Hurricane coverage may fall victim to mortgage crisis and credit crunch

Mortgage crisis has created concerns which can impact houseowners. A.M. Best Company, a credit rating organization working for financial industries has speculated that mortgage crisis & credit crunch can affect ability of coverage of claims by insurers & re-insurers which result from coastal disasters.

A.M. Best Company has issued a special report in which it has been mentioned that investors are showing less appetite towards capital market offerings which are designed for raising cash to meet claims payments in case any major hurricane strikes the coastal regions.

In the report it has also said that insurers are usually exposed to properties foreclosed by lending companies or abandoned because of the crisis in hurricane-prone regions. According to estimates, over one-half million properties exist in costal regions from Maine to Texas & Florida alone has more than 100,000 properties which are in foreclosure.

State-backed insurance pools which exist in some states such as Texas, Florida & Louisiana can be at more risk. Florida's state-backed reinsurer & its largest insurer are dependent on bond sales after any disaster for coverage of any shortfall & they may not be able to pay all claims arising from any major disaster immediately.

Coastal regions had a respite as there have been no major storms for 2 years, so private insurers were able to rebuild surpluses & capital, particularly in states like Florida. Florida Hurricane Catastrophe Fund is trying to find other ways of building its reserves but if FHCF has trouble raising money then insurers can incur credit risk for reinsurance recoverables which are tied to Florida Hurricane Catastrophe Fund & there can be delay in meeting claims payments for policyholders.

A.M. Best Company in its report also warned that it may be required to rely on federal & state funds if state backed insurers are not able to pay claims.

Acquisition of Bear Stearns by JPMorgan

Federal Reserve Bank of NY has announced that it is going to complete the financing of Bear Stearns's acquisition by JP Morgan by the end of next month (recently shareholders of Bear Stearns have approved investment bank's sale to JP Morgan for $2.3 billion) & also finish portfolio valuation of the investment bank.

NY Fed is making operational arrangements which will be necessary for successful transfer of the portfolios. The portfolio of assets will be properly managed so that recovery value is maximized & disruption in financial markets is minimized.

Monthly savings & low APR credit cards

Before taking a mortgage borrowers have to evaluate how much loan they are capable of taking considering the fact that they also have other monthly obligations.

One large portion of our expenses are related to credit card debts and if correct card types are selected having low annual percentage rate (APR) then borrowers can have larger share of their income available for investing in mortgage debt.

Borrowers with good credit scores have more chances of being approved for Low APR credit cards but due to competitive market situations borrowers with average to moderate credit history also stand a chance of being approved for good low apr cards.

One online resource providing more detailed explanation of various low rate credit cards available in the market with their features and also the option to apply online is "http://www.allaboutcredit.net/Low-Rate-Credit-Cards-991373-page.php". Borrowers who really want to streamline their monthly expenditures by reducing how much they pay on their cards & have more savings that can be used in repaying their mortgage debt should go through the details provided in this website.

Mortgage recovery would be aided by stronger banking regulations

Fed Governor Randall Kroszner has commented that slowly the mortgage market will recover & the main key factor to the recovery will be better risk management.

Kroszner asked banks to take measures to limit the present foreclosure crisis, with less complexity in instruments of credit & greater transparency. According to him partial blame has to borne by investors who got attracted to these structured securities but had no knowledge of underlying risk profiles.

He said that -

New Fannie Mae Program to help underwater borrowers

This program is for borrowers who owe more on the mortgage loan than its underlying security (the home) is presently worth.

Under this program existing lenders will not be required to write-down mortgage loans to such a level where refinancing would be feasible. Instead Fannie Mae will refinance new mortgages which would be adequate to cover the existing mortgage debt & refinance will be up to 120% LTV.

This program will cover mortgages which are paid to date & Fannie Mae insures or owns them.

For borrowers this may result in reduced payment due to reduced rate of interest, slightly extended amortization period or a fixed interest rate and it has been estimated that 150,000 homeowners will get help from this program.

FHA Housing and Homeowner Retention Act

Federal Housing Administration's bill, H.R. 5830 named as FHA Housing and Homeowner Retention Act was passed by House Financial Services Committe of the House of Representatives recently. This Act will result in availability of around $300 billion for borrowers who are facing foreclosure in the form of federally insured mortgages.

According to this Act, Federal Housing Administration would guarantee a new mortgage for borrowers facing foreclosure if the present lender agrees to accept short payment as full repayment of the mortgage. The new mortgage can be for up to 90% LTV & should have terms that borrower can afford.

After taking the new mortgage if borrower refinances or sells the home, from profits made he will have to pay a declining % of any net proceeds which are related to house appreciation (from 100% in year 1 to 50% in years 4 & beyond) or an exit fee which is equal to 3% of the original amount of the mortgage, whichever is larger.

It is estimated that because of this new Act almost 1.5 million borrowers who are facing trouble with their present mortgage will be benefitted.

Barney Frank (D-MA), who is the Chairman of House Financial Services Committe, targetting mortgage loan servicers said -

New rules for lenders proposed by FTC and FED

Federal Trade Commission & Federal Reserve have proposed new rules under which lenders would be required to inform borrowers about changes or unfavorable developments in loan terms.

Under the new regulations, lenders will be provided with the option to divulge borrower's credit risk rating.

In a press release from FED it has ben mentioned that -

Home improvement loans

Some great deals are available on home improvement loans these days and the money you receive can be used for countless home improvements.

David Ness, a roofing contractor in Boston says he's seen a large increase in his customers taking on large projects with the help of home improvement loans.

Whether you decide to install central air conditioning, remodel a kitchen, or replace a roof this type of loan is a fantastic way to accomplish the work and take advantage of affordable repayments.

Take the time to compare all of the different home improvement loans out there to make sure that you get the best deal for what you would like to achieve. The better the offer, the less your repayments will be and the more you will be able to borrow to make sure the work gets done right.

ARM loan reset schedule

The following graph shows the different type of ARM loans (both securitized as well as non-securitized) due to reset in the coming one year. As can be seen in the graph, in the coming couple of months bulk of ARM resets to happen are for sub prime mortgage loans.

Prevent more foreclosures

For prevention of more homes going into foreclosure, Randall Kroszner, Fed Governor has said that lenders need to lower interest rates on mortgages & also lower the principal amount for home owners where home prices have gone down below loan value on their loan.

At the time of testifying before HFSP (Home Financial Services Panel), Governor Kroszner urged Congress to take immediate steps for reconciling & enacting FHA modernization legislation which would allow Federal Housing Administration to increase its scale & improve upon management of risks that exists for the government. He also said that GSEs can do more in this regard by increasing their capital & imphasized the need for the government to move ahead with legislation on GSE reform and creation of regulator for GSEs.