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Mortgage and Finance in the Real Estate Industry Essay (Article Review)

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Updated: Jun 4th, 2022

Introduction

The real estate industry has been undergoing significant changes in the last couple of years as a result of the industry failure in 2006. Mortgaging is one of the main forms of financing activities conducting the real estate industry, which in particular has suffered in the recent economic crises. Business practices about lending to the subprime market as well as an imminent financial recession were the main factors contributing to the crash of the mortgage and housing industry in the United States. The following essay explores and analyses the articles presented in Newspapers and periodicals like Newsweek, New York Times, and San Francisco Chronicle highlighting various issues and aspects of mortgage and finance in the real estate industry.

Article 1

The article by Bob Tedeschi published in the New York Times titled ‘Cracking Down on Certain Brokers’ highlights that while the mortgage crisis that is being faced by the real estate industry has negatively affected the lives of many by causing economic problems and high level of debt, the crisis has had a positive impact on the real estate industry by driving out the risky loans and unsophisticated mortgage lenders out of the industry.

The article provides that previously the mortgage industry was riddled with unprofessional business practices like processing of leans by unlicensed operators who still charged commission and fees for consultation while the wring market was being targeted with the incoore4ct type of mortgage products. The new loans that are being provided by the lenders and the mortgage brokers in the industry are now required to only provide loans that are legally insured and protected by the FHA. The FHA is a housing administration set up by the federal government to regularize the business practices of the lenders and avoid loans being made to the sub-prime market.

The role of the FHA is also to supervise and review the contract of the mortgage professionals to restrain the abuse of the customer at the hands of unprofessional lenders. The FHA has also mandated that the mortgage lenders have to get approval for their operation in advance for each application that they process. The article also provided that those who have already been convicted and accused of being involved in fraudulent activities cannot reinstate their bossiness in the mortgage industry under the FHA.

The arguments that have been made in the article pertain to the refinement of rules and procedures provided to the mortgage lenders by the government for licensing, legalizing their operations, and for controlling the spread of the loans to the market. The main idea that has been proposed by the federal government and discussed through the article is that increased review and supervision of the mortgage operators as well as proper licensing and contracting of the registered mortgage operators would help in avoiding lending of inappropriate loans to the supreme market. Additionally, the use of the FHA mortgage products that specifically target the subprime market will help them better attain resources of funding mortgages without adding to the exploitation of the market.

The closer supervision of the mortgage brokers and lenders can indeed lead to a better regulated and monitored industry. The two-point strategy that is being employed by the government to regulate the mortgage financing industry for the housing and real estate sector combined with the launch of new products specifically targeting the underdog market will greatly help in reviving the industry from recession as well as making way for long term substantial growth in the market.

Article 2

The article by Associated Press published in the San Francisco Chronicle titled ‘Mortgage Rates Up, Refinancing Activity Slows’ reports on the trend that the rates on the mortgage loans for various periods, especially for 30-year mortgages are increasing significantly leading to a refinancing slowdown. This combined with the increasing demand for housing which is not decreasing leads to a gap in supply and demand, further driving the rates for the mortgages higher for the consumers.

The article provides that the housing market is gearing its way towards a slow recovery; however, the presence of the high-interest rates on the mortgages is increasing the costliness of the mortgage products for the customer, therefore making it more expensive for them to acquire mortgages. It has been highlighted in the article that the trends for the rise in the mortgage rates which have hit a 7 month high recently have been caused by the increasing bond yields which are used as an indicator for interest rates in the industry. The recessionary pressures in the US economy have also pressurized the interest rates causing them to significantly increase.

The high rates of mortgages come as a threat to the housing and mortgage industry as the industry requires refinancing activity to drive itself, however, the increasing rates are simultaneously decreasing the refinancing activity in the mortgage finance industry while the demand for the houses depicted by the consumers is not decreasing.

The main arguments that have been highlighted in the article about the causal effect of the breakdown of the housing and mortgage industry in the US and how the capital market crash has also aggravated the crisis. While the recovery efforts have been made by the government to stabilize the mortgage industry, environmental factors like increasing bond rates and increasing demand for housing are driving the cost of acquiring a mortgage higher for the customers in the market. The article argues that increasing costs of mortgages combined for the debt-stricken customers can not enable the mortgage industry to recover from its current crisis despite the recovery efforts

To enable the mortgage and financing industry to recover from its past issues, a slow but graduate reestablishment-focused strategy has to be deployed which takes into account the increased demand presented by the customer for housing and their financial condition for acquiring mortgages. The high rates of mortgages only lead to the decline in the refinancing activity, which is crucially required for the recovery of the industry. As a result, the efforts of the recovery should focus on increasing the refinance activity in the mortgage industry to help the industry recover and reestablish itself as a positive contributor to the economy.

Article 3

The article by Vivian Toy published in the New York Times titled ‘Penetrating the Maze of Mortgage Relief’ focuses on the mortgage modification program provided by President Obama and how it promises benefits to the consumers. The article is based on a consumer-centric theme and therefore provides how the consumers are affected by the mortgage modification program when acquiring and modifying their mortgages.

The Article provides that while the mortgage modification program provides numerous benefits to the mortgage industry as well as the consumers in the market, the program has yet to prove whether it can be successful. Some of the issues that have been provided about the program related to the lack of access that consumers have to the system for the 2 percent mortgages. The program itself is providing to be a very slow operator as it takes administration a significant amount of time to access the applicants and provide them with news regarding the modification of their old mortgages to 2 percent mortgages.

Additionally, the consumers who apply for the 2 percent mortgages under the modification program find it hard to get their mortgages modified as opposed to those whose applications are prepared and supported by the HUD counselors. Aside from this the article also provides that the approval rate for these mortgages is significantly low, leading to a high number of disappointed customers. The article also presents the eligibility criteria for the appliers under the modification program and what requirements have to be met by them to expect approval on their applications.

The arguments presented in the article focus on the issues and the problems being faced by the consumers when they apply for the 2 percent mortgage under the mortgage modification program provided by President Obama. The program aimed to enable the current mortgage owners to be able to better pay their debt instead of their financial status and constraints. However, the low approval rate as well as the increased processing time and conditions to be met by the applicants are proving to be more cumbersome for the customers. The increase in the foreclosures n the last year added by the fall of the global capital markets has increased the urgency for such a program to help the consumers as well as the industry to recover.

The mortgage modification program is a positive step taken by the government to provide support to the consumers facing a high level of debts due to mortgages and foreclosure in the face of not being able to make their payments in the face of high unemployment levels. However, the implementation of the program and the processing of the applications filed for modification needs to be speeded up while being made efficient to be effective in achieving its goal of reviving consumer confidence in the US market as well as providing support to the consumers by facilitating their mortgage payments.

Article 4

The article by Matt Woolsey published in Newsweek and titled ‘How Low Will Housing Go’ focuses on the new trend developing in the real estate market about the sudden hike in real estate prices in the United States. The article highlights how some of the cities like those in Florida have been particularly hit by the phenomena, therefore, resulting in an excessive increase in housing prices in the region.

The crisis faced by the mortgage and real estate industry due to excessive lending to the subprime market and inefficient management of loans saw the house prices, especially the listed prices of the real estate to go down significantly. While in the last two years little or no recovery has been made, the sellers on the other hand have adopted a strategy to make a profit on the sale of their properties. The article provides that sellers have started a bidding war amongst the buyers who bid excessively high for the property depicted the much lower listed price as provided by valuation agencies and financial institutions. This increase in the bidding has to lead to inflation in the housing and property prices all over the United States.

However, the metropolitan cities the likes of Miami, Jacksonville, and Orlando have been reporting an excessively high level of inflated property and real estate prices, while on the other hand, they are also registering high levels of unemployment. The increase in the demand for housing is exploited by the sellers who refuse to sell the house until the buyer can propose a bid well high enough above the listed price to generate a healthy profit for the seller. This artificial lifting of the prices is also adding to the very slow recovery of the mortgage industry through low levels of refinancing activity.

The argument that has been presented in the article is that a number of the factors are adding to the hit on the crisis of the real estate and housing market. These factors include the constantly increasing unemployment rates in the metropolitan cities of the United States, the incr4ease demand for housing that is depicted by the buyers in the market, and the inflated house prices caused by the bidding war initiated by the sellers in the market. The negative impact of these factors in face of the faltering mortgage industry is not accessible at the present; however, the next financial year would depict the extent to which the housing market and industry can bear these negative forces.

The economic states of the nation as well as the recessionary pressures are influencing the consumers in the market to aim for high profits. This combined with the faltering state of the housing and real estate industry and the mortgage financing industry depicts that the future for the real estate industry is not healthy in the face of the current trends. To deliver sustainable growth in the industry the government will have to perform significant levels of intervention to regulate the market.

Conclusion

Conclusively the arguments that have been discussed in the above-mentioned articles provide that the housing and the mortgage industry has been facing significant issues that are affecting its growth and recovery. These issues are provided by the increased demand for houses as depicted by the consumers in the market, the inflated prices of housing in the metropolitan cities of the United States a well as the still ill-performing mortgage industry.

Moreover, the increasing interest rates in the capital market are also leading to higher interest rates in the mortgage industry. While steps have been taken to provide recovery through the regulation of the mortgage industry aimed at the review and supervision of mortgage brokers and the provision of a 2 percent mortgage option by Obama, more efforts are still required to help aid the industry out of its crisis.

Personal opinion regarding the above-stated issues and steps taken to resolve them highlights that better regulation is required in the financing of the real estate as well as in the real estate industry itself to help it out of its recession. The overall economy is affected by the crash f the capital market leading to high levels of unemployment. At such time, relief and support should be provided to the consumer s while better regulation in terms of strict guidelines and procedures for operations can help both the mortgage and the real estate industries perform in a much more effective and efficient manner.

References

Associated Press, “Mortgage rates up, refinancing activity slows”, San Francisco Chronicle. 2009. Web.

Tedeschi, B. “Cracking Down on Certain Brokers”, New York Times. 2009. Web.

Vivian, S., Toy. “”, New York Times. 2009. Web.

Woolsey, M. “How Low Will Housing Go”, Newsweek. 2009. Web.

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