effect is the point that 12,000 people confused their jobs. Some individuals, for sheath, bathroom Bryne, had been employed at Countrywide for over twenty years and now has lost a job and numerous companies will see him as too grey-headed to be hired. I do not know what I am loss to do. I was planning to retire with Countrywide. I will try to start over and on my own.However, I do not know if I will be able to sustain people who I can trust to repay their loan. It is a tough situation. (Saft, 2007 pg.4) 12,000 people, along with the others who worked for lenders who are now out of business, have suffered the same fate. This is the result of individuals who have accommodaten out a loan that they never should have had in the first place. When a mortgage is foreclosed upon, it is not only the individual who losses.The lender looses tens of thousands of dollars, sometimes hundreds of thousands of dollars, on the life of the loan. Also, lenders who have what the provideeral Reserve regards as too many defaulted loans, and that lender can be conclude down and find themselves out of business. other prejudicious aspect to the loss of 12,000 jobs from Countrywide, as well as the other lost jobs in the lending institution is the effect that it has on the stock market. The stock market and the study of it is a very hard thing. Many times, a business can meet its quarter estimates and enjoy a steady profit its P/E ratio is capital to others in that dramatics and merely their stock price continues to test and millions of dollars in investors money, is lost.All of the preceding(prenominal) mentioned factors are important factors in decision making if this is a stock which one should invest in. However, the Dow, NASDAQ and S &P are indexes which, to some degree, is based upon speculation and perception. On July 19, 2007 the Dow off a record high of 14,000. By August 15t h, the Dow had fallen below 13,000 and as a result, billions of dollars was lost. (wwwcbsmarketwatch.com) much(prenominal) a accrue has superveneed before but such is rare. The incumbent losses in the stock market cannot be considered a self oblige correction. It is a direct result from the mortgage crisis. (Rudd, 2007)The news of the sub prime mortgage meltdown has resulted in the comely investor taking out millions of dollars of his own money. When there is an broad period of high levels of selling, this will shoot to a bear market in which an extended bear market will often times lead to a recession. The ac quotationed American economy is not there yet and the news that the Federal Reserve will cut interest rates will stem the surge of such things approach to significantity. However, such negative news only hurts the economy as a whole and the major(ip) indexes can expect to take a major hit in the short as well as long term. This results in a depletion of billions o f dollars of individuals hard earned money.A third way in which the sub prime mortgage fall out effects people who themselves are not in danger of defaulting on their loan, is the shipway in which foreclosures affect the place determine of the homes within a approach. For many individuals, their home will be the most expensive investment that they will ever make in their lifetime. When home owners feel that their property economic values are decreasing, often times, this will increase the rapidity in which they will seek to move.A decrease of 10% or level 5% in the individuals property value is often times, enough of a stimuli to uphold the individual to move. Those who cannot move or who cannot find a defileer for their homes, are stuck with the loss. How does this happen? There are many factors which appraisers take into effect when deciding a homes value. One of the important factors is the % of unoccupied ( foreclosed) homes in the populatehood. Prospective new home buy ers will be steered away from such neighborhoods as it is a sign of an economically depressed neighborhood and the possibility of their own homes value increasing, is minimal. An average American will move at least 3 times in their life.That means, that there is a 66% pretend that their home will be seen and used as an investment as well as a home in which to live. A home bought at $100,000 with flat the remotest possibility of one daytime being valued at less than the leverage price, is often times enough of a reason not to buy that home and to generally steer clear of that neighborhood entirely or to rent for a longer period of time. This last aspect is detrimental to the city as the loss of property taxes hits the budget hard and impedes the serve which the city is able to provide.The effect that the sub prime mortgage fall out has is mental as well as monetary. Many potential home buyers, those with professional credit, are simply postponing any corrupts and is prompted to simply wait out the storm. Showings are down, contracts written are down and sellers are just as linchpined away as buyers are. This from Lou Barnes, a partner in mortgage banking with Boulder West Financial in Bouler, Colorado. Barnes continues to comment I think the psychological disability is worse than the pecuniary damage which is already bad enough.Even for buyers who have plenty of cash can easily afford higher mortgage rates, the abrupt change in the financing purlieu reduces the desire to buy a house unless you really have to. (Donn 2007 pg. 3) This idea goes rear end to the concept that a home purchase is seen as an investment as much as a domicile. The self impose prevention of potential buyers who have superior credit scores to buy homes, hurts the topical anaesthetic economy and the businesses in the area. The negative effects of the admit fall out are intertwined, one depending upon the other.Another way the sub prime mortgage affects the economy is in the f allout. Sub prime mortgages, in a utopian world, would give individuals a foster change at improving their credit scores and disallowing their credit mistakes of the past, from preventing them from one day buying a house. Many times, credit problems occur when an individual is in college. Generally, the maturity date needed to fully appreciate the concepts of long term results to their immediate actions are invalidate in their mindset. Money is tight and credit card game are readily available. As a result, many credit cards are charged to their limit until lastly the bill goes to collections and is reported to the credit bureau.Hopefully, that individual, upon graduating from college and being removed from the situation for a twain of years, matures to the degree that such occurrences would never once more happen. However, without the existence of a sub prime mortgage, that individual would not be allowed to buy a home for years until his or her credit score was improved to the new guidelines of a 660 FICO score from a introductory 620 guideline. (Saft, 2007 pg. 2)Those who bought their home at the beginning of the year and who had less than perfect credit with incomes on the brink of the cut off aim for their mortgage, could not have bought a home any later. The same young equalise who goes to buy a house half a dozen months from now when the new guidelines are put in place in order to help avoid another fall out, will be forced to rent for another year or 2 before they can receive headway for a loan.One of the most long-wearing as well as immediate effects upon the mortgage industry and those who depend upon it, are the lending practices. Economist rate Doms affirms The sharp rise in guilt rates on sub prime residential mortgages has raised concerns about credit underwriting practices and economic distress among borrowers and has drawn the precaution of policy makers at the Fed and elsewhere. (Doms 2007 pg. 3) This reflexion can equate to an effect upon mayhap millions of Americans who were planning to buy a home in the next calendar year.This, as Mark Doms states, will have indestructible effects. Two of the potential channels through which house price perceptivity may affect the sub prime depravity rate that we suggest, are the incentive to protect home equity associated with recent appreciation in house prices on the demand for housing. (Donn, 2007 pg. 3) Such observations will most likely come to fruition in the immediate future as it will be observed that the complete fall out from the sub prime mortgage crisis is yet to be fully realized.John Moutlon, source CEO of American Mortgage Group stated the situation the best when he said It feels like this is just the elevation of the iceberg and no one knows how it will shake out. We are trying to rest guideline changes. (Myers, 2007)These are the real effects of the sub prime mortgage fallout in the ways that it affects the average American man and woman. As an example, the allegory of devil families highlights the real results of the mortgage meltdown. The real story of the sub prime mortgage is the effect that it has on the economy when these loans, on a wide scale, default and millions of individuals are affected.The Laird Family in Central Illinois was a new twain just starting out. Both parents worked but had pocket-sized jobs as the job market was not very strong in their area. The father, John was 25 and the mother Marie, was 23. They had a two year old churl and were renting for the past 3 years together. Both had credit scores go on 600 and their mortgage from a home that they were abstracted to buy, would constitute 30% of their total monthly income. The price of the home was $140,000 with a $673 monthly mortgage payment. (Berry, 2007 pg C4) Their credit scores was not high and as a result, they were forced to pay a higher interest rate.However, they were sure that such a payment could be reached. They bought their home in whitethorn of 2007, just weeks before the mortgage meltdown. I cant believe the timing. I am so fortunate. We both have poor credit scores and I surmise that wed be able to secure a mortgage that was not sub prime (Berry 2007 pg. C4) states John Laird. Their story was an American success story. However, those who came later on John and who found themselves in similar situations, were not so lucky.In Oakland, California where the median home price is more than $400,000, homes are hard come by for those who are not very rich and who either have great credit or can put down a kempt down payment. This was not the case for bully Esperanza. He earned a gracious living at the age of 30 but the time when he first came to America as a juristic citizen, were not so smooth.He ran up one unpaid bill after another and routinely had bill collectors job him. In the last 3 years, he cleaned up his act and remained accepted on all of his bills. He then wants to buy a house for what is in co mparison, a low purchase price of $228,000. His credit score was 615 right on the leaflet of the old requirements but now, as a result of the mortgage meltdown in which lenders are now very sick to approve such high risk loans, Hector was denied. His monthly payments would only constitute 25% of his monthly income. However, with the advent of stricter lending policies, Hector was seen as too much of a high risk.The sad state of affairs is that Hector is no longer the exception. The housing market is revolved more or less timing. No where has this conk truer than in todays flow housing market. However, future buyers are not interested in the appreciation in value that their homes could bring. Now, they are only wanting the chance to buy a home at all. (Stempel, 2007)As a result, there have come from this live situation, some real and alter numbers which affect millions of people. When viewing these statistics, it would fit the lending industry to realize that this equates in to many individuals who are severely affected.The forecast for the 2007 house market is bearish at best. It is expect that there will be a decrease of 23% in exclusive family home purchases. 22% decrease in the number of new homes being create and 44% of building companies reporting that their business has been affected in an adverse way and that 78% of the largest building companies have bee affected by the sub prime mortgage meltdown. 13% decline in the real Residential Fixed investment as well as a modest slippage in the real value of residential remodeling. (Christie, 2007) However, the full brunt of the sub prime mortgage meltdown, sadly, is yet to be realized. The worst may be on its wayThe current sub prime mortgage crisis is an example of how the a couple of(prenominal) can ruin it for the many. not everyone who has less than perfect credit would become a risk when buying a home. Everyone makes mistakes and those who have credit scores that are on the brink of the cut of f, should be given the opportunity to own their own home.However, when lenders give $200,000 mortgage loans to individuals who have credit scores less than 550 and who clearly cannot afford the monthly payments, it ruins the entire housing market and hurts the potential and legitimate home buyers from owning a small piece of the American dream. Those people are now forced to rent. slight money is going to the city through taxes and a higher level of thwarting is prevalent among millions of potential, first time home buyers who simply came to the table a few months too late.The sub prime market is relatively new and barely even existed just ten short years ago. The existence of the sub prime mortgage is a testament to the financial beliefs of the average American. Immediate gratification is what is popular and in buying the largest house, not because such eagerness is really needed but as a show of status is the motivating behind such purchases. The median home price in San Franc isco is a staggering $1.1 million. (Donn 2007) The buyers of these home can be change integrity up into two distinct groups those who can easily afford such prices and those who will go bankrupt in the attempt to do so.For the latter group, up until recently, have had no problem finding lenders who are hungry for their business. The fall out has come and personal responsibility, both for the individual as well as the lender has at long last come full circle and forced the members of Congress, the construction industry, real estate agents and potential buyers have been forced to take notice.As it was stated earlier, many feel as though this is the tip of the iceberg and future problems are only around the corner. The fact that the Federal reserve on family line 19th, 2007, announced that they were going to cut interest rates provides some solace to the current mortgage crisis. Only time will tell if it will be too little and too late and what immutable changes will come out of t his crisis in responsible lending practices.WORKS CITEDBerry, J Predatory Loan Practice come about to Mortgage Fallout. Chicago Tribune Business September 1, 2007Christie, Les Subprime Blame Game www.cnnmoney.com expose April 20, 2007Doan, Mark. Home Prices and Subprime Mortgage Delinquencies. The Federal Reserve hope of San Francisco www.frbsf.org Downloaded September 18, 2007Myers, J Subprime and Shockwaves Bloomberg TV Aired July 19, 2007Robb, G. Fraud in Subprime Loans www.cbsmarketwatch.com Retrieved September 17, 2007Saft, J. Subprime Mortgage rap tars Good Consumers, Economy. www.reuters.com Downloaded September 17, 2007Seiders, D. Fed Surveys Subprime Mortgage Effects. www.nbnnews.com/eyeonecon/issues/2007 Downloaded September 15, 2007Stempel, J. Countrywide Plunges on Downgrade. Bankrupcy feared. Reuters August 15, 2007Fed Cuts Interest sitehttp//www.wbbm780.com/pages/962665.php?contentType=4&contentId=931793 Downloaded SepteMortgageThough experts greet that the mortga ge remainder bill is not thorough, recognize that it remains the best current attempt to address the current housing crisis facing the nation. A crisis that has continued to leave out the United States presidential debates as well as make it increasingly backbreaking for the homeowners to repay their loans. To understand the depth of the crisis and the current efforts to correct the situation, it is important to look at what mortgagee is and how it operates.Mortgage is simply the use of ones property to be security to a house loan. A mortgage transfers the efficacious rights of ownership to the pledged property to the lender in case the payments are not made as per the agreed terms. Such a loan is made in the under rest that the security shall revert back to the owner once the terms of have been fulfilled. To most people, mortgage is associated with real estates. It is a contract that involves a number of wakeless participants among them landowners who is referred to as the m ortgagee and the borrower who is the mortgagor.Another term that comes into play in the mention of mortgage is foreclosure. Foreclosure simply refers to a situation where a lender terminates the contract after the distress of the mortgagor to stand by the correspondence terms. This is usually in the direction of a court order. In foreclosure, a bank or any other financial institution that extends credit facilities repossesses a property if the homeowner is unable to comply with mortgage requirements (Carmen & Rogoff 12).Currently there exists a subprime mortgage crisis in the United States. This is a crisis that can be evidenced by a liquidity problem existing in banks after a high default rate in mortgages leading to foreclosures. The current mortgage crisis is seen to have largely been caused by subprime lending which simply is the act of pass on loans to individuals whose creditworthiness is uncertain or wanting due(p) to a low income. It is this subprime lending that contrib uted to the bulk of the total foreclosures in 2007, over 43%,despite the fact subprime lending were only 6.8% of all lending in that year (Stokes & Mechem).The current economic recession in the unify state has tarnished supplys presidential term with most tracing a associate to the hefty spending in the war. Bush insists that the slump is a s result of the mortgage crisis. That aside, he has received coarse criticism for how he has handled the crisis and for not coming up with any concrete plans to ease the situation. He is also accused of standing by the big corporations instead of aid the low income group deeply sweep up in the crisis.This is a result of his stand in opposing the mortgage relief bill, a bill that has recorded right smart gains in the house. Though the bill has its flaws, it is seen as a reprieve to millions of homeowners who continually brass instrument the risk of foreclosure. The mortgage relief bill is aimed at providing tax reprieve to homebuilders. The local governments will be funded to rehabilitate tatterdemalion homes. Those that oppose the bill claim it is ill-use spirited and will set a bad precedence of forcing one neighbor to pay for the mistakes of another (Anderson)Bush is strange to the bill referring to it as a alliance out. Some Republicans see it as forcing the 95% of homeowners that did it right to pay for the 5% that got it wrong.It is important to note though that the bill will pave way for a possible road to recovery and will go along way in preventing a further economic slump. Economists find fault with that if the situation is not arrested in time, it would debased to the worst debacle for the housing and the banking industries.It is seeming(a) that the nation is reeling from the effect of a mortgage crisis that has been caused by increase in foreclosures as a result of subprime lending. Though the government is yet to come up with a comprehensive plan to arrest the situation, the mortgage relief act is seen as a step towards the right direction and ability go a long way in easing the pressure off the homeowners and builders through a tax break. whole kit CitedAleis Stokes &John Mechem. Delinquencies and Foreclosures Increase in current MBA National Delinquency Survey. Mortgage Bankers Association, 12/6/2007. Retrieved on 13th may 2008 from http//www.mbaa.org/NewsandMedia/PressCenter/58758.htmScott Anderson. Bush administration opposes Democrats mortgage relief bill. CNN.com Edition. Sat April 26, 2008. Retrieved on 13th whitethorn 2008 from http//www.cnn.com/2008/POLITICS/04/26/house.mortgage/Carmen M. Reinhart and Kenneth S. Rogoff . Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison.. abbreviation of Harvard economists. February 5, 2008, 12