USA: Failed mortgage modification programme

Kudlow talks to Christian Weller, Center for American Progress and Dan Mitchell, Cato Institute on the topic of debt relief and mortgages in the USA, the argument for straight out write-downs on mortgages is compelling, and yet so too is the argument for allowing the market to work. Sometimes believing in the free market is seen as a ‘dirty thing’, but the side effect of trying to manage an economy from every aspect is also a bad thing (look no further than the former Eastern Bloc). Somewhere in the middle is a fair and sustainable path, but ideology bias is usually in the way before the conversation passes go, for that reason you will favour one speaker over the other quite often from the outset. However, ideology doesn’t actually get results, it is merely the platform from which a concept is launched and the better path would be to have an operational model to prove the point – although that isn’t always practical.

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Where are interest rates headed?

While we often see opinions about interest rates given by various commentators, I think the most telling indication is often that of the market, the point at which rates are settling at in prices is available at any time by looking at the Euribor Yield Curve, below is the chart for today.

The idea that rates will probably stay c. 1% until well into 2010 is only partially priced in, you can see the yield curve crossing the 1% mark at 6 months (which would be May 2010) – this however, is the Euribor and does have margin factored in, currently the margin over ECB is c. 25 basis points so the 1% base would cross when the graph above is at c. 1.25%. and that is the part that brings us to the latter half of 2010. The yield curve is live and dynamic so it could change at any time, either flattening or inverting. The reasoning behind where interest rates are going is a science in itself, and one that …

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Mortgage Questions: I am not in permanent employment. Can I get a mortgage?

Answer: If you are not in Permanent employment no mainstream mortgage lender will consider a mortgage application from you, while that may sound harsh, it reflects the reality in lending that the main thing a lender needs is security that the borrower has the capacity to pay back the loan in the future. Sub-prime Lender Start Mortgages may consider an application, but if you opt for a specialist lender you will pay  for it via the margin on their lending, they take on risky applications but they charge accordingly. The maximum loan they will lend is 75% of the purchase price. This type of application is assessed on a case by case basis & will depend on the length of your contract served etc. the length of contract remaining and your previous employment history.

However, to give a short concise answer – generally banks won’t lend to you if you are not in permanent employment, this is a question you will be asked by your mortgage adviser and it also appears on your salary cert.

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Who gets the best deals on insurance? (depends who you ask!)

The Financial Regulator regularly does ‘cost surveys’ to help the Irish public determine what the best deals are on the market, it would seem that in some cases they are actually driving people directly to certain insurers because they don’t survey the whole market! Indeed, as this weeks Sunday Times article by Niall Brady shows, Brokers were able to beat the ‘best price’ quoted by the regulator in almost every example, and it wasn’t only by a few cent either! In one case it was about €500 per annum, and in many others it was €100 p.a. – now on the other hand, if a broker went and made a person pay that much more than they had to then they’d be lynched, but when the regulator does it’s just an ‘oversight’… Quis costodiet ipsos custodes? Click on the picture below if you want to see a larger more readable version of it.

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The US obsession with home ownership

This is an interesting clip from the Cato Institute and it covers the various vectors of the financial crisis. In this video the speaker talks about the ‘7 steps to failure’ – the basis of the talk is well covered ground at this stage but the addition of the Cato presentation is meaningful and offers some angles that are not commonly considered.

Johan Norberg is a senior fellow at the Cato Institute and a writer who focuses on globalization, entrepreneurship, and individual liberty.

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How much of a deposit do I need?

When making a mortgage application this is a question that many first time buyers want to know, how much money do I must I have for a deposit? Well, that kind of depends on which bank provides the mortgage finance!

Lending criteria is different for every bank/building society/lender, this goes for rates, the general underwriting criteria as well as the ‘loan to value‘, the deposit you need is 100% minus the Maximum LTV and that will give you the deposit amount you require. For instance, ICS have a maximum LTV of 92% so the deposit you need – if you are obtaining finance through them – is 100% – 92% = 8%.

What is interesting in that example is that when you go ‘sale agreed’ on a property the estate agent will ask for a security deposit and the balance of 10% at the signing of contracts, this is an example …

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The Financial Regulator Report

In Ireland each staff member of the regulator costs 23% more than the international average, their cost to the taxpayer is 88% greater and yet they have responsibility – as a ratio toward population- which is only half that of other countries (to be exact its 96% less).

If that isn’t enough, our regulators deal with 15% fewer firms in terms of the number of actual regulated firms per employee, yet it is 26% more expensive to regulate a company in Ireland than elsewhere, and in terms of regulator staff to financial services staff they are dealing with 17% less than in other countries.

We are overpaying for under-service, in fact, in only one other country does the tax payer foot more of the cost of the bill than in Ireland, and for that we get the statistics above based on the figures below. Angry? You should be.

(the breakdown)

Cost per employee: In Ireland it is c. 23% more expensive for every staff member of our regulator than the international average

Cost …

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Banks are not competitive?

Roger Bootle notes that markets do quite well at the end of a recession and at the start of a recovery by drawing the benefits of the future down into the present. Roger has a lot to say on the topic of banks, in particular that of banker bonuses – he states (and we agree) that when banks become ‘too big to fail’ they essentially are oligopolies and hence they are able to pay so well. From an Irish perspective the domination of AIB and BOI put some stock in this theory.

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