Whatever you or I may think of the current disastrous state of the world’s economies – as far as I can tell, based almost entirely on monies borrowed against the increasing values of one’s real estate, there are currently an awful lot of people faced with the issue of refinancing with bad credit. Mostly these people were persuaded by their government and banking system to go badly into debt to buy an over-valued piece of real estate. This issue is by no means exclusive to the United States – although it is fair to say the housing bubble originated there, it since spread far and wide and created numerous other bubbles at the same time. Average property prices in the UK, despite having fallen around 20% since the peak are still in excess of £150,000, while average yearly incomes are still around £25,000, putting prices well above their historical average. The only thing preventing a complete collapse of the housing market is the ridiculously low interest rate of 0.5% - which cannot possible continue for much longer.

Real estate prices in the USA have now returned to 2003 levels, putting anyone who purchased a home after this time in an upside down mortgage, unless they had substantial equity in the property, which many do not. Current estimates on mortgage delinquency rates at between 6-9.5% with some areas seeing rates as high as 17%. And these are figures for mortgages at least 90 days behind; taking mortgage in some state of delinquency or actually in foreclosure the overall rate rises to 12% across the US. With the disappearance of the jumbo loans these rates will increase through 2009 and through 2010, adding more pressure to the already dire situation. Unemployment will almost certainly rise above 10% this year.

The amount of property now owned either directly or indirectly by the government must surely start to weigh heavily on the resources of Fannie and Freddie, but still the foreclosure rates continue rising and more and more local state authorities are being put under pressure by falling tax revenues.

The British Government Inc raised it’s borrowing yet again last month to an all-time high for the month of June of £13 billion – putting the country’s debt as a percentage of GDP at 56.6% - another all time high and the worst of the G20 nations. Unemployment continues to climb, house prices continue to slide, factory orders are down yet again and still the government continues to spend money as though they could print as much more as needed. Oh, wait a minute. The British banks have now been re-assessed and have been discovered to need untold billions more to shore up their balance sheets and Morgan Stanley reported yet another substantial quarterly loss for the second quarter of 2009 – a mere $1.2 billion, bringing their losses for the year up to $1.8 billion.

Clearly we are not out of the woods yet – despite the many newspaper headlines to the contrary. It is hard to predict just exactly how long interest rates (for the banks anyway) can be kept at these low levels. As usual, these interest rates are not transferred on to the end users and interest rates climbed to 5.31% this week. Still issues remain for those wishing to refinance with poor credit and the disappearance of the 100% home equity loan could actually be seen as a good thing if you take the wider picture into account. The sooner we return to rational lending practices, the sooner we will all know where we stand. The picture does, unfortunately look bleak with mortgage rates for refinancing likely to continue climbing as the crisis deepens. No one can predict exactly where rates will end up, but it is fair to say that this crisis is bigger than the late 70’s crisis, which saw interest rates in the UK at 17% and in the US at 20% in 1981. The inevitable result of all this “quantatative easing,” borrowing and government spending will be runaway inflation causing extremely high interest rates.

None of which bodes well for those looking to refinance with bad credit. The banks are barely lending to those with good credit currently and the possibility of massive increases in the interest rate is putting off any sensible would-be borrowers from over-extending themselves. I clearly remember the day interest rates jumped to 17% back in 1979 – I remember it well because I was sitting on a substantial overdraft at 5% over base rate. Not to worry – the bank helped me out by threatening to take everything I owned unless I met the payments and sold my house to reduce the debt. Anyone who thinks interest rates are not going to reach similar levels in the near future needs their head examined. I personally would not refinance any loan at the moment unless it was at a fixed rate – and I would be prepared to pay over the odds to do so.