12/19/2007
All this week the Wall Street Journal and Bloomberg.com have been reporting on the sub prime "mess" as it is called now.
They give two examples and they make excellent points but, what the main underlying problem is that in certain areas of the U. S. people have used their home as an ATM and now they are walking away from the home. In the WSJ report on Monday a couple bought a home in 2004 for $557,000 and in two years they had a mortgage for $835,000. In California you can borrow up to 100% of the appraised value of your home--in Texas it is 80%. So in two years there house was worth almost 67% more than when they bought it. Not a bad return! So they, like most, spent that money and now they are simply walking out on the loan. Why would they care, they have already bought all the things you could afford with $278,000 tax free dollars.
Now, the scary part, is how are the banks going to handle these losses. Translation: higher loan costs and mandatory higher down payments.
I'll discuss this more later when I talk about the true reason for the 2/28 ARM loan.
Wednesday, December 19, 2007
Thursday, December 13, 2007
Thursday Market Conditions
12/13/2007
Three economic reports at 8:30 had a dampening impact on the interest rate markets this morning.
Nov retail sales, expected to be +0.6% were up 1.2%; excluding autos sales retail was up 1.8% against estimates of +0.6%. Weekly jobless claims were expected to have declined 3K, they were down 7K. On the inflation meter is where the market took a step back; Nov PPI, expected to be up 1.5% overall, was up 3.2%; the core (ex food and energy) expected to be +0.2%, was up 0.4%. The increase in the overall PPI was the largest increase since Nov 1973. Taken the three reports together, the rate markets are under pressure in the early going this morning.
The cost of borrowing euros stayed at a seven-year high (although the 3 mo LIBOR rate did fall below 5.00% today), signaling a plan by the Fed and four other central banks to inject funds into the financial system is failing to persuade commercial banks to increase lending to each other. All key global equity markets were weak overnight as the skepticism remains that lenders will continue to keep their hands in their pockets, further depressing the economic outlook. Economists now say policy makers will cut the target Fed funds rate by at least another half percentage point because banks are raising costs for loans amid mounting losses from securities tied to subprime mortgages. The difference between the interest banks and the government pay for three-month loans, called the TED spread, rose to 2.21% yesterday from 1.59% on Sept. 18 when the Fed began lowering rates.
There hasn't been enough time or details yet to measure whether the Fed's consortium of central bankers will be beneficial in easing the credit lock up. Those jumping to judgment now are reacting to the uncertainty of details. Markets are increasingly becoming emotionally distraught over the slow pace of reaction by the administration and the Fed to come to assistance of lenders in this unprecedented sub prime mess; that still defies our imagination as to how lenders and financial markets allowed it to happen by throwing risk parameters out the window.
At 10:00, a relatively minor report, Oct business inventories. Inventories were expected to be +0.3%; they
At 1:00 this afternoon Treasury will re-open the current 10 yr note and sell $8B in their monthly auction.
The 8:30 report that PPI inflation is stronger than markets expected and the huge unexpected jump in retail sales have shaken the outlook for an economic decline and the idea that inflation isn't a problem. Well, we stand by our view that inflation concerns are over-blown, and that consumers are likely to pull back spending. PPI jumped on an increase of 17% for energy prices in Nov. Retail sales are likely the last gasp of heavy consumer spending. All that said, for the moment we have to act on what we know in terms of trading, and what we know based on the data this morning is that the economy doesn't look as bad as many have been thinking---us included.
Fed official Geithner said this morning the Fed is standing by to continue to develop methods to loosen credit at banks. No info, just a promise.
The rest of the day will take its direction from the action in equities. Stocks are starting weaker so far and although rates are a little higher, the weaker stock market is helping to support rates.
Three economic reports at 8:30 had a dampening impact on the interest rate markets this morning.
Nov retail sales, expected to be +0.6% were up 1.2%; excluding autos sales retail was up 1.8% against estimates of +0.6%. Weekly jobless claims were expected to have declined 3K, they were down 7K. On the inflation meter is where the market took a step back; Nov PPI, expected to be up 1.5% overall, was up 3.2%; the core (ex food and energy) expected to be +0.2%, was up 0.4%. The increase in the overall PPI was the largest increase since Nov 1973. Taken the three reports together, the rate markets are under pressure in the early going this morning.
The cost of borrowing euros stayed at a seven-year high (although the 3 mo LIBOR rate did fall below 5.00% today), signaling a plan by the Fed and four other central banks to inject funds into the financial system is failing to persuade commercial banks to increase lending to each other. All key global equity markets were weak overnight as the skepticism remains that lenders will continue to keep their hands in their pockets, further depressing the economic outlook. Economists now say policy makers will cut the target Fed funds rate by at least another half percentage point because banks are raising costs for loans amid mounting losses from securities tied to subprime mortgages. The difference between the interest banks and the government pay for three-month loans, called the TED spread, rose to 2.21% yesterday from 1.59% on Sept. 18 when the Fed began lowering rates.
There hasn't been enough time or details yet to measure whether the Fed's consortium of central bankers will be beneficial in easing the credit lock up. Those jumping to judgment now are reacting to the uncertainty of details. Markets are increasingly becoming emotionally distraught over the slow pace of reaction by the administration and the Fed to come to assistance of lenders in this unprecedented sub prime mess; that still defies our imagination as to how lenders and financial markets allowed it to happen by throwing risk parameters out the window.
At 10:00, a relatively minor report, Oct business inventories. Inventories were expected to be +0.3%; they
At 1:00 this afternoon Treasury will re-open the current 10 yr note and sell $8B in their monthly auction.
The 8:30 report that PPI inflation is stronger than markets expected and the huge unexpected jump in retail sales have shaken the outlook for an economic decline and the idea that inflation isn't a problem. Well, we stand by our view that inflation concerns are over-blown, and that consumers are likely to pull back spending. PPI jumped on an increase of 17% for energy prices in Nov. Retail sales are likely the last gasp of heavy consumer spending. All that said, for the moment we have to act on what we know in terms of trading, and what we know based on the data this morning is that the economy doesn't look as bad as many have been thinking---us included.
Fed official Geithner said this morning the Fed is standing by to continue to develop methods to loosen credit at banks. No info, just a promise.
The rest of the day will take its direction from the action in equities. Stocks are starting weaker so far and although rates are a little higher, the weaker stock market is helping to support rates.
Thursday, December 6, 2007
4 Safeguards when co-signing a loan
12/6/2007
By Terry Jackson • Bankrate.com
Has this happened to you? Your boyfriend or girlfriend wants a new car but their credit isn't up to snuff and they want you to be a co-signer on the loan. Maybe it's your son or daughter who comes seeking your signature on the loan document.
As credit gets tighter because of the fallout from the subprime mortgage market, you can expect more people with less-than-perfect credit to need co-signers in order to get car loans.
As much as your heart may be in the right place because you want to help, it's a proposition fraught with financial dangers for you.
The vast majority of questions I get from readers involve hapless co-signers who are now stuck with making payments on a car they often don't even have in their possession.
What people seem to overlook when they co-sign a car loan is that unless their name is on the title, along with the other buyer, they may not have any legal claim on the vehicle yet can be fully on the hook for the payments.
The usual scenario involves girlfriend-boyfriend transactions. The relationship goes sour and either as retaliation or just a plain lack of concern, one or the other departs with the car and stops making payments.
The first piece of advice to anyone considering co-signing a loan is to not do it unless you have some legal tie to the person, like a marriage license. But sometimes affairs of the heart override common sense, so there are a few things you can do to protect yourself.
First, make sure your name is on the title and that it's stated with the word "and'' when it comes to listing the owners. Legally that means the car can't be sold without both parties' signatures and it means that both parties have a vested interest in the vehicle.
Always make sure you have a set of keys to the vehicle, even if you never plan on driving it. If you ever find yourself having to take possession, having the keys will make things a lot less messy.
If you suddenly find yourself on the hook for a car loan because the co-signer has stopped making payments, immediately contact the lender and see what can be worked out.
You should know that the lender is not going to say, "That's too bad, we'll let it slide.'' They made the loan because you said you would make the payments if the other person doesn't. If you don't make the payments, the delinquency will show up on your credit report, as will repossession.
But the lender is probably not anxious to take back the vehicle, since lenders don't want to be in the used car business. You may be able to work out a renegotiation on the loan to lower the payments by extending the term or you may get a grace period of a month or so to get your financial house in order.
One more thing: Make sure that throughout the process there is insurance on the vehicle. Someone who has let the payments lapse probably hasn't kept the insurance in force either. If the car is damaged or stolen, you could have payments on a car that's undriveable or destroyed.
How prevalent are these scenarios?According to the latest statistics available, about 11 percent of all car subprime loans -- the ones most likely to have a co-signer involved -- were delinquent in 2006.
What that means is that there's a significant risk to co-signing that loan and you should examine what you'll do if all of a sudden that loan payment falls back on you.
By Terry Jackson • Bankrate.com
Has this happened to you? Your boyfriend or girlfriend wants a new car but their credit isn't up to snuff and they want you to be a co-signer on the loan. Maybe it's your son or daughter who comes seeking your signature on the loan document.
As credit gets tighter because of the fallout from the subprime mortgage market, you can expect more people with less-than-perfect credit to need co-signers in order to get car loans.
As much as your heart may be in the right place because you want to help, it's a proposition fraught with financial dangers for you.
The vast majority of questions I get from readers involve hapless co-signers who are now stuck with making payments on a car they often don't even have in their possession.
What people seem to overlook when they co-sign a car loan is that unless their name is on the title, along with the other buyer, they may not have any legal claim on the vehicle yet can be fully on the hook for the payments.
The usual scenario involves girlfriend-boyfriend transactions. The relationship goes sour and either as retaliation or just a plain lack of concern, one or the other departs with the car and stops making payments.
The first piece of advice to anyone considering co-signing a loan is to not do it unless you have some legal tie to the person, like a marriage license. But sometimes affairs of the heart override common sense, so there are a few things you can do to protect yourself.
First, make sure your name is on the title and that it's stated with the word "and'' when it comes to listing the owners. Legally that means the car can't be sold without both parties' signatures and it means that both parties have a vested interest in the vehicle.
Always make sure you have a set of keys to the vehicle, even if you never plan on driving it. If you ever find yourself having to take possession, having the keys will make things a lot less messy.
If you suddenly find yourself on the hook for a car loan because the co-signer has stopped making payments, immediately contact the lender and see what can be worked out.
You should know that the lender is not going to say, "That's too bad, we'll let it slide.'' They made the loan because you said you would make the payments if the other person doesn't. If you don't make the payments, the delinquency will show up on your credit report, as will repossession.
But the lender is probably not anxious to take back the vehicle, since lenders don't want to be in the used car business. You may be able to work out a renegotiation on the loan to lower the payments by extending the term or you may get a grace period of a month or so to get your financial house in order.
One more thing: Make sure that throughout the process there is insurance on the vehicle. Someone who has let the payments lapse probably hasn't kept the insurance in force either. If the car is damaged or stolen, you could have payments on a car that's undriveable or destroyed.
How prevalent are these scenarios?According to the latest statistics available, about 11 percent of all car subprime loans -- the ones most likely to have a co-signer involved -- were delinquent in 2006.
What that means is that there's a significant risk to co-signing that loan and you should examine what you'll do if all of a sudden that loan payment falls back on you.
Monday, December 3, 2007
Local Market
12/3/2007
Our real estate market in Palestine, Texas is "just fine." The "subprime mess" as reported by every media outlet, everyday, has not and should not impact us. Here's why: most businesses in this area offered other loans and most people with "bad credit" had credit histories so terrible that they did not even qualify for subprime loans.
Also, the number of foreclosures in our area are in line with statistical averages. So, rest assured people of Palestine, we are just fine and should continue to grow!
Our real estate market in Palestine, Texas is "just fine." The "subprime mess" as reported by every media outlet, everyday, has not and should not impact us. Here's why: most businesses in this area offered other loans and most people with "bad credit" had credit histories so terrible that they did not even qualify for subprime loans.
Also, the number of foreclosures in our area are in line with statistical averages. So, rest assured people of Palestine, we are just fine and should continue to grow!
Subscribe to:
Posts (Atom)
