Mortgage Rate News

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After holding relatively steady for months, housing starts fell in October. One of the main reasons for the drop, say many analysts, is the fact that the fate of the first time home buyer tax credit was in doubt. As a result, builders slowed their projects. However, with the extension and expansion of the home buyer tax credit, there is a good chance that things will pick up again — at least until the end of April 2010, which marks the new deadline. MarketWatch reports on the expectations going forward:

“We believe housing starts’ strong decline to be only temporary, and should resume modest growth and stabilization over the next several months, as the tax credit extension should support market demand and perhaps offset some of the seasonal slowness in the winter months,” said Michael Rehaut, economist at JP Morgan Chase in a note to clients.

The tax credit, though, can’t protect the housing market from the economic realities of a weak labor market and slow economic recovery. Indeed, this morning President Barack Obama warned that conditions may be setting up for a double-dip recession. He did say that his administration was working on programs and ideas to prevent such a thing from happening, but he has put everyone on the alert.

Economic recovery has been slowed due to problems with joblessness. Companies are reluctant to hire, and that is causing some concern. Without jobs, people can’t buy new homes and help the housing market.  Additionally, lack of employment makes consumer spending – which accounts for approximately 2/3 of the U.S. economy — difficult to boost.

It will be interesting to see how things play out going forward. Will Obama’s honesty about the possibility of a double-dip recession help people prepare for an eventuality? Or will his early warnings be heeded and a back slide completely averted? Only time will tell.

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One of the things that has many people steamed right now is the fact that, while personal bankruptcy is on the rise, big banks have been getting special help staying afloat from the taxpayers via the government. These policies started in the Bush Administration, and have continued in the present Obama Administration. However, Congress is trying to do something to prevent so much help going to prop up the financial system in the future. President Obama has been pushing Congress to engage in bank reform, but the deal is far from done — even as the House and the Senate wrangle about what should be done.

CNN Money offers three major points of controversy that could serve to derail bank reform:

1. Role played by the Federal Reserve: Here is what CNN Money reports about the difference in how the Fed is regarded:The House proposes stripping away the Fed’s consumer protection powers, leaving in place its banking regulatory powers. In fact, the House would make the Fed the principal overseer of financial firms tied to the global economy.

   The Senate, by contrast, would limit the Fed’s powers to mostly monetary policy. Sen. Chris Dodd, D-Conn., is proposing stripping the Fed of its banking regulatory authority and giving that power to a new consolidated agency.

2. What to do with companies that are “too big to fail”: This issue is an important one, since large companies found that they could avoid true accountability for their actions for being so large that their failure could bring down everything. Here is what CNN Money reports on how this might be handled:
   The White House and congressional Democrats want to create a mechanism for monitoring large financial firms, like American International Group (AIG, Fortune 500), and unwinding them with a new power called “resolution authority.”

   Both chambers would charge the Federal Deposit of Insurance Corp. with such unwinding. But some lawmakers from both parties are worried about giving such broad powers to the executive branch.

   A related - and contentious - debate is emerging over whether a government agency should have the power to break up companies that could threaten the economy before they do damage.

3. Consumer protection agency for finances: The White House wants an agency that oversees financial consumer protection in the case of financial products and services. Here is CNN Money’s take on this issue:
   The agency faces a more familiar problem for financial-related legislation in Congress: opposition from the minority party and big business. That push-back could be a deal breaker in the Senate.

   The agency would put new regulators in charge of keeping an eye out for consumers, while requiring more disclosure and scrutiny over some of the financial products, like mortgages, credit cards and auto loans, that contributed to last year’s crisis.

   A wave of populism propelled credit card legislation earlier this year. But Republicans are mostly united against the creation of the consumer agency, calling it an added layer of bureaucracy that could threaten bank soundness.

Clearly, there is going to need to be a delicate balancing act in order to make effective regulation that halts problems, but doesn’t cross the line of being overly restrictive to the markets.

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Foreclosure definitely affects your credit score. Indeed, since it is such a huge loan, a form of credit, your mortgage can make a big dent in your credit score. If you lose your home to foreclosure, then you could see a drop of between 200 and 300 points. That is a huge ding — especially if your credit score was already struggling in the mid-600 range. Not only that, but a foreclosure will stay on your credit report for seven years.

In order to avoid having a foreclosure on a credit report, you might try to get your lender to agree to some other options, such as a deed lieu of foreclosure or a short sale. It is important to be careful in these instances, since there is still an impact to your credit score.

Deed in lieu of foreclosure

In this arrangement, you actually return the deed to the mortgage lender. You still lose the house — the lender owns it — but you are forgiven the balance of the mortgage. But when you negotiate this option, you will have to convince the mortgage lender not to report it as a foreclosure. Some lenders will report this as a foreclosure, and that will then impact your credit score. Even if your mortgage lender does not report the transaction as a foreclosure, if it has been preceded by months of late or missed payments, you will find that your credit score has been impacted by that.

Short sale

A short sale is when the lender agrees to let you sell the home for less than you owe on it. The difference is usually forgiven by the lender. Again, if you have late or missed payments as a result of falling behind, you can see damage to your credit score.

It is important to note that after any of these transactions, it will take two or three years before you can buy a home again.