Mortgage Rate News

As one might expect, the housing market crisis is resulting in a decreasing level of home ownership. Indeed, all of the foreclosures that have been happening are sending the level of home ownership to the levels seen in 2000. Calculated Risk has this great graph that illustrates the home ownership trend of recent years in the U.S.:

You can see where “creative financing” and lax lending standards prompted a quick spike in home ownership. Unfortunately, while in some cases policies might have been well intentioned to increase home ownership among different groups of people, the implented methods may not have been the best — in hindsight — since long-term home ownership and real wealth didn’t result.

Instead, short-term home ownership went up, but as we can see, it has certainly dropped. Calculated Risks describes the reasons why things probably won’t drop too much further, though:

The homeownership rate decreased to 67.3% and is now back to the levels of Q2 2000.  …

The homeownership rate increased because of demographics and changes in mortgage lending. The increase due to demographics (older population) will probably stick, so I expect the rate to decline to the 66% to 67% range - and not all the way back to 64% to 65%.

Go forward, it would probably be best to encourage would-be home owners to take things a little more slowly, in order to avoid a similar crisis in another decade or so. Here are some things to consider when buying a house — to increase the chances that you don’t lose the home in the near future:

• Put together a down payment. While I’m not saying you have to get a full 20% down payment, you should save up for some sort of a down payment. 5% to 10% is good, but even if you can only get the 3.5% required by the FHA, that’s better than nothing.
• Get a fixed rate loan. Stay away from the “creative financing” of interest only, hybrid and ARMs. Instead, go for a fixed rate loan.
• Clean up your credit score. Make sure that you are doing what you can to have good credit. You’ll get a better loan.
• Go for a modest home. Don’t spring for the bigger home just because someone will lend you the money. Figure out what you can afford with a fixed rate conventional loan — even if it means a more modest home.

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Mortgage backed securities are on the rise again. As more people refinance, taking advantage of the low mortgage interest rates, more securities based on mortgage are being sold. Indeed, Freddie Mac has issued (and bought) billions in mortgage backed securities in recent months. National Mortgage News Online reports on this trend:

Freddie Mac’s issuance of mortgage-backed securities totaled $57.7 billion in March — nearly double its activity in February as a result of the surge in refinancings. The mortgage giant purchased $52 billion in refinanced mortgages in March, its largest refinance purchase month since 2003. The company also said it added $45.1 billion in mortgage assets to its investment portfolio, including $19.1 billion of its own MBS. And the mortgage investment portfolio grew to $867.1 billion as of March 31.

It is interesting that these securities remain somewhat popular. Mortgage backed securities have been cited as one of the reasons that the mortgage market collapsed. The hope, however, is that most of the mortgages so packaged are of higher quality than the ARMs, interest only and subprime loans that brought mortgage backed securities down last year.

Unfortunately, the tide of deliquencies has yet to be stemmed. With foreclosure moratoriums coming to an end, defaults are rising again throughout the country. There are concerns that very little will help. The President’s plan is supposed to prevent millions of foreclosures, but implementing the plan is taking some time, and mortgage lenders have to volunteer to participate. Still, there is some hope that soon foreclosures will begin to stop. Of course, if the jobless rate continues to rise, no loan modification plan will be able to stop those foreclosures from taking place.

It will be interesting to see how things go in coming months. At some point, though, the economy will begin its recovery. And when it does, credit will become more available, and the housing and mortgage market will start to pick up steam again.

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There has been a great deal of talk about changes to credit card rules. And many consumer groups think that it is about time. Many
of the practices that credit card issuers engage in seem rather predatory — especially since issuers can change terms on a whim, even for responsible customers. President Barack Obama has promised to tackle credit card companies, and the Federal Reserve has already passed new rules about credit cards. Even with all of this, the House is proposing new credit card rules. It looks like credit card issuers could be the next target of populist rage. Consumerism Commentary offers an in-depth look at the proposed changes to credit card regulation:

1. If the company decides to increase a consumer’s interest rate, the new interest rate would not apply to existing balances, only new activity. The consumer will have an opportunity to refuse the interest rate hike. The account would then be closed to new purchases and the consumer will have at least five years to pay off the existing balance at the old rate. In addition, the minimum payment cannot be more than doubled as a percentage of the balance. Assuming a credit card company would try to circumvent these changes by charging an additional fee, the bill would prevent the company from doing so.

2. The above limitation that prevents the new interest rate being applied to the prior balance disappears if the rate increase was due to an index linked to the interest rate, due to an expiration of a promotional rate, or due to a late customer payment.

3. Credit card companies would need to provide the consumer a notice at least 45 days in advance if they intend to increase the interest rate.

4. Double cycle billing often results in being charged new interest a month after your pay off your balance in full. This occurs because in most credit card agreements, the interest charged is based on the average daily balance over the past two billing periods. Under the terms of this bill, double cycle billing would be prohibited.

5. Every statement would include an amount and instructions for paying off the bill in full.

6. If a consumer can prove that he or she sent a payment seven days or more before the due date, the payment would be considered on time even if the credit card company received the payment after the due date.

7. Currently, if a borrower has two balances at different interest rates such as purchases and a cash advance, the credit card companies apply payments made to the lowest interest rate balance first. This maximizes the interest charged to the consumer. This bill would require creditors to apply the payment in one of two methods, both more favorable to the consumer.

8. In some cases, credit cards allow purchases that exceed the credit limit are allowed to be processed, and the company assesses an additional fee for exceeding the limit. Card companies see this as a service to customers, to ensure important payments will be approved. This bill would give consumers the choice to opt out of this benefit, requiring the credit card company to decline the purchase.

Of course, these still have to be accepted by the House, the Senate still needs to put together a version, and they need to be signed by the President. But it looks like, in any case, now may be the time for true credit card reform.