Mortgage Article - Brian Barnes

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It All Comes Down to Value

By Brian Barnes

Mortgage Advisor Brian Barnes is the President and COO of Aim With Focus Inc, and the managing Broker of Focus Home Loan Solutions.

There is a lot of talk in the news these days regarding the housing situation. There are many contributing factors involved and yet we keep hearing how it is the subprime market that has caused this problem. Because of all of the subprime loans that were written we now have this huge rate of foreclosures and the problems keep compounding. Well they are right the problems are compounding. However the subprime Loans and foreclosures are not the problem in themselves. It is the declining housing market that is the biggest cause of default.

People bought based upon a false sense of security in home appreciation. They financed 100% and now owe more than their house is worth. Had they used 30 fixed loans they would be fine. Instead many used 2 and 3 year adjustable rate mortgages to both qualify for more while getting the lowest payment possible. The thinking was that they could just refinance at the end of their term. The problem now is these loans are adjusting and they cannot refinance. Many cannot afford the adjusted and always higher payment.

In an attempt to slow fear and concern the Feds jumped in this week, pumping money into the market eliminating some of the liquidity issues the system was having. I would not be surprised to see the Feds take more action to help the situation. A possible .5% to full 1% cut in interest rates could be coming in the near future. This will give many that are in trouble some hope, but it will not help those that are upside down in their homes. It should offer those that are financially stable a chance to look for opportunity. Some homeowners will refinance into lower rates pulling out money to pump into the economy. Investors will be taking advantage of the foreclosed homes and buying investment properties. New or first time home buyers will get off the fence that so many of them sit on right now, and jump into the market. The existing buyers out there seem to attempting to time the bottom of the market. Lower rates should get them into a new home.

This will help slow down the depreciation of values eventually. If nothing else it should at speed up the natural process by artificially stimulating the market into a quicker balance.

Those that have already been impacted will learn a serious life lesson, go back to renting and eventually buy again in a few years. There is little that can be done for many of these families at this point.

Another problem that will manifest itself is that the guidelines for loans have been dramatically changed. Some families will find that they truly did not qualify to live in their own homes. Areas with higher priced values will especially feel the pinch.

The next few months will be critical in the make up of the entire mortgage industry. It will get worse as more lenders close their doors. Like with the initial subprime shake up at the beginning of the year the market will eventually find stability and with new guidelines and rates the industry will move forward.

It all comes down to Manís Golden Rule: "those with the gold make the rules....Ē


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