"Predatory" lenders...

[I Like Soup]

My point was essentially that if someone wants to educate themselves, are they going to regard the chairman of the fed as pretty savvy in economic matters?

Sure, if you are trying to balance the economy of a world power.

[Clubfoothead]

What did these lenders think would happen when the increased payments kick in?

[Ursa Majoris]

Soup has it right - interest rates were really at the effective bottom and therefore locking in at 5% and absolutely copper bottom guaranteeing that nothing could alter that (except yourself in a re-fi).

 

Many of us gamble and as long as you can afford it, knock yourself out. But gamble with what is by a country mile my biggest asset at the same time as being the roof over my head? Not a chance.

 

Greenspan can waffle on all he wants - most Americans like the certainty of a fixed rate.

 

BTW, other countries DO have ARMs but they work by slow adjustment up and down along with the prime rate. They also have more stringent rules on who qualifies and who doesn't, as far as I can ascertain, by lending only on the basis of income.

 

The sub-prime ARMs that were used here have a violent rate change after year 2 or year 3. The other countries don't work the same way.

[Chavez]

Soup has it right - interest rates were really at the effective bottom and therefore locking in at 5% and absolutely copper bottom guaranteeing that nothing could alter that (except yourself in a re-fi).

True enough - but Americans love to play the "rate game" - "hey, I got 5%, what did you get?" "Oh, I got 4.6%" " "

 

What are mortgages sold on - rate and payment. People have been taught that's what you chase. Never mind that your chasing a 3% teaser rate (effective for the first month) and your $450 payment means you've got an I/O that's gonna go negative on the first adjustment upward. You can march around bragging about your 3%/$450 right up until foreclosure.

 

There is a SERIOUS education gap in this country regarding financial products, and nobody seems to want to teach people about this stuff on the upfront.

 

I've never NOT had a fixed, and that's because my grandfather knows a thing or two and I asked him. Where I got lucky was he actually DID know a thing or two - I'd bet a large number of people's "financial resource" is someone who doesn't know sh*t.

 

So, should we be subsidizing people who got screwed through their own ignorance? It's tough for me to say someone should have NO chance at keeping their house when they really didn't have a clue. I'm not saying that EVERY home can be saved or that it should be a massive bailout, but if the gov't wants to toss a tax break to banks willing to work with people in danger of getting foreclosed upon, I can't take much issue with that.

[dmarc117]

these buyers knew they could not afford the homes they were buying. its plain and simple. they had to keep up with the jones and got burned. boo friggin hoo. i have no sympathy at all. let em all burn.

[AtomicCEO]

these buyers knew they could not afford the homes they were buying. its plain and simple. they had to keep up with the jones and got burned. boo friggin hoo. i have no sympathy at all. let em all burn.

 

It used to be that credit was only extended to people who the banks thought could repay it.

 

I have no sympathy for incredibly sloppy business practices. Let the banks, and all the financial markets that depend on them burn too.

 

Burn it all, I say.

[Ursa Majoris]

So, should we be subsidizing people who got screwed through their own ignorance? It's tough for me to say someone should have NO chance at keeping their house when they really didn't have a clue. I'm not saying that EVERY home can be saved or that it should be a massive bailout, but if the gov't wants to toss a tax break to banks willing to work with people in danger of getting foreclosed upon, I can't take much issue with that.

I guess this brings me to another question I have. At what point does foreclosure happen? A month in arrears? Three? Six? I have no clue but given that the banks always prattle on about the losses they take when a house is foreclosed on, you'd think they'd at least try and work with the borrower. Maybe stretch the note out or something? It seems disingenuous to me that the banks claim massive losses but do little to avoid those losses.

 

My points throughout this thread have been that the public at large bailing out both homeowner and lender is an incorrect use of tax money. I'm not saying that banks should nail people the first opportunity they get. However, I don't get why they should get tax breaks in order to rectify their own errors.

[AtomicCEO]

I guess this brings me to another question I have. At what point does foreclosure happen? A month in arrears? Three? Six? I have no clue but given that the banks always prattle on about the losses they take when a house is foreclosed on, you'd think they'd at least try and work with the borrower. Maybe stretch the note out or something? It seems disingenuous to me that the banks claim massive losses but do little to avoid those losses.

 

I think the problem is that the owner of the debt is not the bank anymore. The bank packaged the mortgages into funds and sold them to other institutions.

 

I listen to Marketplace and just barely understand that, but I think the fact that the mortgages were sold into other markets is a big part of the problem. If you have a mutual fund or a 401K, you probably own some mortgages as an investment.

[I Like Soup]

What did these homeowners think would happen when the increased payments kick in?

 

Fixed.

 

True enough - but Americans love to play the "rate game" - "hey, I got 5%, what did you get?" "Oh, I got 4.6%" " "

 

What are mortgages sold on - rate and payment. People have been taught that's what you chase. Never mind that your chasing a 3% teaser rate (effective for the first month) and your $450 payment means you've got an I/O that's gonna go negative on the first adjustment upward. You can march around bragging about your 3%/$450 right up until foreclosure.

 

There is a SERIOUS education gap in this country regarding financial products, and nobody seems to want to teach people about this stuff on the upfront.

 

I've never NOT had a fixed, and that's because my grandfather knows a thing or two and I asked him. Where I got lucky was he actually DID know a thing or two - I'd bet a large number of people's "financial resource" is someone who doesn't know sh*t.

 

So, should we be subsidizing people who got screwed through their own ignorance? It's tough for me to say someone should have NO chance at keeping their house when they really didn't have a clue. I'm not saying that EVERY home can be saved or that it should be a massive bailout, but if the gov't wants to toss a tax break to banks willing to work with people in danger of getting foreclosed upon, I can't take much issue with that.

I agree we need more education in regards to financial matters. I believe they should have a class on that in high school before graduation.

 

And...if tax dollars are going to be used to bail out an entity because of ignorance, I'd say give it to the people first. But, I do think subsidizing people's own ignorance is a mistake. I'm hoping a lot of people learn from this. Maybe there will be a time when people aren't so damn reliant on credit. :pipedream:

[dmarc117]

I think the problem is that the owner of the debt is not the bank anymore. The bank packaged the mortgages into funds and sold them to other institutions.

 

I listen to Marketplace and just barely understand that, but I think the fact that the mortgages were sold into other markets is a big part of the problem. If you have a mutual fund or a 401K, you probably own some mortgages as an investment.

 

 

you do get it!!

 

Owing to a form of financial engineering called securitization, many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined.

 

and more good news!!!

 

Expect the landslide to cascade through high-yield bonds, commercial mortgages, leveraged loans, credit cards and -- the big unknown -- credit-default swaps, Morris says. The notional value for those swaps, which are meant to insure bondholders against default, covered about $45 trillion in portfolios as of mid-2007, up from some $1 trillion in 2001, he writes.

http://www.bloomberg.com/apps/news?pid=new...id=aHCnscodO1s0

 

 

burn it all!!!!!!

[dmarc117]

It used to be that credit was only extended to people who the banks thought could repay it.

 

I have no sympathy for incredibly sloppy business practices. Let the banks, and all the financial markets that depend on them burn too.

 

Burn it all, I say.

 

 

it used to be that people didnt care about how big their neighbors house was, how nice their neighbors car was, how many more toys they had then their neighbor, etc. this whole problem arise from greed, both with the lender and buyer. they are equally to blame. to use the word predatory is a joke.

Edited April 7, 2008 by dmarc117

[Ursa Majoris]

I think the problem is that the owner of the debt is not the bank anymore. The bank packaged the mortgages into funds and sold them to other institutions.

 

I listen to Marketplace and just barely understand that, but I think the fact that the mortgages were sold into other markets is a big part of the problem. If you have a mutual fund or a 401K, you probably own some mortgages as an investment.

So, in effect, the bank might well have no interest in working with the borrower? Even though the mortgages are sold on in bundles, doesn't the borrower still owe the money to the bank, the bank to someone else, someone else to someone else and on and on? The borrower doesn't owe the one that actually now holds the mortgage, not directly.

 

As I understand it, part of the issue is that no-one has a clue who is holding what any more.

[Randall]

HONG KONG (MarketWatch) -- Chinese banking and securities regulators signed an agreement with their U.S. counterparts Monday that will help lay the groundwork to enable mainland investors to buy and sell U.S. securities.

Under the plan, Chinese banks will be able to buy U.S.-listed stocks and mutual funds for their clients.

 

The agreement signed between the Securities and Exchange Commission and the China Banking Regulatory Commission marks a further expansion of QDII -- short for the qualified domestic institutional investor program -- and brings the U.S. in line with similar agreements signed between Beijing and regulators in Singapore, Hong Kong, Japan and the U.K.

"What we've seen over the last six to 12 months, China has a lot of capital and is looking for ways to make that capital work harder and more efficiently," said Charlie Awdry, a fund manager for Gartmore's China Opportunities Fund. "This is illustrative of the broader engagement between China and the rest of the world."

 

 

 

 

 

 

Maybe we'll become a Chinese colony soon.

[dmarc117]

HONG KONG (MarketWatch) -- Chinese banking and securities regulators signed an agreement with their U.S. counterparts Monday that will help lay the groundwork to enable mainland investors to buy and sell U.S. securities.

Under the plan, Chinese banks will be able to buy U.S.-listed stocks and mutual funds for their clients.

 

The agreement signed between the Securities and Exchange Commission and the China Banking Regulatory Commission marks a further expansion of QDII -- short for the qualified domestic institutional investor program -- and brings the U.S. in line with similar agreements signed between Beijing and regulators in Singapore, Hong Kong, Japan and the U.K.

"What we've seen over the last six to 12 months, China has a lot of capital and is looking for ways to make that capital work harder and more efficiently," said Charlie Awdry, a fund manager for Gartmore's China Opportunities Fund. "This is illustrative of the broader engagement between China and the rest of the world."

Maybe we'll become a Chinese colony soon.

 

 

more fluff for our market

[TheShiznit]

When I locked in my interest rate in February of 2003, the rate was the lowest it had been in 40 years...seemed like a no brainer to me. Why play the ARM game? The interest rates pretty much had nowhere to go but up. Even with rates hovering around 6% right now, you'd be an idiot not to take advantage of fixing your rate. You play the shell game long enough, it will bite you.

 

And, I think Greenspan was looking in hindsight as well as ARM effects of other countries.

 

 

Did you make that assessment yourself...or did you get some professional advice that turned out to be sage?

[TimC]

It used to be that credit was only extended to people who the banks thought could repay it.

 

I have no sympathy for incredibly sloppy business practices. Let the banks, and all the financial markets that depend on them burn too.

 

Burn it all, I say.

 

Bingo.

 

And burn the lenders were raking in massive paper profits and paying out hefty bonuses with no regard of the future because they knew they would get bailed out.

 

And burn the people that have zero financial sense that have to buy the big house and big SUV and can't afford it. We don't need these people dragging down the economy.

 

Hell, burn everyone except me.

[Kid Cid]

I purchased in 2001 and refied in 2004. Both times with fixed rates the first for 30 year, then 15 the second time around. It just seemed to me that in both cases a 6% and then a 5% fixed rate mortgage would be the prudent way to go. Especially in light of what has recently hapened, I would not want to be forced to refi now knowing that my ARM is coming up. Yes, it may have cost me a bit of money over the long haul, but to me, the peace of mind was worth it. This is just my brain working on all the things I read and talked to folks about, there was no one oracle from which I got advice from.

 

BTW, Ms Cid and I never did find out how much we qualified for. We figured out what size mortgage payment we were comfortable with based on our income and current debt and used that a the number to determine our house size. We refused to be house bound to the point where we couldn't afford furniture for the damn thing or be able to take a vacation if we wanted to.

Edited April 7, 2008 by Kid Cid

[westvirginia]

Did you make that assessment yourself...or did you get some professional advice that turned out to be sage?

 

So you really need advice for this? Mortgages had been hovering between 7.5%-9% for 20 something years. Now they're ~5% - for 30 frickin' years? Anyone with much more than a room temp IQ should be able to figure that one out. Unless they're so greedy that they want to buy more house than they can afford.

[westvirginia]

It used to be that credit was only extended to people who the banks thought could repay it.

 

I have no sympathy for incredibly sloppy business practices. Let the banks, and all the financial markets that depend on them burn too.

 

Burn it all, I say.

 

I :heart: you!

 

Let these corrections happen! People will be broker, but wiser for it. When people get burned they LEARN from it! At least we won't have to deal with crap like this for a generation or two.

 

Oh, and someone tell sacosuds we've been doing without credit cards for three years.

[Azazello1313]

Yeah, it's all the lender's fault. Frankly, I think people that signed up for homes too expensive for their incomes and the morans that gave them loans deserve each other. They alone fold the responsibility for this mess and yet we're all left holding the bag.

 

yeah, it always makes me chuckle a bit to hear the phrase "predatory lender". who's really the predator here? the people who took advantage of rampant market optimism to give them a way bigger loan than they ever should have gotten and then bail on it, or the dumb saps left holding the bag?

[Ursa Majoris]

I purchased in 2001 and refied in 2004. Both times with fixed rates the first for 30 year, then 15 the second time around. It just seemed to me that in both cases a 6% and then a 5% fixed rate mortgage would be the prudent way to go. Especially in light of what has recently hapened, I would not want to be forced to refi now knowing that my ARM is coming up. Yes, it may have cost me a bit of money over the long haul, but to me, the peace of mind was worth it. This is just my brain working on all the things I read and talked to folks about, there was no one oracle from which I got advice from.

 

BTW, Ms Cid and I never did find out how much we qualified for. We figured out what size mortgage payment we were comfortable with based on our income and current debt and used that a the number to determine our house size. We refused to be house bound to the point where we couldn't afford furniture for the damn thing or be able to take a vacation if we wanted to.

We're so in parallel it's amazing. My purchase was 1999 and re-fi 2003, slightly higher rate than you (6.875%) for purchase, identical rate for re-fi, both payment periods identical.

 

Completely agree about the peace of mind and the figuring out what you're comfortable with, not what some suit tries to push on you. There's a lot more to life than the biggest possible house.

 

A friend of mine is a realtor and she was telling me a few years ago about young couples who'd bought $800,000 giant houses but inside there was literally nothing because they couldn't afford anything but the mortgage.

[dmarc117]

yeah, it always makes me chuckle a bit to hear the phrase "predatory lender". who's really the predator here? the people who took advantage of rampant market optimism to give them a way bigger loan than they ever should have gotten and then bail on it, or the dumb saps left holding the bag?

 

 

+11111

 

so the guy that sells someone stolen goods is a predator too?? both parties knew they were cheatin the system!!

[Ursa Majoris]

yeah, it always makes me chuckle a bit to hear the phrase "predatory lender". who's really the predator here? the people who took advantage of rampant market optimism to give them a way bigger loan than they ever should have gotten and then bail on it, or the dumb saps left holding the bag?

Two lots of dumb saps in this tale......the borrowers losing their homes and the morans that bought the bundled sub-prime securities. The brokers who originated the ridiculous loans have made out like bandits.

[Azazello1313]

What did these lenders think would happen when the increased payments kick in?

 

as long as the housing market kept rising, they'd simply refinance, because they'd have equity and it wouldn't be a problem. it only really becomes a problem when it comes time to adjust and you're sitting there with negative equity because the housing market tanked.

 

as far as the greenspan quotes, he was absolutely right. people with fixed rates almost always end up paying more over the long haul. can short term consequences pop up that would turn that on its head? yeah, of course. it's basically the same calculation as buying stocks versus investing in fixed rate investments. historically, you're a lot better off putting your money in stocks, which show an 8-10% average annual return, than you are putting it in a 4% CD. if you're risk averse, maybe you put your money in CDs, and then feel all smart when the market corrects and a handful of dummies lose big bucks.

[Ursa Majoris]

as far as the greenspan quotes, he was absolutely right. people with fixed rates almost always end up paying more over the long haul. can short term consequences pop up that would turn that on its head? yeah, of course. it's basically the same calculation as buying stocks versus investing in fixed rate investments. historically, you're a lot better off putting your money in stocks, which show an 8-10% average annual return, than you are putting it in a 4% CD. if you're risk averse, maybe you put your money in CDs, and then feel all smart when the market corrects and a handful of dummies lose big bucks.

That's all fine and dandy if you've got an effective bottomless barrel of cash. Those short term consequences you mention need only pinch too hard just once and the house is lost forever. That makes the stocks analogy less relevant - you can buy lots of different stocks but we're only talking about one asset when it comes to a house..