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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):
January 3, 2011

Easier and No Qualifying Home Deals

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As mortgage loan underwriting guidelines continue to tighten up across the U.S., our group continues to try to provide our clients with non conventional ways to purchase or sell real estate throughout many areas in Southern California.

The number # 1 most important factor in real estate is the availability of financing options both to get in (purchase) and to get out (sale). As most of us know by now, the "easy money" mortgage loan options of the late '90s until mid 2007 was the primary catalyst for the housing boom throughout the U.S. (especially the "Bubble State" regions like California, Nevada, Arizona, and Florida). 

Once the secondary market investors began to stop purchasing both Jumbo Loans (above $417,000 in most regions) and "Stated Income" adjustable and HELOC (line of credit 2nds), then the high priced coastal regions began to get more sluggish. This, in turn, later led to a "domino effect" in that the drop in high end values began to impact the lower priced regions as well. 

Sadly, approximately 97% of all residential home sales in the United States in 2010 involved some form of government backed or insured financing such as FHA, VA, Fannie Mae, and Freddie Mac. As such, the mortgage underwriting guidelines for these same government backed loans were quite challenging for many borrowers.

In 2011, our team is focused on providing easier qualifying home purchase deals for properties with down payments as low as 3% for owner occupants and just 10% down for non-owner investors, great long term fixed rates, NO mortgage insurance premium options, NO appraisal options, and lower FICO credit score options throughout many parts of Southern California (Orange, Los Angeles, and Riverside Counties, in particular) up to $729,750 sales prices in certain higher priced home regions. 

In addition, our internal foreclosure analysis computer system which my team developed many years ago will also help us identify the best potential distressed property deals in Southern California. Many of these same bargain priced deals may not be currently listed in the MLS system, or be listed within any current public record databases (i.e. foreclosures) so there may be much less competition to purchase these discounted properties. 

In some cases, we may be able to structure home sales ($100,000 to several million plus) with NO QUALIFYING loan options as our group has structured in various states over the past twenty (20) plus years. In addition, the buyers will be provided with clear title insurance, no loan liabilities, lower closing costs, and quicker escrows. 

In the Chinese language, the word "Crisis" is derived from two primary characters which mean both "Danger" and "Opportunity". As the economy continues onward in our ongoing worldwide Credit Crisis, we hope to focus more on the "opportunity" aspects of this same "Crisis" word

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