They were the key reason for the demise of AIG and a large part of the reason for our current mortgage mess.
If you buy a bond from General Motors or mortgage bonds, you are lending them money for a set interest rate for a specified length of time. You face two risks.
1. They go bankrupt and don't pay you back.
2. That interest rates rise and the bond falls in value (think of bond prices and interest rates as being on opposite sides of a see-saw).
Investors in bonds often choose to take out a "type" of insurance aganst these risks. For a given premium, the seller of the CDS will (supposedly) pay off on the bond if it goes belly up. If it was from a real insurance company, they would be regulated and would have to hold enough money in reserve to pay you off.
For example, life insurance companies must have enough cash on had to pay off on your policy in case you die. CDS are an unregulated market so someone can sell you CDS without having the reserves to pay off if the bond goes bust.
In the case of life insurance, there are strict limits on who can take out an insurance policy on you. They must have whats called an "insurable interest". You need to have an economic loss if the insured dies to be eligable to insure their life. You can't wander the halls of the hospital looking for people who are unlikely to make it and take out life insurance policies on them.
This is not true for the CDS market. You are perfectly free to take out a "life" insurance policy on GM, or any other firm that issues a bond, including mortgage backed securities and you do not have to be holding the bond or have the reserves to pay off if they fail? And we wounder how our economy got into trouble?
FHA has issues Mortgagee Letter 08-36 which covers the New Loan Limits for 2009. The new loan limits for Illinois will be:
| 1 unit | 2 unit | 3 unit | 4 unit | |||
| Cook County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| DeKalb County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| DuPage County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| Grundy County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| Kane County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| Kendall County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| Lake County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| McHenry County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| Will County | IL | $365,700 | $468,150 | $565,900 | $703,250 | |
| Boone County | IL | $339,250 | $434,300 | $524,950 | $652,400 | |
| Winnebago County | IL | $339,250 | $434,300 | $524,950 | $652,400 |
FHA requires properties to be owner ocupied "OO" and has changed the maximum LTV to 96.5% (3.5% downpayment) for purchases effective with all case number issued January 1, 2009 forward. Ask me for a copy of mortgagee letter 2008-23 for details.
For more information about FHA insured loans visit the FHA & VA page of my website today!
www.GregZaccagni.com & www.MortgageAdvisor.info
The new mortgage assistance plan was announced by the Federal Housing Finance Agency, which seized control of Fannie and Freddie in September 2008.
Officials say they hope the new approach, which takes effect Dec. 15, will become a model for loan servicing companies that collect mortgage payments and distribute them to investors. These companies have been roundly criticized for being slow to respond to a surge in defaults.
To qualify, borrowers would have to be at least three months behind on their home loans and would have to owe 90 percent or more than the home is worth. Investors who do not occupy their homes would be excluded, as would borrowers who have filed for bankruptcy.
Qualified borrowers could recieve help in several ways:
1. The interest rate would be reduced so that they would not pay more than 38 percent of their gross income on housing expenses.
2. Another option is for loans to be extended to 40 years from 30.
3. Some of the principal may be deferred, interest-free to make your payment fit within the 38% ratio.
The plan focuses on loans Fannie and Freddie own or guarantee and represent only 20 percent of delinquent loans.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., said the plan "falls short of what is needed to achieve wide-scale modifications of distressed mortgages."
When the loan is chopped up into a million pieces and any investor can block a modification from happening, a program like this will only scratch the surface of the mortgage crisis," said Sen. Charles Schumer, D-N.Y.
Note:
If you are having difficulty making mortgage payments either because your income has changed and/or your loan payments have increased you may wish to consider seeking a loan modification with your lender. Because most mortgage debt is owned by multiple investors you may receive more attention using a law firm specializing in loan modifications. Please review these links for more informaton and ask me to refer you!
What makes obtaining loan modifications more difficult?
Favorable Conditions for a Successful Loan Modification
How to improve your odds of receiving a loan modification
Visit my website Today!
www.MortgageAdvisor.info & www.GregZaccagni.com
The long term outlook for housing demand is good! Several national studies suggest we have already hit bottom.
A new (2008) study from the Joint Center for Housing Studies of Harvard University finds "the country poised to see an increase in housing demand throughout the next decade.
"We still have a growing population," said Nicolas Retsinas, director of the Joint Center for Housing Studies and one of the study's authors. "As long as you have more households, more people are going to need places to live."
Social trends - people getting married later and divorced more often - are making single-person households the fastest growing household type, the study finds. A long-term net increase in potential home buyers will be driven by demographic factors: the aging of "echo boomers" into adulthood, an increased life expectancy for baby boomers* and projected annual immigration of 1.2 million.
From 2010 to 2020, the number of households in the United States will grow by an average of more than 1.4 million per year, the study finds.
Related Articles:
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Is real estate still a good investment?
Declining home values may have begun to stabilize
Mortgage Humor - Trust your Mortgage Advisor?
visit my website today!
www.MortgageAdvisor.info m& www.GregZaccagni.com
The Federal Reserve, acting in coordination with other global central banking authorities, cut the Federal Funds rate, a key interest rate by (1/2%) half percentage point Wednesday in order to help stabilize the current lending crisis threatening the US economy.
The Bank of England cut its rate by half a point while the European Central Bank reduced their's as well. Other central banks also taking part include the banks of Canada, Sweden, and Switzerland.
China also cut its key interest rates Wednesday for a second time in less than one month to stimulate slowing economic growth amid the global credit crisis.
The fact that the Fed didn't wait until its regularly scheduled meeting on Oct. 28-29, underscored the urgency of the situation. In response, the prime lending rate for millions of borrowers will drop by a corresponding amount. The prime rate applies to certain credit cards, home equity lines of credit and other loans.
Although inflation has been high, the Fed believes that the recent drop in energy prices and the weaker prospects for economic activity have reduced this threat to the economy.
Relted Articles:
Continued decline of financial giants increases pressure on Federal Reserve to cut Discount Rate
Deal finally Reached for Mortgage Bailout of Wall Street?
What's likely to happen to mortgage rates with the passing of EESA/HR1424?
www.MortgageAdvisor.info & www.GregZaccagni.com
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