Mortgage Rate News

Many warned a couple of months ago that the next credit crisis would have to do with underdisclosed debt held by banks. Additionally, the subprime mortgage debt packaged by many Wall Street banks in securities with other types of debt is also causing problems that are coming to the surface in a big way right now. Bloomberg reports that New York and Connecticut are both investigating Wall Street banks for their practices:

Defaults on subprime loans have led to bankruptcies of lenders of such mortgages, such as New Century Financial Corp., roiling stock markets. Banks that packaged subprime loans as investments, such as Citigroup Inc. and Bank of America Corp., may have to write down billions of dollars when they report their next earnings, analysts said. New York and Connecticut are among at least a handful of states investigating the mortgage industry as foreclosures have risen nationwide. Blumenthal said his office was cooperating with New York Attorney General Andrew Cuomo “as we always do when our investigations have similar interests.”

Last summer’s subprime lending crash is sending ripples through the economy in a way that is likely to be felt at least through the end of 2008, if not beyond. Numerous attempts to instill “confidence” in the economy and in the stock market have failed, since “confidence” does nothing to actually address underlying problems.

Downsizing and bankruptcies affect jobs, and losses affect investors (including “regular folks” whose investments mainly consist of holdings in retirement accounts). Additionally, a slowdown in the housing market and the home equity loan business affects home improvement stores and stores that cater to household items.

Will current efforts address these problems? It is clear that a new outlook on debt is needed in order for the economy to recover.

Even though nobody’s said officially that we are in a recession, there are danger signs about that indicate that we could be headed for an economic recession. MarketWatch reports that some think that the economy is in danger:

‘The U.S. economy is now in the danger zone,” wrote Nariman Behravesh, chief economist for Global Insight. “Even a small shock will push the economy over the edge.”

But the article goes on to offer even more important and insightful information: things you can watch for in the economy. Here are the seven things MarketWatch says you can watch for so that you are well-warned in the event of an economic recession:

1. Credit Markets. Since the credit market crash earlier this year, people have been wary of another possible crash. One thing to look for is the spread in interest rates. Another thing to realize is that lenders are becoming more choosy, due to credit market troubles, and that could mean fewer people pumping money into the economy.
2. Capital. MarketWatch points out that whether companies are making profits — and what they are doing with them if they are — is important. Are companies investing in equipment? Capital investment puts more money into the economy, helping it grow.
3. Oil prices. Look at whether oil prices are heading up. This can effect the economy, especially if there is little growth while inflation rises. Oil prices can be good indicators of this.
4. Exports. How much are other countries buying from the U.S.? One thing that can help exports grow (bringing outside dollars to help the U.S. economy) is a weaker dollar. This makes American products less expensive and more desirable those in foreign countries.
5. Housing. This is one of the biggies. When new home starts drop, and the number of homes on the market goes up, there is a problem. The housing problems aren’t over yet, and the ripples from the subprime lending crisis could continue through next year.
6. Consumer spending. Is money going back into the economy from American consumers? This is an important thing to look at. But related to consumer spending is wage growth and the wealth of households. Home prices and values can play a part in this.
7. Government intervention. While government intervention could help in some cases, but efforts so far have been fruitless. And “fixes” for the economy, like the mortgage rate freeze, aren’t really that helpful.

The bottom line is that you should be preparing your finances for a recession, no matter whether it comes or not. Being fiscally solvent is the best way to go. Then you are prepared for whatever comes.

Tags: economic recession, home values, home mortgage loan, mortgage blog,
signs recession, credit market crash, subprime lending crisis

The stock market is down today as credit ratings remain in doubt over losses related to the subprime mortgage crash. Additionally, Alan Greenspan is warning of a possible recession, and that isn’t helping the stock market, either.

MarketWatch reports on the stock market:

U.S. stocks on Monday extended losses into a second day as Moody’s Investors Services warned it could lower bond insurer credit ratings because of subprime losses and Alan Greenspan warned of a possible U.S. recession.

The subprime mortgage crash continues to affect the economy, even as Congress works to change FHA mortgage loan rules and the Bush Administration tries to stem the tide of expected foreclosures with a five year mortgage freeze.

Most of these fixes, however, are only band-aids. The new FHA mortgage loan rules will mainly benefit first time homebuyers and will do virtually nothing for those faced with foreclosure. Additionally, attempts to fix the economy with increased liquidity, bailout plans and mortgage rate freezes will not hold up in the long term.

Right now, real estate investing should be something to be wary of, as well as investments in real estate related industries like mortgage lending and building. Some stock investments are available at bargain prices, but it is important to choose carefully; while some stocks will recover and you could see great returns by investing now, others will not recover.

And it is worth noting that many do not feel that U.S. housing prices have bottomed yet, so real estate flipping is not the best idea right now, and waiting until next year to buy real estate may be a better idea. Bloomberg reports on the housing market and the economy:

“We’re only halfway through the housing shock,” said Ethan Harris, chief U.S. economist at New York-based Lehman, the fourth- biggest U.S. securities firm by market value. “It’s just a matter of time before the weakness spreads to the rest of the economy.”

Tags: subprime mortgage, mortgage news, FHA mortgage loan, FHA loan rules,
mortgage blog, mortgage rate freeze, stock market