President Bush Proposes Rate Freeze

The Bush administration is trying to put together a program that will freeze interest rates on sub prime loans. He's suggesting putting a freeze on certain loans for a 5 year period. It will be interesting to see if this happens. There will be having a news conference this afternoon to make an announcement. So who's to blame? We want to blame the foreclosures on someone. We blame sub-prime lenders. The lenders definitely played a role in this fiasco. They wrote sub-prime loans with huge interest rates for people who could not pay them back. Mortgage fraud also played a role and people are going to jail because of it. Here's a scary story!
Many of the people who used the sub-prime loans to buy homes wanted a home worse than anything. It is the American dream, and so they signed the papers.

During the re-finance craze I received phone calls, email, mail and post cards inviting me to refinance my home and borrow an additional 100K or so against it. I remember one solicitation offering to lend us 130% of the value of our home.

On the radio, and on television, and on the Internet and in the mail and in the newspapers and in magazines and everywhere all day long the message is borrow, borrow, borrow , borrow. It has been that way for years. I go to Mervyns, and find a jacket on sale, and decide to buy it because I am cold. They offer me a 10% discount on it if I will open a Mervyns charge and put the purchase on my new card. They not only want me to use credit for something that I planned to pay cash for, but they want me to open a new credit line too. They will make more money by getting me to use the credit card than they will by selling me the jacket.

Some stores have people right near the front door trying to get customers to sign up for a credit card as soon as I walk in the door. Everyday I get mail from the credit card companies begging me to sign up for their card so can go out and charge things on their card at a special interest rate. All day every day I am given numerous opportunities to borrow money.

It really works too because we borrow and borrow and borrow and borrow. During the refinance boom people took money out and bought cars, vacations, real estate and even college educations. Easy to do. As a nation American consumers have reached $2.46 Trillion in installment debt, not including mortgage debt as of the end of June 2007. Honestly I don't even understand a number that big.

According to the federal reserve consumer credit increased at an annual rate of 5-1/4 percent in the third quarter of 2007. In September, consumer credit increased at an annual rate of 1-3/4 percent.

So when it comes time to blame someone who do we blame for the mess we are in? Every time a consumer gets a loan he or she signs some papers. Those papers contain a great deal of information about payments, interest rates, terms and what happens if payments are not made every month. I say the consumer has some responsibility.

But, and I always have to throw those in. I know people who are not very savvy when it comes to using credit. They want what they can not afford because they saw it on TV, heard it on the radio, saw it on the Internet, received a post card advertising it and on and on it goes. So they borrow money.

Some were taken advantage of and I have met people like that. I hear their story and I understand how they got in the mess they are in and my heart goes out to them. I hear two or three sad stories every week from people who are in various stages of foreclosure. My husband can usually hear my half of the conversation if he listens to my calls and he knows how empathetic I am and how hard it is for me to listen to home owners, who are about to lose their homes. I've spent time sitting in peoples kitchens listening to them while they break down in tears. It's hard...Well, hopefully we'll get some good news today...

2008 Market Predictions

On Saturday I went to the hairdressers to get my hair done. The first thing he said to me is "What's going on here?" as he played with my hair then he added my hair has fallen out quite a bit since our last appointment. Then he asked me how real estate was going. What does this have to do with my hair falling out I wondered. After you read this you too will understand why I may be sporting the bald look by the end of 2008.

Anyone who knows me knows that I always speak the truth. That goes for my clients too. They want the facts and my opinion and that's what they get. To answer the question what's the market doing I'll pull out my crystal ball. Looking at all the facts and figures it looks to me like 2008 is going to be a tougher year in the market than 2007. I have two reasons for this opinion. First, all indications are that housing activity is continuing to weaken and house prices in general will continue to decline. Second, mortgage delinquencies and foreclosures will probably continue to rise for a number of quarters because the bulk of resets to higher rates and payments have yet to come. A lot of people that have bought houses in the past few years have taken out adjustable rate loans that are about to mature. I've had people tell me their payment has gone up as much as $1,200 a month! I've wanted to stop and pray for them on the spot. Each quarter from now until the end of 2008, the monthly payments for more than 400,000 subprime mortgages are scheduled for their first interest rate reset. That's up from about 200,000 per quarter in the first half of 2007.

Earlier this year, the typical reset was from 7 % to 9.5%, producing a 25-30% increase in the borrower's monthly payment. From here it can go two ways. First, the borrower can refinance and try to find a solution that they can live with. Or secondly, they'll go into default and eventually into foreclosure. The sad thing with that is we will continue to see more foreclosures in our neighborhoods, but what's even worse is when the guy down the street wants to sell his house for the normal reason he's competing with all the active foreclosures in the neighborhood. And I mean competing with pricing. None of this "Oh but, my house is so much nicer and I've got so many more upgrades". Buyers don't care about that. What they want a "good deal". They'll do their own fix up work and put upgrades in on their own time. This is what the sellers will have to deal with. It's been a tough year and I've told a few of my clients to take their house off the market or to rent it out. And I've told more than a few just to wait it out a while. It's been sad for them but it's the right thing to do. I can tell you what your house is worth in todays market but if that numbers not where you want it to be, sit tight. I'm not going anywhere, I'll still be here to sell your home when the market turns around. Now on the other hand if you want to buy property call me while I still have some hair left!!!