MarketWatch has published a story that details the conundrum new first-time home buyers are facing in today's market. In "First-time home buyers struggle to find down-payment money," staff writer Amy Hoak tells about a middle-class family that bought a house a couple of years ago without having to put any money down. This same family, admittedly, would have trouble finding a loan today to finance their purchase.

Typically, when mortgage lending is restricted, it affects first-time owners the most because they frequently lack the funds for a down payment. According to the MarketWatch article, 45% of first-time home buyers opted for 100% financing between July 2006 and June 2007.

Experts are predicting that lenders are going to require more and more down before they're willing to lend to home buyers. To counteract stricter lending practices, check out loans backed by the Federal Housing Administration (FHA). According to MarketWatch, statistics confirm the recent popularity of these loans: The FHA backed 17,773 purchase loans in December 2006; that increased to 24,817 purchase loans in December 2007.

Down payments for these types of loans are around 3% and there are even down-payment-assistance programs to help to this end.

With market prices catering, buying a home in certain localities may prove a good move.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

Prosper.com is one of the most amazing things I have ever seen and a grand statement of the pioneering spirit that keeps the wheels of prosperity in motion. At Prosper.com individual private investors are able to assist in serving the needs of potential borrowers via a bidding process to finance a wide variety of loan requests.

It works like this: First you register for the service, which the site says is fast, easy and free. Then, you create a loan listing that states how much you want to borrow and the interest rate you are willing to pay. Potential lenders can begin bidding on your loan request as soon as your listing is created. As lenders compete to finance your loan, the interest rate can become more favorable to you. After your listing closes, if you have successful bids, apparently the funds are then deposited in your account. I believe Prosper.com acts as the intermediary for these deposits. Finally, fixed monthly payments are then automatically withdrawn from your account. Prosper.com claims that there are no hidden fees and that the loan can be paid off early without penalty.

I can't actually endorse this service because I have no personal experience with it but it sounds extremely interesting, and the site appears to be for real. I'd love to get some feedback from people who have successfully used this service. If it's as valid as it appears to be, we just might have a new era of personal financing coming over the horizon.

Inflation: "An increase in the amount of money and credit in relation to the supply of goods and services; An increase of the general price level; An excessive or persistent increase in wages and costs causing a decline in purchasing power."

Recession: "A temporary falling off of business activity during a period when such activity has been generally increasing."

(Source: Websters New World Dictionary, Third College Edition)

Rather than an opinion piece, which is what I generally write, this little snippet is meant more as a discussion generator than a statement of my own economic view. I earnestly invite our readers to weigh in on the matter. Inflation or recession, are we now experiencing either or both?

The Chinese central government is putting brakes on almost all bank lending to both individuals and commercial enterprises. The freeze will last at least until the end of this year. According to The Wall Street Journal "a China Banking Regulatory Commission official here confirmed that local and Chinese subsidiaries of foreign banks have been asked to ensure that loans at the end of the year don't exceed the total outstanding on Oct. 31."

While the move may help bring down inflation, it could also cause a nosedive in China's consumer spending and stock markets. It is broadly assumed that much of the money going into stocks traded on the Shanghai exchange comes from borrowed funds. Since the index for those shares has more than doubled, the borrowing seemed wise, at least for now.

Although much of the goods and services production in China goes overseas in the form of exports, the country's new middle class has also created a vast pool of consumers.

The government is taking a dangerous gamble, but it may be necessary. An overheated economy could lead to hyper-inflation as more money chases fewer products, homes and company stock shares. If the stop is too abrupt, however, the Chinese economy could fall over itself and drop into a recession. Cutting off lending completely is too large a risk to China's GDP growth.

Douglas A. McIntyre is an editor at 247wallst.com.

Historically, when the Fed has started cutting rates, investing in financial stocks has proven profitable for investors. Will the same hold true in today's easing cycle? Probably not.

The Bear Stearns (NYSE: BSC) model for its mortgage business might point to problems ahead for the financial industry in general. The financial services industry has done an outstanding job during the past twenty years developing new products and marketing them to institutions who specialize in buying these new instruments -- primarily hedge funds. With mortgage hedge funds, publicly traded vehicles such as mortgage REITs and other investors now shutting their doors to these products, who gets stuck with them? You guessed it! The investment firms and large commercial banks.

Now let's go to $300 billion of private equity debt that needs to be placed. Who is buying that up? While some institutions are, much of it is staying on the books of the investment firms and banks. Will funds be formed to invest in this debt? Yes, but it will take time.

Countrywide Financial Corporation (NYSE: CFC), the leading stand-alone mortgage lender, said yesterday it will modify terms on some 25,000 home loans this year to help homeowners avoid foreclosures.

To date, the lender has already modified more than 17,000 home loans in 2007 and provided assistance to an additional 35,000 mortgages, via adjusting prepayment plans, postponements of payments and refinancings.

Countrywide said by limiting foreclosures it actually may be able to better control expenses since restructuring mortgages can be costly. It also will be pleasing to politicians as a report released by the Joint Economic Committee, chaired by Democratic Sen. Chuck Schumer of New York pointed out foreclosure can result in up to $80,000 of losses for the homeowner, lender, local government, and neighbors whose homes fall in value. Preventing a foreclosure costs $3,300, the report said.

Once again, Angelo Mozilo, Countrywide's CEO, appears to have found the balance of good business, good politics and good customer service.

More Countrywide Financial news

Douglas McIntyre: Countrywide (CFC) hires a PR firm
Peter Cohan: Is Countrywide (CFC) too big to fail?
Zac Bissonnette: Let Mozilo provide Countrywide (CFC) with cash
Douglas McIntyre: Could subprime problems hurt search engines?
Peter Cohan: Is Bank of America's (BAC) purchase of Countrywide Financial (CFC) a good bet?
Joseph Lazzaro: The (still) foggy subprime mortgage sector
Peter Cohan: What the mortgage meltdown means to you
Eric Buscemi: George Bailey, meet Angelo Mozilo
Michael Fowlkes: Countrywide Financial (CFC) adds to subprime panic
Peter Cohan: Could Countrywide Financial (CFC) be put down?

Countrywide Financial Corp (NYSE: CFC) September volatility at 116 prior to BAC preferred stock purchase.

CFC, a U.S. home mortgage lender, is recently trading at $25.85 in pre-open trading, above its close of $21.82 yesterday. Bank of America (NYSE: BAC) purchased $2 billion of preferred stock from CFC. Goldman Sachs says this is "a vote of confidence from BAC, but earnings prospects unchanged." CFC September option implied volatility of 116 is above its 26-week average of 59 according to Track Data, indicating larger price fluctuations.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

More Countrywide Financial news

Peter Cohan: Is Bank of America's (BAC) purchase of Countrwide Financial (CFC) a good bet?
Georges Yared: Bank of America (BAC) makes strategic investment in Countrywide Financial (CFC)
Douglas McIntyre: Will Berkshire Hathaway (BRK) buy parts of Countrywide Financial (CFC)?
Douglas McIntyre: New lay-offs signal Countrywide (CFC) is not out of the woods
Peter Cohan: What the mortgage meltdown means to you
Eric Buscemi: George Bailey, meet Angelo Mozilo
Peter Cohan: Countrywide (CFC) meltdown continues
Michael Fowlkes: Countrywide Financial (CFC) adds to subprime panic
Peter Cohan: Could Countrywide Financial (CFC) be put down?

Countrywide Financial (NYSE: CFC) volatility decreases as share price stabilizes. CFC, the largest U.S. home mortgage lender, is recently up $1.30 to $28.04. CFC call option volume of 10,877 contracts compares to put volume of 17,814 contracts. CFC August straddle is priced at $4.20. CFC September option implied volatility of 98 is above its 26-week average of 47 according to Track Data, suggesting larger price risks.

General Electric (NYSE: GE) volatility of 25 above 26-week average of 19. GE closed at $39.10. GE over all option implied volatility of 25 is above its 26-week average of 19 according to Track Data, suggesting larger risk.

Bear Stearns (NYSE: BSC) over all volatility of 61 above 26-week average of 33. BSC closed at $113.81. BSC over all option implied volatility of 61 is above its 26-week average of 33 according to Track Data, suggesting larger price movement.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Last week, the battle between private-equity borrowers and lenders in the debt market that began to unfold in the middle of July hit the equity market in full force.

"Covenant light" loan packages that greatly reduced the terms borrowers had to meet became the norm in the beginning of 2007. However, lenders have now revolted. Major money center bankers are now stuck with $150 billion to $200 billion of loans that they have committed to for their private equity clients.

Borrowers, the Blackstones of the world, are reminding the banks that they committed to the loans, so they have to deal with them. The lenders, the institutions who buy the debt from the banks, are saying they are no longer going to be lenient with their lending terms. It appears this stalemate is going to last into the fall.

For equity investors, the unfortunate reality is that equity markets will remain volatile until this pipeline, which needs to be financed, is worked through. This huge pipeline can be viewed in terms of a widget company having too many widgets, meaning pricing will remain volatile until this excess inventory is worked off.

It looks to be time to pick stocks you want to own for the long term and the price points you want to own them at, stepping up to the plate while everyone else is panicking.

In this multi-part personal finance series, readers will learn various ways to help save money for a college education, from off-the wall-scholarships and 529 programs to the right time to refinance your loans. Parents and students alike who read this series will find something to help reduce the costs of a higher education before, during and after it takes place.

Part IV: Financial Aid

Last year, 1.8 million low- to moderate-income families missed out on help from the government because they did not fill out the Free Application for Federal Student Aid, or FAFSA for short, which is needed to qualify for any federal, state and some institutional financial aid awards, according to the American Council on Education. In addition, the Council estimated that 1.5 million families missed out on the Pell Grant, an award of $4,310 that does not have to be paid back, just because they failed to file the proper paperwork.

If I told you the government would give you $4,310 if you simply filled out a form, you'd do it in a heartbeat right?

In this multi-part personal finance series, readers will learn various ways to help save money for a college education, from off-the wall-scholarships and 529 programs to the right time to refinance your loans. Parents and students alike who read this series will find something to help reduce the costs of a higher education before, during and after it takes place.

Part III: Work For It

When my friend James was in college, his parents made him learn the value of a dollar the hard way. They forced him to work during his education and didn't give him cent towards his schooling. He took out student loans and worked several jobs in his four-year stint at State, from after-school swim instructor to late-night security guard, he worked them all. Believe me; after all those hours of working while going to school full-time, he learned the value of a dollar. What he didn't know at the time, was the amount of college loans that piled up in the four years he was away.

Here are a few ideas that could help you not make the same mistakes he made:

New Century Financial Corporation (OTC: NEWC) is a stock to stay away from. However, looking into what is going on at this mortgage provider can teach investors how the industry works and possibly how to play an industry upturn when it occurs.

New Century is a subprime mortgage loan originator, meaning New Century underwrites mortgages that are provided to home buyers.

In 2006, New Century underwrote $60 billion in mortgages, a large number. To buy these mortgages and package them to be securitized, New Century needs large lines of credits from big banks. However, last week, their bankers withdrew their lines of credit, so they cannot underwrite any new mortgages. Which is fine as long as they can profitable sell the mortgages they still have to place.

However, there is one more catch. These subprime mortgages all have contracts which forces New Century to take back mortgages that go into early default. With short-term interest rates having shot up the past few years, more mortgages are going into early default and are being pushed back to New Century, creating a problem for this company.

New Century's creditors currently want $8.4 billion in cash back for loans provided due in part because of early prepayment defaults. This $8.4 billion loan is collateralized by $9.0 billion in mortgages. So there is serious collateral. However, traders are using the current tight liquidity conditions and concerns about higher early prepayment defaults to place New Century in a difficult liquidity situation.

But, at the end of day, there are real assets collateralizing these bank loans. The questions are how bad the early prepayment default rates are, how much and how quickly do the banks want their loans back and how much pressure traders will place on mortgage pricing in the market.

In the collapse of the subprime credit card and the subprime auto businesses, companies stayed afloat by large investors willing to put up a lot of cash to recapitalize the company. When this happened, investors who purchased the stocks of these companies post-recap made a lot of money.

Wait for these companies to complete large equity recaps as a sign to start looking at these stocks. Then there might be some money to be made without taking a lot of risk.

HSBC Holdings PLC (NYSE: HBC) said late last night that its loan impairment charges and other credit risk provisions in 2006 are now expected to be 20% above the consensus estimate of $8.8 billion made by analysts, due to higher-than-earlier expected provisions for its US mortgage business.

HSBC now expects their mortgage loss to be $10 billion.

New Century Financial Corporation (NYSE: NEW), a large subprime mortgage lender, projected a fourth-quarter loss, and said it expects to restate each of the previous three quarters' earnings lower because it did not set aside enough money to buy back subprime loans that went bad.

This unwinding of the mortgage market is just beginning. Large financial institutions have been reporting spectacular results due to gains in fixed income and credit related trading. It appears this era is over. While investors often refer to equity bubbles bursting, credit bubbles are equally as ugly. Watch out for more blow ups.