Back in the fall, the Bush Administration announced the formation of the Hope Now alliance. The idea was to encourage mortgage lenders to enact a mortgage rate freeze and then re-do mortgage loan terms for subprime borrowers in danger of foreclosure. However, a few months later, the New York Times reports, there is doubt as to how helpful Hope Now actually is:

Even Hope Now says it is unsure how effective it is. The group does not break out the number of loan workouts that occur as a result of its efforts and those that might have happened anyway. Some people who work with Hope Now say it has done little to keep the housing crisis from deepening.

“Hope Now is a failure,” said Michael Shea, the executive director of the Acorn Housing Corporation, a large counseling agency that is part of the Hope Now alliance. “It’s industry-dominated.”

Others disagree, insisting that Hope Now is providing information to subprime borrowers and using the existing infrastructure to connect those at risk for foreclosure with mortgage lenders who are willing to help them refinance. The organizations itself claims that it has helped over one million so far.

Then next question, of course, deals with Hope Now’s sister program, Project Lifeline. This is meant to expand the number of people who have access to new mortgage loan terms. Is this program facing the same ambiguity that Hope Now does?

And do either of these programs actually help homeowners in the long run. For the most part, the new mortgage loan terms are likely to reflect mainly the needs of the mortgage lenders. The terms just make the loans more payable, ensuring that subprime borrowers can limp along for a few more years without folding.

Another issue is whether or not anyone is learning from the subprime lending crisis. Are mortgage lenders reconsidering those they will give mortgage loans to? Are borrowers reconsidering the types of home mortgage loan they really ought to have?

Or are we just learning the government is prepared to swoop in and “save” us when our bad decisions catch up with us?

Tags: subprime borrowers, Project Lifeline, home mortgage loan, mortgage lenders,
mortgage loan terms, mortgage loan blog, subprime lending

Every now and again a reader asks a great question that I feel should be answered for the benefit of all. Today’s question certainly qualifies:

All this talk of recession has me concerned about paying of my credit cards. Should I use a home equity loan to pay them off?

This is a great question, since it comes up so much in terms of debt consolidation. Many ads on TV, despite current worries over the mortgage market, still tout debt consolidation home equity loans as a way to pay off credit card debt.

Advantages to using a home equity loan to pay off credit card debt

There are some advantages to using a home equity loan to pay off credit card debt. There are tax benefits, and the interest is lower than what you are paying on your credit cards. Plus, it helps you get your payments down to one a month, making your personal finances easier to manage. That’s about where the advantages end.

Disadvantages to using a home equity loan to pay off credit cards

There are definite disadvantages to using a home equity loan to pay off credit cards. One of them is the fact that you will have to borrow against your home. This is a tangible asset. You are taking unsecured debt (credit cards) and securing it (with your home). Do you want to risk your home for credit cards?

And, with current mortgage market concerns, you may find that 1. you don’t have as much equity as you thought you did and 2. you could end up in a negative equity situation. Neither of these things is pleasant.

Other options

It is possible to consolidate your debt through other types of loans, or through an agency (watch out for fees, though!). You can also use aggressive debt reduction to pay off your credit cards faster, one by one. Also, if you are very disciplined, you can think about using credit card offers for 0% intro rates to your advantage. But be careful to cancel excess credit cards as you pay them off.

Tags: home equity loan, mortgage loan blog, home mortgage loan, pay off credit cards,
second mortgage, debt consolidation, aggressive debt reduction

Since mortgage interest rates are connected to 10-year Treasury notes, rather than to the Fed funds rate (you know — interest rates are supposed to be cut again today), it is not really a surprise that rates on home mortgage loans are not going down. They shouldn’t be going down at this point. What is a surprise, however, is that they are higher than they should be.

The whole point of what the Federal Reserve has been doing in terms of a $200 billion liquidity plan and extending the financial institutions that can get special help is to increase the amount of money being lent. In terms of the mortgage market, it doesn’t seem to be working. Mortgage market credit is still tight — and tightening. According to some analysts, mortgage interest rates are two percentage points too high.

The San Francisco Chronicle explains why mortgage interest rates are rising more than they should be:

Some investment funds that had borrowed enormous sums against their Fannie and Freddie securities have been forced to sell them to meet margin calls. This excess supply has reduced the price and increased the yield on these securities. If lenders want to sell new mortgage-backed securities into this market place, they need a higher yield. That’s a big reason mortgage rates are rising.

It is possible to get some good bargains on real estate right now. Home prices are lower than they have been in years. Unfortunately, with credit tightening, you might find it harder to get home mortgage loans. Check your credit to make sure that it is good, and see if you can afford a big down payment. That may be the only thing that gets you into a home right now.

Tags: mortgage interest rates, mortgage rates rising, home mortgage loans, mortgage loan blog,
mortgage market, lower home prices, $200 billion liquidity plan