As the name implies, homeowner loans differs from any other loan in that the home, or a portion of the value of the property is used as collateral to secure the loan and are available exclusively to people who own a home. Not so long ago, the banks would lend money to anyone with a pulse and the ability to sign on the dotted line. Things have changed a little bit since the banks all went broke doing this and the homeowner loan of the late 1990s and early 2000s has disappeared along with more than seven million jobs in the USA alone, along with a substantial portion of the equity in American homes.

With real estate values down to 2003 levels and foreclosures spreading like a disease across the country, (well, the world actually)  the amount of people eligible for a homeowner loan has shrunk considerably, and true to form, the banks have raised their lending criteria to the point where – if you have a FICO credit score that is “fair” or poor” you simply are not going to be able to get one, almost regardless of the equity in your home. The only sensible way around this is to approach a small bank that holds their own notes rather than sells the loan on.

These type of traditional banks – you know the ones – that only lend money when they have it on deposit – are a rare and dying breed. 4 more regional banks were closed last week, and as far as anyone can tell, the FDIC is broke and in serious need of funds. Many of the regional banks were sucked into the sub-prime mortgage derivative markets by the massive “profits,” available and will be gone within the next few years. The process of making sure the banking institutions are all “too big to fail,” continues relentlessly.

The recent changes in legislature to allow the banks to basically charge whatever they like, and revalue their assets in such a way as to show a paper profit are really just delaying tactics. Some one some where has decided that if the day of reckoning can be put off for long enough, eventually their assets will be worth their valuation, or at worst, inflation will have devalued their debts, and they will become magically profitable once again. Judging from the continuing losses being reported by those banks that are attempting to use a traditional model of banking, i.e. only lending money out that they have as deposits, these efforts are doomed to failure due to the continuing rises in loan defaults and the only banks that seem to be making any money are the ones gambling on “unusual investment vehicles.” Which is what caused the current mess in the first place. I am beginning to wonder of the politicians and bankers are deliberately destroying the world’s economies.

All this makes banks wary of lending money to poor risks and they are currently charging ridiculously high interest rates when one considers the base rate. That is not to say it is impossible to get a homeowner loan, but the pressure is on and loan rates are high as are the requirements to meet. In fact, Bank of America is actually offering the highest home equity loan rates currently. Go figure – they were the bank that got $45 billion of your money to bail them out last year and they are charging more than 11% for a home equity loan. Insane…..

So, if you are asking the question, “How do I go about refinancing my home ?” you are probably not going to like the answer, and if you are looking to refinance with poor credit, you are probably out of luck. The current situation does not seem to be improving in anyway shape or form. It is hard to tell which country is in the worst position, but it is fair to say that this is a world wide issue, affecting many. Until such times as the current issues are properly dealt with – i.e.. all the banking losses from the collapse are totted up and the amount of debts are stated realistically, I don’t see it changing. No doubt interest rates will rise at some point and I heartily recommend anyone taking a homeowner loan to opt for a fixed interest rate if possible.

I do actually think that at some point the problem will have grown so large that it will have to be dealt with to avoid a complete collapse. Some of the smaller economies such as Great Britain Inc, are already getting to the point where a collapse seems imminent. Just this week, there is talk of forcing the Bank of England to print more money (more than the £125 billion they have already printed) because business lending to non-financial corporations (such as real estate construction) fell so dramatically in the second quarter. The ridiculous notion that if there were more money to be lent it would actually get lent is just another example of the misinformation being bandied around. You cannot, on the one hand insist that banks take a more rational approach to lending, and in the same breath, insist that they lend more. With property prices still falling in the UK – guess what – no one in their right mind wants to borrow a fortune to build a property which will be worth less than the cost of building it. Even my little brain can grasp that. And the latest losses owned up to by the state owned Northern Rock bank are a thing to behold. Northern Rock is solely responsible for 8% of the UK’s national debt – ant the ex-directors are sitting on a beach in the Bahamas swilling champagne with the members of Parliament who bailed them out. Talk about one rule for the rich and one for the rest of us……. Not sure how much of this can go on before the UK collapses.