Despite the federal government’s best efforts to lower borrowing costs, the US mortgage rate rose to 5.2 percent, the first time in about a month. According to Freddie Mac, the average 30-year rate went up to 5.2 percent from 5.14 percent.

Mortgage rates are actually at its lowest point since May a week ago. It was lowered by the Federal Reserve’s $1.25 trillion package that was set aside for buying mortgage-backed securities. The low rates boosted purchase and refinancing applications from aspiring home owners. However, the record-low of 4.78 percent was actually in April, twice, because of the Central Bank’s announcement to boost spending on Treasuries and mortgage securities.

According to a senior economist from the Huntington National Bank, George Mokrzan, if the increase becomes too big, the recovery of the housing industry will be threatened. Delinquent mortgages were the prime culprit in the global financial crisis; it has cost firms around $1.5 trillion in asset writedowns and losses.

With the government’s push for recover, a lot of positive developments are being seen in the market. For the third consecutive month, the number of home resales increased last June because of lower borrowing cost, significant tax benefits, and even dramatic declines in home prices.

Increase in Home Purchases

The National Association of Realtors has many reasons to be happy these days. The number of home purchases increased to 3.6 percent (4.89 million) despite the still-gloomy economic condition. This is the highest level since October. However, median prices have fallen to 15 percent. Still, Mokrzan said that “overall, it’s positive”. The industry will bottom out this year and recovery will start.

Given all these developments, it is easy to pinpoint to source of the increase in mortgage rate. If borrowing costs were controlled because of government intervention, it seems that this is also becoming the reason why it’s not increasing. Investors are concerned that the high level of government debt will fuel inflation. It counters the sign that the housing market is stabilizing; and if it goes uncontrolled, it might become more damaging to the economy.

The $3 billion worth of CIT bondholder pledge might not be enough to avoid a CIT failure. According to Renee Dailey, CIT has “indicated they have significant upcoming maturities”. The commercial lender has around $10 billion of debt that’s maturing next year. It also has to deal with dwindling market share, mounting loan defaults, and other problems related to the economy.

CIT just announced its agreement bondholders; the rescue funding is designed to keep the 101-yr-old institution stable enough to avoid bankruptcy. The first $2 billion of the deal is immediately available while the rest will be received in the succeeding 10 days. While these efforts are certainly commendable, it is not nearly enough. Already, the company has said that this is just the first step. It is also asking debt holders to decrease their claims. In addition, there is a bigger restructuring plan on the drawing board.

What Brought CIT on the Brink of Collapse?

The first question in everyone’s mind is, was CIT as irresponsible as some of the country’s largest banks? It would seem that they were more of a victim of adverse economic conditions rather than a perpetrator of it. Over the last eight quarters, this century-old company has had to deal with $3 billion worth of losses from student loan, home mortgage, and commercial defaults.

However, unlike Citibank and company that were deemed “too big to fail”, it would seem that the government thought CIT shouldn’t get second cash infusion. It is fortunate that the group of bondholders stepped in after the government declined CIT their request. The loan extended to the company is said to be backed by a mix of corporate debt, medium-sized company loans, and even aircraft credits. To get this funding, CIT has pledged assets that have a face value of $30 billion.

There’s no denying that the economic doom-and-gloom from the media got really bad a few months back. Fortunately, the nation seemed to have gotten past all that and now there’s talk of economic recovery. The US is still in recession but Obama administration had said that economic recovery will happen…slowly. So if you’re in a tight bind, what should you do? There are a few smart techniques that can help you improve your personal finance.

· Learn How to Tract Spending – most people know what their income streams are but they lose track of their spending. Be aware of the things you buy here and there because its costs can quickly add up. In addition, take note of your credit card usage. If you’re using it too much, chances are, you’re spending more than you can afford. Use a spending plan as a tool to motivate you.

· Identify Your Buying Pattern – are you an impulsive buyer? Do you look for deals all the time? Or do you have a soft spot for certain products? Know what your weaknesses are and then identify the reasons why. Make an effort to stop spending on unnecessary items.

· Save Some Money – every financial guru will tell you this: you really need to save. You might not be able to save as much money with the situation right now, but set aside as much money as you can. Also, remember that having an emergency fund is a must, not an option.

· Don’t Dig Yourself Deeper in Debt – many people try to pay their previous debs by refinancing or borrowing from a new source. Eventually though, this technique may no longer be feasible. It is also becoming harder to find sources of financing so you will eventually need to face up to your obligations.

· Diversify Your Income – now, this is the best solution to your problem. But this requires a lot of planning, effort, and strategizing on your part. Some ways to get multiple income streams include starting a small business, offering your services online and offline, selling some unused stuff, or going into dividend investments.

What you should learn from all this is the fact that your financial future is actually in your hands. The economic climate might have an impact but it is up to you to change your situation.

If big banks like Citigroup Inc, Bank of America, JPMorgan Chase, and Goldman Sachs were “too big to fail”, does this mean that less dominant banks should be allowed to fail because they are “too small?” The government seems to think so. The share price of the CIT Group Inc. (CIT) plunged as the company announced that there was very little likelihood that they will receive fresh cash infusion from the government over the near term.

Representatives of the bank scrambled to get a minimum of $2 billion in rescue funding from its current debt holders. As was revealed by CIT representatives to stockholders, there is a high probability that bank might need to file for bankruptcy if it does not receive help. If this happens, the financial market will be tested on its strength and sustainability in financing small and business enterprises (SMEs).

What It Means to the Average Joe Entrepreneur

Individual small business around the country might be “small enough” to fail, but the issue is if they do, they will not go down alone. For example, even small businessmen who are not associated with CIT directly will feel the effects of the bank’s demise if it fails. This is because if their clients, suppliers, and probably even shareholders are drawing credit from CIT, this source of funding will be cut off. There won’t be enough money to pay their partners or buy new products and services.

It is believed that the effects of the bank’s failure will be widespread among small and medium scale businesses. There are around a million small businesses that rely on specialty finance to support their operations. In a 2003 research from the Fed, it was discovered that nonbank lenders account for 28.9 percent of equipment financing, 22 percent of lease financing, and 13 percent of small business credit line.

If companies like CIT cease to exist, small business operations in the United States (accounting for half of the nation’s GDP) is expected to suffer from a bad credit crunch at the time when it is needed the most. The US needs these enterprises to produce, sell goods and services, and hire people to get the country out of recession.