With the woes of the economy it is more important now than ever before that you are controlling your debt and saving for your goals whether it be a home, a car, or your childrens college fund. With the end of the year approaching now is the time to sit down and do a review of your finances and spending habits and work on how to achieve your goals for 2009 and forward. Setting a family budget will help to make it easier to reach your savings goal.
While working on your budget look to make sure your debt to value ratio is following along the 28/36 percent rule. This is a rule that is followed by the mortgage lenders when a person is looking to purchase a home. Your MORTGAGE payment should not exceed 28 percent of your monthly income, and your total outstanding debt should not exceed 36 percent of your monthly income.
With your budget in place try not to add any new debt and stay diligent to pay off your current debt by starting with the credit card debt with the highest interest rate.
When you set up your budget and your savings goal be sure to have a seperate fund for Emergencies. Unfortunately it is those unexpected expenses that can throw the budget completely so always try to put aside funds from each check for these type of expenses..such as car breaking down, or an illness.
As you learn to manage and stay within your budget you will see how life seems to be easier to deal with when you are not stressing over your finances. Good Luck!
Talk to you Soon,
Patti
How do you think that the USA will react over the Federal Reserve cutting the rates by 0.5 percent to its all time lowest level of 1.5 percent in over four years. This drop is an attempt to try and improve the lending that keeps the U.S. economy moving forward.
Bank of America, Wells Fargo and other banks cut their prime rate by half a point to 4.5 percent, also the lowest in more than four years, after the Fed announced its decision early Wednesday.
For millions of Americans, the Fed’s cut means borrowing money becomes less expensive. Home equity loans, credit cards and other floating-rate loans all fluctuate depending on what the Fed does.
Following in step with USA, Central banks in England, China, Canada, Sweden and Switzerland and the European Central Bank, South Korea, Hong Kong and Taiwan also cut rates.
Today, the market (Wall Street) closed at its’ lowest since 2003 even though the Fed cut rates on Wednesday. Globally people are hoping for an upward change in the markets on Friday.
I read this article today and wanted to share it regarding The Private Mortgage Industry’s Role in the Current Mortgage Crisis
The blame game for the development of the current mortgage crisis is now in full swing, and, with one exception, no major participant escapes unscathed:
1. Lenders and investment bankers drastically relaxed their underwriting standards in response to the euphoria associated with rapidly rising home prices during 2000-2006. They approved loans that could not possibly be repaid without an indefinite continuation of house price inflation.
2. Bank regulators ignored the breakdown of underwriting standards until it was much too late to take effective action.
3. Mortgage brokers and loan officers encouraged borrowers to buy more house than they could afford, and to accept toxic mortgages that they did not fully understand.
4. Consumers allowed themselves to be seduced into buying houses they couldn’t afford, into purchasing second and third homes on speculation, and into depleting their existing equity through cash-out refinances, in order to maintain lifestyles they could not sustain.
5. Rating agencies provided AAA and AA ratings to securities issued against pools of new types of extremely risky loans, when they had no adequate statistical basis for estimating potential losses on the loans.
6. Fannie Mae and Freddie Mac invested in such securities, taking large losses and weakening their capacity to be a source of strength during the crisis period.
7. The Federal Reserve kept interest rates low well past the point where they should have raised them, and, as a regulator, was as asleep at the same switch as all the other regulatory agencies.
The exception is the private mortgage insurance (PMI) industry. It is the one sector that has not been cited as contributing to the crisis.
Since the industry was reconstituted in the late 1950s, it has enabled borrowers to obtain conventional loans — those not insured or guaranteed by the federal government — with down payments of less than 20 percent. Insurance premiums were scaled to down payment — the smaller the down payment, the higher the premium.
PMIs must place half of their premium inflow in contingency reserves which can’t be touched for 10 years except to meet unusually large losses. This encourages the companies to set premiums based on estimates of losses over long periods, so premium rates change infrequently. And it severely dampens the temptation to make a lot of money in a short period by taking advantage of ebullient markets. PMIs can’t pay themselves premiums net of losses in the current year, as most lenders and investment banks can.
The PMIs did not fully participate in the euphoria and excess that preceded the crash. They did insure some risky loans that would not have been acceptable to them earlier, but for the most part they stuck to their guns. As a result, their market share declined with the emergence of “piggybacks” (when a home is purchased using more than one mortgage from two or more lenders).
Lenders discovered that they could make 95 percent and even 100 percent loans by getting other lenders to offer second mortgages for the amounts over 80 percent of property value. Piggybacks carried higher rates than the first mortgages, but in many cases the cost to the borrower was smaller than the cost of mortgage insurance. The interest on piggybacks was deductible, while mortgage insurance premiums were not. In addition, borrowers could pay off the second mortgage in full at any time, whereas getting rid of PMI was a hassle.
Of course, the PMIs did not give up market share willingly. They induced Congress to make mortgage insurance premiums deductible, at least for a period, but this had only a small impact.
Had PMIs followed the prevailing pattern during the go-go years, they would have cut their insurance premiums sharply and gone after the riskier loans. But they didn’t, and the piggyback market thrived until the crisis hit. At that point, the market got an object lesson in the value of PMI. First mortgage lenders discovered that piggybacks provided substantially less protection against loss than PMI. As home prices declined and the crisis grew, a large proportion of piggybacks (the market has now virtually vanished) lost all or virtually all of their value.
Borrowers experiencing payment problems discovered that having to deal with two lenders was a substantial barrier to getting loan contracts modified. In contrast, mortgage insurers will often help borrowers negotiate modified contracts with first mortgage lenders.
Nonetheless, the PMIs have been badly hurt. Losses have been eroding their capital and reserves, and their stock prices have tumbled badly. Yet the industry is doing exactly what it was set up to do, which is to cover losses to lenders during a period of stress, out of reserves that they accumulated during periods of prosperity. The industry should play a more prominent role in the very different housing finance system that emerges in the future.
