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?

Tuesday, April 22, 2008

Buy your home at a fire-sale price!

To a small but growing number of buyers across the country, the depressing housing recession offers a exciting upside: They can get a home at a fire-sale price. In some metro areas, price declines are galvanizing bargain hunters — mainly first-timers, foreign investors and out-of-state buyers looking to rent properties they hope to sell later for a premium.

Those buyers are forming isolated pockets of real estate movement, especially in cities where foreclosure rates are high but jobs remain available to attract potential property buyers.

In some areas, such as Charlotte and Detroit, property sales are ticking upward, following a trend of upward sales as far back as 2006. In other markets, bargain-hunting movement is still too sporadic to fuel an overall rise in sales.

Few economists expect the intermittent purchases to signal a bottom to the housing market's slump, but the bargain-hunting for home deals is a hopeful sign amid all the bad news about the troubled housing market.

Monday, April 21, 2008

If your HELOC hasn't been frozen, it might be time to panic!

Be familiar with your risk. Areas where home prices have fallen by 10% or more are major targets for freezes, says Susan McHan, president of Opes Advisors, a mortgage banking firm in Palo Alto, Calif. Because of new lending norms, your home-equity line of credit (HELOC) might also be in risk if you bought your home in the past few years with little money down. Be careful.

Last year consumers could without difficulty borrow up to 100% of a home's value through a combination of a HELOC and a first mortgage. Today you'd be lucky to obtain up to 90%; 60% is the max in areas hit hardest by home-price declines.

Lenders are starting to apply the same norms to existing HELOC clients. Call your bank and ask what the loan-to-value cap is on new HELOCs. If your home debt is above that, your line could be at risk. A change in credit score or a missed payment could also put your account at risk. Reread your contract to see if such factors permit the lender to cut you off.

Access your cash now. If your line of credit is in danger and you need the HELOC to finish a renovation, you could draw a lump sum. The drawback: you'll cut your equity; you'll owe interest now; and if home prices keep falling, your loan values could top your home's value. Therefore borrow only as much as you need and place the cash in a high-yielding savings account or CD until the renovation bills come due.