Troublesome Numbers: 7,000 Again.  700,000 for the First Time.

The housing meltdown was a major reason in the plummet of the Dow to levels below 7,000. Increased confidence in the financial system resulted in a 2 month rally.

However, sentiment is changing as people are starting to see another potential meltdown on the horizon.

This next meltdown is likely drop the Dow back to levels below 7,000. In addition, it is possible the country could see non-business bankruptcy filings hit 700,000 in the fourth quarter of this year, which would more than double the number of filings of Q4 2008. In fact, it would set a new record for bankruptcy filings.

The practice of companies willing to extend credit to many consumers, who may not have been in a position to take on that credit, combined with consumers’ willingness to take advantage of that available credit was the main factor in the first collapse.

The next one will have a similar story line.

This time, it is the credit card companies that have over-extended credit to many consumers. And, once again, many consumers have taken advantage of that available credit.

Like the housing crisis, this is not sustainable and will result in huge losses for companies as well as major financial issues for hundreds of thousands of consumers that will result in increased bankruptcies.

This would play out on its own but Congress may speed up the process and make it more severe yesterday by passing a new law regulating the credit card companies.

Additional regulations on credit card companies will do two things:
1)    Hurt Credit Card company profits by increasing their risk.
2)    Decrease available credit for consumers .

Both issues are not good for the equity markets as it hurts consumer spending capabilities and affects company profits. This is why we may, once again, see the market fall past 7,000 and see, for the first time, record bankruptcies possibly reaching 700,000 in Q4.

Recently, we have been asked to do a few guest posts for other mortgage and real estate blogs and decided to go for it.  It turned out to be a great experience and mutually beneficial so we’re going to open up the offer wider.

If you have a high quality mortgage, real estate, or personal finance related site we would love to be part of it!  You will get completely unique, one off mortgage content and we are flexible as far as topic and frequency (if you want us to become an ongoing contributor).  Our goal is to grow our reach and become more ingrained in the online mortgage news niche.

If you are a real estate professional and want to learn more please send an email to Brandon [at] mortgageloanplace [dot] com.

Note: This is something that has not yet happened, but may soon happen. I originally posted this information about the 8000 tax credit being used as a down payment on my main site, and thought it was relevant enough to share with everyone as to what may soon be around the corner. I once posted something about the then-pending 15,000 tax credit which passed into law as a 8,000 tax credit – so I have some experience as to how things change before they actually become official.

But I thought everyone would be interested to know what may be lurking in the near future.

Can you use the 8000 tax credit as a down payment for your home?

Not yet.

But that may change soon.

Yesterday, Secretary of Housing and Urban Development Shaun Donovan gave a prepared speech at the National Association of Realtors Real Estate Summit. He said something that was probably beyond interesting when he mentioned that FHA was currently working on a proposal that may involve people being able to use the 8000 tax credit as a down payment.

An excerpt from that speech regarding FHA’s position on the 8000 tax credit being used as a down payment:

And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation – 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.

Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market – it would allow many more people to move into a home who currently may not have enough for a down payment.

We will be sure to keep you posted on developments in this situation as the happen.

(h/t Mark Madsen at MyFHAMortgageBlog for sharing the video about the 8000 tax credit being used as a down payment and the guys at ThinkBigWorkSmall)