Those who can qualify for financing can get low cost loans for homes. Image from Wikimedia Commons.

Interest rates on mortgages have fallen recently, meaning mortgages can be very low cost loans for people who can qualify for the financing. Rates for 30-year fixed, 15-year fixed and five-year adjustable mortgages are beginning to slip again after housing data indicates growth has stalled in real estate. A double dip housing recession may be possible.

Those who qualify could get a steal on a home

Currently, the market rates for home loans are starting to trend downward as demand is waning for housing. Buyers who qualify may be able to get some seriously low cost loans. The market rate for adjustable rate mortgages is hitting all time lows, as a five-year adjustable rate mortgage, or ARM, recently fell to 3.72 percent from 3.80 percent, according to MSNBC. That is up from February, when five-year ARMs hit a market rate of 3.23 percent. The average rate for a 30-year fixed mortgage hit 4.87 percent, more than the rate observed in November, when 30-year fixed mortgages hit a 40-year low of 4.17 percent. The going rate for 15-year fixed mortgages is currently 4.15 percent.

Double dip possible

A second recessionary period in housing could be on the horizon, according to CNN. That doesn’t mean a person will ever be able to purchase a home by taking out a couple of payday loans, but it won’t be pleasant to watch the real estate industry to slip even further into the abyss. Robert Schiller, co-founder of the Case-Shiller Index, says there is potential for the prices of homes “falling another 15, 20 or 25 percent.” Given that housing prices are near to the lowest levels since the great housing crash of 2008, a double dip in real estate seems plausible. If it were to happen, it could mean further bad news for an already shaky economy. Since states rely partially on property taxes, lower values mean lower revenues and that would lead to more states having serious budget woes.

The virtues of renting

Since the latest recession began in the housing market, it has called into question whether it is better to rent or buy. Buying a home can pay off, provided that a person buys when values are down and sells the home when values are up. It also helps to have paid off the mortgage or to have gained a good share of equity. However, renters pay no property taxes and have to do little, if any, maintenance. Granted, renting means having to part with more instant cash every month than a homeowner.

Sources

MSNBC

CNN

Treasury Secretary Timothy Geithner is due to unveil some proposals concerning Freddie Mac and Fannie Mae soon. Image from Wikimedia Commons.

Mortgage backing companies Freddie Mac and Fannie Mae could become a thing of the past. An upcoming Treasury report will make proposals about what should be done with the two government sponsored enterprises. One proposal is to let them both go under.

Proposed cut of Freddie and Fannie would take years

The Department of the Treasury has several proposals about what to do with government sponsored mortgage insurance companies Fannie Mae and Freddie Mac, according to CNN. The mortgage backing companies were placed in conservatorship when the real estate market crashed. Since then, more than $150 billion in emergency loans was lent to Freddie and Fannie to keep the housing market afloat. The government has been trying to figure out what should be done with Freddie and Fannie. One proposal is to withdraw the government from the mortgage market altogether. However, that would mean that low cost loans for homes would likely become a thing of the past.

Other possibilities

Freddie and Fannie own or insure half of all mortgages in the United States, from Birmingham, Alabama, to Anchorage, Alaska. Phasing the mortgage houses out, according to Bloomberg, or other proposals will take time to implement. It is also rumored that the size of loans that the companies can insure will be reduced. Currently, only loans less than $729,500 can be backed by either company. It is also thought that Freddie and Fannie could be reduced to being mortgage backers of last resort.

Vital role in keeping mortgage costs low

Freddie Mac and Fannie Mae play a role in keeping risks and costs in the mortgage market low. The companies repackage mortgages as securities that are sold to investors and guarantee lenders and investors compensation if borrowers default. The goal is to make sure loan lenders are willing to lend by creating more lending capital and decreasing risks that lenders will lose money if borrowers default. If Freddie and Fannie are axed, the cost of mortgages could increase and make it difficult for anyone other than the wealthy to get a loan for purchasing a home.

Sources

CNN

Bloomberg

Some people who got homebuyer tax credits owe the IRS, as their credit was no refund. Image from Wikimedia Commons.

One of the few things that helped to prop up an anemic housing market was the homebuyer tax credit from the government. The way it worked was that a person that bought a home could get some fast cash from Uncle Sam as a gift for doing their part in stimulating recovery, under certain conditions. A fair portion of those people are going to have to pay that credit back, as the initial tax credit offered for a purchase of a home was no credit; those refunds were essentially low interest loans.

Quick cash from Washington

When the recession began, it hit the housing market like a hurricane. Foreclosures shot through the roof, prices and available capital for home finance loans plummeted. Almost right away, part of the initial stimulus programs was a homebuyer tax credit. In 2008, qualified buyers could deduct the lesser of $7,500 or 10 percent of the purchase price from their income taxes. In 2009, the credit was extended but augmented to a refund, rather than a deduction. The hitch is that the deduction from the initial tax credit, according to CNN, was not just a break on the tax bill. It was a loan.

Due to the IRS in 15 years

Those who claimed the tax credit have 15 years to pay it back. There are 950,000 people who owe for the low cost loans, according to the Internal Revenue Service. However, the IRS does not know exactly who owes and who doesn’t, and is investigating inaccurate and fraudulent paperwork. Among the discrepancies is that there were tax credits filed for people who are dead. There were 1,326 homebuyer tax credits claimed by people listed as deceased by the Social Security Administration, but over 500 were tossed out.

The worth of the stimulus

The effectiveness of the stimulus programs has been questioned rigorously in the past months. Rightly so; the mortgage modification program hasn’t been very successful, and the bonus that 950,000 or more people believed they were getting for a home purchase has to be paid back. There is also the question of whether these people would have bought homes had they known they weren’t really getting a tax break.

Sources

CNN

Real estate may be a veritable desert, but there are some signs of life. Image from Wikimedia Commons.

The housing market in the past year has been a series of small hits and big misses. Banks, buyers, sellers and real estate agents alike are awaiting a return to at least some decent activity. Some signs of life are beginning to show. There was a recorded uptick in the number of new mortgage applications for purchasing a home. Not only that, but applications for loan modification dropped a little bit. However, applications to modify existing loans into low cost loans, or at least lower cost, are still the bulk of mortgage activity, which is significantly low.

New mortgage applications increase

The number of mortgage applications for the purchase of a new home has increased. The Mortgage Bankers Association recorded an increase of 6.3 percent in applications for a purchase, according to Reuters, which is the first significant increase since May of this year. However, it isn’t exactly great news. An increase is an increase, but the number of applications turned in to loan lenders for a home loan is at record low levels. Mortgage loan applications rates are down about 40 percent since May 2009.

Modifications are the bulk of activity

The vast majority of mortgage applications are still for mortgage modification. Applications for a modification dipped 3.1 percent, a slight decrease since May of this year, but modification applications made up almost 82 percent of all mortgage applications. Currently, mortgages of nearly any configuration are low interest loans, as the rate for 30-year fixed mortgages is at 4.5 percent, a 20 year low. The MBA started calculating these statistics in 1990, and the current rates are nearly the lowest they have ever been. The low rates make for a great opportunity to refinance. However, since finance loans are so much harder to access, it is difficult for many to reap the benefits.

Little stimulated

The stimulus seems to not have worked. As the tax credit only managed to temporarily propped up home sales, and the federal refinance program barely works, it seems that the recovery to housing must come from below. More people will need to be working for housing as an industry to have a chance.

Sources

Reuters

Low mortgage rates doesn't mean you can get a mansion for pennies, but you can score a sweet deal with low interest loans. Image from Wikimedia Commons.

If you’re looking at buying a home, right now is the time to do it. There are, unfortunately, a lot of foreclosed properties on the market at discounted prices. Not only that, but a lot of people are looking to sell. There is also a lot of inventory to move. As luck would have it, mortgage interest rates for 30 year fixed mortgages are at an all time low. So if you want to get low interest loans for a home, now is the time. You may never even need mortgage modification at prices this low.

Mortgage rates hit record low

Currently, the interest rates on 30 year fixed rate mortgages are at the lowest point they have ever been on record. Freddie Mac has kept track of the data since 1971, and the current market interest rate for 30 year mortgages dropped this week to 4.36 percent from 4.42 percent, according to Bloomberg. Granted, these are low cost loans compared to several years ago, but the rates are not exactly on short term loans. After all, it is for a 30 year mortgage. The rate for 15 year fixed mortgages is at 3.86 percent. At this rate, 30 year mortgages will be at that rate by Thanksgiving.

Plenty of inventory to move

As of right now, there is a greater supply of homes on the market than there has been since 1983. The real estate market has a 27 year all time high supply of homes for sale. However, that usually means that fewer people are buying. According to Reuters, home resales are at a 15 year low, and more people are getting refinancing if they can. The unfortunate corollary to all this is that getting credit from money lenders is harder than ever, and the era of unchecked loans for bad credit for purchasing a home is completely over.

Buy low and sell high

However, if you have the credit and a down payment ready, this is the time to buy. In the right area, you could actually get into a sweet house for half the cost you normally would pay. At these rates, you may never need to refinance or even have to think about mortgage modification.

Further Reading

Reuters

Bloomberg

To keep an agricultural disaster like the Dust Bowl from happening, the USDA is lending emergency loans to farmers. Image from Wikimedia Commons.

The weather this summer has been detrimental to farmers in the lower Midwest. Areas in and around Kansas City were officially declared a disaster area after flash flood damage, and the U.S.D.A. has announced it will do all it can to help. Emergency loans will be made available for any farmers in certain areas that need some advance cash because of damaged crops. They will have several months to file for the loans. The loans will be incredibly low interest loans. Excessive rainfall and a brutal tornado season have caused extensive damage throughout the Midwest.

Heavy summer

Extensive rainfall has occurred throughout the Midwest. Many stormfronts from the Gulf region to the Great Lakes have wreaked havoc, such as the Oklahoma tornadoes and the Milwaukee floods. Areas around Kansas City have been heavily damaged as well. The U.S. Department of Agriculture declared six of seven counties in the Kansas City, Mo., metro area natural disaster areas, and those counties could use some cash now to help rebuild.

Farms experience extensive damage

Farmers in the region had the summer crops were severely affected by weather throughout the year. According to the Kansas City Business Journal, wind, rain, and flash flood damage has wrecked a good portion of this summer’s crops, and emergency loans will be made available. Farmers who wish to take out these low cost loans can file for loans through the Department of Agriculture. The interest rate will be set at 3.75 percent, and the amount can be up to 100 percent of losses. People can borrow money in amounts up to $500,000. Aside from the six counties around Kansas City, there are 55 counties in Missouri and 47 counties in Oklahoma that have been declared disaster areas due to extreme weather in that area.

Mother Nature can take a toll

It has been said more than once that Mother Nature can be a cruel mistress. Too much rain and wind can wreak havoc in agricultural areas, and that can leave farmers — the people who make sure we all can eat — in need of quick cash that is harder to come by these days.

Further Reading

Kansas City Business Journal

Many small businesses are struggling and relying on SBA loans to make ends meet. Image from Flickr.

The Small Business Administration has been charged with helping businesses weather the recession, and money is running out. The 7(a) lending program provides loans, personal and large, to small businesses around the country. The program, which was funded by the American Recovery and Reinvestment Act, is currently in a holding pattern, waiting for more money.

How the SBA provides low cost loans

The Small Business Administration itself does not give instant money to business owners. Instead, the government agency backs up loans made by banks. With the SBA “insurance policy” against default in place, banks are much more willing to act as money lenders to often cash-strapped small businesses. The stimulus package authorized the SBA to waive fees and guarantee up to 90 percent of a loan’s value.

The effect of SBA loans

Small businesses are often forced to rely on credit and loan lenders to keep their businesses going. Over just a three-month period of April, May and June, the SBA lent out $3 billion over 12,123 loans. Compared to the same quarter of 2009, that is 21 percent more emergency money for cash-strapped businesses. The program, however, is still waiting for re-authorization, which is leaving millions of dollars of loans in limbo.

The SBA loan queue

Since the official authorization for SBA loans expired in May, the agency has been forced to queue requests for loans. There are currently 419 borrowers waiting for more than $123 million in SBA-guaranteed funding. Because these SBA loans are often one of the very few types of credit available to these businesses, the agency is scrambling to help them find financing. Given the length of the recession thus far and the fact that the economy is not yet growing at a steady pace, it is almost for certain that programs such as the SBA 7(a) program will need to continue providing support for small business.

Many business victims of the Ireland recession resemble this boarded-up UK pub (Photo: Geograph)

It was just a year ago that Ireland was in recession and losing a job every five minutes. Now the Wall Street Journal reports that the nation has officially exited the recession, based upon export-driven domestic product growth of 2.7 percent for Q1 2010. However, Ireland’s road to economic recovery remains long. One of the hardest-hit euro zone countries in the recent global recession, Ireland’s GDP had fallen by more than 14 percent entering 2010. As the New York Times indicates, a tremendous deficit and 13 percent unemployment have prompted Irish Prime Minister Brian Cowen to warn that there’s no easy way out of the economic quagmire.

Ireland and the recession: Investor confidence required

Ireland and its recession have continued largely because the country is paying much more on its benchmark bonds than more economically healthy euro zone countries, says the Times. This has given investors pause and has not reduced guaranteed loan borrowing, making it all the more difficult for Dublin to take care of business. Ireland’s primary goal is to restore investor confidence through deficit reduction, but higher taxes, lower salaries for public workers and the fallout of the burst housing bubble – including an uptick in the origination of low cost loans – have made it difficult for Ireland’s population to wait patiently.

Hanging their hat on exports

Ireland attracted companies like Intel, Microsoft, Facebook and LinkedIn to address previous recessionary woes, but this time, the Irish government is depending upon an export revival, according to the Times. Wage and energy cost decreases – as well as a falling euro – have “improved competitiveness,” writes the Times, but that may not create enough jobs. In fact, wage cuts have driven young workers away. They want instant money, not the promise of a better Ireland in 10 to 15 years, when experts predict future infrastructure spending will resume.

Prime Minister Cowen gritting teeth over 2012 elections

The long, hard road to economic recovery via tough deficit reduction may be the only way that Ireland will escape recession. However, politics are often a “What have you done for me lately?” arena. Prime Minister Cowen, despite his promise that he will not cut public salaries further in Ireland’s next budget, is on the ropes after the haymaker of public opinion. Irish voters may have had enough.

Sources:

Wall Street Journal

New York Times

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Keble College, a constituent college of the University of Oxford

The cost of higher education is spiraling skyward. At some private schools it now exceeds $50,000 a year. Lagging government support has resulted in steep tuition increases at public universities as well. Little wonder then that educational loans have become as indispensable to college students as low cost loans and extra cash are to the working class.

Different Types of Student Loans

There are three general types of student loans: private loans made by banks and other lenders without any involvement of the government, federal direct loans made by the government itself; and federally guaranteed loans made by banks and other lenders and insured by the government. Additionally, colleges and universities sometimes make educational loans, usually in partnership with banks or other financial institutions.

In the case of federally guaranteed loans, the government pays subsidies to the lenders who make the loans and then guarantees up to 97% of the loans. Lenders are thereby protected from almost all losses on the transactions. The interest rates on federal direct and federally guaranteed loans are fixed rates established by Congress. Private loan terms are typically less favorable than those of government loans, and interest rates on private loans can change over time.

A History of Problems

In recent years, the student loan industry – which finances tens of billions of dollars of educational expenses each year — has been beset with difficulties that have attracted publicity and debate. In 2007, several state attorney generals and lawmakers in Washington exposed questionable dealings involving the endorsement of particular private lenders by college financial aid offices and the siphoning of student-loan applicants to those lenders.

In 2008, the industry was badly shaken by the credit crisis, which threatened to cut off the supply of student loans from private lenders by making it impossible for them to sell loans.  Many student-loan lenders depend on being able to sell the loans they make in order to raise funds for new loans. Investor interest in buying student loans dropped off almost entirely, and it fell to the federal government to keep the industry afloat by stepping in and buying federally-guaranteed loans.

Squeezing Out the Banks

The Obama Administration has now proposed abandoning the guaranteed student loan program entirely so that all federal educational loans would be made directly by the government. Proponents of this change claim that over the next ten years it would save $94 billion in subsidy payments to lenders, which could then be used for Pell grants to students in financial need.

Highly Technical Banking Services . . .

In the recent subprime mortgage crisis Fannie Mae and her good friend Freddie Mac were placed in conservatorship by the US Treasury.

The proposal has ignited a particularly fractious political battle. Although they collect hefty fees on loans that are virtually risk-free, private lenders under the subsidized loan program, like Sallie Mae, Bank of America and Citigroup, argue that they provide valuable services in marketing, customer relations, billing, default prevention, and collection of delinquent loans.

Or a Risk-Free Ride

Critics, however, say that because of the financial crisis, the government is directly or indirectly financing almost all federal student loans and there is no reason to continue a program that was originally intended to inject private capital into the education lending system.

A Few Million Dollars Per Banker . . .

For lenders, the stakes are huge. According to a New York Times report, despite losing $213 million in 2008, student lender Sallie Mae paid its chief executive and its vice chairman a total of $17.8 million in cash and stock. The company, which did not receive money under the federal bailout system and is not subject to pay restrictions, also disbursed cash bonuses of up to $600,000 to other executives.

Or a Few Hundred Dollars Per Student

Under the president’s proposal, the additional Pell grant money that would be available to an individual student probably would not be more than a few hundred dollars. But the money would be distributed to a large group of needy students for whom a little more money may make a big difference.