Mortgage, loan and property. What is a mortgage?

A mortgage is putting a property as a guarantee to a lender as a security for a mortgage loan.

While a mortgage in itself is not a liability or a dept, it is evidence of a debt. It is a transfer of an interest in property, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the property when the terms of the mortgage have been satisfied or concluded.

In other words, the mortgage is a guarantee for the loan that the lender makes to the borrower. In all but a very few states, a mortgage creates a lien on the title to the mortgaged property.

Wednesday, April 23, 2008

U.S. Home Prices Plunge Like a Rock

If the remedy for America's housing crisis is a big enough drop in prices to stimulate the real estate demand, the market got a big dose of over the counter and under the counter medicine on Tuesday.

The National Association of Realtors reported a much worse-than-expected 2.0% drop in sales of single-family homes and condos in March, compared with February, to a seasonally adjusted yearly rate of 4.93 million units. That was 19.3% under the year-ago level. The middle price of an American home sold last month dropped to $200,700, a decline of 7.7% from the middle price a year ago.

Joseph A. LaVorgna, a chief economist at Standard & Poor's, said in a note to investors yesterday that falling home prices are not such a bad thing, "On one hand they are causing negative wealth effects and forcing some new mortgages underwater; but on the other hand, this is a necessary, albeit unpleasant, prescription for restimulating housing demand," he said.

Sales were expected to drop another 1.6% to a seasonally adjusted annual rate of 4.95 million units, down from 5.03 million in February, according to the last forecast of Wall Street economists surveyed by Thomson Financial.

On a personal note, I wonder if M. LaVorgna owns a house (or a condo)? How happy would he be if he learned that the value of his home dropped 40% just before he wanted to sell it? How many foreclosures can we have?

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