The banking industry is in deep trouble again except this time it's the entire housing market at risk in just the last few days Bank lending has fallen by the largest amount ever on record, and the situation is getting so bad the banks are now losing money. on every mortgage they finance which has never happened before in history on top of that this also comes at the same time as a looming commercial real estate crisis the absolutely unheard of introduction of 40-year mortgages to encourage new buyers to enter the market and another massive move towards money market funds which Barron believes could be the next bubble that's why we got to break down exactly what this means what's actually starting to happen throughout the housing market if 40-year mortgages are going to cost home prices to go back up and what you could do about this to potentially save a lot of money , of make sure to hide your handicap registration if you plan to rob a bank and yes she actually got caught because she parked in the handicap spot with her placard on display although,
alright so in terms of where all of this, starts look no further than the banking industry because for the most part they've stopped lending money see all of this begins about a month ago at the collapse of three National Banks silver Gates signature in the most prominent Silicon Valley Bank with the rapid rise of interest rates from the Federal Reserve Bank deposits have largely been under a lot of stress because they don't just take your money and then stuff it under a mattress instead they invest it.
Essentially this meant that Silicon Valley Bank along with a lot of other major banks have all of their customers money but it's a liquid in the event that everyone wants to cash out at the exact same time which is exactly what ended up happening despite the federal reserve's best attempts at calming the markets Regional Bank stocks went into a free fall in the international Credit Suisse began experiencing similar difficulties while customers withdrew billions of dollars contributing to the bank's largest annual loss since the financial crisis in 2008. however what people found the most remarkable was that Credit Suisse had just received a clean bill of health from regulators and then it took them less than a week to completely collapse leaving everybody to wonder who's next ? well in this case,
it's not who but what and that what is lending according to a recent report from Bloomberg ,the last two weeks of March saw the largest contraction in lending on record with almost 105 billion dollars erased from the market in addition to that it said that trillions of dollars are draining out of Banks and into money market funds that weakens the banks not to mention fear that the banks are at risk is driving this trend and thus making the banks even weaker the overall effect of this is that when faith and Banks declines ,so does lending and the net result is a huge reduction in terms of what a bank is willing to give we're basically in more simple terms Banks believe believe that the market is going down their borrowers are going to be.
Unlikely to pay them back and that means they have to be very careful in terms of who they lent their money to which means they have to tighten their checkbook in fact in the last week the American Bankers Association index of credit conditions felt the lowest level since the onset of the pandemic indicating Bank economists see credit conditions weakening over the next six months although it doesn't stop there because in an effort to shore up additional demand they're bringing something that I never thought we would see and that would be the 40-year.
Mortgage right now here's the scary truth with interest rates Rising today's payments are 29 higher than a year ago which was already 39 higher than the year prior this means that the average homeowner is paying 50 to 65 percent more today than they could have paid two years ago just because interest rates are no longer under three percent obviously this is severely impacted a person's ability to finance a home and the end result is that mortgage demand has fallen to a 28-year low while everyone else is already locked in refused uses to sell but there is a bit of a solution on April 7th the federal housing Administration announced that they would begin rolling out 40-year mortgages except with the bit of a Twist although before we go into exactly what that is here's a bit of a background on how it'll work anytime you get a mortgage you'll generally have to ,choose between three different options one would be a variable interest rate where you could lock in today for a temporary period and then that way it'll fluctuate.
until eventually you pay off your home two would be a 30-year term where you pay a slightly higher interest rate but your monthly payment is lower because you could spread out your loan over three decades, and three would be a 15-year term where your payment's going to be about 30 percent higher but your overall interest rate is lower and you get to pay off your home in half the time but with prices having risen, so unbelievably High a 40-year mortgage would take the typical 350 000 home at a six and a half percent interest rate and lower that from twenty two hundred and twelve dollars a month down to two thousand forty nine dollars essentially allowing you to purchase five percent more home or lower your month monthly payment by a hundred and sixty three dollar a month this way instead of paying 446 000 in total interest you would have to pay six hundred and thirty three thousand dollars all for the low cost of saving a hundred and sixty three dollars a month okay in all seriousness I've seen a lot of posts like this and they're not exactly wrong a 40-year.
mortgage barely reduces the payments it results in 10 more years of having a mortgage and in my opinion it's an absolutely ridiculous offer to even entertain but don't you worry remember that twist I mentioned earlier well as of now the 40-year payment is only available to people who have fallen behind on their mortgage and need a way to save a little bit of extra money in those cases the FHA is allowed to take their loan and extend out the remaining term for another 40 years essentially allowing them to lower their monthly payment and hopefully avoid foreclosure ,so basically in order to qualify fight for this ,you gotta be delinquent on your loan approved for a loan modification and be able to resume payments on a 40-year term so it's not like you could just go to your bank and get this for a brand new purchase that you plan on making in the next few months pretty much the way I see it this is a way for banks to avoid the costs and hassle of a foreclosure while being able to keep a property owner in their home for a slightly reduced cost although.
personally, I think it's only a matter of time until eventually it's an option that's available to everybody including buyers who would be able to take out a loan that could very well outlive them simply because home prices are getting out of control but you know what I'll leave that to the politicians especially when banks are losing money on every mortgage they issue however nothing beats California who just took home ownership to the next level although before we go into that as you probably.
noticed interest rates have continued going higher ,and even though that makes borrowing more expensive there can be some benefits for example not only are major indexes less expensive today than they were a year ago but treasury bills are also paying as high as 5 percent interest depending on the term that means that now could be a great time to take advantage of the market which are sponsor public.
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