A couple of months ago, luxury home builder Toll Brothers announced that it would offer 30-year mortgage financing for 3.99%. This was big news, and now rival homebuilder Lennar wants in on the action. Lennar just announced that it will be offering 30-year fixed mortgages at 3.625%.

These mortgage financing deals are starting to pop up around the country. In addition to new construction homes, there are special deals being offered on home equity lines of credit, as well as special financing options from local and regional financial institutions. Indeed, right now it’s not the big banks that are offering the best deals. You’re better off looking local — or going to homebuilders.

In the last 18 months or so, it has been common to hear stories about homeowners walking away from their homes when they can no longer afford the mortgage. In some cases, these homeowners consider it prudent personal finances to simply walk away. And now the idea is catching on with some banks.

The idea behind a foreclosure is that, when it becomes evident to the bank that the borrower will likely completely default, the bank takes over ownership of the home and then tries to auction it off in order to recoup some of the losses. A regular foreclosure can mean losing between 50% and 60% on average. However, with the housing market so bleak in some areas, that loss is mounting. Banks are thinking that — in some cases — it’s not worth it to take over ownership. After intitiating the foreclosure process, some banks are just…walking away.

When banks do this, though, it causes more problems for the borrower. It adds fees, paperwork, hassles and confusion. It’s a bit odd that we’ve reached a point where mortgage borrowers and mortgage lenders are competing over who will ultimately walk away.

Learn about how the financial crisis came about. A funny way of looking at how investment bankers are doing okay right now, and how loan securitization works.

Happy Friday!

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Not too long ago, Federal Reserve Chair Ben Bernanke went on 60 Minutes to talk about the economy. During the interview, Bernanke talked about his hopes that the foreclosure crisis might end soon. Real Estate Pro Articles reports on Bernanke’s remarks:

He asserted again that the major factor for a complete economic recovery is the stabilization of the financial sector. Obama’s foreclosure program is one of the major strategies to stabilize it as mitigation of foreclosed homes reduces the losses by mortgage banks.

The chairman also defended the decisions and programs of the Obama government, such as the program to avert the rising number of foreclosed homes. Obama’s Home Affordable initiatives offer loan refinancing for Fannie Mae and Freddie Mac mortgages and loan modification for borrowers whose homes have significantly deteriorated in value and are at high risk of becoming foreclosed homes.

One of the nice things about Obama’s plans — as opposed to the previous administration’s — is that those who acted responsibly will also get help with refinancing. Additionally, Obama wants to provide help for people before they start missing payments, rather than requiring that they be 90 days behind in order to get help. Depending on the logistics of how the plans are carried, there is a very real chance that Bernanke is right and ending the foreclosure crisis could help the economy recover faster.

Many people are finding out that getting a loan just isn’t as easy as it used to be. And, to a certain extent, this is true. Those with questionable credit, high debt to income ratios and a large amounts of preexisting debt just aren’t going to be able to borrow with the ease they could have three years ago. But you can still get a loan. Here are some tips for getting a loan during the credit crunch:

1. Go local for your loans: Many of the big banks just aren’t lending, despite bailout funds aimed at loosening the credit market. Instead of looking to the “elite” national banks, look at your local banks and credit unions. Many local institutions never got into the sorts of things that are wreaking havoc with balance sheets right now.

2. Make sure your credit is in order: You will need to make sure your credit score is in relatively good shape. Check your credit report (with the help of annualcreditreport.com), and fix any errors that might be weighing on your score.

3. Pay down some of your debt: You can become more attractive by paying down some of your debt. You want to keep your debt-to-income ration, including your new loan to around 36% or less. Less, of course, is better. It is also best to keep your credit card balances to 50% of what you have available.

4. Be prepared to document your income: You will have to provide ample proof of income and other information. Lenders want to be able to fully document that you will be able — and likely — to pay back your obligation.

You can still get a loan. For those who are in a fairly good financial place, it is possible to find a lending institution willing to allow you to borrow. But it may take a little more work than in the past.

After becoming Wall Street’s hero yesterday, Timothy Geithner is back on his way to whipping boy. The bank rescue plan — whereby the government buys more troubled and toxic assets to move them off bank balance sheets — made Wall Street happy. Today’s announcement that Geithner thinks the government needs more power to seize non-bank institutions? Not so much.

FDIC-style seizures of institutions about to fail

There are plenty of financial institutions (AIG comes to mind) that are not considered banks. Therefore, they do not have the same regulatory structure as banks. And the FDIC can’t swoop in, seize them, and protect depositers when they are on the verge of failure. Timothy Geithner thinks that there should be some sort of an FDIC-like body that could seize non-bank financial institutions on the verge of destruction.

It’s an interesting thought — but not one that gives Wall Street the warm fuzzies. Although I’m starting to think that maybe anything that Wall Street dislikes is something we might at least consider…

It’s been an interesting two or three weeks as Barack Obama and others head out to try and help build confidence in the U.S. economy. President Barack Obama answers questions on 60 Minutes, and he talked about how he feels about big business (especially AIG), Timothy Geithner and the national debt. Indeed, Obama points out that there is going to a limit on borrowing. But I’m not sure what that limit will be…

This is the first part, but you can see more on CBS.com.

This is one of the best explanations of a Ponzi scheme that I have seen yet. It is a little incomplete, perhaps, but that’s part of what makes it so very funny…

Happy Friday!

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Yesterday, since it couldn’t lower interest rates any more, the Federal Reserve announced a plan to buy long-term U.S. Treasuries. Because mortgage rates are connected to long-term U.S. bonds, they are down. Indeed, today they dropped below 5% for a 30-year fixed loan.

The efforts by the Federal Reserve are part of an effort at quantitative easing. The idea is to ease monetary policy to a point that banks feel comfortable lending to each other. The thought is that once these banks are comfortable with lending to each other, and the money starts flowing, they’ll start lending to the rest of us. When this happens, the credit crunch comes to an end and the economy starts to recover.

At any rate, the announcement by the Fed has been suspected for quite some time, and it really isn’t much of a surprise that this measure has been introduced.

Learn a little big more about quantitative easing:

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Some of the bailout money that AIG has received in recent months may have to be given back. Douglas McIntyre, in Time, offers this summary of AIG’s likely pay back of bailout money for bonuses:

The long and short of it is that AIG will pay back taxpayers for the bonuses using taxpayer money. AIG has no money of its own. It has planned to sell off some of its divisions to raise capital. With one or two exceptions, there have been no takers. Perhaps the cause of that is tight credit markets, or perhaps the AIG operations that are one the block are not terribly attractive.

The pay back will come in the form of withheld payments for the bailout from the government. The total is $165 million. It is a small drop compared with the billions that AIG has received, but public outrage over AIG and other Wall Street firms is just getting started. Indeed, public outrage is turning on the Wall Street “fat cats” and may finally be moving off of the “regular folks” caught in foreclosure trouble.

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