Hyundai is leading the auto-incentive pack once again. Beginning tomorrow, the South Korean automaker will launch their “Assurance Gas Lock” promotion,
An incentive that will offer new vehicle

buyers either a $1,000 cash rebate or the chance to lock in gas prices at $1.49/gallon for one year:

With gas prices at $2.70, someone driving a V6 Hyundai Sonata, one of its most popular models, for 12,000 miles over the course of a year would save about $580 with the gas price promotion,
Given the Sonata’s EPA-estimated 25 miles per gallon fuel economy in combined city and highway driving.

Gas prices would need to average about $3.60 a gallon or more for a typical Sonata buyer to benefit from the gas card instead of the cash.

In the June 12 edition of their weekly newsletter, The Kiplinger Letter, the personal finance and business forecasting organization says that while they do expect oil prices to increase to $85 a barrel in the coming weeks,
“By year-end, oil will be closer to $65 a barrel, with gas near $2.25 a gallon.” That being said, we’re betting most will opt for the cash.

Hyundai’s latest promotion completes a triple threat for the automaker that’s looking to gain an even greater lion’s share of the automotive market.
The “Assurance Gas Lock” promotion, combined with their year-long “Assurance” program, and the newly enacted “Cash for Clunkers” law,
Could serve to push Hyundai even further to the head of the pack:

[From CNN Money, 2/19/09] The auto industry’s U.S. sales in January were at the weakest monthly annualized rate in 27 years,
But Hyundai saw demand rise 14%, a trend [vice president of marketing at Hyundai Motor America Joel] Ewanick,
Ewanick partly credited to the Assurance program, which was launched in early January.

[From CNN Money, 6/30/09] Hyundai will announce its June sales on Wednesday and industry trackers at Edmunds.com expect them to be down 18% from the same month last year,
But that would be much better than the overall industry which is expected to be down 28%.

We wrote this exact conclusion back in February when we first reported on Hyundai’s “Assurance Plus” program,
And we think it still applies: “Automakers take note: if you can prove to consumers that you’re willing to stand behind them, they’ll be more willing to stand behind you.”

Citi Raises Rates Before Rules Take Effect
According to the Financial Times, Citigroup has increased the interest rate on up to 15 million credit card accounts that the bank co-brands with retailers such as Sears.
The increase comes months before the Obama Administration’s credit card reform is scheduled to take hold.

The Credit Cardholders’ Bill of Rights Act, slated to go into effect in early 2010 — pushed up from the originally launch date of July 2010 — is designed to,
Among other things, prevent credit card companies from raising interest rates without the cardholder’s knowledge:

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent –
Or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

Citi’s response to the increase was the same as Bank of America’s regarding their recent increases in rates and fees.
Financial institutions have cited that the cost of doing business has increased due to the voluminous defaults and volatility in the current market:

Mortgage Rates  broke news of the hike, Citi issued a statement saying: ”We have adjusted pricing and card terms for some customers as part of our regular account reviews.
This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles.
These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.”

Citi’s move came as the economic downturn caused record defaults among US card users and prompted many issuers to raise rates,
Both to cushion their losses and pre-empt the new restrictions set to come into effect in February.

However, Citi’s increases have been larger than those of its main rivals, according to Lightspeed, which tracks about 12,000 US credit card accounts.

We expect many credit card companies to rush in many of the practices that will be banned under the legislation while they still can.
We urge consumers to guard themselves against rate increases by buying only what you know you can afford, paying your bill in full and on time every month,
And read your contract so that you understand the terms and conditions of your account.

Citi Raises Rates Before Rules Take Effect
According to the Financial Times, Citigroup has increased the interest rate on up to 15 million credit card accounts that the bank co-brands with retailers such as Sears.
The increase comes months before the Obama Administration’s credit card reform is scheduled to take hold.

The Credit Cardholders’ Bill of Rights Act, slated to go into effect in early 2010 — pushed up from the originally launch date of July 2010 — is designed to,
Among other things, prevent credit card companies from raising interest rates without the cardholder’s knowledge:

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent –
Or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

Citi’s response to the increase was the same as Bank of America’s regarding their recent increases in rates and fees.
Financial institutions have cited that the cost of doing business has increased due to the voluminous defaults and volatility in the current market:

After FT.com broke news of the hike, Citi issued a statement saying: ”We have adjusted pricing and card terms for some customers as part of our regular account reviews.
This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles.
These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.”

Citi’s move came as the economic downturn caused record defaults among US card users and prompted many issuers to raise rates,
Both to cushion their losses and pre-empt the new restrictions set to come into effect in February.

However, Citi’s increases have been larger than those of its main rivals, according to Lightspeed, which tracks about 12,000 US credit card accounts.

We expect many credit card companies to rush in many of the practices that will be banned under the legislation while they still can.
We urge consumers to guard themselves against rate increases by buying only what you know you can afford, paying your bill in full and on time every month,
And read your contract so that you understand the terms and conditions of your account.

HARP Now Accepting Loans With 125% LTV
HUD Secretary Shaun Donovan announced this afternoon that Fannie Mae and Freddie Mac will now begin refinancing loans with a loan-to-value (LTV) of up to 125% under the Home Affordable Refinance program.
Federal officials have concluded that by expanding the eligibility of the effort, more underwater homeowners will be able to refinance, spurring the recovery of the housing market:

“This decision is part of our ongoing efforts to maximize the effectiveness of the Making Home Affordable program and adapt to an ever-changing housing market,” said Treasury Secretary Tim Geithner.
“By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly.
It’s a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.”

How much relief will this expansion really bring to underwater homeowners?
We crunched the numbers and found that a borrower with a 6.5% rate on a 100,000 Mortgage Calculator refinancing to 5.5%.
Will see a monthly savings of about $64 — only about a 10% savings on their monthly payment.
Assuming 2% in closing costs ($2,000), it will be almost three years before any savings begin.

Even if a borrower isn’t concerned about any savings but instead is hoping for significant improvement to their cash flow, the $64 difference doesn’t provide much of that, either.

What about ARM borrowers? “Prime ARM borrowers with recent resets who want to refinance under this program will see a step up in interest rates from the mid-upper 3% range to the mid-fives; that’s why they are unlikely to participate, at least right now,” said HSH VP Keith Gumbinger.

“It’s also worth noting that if home prices don’t appreciate, it will take homeowners who are 25% underwater [125% LTV] 10 years to get back to zero [100% LTV].
If these homeowners want to sell their homes in less than 10 years, it could result in massive short sales for Fannie and Freddie.
Which means more losses for the American taxpayer,” explains Gumbinger.

Lenders provide funds against property to earn interest income, and generally borrow these funds themselves (for example, by taking deposits or issuing bonds).
The price at which the lenders borrow money therefore affects the cost of borrowing.
Lenders may also, in many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower,
often in the form of a security (by means of a securitization). In the United States, the largest firms securitizing loans are Fannie Mae and Freddie Mac,
which are government sponsored enterprises.

Mortgage lending will also take into account the (perceived) riskiness of the mortgage loan, that is,
the likelihood that the funds will be repaid (usually considered a function of the creditworthiness of the borrower);
that if they are not repaid, the lender will be able to foreclose and recoup some or all of its original capital;
and the financial, interest rate risk and time delays that may be involved in certain circumstances.

There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage.
All of these may be subject to local regulation and legal requirements.

Interest: interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods;
the interest rate can also, of course, be higher or lower.
Term: mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid.
Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.

Payment amount and frequency: the amount paid per period and the frequency of payments; in some cases,
the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.

The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM) (also known as a floating rate or variable rate mortgage).
In many countries, floating rate mortgages are the norm and will simply be referred to as mortgages; in the United States,
fixed rate mortgages are typically considered “standard.” Combinations of fixed and floating rate are also common,
whereby a mortgage loan will have a fixed rate for some period, and vary after the end of that period.

Historical U.S. Prime RatesIn a fixed rate mortgage, the interest rate, and hence periodic payment, remains fixed for the life (or term) of the loan.
In the U.S., the term is usually up to 30 years (15 and 30 being the most common), although longer terms may be offered in certain circumstances.
For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan,
although ancillary costs (such as property taxes and insurance) can and do change.

In an adjustable rate mortgage, the interest rate is generally fixed for a period of time,
after which it will periodically (for example, annually or monthly) adjust up or down to some market index.
Common indices in the U.S. include the Prime rate, the London Interbank Offered Rate (LIBOR), and the Treasury Index (”T-Bill”);
other indices are in use but are less popular.

Mortgage calculator transfer part of the interest rate risk from the lender to the borrower,
and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive.
Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate;
the size of the price differential will be related to debt market conditions, including the yield curve.

Additionally, lenders in many markets rely on credit reports and credit scores derived from them.
The higher the score, the more creditworthy the borrower is assumed to be.
Favorable interest rates are offered to buyers with high scores.
Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.

A partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term,
but the outstanding principal balance is due at some point short of that term. This payment is sometimes referred to as a “balloon payment” or bullet payment.
The interest rate for a balloon loan can be either fixed or floating.

The most common way of describing a balloon loan uses the terminology X due in Y, where X is the number of years over which the loan is
amortized,
and Y is the year in which the principal balance is due.
Upon making a mortgage loan for purchase of a property, lenders usually require that the borrower make a downpayment,
that is, contribute a portion of the cost of the property.
This downpayment may be expressed as a portion of the value of the property (see below for a definition of this term).

The loan to value ratio (or LTV) is the size of the loan against the value of the property.
Therefore, a mortgage loan where the purchaser has made a downpayment of 20% has a loan to value ratio of 80%.
For loans made against properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property.

The loan to value ratio is considered an important indicator of the riskiness of a mortgage loan:
the higher the LTV, the higher the risk that the value of the property (in case of foreclosure) will be insufficient to cover the remaining principal of the loan.

Loans are often sold on the open market to larger investors by the originating mortgage company.
Many of the guidelines that they follow are suited to satisfy investors. Some companies, called correspondent lenders,
sell all or most of their closed loans to these investors, accepting some risks for issuing them.
They often offer niche loans at higher prices that the investor does not wish to originate.

If the underwriter is not satisfied with the documentation provided by the borrower, additional documentation and conditions may be imposed, called stipulations.

The meeting of such conditions can be a daunting experience for the consumer,
but it is crucial for the lending institution to ensure the information being submitted is accurate and meets specific guidelines.
This is done to give the lender a reasonable guarantee that the borrower can and will repay the loan.
If a third party is involved in the loan, it will help the borrower to clear such conditions.

The following documents are typically required for traditional underwriter review.
Over the past several years, use of “automated underwriting” statistical models has reduced the amount of documentation required from many borrowers.
Such automated underwriting engines include Freddie Mac’s “Loan Prospector” and Fannie Mae’s “Desktop Underwriter”.

For borrowers who have excellent credit and very acceptable debt positions, there may be virtually no documentation of income or assets required at all.
Many of these documents are also not required for no-doc and low-doc loans.

There is concern in the U.S. that consumers are often victims of predatory mortgage lending .
The main concern is that mortgage brokers and lenders, operating legally, are finding loopholes in the law to obtain additional profit.

The typical scenario is that terms of the loan are beyond the means of the borrower.
The borrower makes a number of interest and principal payments, and then defaults.
The lender then takes the property and recovers the amount of the loan, and also keeps the interest and principal payments, as well as loan origination fees.

An option ARM provides the option to pay as little as the equivalent of an amortized payment based on a 1% interest rate, (please note this is not the actual interest rate).

As a result, the difference between the monthly payment and the interest on the loan is added to the loan principal; the loan at this point has negative amortization.
In this respect, an option ARM provides a form of equity withdrawal (as in a cash-out refinancing) but over a period of time.

The option ARM gives a number of payment choices each month (for example, the equivalent of an amortized payment where the interest rate 1%,
interest only based on actual interest rate, actual 30 year amortized payment, actual 15 year amortized payment).
The interest rate may adjust every month in accordance with the index to which the loan is tied and the terms of the specific loan.

These loans may be useful for people who have a lot of equity in their home and want to lower monthly costs; for investors,
allowing them the flexibility to choose which payment to make every month; or for those with irregular incomes
(such as those working on commission or for whom bonuses comprise a large portion of income).

One of the important features of this type of loan is that the minimum payments are often fixed for each year for an initial term of up to 5 years.
The minimum payment may rise each year a little (payment size increases of 7.5% are common) but remain the same for another year.

For example, a minimum payment for year 1 may be $1,000 per month each month all year long.
In year 2 the minimum payment for each month is $1,075 each month.
This is a gradual increase in the minimum payment.

The interest rate may fluctuate each month, which means that the extent of any negative amortization cannot be predicted beyond worst-case scenario as dictated by the terms of the loan.

Option ARM mortgages have been criticized on the basis that some borrowers are not aware of the implications of negative amortization;
that eventually option ARMs reset to higher payment levels (an event called “recast” to amortize the loan),
and borrowers may not be capable of making the higher monthly payments; and that option ARMs have been used to qualify mortgages
for individuals whose incomes cannot support payments higher than the minimum level.

Lenders may charge various fees when giving a mortgage to a mortgagor.
These include entry fees, exit fees, administration fees and lenders mortgage insurance.
There are also settlement fees (closing costs) the settlement company will charge.
In addition, if a third party handles the loan, it may charge other fees as well.

Mortgage lending is a major category of the business of finance in the United States.
Mortgages are commercial paper and can be conveyed and assigned freely to other holders.
In the U.S., the Federal government created several programs, or government sponsored entities, to foster mortgage lending, construction and encourage home ownership.

These programs include the Government National Mortgage Association (known as Ginnie Mae), the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac).

These programs work by buying a large number of mortgages from banks and issuing (at a slightly lower interest rate) “mortgage-backed bonds” to investors,
which are known as mortgage-backed securities (MBS).

This allows the banks to quickly relend the money to other borrowers (including in the form of mortgages) and thereby to create more mortgages than the banks could with the amount they have on deposit.

This in turn allows the public to use these Debt Consolidation to purchase homes, something the government wishes to encourage.

The investors, meanwhile, gain low-risk income at a higher interest rate (essentially the mortgage rate, minus the cuts of the bank and GSE)
than they could gain from most other bonds.

Securitization is a momentous change in the way that mortgage bond markets function, and has grown rapidly in the last 10 years as a result of the wider dissemination of technology in the mortgage lending world.

For borrowers with superior credit, government loans and ideal profiles, this securitization keeps rates almost artificially low, since the pools of funds used to create new loans can be refreshed more quickly than in years past, allowing for more rapid outflow of capital from investors to borrowers without as many personal business ties as the past.

The greatly increased rate of lending led (among other factors) to the United States housing bubble of 2000-2006. The growth of lightly regulated derivative instruments based on mortgage-backed securities, such as collateralized debt obligations and credit default swaps, is widely reported as a major causative factor behind the 2007 subprime mortgage financial crisis.

Lenders provide funds against property to earn interest income, and generally borrow these funds themselves (for example, by taking deposits or issuing bonds).
The price at which the lenders borrow money therefore affects the cost of borrowing.
Lenders may also, in many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower,
often in the form of a security (by means of a securitization). In the United States, the largest firms securitizing loans are Fannie Mae and Freddie Mac,
which are government sponsored enterprises.

Mortgage lending will also take into account the (perceived) riskiness of the mortgage loan, that is,
the likelihood that the funds will be repaid (usually considered a function of the creditworthiness of the borrower);
that if they are not repaid, the lender will be able to foreclose and recoup some or all of its original capital;
and the financial, interest rate risk and time delays that may be involved in certain circumstances.

There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage.
All of these may be subject to local regulation and legal requirements.

Interest: interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods;
the interest rate can also, of course, be higher or lower.
Term: mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid.
Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.

Payment amount and frequency: the amount paid per period and the frequency of payments; in some cases,
the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.

The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM) (also known as a floating rate or variable rate mortgage).
In many countries, floating rate mortgages are the norm and will simply be referred to as mortgages; in the United States,
fixed rate mortgages are typically considered "standard." Combinations of fixed and floating rate are also common,
whereby a mortgage loan will have a fixed rate for some period, and vary after the end of that period.


Historical U.S. Prime RatesIn a fixed rate mortgage, the interest rate, and hence periodic payment, remains fixed for the life (or term) of the loan.
In the U.S., the term is usually up to 30 years (15 and 30 being the most common), although longer terms may be offered in certain circumstances.
For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan,
although ancillary costs (such as property taxes and insurance) can and do change.

In an adjustable rate mortgage, the interest rate is generally fixed for a period of time,
after which it will periodically (for example, annually or monthly) adjust up or down to some market index.
Common indices in the U.S. include the Prime rate, the London Interbank Offered Rate (LIBOR), and the Treasury Index ("T-Bill");
other indices are in use but are less popular.

Mortgage calculator transfer part of the interest rate risk from the lender to the borrower,
and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive.
Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate;
the size of the price differential will be related to debt market conditions, including the yield curve.

Additionally, lenders in many markets rely on credit reports and credit scores derived from them.
The higher the score, the more creditworthy the borrower is assumed to be.
Favorable interest rates are offered to buyers with high scores.
Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.

A partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term,
but the outstanding principal balance is due at some point short of that term. This payment is sometimes referred to as a "balloon payment" or bullet payment.
The interest rate for a balloon loan can be either fixed or floating.

The most common way of describing a balloon loan uses the terminology X due in Y, where X is the number of years over which the loan is
amortized,
and Y is the year in which the principal balance is due.
Upon making a mortgage loan for purchase of a property, lenders usually require that the borrower make a downpayment,
that is, contribute a portion of the cost of the property.
This downpayment may be expressed as a portion of the value of the property (see below for a definition of this term).

The loan to value ratio (or LTV) is the size of the loan against the value of the property.
Therefore, a mortgage loan where the purchaser has made a downpayment of 20% has a loan to value ratio of 80%.
For loans made against properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property.

The loan to value ratio is considered an important indicator of the riskiness of a mortgage loan:
the higher the LTV, the higher the risk that the value of the property (in case of foreclosure) will be insufficient to cover the remaining principal of the loan.