As we approach the end of 2009, sentiment is definitely not as jittery compared to 12 months ago. However, the are a number of important issues that need to be resolved in order to create a sustainable recovery.

Here are some of the problems that must be addressed to bring and end to the US financial and mortgage crisis:

1. Housing inventory: The United States has an historically large number of vacant homes. Of the houses built in the past decade, almost one in ten is currently empty. Then we have the “shadow inventory” of around 600,000 new or foreclosed properties that the construction companies, banks and lenders are keeping out of the market in an attempt to stop prices sinking further. Add to that all the homes that are likely to be foreclosed on over the next two or three years (three million is an often-quoted number) and you can see how the supply glut will keep a lid on property prices.
2. Mortgage resets: While most subprime home loans have already reset to higher payments, resulting in a wave of defaults and foreclosures, the real problem will come when a slew of option ARM mortgages reset at 40-80% higher levels in 2010-2012. Around 80% of option ARM holders pay only the minimum every month, so their debts have been increasing while their home values have been falling. There are an estimated $500 billion in option ARM loans outstanding around the country, with California’s one million or so accounting for 60% of the total value. When the payments on these loans jump, many people will default and risk foreclosure, which in turn will keep prices down.
3. Foreclosures: As at mid-2009, a quarter of all home loans in the U.S. were already under water, and industry pundits say that half will be in the red by early 2011. The number of delinquent borrowers is increasing fast, and is set to snowball over the next few years as more homeowners find they can’t afford to pay the mortgage. Only a small percentage of delinquent borrowers have so far had their loan terms modified, and many of these have simply defaulted again. Foreclosures haven’t kept pace with defaults either, meaning that there is a big backlog of pre-foreclosure properties. Unless a speedy solution to the problem can be found, the market will be flooded with foreclosed homes.
4. FHA mortgages: Since 2007, an increasing number of new home loans have
   been FHA-issued. The FHA (Federal Housing Authority), which provides home loans
   with low down payments to qualified low-income, high-risk buyers, accounted for
   close to 40% of new mortgages at the end of 2008.The risk is that this fount of
   liquidity for the real estate market would dry up if the FHA were to impose
   stricter conditions on buyers or lower its lending limits. Many of the
   properties currently being bought with FHA mortgages are foreclosures. The
   buyers typically have few assets and are particularly vulnerable to economic
   shocks such as job loss or an interest rate increase, so it’s safe to bet that
   quite a lot of these homes will be back on the market as foreclosures before too
   long.
5. End of the $8,000 first-time home buyers’ tax credit: A recent study by J.D. Power and Associates found that first-time buyers made up 56% of the market in the first half of 2009, compared with 44% in the first half of 2008. Many of them were enticed to enter the housing market by the federal government’s $8,000 first-time homebuyer credit, which, unlike in previous years, doesn’t need to be repaid. We still don’t know whether the government will extend the program after it expires on November 30, 2009, or if it will roll out a new first-time buyers’ scheme next year.
6. Employment and earnings: Hundreds of thousands of jobs are being lost every month in the United States, and the unemployment rate is the highest since 1983. Those regions where job losses have been particularly severe – such as the former manufacturing powerhouses of Ohio, Michigan and Indiana – have some of the lowest house prices. The fact that average earnings for Americans who are working are almost 5% lower than a year ago is another blow to consumer spending power, and is also weighing on home values.
7. Fear and uncertainty: In the current climate of recession, rising unemployment and billion-dollar bailouts, people are tending to be more conservative with their spending and taking on fewer large debts. Many prospective homebuyers are delaying their purchasing plans and staying in their old homes or even saving money by renting while the market stabilizes. With interest rates at an all-time low, people are also concerned that they will go up soon, which would add to the cost of owning a home.
8. Consumer credit ratings down: Millions of Americans have had their credit scores slashed, are drowning in debt and don’t have the cash for a down payment on a house. At the same time, lenders are tightening up their approval conditions and often turning down applicants with less than perfect credit. This is making it harder to buy property and many homes are going unsold.
9. Baby boomers will sell to fund their retirement: Of the 77 million Americans who were born between 1946 and 1964, a third have no retirement savings. The oldest baby boomers are now 63 years old. For many boomers, the only asset they have is the equity in their homes, which they will have to sell in order to live. This will unleash a steady stream of properties onto the market and help prevent prices from recovering.

The Obama administration may have implemented commendable policies to put us on the right track to recovery, but the truth is, this is a huge problem that requires a lot to contain it, and it will be some time before the US financial crisis is over.

(Please feel free to share any good resources you’ve come across in the comments section below.)

1. In depth coverage of Global financial crisis from the Financial Times (FT)
2. John Taylor on the Financial Crisis (John Taylor)
3. How the financial crisis has killed the governance reform agenda
4. The World Health Organisation’s (WHO) View on the Financial Crisis (WHO)
5. Global Financial Crisis Overview & Consequences (Global Issues)
6. The Implications of the Global Financial Crisis for Low-Income Countries (IMF)
7. America in financial crisis from MSNMoney (MSN Money Central)
8. Latest Financial Crisis, Banking crisis and Credit Crunch news (Daily Telegraph)
9. Yahoo Financial Crisis News and Headlines (Yahoo)
10. The Guardian’s View on the Financial Crisis (The Guardian)
11. The Global Financial Crisis by the IFAC (IFAC)
12. Financial crisis may have been good for the climate (New Scientist)
13. Europe’s Response to the Financial Crisis (Europa.eu)
14. Financial Crisis and Recession
15. IFC’s Response to the Financial Crisis (IFC)
16. The First Global Financial Crisis of the 21st Century
17. Colorado State University Guide to the global financial crisis (Colorado State University)
18. AOL Money & Finance Financial Crisis Guide (AOL)
19. The Financial Crisis of 2007-2009: Causes and Remedies
20. Financial Crisis in Wikipedia Free Encyclopedia (Wikipedia)
21. 2007-2009 Financial Crisis (Wikipedia)
22. The World Bank’s View on the Financial Crisis (World Bank)
23. The IMF’s View on the Financial Crisis (IMF)
24. A Plan for Addressing the Financial Crisis by Lucian Bebchuk
25. Iceland Financial Crisis from the Icelandic Government Information Center (Iceland)

Here are 25 of the best sites, blogs and detailed reports related to the financial crisis:

1. Global financial crisis of 2008–2009 (Wikipedia)
2. The Financial Crisis by the Wall Street Journal (WSJ)
3. Real Estate Financial crisis of 2007–2009
4. The World Bank Group Crisis Talk (World Bank)
5. Global Economic Crisis by the ADB (Asian Development Bank)
6. The IMF’s Response to the Asian Crisis (IMF)
7. Latest Financial Crisis, Banking crisis and Credit Crunch news (Telegraph)
8. Credit Crisis News from The New York Times (New York Times)
9. International Financial Crises (International Economics) 
10. Financial crisis by the African Development Bank (the African Development Bank) 
11. The Asian Financial Crisis
12. Financial crisis by the OECD Observer (OECD)
13. The global financial crisis: implications for the South
14. Interview with Danny Leipziger on Financial Crisis (World Bank)
15. America in financial crisis (MSN Money Central)
16. THE 1997-98 ASIAN FINANCIAL CRISIS
17. The 1997 Asian Financial Crisis
18. The Crisis & What to Do About It (NYBooks.com)
19. The Korean Financial Crisis of 1997-98 
20. Confronting the Crisis: Its Impact on the ICT Industry
21. The Unfolding Crisis (World Bank)
22. 2008 Financial Crisis (WikiInvest.com)
23. Causes of the Financial Crisis (2009)
24. Global Financial Crisis of 2008
25. Coping with Japan’s financial crisis

The California Foreclosure Prevention Act was introduced in an attempt to slow the torrent of foreclosures flooding the state – and with many more to come – and to allow extra time for lenders and borrowers to agree on loan modification terms.

Realistically, nobody expected it to make much of a dent in the number of foreclosures, given that so many people simply can’t pay the mortgage owing to California’s  escalating unemployment and poor economy, not to mention the huge price drops that have put them a long way under water.

However, it was hoped that the California Foreclosure Prevention Act would at least force mortgage companies to make more of an effort to modify loan conditions for struggling homeowners.

Unfortunately, this hasn’t worked either, since all the big mortgage lenders were granted exemptions from the new law as soon as it went into effect. This essentially renders the law useless and leaves most distressed borrowers no better off, as the exempt lenders account for over 90% of properties presently under threat of foreclosure in the Golden State.

Federal government efforts to help those facing foreclosure – such as the Making Home Affordable program and the HOPE hotline on 888-995-HOPE or www.hopenow.com – can benefit some of California’s distressed homeowners. State authorities have also teamed up with Spanish-language TV network Univision to provide information and assistance to Spanish-speaking mortgage-holders. There are also community-based counseling programs across the state.

This would give the lender some cash flow while waiting for the market to rebound, and keep homes occupied and off the market, where they would contribute to delaying the housing price recovery. As the name suggests, the aim is also to keep neighborhoods from deteriorating because of mass foreclosures, as well as to remove the need for families to look for alternative accommodation.

Even if the Neighborhood Preservation Act does become law, we still don’t know how many lending institutions would actually make use of this facility.

It has been suggested that this legislation should be accompanied by a law that gives homeowners the right to remain in their homes as renters. If a renters’ right law of this nature could be enacted quickly, it would help Californians cope with the huge wave of foreclosures expected in the state over the next three years when a million option ARM mortgages reset at sharply higher levels.

Related Articles:

• The California Mortgage Crisis: No End in Sight
• US$18 million Website to Help Americans Recover from the Financial Crisis
• Alternative Options When You’re Facing Foreclosure

Historically, California been one of the most expensive states to live in, but residents have been willing to put up with high real estate prices for the privilege of enjoying the California lifestyle. So, it’s not surprising that the Golden State is suffering particularly hard in the current mortgage crisis.

For many Californians, their dream home has now turned into a nightmare. Real estate prices have slumped by 40% to 60% since peaking in 2006 after a huge run-up that started in the late 1990s.

Meanwhile, some homeowners are seeing their monthly repayments rise to unaffordable levels – even though official interest rates are at an all-time low – and hundreds of thousands more will find themselves in the same boat over the next two or three years.

Mortgage Defaults

Almost one in ten Californians with a mortgage is now in default, i.e. they have missed several payments and are likely candidates for foreclosure. June 2009 figures show a 9.5% statewide default rate, up sharply from 6% a year earlier.

If the recent trend continues, 60% of these properties will enter foreclosure over the next several months. Industry observers say a commercial real estate crisis is looming too, with a large number of retail, office and industrial properties already in negative equity.

There are close to half a million foreclosed homes in the state at the moment, with around 80,000 to 90,000 new foreclosures being filed every month.

Many of the homeowners now under water are sub-prime borrowers, who typically took on so-called 2/28 mortgages. This is a 30-year loan, the first two years of which carry a low, “teaser” rate that has in most cases now reset to a higher level.

With California’s nearly 12% unemployment rate, soaring personal bankruptcies and cutbacks to government services, a large number of these sub-prime borrowers have had their homes foreclosed, or have simply handed back the keys and walked away.

Coming soon: the option ARM reset crisis

Hard as it might be to believe, we’ve so far only seen the beginning of California’s mortgage misery.

Brace yourself for the full blast of the option ARM reset crisis, which is starting to unfold now. In this state where (formerly) million-dollar homes are nothing special, option ARM mortgages were marketed enthusiastically to buyers of relatively pricy homes in “nice” neighborhoods.

Many of these buyers put down little or even no equity, which left them with no buffer when prices started to drop.

Also known as pick-a-pay loans, option ARMs allow borrowers to select their preferred monthly repayment level once the introductory low-rate period ends. You can choose how much to pay each month by switching between different mortgage types: interest-only, or fully amortizing over 15, 30 or 40 years. If, as many borrowers do, you make less than the standard payment, the difference gets added on to your mortgage debt.

Option ARM Mortgages

Option ARMs typically recast to a higher repayment level after five years, or once the loan balance reaches 110% to 125% of the initial mortgage. In other words, there are a lot of option ARM mortgagees out there with loans that have been growing in a market of sharply falling home values. And now these borrowers are looking at having their monthly mortgage bills bumped up by 40 to 80%.

To make matters even worse, a large proportion of these option ARM mortgages were issued to so-called alt-A borrowers with good credit but questionable or inconsistent payment capability. Since alt-A mortgages don’t require proof of income or assets they attracted a lot of self-employed people, but also droves of borrowers who overstated their incomes (hence the nickname “liar loans). It’s no wonder experts are warning of an impending disaster.

Aside from a good credit record and FICO score, an alt-A borrower needs to show a lower-then average LTV (loan-to-value) ratio on the property to convince the lender that they will be able to pay the mortgage. The result is that a large number of Californians with middling incomes were able to buy big, fancy houses they couldn’t actually afford, and are likely to lose over the next few years.

Nationally, about 40% of those who took out option ARM mortgages in 2006 and 2007 have already stopped making repayments, but less than 10% of these delinquent borrowers have had their loan terms modified by their lenders.

A Big Problem from 2010

The really big problem will come when the majority of California’s roughly 1 million option ARM loans recast higher in 2010, 2011 and 2012. At that point, or before, we will see homeowners throw in the towel and simply abandon their properties en masse. And they can usually do this without fear that their mortgage companies will come after them for the losses they will incur when they sell the houses for less than the outstanding loan.

Unlike the rest of the country, in California you’re not liable for any shortfall in the sales price if you walk away and hand the keys back to the lender. Officially this only applies to the first loan you took out on your home, but in practice it’s hard for them to pursue you even for a refinanced mortgage.

This has spawned a new trend in the state: an increasing number of homeowners with negative equity are now abandoning their homes even though they can still afford the repayments. Some of these people are even turning around and buying a more affordable foreclosed property instead.

So far the foreclosure problems have been worst in the Central Valley, with Riverside County the hardest hit. But once the number of option ARM resets starts to snowball in 2010, huge swathes of swanky neighborhoods in coastal locations like the west side of Los Angeles, Orange County and San Diego will turn into foreclosure-towns too.

Related Articles:

• Preventing a Catastrophe in the California Crisis
• 10 Tips on How to Avoid Foreclosure

Just enter a loan amount or the purchase price of your property and other details such as the interest rate and the term of the loan and press the “Calculate” button.

The calculator will instantly calculate the loan and mortgage repayment requirements in a table and chart your loan visually.

In the example above, we used these loan specifications:

• Loan Amount: $150,000
• Loan Term: 15 Years
• Interest Rate: 5.5%
• First Payment Date: July 2009

Free Mortgage Loan Calculator – To use the free calculator for mortgage loans, click on the “mortgage” tab on the top (next to the “loan” tab). Here’s an example mortgage loan:

• Purchase Price: $250,000
• Down Payment: 10% ($25,000)
• Mortgage Term: 30 years
• Interest Rate: 5.5%
• Property Tax: $3,000 per year
• Property Insurance: $1,500 per year
• PMI: 0.52%
• First Payment Date: July 2009

Now, try this free online calculator for your loans and mortgages yourself and feel free to share any comments below.

Mankind is presently facing two of the greatest challenges that it has ever encountered – a world economy that has almost collapsed and a global ecosystem that is on the brink of being uninhabitable if we do not change immediately.

It may seem like we’ve suddenly been hit by a double-whammy, but the inevitability of these crises have already been observed, discussed and warned for many years prior to self-fulfilling themselves. The root of both these problems may be traced back to man’s greed and selfishness, weaknesses from our inherent makeup that will drive us to our own destruction unless we can wake up to what’s going on.

The recent global financial and environmental crises are powerful events to help us alter our mindset about a lot of things. If we look at them from a positive light, they are in fact what we need to force us to change.

The economic recession has brought about lower wages, relatively higher living costs and a depleted standard of living which has led people to be more open to lifestyle changes, especially if they are financially beneficial.

Combined with government efforts to promote green initiatives, the current global financial crisis may turn out to be the last hope of shocking us out of our ecological complacency.

Research studies indicate that men with higher levels of the testosterone will make riskier investments compared to the counterparts who have lower levels of the sex hormone.

When you combine this finding with the fact the financial markets are dominated by capitalistic male egos, the picture becomes clearer as to how we got ourselves into the present economic crisis.

If the capital markets are indeed influenced by the hormone levels of its participants, it’s not surprising that it operated with such an irrational exuberance to ultimately cause the financial meltdown.

So, does this mean that we could have avoided the current crisis if the trading pits were full of women instead of testosterone loaded men?

Well, the female sex is generally more responsible and rational but if fluctuating hormone levels come into play, we might end up with the same turbulent markets that make no sense as well.

In fact, the money is actually being spent on a website redesign as there’s already an existing “website to foster greater accountability and transparency” in the use of funds covered by the American Recovery and Reinvestment Act of 2009 at www.Recovery.Gov.

So, why do we need a multi-million dollar site to report on how much money the government is spending, especially as we’ve already got one?

In an announcement from the General Services Administration, officials mentioned that the new site will allow “taxpayers to see where their dollars are being spent” but failed to reveal pertinent details about the deal where apparently only 59 companies were eligible to bid for the contract.

Although the Recovery.Gov site is supposed to create greater transparency, the management of its own redesign has certainly been surrounded by secrecy and too many unanswered questions.

As for accountability, it’ll be interesting to see how anyone justifies spending US$18million on a website upgrade.

UPDATE:

As it turns out, the contract’s price tag may be quite understandable if we take a closer look at the details:

1. The current cost of the redesign is only US$9.5 million. US$18 million is the total value of the contract including the possibility of an extension through to 2014.
2. US$9.5 million is still an enormous sum to develop a website when you consider that the technology licensing cost for UsaSpending.Gov (a larger site which tracks the entire Federal Budget) was only US$600,000. Using this as a reference, it may be reasonable to assume that a fair value for the project may fall in the region of US$2 to 3 million.
3. Further investigation reveals that there is a very tight deadline on the project, where the contractor has less than 60 days to deliver a finished product. OMB Watch explains that this could be a major reason for the high cost.

In view of the expedited timeline, the premium included in the project cost may be more understandable, even if it’s still unacceptable.

This means that the house or apartment will no longer be yours, and you will be evicted!

If you act quickly, however, there are a number of steps you can take to help prevent this from happening.

Keep in mind that mortgage companies don’t actually want to take over people’s properties – they would much rather see borrowers stay in their homes – and are often willing to work out a deal, at least temporarily.

Here are 10 Tips on How you can avoid foreclosure:

1. Contact your mortgage company if you can’t pay: It is very important that you call your lender as soon as your personal financial crisis gets so bad that you’re looking at missing a mortgage payment. The earlier you do this, the better.
2. Get impartial, free advice: The Homeownership Preservation Foundation (call them on 1-888-995-HOPE) can also advise you about how to talk to your lender and what your options are. Alternatively, you can get help and advice from the Department of Housing and Urban Development (HUD). Find a HUD-approved housing counselor near you or call 1-800-569-4287.
3. Open and respond to any mail from the lender: Early on in the process they will send you advice on how to avoid foreclosure and hold on to your home. If the problem escalates, you will receive letters about impending legal action and court appearances. If you respond promptly and take the action suggested, the lender will be more inclined to see you as an honest and co-operative customer.
4. Stay in your home: If you move out you might not qualify for assistance, so it’s best to stay put while the problems are being sorted out.
5. Be aware of your mortgage rights and obligations: Study your mortgage papers to see how your loan issuer is entitled to act if you miss any monthly payments. You should also find out about the foreclosure laws and procedures that apply in the state where you live.
6. Understand your options: Depending on your situation and your lender, there may be a number of options available to you. For instance, the mortgage company could offer you a repayment plan or a modification of the loan terms, or if that doesn’t work they might agree to a short sale or a deed-in-lieu. For more details see Your Options When You’re Facing Foreclosure.
7. Watch your spending: Along with healthcare, keeping your home should be your top priority. In other words, you need to get used to spending less on other things like entertainment, cable TV, memberships and eating out in order to avoid being made homeless. Also, don’t forget that paying your mortgage is more important than your credit card and other unsecured debts that are cancelled if you go bankrupt.
8. Cash in your assets: Do you have stocks, jewelry, a car or other assets you can sell? Clean out your house and have a garage sale or sell some things on eBay to raise cash. Get a second job to bring in a bit more. Even if you don’t raise enough to get out of trouble, it shows the lender you are trying.
9. Don’t pay for foreclosure prevention: You need every penny to pay the mortgage with, so don’t deal with companies that promise to negotiate with your lender and charge you hefty fees. You can deal directly with the bank or mortgage company, or speak to a HUD approved housing counselor.
10. Beware of foreclosure recovery scams: There are companies that say they can act on your behalf to stop your foreclosure. Be very wary, as this often means you have to sign over the property title to the company and then pay them rent every month in order to stay in your home. In other words, you lose the house or apartment anyway! Never sign any legal documents without consulting an attorney or a reputable real estate professional with experience in this area.

If you really can’t stop heading for a foreclosure, make sure you are aware of the potential alternatives to foreclosing.