Everyday, it seems as if things just keep getting worse; the economic slowdown, the housing crisis, the credit crisis, higher energy costs. If you’re like me, then you have one looming question: Where is our representation? Where are our so-called “leaders”, with all of their wisdom and insight? What are the solutions they’re proposing to stop this car wreck? I haven’t heard one viable solution from any bureaucrat out of Washington.
Here’s what I can tell you about regarding one of these issues:
Housing Crisis: This one is near and dear to me, because I’m in the mortgage industry. The current situation has turned into a ticking time-bomb that can be diffused, but unfortunately, the powers that be, are too busy opposing each other to be effective. Case and point; Fed Chairman, Ben Bernacke, has cut the prime lending rate more than 1.5% over the past six months, bringing mortgage interest rates to below 6%. That’s great news for homeowners who may have higher rates or have adjustable rates that may be changing in the near future. Problem: Fannie Mae and Freddie Mac continue to either revised or eliminate many of the loan programs that are needed for these borrowers to correct their present situation. Many of these revisions happen on a daily basis, so even though a loan may be eligible today, it may not be tomorrow. Also, Fannie and Freddie have now implemented what they are calling “risk-based pricing”. Meaning that if your loan has ANY increased risk associated with it i.e. lower credit score, higher loan to value, etc. (which most loans do thanks to decreasing property values) than your loan will be assessed a fee based upon that risk. If you have a FICO score of between 620 and 640, look forward to a charge between 1 and 3 percent being added to your loan. Another adverse factor is the declining property values. This is attributed to the concept of supply and demand. Currently, the market is saturated with homes for sale and due to the amount of time that it’s taking to sell a home; sellers are cutting deep into their profit margins. Many are willing to take losses if it means not having to cover two mortgage payments. Because of this, recent sales set the level of competing prices. In other words, if you have two similar homes for sale for say $250,000, and one is sold for $220,000; guess what? The poor guy who still has his on the market for $250,000 is hating life, because the one that sold for $220,000 set the market for what someone is willing to pay, and is now the best comparable when determining value. This is extremely tough for sellers who have foreclosures in their neighborhoods, have homes being sold on short-sales or have builders selling their homes for To make matters worse, Fannie and Freddie have now implemented a “declining market” rule, which states that if a property is located in a market where the property values are declining, (the entire country) than the requested loan to value will be reduced by 5%. In other words, if you need to refinance your home at 95% loan to value and you’re home is located in a “declining market” (the entire country) then your loan will be reduced to 90%, which essentially kills your loan. Say hello to foreclosure!
Your thoughts…
