Upside Down Mortgage

Archive for January, 2009

Housing Bubble Crash

Question: Bubbles, crashes, and profit?

Did the Fed/PTB intentionally create the housing bubble as the way to reflate the economy after the 2001 crash, or was the housing bubble more accident than intentional and deliberate? Will the only way to reflate the economy after the 2009 recession be to create another bubble, and if so, will the nature of that bubble be easy to track and profit from? Which pundit(s) might be good to follow on this matter?

Answer: I doubt it, it would reflect poorly on the world’s most important financial regulator and also every regulator from all over the world that had emulated after it over the past half century until very recently.

Mostly, whenever a bear market happens and blood spill at Wall Street, the Fed chairman as well as his elected boss(es) are under heat from Wall Street’s business mammoths, media as well as general public anger and public polls starts diving. As a result, the Fed is forced to make very short term steps to elevate the stock market. Otherwise, the Fed chairman may have to take the blame and forced to step down before his term.

Alan Greenspan, the predecessor of Ben Bernake, found it very useful to print money and lowering interest rate to solve liquidity issue and elevate the stock market. This devalues US dollars in the long term and brought about asset boom and eventually a bubble. However, for the Fed chairman, it wins him cheers and the heat off his bum while ensuring the Wall Street’s mammoths will support his new term even when the President is displeased with him. (Please refer to the book on Alan Greenspan by a guy, I think called Raja or Ravi).

This is exactly the solution pressed by Treasury and Fed for the current crisis but if they do purse a different but more painful method, maybe, the business mammoths, media as well as general public, Senate may become impatient and pressured the President to let them go before their term is up.

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Bubble and burst or bull and bear market are natural and are often caused by overoptimistic and pessimistic investors which result in being too adventurous and speculating or fearful of making a single mistake by refraining from market even when it is undervalued regardless of whatever route the Fed may takes.

However, a wise Fed should be prepared and saved up during the good time (bull run) to make up for the troubled (bear market) time. Also, the Fed should discouraged investors, speculators in particular from driving the market too high above its underlying economic factors as it will cause a dive too deep when the bubble burst.

Example, market index actual worth is 2300 points,
Scenario A (Too much speculation): Bull (3300 points), thus Bear (1500 points)
Scenario B (Stops speculation): Bull (2700 points), thus Bear (2000 points)

As shown, the further the market moves away from its true value, the harder hit the market will be on the downward trend (due to margin call and other speculative methods).

However, this is easier said than done as too much government interference may caused an “unnatural pricing”, above all, goes against USA’s capitalist/ free market ideology. Above all, the Fed/ SEC/ Treasury chairman may be forced to step down.

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No one knows when the next bubble will form but you can easily notice one when the most stock prices are increasing tremendously in double or triple digits percentage even when their net profit are moving only in single digit or even negatively.

Also, fundamental economic condition such as unemployment and investment may be doing badly but every company can exclaims to do very well. You can bet on it that a lot of “cooking book”.

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An asset boom is also most likely as there is currently simply too much cash sitting around due to Fed “OT” aka printing money and low interest rates...making dollar devaluation and dollar trade very attractive. The next pundit will likely start in Asia market before US stock market start to benefit from it.

So, do invest in Asia and BRIC markets for at least 3~5 years before reverting to US markets as ROI start to thins in these markets. However, do remember to observed the usual investing rules of not paying more than it’s intrinsic value or you can chose to invest in low cost index funds though the returns will also be lower than if you invest in a few good companies.

Real Estate Downfall

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Mortgage Default Advice

Question: mortgage co paid 2008 tax bill in error?

I was planning to pay my tax bill in increments starting this month even though i know there will be late charges. Luckily I didn't make my first payment because i got a bill from the mortgage company saying they paid out of escrow my tax bill and gave me 30 days to pay them in full or else. I never set up escrow but i am obligating to pay my taxes but there is no way i can pay 3000 in 30 days. My mortage is uptodate. The mortgage company inferred that if i didn't pay i will be default on my mortgage since paying your tax bill is an obligation under the mortgage agreement. but I always pay but i can't pay it at once. Any advice on what to say to the mortgage company.
no negative responses. I've paid my taxes on time for 15 years. This year has been hard with alot of medical expenses for my children. I am a single mom. So anyone feels I am not responsible don't respond.

Answer: If you can get a cash advance on your credit card, or unsecured loan, and pay off the mortgage company on the taxes they paid, that would get the mortgage company off your back.

Otherwise, I would call or meet with someone at the mortgage company and tell them you cannot pay $3,000 in 30 days. Tell them you will pay whatever you were planning on paying on your taxes. The sooner you can pay it off, the better, since the mortgage company will be assessing interest or maybe penalties.

Or, you could volunteer to have future taxes escrowed, since that will protect the mortgage company in the future. Your mortgage payment will increase $250 a month. Maybe you can get them to agree to an increase of $500 a month for a year, to get the taxes settled within 12 months. Actually, they will pay themselves back the first six months, and then escrow the rest for next year's taxes.

When you do send in your regular mortgage payments, be sure to note on the check or other accompanying document that the amount of the regular payment is for principal and interest. Make sure that the mortgage company doesn't take your regular payment to pay for taxes, and cause you to default on your mortgage payments.

If they hassle you, you may want to consult an attorney.

Today's Mortgage Rates: Which home loan is best?

Loan Modification And Wells Fargo

Question: Anyone tried Wells Fargo Mortgage Loan Modification?

If so, how did you get accepted? I was told we had to write a letter saying why we need the loan modification in detail, any tips??
We are already on a repayment plan.. I dont understand how they would expect us to pay $200 more a month for the next 3 months if we got behind with one payment. We plan on paying everything up to date within the next 3 weeks (with income taxes) & not be on the payment plan anymore after that b/c having to pay $200 more a month is just a crazy thing to offer to someone that is already behind...!?!

Answer: With the economy the way it is it's either modify or foreclose.
I know of someone who's house dropped from 700000 to 350000 so you are not doing so bad their payments are 4000 per month. I hope this cheers you up.

Loan Modification Hell