Mortgage update
Mortgage rates benefited from last week's big sell off in the stock market and I am now hearing of 30 year fixed rates at 6% and slightly less. The possibility of a Fed rate cut at the end of October doesn't really change long term mortgage rates as many people would like to believe but it will help hold down the rate when adjustable rate mortgages reset which is certainly good news for those who are worried about being able to afford the new higher monthly payments higher interest rates would cause.
I'd like to make a quick point here and say once again that all ARM's are not bad. As I've said previously, if you aren't planning on staying in your house for more than 3 to 5 years, there is no reason to have a 30 year fixed rate if, let me repeat this in bold, IF, there is an advantage in the spread between the two rates. Today, the spread isn't significant enough to take the risk in my opinion. Let's talk briefly about bad ARM's. Those would be the teaser rates that were offered and in some cases, the rate was fixed for only a year and in even other cases, the buyer had the option of not paying any principal or even less than the full payment (negative amortization loans) so that they would owe more in a year than they owed upon the purchase of the home.
Not good. 
Well, with all the people who seem to be in trouble with their loans and election time drawing nearer every day, the politicians are scrambling to save the world. In the never ending battle between rich and poor, who should be saved, the poor borrowers who were forced to take loans without being told of the consequences or the big money who is losing it pretty fast when the loans have not been repaid. Please remember that in most cases, the borrower knew exactly what he/she was signing.
Marketwatch has had several interesting stories on what is happening to help distressed borrowers.
"Modifications -- which permanently change one or more terms of the loan and result in a lower monthly payment -- are a tricky prospect since loans are often bundled into securities and owned by investors. Those investors expect to make money off of the securitized loans that they own. The question, experts say, is how borrowers can get a break while investors still get paid."
Click the link to read Give me a break: loan 'flexibility' gets a lift.
Countrywide, the nation's largest mortgage lender will be offering to refinance subprime loans. This article seems to make Countrywide out to be villains which has not been my personal experience but because they are the largest, they offered many different loan programs and have a lot of exposure to loans gone bad.
Click here to read the story.
We'll wrap this up with one more story I hope you'll find interesting.
"Although 'subprime' has become a four-letter word in the country's collective lexicon and no one is sure when the credit crisis that was spawned by a meltdown in the risky lending sector will ease, mortgage bankers say you can count on this: Subprime shall return."
"It will be back, but mortgages to riskier borrowers will look much different." Click here to read The future of subprime lending.