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Jet Gorgon

That's why most people invest, Spin. You expct the value and prices to rise. Everyone got greedy and people bought when prices were high. If you have a product and demand rises for it, you make more to sell. Not really different in finance. Then the bottom fell out of the US housing market, credit got tighter. Few could sell at a reasonable never mind higher price, and many could not pay their mortgages, either because they couldn't really afford it in the first place or they lost their job. But, the mortgage contracts all had disclaimers saying rates might/would change. Of course it's not fair. But life never is.

raycarey

according to some, this was not necessary....these lenders were following normal lending practices.

and the reason they did it is because they had no risk...they knew they were passing it on...all around the world.

the hypercapitalists socialized risk at the very same time they've privatized reward.

raycarey

i'd like to read more about your reasoning behind this gem.

Jet Gorgon

^ The terms were set, Ray. Just like any financial agreement. You play, you pay.

Texpat

Simple business law. Contracts are legally binding. Even if they're unethical -- but not illegal. Country governed by law, Ray. Not self-appointed do-gooders whose only purpose is to protect the numbskulls who can't think for themselves. Thank goodness.

These fools signed contracts.

Jet Gorgon

I got a bridge for sale.

Milkman

I still see many of these subprime buyers as ignorant foolish people.

Making an assumption that housing would continue to rise, and allowing them to refi their ARM in the future, is big risk, especially when the Shiller Index is noted.

Most of the folks probably don't eve know what the Shiller Index is.

Many people also got into HELOCS and also used their homes at ATM machines.

The lenders were unscrupulous and greedy. Many laws were broken. Yes, there needs to be tighter regulations.

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raycarey

the insatiable financial industry has been out of control for too long. it's time to bring back regulation...and by no means should it be set by paulson. what's the point of having the fox guard the hen house?

Texpat

But by-and-large not illegal.

Prosecute the criminals.

Introduce bills and enact laws.

Bailing out dolts because their "good deals" turned sour is a bad, bad idea. Blaming predatory lending is a cop-out by those afraid or ashamed to call a spade a spade. Dumbasses didn't know what they were doing and signed up for a bad deal.

Caveat Emptor is alive and well.

Milkman

And

Prosecute the criminals.[/quote]

Many lenders falsified the loan apps from start to finish. Over-stating income, not even doing a VOE (Verification of Employment), setting up a piggy back loan, and claiming an applicant had already rented out or sold their home, and was getting income and equity from that home. A mortgage lending company in my hometown eventually started hiring 19 year old who couldn't even read a credit report. The employees were told to "do what it takes to make the loan go through."

And logically, this mortgage company went bankrupt, as did the founder (who was in his twenties), and he's looking at criminal charges.

Introduce bills and enact laws.[/quote]

Regulations only for transparency and disclosure.

I don't believe in doling out the dolts. They got what they deserved.

A fool, is a fool.

raycarey

exactly.

and what people here need to realize is that it's not only the borrower who gets crushed by these predatory lending practices....it's the other homeowners in these neighborhoods who also take a beating. foreclosure signs going up and down your street don't do much for the price you could get for your home.

Texpat

I think a distinction should be made between legal and illegal mortgages.

If papers were falsified, laws broken, income and expenses fudged by the lender (without the knowledge of the buyer) in order to push the loan through, the lender should be punished.

It's my understanding that the vast majority of these loans were above-board, by-the-book loans that were perfectly legitimate. The mortgage buyer simply bit off WAY more than he could chew due to greed and stupidity. (these are the one's I'm railing against). When the market turned south and the ARM adjusted upward, they were screwed.

If a mortgage lender broke laws, he should be prosecuted as should any criminal. If the laws were insufficient to "protect" gluttenous buyers, don't try to insulate them retroactively, improve the laws and move on. Responsible homeowners in declining markets might be interested in pushing these forward.

You play the hand you're dealt.

Norton

I purchased my first home in 1974. The purchase was based on, first to have a roof over my families head and, secondly a cost trade off between purchase and renting. So after struggling to save the down payment I signed a fixed rate 30 year mortgage. Not once did I even consider the purchase to be an investment nor did the lender market it as such. When I could, I doubled up on the payments as much as possible to reduce the interest cost. The goal, own the house outright as soon as I could. If the value of the property went up so be it if not, nothing lost.

This whole concept of refinancing for what amounts to a loan to buy the essential BMW crept in sometime in the early 80s. Lenders began offering me all sorts of refinance packages espousing the great benefit I had by borrowing more from them due to the increased value of my home. After much thought (about 5 seconds) I rejected the idea as being completely counter to why I had bought the house in the first place, owning my home rather than paying the bank ad infinitum.

Maybe I'm old fashioned but the definition of owning a home for investment purposes is full ownership when you sell it so one can use the money to purchase another in a lower cost market and then use the surplus to enjoy oneself.

Lenders and buyers who get involved in financing based on the current "paper value" of the property thinking the price will somehow never go down is unintelligent speculation and will always lead to eventual disaster.

Both lenders and buyers deserve what they have gotten and they can if they want me to bail them out.

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Texpat

I prefer to call it sensible.
I bought a house in 96, sold it in 99.
Not a good idea to buy if you face a very real chance of being reassigned in 3-4 years, but I did anyway. When I paid the realtors fees (9% of sale) I broke even. My friends and neighbors were quite conciliatory that I had put so much into it and didn't make any money. I told them the same thing: I lived in a nice house for three years -- paying slightly less than I would have paid in rent. I didn't buy it to make money. They couldn't quite grasp it.

Couldn't get a mortgage here if I tried, so had to pay outright. Ironically, the rise of the baht and the increase of land prices is making it seem like a good deal. Still believe it's a place to live and store my shit -- not an investment.

Norton

The company you worked for hardly gave you the option of turning down the "new job offer" in consideration of house values. Still though, you ended up in a break even financial position and lived in a better home. A very sensible (old fashioned) choice.

bkkandrew

1 in 8 US mortgages face default!

http://latimesblogs.latimes.com/laland/2008/04/the-coming-tida.html

The coming tidal wave: Bank sees 6.5 million foreclosures

The investment bank Credit Suisse is now predicting that 6.5 million American homeowners -- that's one out of every eight that has a mortgage -- will end up in foreclosure over the next five years.

In a report this week titled "Foreclosure Trends: A sobering reality," Credit Suisse predicts home prices will continue to fall throughout 2008 and 2009, causing a huge wave of foreclosures.

"... We estimate a total of 6.5 million loans will fall into foreclosure over the next five years, with the peak in 2008," the report says. "That estimate includes about 1.2 million loans currently already in foreclosure ... The coming flood of new foreclosures could put 8.4% of total homeowners, or 12.7% of homeowners with mortgages, out of their homes."

Other key points in the report:

-- The report predicts housing prices will fall by 10% in 2008 and 5% in 2009, and then grow by 3% in future years.

-- The report concludes falling prices -- and resulting negative home equity -- is "a primary driver of default and that the walkaway effect is alive and well." In other words, some people who have been paying their mortgages on time, and are capable of continuing to pay, will instead stop paying and walk away once they realize their home is no longer worth what they owe on it.

-- Likening the foreclosure crisis to a baseball game, the report says, "We are at best in the third inning ... global real estate investors are in the early stages of meltdown."

-- By 2009, the report predicts, 63% of sub-prime borrowers will be "underwater" on their mortgages -- owing more than their homes are worth.

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A funny thing happened today - Ant trolls, stalks, prevokes and generally upsets approximately 15 members of the board, yet Noodles goes to jail. Perhaps it was a dream...
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Texpat

By E. Scott Reckard
Los Angeles Times
April 26, 2008

The great mortgage reset of 2008 isn't turning out quite as advertised.

Thanks to interest rate cuts by the Federal Reserve, payments on sub-prime loans with expiring "teaser" rates are going up only modestly when the loans start adjusting -- by just 1% on average last month, one study found.

A payment that would have risen by $450 in December is currently going up by no more than $100 and often much less, according to Tom Deutsch, an industry expert who testified recently to a housing panel of Congress.

Last fall, consumer advocates and government officials had raised concerns that increases of several hundred dollars in monthly payments were in store for about 2 million sub-prime loans made to high-risk borrowers at the height of the housing boom.

Defaults and foreclosures are still rising, however -- it's just that the culprit isn't solely the payment shocks once feared.

Instead, industry experts put most of the blame on tumbling housing prices, which have left many borrowers owing more than their homes are worth after making little or no down payment, taking on second mortgages or sucking their equity dry through refinancings.

"Every single borrower with a resetting loan has gotten effectively a mortgage modification in the sense that they are paying significantly less every month than they would have just last December," said Deutsch, deputy executive director of the American Securitization Forum, a trade group for the companies involved in creating mortgage bonds.

Consumer advocates say Deutsch understates the problem of resets. Bruce Marks, chief executive of Neighborhood Assistance Corp. of America, said the troubled borrowers who ask his organization for help often stretched to qualify for start rates of 5% on their loans, not the 7.5% or 8% that the industry says was typical.

That means their loans become unaffordable even if the rate rises just 1.5 percentage points at the first adjustment, as often occurs, Marks said. What's more, he noted, sub-prime adjustable loans are set up so the initial rate can never go down, unlike traditional adjustable-rate loans.

"Payments on sub-prime loans are still going up, just not as much," Marks said.

Even so, without the recent reduction in interest rates, "things would have been worse," said economist Peter Morici of the University of Maryland. "The fact that it is down has made resets easier to swallow and has reduced the level of foreclosures."

Lower short-term interest rates also help certain other adjustable-rate borrowers, including people with home equity lines of credit, which have interest rates at or close to the prime rate. The prime rate, which was 8.25% a year ago, was at 5.25% this week.

Holders of controversial "pay option" mortgages, which allow borrowers to pay so little that the balance rises, also will benefit.

Facing what was shaping up to be the worst wave of foreclosures since the 1930s, the Fed lowered its benchmark rate for short-term loans between banks by 1.25 percentage points in January and by an additional 0.75 of a percentage point March 18.

In response, the index for most sub-prime loans -- a European inter-bank lending rate known as six-month U.S. LIBOR -- fell to 2.4% on March 18, the lowest level in more than three years, a recent Standard & Poor's study noted.

The Federal Reserve cuts were aimed in part at stemming foreclosures and propping up the slumping housing market, which many economists believe has tilted the economy into recession.

But the reduction in interest rates hasn't revived the moribund sub-prime lending market, economist Morici said.

Big investors such as pension funds, burned on mortgage investments, now will buy only those mortgage bonds backed by the safest prime loans or guaranteed by government-sponsored entities. And that, Morici said, has cut off sub-prime lending to potentially worthy borrowers with some credit dings and also loans for self-employed people and others in the "alt-A" loan category between prime and sub-prime.

"That's one reason the housing markets are tanking so badly, especially new-home sales," Morici said.

The Fed also has little control over long-term fixed mortgage interest rates. The average rate on a 30-year fixed-rate mortgage rose to 6.1% after the Fed reduced short-term rates in January because investors feared that the stimulus to the economy might fuel inflation. The rate had moved back down to 5.8% as of Thursday.

Consumer advocates said lower resets were no substitute for the five-year rate freeze that Treasury Secretary Henry M. Paulson Jr. had promoted back in December. Under that plan, many lenders had pledged to leave unchanged the teaser rates for sub-prime borrowers if their payments would become unaffordable because they were rising by 10% or more.

"The important thing for a family getting a [rate freeze] loan modification is that it provides long-term stability," said Kevin Stein, associate director of the California Reinvestment Coalition, who testified last week before the same House subcommittee as Deutsch. "Getting a temporary small increase based on a LIBOR index that can go back up in a few months is not going to do that."

Still, the lower resets are very real for what the industry describes as typical sub-prime borrowers. Their loans might start with an 8% rate for two years, the S&P study noted, then start adjusting twice a year to six-month LIBOR plus 6 percentage points. If LIBOR was 5%, the borrower would pay 11% interest on the loan.

Borrowers who got a loan like that in January 2005 would have paid $734 a month for two years on a $100,000 mortgage, S&P said. The payment would have jumped to $945 a month -- a 29% increase -- in January 2007, when six-month LIBOR was at 5.4%. The borrowers would have been paying even more at that point if not for restrictions on interest-rate increases built into the loan to reduce the payment shocks, S&P noted.

But as of March 18, payment shocks were only about 1%, S&P said, compared with 19% at the end of December, before the Fed started cutting rates.

After recent news articles questioned whether banks were properly reporting the interest rates used to calculate LIBOR, it crept back up a bit, to just over 3% last week.

But most sub-prime loans adjust by adding 5.5 or 6 percentage points to the index, meaning adjusted rates would be in the 8.5% to 9% range, not the double digits that had been feared last year when Paulson was promoting a "streamlined modification plan" to freeze the initial interest rates.

http://www.latimes.com/business/la-fi-reset26apr26,0,7315846.story