Subprime Mortgage Crisis; Democrats Want Too Much And Republicans Want Too Little

by Aubrey Clark
It�s the same ole same ole, sound-bites and finger pointing as to who can solve the mortgage crisis plaguing American homeowners. During an election year it�s harder than usual to separate the malarkey from the earnestness of the politicians on this matter. Each side is shucking and jiving or running and hiding from the real issues facing America directly resulting from the subprime mortgage crisis. Let�s look at both sides of the aisle. First a disclaimer, I am fiscally conservative but I am attempting to be nonpartisan in this piece, shoot me a line if I miss the mark.

Republicans � This is a loser issue for the Republicans, they know it and the Dems� know it. Logically, If we were to simplify the mortgage crisis down to the ridiculous, there are really only two strategies of which the government can attack. Helping the people who are about to lose their homes through direct government involvement; or helping the companies that are holding the loans so that they can become healthy and help the people. Obviously the Republicans are in favor of the latter, and guess which strategy �plays� better on the evening news.

Any move that Republicans make to help �big business� is met with outcries from the left of cronyism and corporate welfare. The truth be told, if the Republicans had their way I have no doubt that the good ole boys on the golf course would be the first beneficiaries of a corporate bail out. As political pressure mounts from the media and the left to do something, Bush and company have been forced to create �token� programs that only help a select few homeowners. Doing this this gives Republicans something to smile and wave to the cameras about and is analogous to putting a Band-Aid on a gun shot wound.

Commenting about the latest Bush initiative to help homeowners White House spokeswoman Dana Perino said: �This is not a silver bullet that will solve all the problems in housing, but it will help some additional people stay in their homes, and that 's something the president wants to see,"

Excuse me, did you say "this is not a silver bullet?" So what you�re saying is that we are only shooting the regular bullets that do little more than piss off the werewolf? Hello McFly, we need the silver bullets; this monster is getting bigger and stronger every day! Taking valuable time and resources to inact inept programs takes away from the time we could be using to address the problems with the "silver bullet."("Hello McFly", from the movie Back to the Future, one of my favorites.)

Democrats � If we could get Ben Affleck to perform for the camera as well as the Democrats do he might have another hit movie. Demigoding this issue will not solve it any faster than creating token programs will. Democrats are hell-bent on moving tax payer dollars to the people at the tax payer�s expense to solidify their voting base. From what I have seen each congressman and woman seem to have their own plan of how to "save the poor people" that have been swindled by the evil unscrupulous banks. They all smack of pandering that rewards irresponsible homeowners for bad behavior channeled through a myriad of government agencies.

The second part of their plan is to strap the banking industry with a new list of regulations that is the size of a phone book restricting how they lend money. This will bring lending to a screeching halt, raise taxes on the self employed and create a �field day� for trial lawyers. History has proven time and again that when the government over regulates the banking industry banks simply pick up their toys and go home. The mortgage industry has figurtively placed their hand on a flaming hot skillet, telling them not to do it again is unnecessary. However in the Democrats' defense, at least they have a plan.

What we need from our leaders is for them to be leaders. Each side has a valid point and is either promoting an extreme version of it for negotiation 's sake or dragging their feet. Meanwhile people are losing their homes and businesses are failing left and right, pun intended. The dollar is at rock bottom,we hope, and confidence for mortgage backed securities continues to threaten future lending. Each side of the aisle needs to put away the partisan bickering and come together with a plan that helps businesses and homeowners, NOW.

If you think I have "missed the mark" please feel free to shoot me a line, this article can be found on the mortgage crisis blog and is open to comments and suggestions.

About the Author

Aubrey Clark is and editor and writer for lendfast.com, a nationwide home mortgage loan company directory. He lives in Atlanta Georgia with his wife and 4 children and writes about subjects ranging from credit cards to Georgia low mortgage rates.

Article Source: Content for Reprint

Future of Subprime

By Peter Cugno

I frequently read a handful of industry discussion boards, and post on some of them from time to time, as some of you know. I see this particular question being asked and discussed often, so I thought I would take a stab at it this morning for you.

Based upon what I read, the conventional wisdom seems to be that it will 'come back' (like it was the last several years) and that it will probably take a dozen years or so to do that. That 'conventional wisdom' I speak about, looks like it's coming from people who joined our industry during the last industry cycle Aug '98 to late Dec '05, so in my view they lack a clear picture in the broader context of the business.

I want to give you some of it's history, so you'll have a well-rounded view of the horizon. Subprime, formerly called B/C paper and/or 'non-conforming,' began in 1914 (with my initial industry employer and others). As an eye-witness, I know it was a around in 1966 when I started as a twenty-something LO. Fannie Mae and her snot-nosed step half-brother Freddie Mac (labeled 'conforming') began in 1972 and BTW, I went to their baby showers, etc. and drank a lot of beer!

Since then, Fannie (FNMA) & Freddie (FHLMC) - let's call them by the initials they like to use these days "GSE's" - during their history have stumbled badly a couple of times and ONLY because they are Government Sponsored Enterprises, they haven't exploded all over everybody like 'non-conforming' has a couple of times (but been real close).

The way in which 'non-conforming' was done - 'originate to distribute' - during the last 20 years (not before that), and especially the reckless way it was handled the last decade, is at the core of what it's going through, and what you all have seen recently.

The last full year of originations before the Aug.'98 to Dec.'05 cycle when rates plunged and home values soared to the heavens, give us a production volume of $65.693 Billion for Subprime's 1998 annual total. While the 2007 annual total for Subprime was nearly three (3) times that at $181.289 Billion, and as has been reported just 2 weeks ago on the front page of the NMN, "B&C Vanishes as Volumes Fall to 7-Year Low."

News reports from December '03, were reporting that a Mortgage Broker shift to Subprime had started, 'conforming' was off by 1/3. Therefore, for the 5 year period 1998 through 2003, mortgage brokers (60%2B% of the market) were concentrating on 'conforming' loans; then subprime took off like a rocketship, only to slide backwards significantly as we moved into the current industry correction.

I swear, I'm not trying to make your head explode. Actual number of individual loan transactions closed/funded in 1998 was 1,021,676 - 2007 it was 933,480. So, back in 1998 (we worked harder not smarter), we closed more individual transactions, and made a whole lot less money for our troubles!

It is my observation Subprime it will not be back like it was during the '98-'05 period (ever again), but IS back (if you thought it left) right now ... only YOU don't know who the players are, and who the big-shot players are going to be (nor do I) ... because they are starting/building/growing/ developing, etc. right as we speak. It's my sense going forward they will operate nearly as they did during the period immediately prior to the start of the last cycle in August '98 with annual production totals for the next several years (about 1/3 of today's numbers), and similar to that period.

Article by Peter Samuel Cugno, Chairman & CEO of Secret! University, the educational division of Americas Money Center, Inc. with 40 years experience in the subprime industry niche. Questions or comments may be directed to Peter 310-833-4068 or online at: http://www.americasmoneycenter.com

Article Source: http://EzineArticles.com/?expert=Peter_Cugno

http://EzineArticles.com/?Future-of-Subprime&id=1063100

Fixing The Mortgage Mess

An article on CNN.com offered 4 possible solutions to the subprime crisis.

1. Change The Bankruptcy Laws
2. Fixed Price housing
3. Negative Amortization Certificates
4. Fed Buys Up Bad Debt From Banks

There's not a single solution to this situation, as there are so many things that contributed to the housing market ending up in this predicament. I'm still wondering if Congress is ever going to get any of the stalled mortgage bills moving. The pressure that this mess puts on small businesses seems to be greatly overlooked. According to the SBA 99.9% of businesses are small. Additionally, small businesses bear a disproportionate share of the regulatory burden $7647 per employee for companies with less than 20 employees 45% higher than large companies of 50o or more employees according to a 2005 SBA Reg Burden Study.

Alright, enough on my small business kick. Point here is that there's not one solution - that I know. Furthermore, congressional red-tape is costing people their homes & their jobs and it is putting undo pressures on the very businesses that sustain this economy.

Principal Reduction: As a Means of Avoiding Bankruptcy

Proposal:

Fed Chief Ben Bernanke recently told a community bankers group in Orlando that reducing mortage balances, rather than cutting interest rates or extending payments, might be the better approach to helping borrowers.

Concept:

Conceptually, I think it makes sense. Not sure how realistic it will be for lenders? But it could work in some cases.

Concern:

My initial concern is plain & simple - is this option fare to those homeowners who are currently making there payments on-time(regardless of loan type). I am sure that there are homeowners struggling to make ends meet, yet maintaining their mortgage payments. What seems to be the most overlooked aspect of this crisis is personal responsibility of those individuals that took out these mortgages. Not every foreclosure is the result of an unscrupulous mortgage broker or lenient lending standards, for that matter.

Final Thoughts:

Many pieces went into making this mess and it is going to take many pieces to turn it around.

There's just no magic pill for the current ills of the housing market!

2nd Mortgage Holders Contributing to Crisis

I stumbled across an article this weekend discussing what could happen when a 2nd mortgage holder refuses to subordinate so the first mortgage can be refinanced. Got me thinking - this could really add to the mortgage mess. If there is a benefit to the borrower by refinancing their 1st mortgage maybe the holder of the second should have to subordinate - at least in the current market. I haven't really thought about the concept full circle but my feeling is that there is a compromise somewhere. Especially, if it will enable a struggling homeowner to get back on track.

Mortgage Dump - Lender Cleanup

Interesting post By Moe over at loanworkout.org regarding whether or not lenders should be involved in the process of cleaning up the mortgage mess.

Excerpt from Moe's post:

This has been bugging me for quite sometime now and I thought I would dedicate a blog post to voice how sickened I am by the fact that the very companies and people who have single handedly created this housing bubble and mortgage crisis are involved in the clean up process.

All these forums and seminars that are put on by local and state governments and are hosted by eager lenders and their representatives who now “help” struggling borrowers with the “very” toxic mortgage they sold them.

My thoughts:

Now, I will say that I appreciate what loanworkout.org has set out to do - help the struggling homeowner. They do great things no doubt. The concept of 3rd party cleanup is interesting but I think it's quite unrealistic. Who's gonna do it? It really couldn't be an industry outsider? This all seems to be some more broker bashing. Brokers originated 58% of mortgage loans in 2006. Not sure how that equates to anywhere near the amount of finger-pointing they get. There's more to this picture than originators a lot more. This mess starts with securitization!

Workouts For Subprime Customers

No this is not a new exercise program. Not sure who coined the term "workouts" but in any case this is the term Countrywide is using to describe their subprime loan restructuring efforts.


LONDON (MarketWatch) By Steve Goldstein -- Countrywide Financial Countrywide Financial Corp said it's expanding a program to help subprime borrowers avoid foreclosure. Working with the Association of Community Organizations for Reform Now, it said it will formalize workout programs for borrowers with all types of subprime loans, not just hybrid adjustable rate mortgages with pending rate resets. Further, the agreement addresses home retention options and procedures for borrowers in various stages of mortgage delinquency, not just borrowers who are current in their payments.


This program sounds good, but the proof is in the pudding. I like that it's addressing all types of subprime loans and not just ARMS. From my perspective this is definitely not just an ARM problem. ARMS have gotten a bad rap and have been publicized as the main culprit. Undoubtedly they are a piece to the puzzle but not the whole problem.

Mortgage Mess Misconceptions

I was watching Cavuto on Fox Saturday morning and there were some interesting statistics scrolling across the bottom of the screen. Got me thinking - is this subprime crisis as widespread as much of the media would like you to believe.

Let's take a look in the numbers!

99% of homes are NOT in foreclosure
93% of home-owners are NOT behind on their mortgage payments


Again, this is just some food for thought.

So Much For Help From Your Home State

So much for Bush's tax exempt bond idea. It's not a big surprise - is it? By the sounds of it, this plan to help a million subprime borrowers avoid foreclosure is only helping a handful of people.

Feb. 1 (Bloomberg) -- President George W. Bush's proposal to help 1 million subprime borrowers avoid foreclosure with tax- exempt bonds has an obstacle: states don't want the risk any more than private lenders do.

According to this article in Bloomberg:

The state housing agencies that are already offering mortgage refinancing options are turning away so many applicants that they've had no need to raise funds.

Why is this the case?

Let's face it, why would the states want to bring any more of this mess upon themselves at this point. This whole proposal may be more of a publicity stunt than anything. Sounds good - solves nothing. If lenders won't do it, why would or should the states. In fact, I think the whole idea (if it did work) would put states at additional economic risk. The more I think about it the more this concept sounds like a bad idea. Maybe it's a good thing that nobody qualifies for this rescue plan. I say that tongue and cheek - there's gotta be some better solutions. Less talk - more action!

Separating Fact From Fiction - Is There A Real Mortgage Crisis?

By I.c. Jackson

Despite the media hype surrounding the current mortgage "crisis" in the United States, the perils of the subprime lending industry are not as universally devastating as you may have been led to believe. While the reported losses and foreclosure rate increases are alarming in and of themselves, they are relative figures that, when presented as stand alone information, may cause one to form unbalanced conclusions. These emotionally charged conclusions drive people to look for someone to blame. There are lots of fingers being pointed in various directions, but the truth is that there is equal fault to be shared by all parties involved. Much of the media frenzy surrounding the climate of the American housing market is more about politics than truth, and most current and potential homeowners shouldn't fret about all the negative stories in the news.

Because of the natural risks involved with subprime lending, it should have never become so easily accessible; the demand is now so high that these loans are even flagship products for specialized lending organizations. The aggressive push for market share by lenders who were no longer satisfied with profits from traditional, conforming loans created an entire industry that rewarded the financially unstable. The Mortgage Bankers Association reports that in the third quarter of 2007, subprime adjustable rate mortgages (ARMs) represented only 6.8% of the mortgages outstanding in the US, but they made up 43.0% of the foreclosures started. Subprime fixed mortgages represent 6.3% of outstanding home loans and made up12.0% of the foreclosures started in Q3. It is apparent that this sector of borrowers should have never been courted by financial institutions. While it is true that the subprime mortgage industry is on a downward spiral, these current conditions were reasonably foreseeable, which is why the entire U.S. economy will not be helplessly victimized by its demise.

There is a trickle down effect involved with the bust of this market, but the consequences are not of the pandemic nature that many forecasts and predictions imply. If you don't know the facts, the sensationalism alone can cause you to lose sleep. Let's separate some of the facts from the fiction that is being reported:

Fiction: Foreclosure is a nationwide crisis with myriads of people losing their homes.

Fact: Based upon the U.S. Census reporting of the number of U.S. homeowners and foreclosure rates published by RealtyTrac, the largest, most comprehensive national database of foreclosure data, as of November 2007, only a rough 2.34% of U.S. homes are actually in foreclosure.

Fiction: If it weren't for the predatory lending practices of the subprime mortgage industry and the federal government's lack of regulation, we wouldn't be experiencing this real estate slump.

Fact: An econometric study performed by the Federal Reserve Board of Chicago shows that speculative bubbles, interest rates, and loose monetary policy had little to do with the housing boom and market overvaluation that began to emerge in 2005. In fact, Mark Thoma, professor of Economics at the University of Oregon, summarized the study, reporting that, "without any other developments, the homeownership rate is likely to have gone up anyway", and its subsequent market overvaluation is "largely explained by technology-driven wealth creation over the previous decade." The increase in household wealth caused an increase in demand, which drove housing prices up.

Fiction: Housing prices are going to plummet because of the mortgage crisis and the housing bubble that has been growing since 2005 - and it's about to burst!

Fact: There have been previous U.S. housing bubbles and home price corrections, and they are not only predictable, they are survivable. Global Insight, America's foremost provider of worldwide economic, financial, and industry analyses, reveals that between 1985 and 1987, there have been a number of metropolitan housing bubbles, with a typical documented price correction period of four years. These conditions were caused by economies that experienced very rapid growth, which resulted in subsequent housing overvaluation. Furthermore, a new study by Global Insight and National City reveals that 63% of U.S. housing markets are overvalued, particularly in areas with very low foreclosure rates. The prices were scheduled for decline anyway.

Fiction: The best way to lighten the burden on the economy is for the government to provide emergency bailout options for the lenders and homeowners.

Fact: This won't really help those experiencing the foreclosure crunch but will penalize taxpayers who have been responsible in keeping themselves out of such financial ruin. Bush's plan, proposed by U.S. Treasury Secretary Henry Paulson, has more potential to hurt innocent Americans than it does to help those who are in foreclosure. Freezing teaser interest rates won't do much to help many of these cases because the truth is that the borrowers could never afford the houses in the first place - that's why they had to get subprime financing. Their high debt-to-credit ratios and poor credit histories suggest that they face enough debt that the freezing of home mortgage rates will not do anything to improve their situation; it may only simply delay the inevitable. Furthermore, government subsidies equal tax dollars taken away from other programs and operations that serve those who have been fiscally prudent to bail out the few who have been embarrassingly irresponsible. Moreover, future home buyers in areas with high foreclosure rates face an unfairly reduced housing market when defaulters are allowed to stay in homes that they cannot afford. Allowing such financial irresponsibility to continue encourages future fraud and delinquency, and the misappropriation of government funds to sponsor bailout plans will hurt the national economy as well as state economies.

It is unfortunate that the current foreclosure surge is affecting so many American households, but the blame and accountability needs to be placed where it belongs so that the media and political sensationalism of the issues can be subsided. The government, the industry, and the borrowers themselves have caused this "crisis", and the brunt of the responsibility needs to fall upon those who were directly responsible, which are the lenders and the borrowers. The Federal Reserve Board revealed in a press release on December 18 a proposal to add "Regulation Z" to the Home Ownership and Equity Protection Act (HOEPA), a rule designed "to protect consumers from unfair or deceptive home mortgage lending and advertising practices", but such regulation should not even have to exist. Adults have the capacity and the responsibility to make prudent financial decisions. The private sector should not be able to act haphazardly and then punish the public by using tax payer dollars to avoid the consequences of their actions. That is nothing more than corporate welfare, and it is not fair to those who pay for an organization's mistakes while it does not share in its profits. However, if you review the transcripts of recent Presidential debates such as those of the Democratic debate in Iowa, published by the political blog of the New York Times, you will find that some politicians are using the mortgage situation to connect emotionally with voters, comparing it to Hurricane Katrina and villainizing the government in attempts to convince voters that they will remedy the apathy of the government on behalf of the voters. Their tactics are working, too; much of the attention garnered by the mortgage industry crunch is focused on Capitol Hill in light of the 2008 Presidential Election.

The truth is, however, this is a market issue that should be resolved where it started; with the housing and consumer lending markets. It is arguable that subprime borrowers are the victims of predatory marketing and lending practices, but the old adage proves true: "if it sounds too good to be true, it probably is." It makes no sense for someone with unstable finances to think that they can or even should be able to afford property that they cannot even make a respectable down payment on. If your credit is bad, it doesn't make sense for someone to give you tens of thousands of dollars unless there is a sneaky catch or a stiff penalty involved. It is the consumer's responsibility to make wise decisions concerning consumer credit and debt and if the lending institutions are ambitious enough to take such risks on subprime borrowers then they should be strong enough to take the hits when those investments prove to be unwise and unprofitable. Bombarding the media and crying wolf, or "crisis" if you will, is an underhanded attempt by financial institutions and related government agencies at shirking responsibility by making the crises of the mortgage lending industry everybody's problem.

Visit the Prime Rate website for a history of preowned home prices in the United States.

Article Source: http://EzineArticles.com/?expert=I.c._Jackson
http://EzineArticles.com/?Separating-Fact-From-Fiction---Is-There-A-Real-Mortgage-Crisis?&id=916062

Making Subprime Mortgages Illegal?

By Nick Adama

With all of the furor over the subprime mortgage debacle, a number of individuals and groups are taking a closer look at the loans that made the mess possible. Adjustable rate mortgages, interest only loans, and their variations are estimated at $3.5 trillion now, and they are partly to blame for the record foreclosure rates. One occasionally-proposed method to dealing with the crisis is simply to make these types of loans illegal. Although that may sound like a plausible solution, it does not address the more fundamental causes of the foreclosure problem.

First of all, these types of mortgages have not been made illegal because they are voluntary contracts entered into between two consenting parties (the homeowners and the banks) who each had time to review, negotiate, or reject the contract before it was signed. Nothing illegal has been done in the vast majority of adjustable rate mortgages and many homeowners who have adjustable rate mortgages were able to pay them off or keep up with the payments. Eliminating an entire type of voluntary contract that is extremely useful and appropriate in certain situations does not eliminate the possibility that any other type of contract will be used when it is least appropriate. The contract itself, therefore, is not the problem, but how and for what purpose it was relied upon.

By far the largest percentages of people facing foreclosure are losing their homes because of a loss in income or medical problems. Less than 5% actually lose their homes because of a payment resetting, although it may contribute if there is another hardship. The subprime loans and resetting payments are significantly contributing to a sense of despair in the economy, and even a small decrease in the amount of people looking for new homes will begin to create a snowball effect, dragging down property values and decreasing profits developers can make from building new houses. So, the irrational fears created by these types of loans are creating instability in the market, but the usual causes of foreclosure still remain the overwhelming reason homeowners face foreclosure.

This is not to say that certain events during the mortgage application process may not have been unlawful, and fraud and negligence were obviously involved in some cases in order to pump up profits and take advantage of the real estate bubble. Specific aspects of creating contracts are illegal if they are discovered, such as disclosing material facts, not using intimidation, not giving contracts to people who can not reasonably enter into them, and making contracts with minor, to name a few. But when a husband and wife apply for a mortgage loan, sign disclosure statements that the rate will increase after 2 years, and state that they understand the terms of the contract, when they have not had the documents reviewed by an attorney or on their own, then problems will come up. The question is, who is responsible for making sure the homeowners understand what they are getting into? Obviously, no one except the homeowners can be certain if they understand completely or not, so it is up to them to raise any questions before going through with the mortgage. Otherwise, the bank will take silence to mean consent.

Again, these specific types of mortgage contract are not the real problem. More is going on in terms of lack of financial education, homeowners (and banks) not understanding how contracts work nor how to read them, and simple greed on the part of everyone involved. However, anyone who was pressured into getting an ARM or fraudulently induced into a loan should have some legal recourse to have the mortgage nullified and the lender punished. If these issues were addressed from the perspective of contract law, rather than just seeing homeowners who simply can not pay the mortgage, more than a voluntary federal program would be offered. But banks often have little to fear from lawsuits, as they hold more financial power and legal expertise than the average homeowner.

Outlawing a certain type of mortgage contract in an effort to protect homeowners from their own failure to understand the agreement they are entering into is no guarantee that the same problem will not crop up again in other areas. It is the underlying causes that need to be addressed, with community solutions and private education available to provide potential loan applicants with information necessary to evaluate the contracts they are considering. If this is not possible, and homeowners do not understand the mortgage, they need to have it reviewed by competent legal counsel. This can often be done for a few hundred dollars with the fees rolled into the new loan. Lawyers, though, should make certain the loan applicants understand the ramifications of the contract, though, and not just explain what it is while ignoring how it may play out over time. Homeowners themselves also need to plan for an uncertain future by establishing an emergency fund, saving as much as possible, and learning to live without extravagance if they have no self-insurance against the next inevitable financial hardship.

The ForeclosureFish.com website provides foreclosure help to homeowners in danger of losing their homes. Hundreds of pages of articles, blog entries, and reference materials are available to search through, with descriptions of nearly every known method of preventing foreclosure, including repayment plans, bankruptcy to stop foreclosure, and short sales, among others. You can find the ForeclosureFish website on the internet at the following: http://www.foreclosurefish.com/

Article Source: http://EzineArticles.com/?expert=Nick_Adama
http://EzineArticles.com/?Making-Subprime-Mortgages-Illegal?&id=895593

In Reversal, Fed Approves Plan to Curb Risky Lending

By EDMUND L. ANDREWS

Published: December 19, 2007

The new rules would force companies to show that customers can realistically afford their mortgages.

Permalink

Original Article

CNBC Poll On The Mortgage Freeze

As of this morning the results of a CNBC poll as to whether the Bush administration's idea to freeze mortgage rates is necessary to insulate the economy from the subprime crisis had 77% of respondents saying the market should be left alone. What do you think?

	Yes -- The danger to home values and the economy warrants government intervention. 15%
	No -- The marketplace should be left to resolve the issues on its own. 77%
	Maybe -- The answer is not yet clear. 8.1%
Not a scientific survey.

Mortgage Freeze - Who will still be out in the cold?

What does this Rate Freeze Look Like - Who Qualifies?

A proposed 5 year rate freeze for sub-prime borrowers whose mortgage loans were originated between January 1, 2005, and July 31, 2007, with rates that are due to reset between January 1, 2008, and June or July of 2010.

What are the other requirements for this proposal?

Borrowers must be able to afford their existing rates and be current on their payments. Under the proposed plan, homeowners who have demonstrated that they are a reasonable credit risk but who could not afford their house payments with higher rates would qualify for "fast-tracked" loan modification and a 5-year interest rate freeze.

Apparently, borrowers who have fallen behind on their loan payments might still qualify for the freeze, but they would face more stringent stipulations before receiving any such loan modification.

Commentary
Whether or not this plan will make any significant improvement to that rate of defaults really remains to be seen. One thing that stands out is that it is not going to bail out every struggling homeowner. In my market it's not just the rate adjustments that are problematic. It seems to me that loose lending standards allowed borrowers to buy more of a home than they could really afford. I use the term really because obviously they could technically afford the home or they wouldn't have qualified for it in the first place. Not ground-breaking news in a nation that spends like no other. Who doesn't want the biggest bang for their buck? As a broker, that is one thing that I don't like to see my clients do. The products were out there for the taking. If people were maxed out from the beginning there's really no margin of error once they fall behind. How many of these type of situations will be addressed by the plan?

My feeling is that it's not just an ARM problem. Furthermore, one might ask, "How is this plan fair to those conventional borrowers who have or will incur rate adjustments according to the terms of their loans, but are not getting the benefit of any rate freeze?" Sounds like a class action lawsuit waiting to happen.

Shannon Luscher VP Elite Mortgage Solutions, Inc. Visit the Elite Mortgage Daily Blog for Mortgage News & Insights at http://elitemortgagesolutionsdailyblog.com/ Wisconsin borrowers can find more information about rates and products by visiting my comprehensive website - http://www.elitemortgagesolutions.com/

Article Source: http://EzineArticles.com/?expert=Shannon_Luscher

Mortgage Ship is Sinking & Safety Net May Have Some Holes

Summary of Treasury Secretary Hank Paulson's comments yesterday regarding the current sub-prime mortgage rescue plan.

"We're moving as fast as we can move," Paulson said in an interview with ABC News' Betsy Stark. "We believe that the biggest issue is gonna be beginning next year when the number of [mortgage rate] resets is going to be increasing dramatically. And we're doing everything we can to deal with a complex problem and help the industry come together in a way which is going to be good for homeowners, communities and the economy overall."

Three main elements of the proposal.

1. Increase Efforts to Reach Struggling Homeowners

FACT: 50 percent of foreclosures occur without borrowers ever talking to their lender or a mortgage counselor

Initiative to Reach Borrowers

- HOPE NOW alliance – a coalition of mortgage servicers, counselors and investors that are working to avoid preventable foreclosures and to improve the functioning of the mortgage markets

- All HOPE NOW servicers are contacting borrowers 120-days in advance of their mortgage reset, to reach them early, before their mortgage problem becomes overwhelming

- If you are worried about losing your home, call this number, 1-888-995-HOPE, to see if you are eligible for assistance

2. Increase Availability of Affordable Mortgage Solutions

- Make more mortgage products available for borrowers who have the financial wherewithal to own a home, but are struggling with the higher adjusted rate on their subprime mortgages. The industry is looking at several innovative solutions – including both modifications and refinances. State and local governments, especially in the hardest hit areas, are also developing solutions, including proposing funds that may help financially-able borrowers refinance out of expensive subprime loans.

- Proposal to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinances; if enacted, this will reduce the cost of innovative mortgage programs and allow these programs to reach more struggling homeowners.

- HUD initiated "FHASecure" to give the FHA the flexibility to help more families stay in their homes, even those who have good credit but may not have made all of their mortgage payments on time.

3. Develop a Systematic Solution for Transition into Affordable Mortgages

- As volume increases, we will need an aggressive, systematic approach to fast-track able borrowers into a refinance or mortgage modification.

- Four categories of subprime borrowers
and what they need

1. There are those who can afford their adjusted interest rate; these homeowners need no assistance.

2. Homeowners who haven't been making payments at the starter rate on their subprime loan and may not have the financial wherewithal to sustain home ownership; some of these homeowners will become renters again.

3. Homeowners might choose to refinance their mortgage - putting them in a sustainable mortgage while keeping investors whole. This is the first, best option. Servicers should move quickly to assist those who can refinance.

4. And the fourth category is those with steady incomes and relatively clean payment histories who could afford the lower introductory mortgage rate but cannot afford the higher adjusted rate. We are focusing on this group, determining who they are and what steps may appropriately assist them

The Balancing Act between Lending Standards and Rates

In listening to CNBC last night regarding the so-called "sub-prime mortgage meltdown", I started to think about how we got here and where are we going next. I guess one of the areas that we should consider is Mortgage Lenders and the change in lending standards in conjunction with historically low rates. At the time lenders saw this as a winning combination. In part, this fusion of lax lending standards & low rates set the stage for this housing market crisis. Yes, the same recipe that brought us the housing boom has also brought us the housing bust!

The Breakdown

Loose Standards & Low Rates invite lots of new consumers to the marketplace. This equates to an influx of new money into the economy and into the pockets of lenders. So now there are new homeowners and current homeowners that use their equity like a checking account. The fed starts raising rates, this trickles down to the mortgage market and slowly but surely, new borrowers are nudged out of the market and current sub-prime borrowers are squeezed as their rates adjust. You see the products that many lenders introduced to the market were for the most part Adjustable Rate Mortgages - rates were good & more importantly they kept sub-prime borrowers payments low. The idea of these sub-prime ARMS was in large part, a live in the now type of thing. In the business sub-prime ARMS are often called band-aid loans. In essence, no one really wants to be a sub-prime borrower. The final goal in all of these types of loans is to improve the borrower's credit situation, while allowing them to own a home. Ideally within the term of the ARM (prior to it adjusting) the borrower's credit situation will have improved to the point that they would qualify for a conventional loan. In a perfect world this would be how things turn out. Problem is, in a good amount of situations this is not the case.

Lending Standards

This is why consistent lending standards are so important. Lenders have gone from one extreme to another, leaving many sub-prime borrowers in their wake. Their credit hasn't't improved, their rate adjusted, their payment increased, and there are no longer any programs that they qualify for. Defaults start rippling back to the secondary market and lending standards tighten further. For many, foreclosure is imminent. Where

Where We Are Today

The fed has lowered rates however lending standards haven't loosened up much. As we approach the December 11 fed meeting Wall Street is betting that the fed will lower the funding rate again. How much will this ease the housing market situation? It's hard to say. Everyone wants to lay the blame somewhere, but you be the judge.

Shannon Luscher VP Elite Mortgage Solutions, Inc.

Wisconsin borrowers can find more information about rates and products by visiting my comprehensive website - http://www.elitemortgagesolutions.com/