Mad World

2008 is predicted to be one of the worst years for the American Economy.

It’s also an election year and the year of the Summer Olympics.

Mad World indeed.

The good news: not all predictions (iMac) come to pass .

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Gates Project or: How I Learned to Stop Worrying and Love Urban Redevelopments

I have never been a big fan of the new urban redevelopments: Lowry and Stapleton. When I first moved to , Lowry was an aging military base and Stapleton was an airport. Things changed when friends of mine moved into these urban redevelopments. They’re vibrant neighborhoods. They’re near the airport, city, zoo, museums, restaurants, and more importantly for my friends they’re family friendly.

Enter the Gates Project:

From fan belts to greenbelts - at long last the urban revival of the former Gates Rubber plant is taking shape.
Read the full story: Long-awaited Gates project gathers steam

It’s going to be a while before the Gates Project will be complete. I’ve learned to embrace these urban redevelopments and I’m looking forward to having another Linens and Things, Office Depot, Chili’s, et. al. fill our landscape. Who knows they may even add a Chipotle or a Qdoba or both.

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These rates are freezing

Five-Year Freeze Looms
Wednesday December 5, 8:42 pm ET
By Martin Crutsinger and Alan Zibel, Associated Press Writers

Bush Plan Will Freeze Certain Subprime Interest Rates for 5 Years WASHINGTON (AP) — The Bush administration has hammered out an agreement to freeze interest rates for certain mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.

The aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of up to seven years and industry arguments that the freeze should last only one or two years.

Another person familiar with the matter said the -freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with industry officials.

Treasury also announced there would be a technical briefing to explain more of the proposal’s details.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — to ensure the break is not given to speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, investors and consumer groups trying to address an avalanche of foreclosures feared as an estimated 2 million mortgages reset from lower introductory rates to higher rates.

In many cases, the higher rates will boost monthly payments by as much as 30 percent, making it very difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory rates but cannot afford a higher adjusted .

Through October, there were about 1.8 million filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif.-based RealtyTrac Inc. With defaults still rising, the trend is expected to worsen next year.

The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the resets represented such a severe threat that a more sweeping approach was needed. They opted for a proposal that was along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Paulson and other federal regulators began holding talks with some of the country’s biggest mortgage lenders, mortgage service companies, investors who hold -backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical loan — those offered to borrowers with spotty credit histories — the rates for the first two years were at levels around 7 percent to 8 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

The administration plan is designed to deal with the crisis by letting borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is hitting many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed- plan.

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

Clinton said her own proposal that would impose a 90-day moratorium on foreclosures and freeze the rates for five years or until they had been converted to fixed- loans was a better approach that would help more people.

“Although the administration is finally giving the crisis the attention it deserves, it seems that President Bush is going to give struggling homeowners far less than they need,” she said in a statement.

Mark Zandi, chief economist for Moody’s Economy.com, called the administration plan a good first step, but said the government eventually will have to go further given the problem’s size and the threat to the economy.

“This is the most serious housing downturn we have seen in the post World War II period,” Zandi said. “It is a threat to the broader economy. The risks of a recession are very high.”

Associated Press reporters Deb Reichmann and Nedra Pickler contributed to this report.

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The SKY hasn’t fallen YET

According to BlackRock’s CEO:

Laurence Fink, who helped create the market for -backed securities, said the credit losses that have already cost banks and securities firms $45 billion are about to get worse.

Read the full article: BlackRock CEO sees no ebb in credit storm

What does this mean? If you have good credit and equity in your home and a fixed mortgage, NOTHING. If you have mediocre credit, zero equity, and your is about to you’ll need to do the following:

  1. Get your credit in order. By in order I mean it needs to be above 680.
  2. Start reading your documents. Your note, your riders, everything that you bypassed at closing.
  3. Call your existing company first. See if they’re willing to work with you on your when it adjusts.
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We’re Finland?

finland.jpgThe Mortgage Reports has an interesting article on the Global Economy with respect to where different countries and their GDP map to each state in America. According to the map:

Colorado equates to Finland.

Photo courtesy of Visit Finland.

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Adjustable Rate Mortgage Holders Prepare for Increase in Interest Rates

Interest rates are on the rise and many home owners who have adjustable mortgages may see increases in their forthcoming annual adjustments.

Federal Reserve Chairman Alan Greenspan made it clear in 2004 that the Federal Reserve would be increasing short-term interest rates at a measured pace. With the US Dollar at its weakest point in seven years, oil prices unstable and the evaluation of other economic indicators, the Fed Funds Rate was hiked seven times from 1.0% to 2.75% since June 2004 in an effort to curb inflation. Some economists believe it won’t stop until the Fed Fund hits 4.0%.

Consumers with revolving accounts tied to the prime rate have seen the effect through rising interest rate charges, as the rate always rides 3% above the current Fed Funds .

Mortgage interest rates are affected indirectly by these changes. An increase in the Fed Funds has an impact on financial markets as a whole, but rates may go up or down based on the perception investors have of current economic statistics and their reaction to the Federal Reserve’s after-meeting statements.

In general, when economic data indicates we have a slow-down occurring in our economy, investors tend to sell off stocks and reallocate that money to the safe haven of bonds and mortgage-backed securities. The of mortgage-backed securities drives interest rates down. When economic data says there is growth in the economy, the stock market typically rallies and mortgage-backed securities sell off to fuel that stock market rally. This drives interest rates up.

Our current market reflects the reaction of investors reading between the lines on comments made by the Fed, and interest rates are going up. This will have an affect on home owners with adjustable mortgages (ARMs) tied to indexes that are based on short-term interest rates. This includes the 11th District Cost of Funds, 12-Month Treasury Average (MTA), London Inter Bank Offering Rates (LIBOR) and others.

This doesn’t mean that everyone with an adjustable mortgage is in trouble right away. Some indexes are more volatile than others. COFI moves much slower than other adjustable rate indexes, while the LIBOR fluctuates with more volatility. But remember, when an ARM adjusts, the new interest rate is a sum of the borrower’s fixed margin plus the current of the index the is tied to.

Consumers who foresee paying an interest rate that is significantly higher may want to consider refinancing to take advantage of the stability of a fixed .

This is also a good time for borrowers who started out in an adjustable rate loan due to a poor to transition into a fixed loan if they can. Once a track record of making payments on time and in full has been established, this should have a positive effect on the and there is a good chance the borrower may now qualify for a loan with a lower interest .

As with any decision to , it is important to take the terms of the existing loan, the cost of the new loan, and the borrower’s long-term needs into consideration. A qualified professional should help weigh out the options by providing a clear assessment of available loan programs for the consumer.

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