The Federal Reserve in the United States has now cut their prime interest rate three times in as many weeks in an attempt to stave off a recession that many believe has already arrived. Unfortunately the US Real Estate market, which is dominated by long term fixed rate mortgages will not benefit from these cuts in the same way as home-owners in European countries do.

The problem lies in the historic nature of mortgage lending which varies considerably in the US from the standard model used across Europe. In the US it is commonplace to take out a mortgage with a twenty-five year fixed rate at the time of purchase, rather than rely on the fluctuating standard variable rate mortgage that is more commonplace in the UK and across Europe.

The resulting affect of an interest rate cut in the UK would immediately see a benefit to existing home-owners in terms of lowering their monthly repayments, whereas in the US a rate cut only provides a stimulus to new borrowing that can be now be obtained a the new, lower rate. Whilst this makes first time borrowers more likely to step into a weak real estate economy, the total affect has less of an impact on consumer spending than a similar rate cut by the E.C.B. or the Bank of England.

One thing is certain though. A recession in the US is very bad news for the global economy and whilst the sub-prime credit crisis which originated in the US may have little direct effect on the economies in Europe, the knock-on effect of a US recession has historically seen recession across the major economies around the world.

The question is then, why are the European Central Bank and the Bank of England refusing to move on interest rates? Surely a cut in the E.C.B rate would take pressure off the dollar which in turn would have a positive affect on the price of oil and help cut rising energy costs across the globe. It would also stimulate both the british and European property sectors, who are currently balancing of the knife edge of a collapse that hasn’t been seen in the UK since 1989.

Maybe the European Union is too diverse an economy and it is this, that is holding back the E.C.B. from action. It has always been asserted that the lack of mobility of labour in the E.U. could be a source of keeping the economies of the members on different inflationary paths, making it difficult for the central bank to act decisively on interest rate policy when by doing so, one members economy may benefit to the detriment of another. By doing nothing however, the ECB stand the risk of pushing the property sectors in many countries into decline. It can already be seen in markets such as Spain, where any fresh impetus from overseas buyers due to recent falls in property prices, has been extinguished by the strengthening Euro against the pound. As British buyers make up over 65% of this holiday property market, the nullification of any price adjustments has dampened what was already a pretty ‘wet’ market.

What, if any, action is taken by the E.C.B. will have to wait until they meet again at the beginning of April . Until then, it can be assumed that the longer they delay, the worse the overall slowdown may become.

About the Author

Neil Ebsworth is the founder of AMLASpain, the Spanish MLS for property for sale in Spain and rentals Spain

The Federal Reserve cut interest rates by three-quarters of a percentage point yesterday as part of another attempt to hold up the financial institutions on Wall Street from further speculation worries. The stock market took some confidence from the move and posted the largest one day gain on the Dow Jones index for quite some time. But as far as struggling home-owners are concerned, the rate cut has done little to ease pressure on their burden. In fact, by cutting interest rates and further weakening the dollar, the Fed had invited higher oil prices, increasing energy and transport costs at a time when most households are already feeling the pinch.

The rate cut which is the third in as many weeks follows the collapse of Bear Stearns, who were eventually bailed out and purchased by JP Morgan for the sum of $2 a share. Bear Stearns had been trading a year ago at nearly $150 dollars a share and fell victim to a run on their shares following rumours over their exposure to the sub-prime mortgage market and the extent of the losses they may have suffered.

The positives from this story are that the Federal Reserve was able to move quickly to back the takeover, helping to minimize the loss of confidence in the general banking sector. The negatives however, which will effect more on the average blue collar worker in America through the imported inflation that the lower dollar will bring, seems to reflect more on the political view of the current administration, who will bend over backwards to prop up the corporations at the expense of the man in the street.

And when your stoic republican points towards the tax rebate that is about to be delivered to every household, as an indication of what the government is doing for the average American in this time of need, don’t be fooled. The maximum $800 dollars rebate is more of a cynical move to help prop up the employment market before a presidential election than it is designed to combat higher gas, food and energy costs.

If the administration wanted to do more to help those affected by the current mortgage crisis they could start by suspending the ability of the banks to foreclose on homeowners by auto-computer programs. A large problem with the mortgage lenders at the moment is that they have out-sourced their administration to companies who are ill equipped or poorly trained to deal with the problems that are arising. These outsourcing companies never foresaw the numbers of cases that they would be dealing with and computerised most of their procedures to cut costs. What has resulted is computerised foreclosure, without consultation and where consultation occurs, it may already be too late to achieve a positive result.

If each case was required to be reviewed independently, it could be determined whether it was sold incorrectly to begin with and where possible it could be re-written so that those home-owners who were never going to be able to afford the true cost and were effectively swindled, could refinance under terms they may allow them to keep their home. This would, of course, create a back-up of cases, but this effective delay in foreclosing on peoples homes maybe the delay required to unravel the truths behind the companies that made billions of dollars profit from those who could least afford it.

About the Author

Neil Ebsworth is the founder of AMLASpain, the MLS for properties in Spain and with a home for sale in Mount Pleasant SC real estate in the US is keen observer of US Real Estate trends

The fears over a declining housing sector were highlighted again this week with Bovis, one of the UK’s leading house builders calling on the Bank of England to cut interest rates to ease pressure on the beleaguered sector. Bovis CEO Malcolm Harris called for a 0.75% cut in interest rates to 4.5% as the company announced a fall in profits of 6% and a warning that 2008 could be worse if the current level of interest rates prevailed.The comments come on the back of a catelogue of indicators all adding to the pressure for the Bank of England to take action.

Ever since the current downturn was triggered in the US by the sub-prime mortgage crisis which, for UK investors turned into the Northern Rock debacle, credit markets and house prices have stumbled into uncertainty. The situation has been compounded by the fact that whilst the US Federal Reserve moved to cut interest rates to ease the pressure on Domestic mortgage holders, this did nothing to help a weakening dollar that has struggled to maintain levels due to the worries over funding for the Iraq and Afghan conflicts. The ECB, European Central Bank has been conspicuous by its silence and has been unwilling to take any steps to assist the dollar, seeming quite happy to see the value of the Euro soar against, not only the dollar, but also sterling and other major currencies.

It may take the knock- on effect on the housing markets across Europe to stir the ECB into action and force a rate cut as economies across the globe follow the US in their fears over recession. If the central bank were to cut rates this would have a knock on effect that would see the the oil price fall further helping recessionary fears in the US.

So what are they waiting for? Its a little like Nero fiddling whilst Rome burned. Could it be that the now vastly diverse economies of Europe, that span 25 very different economic stages of development, is proving too difficult to manage with only one hand on the tiller.

One of the major fears when the Euro was launched was that, although the different economies had met converging economic standards, the sheer complexities of managing them, emerging against mature, would make setting interest rate policy difficult. Rate movements could be seen to hurt one member country whilst benefiting another. This inability to please all member countries, all of the time meant that political influence may come to bear on the ECB when the stronger members were in trouble at the expense of the poorer members.

It seems that rather than claims to be acting partially, the central bank has opted to do nothing and this sitting on the fence could now be seen as being the straw that breaks the camels back, economically speaking. By the time the bank acts to cut rates it may be too late to stave off recession on a global basis.

I am sure that it is at times like these that the UK decision not to join the Euro and give up its ability to set its own domestic interest rates must seem like great foresight. It is surely a fact the the UK economy for all its posturing calls for rate cuts by industry, is in a much better position to act based on domestic indicators that benefit only itself. The rest of the world waits to see if Brussels has the ‘cojones’ to act decisively. I fear we may be waiting some time.

About the Author

Onlystop is a website that covers all your financial need with articles and surveys on the latest developments in a variety of Mortgages, including Fixed Rate Mortgages, Home Improvement Loans and personal loans in the UK.

The housing market is in a bit of a state as I am sure you know. The sub-prime mortgage crisis in the US has triggered a global slowdown in the housing economies around the world. Foreclosures have risen and many people are finding it hard to make payments. In the UK it led to a run on the Northern Rock Bank which eventually had to be bailed out by the Bank of England.

In light of these new instruments and as a simple guide to help first time borrowers we thought it would be a good idea to run through some of the more common terms used by mortgage lenders so that these unfamiliar terms could be understood in plain English.

Adjustable rate mortgage (ARM)

A mortgage in which the interest rate is NOT fixed but is tied to an index such as the Federal Reserve Base Lending Rate and is periodically adjusted as the rate index moves up and down. Also known as Variable Rate Mortgages, this type of loan means that your payments can rise and fall depending on prevailing interest rates The initial rate is lower than the fixed rate mortgage. Such ARMs commonly provide for an option to convert to a fixed rate mortgage.

Sub-Prime rate mortgage

These are the mortgages that you have seen in the news recently and are most common in the US. In the UK they are called discount variable rate mortgages. The initial payments are set at a discount to the actual interest rate due for a set period of time, a year or two years. After the initial period, payments are adjusted to take into account the prevailing rates at the time. These mortgages were linked to sub-prime credit borrowers and the resulting interest rate charged was at a premium. This led to some low income families being unable to make the payments when interest rates rose and the deferred payment period expired.

Annual percentage rate (APR)

The actual cost of borrowing money. It is expressed in the form of an annual rate to make it easier to compare the cost of borrowing money among several lenders. The APR includes all the financing costs of a mortgage, including points, origination fees and other finance charges and the mortgage interest. This is the true rate of borrowing and is a rate to look out for. Where an advertisement may say 5%(7.2%APR) then you can differentiate between the rate that your monthly payments are based on and the charges involved in setting up the mortgage. The APR is a good method to compare mortgages where a discount rate may apply for an initial period.

Interest-Only Mortgage/ Balloon Payment Mortgage

This type of mortgage requires payments of only the interest portion of the loan, (interest-only) leaving the capital at its original value. With balloon payment mortgages you are required to make a final payment of a much larger capital sum than your usual monthly payments. In this case the monthly payments are lower because you have not been paying off enough of the capital to totally repay the loan over the term of the mortgage.

Fixed rate Mortgage

The most common type of mortgage. Your interest rate and payments are fixed for the term of the mortgage. Especially good when interest rates are low as you are able to lock in your payments at the low rate for the term of the loan.
These are some of the most common terms and phrases used in the mortgage industry today. When choosing a mortgage provider it is always important that you understand all the terms and conditions of the contract you are entering into.

About the Author

Glitech are an independent broker that can provide comparisons on a variety of Loans, Mortgages, Home Improvement Loans and personal loans in the UK.

The news about the housing market has ‘not been good’ for some time now. It seems that we are bombarded on a daily basis with fresh headlines by Caty Couric or Charles Gibson about the latest woes to befall sub-prime mortgage home-owners. The sheer plethora of news on the subject is getting so depressing that I think it could actually be adding to the overall mental state of the nation, almost willing us into a recession.

The facts are undeniable. Foreclosures are up to 7.6% from 7.3% of loans past due or in foreclosure. The biggest rise in these numbers relate to what are called sub-prime mortgages. These are mortgages that were sold to lower income families where the original starting payments were set at a reduced rate. When interest rates rose, the borrowers of this type of mortgage were caught out. Instead of having to make a payment that they had been quoted when the mortgage was sold to them, they faced much higher payments in line with the higher interest rate prevelant at the time.

Now its easy to say that this is their own fault and that they should have been more careful when entering into the loan and that the duty of care is on the borrower to ask about the risks involved and the potential downside that a rise in interest rates would cause. The worrying thing is though, that many of these loans were sold to people who were novices in owning their own home and such complicated financial instruments. They came from low income households and were ‘blinded’ by a dream that most of us take for granted.

I am not the only one who thinks so. The Attorney General in Illinois is already investigating Countrywide Financial Corp for its potentially illegal targeting of minority groups for the purchase of high cost loans. This is just one of many State and Federal investigations underway.

Countrywide is also under scrutiny as its CEO Angelo R Mozilo is now being investigated for possible illegal securities transaction in which he cashed nearly $120 million dollars worth of stock shortly before his company announced bad loans of $422 million in the fourth quarter of 2007. Countrywide who are currently being taken over by Bank of America has also been named by the F.B.I. today,(9th March 2008), as one of fourteen lenders being investigated for lending practices.

As with most investment stories, when people are losing money, there is usually someone making it. It emerged in recent days that Warren Buffet may be about to step in to take a stake in Countrywide. Mr Buffet, who recently topped the world list of the richest men on the planet, knocking off Bill Gates after thirteen years, has been sitting on a cash-pile of some $50 billion dollars for some time now. His investment company, Berkshire Hathaway has reported taking a stake in Bank of America recently and rumours abound that he is looking to get involved once again in the financial & mortgage securities markets. As usual, Mr Buffet, your timing is impeccable!

Even ‘The Donald’ could be seen recently on National TV bestowing the virtues of property investment. I have to agree with Mr Trump that those who have the ability to invest in property in a depressed market are possibly the people who will profit the most. For the average man in the street though, I think the message is clear. When taking out a home loan or refinance package, get some professional advice. Check the small print and know the downside before signing the agreement.

About the Author

Rebuild.org are specialist brokers of Mortgages, Home Equity Loans and Refinance packages. Know the market and whats available before committing to any type of financial arrangement.