Your Questions About Mortgage Rates Graph

Steven asks…

Is the “Housing Crisis” as bad as some make it out to be?

Is seems to me that maybe some people bought more house than they could afford? Whose fault is that? Mine? The governments? Or the perosn that put their signature on the mortgae and loan documenst?

Here is a graph from the Mortgage Bankers Association:

http://bp2.blogger.com/_otfwl2zc6Qc/R6JOIMeis-I/AAAAAAAADjI/Xb52HbbAOuM/s1600-h/foreclosure1.bmp

What is pretty obvious is that subprime mortgages in general are not the problem, but subprime ARMs that are the real problem. Subprime fixed foreclosures in 2007-Q3 were actually below the last peak in 2003-Q4, and still aren’t much higher than FHA foreclosures. Foreclosures on prime fixed-rate mortgages haven’t moved much at all in the last 5 years.

Fortunately, subprime ARMs make up only 7% of the total mortgage loans outstanding according to the MBA, or about one out of every 14 loans, and of those subprime ARM loans outstanding, about 1 out 20 were in foreclosure in 2007-Q3, or about 1/3 of 1% of all mortgages.
So, because people with horrible credit – who can’t responsibly use a credit card let alone manage a piece of real estate – are being foreclosed on, my tax dollars should help bail them out? Give me a break. The lenders and the home owners need to accept the responibilty for the losses they must now incur.

More importantly, an unnatural housing bubble is being corrected.
30-Year Mortgage Rates Fall Close to A 4-Year Low – St. Louis Fed

http://bp3.blogger.com/_otfwl2zc6Qc/R59y8MeisoI/AAAAAAAADgY/2pWv52RJw3w/s1600-h/mortgage.png

admin answers:

The FBI is looking into possible criminal activities now. I think that’s better than bailing anyone out.

Your question is “is it that bad.” Well, yes and no. With real estate, the old saying that the three most important elements are “location, location, and location.” With the crisis, it’s also location. Some sections of the country are just fine. My house has appreciated nearly 20K in the past year. My neighbor just sold her house to retire to a less expensive community. Her house is more upscale, and they had a huge appreciation. We are also in an economic boom right now. Two years from now, things might not be so sunny here.

There are markets, however, where 3 out of 4 houses on the market are actually in foreclosure or about to go into foreclosure. That’s pretty bad by anyone’s measure. However, it isn’t as simple as just bad credit risks being extended credit, although that’s part of it. It was also people who were otherwise good risks trying to flip houses by putting a little bit down and buying more than one house. I read about a 52 year old woman who invested her entire savings in houses, buying 5. Then the over-inflated housing bubble burst, and not only could she not flip the houses, but she couldn’t even sell them for what she needed to get out. She lost every penny she had, declared bankruptcy, and walked away from the houses.

She and the banks that extended credit to her should NOT be bailed out. She knew what she was signing when she signed. They knew what they were having her sign.

I think we should apply a little tough love to this crowd.

We are interested in some stocks that hold real estate income properties – things like Comfort Inns. The purchas price of the stocks have been falling, and all anyone can figure is because they have “real estate” in part of the description. For us, it’s a great time to pick up some bargains, because the stocks are really sound, and not at all affected by any of the sub-prime nonsense.

Nancy asks…

Algebra word problem help using logs?

The length t (years) of a home mortgage of $150,000 at an annual percentage rate of 8% can be modeled by….. t= 12.542 ln(x/x-1000), for x>1000 where x is the monthly payment in dollars.

a. Graph the model. What is the vertical asymptote?

b. Expand the expression for t using properties of logs.

c. Approximate the length of a $150,000 mortgage at 8% if the monthly payment is $1157.72.

d. Approximate the length if the monthly payment is $1100.65.

e. Approximate the total amount paid over the term of the mortgage with a monthly payment of $1157.72. How much of the ammount is paid in interest?

Automatic 5 stars. Thanks for your help! (Showing steps will really help) 🙂

admin answers:

An explanation of the 1000 in the logarithm is the 8% of 150,000 per year.
8% * 150,000 = 8 * 1,500 = 12,000 bucks per year.
12,000/12 = 1000 bucks per month. This is only the mortgage! To this you must add the interest. This is why x > 1000.
This only means that the domain th the function t(x) is (1000 ; +infinity).

A. Vertical asymptote has sense only to the right of 1000.
Lim_{x–>1000 ; x>1000}_t(x) = lim_{x–>1000 ; x>1000}_{12.542 * ln(x/x-1000)} –>
–> 12.542 * ln(1000/1000-1000) –> 12.542 * ln(1000/0) –> 12.542 * ln(+infinity) –>
–> 12.542 * (+infinity) = +infinity ==> x=1000 is a vertical asymptote to the right.

To graph it you should calculate the first and second derivative for monotony and convexity and the limit to +infinity… You’ll manage…. Just look on your class notes…

B. We’ll use ln(A/B) = ln(A) – ln(B) putting x and x-1000.
T(x) = 12.542 * ln(x/x-1000) = 12.542 * [ln(x) – ln(x-1000)]

c. T(1157.72) = 12.542 * ln(1157.72 / 1157.72-1000) = 12.542 * ln(1157.72 / 157.72) =
= 12.542 * ln(7.3403499873193…) = 12.542 * 1.99… =approximately 25 years.

D. T(1100.65) = 12.542 * ln(1100.65 / 1100.65-1000) = 12.542 * ln(1100.65 / 100.65) =
= 12.542 * ln(10.93541977…) = 12.542 * 2.392… =approximately 30 years.

For c. And d. I used the Windows scientific calculator…

E. From c. We got that the sum is payed over 25 years = 25*12 months = 300 months
The interest per month is 1157.72 – 1000 = 157.72 (we discussed this in the beginning).

The total amount payed in interest is 300 * 157.72 = 47,316 bucks.

Hope this will be of some use.
Best regards!

George asks…

Economics Help Jerry :-)?

Using graphs, please explain what happens to supply, demand, and equilibrium price in the following markets:
a. The market for public college education (credit hours) if the state decreases its subsidies to public universities and colleges.
CHECK-> I need help with the graph. but if the state decreases its subsidies to public universities and colleges the demand will also decrease. Equilibrium price would be the same for all beause the demand and supply are equal regardless.
b. The market for fresh salmon if the fishery industry goes on strike in the Pacific northwest.
CHECK-> If there is no fresh salmon being brought in because of the strike, then the supply would decrease but the demand would increase. People love salmon and if a strike happened the demand would def. increase.
c. The market for US made pickup trucks if an import quota against pickups produced in Pacific Rim countries is lifted.
CHECK-> The demand would be higher but I think the supply would stay the same.
d. The market for mortgage re-financing if the Federal Reserve lowers the discount rate and uses open market operations to buy US government securities.
CHECK->Supply&demand=increase
e. The market for red wine if studies show that drinking red wine in moderate amounts provides some unknown protection against heart attacks.
->Supply&demand=increase

admin answers:

If the state decreases its subsidies to public universities and colleges, the supply would fall if the subsidy was given to the universities and colleges for meeting their expenditure on teachers, etc as the colleges and universities would not be able to employ the same number of teachers etc. So, they will raise the prices (tutuitionees to be paid by students) in order to maintain the supply at the existing level. But because tutionfees have increased, fewer students will go to colleges/ universities or spread out their schooling over a longer period. So, the demand will fall, this will be lower than before. This will in turn cause the universities to reduce their fee hike ans supply a little less. This way the equilibriumprice (tutionfees) will be reaced. Much will depend on the relative slopes of the supply and demand curves. You may have studied the impact of a specific rate tax on the demand supply graph. Subsidy is a negative tax. Here, the demand / supply curve shifts in the oposite direction than when a tax is imposed as illustrated in the text books. However, in the case of education demand curve is generally inelatic ( low price elasticity).
CHECK-> If there is no fresh salmon being brought in because of the strike, then the supply would decrease Nothing happens to demand immediately in terms od demand curve. But as the pices rise, demand would be lower, people will buy less salmon at higher rices and may shift to other kind of fish or sea food.

C. The market for US made pickup trucks if an import quota against pickups produced in Pacific Rim countries is lifted.
CHECK-> The demand would be higher – No demand does not go up automatically. Total supply of pick up trucks go down immediately. Then buyers lookfor more of US made trucks. US made truck suppliers may jack up prices as they do not have to compete with imports even after they raise prices. So, demand curve forUS made pick up trucks shift up rightwards. – more demand at each given price.

D. The market for mortgage re-financing if the Federal Reserve lowers the discount rate and uses open market operations to buy US government securities.
CHECK->Supply&demand=increase: No automatically.. If te discount rate goes down and the Fed buys more government securites, interestrates fall and banks lendable resources increase. So, the supply of mortgae loans increase and also the demand for mortgage loans at lower interest rates rises. This makes supply of mortgage loaans for refinancing increases. If the refinance guys like Fredie and Fennie gets more money to refinance, then only the demand and supply of mortgage refinancing both goes up.
E. The market for red wine if studies show that drinking red wine in moderate amounts provides some unknown protection against heart attacks.
->Supply&demand=increase
No, first the demand increases. Then if the capacity of red wine making is not fully utilized, the supply will increase without affecting the price initially. Once red wine making capacity utilisation reaches near full capacity utilisation, prices of red wine may increase. This in tun may lead to setting up more wine making capacity. After the supply increases, the pric may come dow.
Thus, first there is a shift in the demand curve right upwards, This results in higher new equlibrium price. If wine making capacity increases thereafter, the equlibium price falls again. So, a short-term change in euilibrium price, and later a shift of the supply curve to the right, that brings down prices again

Mark asks…

I neeeeed Precalc help! Can you help?

Mortgage problem.. you get a $50,000 loan and pay it back at a rate of $550.34 per month with an interest rate of 12% a year(1% a month). Your balance, B dollars, after n monthly payments is given by the algebraic equation
B= 50,000(1.01^n)+(550.34/.01)(1-1.01^n)
Make a table of your balance at the end of each 12 months for the first 10 years of the mortgage. To save time, use the table feature on your graphing calculator to do this.
So.. yeah. What do?

admin answers:

See table at
http://www.easysurf.cc/amt8n.htm?price=50000&monthPay=550.34&interest=12&time=10&month=120

Betty asks…

Help me with a math problem using TI-83?

im using this TI 83 graphing calculaotr…

and im supposed to make table and idk how.

B= 50,000(1.01^n)+550.34/0.01(1-1.01^n)

supposes i get a 50,000 dollar loan and pay it back at 550.34 dollar per month with an interest rate of 12% per year. (1% per month). your balance, B dollars, after n monthly payment.

and question is “Make a table of your balances at the end of each 12 months for the first 10 years of the mortgage. To save time, use the table feature of your grapher to do this.)

admin answers:

Press [Y=] and type that equation into Y1, replacing the n’s with X’s.

Press [2nd][Graph] to display the Table. If the settings are set to their default values, it should display X from 0 to 10 and the corresponding Y1 values.

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