Mortgage Rate News

Despite all the hoopla about investor confidence returning on the back of the new mortgage rate freeze, many feel that a recession is coming. And that means that you need to start making sure that your financial house is in order. MarketWatch is offering some great ideas to help you get through the recession:

1. Emergency fund. MarketWatch points out that the best emergency fund will get you through three to six months. That can seem like a daunting task to many. I can’t just put three months’ worth of salary aside right now. What MarketWatch doesn’t say is that you can build this up gradually. Put aside what you can, and keep adding to it. Even some emergency fund is better than no emergency fund.
2. Blue-chip stock funds. When a recession is coming, it is important to make sure your investments are solid. Blue-chips may not offer sexy returns, but they generally do offer returns, no matter how modest. And when the wild ride is over, if you invest now, while the market is down, you will be happier later.
3. Get out of debt. Try to pay down your debt. MarketWatch points out that building credit card balances, especially from holiday debt, can really start to eat into your finances. I recommend aggressive debt reduction, in which you do what you can to get out of debt as fast as possible.
4. Get help from a financial adviser. MarketWatch recommends this especially if you are close to retirement. But it doesn’t hurt anyone to sit down and talk with someone who can help you map out your future and your asset allocation. But try to find a fee-based adviser — someone who charges hourly, and doesn’t get commissions for recommending certain investments.

No one wants to say it, but there is a recession on. And this means that you have to be extra-careful to guard your financial viability.

Tags: tips recession, mortgage rate freeze, home mortgage loan, stock funds,
investing, get out of debt, aggressive debt reduction

The stock market made gains last week, rallying toward the end. But starting out this week it has been much slower. The culprit? Yahoo Finance reports that comments on the mortgage mess are to blame:

Fed Bank of Boston President Eric Rosengren said in a speech that he was concerned that home foreclosures might worsen as overall economic growth slows. Meanwhile, San Francisco Fed President Janet Yellen labeled growth in the final three months of the year as being “only very meager” and warned that housing problems could “spill over” into consumer spending.

Right now, mortgage industry related stocks, from banks to brokerages to the financial services industry are being downgraded. Investors are concerned about fundamentals, and even last week’s much-hyped Citigroup deal can’t really hush the worries over the way things in the mortgage industry, and the financial sector in general, work.

Additionally, stocks in home-related products, such as home improvement companies and other consumer spending, are likely to be affected by the mortgage mess. And efforts to fix the problem by the government have resulted, so far, in two solutions that are not wowing many. HR 3915 may be helpful on some levels, but it is aimed more at assuaging the fears of investors. The same is true of information about the mortgage fix that the Treasury Department and the mortgage industry is expected to unveil tomorrow or Thursday.

While these solutions may act as a band-aid on the financial sector, the fact of the matter is that fundamentals may be shifting. So short-term investors may see some benefit, but in the long run, the measures proposed will only cover up the problem until this cycle is over. Then in 5 to 7 years, if nothing changes fundamentally, the issue will come up again.

Tags: mortgage mess, mortgage industry, home mortgage loan, mortgage blog,
mortgage fix, investing, stock market

On Tuesday, I wrote that one of the reasons that the credit crisis might continue is due to the fact that many banks have billions of dollars in undisclosed and underdisclosed risk. One of the investment products that carries this risk is what is known as collateralized debt obligation (CDO). I’ve received some questions about these CDOs, and thought I’d take a minute to address them.

Collateralized debt obligation

A CDO is an investment product. But it is an investment backed by debt. This means that a CDO can contain combinations of loans, bonds and assets that have collateral. Basically, banks have been investing in them, and not truly disclosing their risky nature. Because with debt, especially loan debt (and subprime loan debt has made up a great many CDOs in recent years), there’s the risk that the borrower will default, meaning that the risky investment is a loss, rather than a payoff.

With the subprime lending crisis, a number of CDOs went south, and that resulted in some of the more spectacular losses by financial institutions that had invested in them, leading in turn to the stock market downturn and continued volatility over the past couple of months.

What this means in the wider economy

The popularity of CDOs as investment vehicles is troubling because it reveals how much our economy relies on debt to keep it solvent. It is important to note that bigger mortgages and home equity loans have become the norm, and apparently, this uncontrolled debt, is largely what the recent economic boom has been built on.

What this means for the future, as borrowers start to collapse under the weight of the debt that has been supporting the economy, can be seen if something isn’t done.

Tags: home equity loans, mortgage blog, home mortgage loan, collateralized debt obligation,
CDOs, investing, subprime lending crisis