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Skyrocketing Consumer Debt & Falling Rates
With home mortgages, the primary collateral for the loan balance is the home itself. In the event of a future default, the lender can file a foreclosure notice and take the property back several months later. With automobile loans, the car dealership or current lender servicing the loan can repossess the car.


Homeowners often refinance their non-deductible consumer debt that generally have shorter terms, much higher interest rates, and no tax benefits most often into newer cash-out refinance mortgage loans that reduce their monthly debt obligations. While this can be wise for many property owners, it may be a bit risky for other property owners if they leverage their homes too much.

With credit cards, lenders don’t have any real collateral to protect their financial interests, which is why the interest rates can easily be double-digits about 10%, 20%, or 30% in annual rates and fees, regardless of any national usury laws that were meant to protect borrowers from being charged “unnecessarily and unfairly high rates and fees” as usury laws were originally designed to do when first drafted.

Zero Hedge has reported that 50% of Americans don’t have access to even $400 cash for an emergency situation. Some tenants pay upwards of 50% to 60% of their income on rent. A past 2017 study by Northwestern Mutual noted the following details in regard to the lack of cash and high credit card balances for upwards of 50% of young and older Americans today:

* 50% of Baby Boomers have basically no retirement savings.

* 50% of Americans (excluding mortgage balances) have outstanding debt balances (credit cards, etc.) of more than $25,000. 

* The average American with debt has credit card balances of $37,000, and an annual income of just $30,000. 

* Over 45% of consumers spend up to 50% of their monthly income on debt repayments that are typically near minimum monthly payments.

 

Rising Global Debt 

 

According to a report released by IIF (Institute of International Finance) Global Debt Monitor, debt rose to a whopping $246 trillion in the 1st quarter of 2019. In just the first three months of 2019, global debt increased by a staggering $3 trillion dollar amount. The rate of global debt far outpaced the rate of economic growth in the same first quarter of 2019 as the total debt/GDP (Gross Domestic Product) ratio rose to 320%.

The same IIF Global Debt Monitor report for Q1 2019 noted that the debt by sector as a percentage of GDP as follows:

  
Households: 59.8%

* Non-financial corporates: 91.4%

* Government: 87.2%

* Financial corporates: 80.8%

 


Rate Cuts and Negative Yields

As of 2019, there’s reportedly an estimated $13.64 trillion dollars worldwide that generates negative yields or returns for the investors who hold government or corporate bonds. This same $13.64 trillion dollar number represents approximately 25% of all sovereign or corporate bond debt worldwide. 

 

On July 31, 2019, the Federal Reserve announced that they cut short-term rates 0.25% (a quarter point). Their new target range for its overnight lending rate is now somewhere within the 2% to 2.25% rate range. This is 25 basis points lower than their last Fed meeting decision reached on June 19th. This was the first rate cut since the start of the financial recession (or depression) in almost 11 years ago dating back to December 2008.
 

It’s fairly likely that the Fed will cut rates one or more times in future 2020 meeting dates. If so, short and long-term borrowing costs may move downward and become more affordable for consumers and homeowners. If this happens, then it may be a boost to the housing and financial markets for so long as the economy stabilizes in other sectors as well such as international trade, consumer spending and the retail sector, government deficit spending levels, and other economic factors or trends.

We shall see what happens in the near future in 2020 and beyond.

* The blog article above is a partial excerpt from my previous article entitled Interest Rate and Home Price Swings in the Realty 411 Magazine linked below (pages 87 - 91):
August 26, 2010

No Qualifying Mortgage Deals

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As lenders continue to tighten up their underwriting guidelines partly due to a combination of weakening lending institutions with lowered cash reserve balances, a technically insolvent FHA which continues to "insure" the vast majority of new home mortgage loans, worsening home sales comps due to the increasing numbers of foreclosures, and more and more struggling Americans who are just trying to survive in this ongoing economic meltdown, we continue to try to search for new opportunities for our clients.

Prior to the official start of The Credit Crisis in 2007, it wasn't very difficult to qualify for a home loan with the seemingly hundreds of loan options available such as no income verification adjustable loans and concurrent lines of credit. The availability of take-out mortgage financing (or purchase money financing) is typically what drives home sales. The easier it may be to qualify for a home loan, then the easier it may be to sell one's home.

As we are clearly in the depths of a weakening economy partly due to high unemployment numbers, the erosion of so much of America's industries which may have been "outsourced" to other countries, and our "frozen" financial markets, investors are still looking for opportunities in real estate whether it be in land, commercial buildings, or one or more single family homes which may or may not cash flow depending upon the current mortgage financing options.

At this point, our internal foreclosure analysis software systems and affiliate network sources are helping our clients "match and merge" existing home sellers in Southern California who are unable to work out a loan modification, or complete an approved "Short Sale" to an approved home buyer who now meets the more stringent underwriting guidelines with buyers looking for those same types of properties.

Our focus may be on purchasing (directly or indirectly), or bringing in new individual or invesment group buyers to acquire these properties in a very short period of time. If our clients let us know how much of a down payment and monthly payment range they can afford, we then may match them up with a home in their region which suits their needs. 

Many of these transactions will be structured so that the new buyer does NOT have to formally qualify for a new mortgage. In addition, these deals may be structured so that the buyer may only need to bring in a relatively small down payment (5% to 10%), and the buyer may be an individual, an LLC, or even a new corporation.

Many of the monthly payment options may be somewhere in the $1,200 to $3,000 per month range which may be as low as many rental properties in the same region. In each case, the new buyers will have clear title insurance as well. 

We will keep you posted as we continue to improve our system which may help both motivated sellers as well as motivated buyers who are in search of owning their own home in the easiest and most quickest way possible.

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