The Mortgage Bust Goes Global

Happy Monday! Here is some great news to start your week from the NY Times:

NORMALLY, St. Jakob’s Hall here is home to soccer tournaments or the occasional hockey game. But on a sunny morning in February, the stadium offered a corporate face-off every bit as contentious as any athletic event. More than 6,000 shareholders of the Swiss banking giant UBS packed the house to vent their fury over tens of billions in losses on American subprime mortgages and what they saw as an insult to traditional Swiss values like prudence and thrift.

The target of their anger wasn’t just UBS’s chairman, Marcel Ospel, or any of the bank’s other top executives, who were arrayed under a giant screen near where goalies usually tend the net. Instead, much of their ire was aimed at the United States itself — specifically an addiction to high-octane risk-taking, easy credit and dubious financial assumptions that created the domestic mortgage mess in the first place.

“The American El Dorado has become a scene from a Western,” declared one middle-aged shareholder, Therese Klemenz. “UBS was the figurehead of Swiss business. As a good housewife, I know you shouldn’t put all your eggs in one basket. A bank is not a casino.

Read the full article here.

McCain Guru Linked to Subprime Crisis

Straight from Politico.com:

The general co-chairman of John McCain’s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil.

“A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed,” the Illinois senator running for president said in a New York economic speech. “But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.”

Gramm’s role in the swift and dramatic recent restructuring of the nation’s investment houses and practices didn’t stop there.

A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.

Read the rest of the story here.

Fed May Buy Mortgages?

Here is an eye opener for a Monday morning from Bloomberg:

Forget lower interest rates. For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms, say the world's biggest Treasury investors.

Even after cutting rates by 3 percentage points since September, expanding the range of securities it accepts as collateral for loans and giving dealers access to its discount window, the Fed has been unable to promote confidence. The difference between what the government and banks pay for three- month loans doubled in the past month to 1.92 percentage points.

The only tool left may be for the Fed to help facilitate a Resolution Trust Corp.-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. While purchasing some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.

If you think that the dollar was in trouble before, you ain't seen nothing yet. Finish reading the article here.

Facing up to Debt Contagion

First off, check out the definition of contagion. Now you ready to read about debt contagion in this opinion article from USA Today:

These days must be humbling for Wall Street financiers, high government officials and others who not long ago were preaching the virtues of leaving debt markets alone to heal themselves.

They've plainly failed, and at potentially enormous cost to everyone else.

Facing the possibility of a serious financial meltdown, Federal Reserve Chairman Ben Bernanke on Friday engineered a temporary federal bailout for Bear Stearns & Co., a Wall Street investment bank battered by its heavy involvement in mortgage-backed debt, while the troubled firm rushed to sell itself to a more stable suitor.

This action came on top of a broader assistance package unveiled Tuesday that included the Fed taking $200 billion in toxic mortgage-backed securities off the books of major firms in return for U.S. Treasuries — a terrible trade-off for taxpayers but apparently necessary to keep the financial system functioning.

You can read the rest of this article here.

401k To Pay Off Mortgage Debt

Well that is what they are saying over at Daily Paul...

I emailed my deadbeat congressman requesting he move on this. It just makes too much sense. Allow our 401k $$ to be used to pay down/off mortgages, saving consumers hundreds of thousands of $$ in interest, freeing up monthly $$ for investing or consumption. They need to take away the taxes and penalties so we can do this. It would:

1. Help homeowners to save themselves in this mortgage crisis.
2. Help banks to ease back all of this leverage.
3. Help the economy to bounce back with this new found liquidity.

The Dems would say, "US citizens would just borrow this $$ again, and cause another bubble, losing their retirement in the meantime". Hey. We'll meet you half way, I say. Take the $$ amount transfered from the 401k to the mortgage, and have that deducted from the property appraisal for loan purposes (have a sunset date of like 5 or 10 years - or even when they turn 59 1/2, like a regular 401k plan).

This makes way too much sense. I would transfer mine in a heartbeat.

Here is the full article...

Anyone have any thoughts on this idea?

Reverse Mortgages

If you are unfamiliar with reverse mortgages, the following article should help clarify things:

Foreclosures are up, and it looks like they won't be coming down anytime soon.

Troubled homeowners have a few options to stave off foreclosure, and Congress is looking at creating others. But older homeowners, age 62 and up, for years have had a tool that's sometimes overlooked: a reverse mortgage.

This allows you to take out a loan against your home to pay off your existing mortgage and remain in the house as long as you want. You don't have to repay the reverse mortgage until you move out or die. At that time, the house is sold and the lender repaid.

Reverse mortgages can be an expensive form of borrowing, and you must have some equity built up in the house to get one. But for older, cash-strapped homeowners headed toward foreclosure, the reverse mortgage can be the answer.

This article in its entirety can be found here.

Mortgage Rates Post Biggest Increase in 14 Years

PR Newswire let us know that on Feb. 20th, mortgage rates had their biggest increase in 14 Years. Not quite the news you want to read on a Monday morning...

Mortgage rates spiked this week, with the average conforming 30-year fixed mortgage rate now 6.37 percent. According to Bankrate.com's weekly national survey of large lenders, the average 30-year fixed mortgage has an average of 0.4 discount and origination points.

The average 15-year fixed rate mortgage popular for refinancing leapt to 5.87 percent, and the average jumbo 30-year fixed rate soared to 7.55 percent. Adjustable mortgage rates increased, but in a less pronounced fashion, with the average one-year ARM rising to 5.56 percent, and the average 5/1 ARM jumping to 5.77 percent.

Mortgage rates posted the largest one-week increase since April 1994, and over the last four weeks has increased by the largest amount since mortgage rates shot up from record low levels in the summer of 2003. Despite the pronounced move in mortgage rates, there wasn't one single factor that spurred the increase, but rather several contributing to the upward movement in recent weeks. The realization that the world hasn't come to an end is leading bond investors to unwind positions taken in January when economic and financial pessimism reigned. Inflation continues to percolate, as evidenced by $100 per barrel oil and yet another troubling uptick in the Consumer Price Index. But mortgage rates have increased much more than Treasury yields as investors reassess mortgage-backed securities in light of higher conforming loan limits to be announced in March.

The above text was quoted from this article.

Let us hope that this trend does not continue for too long...

Tax Relief for Foreclosures and Canceled Debts

Here are some more of the details about the Mortgage Forgiveness Debt Relief Act of 2007 and how it impacts your taxes. Here is a snippet...

Highlights of Mortgage Debt Relief

* Exclude up to $2 million of debt forgiven or canceled by a mortgage lender on a main home.
* Both mortgage restrucuring and foreclosures qualify
* Available for the years 2007, 2008, or 2009.
* Claim the tax relief using IRS Form 982 (PDF)

What is Canceled Debt Income?
Anytime a lender cancels, or forgives, your debt, that is considered income to the debtor. The tax laws considers this income, and the debtor is taxed on forgiven debt unless an exception applies.

Canceled Debt That is Taxable
Anytime a lender cancels or forgives debt, that is usually a taxable event. "Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income." (Source: Publication 525)

Debt forgiveness is reported by the lender using Form 1099-C, Cancellation of Debt. Individuals report the forgiven debt on their Form 1040, Line 21 as other income.

The tax laws provide several exceptions to the tax treatment of forgiven debts. Tax-free treatment of mortgage debt is the most generous and easiest to calculate.

The whole article can be seen here.

Mortgage Workouts, Now Tax-Free for Many Homeowners

The nice people over at the IRS has some good news for all the troubled homeowners. Lets hope that it helps...

Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on IRS.gov.

“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”

Here is the link to the full article...

Two New 2007 Tax Breaks

While taking a look around SFGate, I saw a headline that could brighten up a Monday Morning. "Two new 2007 tax breaks help struggling homeowners" of course sounds goods, but what does it really mean?

In a year of bad mortgage news, there's a bright spot or two for homeowners: Foreclosure comes with a tax break, and 2007 mortgage insurance payments may be tax-deductible.

Congress acted on both provisions late last year, extending the mortgage insurance deduction for three more years and creating a tax break for homeowners facing foreclosure.

The mortgage insurance deduction will help certain low- and moderate-income homeowners, especially first-time home buyers and those struggling with higher house payments as adjustable-rate mortgages reset.

This type of insurance should not be confused with the insurance you take out on your home and its contents in case of fire or other disaster. It's also not the same thing as mortgage protection insurance, which is a form of life insurance some people buy to pay off a mortgage when they die.

So now if you are facing down the barrel of a foreclosure shotgun, you at least have something to smile about :(

Here is the article...

What Causes Interest Rate Movement

Here is a snippet of an article that covers some of the finer points that are involved with interest rate movements.

Consumers are often misled when it comes to the subject of the Federal Reserve and how it affects mortgage interest rates. Often the media is the culprit causing the confusion. In the last few years, the Fed has taken action that caused mortgage interest rates to move in a direction other than what consumers expected, because the media provided weak reporting on the subject.

The Federal Reserve affects short-term interest rate maturities, the Fed Funds rate, and the Overnight Lending rate. These factors have a direct impact on the Prime rate. If you took only this into consideration, you may mistakenly conclude that changes made by the Fed will cause a similar movement in mortgage interest rates. However, mortgage interest rates are dictated by the trading of mortgage-backed securities, which trade on a daily basis. The real dynamic at the heart of interest rate movement is the relationship between stocks and bonds.

To finish reading this article, check out the Real Estate Blog...

Mortgage Rate Reset

I was reading some articles over at Bloomberg.com and came across this piece...

This will be a brave new year for U.S. homeowners with adjustable-rate loans.

Terms will be tougher for the credit-challenged. Fewer bargain teaser rates will be offered. And for those facing higher resets on adjustable-rate mortgage payments, it's time to negotiate.

If your mortgage is ratcheting up to a monthly payment you can't afford, you may have some leverage in lowering the rate. Your lender may even welcome the move and allow you to do a low- cost loan modification.

To date, some $150 billion in adjustable loans have reset with $300 billion more in the pipeline, according to the Federal Deposit Insurance Corp. The greatest number of mortgage-rate increases is likely to hit borrowers this year.

In many cases, your lender may call you first to see if you want to modify your loan's terms. That's what happened to Dick Lepre, a loan officer for Residential Pacific Mortgage Corp. in San Francisco.

John makes some good points in the article, and had some good tips. Like he said in the article "It costs nothing to ask."

Here is the full article...

Reverse Mortgages: A Way Out of a Bind for Older Homeowners

I am sure that by now you have heard of Reverse Mortgages, but do you exactly understand what they are? If not, the following article should help you out...

Reverse mortgages used to be a way for homeowners to get extra cash during retirement. Now they're also being used for a more-pressing purpose: helping people who are struggling to meet payments on high-interest-rate loans to keep their homes.

The strategy, which is relatively novel but gaining popularity among legal-aid attorneys and housing advocates around the country, calls for persuading lenders to take the cash generated by a reverse mortgage in lieu of foreclosing on older homeowners.

With a reverse mortgage, the bank makes payments to the homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out permanently or dies. The products are complex and have high fees -- typically about 7% of the home's value -- and they make it difficult for homeowners to leave the property to their heirs. But they may be the best option for people who have built up equity in their home and would otherwise lose it.

Here is the link for the full article...