Your Questions About Mortgage Rates News

Charles asks…

Are house prices part of the CPI? If not, why not?

I’m a little confused why house prices are not included in measures of inflation, if it isn’t.

Reasons why it should:
It’s a major cost and has major influence on everyone’s spending (most of us need a house and a small change in mortgage rates has major implications on us)
It therefore is a good indicator of inflation and the main things we are worried about as consumers
Historically speaking, quite a few banking crises have been linked to a change in house prices as well as credit problems, e.g. Japan’s 1997 financial crisis, Sweden 1990s, Recent problem with the subprime mortgages in the US.
The issue of rising house prices is predominant in the news
House prices have been linked to progress of booms and busts
Mortgages are a major asset item in most banks’ balance sheets. If there were anything to fundamentally change in their financial statements, it would affect how they are able to remain liquid and not get into trouble. e.g. Halifax had problems because it has something like 90-80% of its assets as mortgages.
Mortgages are also one of the biggest assets on the financial market and it’s one of the main drivers for the growth of financial markets. i.e. it’s a cash cow we are all proud of

Am I mistaken, but even if they don’t include it as part of an inflation index, surely there is some sort of index on lending rates for consumers and between banks.

Surely if financial regulation is focused on financial stability, should it not focus on keeping an eye on mortgage markets and mortgage lending?
I understand that there are other factors that have caused financial crises such as credit risk and moral hazard in banks, but if you think about it, we are comparing a credit card bill to an asset that is at least 100 times as big (for the Brits anyway).

What is your opinion?

Any helpful contribution is appreciated. Any rants, abuse or spam will be reported.

admin answers:

The rental value of owner occupied homes is included. They use to use the selling prices of home but because home prices are volatile they changed the way the cost of housing was measured so as to not distorted the index. The price of homes fell over 10% between the fall of 2007 and 2008 while the cost of living for most people went up more than 5% due to rising gas and food prices. The CPI is used to determine the indexing of wages, income tax bracket and standard deductions etc, so it is the cost of living for the average person , not those who by homes that matters.

There are other indexes that keeps track of housing prices, and the net cost on buying and owning a home, and you are right that financial regulators need to also consider these as well as what is happening in other assets markets.

Sharon asks…

Google gadgets HTML question?

How do I place gadgets next to each other? I have two gadgets I want to place and I copied and pasted HTML coding. But, they are on top of each other. One is small size and the other one is vertically long. So, it will be great if I can place those codes next to each other.

This is what I have now

<script src="http://gmodules.com/ig/ifr?url=http://andavan.googlepages.com/RateWatch.xml&synd=open&w=180&h=400&title=Mortgage+Rate+Watch&border=%23ffffff%7C0px%2C1px+solid+%23004488%7C0px%2C1px+solid+%23005599%7C0px%2C1px+solid+%230077BB%7C0px%2C1px+solid+%230088CC&output=js”> <script src="http://gmodules.com/ig/ifr?url=http://www.mortgagenewsdaily.com/syndication/mortgagenewsgooggadget.xml&up_count=5&up_headline=0&synd=open&w=320&h=200&title=Mortgage+And+Real+Estate+News&border=%23ffffff%7C0px%2C1px+solid+%2399BB66%7C0px%2C2px+solid+%23AACC66%7C0px%2C2px+solid+%23BBDD66&output=js”>

admin answers:

Stick each gadget in its own div and position it with CSS. Alternately you could create a table with two cells and put a gadget in each cell.

Carol asks…

Why would the govt. make the SAME MOVES that caused the subprime lending crises to begin with?

Fannie Mae’s guaranty business, “including loans with lower risk characteristics, has begun to experience increases in delinquency and default rates as a result of the sharp rise in unemployment, the continued decline in home prices, the prolonged downturn in the economy” and the rise in loan balances relative to property values, it said…………”All the signs indicate that Fannie Mae coming out of conservatorship and becoming a public company again are close to zero,” said Gary Gordon, a managing director at Portales Partners in New York.
http://news.yahoo.com/s/nm/20090508/bs_nm/us_fanniemae_results;_ylt=AppVDEfBGcAq8PDUFdEBMI5H2ocA;_ylu=X3oDMTJub2JhZHRpBGFzc2V0A25tLzIwMDkwNTA4L3VzX2Zhbm5pZW1hZV9yZXN1bHRzBGNwb3MDNQRwb3MDNQRzZWMDeW5fdG9wX3N0b3JpZXMEc2xrA2Zhbm5pZW1hZXRhcA–
[If the govt. owns the company, “shareholders” are in essence tax payers………….meaning you eat the losses]

——————————————————–

Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.

Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.

http://online.wsj.com/article_email/SB124139474675481713-lMyQjAxMDI5NDAxNDMwOTQ0Wj.html

Today, Fannie Mae operates under a congressional charter that directs the company to increase the availability and affordability of homeownership for low-, moderate-, and middle-income Americans. Fannie Mae is authorized to buy Federal Housing Administration (FHA) insured mortgages, thereby replenishing the supply of lendable money.

Freddie Mac is also a publicly held corporation, chartered by Congress in 1970. Freddie Mac came into being as the Federal Home Loan Mortgage Corporation (FHLMC) with the mission to create a continuous flow of funds to mortgage lenders. By supplying lenders with the money to make mortgages and packaging the mortgages into marketable securities, Freddie Mac also helps to sustain a stable mortgage credit system which in turn, reduces the mortgage rates paid by homebuyers. Over the years, Freddie Mac has been responsible for opening the door to homeownership for one out of six home buyers in America who would not have qualified otherwise.

http://realtytimes.com/rtpages/19981116_fanniefred.htm
beverly s……….thanx.
phil…………..I hope you’re not right. But at this point it certainly looks like you might be….

admin answers:

You are correct- FHA is the new sub-prime loan. However, you do now need a 620 credit score- you do have to prove income & you do have to put 3.5% down. The really bad subprime loans were a 500 credit score- zero down & no proof of income.

Sandy asks…

Are you ready for more bailout?Freddie Mac seeks $6.1B in US aid after 1Q loss?

http://news.yahoo.com/s/ap/20090512/ap_on_bi_ge/us_earns_freddie_mac;_ylt=AoahyrFk78NpCrZ4QG2x7SGyBhIF
While your worrying about Ms. California here what’s coming through the back door.
WASHINGTON – Mortgage giant Freddie Mac is looking for $6.1 billion in additional government aid as the cost to taxpayers from the housing market bust keeps growing.

The McLean, Va.-based company, seized by federal regulators in September, on Tuesday posted a loss of $9.9 billion, or $3.14 per share, for the quarter ending March 31. That compared with a loss of $149 million, or 66 cents a share, in the year-ago period.

The results were driven by $8.8 billion in credit losses due to soaring delinquency rates and falling home prices, and $7.1 billion in writedowns of the value of its mortgage-backed securities. More than $63 billion of Freddie Mac’s loans were either 90 days overdue or in foreclosure at the end of March, nearly triple year-ago levels.

The request for federal aid is Freddie Mac’s third since the takeover, for a total of about $51 billion.

Sibling company Fannie Mae last week requested $19 billion in additional government aid, bringing the total for both companies up to $85 billion out of a potential $400 billion government lifeline.

“This was another difficult quarter for Freddie Mac, as declining home prices and the weak economy continued to take a toll on our results,” Freddie Mac’s interim chief executive, John Koskinen, said in a statement.

But he said there were “preliminary signs of slowing in home price declines as low mortgage rates and high affordability take hold.”

The White House budget office estimates the tab for rescuing the two companies will reach $173 billion. But even that number could wind up being optimistic, especially as Fannie and Freddie are called upon to put in place the government’s plans to refinance or modify up to 9 million mortgages.
Washington-based Fannie Mae and Freddie Mac play a vital role in the mortgage market by purchasing loans from banks and selling them to investors. Together, the companies own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all U.S home mortgages
Obviously we need to fire the CEO’s just like GM.

admin answers:

Obama owns the printing presses. Pelosi controls the ink and Reid is of course in charge of the wiping paper.

Richard asks…

How are they defining ‘Credit Crisis’ here?

http://www.risknews.net/public/showPage.html?page=862163

Risk News: General News

Credit crisis did not start until October 2008, Fed research finds

11 June – New research from the US Federal Reserve Bank in St Louis, Missouri, has found US banks did not begin to cut credit significantly until the last few months of last year, more than 12 months after the generally recognised start of the financial crisis.

Although the subprime mortgage crisis started in mid-2007, real estate, commercial and individual lending continued to expand until the third quarter of 2008, albeit at a slower rate, wrote economists Silvio Contessi of the St Louis Fed and Johanna Francis of New York’s Fordham University – reports from US commercial banks “do not show clear signs of distress in the commercial and industrial loan segment of the banking industry, at least through the end of September 2008”. Meanwhile, falling mortgage rates through most of 2008 meant real estate lending continued to grow as borrowers refinanced existing mortgages.

The picture only changed in the fourth quarter of last year, when net credit contracted sharply – largely the result of lower lending at the country’s largest banks, either because of tighter credit standards or lower demand. “The relatively smaller banks show little impact from the recession that began in 2007. Their credit growth was positive and comparable to, if not larger than, previous years,” the study commented.

The study also found increasing use of previously arranged credit lines, suggesting 2008 saw a drop in new loans arranged that was masked by the tapping of credit facilities arranged before the start of the crisis. Credit was also becoming more difficult to obtain from other sources such as syndicated loans and commercial paper issuance, prompting commercial borrowers to rely more on banks. In the fourth quarter, credit contracted at a rate last seen in the 1990-91 recession, Contessi and Francis wrote.

This does not bode well for the recovery of the financial markets, they add, drawing on a comparison between the current recession and five recent recessions. The early stages of this recession looked similar to the 1980 and 1981-2 recessions in the US, implying a rapid recovery in credit, but “in the 1991 recession, however, the decline in credit expansion and the increase in contraction were persistent, lasting for two years into the recovery”. The authors added: “It is possible further quarterly data will reveal a creditless recovery”, in which credit remains difficult to obtain even after the economy starts to grow again.

See also: US Congress: Banks may need more stress tests
Banks repay $68bn in Tarp funds to US Treasury
FSA stress tests banks for four-year downturn
Defaults to rise as IMF predicts slow recovery

Alexander Campbell

admin answers:

Credit Crisis = Stealing money from The People for the benefit of the establishment.

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