In 2009 the Federal Housing Finance Agency (FHFA) commissioned the HARP program to help Americans upside-down on mortgages to get approved for mortgage refinancing. This is only available to people whose mortgages are already owned by Freddie Mae and Freddie Mac. Many Americans find themselves upside-down, or underwater, on their home mortgages, particularly after the housing bubble popped in 2008. To be underwater means that there is more owed on the loan than the home can serve as collateral for. Continue reading...
A Channel Down pattern shows a clearly defined downtrend and describes the behavior of the price contained between downward sloping parallel lines. Lower lows and lower highs characterize this price pattern. This pattern is created via a lower trendline connecting the swing lows (1, 3, 5), and an upper channel line that joins the swing highs (2, 4, 6). A breakdown below a descending channel’s resistance line points to a continuation of the decline momentum, while a break out above the channel’s resistance line can show a possible trend change. Continue reading...
A covered call is when the writer or seller of a call option either owns the underlying security, or has a guaranteed way to obtain it. Investors are able to open a position for another investor to take. An example of this would be selling a call option. The seller, or “writer,” of the contract is obligated to fulfill the contractual obligation outlined in the call, namely to deliver 100 shares of the underlying stock to the owner of the call option in exchange for the strike price listed in the call contract. Continue reading...
A leveraged loan is a commercial loan that is generally created by a few participants, and packaged and offered by one or several investment banks. Leveraged loans are typically targeted at companies that already have a significant amount of debt and may be limited in their options to access capital elsewhere. They are considered on the higher end of the risk spectrum. Continue reading...
Subprime loans are loans made by institutions to individuals who do not meet the industry standards for a desirable loan client. Lenders such as banks and mortgage companies are able to shift much of the risk of loans they make by selling the debt off to investors and investment banks in the form of collateralized mortgage obligations and other forms of securitized debt. This paves the way for lenders to adopt more liberal guidelines around who can receive a loan for their home purchase and so forth. A thorough banker who is preserving the financial stability of his employing institution will perform due diligence to prove that a client can meet the repayment schedule for the loan by showing adequate cash flow and credit history. Continue reading...
A jumbo loan is a mortgage loan that exceeds the conforming loan limits set by the Office of Federal Enterprise Housing Oversight. For borrowers with low debt to income ratios and good credit scores, jumbo loans are often utilized for purchases of larger or luxury homes. Often times jumbo loans are too large in size to be guaranteed by Fannie Mae and Freddie Mac, and are securitized in other ways. Continue reading...
Expenses for tuition, room, and board at a secondary education institution can be loaned to a student and paid off over time in the form of a student loan. Tuition and other college expenses have inflated at a much faster rate than the rest of the consumer price index. These institutions can charge more and more as they experience student housing crunches and an ever-growing demand for college education. Continue reading...
The Federal Housing Act of 1934 sought to make it easier for Americans to buy homes. It was believed and still is today to an extent that homeownership is a positive foundation for a healthy economy because it provides stability to communities, facilitating healthy family life, community involvement, and the development of businesses in an area where a community will support the business. The Federal Housing Administration runs the FHA loan program with the help of certified lending institutions. FHA loans are a way for lower income earners to be able to purchase a home. Continue reading...
Articles that list “great value” buys should be food for thought, but may not put food on your table. Value stocks are those with low Price to Earnings ratios. To say that a particular Value Stock has an “Awesome” value is to say that it has been significantly undervalued by the market. While sometimes the market is ignorant of the growth potential and strong fundamentals of a particular company, the author of such an article would have you believe there is a great big crystal ball in his office. Continue reading...
Amortization is like giving a life span to a financial obligation, over a set number of years, and gradually killing-off the obligation with set payments. Amortization is the calculation of a fixed payment schedule over a set number of years to allow the repayment of a loan, such as a home mortgage. From an accounting standpoint, it can refer to the practice of spreading-out the cost of any intangible asset over time. For example, the IRS will allow a taxpayer to amortize the premium of a bond for deductions. Continue reading...
An interest rate is a simple financial principle that’s been around for centuries, whereby a borrower has to pay for money borrowed. The interest rate is agreed to between the lender and the borrower, and there may be provisions under which the rate could change over the course of a loan. In simple terms, an interest rate is the cost of money. Continue reading...
Mortgage insurance may refer to a few kinds of insurance that protects the lender in a mortgage loan. It might be mortgage life insurance, mortgage title insurance, private mortgage insurance (PMI), or another form of protection. Usually the borrower will pay the premiums for such insurances. Mortgage insurance protects the bank or lending institution from various risks that might prevent them from being repaid for their loan. This might include the risk that a borrower will default on payments or that the borrower might die. Continue reading...
The analysis of convergence and divergence between indexes and other data seeks to find leading indicators where there is confirmation or non-confirmation of trends. Dow Theory was one of the first examples of such thinking. Charles Dow would watch the movements of Industrials and the Rail and compare the uptrend or downtrend of each. Where trends do not line up (e.g., one is trending downward with lower troughs and the other has “higher lows”) there is “divergence”, and non-confirmation of what was thought to be a trend in one index. Continue reading...
Home equity loans give a homeowner the ability to borrow a lump sum against their home equity. Homeowners have the ability to use their home equity as collateral on a lump-sum loan from a lending institution. This may be done on a paid-off home or on one with an outstanding first mortgage. People sometimes use these to pay for large expenses such as their children’ s college, or as a debt consolidation tool. When used for debt consolidation, a homeowner will take out a large loan against the equity they have in their home and use it to pay off debts to credit card companies and other creditors. Continue reading...
Accelerated amortization is the recalculation of an amortization schedule, such as mortgage payments, after the borrower pays off some of the debt ahead of schedule. Amortization describes the accounting practice of giving a one-time expense a retirement schedule or payment plan by which it is to be either deducted for tax purposes, repaid, or paid out. Accelerated amortizations allow for more payments or deductions in the early years rather than later years. Continue reading...
IIE is deductible from taxes, and is usually used to deduct the interest paid on a margin loan used to buy taxable securities, when there is a gain to offset. Investment interest expense is the term for interest which has been paid in order to hold an investment position. It comes into play when filing taxes. An individual can list interest expenses on a Form 1040. The most common place to incur an interest expense when investing is through the use of margin in an investment account. Continue reading...
Bottom-up investing is the practice of looking for solid companies and investing in them as opposed to investing in indexes and basing that decision on broader market/macro conditions. In bottom-up investing, an investor or advisor takes the stance that the best investment portfolio will not be a broad allocation across market indices, but that an optimal portfolio should be built from the bottom-up with the stocks and bonds of individual companies whose fundamentals and individual potential have been analyzed. Continue reading...
Cash collateral is liquid cash and cash equivalents designated as collateral for loans and debts of various sorts. One frequently used example of cash collateral is cash used in short selling of securities in a brokerage account. While securities equal to significantly more than the required cash margin can be substituted for cash, the most cost-effective and least risky way to maintain margin requirements is with cash and cash equivalents. Continue reading...
Bank Credit is the amount of loaned capital that an individual or business is capable of getting from a bank at a given time. This amount will be based on a series of evaluative metrics such as the total amount of assets an individual has, home equity, income, liquid net worth, work history, credit rating, and so forth. An individual can only borrow so much at a time, and, using these variables, a banker can essentially estimate how much credit could be extended that a given individual at that time. Continue reading...
Most mortgage companies today are brokerages that do not underwrite or fund the loans themselves. They help to place customers with the most competitive loans that make sense for their situation and personal finances. Many small mortgage companies went bankrupt in the housing bubble of 2008. Mortgage companies are known as loan originators since they pair customers with loans that suit them and get the process started. Some companies also fund mortgage loans, but most are basically brokerage services that do not lend the money themselves. Continue reading...