Archive for June, 2013

In any negotiation the options of the parties determines the strength of their bargaining position. Ordinarily, when a lender and a borrower execute a promissory note and a mortgage agreement, the lender has most of the power, which is why they determine the terms of the agreement. The only option a borrower has is to shop for slightly better terms from another lender. If the borrower fails to pay according to the terms of the promissory note, the lender has the option of calling a public auction on the property to regain the outstanding balance on the loan. Lenders wisely force the borrower to put money down on the transaction to provide a cushion to protect the lender from loss…[READ MORE]

Bubble thinking is rampant, and the primary reason for its persistence is that people want the free spending money houses provide. The huge financial reward each bubble participant received as they went to the housing ATM gave a spender’s high like no other. Absent another housing bubble, most bubble participants will never have access to that kind of free money again. The real estate lottery When you reflect on it, mortgage equity withdrawal is similar to state run lotteries that sell hope to the poor at a major cost. If you are a worker who doesn’t save money, you have no chance to acquire wealth. Lotteries give those who have no other opportunity for wealth a chance — slim though it…[READ MORE]

realtors have many standard tools they use to manipulate buyers. Most of what they say is half-truth or outright bullshit designed to create a false urgency in buyers to facilitate sales commissions. One of the more common lines of faulty reasoning is that buyers should worry about being priced out when mortgage interest rates rise and they should buy before the situation gets any worse. With the collapse of the housing bubble, most people realized that rising interest rates will not price them out. In fact, rising interest rates is far more likely to hurt sellers and force them to lower their prices to sell. Surprisingly enough, real estate prices do go down, and if everyone really is priced out,…[READ MORE]

When borrowers stop paying their mortgages, banks don't want to foreclose because with so many so far underwater, the bank's losses would be enormous; in fact, it would put most banks out of business. That simple truth drives every aspect of banking and government policy. Loanowners want to save their homes, but bankers and politicians really don't care about them. Bankers and politicians want to save the banks. No matter how crazy many of the policy initiatives coming from Washington and Wall Street may seem, if you remember the basic dilemma that banks face, even the silliest disguised bailout makes perfect sense. By late 2008, house prices were crashing hard, and millions of borrowers were defaulting on their home loans.…[READ MORE]

This week if you followed housing news it was a buzz with the double digit year over year Case Shiller index increase.  This is the biggest gain in six years, but there are still major problems in the housing sector.  One glaring problem that came out this week (besides shrinking affordability) is that over 40% borrowers don't have enough equity to trade up to a larger or more expense home.  In addition, the current cost of ownership is nearing the cost of renting and in some places owning now more expensive getting closer to historical premium. This lack of equity means the trade up market will be suppressed for a very long time and it's anyone's educated guess when a…[READ MORE]

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