The Widening Mortgage Crisis and Economic Downturn

There is increasing bad news on the homefront. According to an interesting website The Mortgage Lender and its Impode-o-Meter, there has been 253 Mortgage companies have "imploded" since 2006. I stumbled across this website from a comment posted by John on the Tacoma News-Tribune Real Estate Blog .

Scarily enough, Yale University economist Robert Shiller, admittedly bearish and known for the S&P Case-Shiller home price index, said this week that U.S. housing prices could fall farther than they did during the Great Depression. At that time, prices decreased by 30 percent.

Can you even image a 30% percent plus price decrease? I think we are seeing a widening economic crisis, we have been watching a continue increase in food, crops, gas, and metal prices, you name it.

It will be interesting times, China is increasing it's reach in search for natural resources. They are heavily invested in countries such as Sudan, Myanmar, and Congo. China's steel imports have tripled since 2002 from places like Australia. Mr. Kevin Rudd, the new Aussie PM, is fluent in Chinese. With China holding on to over a trillion (yes a trillion) dollars in reserve, they hold an immense power over the U.S.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

There is now a growing food crisis as well but that is for another day.

The Subprime Crisis and Widespread Corporate Fraud

There are many causes for the current subprime (and prime) mortgage crisis. One such cause that is coming more to the forefront is the widespread corporate fraud that exists (possibly existed, they have tightened up quite a bit) in the mortgage industry. The FBI is investigated 17 mortgage firms accused of Fraud.

If you have any doubt that things will be supressed for the forseeble future, check out this article in the New York Times. One factor in the real estate boom was the type of loans that were being written, standards are being tightened dramatically so this factor will likely not contribute to a rebound in the future.

Subprime Crisis Nightmares and Mortgage Problems

I have seen it all myself and this article attests to the trapping and lies that have befallen many in the current real estate crisis.

http://money.cnn.com/2008/03/19/real_estate/borrowers_cruz/index.htm

There are a couple of things that you should always keep in mind when shopping around for a mortgage whether it is a refinance (refi) or purchasing a new home.

One of the most important things to ask for when shopping for a refi or when purchasing is a GFE - or good faith estimate. There is a Truth-in-Lending Act ("TILA") statement required for closed-end, fixed-rate residential mortgages under the Truth in Lending Act, and the Good Faith Estimate of Settlement Costs ("GFE") required under the Real Estate Settlement Procedures Act ("RESPA"). A GFE must be provided to you three business days after submission of an application.

The GFE will break down all associated costs, fees, prepayments, and the estimate monthly costs. Important items to look for are discount points and broker fees (shouldn't pay more than 1% origination fee) and any pre-mortgage insurance (PMI).

Be sure to ask if there are any pre-payment penalties.

How do brokers get around the TILA and the 3 day rule? Most lenders don't have you fill out a formal application until closing only then do they conveniently add the GFE in the closing docs.

Always ask for a GFE and do your research to ensure all items have been covered. You can hold them accountable for extreme discrepancies.