Housing policies caused the financial crisis, according to Peter Wallison, a scholar at The American Enterprise Institute. Wallison lays all the blame on Fannie Mae and Freddie Mac, along with government intervention.
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Is Your Income High Enough For a Mortgage?
One of the biggest problems being faced by both potential buyers and homeowners seeking to refinance is being able to prove they have enough income to be able to meet the payments. Both homeowners and buyers should keep the following in mind:
First, the only income that counts as far as your banks are concerned is taxable income, a requirement that can cause problems for numerous self-employed people and others who have to deduct business expenses when filing their tax return. Expenses for things such as mileage, meals and entertainment won't be counted by the bank, so be sure to take this into account and have all of your expense-related information ready.
Banks will look back over a two-year period to evaluate your income, but this doesn't necessarily mean you should have been employed for two consecutive years. The main thing banks want to see is that the income you have now is going to remain at the same level, and so long as gaps in employment are explained adequately, this shouldn't be a problem.
The debt-to-income (DTI) ratio is the main factor in whether or not the bank will think you can afford to repay the mortgage. Once the lender has established that a borrower's income is regular and likely to remain the same, they will then look to the DTI to decide. Unfortunately, the DTI is fairly conservative these days, with banks usually requiring a score of no more than 43% to 45%, compared to the 60% to 65% we saw just a few years ago.
Those who have especially strong credit scores, or buyers that can make a significantly large down payment may find some wiggle room in terms of the DTI, but unfortunately banks are not very flexible when it comes to income qualification.
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10 Tips for Reducing Credit Card Debt in 2012
Credit card issuers are once again aggressively marketing their cards, especially to consumers with good or excellent credit scores. Many people are probably seeing more credit card solicitations in their mailboxes with attractive rewards and balance transfer offers. Consumers need to guard against running up large account balances and getting themselves in a financial pinch once again.
Here are ten tips for reducing credit card debt in 2012:
1. Understand that paying off debt won't be easy. It took time to accumulate this credit card debt, and it will probably take even more time to pay it off. Do not get discouraged or give up. Eliminating debt and building a secure financial foundation for yourself or your family is worth the sacrifice.
2. Get an honest assessment of how much you owe for all credit cards debts. It may have been easier to pay the minimums without looking at the total amount that you owe, but misleading yourself only makes it worse. Write down a debt summary that includes the creditor, monthly payment, interest, balance due, credit limit and due date for each loan.
3. Contact your creditors to negotiate lower rates. The less money you pay in interest, the more money you use to pay off your bills. Unfortunately, negotiating lower rates for credit cards is now more difficult than several years ago but it doesn't hurt to try. If your lender does not offer a lower rate, shop around for another credit card.
4. Pay off the card with the highest APR first. Continue to pay the minimum on your other cards until you pay off the card with the highest rate. Then focus your effort on the card next in line. After you pay off the card, keep it open, especially your oldest cards. Losing this available credit can lower your debt utilization ratio which could lower your credit score.
5. Pay more than your minimum payment. Your minimum payment is usually only 2-5% of your balance. At this rate, it will take you many years to pay off your debt. Start with the card with the highest interest rate and try to double your minimum payment.
6. Balance transfer offers are currently very attractive so consider transferring your balance to a card with a lower rate. If your rate is above 12%, look for a card that offers 0% for at least 12 months. To take full advantage of this 0% interest, pay as much as you can above the minimum payment each month.
7. If you have a credit card balance, stop using it for anything other than necessities. Use cash instead. If you carry a balance, you are paying interest for every purchase, including clothing, entertainment or dinner. Factor that in to each purchase. For example If your APR is 15%, ask yourself if the purchase is worth paying an additional 15% in interest per year. Paying with cash will not only save money on interest, but it will also reduce the amount you spend.
8. Pay your bills on time, every time. Not only do you have to pay a late fee, but late payments can also appear on credit reports. Negative information like this can result in lower credit scores and higher interest payments.
9. If you are surprised by your current rates, check your credit report. It may contain an error that lowered your credit score, causing creditors to increase your rates. If you find an error on your credit report, contact the credit bureau to report it. They must respond to your claim in thirty days or remove the information that is incorrect or unverifiable. You can dispute by mail, telephone, or online. If the corrected error results in a higher credit score, alert your creditors to this and ask for a lower interest rate.
10. If you are in danger of missing a payment, or defaulting on your credit card loan, contact your credit card issuer as soon as possible. Your issuer may work out a payment plan with a lower rate or monthly payment if it will help keep your account out of default. If the first person you speak with can't help lower your rate or make adjustments to your account, ask to speak with a supervisor or someone who can. Persistence may be necessary to find the person who will help you. Explain that you are in debt, the steps you are taking to repay it, and what you can pay today. Document all conversations, including whom you spoke with, and the date, time, and the results.
Above all else, remember this: If you're being charged 12.99% on your Visa card balance, and you're earning 1% on your money market account, take money out of the money market to pay off the credit card faster. You'll end up with an 11.99% return.
If you're staggering under the weight of credit card debt and don't have the cash to pay it off, consider getting help from a nonprofit debt management program, such as the one offered by the National Foundation for Credit Counseling.
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Housing Market Strengthening
The year 2011 ended on a high note as economists anticipate some signs of recovery ahead. Prices appear to be reaching their trough, visible supply is on the decline, and banks are beginning – just slightly – to loosen lending standards, according to a fourth-quarter report from Capital Economics.
However, Capital Economics warns these positive signs do not point to an immediate recovery.
Taking into account the historic ratio between disposable income and housing prices, homes were undervalued by 23 percent in the third quarter. Homes have not been this undervalued since at least 1975.
Since 2006, prices have declined 33 percent, countering the sharp increases of the boom years. Therefore, "it is clear that prices don't need to fall further," Capital Economics says.
Non-distressed home prices in particular seem to have bottomed out. While home prices declined 4 percent this year, prices of non-distressed homes fell only 0.5 percent.
Having reached the bottom, however, prices will not jump far in the new year. Capital Economics predicts national home prices will remain unchanged over the next two years before seeing positive movement – a 2.5 percent increase – in 2014.
This past year has seen some positive movement in housing inventory with a 20 percent decrease in the number of homes listed for sale over the year. However, supply will remain an obstacle moving forward as the current shadow inventory is estimated at 4 million.
Demand will also continue to be an issue. However, the report notes the market has seen a slight increase in home sales, which it attributes to first-time buyers.
Banks are contributing to rising demand and supply absorption by allowing loans with loan to value ratios of 80 percent or even slightly higher, something that has not occurred since mid-2008, according to Capital Economics.
The overall economy will not help boost the housing market in the coming year as the U.S. will continue to be affected by the euro-zone crisis.
Everything seems to point to the rental market continuing to be the best-performing segment of the market in 2012.
Most of the good news relates to the overall economy, but there are glimmers for housing too.
The Commerce Department recently reported that new home sales rose 5.7% in September to a 313,000-unit annual pace. This is up from 296,000 in August, and larger than the 300,000-unit number that many economists projected. Data through August 2011, released in late October by S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed increases of .2% for August versus July in major cities.
It is also noteworthy that these modest improvements are occurring during a period of very tight mortgage lending standards. When those standards return to more traditional levels we'll see more buying activity. Unfortunately the large inventory of distressed properties continues to hold down the housing recovery. Sales remain slow largely due to our weak economy, and overall housing prices are likely to drop again in 2012.
Despite the bad part of the news more economists are coming to believe that we're at or near the bottom of the housing market. The Administration's recently announced changes to the HAMP program should also help, although the limited success of earlier HAMP initiatives suggests we shouldn't expect any miracles. There's also nothing to suggest that the current low mortgage interest rates will face significant inflationary pressures in the near term. Also encouraging is that home ownership still remains a popular goal despite a decline in housing values than began five years ago. Hanley Wood's Housing 360 Survey recently revealed that 89% of owners and 59 percent of renters believe home ownership is important to the American families. One third of renters and about 20% of existing homeowners believe it's a good time to buy a home and plan to buy a home in the next two years, according to the survey.
The Commerce Department recently reported that the economy grew 2.5% in the third quarter, not enough to suggest a roaring recovery, but enough to demonstrate that the economy isn't backsliding. Spending by consumers also grew, reinforcing that conclusion. There's good reason to believe that recovery of the housing market can begin if other economic factors turn positive.
More recent signs for the overall economy are encouraging, and could contribute to the recovery of the housing market next year. The stock market has done well in recent weeks, buoyed by progress in Europe to address its debt woes. New orders for durable goods rose 1.7% last month. Orders for nondefense-related capital goods increased 2.4%. These are indicators of business investment and typically presage new job creation.
Significant challenges still remain. The Hanley Wood survey also revealed that many homeowners and renters are in no great hurry to buy because of the soft economy. If Congress fails to make significant progress on reducing the deficit, a real possibility, the stock market and consumer confidence could plunge. Most economists believe the nation needs a sustained growth rate of about 3% before we start generating the new jobs that will be critical to the recovery of the housing market, and we're not there yet. Still, there are enough positive signs at this point that next spring could be the turning point for the US housing market.
The housing industry is traditionally the leader out of recession and must be addressed as it is still in a position of weakness. This according to DJ Newswires SVP & Managing Editor Neal Lipschutz in this Wall Street Journal interview…
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