Prudence Wong asked:


Mortgage, second mortgage and equity release schemes are all used as synonym for home equity loans and are basically the loans availed against your home. In home equity loans, you are borrowing an amount from a lender based on the worth of your property.

What are the difference between Mortgage loans and Second Mortgage loans?

If you own your home fully, the equity loan being availed on it is termed as mortgage loans. If your property is partly owned by you but has equity, then you can avail second mortgage loans. If you have already availed a mortgage loans and not fully paid off, you can avail second mortgage if the home has equity.

How do I define my home equity?

Equity is the worth of your home after reducing the amount to be repaid on home mortgage loans. Equivalently in simple terms if you sell your home, the equity will be the amount left in your wallet after paying off the mortgage amount. You can get this equity from a lender without selling it off and this loan is called home equity loan.

Typically home equity loans stands for second mortgage loans. These types of loans are convenient for the home owner to make use of the equity of his home without venturing out for refinancing. Also the second mortgage loans can be taken to clear off the first mortgage loans as well.

The impression that selling off the property is the only option to get a considerably large amount is not factually correct. If you want to raise some extra amount for any purpose, second mortgage loans are very good options. In fact you can use home equity loans for any purpose as desired by you.

Many lenders and financial institutions are out there which offer more loan than actual equity, some may offer an amount equal to the difference of mortgage loan outstanding from 125% of the present market value of the home. Mostly the home equity loans interest will be one time fixed rate and need to be paid at a time.

There are many factors controls your decision on home equity loans. Interest rates, loan amount and repayment period are the main factors. If you have good credit rating, you will get low interest rates. If you choose for long term repayment, you will be paying more interest on your equity loan.

Home equity loans are suitable for anybody for any purpose as these loans come with less interest rate. Also these loans are good options for the people with bad credits, as the lenders are willing to issue loans on the security of your worthy home. Any loan is a liability, so be careful about going for any kind of loans. You do proper home work and take only minimal amount required as home equity loan.

Yankee Running Dog asked:


The European Central bank just threw in 348.6 Billion Euros on Dec 17 and the Fed just announced that there were $61 Billion in bids on its $20 Billion credit auction. Do they simply hit the printing presses or what?

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Joe asked:


Have most sub-prime mortgages been “adjustable”?

Are foreclosures up so high because people lost their jobs?

Or are foreclosures so high because the loans adjusted to such a high rate of interest that people are unable to make the payments? If so, about how many percentage points did the “reset” go up compared to the initial terms?

Were the size of the “resets” much higher than would have been expected? Or were the resets no surprise?

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Carl Hampton asked:


The sub-prime crisis has had a rippling effect on the worldwide economy posing critical challenges for Governments, Businesses, and Investors.

The United States Banks and Trading Houses re-packaged sub-prime debts into attractive-looking securities and/or investment vehicles, which were then picked up in European and Asian markets by Traders and Banks.

Sub-prime basically refers to those loans being given at a higher rate than the prime rate (i.e. the interest rate that Banks generally use as an index in calculating rate changes to adjustable rate mortgages (A.R.M.’s), and other variable short term loans); according to data published by the Wall Street Journal On-Line, the prime rate in the United States is currently 5%.

Sub-prime lending is also known as B-Paper lending. Borrowers generally tend to have compromised credit histories.

Sub-prime loans incur a higher interest rate than an A-Paper loan due to the perceived increase of the Borrower being more of a risk.

Along, with sub-prime mortgages, the term encompasses sub-prime car loans, sub-prime credit cards, and the most abusive sub-prime lending practice of all, short-term “payday” loans.

The controversy surrounding sub-prime lending is high. It is alleged that sub-prime lenders engage in predatory lending practices, deliberately targeting the less-educated, racial minorities, and the elderly; those who may not understand exactly what they are signing, and/or could never hope to honor the terms of their loans.

Sub-prime loans are usually covered by collateral such as a car or house. As many of these loans include hidden terms and conditions, not to mention, exorbitant fees, Borrowers usually end up in default; their collateral is seized; or the property ends up in foreclosure.

As the United States is considered a powerful nation, extending it’s control and influence over nations that may not be as economically fortunate, it can be better understood why the ongoing sub-prime lending and credit crisis in the United States has progressed to a restriction on the availability of credit in world financial markets.

Unfortunately, when the United States sub-prime mortgage crisis hit in 2006, Investors found their investments near valueless, or difficult to ascertain value; the inability to assess the value of an asset generally leads to market paranoia.

As a result, Banks tightened their lending policies, which led to higher interest rates, and difficulty in maintaining credit lines. Thus, overseas businesses with no direct connection to the United States’ sub-prime mess suddenly began to find difficulty in maintaining credit lines; Banks stopped lending to each other and to businesses.

Don’t be misguided though; sub-prime woes are now spreading into the prime market. Borrowers with good credit are experiencing sudden changes in financial security, causing them to fall 60 days or more delinquent on their loans, and foreclosures are climbing rapidly.

House prices continue to collapse and prime loan Borrowers are shocked to discover that they owe more money than their houses are worth!

Rate increases continue to rise making it more difficult to keep up with monthly mortgage payments.

The U.S. Government is stuck between a rock and a hard place. If they offer funding to assist troubled Borrowers avoid losing their homes will the effect cause more defaults or encourage riskier lending?



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James H asked:


A decade ago the mortgage underwriting standards were pretty simple: 10% minimum down; P&I not to exceed 25% of your net income, 35% of your gross income.

Is anyone that does not meet these traditional metrics considered a sub-prime borougher?

Or is there some “new and improved” underwriting standard?

I’ve heard a number of different explanations about what a sub-prime borougher is. I’ve heard things like FICO scores below 600 or below 500. Or boroughers with a history for bankruptcy. I’ve heard boroughers that qualify on stated income.

I am just curious because it seems that this definition is key for estimating how deep the housing correction will be. If the definition hinges on the traditional underwriting standards, then there is a whole lot more correcting in the future.

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blah asked:


Do investors quickly sell off their corporate bonds after finding out that these bonds may be exposed to the sub-prime crisis? or do they hold onto it cause the credit spread is getting larger and they may earn more interest?

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GoGators asked:


Our house will be paid off next year. We have some major home improvements to do in the near future. Will borrowing costs be more if we borrow against the equity after the first mortgage is paid off, or does it matter?

Rhonda

zeishabush asked:


What is the difference between a home equity loan and a consolidation loan? Which one looks better on your credit report?

Tamara

Johan Jeuring asked:


The needs that demand larger money can be made easier with the home equity loan. Home equity loan helps the homeowner to renovate his home or meet the expenses of son’s wedding etc. with easy financing option.

Home Equity Loan are secured against the equity of your home means borrower uses equity in their home as collateral. These loans are helpful in financing the major home repairs, medical bills, education expenses, wedding expenses or holidaying.

The term home equity defines the market value of borrower’s home after deduction of the debts which are taken on behalf of borrower’s home.

The home equity loans is secured against the home of the borrower so homeowners with bad credit history like CCJ’s and IVA, defaults, arrears and bankruptcy can also apply for home equity loans.

The amount against the home equity loans is depended upon the equity of the home i.e. lender check the previous debt on home equity if taken and then compares it with the market value of the home that is put as a collateral. If the value is more than the debts then he offers home equity loan. But if the value of home is lesser than debts then also borrower can avail larger amount i.e. by clearing off debts or by increasing the value of your home through home improvements or renovation

The interest rate charged on the home equity loans is higher if the loan is taken for shorter duration whereas interest rate goes down when taken for longer duration. Usually, home equity loan can be availed for repayment duration up to 30 years.

Borrower can avail home equity loan at cheaper rates especially if they opt for online mode. As online loan market is flooded away with the online lenders that are ready to provide the home equity loan at the cheaper rates.

While considering the home equity loan, borrower must make sure that they are paid back in time so that you avoid falling into worse situation.

Ed Lathrop asked:


During the last couple of weeks the Dow Jones industrial average has tanked to the tune of over 1,000 points. Many analysts reason this abrupt market downturn has been caused by a sudden increase in sub prime lending defaults. Can a tight mortgage market shoot down the whole economy, or is this issue being overblown?

The Real Estate Bubble

The real estate market has had an enormous run up over the last 14 years. During the last few years, the accelerated increase in real estate prices has been seen as unsustainable. Many have referred to this unsustainable increase as “the real estate bubble.” Most of us who have followed the real estate trend concluded that since no financial market can continue straight up forever, this real estate bubble would someday burst. Well, it looks like the real estate bubble has at long last burst.

Sub Prime Lenders’ Loans

What made this particular real estate downturn so inevitable was some of the peculiar, and reckless mortgages that sub prime lenders made in the last few years. These reckless loans helped stoke the hot real estate market, but they were more prone to default than regular mortgages. One type of reckless loan pushed by these lenders was the negative amortization mortgage.

With a negative amortization mortgage, a borrower gets to pay very low monthly payments for the first few years of his mortgage. After the first few years, the monthly payments skyrocket to maybe 2, 3, 4 or 5 times their original, very low amount.

Of course, most people are unable to pay this new increased payment and when they are unable to refinance or sell their houses, they default. When people start to default on their mortgages in large numbers, lenders who originated these mortgages namely sub prime lenders will be hurt financially. In other words, negative amortization mortgages have come home to roost right on top of the foolish lenders who approved them!

The Stock Market

The stock market is prone to dips and sell-offs when talk of terrible financial situations abound. The sub prime lender debacle has caused such talk. However in reality, it looks like economic conditions haven’t changed much.

Nothing has happened to our inflation rate, in fact, it’s getting better. There has been no recent increase in unemployment, and certainly the growth in the USA remains very strong. Interest rates are, actually, trending downward.

On top of these conditions, 97.4% of all mortgages are not in trouble. It’s as if there is a black cloud hovering above the market and when news reporters look toward this cloud, all they seem to be able to find is the sub prime lender fiasco.

The Federal Reserve’s Response

At first, Fed Chairman Ben Bernanke, responded to the sub prime lender problem by doing nothing. With the economy continuing to expand and inflation under control, usually the Fed doesn’t move on the discount rate. After a wild ride for the last several sessions, however, the Fed lowered the rate one-half percent on Friday, August 17.

Note that lowering the discount rate doesn’t always initiate a stock market rally. Sometimes this move is seen as inflationary and the market reacts negatively. So, it’s hard to know for sure, where this move will lead us.

At first glance, you would think the market’s response to the rate being lowered was emphatically positive because there was a 233-point upward move in the Dow Jones Average on Friday. However, remember, the Dow rose over 300 points on late Thursday which was before the Fed moved.

The Housing Market

Housing slumps can certainly portend to a stock market slump. When houses stop selling, there is no longer a need to build them. This puts many construction workers out of work and many construction companies in the red. When the unemployment rate goes up and one segment of the economy stops making a profit, it can weigh heavily on the stock market.

So, We’re Entering Into a Bear Market, Right?

It may turn out there is a bear stock market looming, but I don’t believe the bull market has ended just yet. It could be, with sub prime lenders out of business, mortgages may become more difficult to come by and that will add to the many reasons the housing market will stagnate for a while. Given enough time, a slow housing market could slow the stock market. However, what’s happening right now in the sub prime lender market is not cause for major concern.



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