The sky is falling, the sky is falling! Or so you would think if you listened to all the news coverage about the mortgage market. The news is filled with reports of declining home values, resetting adjustable-rate mortgages and people feeling the pinch of tightened credit.

However, despite the doom and gloom, much of the media haven’t reported on the proverbial silver linings in the storm clouds. One of the bright spots is the resurgence in popularity of a loan program that has been around since the 1930s — the Federal Housing Administration (FHA) loan.

Historically used almost exclusively by consumers to purchase their first home because of its low down payment requirements and competitive rates, FHA loans are making a comeback and quickly gaining prominence among those looking to refinance as well.

“A large number of people are really benefiting from the FHA loan program, and what is most interesting is many of them have just recently been turned down for more traditional conventional loans,” says Bob Walters, chief economist for Quicken Loans, one of the nation’s largest mortgage lenders. “This program isn’t the answer for everyone, but we have found that it can be a very viable option for many people.”

According to Walters, FHA loans are being used by consumers for cash-out refinancings, or to consolidate debt up to 95 percent of the home’s value — moves that are extremely difficult and often not financially practical to make with current conventional lending guidelines.

“Through the first half of 2007, homeowners had no problem making their mortgages work for them. However, since that time, tighter lending guidelines have resulted in many loan programs being taken off the table. Fortunately, FHA loans can fill some of the void. When used responsibly, FHA loans can provide much-needed relief. Every day, we help clients purchase homes, pay off medical expenses, eliminate high-interest credit card debt and generally improve their financial position through the FHA program,” Walters adds.

Consumers are also finding that in some instances, FHA loans can close very quickly, in less than 14 business days in some cases.

“The bottom line is that FHA loans are an option for many folks, but not for everyone. It is very important that every homeowner consult with a reputable lender who will listen to their needs and goals, and then suggest the best mortgage for them. In some cases it could be an FHA loan, and in others it may be a conventional fixed or adjustable rate mortgage. What is important is that the loan actually works for the consumer and puts them in the best possible financial position,” Walters concludes.

By Susan C. Walker, Elliott Wave International
August 28, 2007
Remember that catchy love song that Frank Sinatra made popular in the 1960s, “The Best Is Yet To Come”?

“The best is yet to come and, babe, won’t that be fine?
You think you’ve seen the sun, but you ain’t seen it shine.”

At the risk of mixing musical metaphors and styles, it looks more like the sun has deserted us right now in the financial markets, and we’re about to see “The Dark Side of the Moon,” the title of Pink Floyd’s 1973 smash album. With the subprime mortgage problems reaching farther and farther out to touch hedge funds, U.S. and European banks, mortgage companies and money-market funds, what we’re going to experience sounds more like “The Worst is Yet To Come.”

That’s because the financial markets must contend not only with the credit crunch brought on by rising foreclosures now; they must also deal with the repercussions from more foreclosures over the next 18 months as more adjustable-rate mortgages (whether subprime or not) reset from low teaser rates to higher interest-rate levels.

How bad can it get? Investment adviser John Mauldin recently published a month-by-month account of the dollar amount of mortgages that will be reset through 2008, and the largest reset amounts pop up in the first six months of next year. In fact, as he points out, the $197 billion of mortgage resets so far this year is “less than we will see in two months (February and March) of next year. The first six months of next year will see more than the total for 2007, or $521 billion.”

So, we haven’t even begun to feel the pain yet. It’s bad enough for the folks who will find that they can’t keep up with the higher mortgage payments and will have to move out of their homes. But the financial markets won’t be catching a break either. The antiseptic phrase used to describe the situation is “repricing risk.” That means that investors have woken up to the fact that the AAA-rated mortgage-backed securities and derivatives they invested in look more like junk bonds now. This eye-opener causes them to want higher yields from what they now see as riskier vehicles.

That new investor caution plays out this way: investment banks, hedge funds and any other entity that bought securities backed by subprime loans now find it hard to sell the darn things. It’s almost the same as homeowners trying to find buyers for their homes – nearly impossible in a market where home prices are falling. In the financial markets, it’s nearly impossible because no one even wants to attach a price to a collateralized debt obligation today for fear that it will be priced much lower tomorrow.

The Fed can try to calm such fears all it wants by lowering the discount rate and giving banks more time to pay back loans (from overnight to 30 days), but the real problem can’t be fixed with more access to credit. The fact is nobody wants any more of that. What they really want is cash to pay off their debts, be it a mortgage or an unwinding of a securities bet.

Wall Street’s denizens are in the dark about how much their schemes depend on the ocean of liquidity created by the bull market, say Elliott Wave International’s analysts, Steve Hochberg and Pete Kendall. They are particularly struck by the image of the Grim Reaper that Business Week magazine put on its cover recently with the headline, “Death Bonds:”

“The grim reaper is the perfect visage to welcome the arriving wave of liquidation; it will wreak havoc with their work. The field’s dark fate is clear in one fund manager’s description of what caused ‘forced sales’ at another fund: ‘The models work when they look at history, but not when history is all new.’ What’s ‘new’ is that for the first time in the experience of many model makers, confidence is on the run. As they rob Peter to pay Paul, all assets will be impacted in negative ways that do not compute in their models.” (The Elliott Wave Financial Forecast, August 2007)

And the bad news just keeps accumulating:

Housing prices dropped 3.2% percent in the second quarter compared with last year, the largest drop since Standard & Poor’s started tracking home prices in 1987.
CIT Group closed its mortgage unit this week, while Lehman Brothers closed its own last week. Mortgage companies that specialize in low-quality mortgages are either going out of business (London-based HSBC) or struggling (California-based Countrywide).

The Wall Street Journal lists the number of fired employees at seven mortgage companies, including First Magnus (6,000), Capitol One’s Greenpoint (1,900), Associated Home Lenders (1,600) and Lehman (1,200), which totals more than 12,000 suddenly unemployed mortgage writers.

To top it off, Bloomberg reports that the subprime mess may lead to lower bonuses for the first time in five years on Wall Street, according to Options Group, a company that’s been tracking this kind of information for a decade.

Somewhere, the world’s smallest violin is playing a sad song for the fund managers and investment bankers who won’t be taking home that million-dollar-plus bonus this year. And Frank Sinatra is singing a sad refrain… “The worst is yet to come.”

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.

For more information on the housing market and the credit crisis, access the free report, “The Real State of Real Estate,” from Elliott Wave International.

Existing-home sales will fall 8.1% this year while new-home sales will drop 7.1%, Fannie Mae says. The declines are largely due to investors pulling out of the housing market, the mortgage-finance company says.

ADMIN: If you are asking questions about refinancing your mortgage you will get more cash out while home prices are higher than lower.

A reverse mortgage can help ease your finances after you retire, or it could cost you and your heirs a lot of money. Long weighed down by high fees and complexities, these loans are now coming in for a cost-saving makeover.

Consumers may never find that altruistic lender. But there are ways to shop for a loan without getting fooled by salespeople who are more concerned about commissions than clients.

With a reverse mortgage, the lender sends you cash and you make no repayments, so your debt increases while your equity shrinks. When a reverse mortgage becomes due and payable, your home’s value will have been turned into loan advances, loan costs, or left-over equity.

While that notion might seem alarming, remember that’s precisely what a reverse mortgage borrower needs - the ability to “spend down” their home equity, while they live in their home, without having to make monthly loan payments.

Personal finance loans and credit.

FICO scores range from about 300 to 850 and exhibit a left-skewed distribution with a US median around 723. A score above 720 is considered to be “good credit,” and a score below 620 is considered to be sub-prime credit. Higher FICO Scores = Lower Monthly Payments A difference of 3% for the average $150,000 home mortgage could mean more than $100,000 in extra interest to the sub-prime borrower over the life of the loan.

Personal finance resource: credit score, credit cards, reverse mortgages.

A reverse mortgage is still a loan with your house as the collateral, but it is entirely different from the kind of mortgage you got when you bought your first house. Learn the major differences with the reverse mortgage primer.

Loans and personal finance information.