The U.S Treasury Department is going to come up with a plan that will save all homeowners who are struggling from the foreclosure syndrome. The Department will work out this plan with the collaboration of mortgage industry leaders. But the analysts have something else to say. They think that this plan cannot help the banks to survive from the pain of home loan.
Sources said that the plan is almost ready and just needs some final brush up. If everything goes right then the details will be announced on Wednesday.
The Philadelphia KBW Bank Index, BKX hiked 3.1 percent on Friday. This rise proves that the Government is aware of the problems of the mortgage and housing market. Chairman of Soifer Consulting, Mr. Ray Soifer also confirmed the previous statement. In this market the foreclosures are increasing and the home prices are falling.
As far as the sub prime loans are concerned they are also facing a problem. In this loan, the teaser rates initially stay low. But it goes up after two or three years. The new plan will help to freeze the interest rate of the borrower before the rate becomes higher.
There are some analysts who think that if the terms of loan are renegotiated then it will just postpone the writing off process for such loans. But the loans need to be written down because they will not able always be able to return the expected amount.
The Chief strategist of Sandler O'Neil & Partners in New York Mr. Robert Albertson said that, if a bank wanted a higher rate in a longer term, then it would not get it a teaser rate.
The analysts said that the treasury hoped that bank could prevent the writing down of excessive mortgage related assets in the time of acceleration of the economic growth of other sectors. This will allow the banks to produce profits in a higher level.
Financial Services Analyst of PNC Wealth Management in Philadelphia Mr. Mark Batty said that if the income of the borrower increases, then the borrowers can be in a position where they can fight with the up growing interest rates.
The shares of Wells Fargo & Co rose almost 7% to $32.43. Countrywide Financial Corp shares rose 16.3% to $10.82. These two banks are in a talking term with the treasury.
Some investors consider the above scenario too much optimistic.
Portfolio Manager of Hedge Fund Trident Investment Management Mr. Nandu Narayanan said that postponing the inevitable situation can only drag the pain on for a longer time.
Some other people like Mike Holland, and Albertson think that this new plan of treasury department though promising, can have some bad effects as well. They think that there will be a whole lot of inappropriate proposals before finally settling down with the right one.
But most of the analysts think that this proposal can be a big help towards dealing with the crisis at hand. Mr. Batty thinks that giving the proposal a chance is better than doing nothing.
Although there are many ways to find out if you have subprime mortgage, but sometimes the process of determining if you have a subprime mortgage is complicated and hard to be developed. One thing is sure: if you know that you have problems with your credit loan, then you certainly have a subprime mortgage. Still, there are consumers that are amazed when discovering that even if they have a suitable credit they obviously are trapped in a subprime mortgage.
Some key characteristics from which you can realize that you are facing a subprime mortgage and one of those important aspects is that you must pay attention at is the level of the interest rate: if it is higher than the market level, it is not a good sign. Moreover, if the level of your mortgage rate is in the 15% range and the offered interest rate is around 5%, then you are definitely facing with a subprime mortgage.
Another way from which you can notice if you are having a subprime mortgage is the case of having the possibility to purchase your house with less than 20% for a down payment. Even if encountering this kind of situation does not guarantees 100% that you are having a subprime mortgage, still it is crucial to analyze it carefully because you are viewed as a credit risk when requesting the purchase of a mortgage insurance. The insurance is not required only for those borrowers who get a higher mortgage than 80% of the financed house, but also for those borrowers that are considered as being subprime.
During the last years, two categories of mortgage were frequently discovered among subprime borrowers. The low-doc mortgage is the first category and where the paperwork needed is not as substantial as in a usual mortgage. The non-doc mortgage is the second type for which no paperwork is required so that the subprime mortgage loan to be accepted. Hence, for the low-doc and non-doc types of mortgage the documentation about the income situation is little in comparison with other alternatives. Some information regarding the income is needed so that people can provide a home mortgage and if they do not have that information it is very difficult to obtain a good mortgage loan.
Remember that if you have one of these types of mortgage, the low-doc or the non-doc, you will surely be considered subprime because of the impossibility to prove and check your financial situation. But this could have a strong impact on your credit history or not, depending on your status. For this reason, if you own a good credit but without any documentation, you will be considered as a risk in the eye of a lender. Plus, if you think about the mortgage crisis and the recently housing shock, you will revise your decision. To sum up, there are many ways to determine and discover whether you are facing a subprime mortgage or not, and many options you need to consider when deciding to have a mortgage loan and how your decision could affect your budget.
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