* A. M. Best
* Dominion Bond Rating Service
* Fitch Ratings
* Japan Credit Rating Agency
* Moody’s
* Standard & Poor’s
* CreditPointe
* Egan-Jones Rating Company

These companies “rate” the debt companies sell to finance their operations – the higher the rating, the lower the cost for a company to borrow money. So, when you hear the terms “triple A” or “junk bond” – that means the financial instrument has been rated by one of the rating agencies. Here is the problem: The company that wishes to borrow money pays the rating company for the rating. A possible conflict of interest? Or more importantly, the recent failure of the rating agencies to get it right. AAA rated companies are failing or have failed and those companies were “predicted” to be in wonderful shape by the rating agencies.

So, what can we do?

Freerisk is a project with the goal of making freely available the data, algorithms and tools necessary to perform risk modeling. We believe that risk management is too important to society to be an arcane subject or competitive advantage.

Freerisk is offering up tools and data to allow anyone to do their own research. The data is out there already, but like a lot of things Freerisk is going to put a lot of effort into making the data more available and easier to use for analysis:

* An open repository of financial data, including financial statements for public companies
* A standards-based API for querying financial data
* A distributed method for designing and running risk models
* Open-source tools for parsing and handling financial data
* Educational materials on risk-management

They have a lot of work to do going forward:

Freerisk is under active development, and not all the pieces are in place yet. This site is a work in progress and is here to inspire more people to get involved in the project.

The really cool thing about Freerisk is they might be helping to create a more distributed, independent process for the identification and modeling of risky behavior MINUS the inherent conflict of interest binding the corporate world today. Just as the “wisdom of crowds” concept has captured the imagination of investors, perhaps this will be another tool and data source for the huge debt market. Who knows, perhaps Freerisk will encourage a competition – set up by a very forward looking company – that emulates the X-Prize or Netflix Prize.

If you are on the wrong side of events, it may be very difficult to see the silver lining in a dark cloud. The most recent economic downturn has been very difficult for some home owners who are living beyond their means and the likely end result has been their losing their house. This failure in the system as a result of easy money and lax lending standards has created a real estate contagion and the cycle – at the moment – is self propagating. As more home owners lose their property, that property goes to the market at lowered prices, which in turn pushes the whole market lower, which then puts more home owners in danger of losing their homes because of loss of home equity lines or other factors.

This unfortunate cycle is not unlike a forest fire. Without going into all the complex dynamics of a wild fire (which is a fascinating subject) – sometimes the best option is to let the fire burn itself out. The fire consumes all combustibles, eventually runs out of fuel and dies. The housing market now has a backlog in houses for sale not seen in several decades (well, maybe since the early 90’s, but I think it is even worse now). This inventory needs to be burned off and until that backlog is gone, the market prices will continue to fall. As a home owner, it is an unenviable position to be in watching a wild fire fast approaching your home and this real estate plague is no different – there may be nothing that can be done without burning until the fire dies for lack of fuel.

Silver lining? Oh, right – back to that. Using the forest as an example again – fires are a natural part of life in the woods. The natural burning as a result of lightning helps to clear the undergrowth and allows for new fertile ground to be available for oak trees overwhelmed by weeds and minor foliage. If you watch CNBC and hear Larry Kudlow talk about the present situation, he clearly defines the housing market in this manner: The housing market is now more affordable. That is an interesting way of looking at the markets – not just a crash in prices, but more affordability for those willing to invest now. The glass is half-full. And to extend the argument even further, not only are the market prices more affordable – foreclosed properties are absolutely bargain basement deals.

So, an average newly wed couple can better afford a home now than they would have been able to five years ago – for them this is an opportunity. For the active investor, or even the aggressive prospective new home owner, foreclosure sales are an opportunity plus situation. Buy when there is blood in the streets – and I think we have seen some blood in the streets. And if it was easy, then everyone would be doing it – right? The infomercials running late at night that highlight the ease with which anyone can go out and find and purchase foreclosed properties are generally hubris. Intelligent decisions are based on accurate, reliable, timely and actionable information. In the sea of gurus selling programs, a potential investor needs to think for oneself – but with appropriate intelligence to find foreclosed properties that can be acted on.

If you are serious about investing in a foreclosure, then Learn Advanced Techniques from a Foreclosure Expert right from your home with foreclosureS.com! They will explain how you can find Bank-Owned homes in your area 20% – 50% off of market prices. They consolidate and constantly update the foreclosure listings that you need to make decisions.

How many US Representatives will vote in favor of the Bailout Plan?

It is a live widget, so it will update as we careen out of control towards the vote this afternoon. Watch the markets – it could get ugly!

The future of the economy in the US, as well as the rest of the world, is dependent on the outcome of the vote on the economic rescue plan – let’s even call it a stabilization bill. I have been using newsflashr to track the latest stories related to the markets and the legislative action. I especially like the stock market blog feeds and the unique presentation of that stories:

Headlines Sorted by Time

Real-time updating headlines by topic

Individual blog feeds sorted by Alexa

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So, oil going up is good or bad? Here is a simple view. Traders have an eye on the world economy – with a sharper focus on the US. When the economy slows down, less activity translates into lower oil usage. At least a decrease in the increase of usage. Irrespective of the market action showing a $25 blip in oil prices, the price of oil will open around $108 on Tuesday morning – not $130. $108 is still up from last week and if the oil traders are right, then they are expecting economies to not glide into a slow down. Not to say it will be a pick up in activity, but perhaps stability. Oil is a two-faced mistress – dropping below $100 a barrel encouraged even one into thinking the economy was fine, which in turn restarted the bullish trend in commodity prices, which may in turn push prices down again because of the friction of high energy prices on the economy….

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Previous Federal Minimum Wage:

$5.15

New Federal Minimum Wage:

$5.85 – July 24th, 2007
$6.55 – July 24th, 2008
$7.25 – July 24th, 2009

The unemployment rate just surged to 6.1% – still historically low – but in comparison to the 4-5% rates the nation has enjoyed in the last three or four years, it is on the rise. Notice that the minimum wage went from $5.15 to $5.85 in July 2007. Also notice that the unemployment rate began to rise in mid-2007.

Is it possible that the Federal Minimum Wage is hurting those it is supposed to help? Is it just an unfortunate coincidence? Correlation is not causation, but I find it interesting!

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Don’t let the work “social” fool you into thinking “socialism.” P2P financing is the furthest thing from socialism. Social lending is market based (well, depending on the P2P lending company you use):

- Lenders “bid” on the right to fund a loan
- Lenders select the loans they bid on by researching the fundamentals behind the loan
- The interest rates of the loans are driven by the market forces – not a “central planning” committee

I would venture to say that Social Finance is even less “socialist” than your average American bank. A bank gathers up investor’s money paying only 2-3% interest, determines the “best” loans to fund at much higher rates, and the difference between the two rates is the bank’s revenue. I am not anti-bank and they are part of the free markets, but they effectively control each side of the transaction – within reason depending on what the rest of the banks are doing. If they fall too far outside the range of reasonable rates, they will either loss all their business to other banks because they are not competitive or they will go broke losing money on all transactions.

Banks create friction.

P2P lending removes friction.

Social Finance makes for a more efficient borrowing and lending market. Market forces are allowed more freedom and are not constrained by a bank acting as a gatekeeper. A lender might get 8% on his investment instead of 3%. A borrower might get a loan for 12% instead of 30% using her credit cards.

As an example, here my listing for a loan on Prosper.com:

$25 Bonus For New Lenders
How to Use Prosper Listing Widget for MySpace, Blog, Website, or Other

Prosper.com is the closest thing to a free market in the P2P lending space. You control the rate you want to place on you loan listing, but obviously you might not get funded if you try to get a rate like 5%. The market will pass you by and your loan will not be funded. Setup a loan with a competitive rate, then market forces will move lenders to research you loan and potentially bid on it. If the rate you select is even better (for lenders) than the rest of the loans on the market, then lenders will compete to get a piece of the action and actually bid your interest rate down.

If you sign up for a new account with Prosper as a lender, you can get a $25 bonus when you lend money for the first time. Don’t be shy about lending some money to my listing!

If you are looking to borrow some money at a lower rate than you can at most banks, try Prosper:

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The Intuit Electronic Filing Center is experiencing unusually heavy demand and is unable to accept returns at this time. It’s not necessary to contact Customer Service or Technical Support. Instead, please try to file your return again later. The best time to file electronically is usually between 4:00 a.m. and 4:00 p.m. Pacific time. We apologize for the inconvenience.

Ultimately, I only have myself to blame – especially since is happened last year also. Just wait until tomorrow night!

photo credit: pfala

Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios, and withdraw available funds without changes.

The borrowing side of our site will remain generally unaffected by this registration process; borrowers can continue to apply for loans and new loans posted after April 7, 2008, will be funded and held only by Lending Club.

Until the registration process is completed, the company will undergo a quiet period and will not be able to respond to press and other inquiries about Lending Club or the registration process during that time.

I wonder, will this be a plus or a minus for borrowers? And would this be considered P2P lending still? After the huge disappointment of Zopa, I am pretty much expecting the worst.

I just checked out your loan. I’m a Prosper lender (and blogger). It’s too bad you live in VA which has a rate cap on loans. The average interest rate for C borrowers for a loan under $5K is 16.6%. Even though you are a “clean C” I think it will be tough to get funded at that rate. I hope it works for you. Good luck!

To see said loan, check it out here:

Okay, so this process killed me. I went to all the trouble to setup a Prosper account – verify this – authorize that – certify those – then spent sometime crafting a request for a loan. I can’t remember exactly where in the process this question is asked, but they finally ask what interest rate you would like to shoot for. I had about 20% in my mind, because I figured I am sitting here sweating like a pig and want to get a new air conditioning ASAP. I had researched and saw that 16% was the average for those with a C credit rating – I figured 20% would be a NO BRAINER, right? Well, guess what – I live in Virginia and Virginia has decided that (to protect me from MYSELF) I cannot get a loan with an interest rate greater than 11%. Eleven percent. You have got to be kidding me. Well, by that time I had invested enough time that creating the loan request was costing me absolutely nothing additional in time nor money.

That was about 3 days ago. So, on a $5000 loan I have 2 bidders for $50 each. Yes, a total of $100 has been committed to my loan. Not because I won’t accept a 20% rate, but because Virginia won’t allow me to accept a 20% rate. Thank goodness Virginia is here to save me from this predator known as Prosper. Instead, I sit here without a loan still sweating at 9:00 PM with an 80% humidity and 85 degrees in the house. Again – thank you Virginia.

Fund my loan and make a sweet 11% on your money!

You have any money to lend? Check out Prosper and earn 8-12% interest while helping out people who need loans.

Here is the deal – I need a new air conditioning unit, so I am trying to borrow the cash at Prosper. If you have some cash and want to make a decent interest rate, check out Prosper:

Are you a bit more interested in the undercurrents of the mortgage industry? Let me start by finishing my first story – why rates have fallen so quickly recently. In the previous five years or so lending in the subprime markets had expanded greatly – these are loans that are higher risk and normally would not have been made. As the housing market started to lose its footing last year, subprime lenders started to look more risky. This risk – perceived or real – triggered a host of problems in the markets for lending and borrowing money. These problems had a snowball effect and a quick moving contagion affected many of the subprime lenders.

The Truth About Mortgage details the recent history of lender closings, mergers and layoffs – ’tis not a pretty list. It is a bit difficult to measure the true magnitude of the impact of these closures, but it is sure to have an impact. This cull of the mortgage lender herd does seem to be more of a massacre, but the pendulum will eventually swing in the opposite direction again. There are grumblings about a possible recession and the markets are all but certain of a Fed rate cut at the next meeting in September and possibly several more before the end of this year. If 30 year rates are just above 6% for a 30 year mortgage today, what will they be if the Fed cuts rates a half point or even a full point by the end of the year?

Feldstein, who warned of a “multiplier effect” from declining home prices and lower consumer spending, said a cut of as much as 100 basis points might be warranted.

Wow – 100 basis points. I had been hoping for a 50 basis point drop in September, but a 100 basis point cut? That would send the markets into a tail spin. Not to mention the fact that the Fed can cut the rates anytime they wish – they don’t have to wait for the meeting in Sept. If things were dire enough, a 25 basis point cut last week would have been the most logical thing for the Fed to do – an out of cycle change.

Those are some major differences! At a score of about 630, you might expect to pay $2100 a month – but if you slip to less than 619 – Ouch. Then you are paying more than $2700 a month – a $600 difference. That is a pretty solid example of why you should consider a credit counseling service if your credit is starting to look a bit rocky. A 20-30 point swing in your credit rating could make a much needed mortgage refinance very expensive indeed. Not to mention the fact that the financial markets are experiencing a pretty heavy crunch on credit. These market conditions are making it difficult for even individuals who have excellent credit to get access to the credit they deserve.

Of course that is now and the crunch will subside as the markets right themselves and the Federal Reserve continues to inject liquidity – perhaps with a quarter or half point cut in short-term interest rates in September. Is your credit in order? If not, you may want to take advantage of information on credit help with articles on credit counseling, credit repair, and credit monitoring. Getting informed is the first step. Articles at DebtHelp.com will lead you through the complexities of getting or improving your credit. Seemingly simple questions are answered in articles like paying off debt or savings first? And every individual is – well – an individual with different needs and situations, so the articles are formulated to help lead people in the right direction based on their situations.

A credit crunch won’t last forever – the markets will clear that up before 2008. A personal credit crunch or bad credit score can load you down with overwhelming monthly payments that you might avoid with the right information. Get that information and take action before you need credit, else you will be in a major credit crunch that may seem to last forever.

Now, for those that have had their house for longer than three to five years – they have a healthy margin of error built into any selling price by virtue of the increase in equity over the years. This aspect of the economic equation seems to be lost on many people predicting the impact of sub-prime mortgages on the overall US economy. Will it have any effect? Well, certainly any concentrated failure in an area of the economy will have some impact – it most likely just slow economic growth – not push the economy into recession. For those who are taking score – the Federal Reserve has been raising interest rates to fight an imaginary inflation demon (in my opinion) by slowing economic activity (higher interest rates generally slow the economy).

If there is a concern about a credit crunch, then the Federal Reserve will most likely cut interest rates – helping to improve liquidity and give more people access to credit. I just heard a prediction by Mort Zuckerman – editor of US News and World Report and a billionaire – that the Fed will cut interest rates 2 times in the next four months. That could mean mortgages will be half a point lower than they are today. If you have an adjustable rate mortgage that is about to move you into a higher rate, now might be a good time to run some calculations on loan calculators and look for a viable alternative to your present loan before the end of the year. If you are one of the lucky people that has extra equity in your home, run your numbers on a mortgage loan calculator – now might be the time to use that asset to cover expenses with a lower interest home equity loan.

Credit crunch in Fall 2007? No. In fact, it is generally to problems that we don’t anticipate that cause the greatest grief and cause the economy to contract. Everyone is aware of the sub-prime problem, but we may have a bubble in negative anticipation of its impact on the economy.

In addition to this, these financial professionals are specialized in getting together borrowers and moneylenders to make the mortgage process easier. However, their special function will be in making presentations of the intermediary services to real estate agencies, the raising of operations, and the processing of all the loans (which includes gathering all the required documents like bank statements and submitting them).

The main difference between a mortgage broker and a loan officer is that the first one works as an intermediary between the clients and the lender, while the second one will only respond to the interests of the lender.

The reason to hire a broker instead of personally handling these issues with the bank is the possibility of saving time. The assessor will provide you with updated information on the financial products offered on market, and they should also be able to recommend the adequate loan regarding the specific credit profile of the client, to avoid unnecessary frustrations. In regards to the costs, the brokers try to get the lowest price from lenders in order to get the better price for their clients.

Their income is the difference between the wholesale price they receive and the retail price they offer plus a markup. Besides, another advantage of hiring a professional to deal with the mortgage is that some of them specialize in situations like loans to applicants with poor credit ratings, and this fact will help them to save money as well as time. Using a professional instead of sourcing personally could help to obtain incentives that could not be obtained directly from the lender without the intervention of an intermediary.

In the United Kingdom, this activity is a regulated financial activity, which will make the brokers responsible for securing the right option for a commission or a fee; which means that his labor will be controlled by professional liabilities to avoid fraud.

Before purchasing any type of mortgages and loans product, you should always consult a good financial adviser. Some online mortgage calculator tools are also helpful for you to predict about your montly mortgage payments before purchasing any mortgage type.