George's Blog

The “mortgage meltdown” has certainly created a lot of chaos, uncertainty, inconvenience and pain for many people, but is it truly disastrous as many claim?

Some Facts to consider-

-Housing starts are at the same levels as in 2002

-Mortgage volumes are projected for 2007 to end up at around $2.5 trillion, either the fifth or sixth largest in US history

-Housing is only about 5% of the US economy

-Sub-prime mortgages account for about 15% of all mortgages, only about 25% are delinquent-about 3.8% of all mortgages. 50% of these expected to go into foreclosure-only 1.9% of all mortgages, 98.1% are good—

-There is no recession- the FED said so in their August and September meetings, and that the economy is suffering from a labor shortage, not a surplus of unemployment (except in the mortgage industry)

-Corporate profits are historically high, with strong balance sheets (except for some banks and most mortgage lenders)

-The Fed has pumped hundreds of billions of $$ into the economy to provide liquidity to the “frozen” secondary market, cutting the FED Funds rate and Discount Rate 3 times in the last 5 months. This translates into lower rates and payments for all types of consumer and corporate debt- car loans, credit cards, lines of credit, all debt that is based on the Prime Rate. The Fed lowering rates DOES NOT AFFECT FIRST MORTGAGE LOANS OR THE FIXED RATES. These are impacted by mortgage backed securities, the behavior of which is similar to the 10 year bonds.

There ar major changes, no doubt about it- the lending industry is turning the clock back to what it was like 10 years ago, with borrowers having to qualify for loans with good credit scores, verifiable income, down payments, cash reserves and an emphasis on fixed rate loan products.

So the vast amount of people are completely unaffected, and actually have good opportunities to get good deals on refinancing low rates, and purchasing reasonably priced housing, and having a lot of choices in doing so.

We feel the pain of people who have been hurt in this market correction, but it has happened recently in the “dot-com” crash, the stock market crashes, and other markets where there has been a speculative frenzy take place.

Remember, things are never as good, nor as bad as they seem. This too shall pass.

George L. Duarte

The Real Deal Guy