What a mess we are in. Inflation, gas, banks, mortgages, housing, food and now jobs. This situation really sucks but there is no quick fix to this. Many people wrote articles back in 2005 talking about this very thing happening. Spend a few minutes and do a Google search on 2005 option arm loan fears on the housing market and read about the fears of where we are headed. Guess what….we have arrived.
Link to an article that explains the option arm loan fears posted in 2007 http://www.irvinehousingblog.com/blog/comments/the-anatomy-of-a-credit-bubble/
Where was the Fed’s when this impending crash was playing out? Did Fed Chairman Alan Greenspan retire or run out before the crash? The man is currently working as a consultant for the largest Hedge Fund in the country. Main Stream Media talks about Greenspan as if he was brilliant. Brilliant for what? His escape / retirement just before the impending crash? I do not know about you but working for a Hedge Fund that is not my idea of retirement.
In January of 2008 the mortgage industry had all but corrected itself. Rates where at 5.125% for a 30 year fixed mortgage. Subprime mortgages no longer had investment money to lend so they dried up.
Here is where the problems stat:
The Fed’s start cutting the Prime Rate which is the rate that commercial banks pay for money borrowed from the central bank. This rate is not offered to the public so do not kid yourself. This starts to devalue the US dollar and inflation begins to pickup speed.
To make matters worse the Fed’s continued cutting the Prime Rate and value of the dollar is further eroding. Real Estate values begin a freefall. Oil begins its record run up on the Commodities market which will impact every American with higher prices for basic necessities.
The President and Congress push through the Stimulus Package which gives everyone a few dollars and to expand the conforming loan limits to allow people to get out of the option arm loans they are currently in. The cash is good but it is going in your gas tank. The expanded loan limits are great but the banks are charging new phantom fees called “risk based pricing.” This means if you have less than a 720 fico score and less than 70% loan to value in your property then you are going to pay. Less face it, people that can qualify for one of these loans without these new fees really does not need it. Neither Fannie Mae nor Freddie Mac requires these fees. When the banks sell the loans this money is put into the banks pockets. And yes they are all charging these fees.
No fee home loans have these fees too. The lender gives you a higher interest rate and you will pay up to ten times more for hidden fees than fees paid upfront. It is always in your best interest to pay fees upfront as you will get a better interest rate and the fees are tax deductible. You can ask a loan officer online to explain this to you in detail at email@example.com. The mortgage industry is not the industry of the past. It is a new ball game today.
There is no quick fix to this mess. Clearly the Prime Rate needs to be put back to the 4% range to bring oil back under control. The Fed’s did look at Fannie Mae and Freddie Mac to clear money in the event that they do need it. The media is calling this a bailout and they could not get the facts any more wrong! The Stimulus package needs to offer an additional tax credit on homes purchased for the next two years. This has been proven in the past that when the Fed’s offered an additional tax credit to people they will start to buy homes. It is time to bring back this tax credit again and clear up the bulk of these foreclosed homes. It only took six months in the 80’s to get this done.