Mortgage Mess

[David]

I know we've beat this like a set of drums from a garage sale, but this is one of the more sobering articles I've seen. And, it comes from a publication that does not sensationalize news. It'll take a little time to read, but I can promise you that it's worth it if you are trying to understand the current and future economy:

 

Link to Economist Article

[Whip]

"This market was trumpeted as a means of extending home ownership to those, such as the self-employed, with a reasonable credit standing but unsteady income. "

 

The only way I could get a mortgage in 2001 was using somethin like this. They called it a zero income loan.....or no income loan. The interest rate was higher and the closing cost seemed crazy.

 

Part of the reason for this at the time was the mortgage peeps didn't like reading small bidness financials or could not interpret them. For example I owned a couple sub S corps and a partnership at the time. We were gonna show some loses after 911. My personal income statement was lookin bad at the time.(on paper) My local banker ended up doing the loan for me at 8% for 10 years. A couple years later I refied for 5.2%.

 

What I'm sayin is these kinda mortgage loans have a place in our world.

 

 

 

[smiller]

What I'm sayin is these kinda mortgage loans have a place in our world.

Yeah but it would seem that the banks counted on most borrowers being to pull it off while in reality only a much smaller percentage are really able to do this, especially in the current economy. I'm afraid that your success is probably going to be more the exception than the rule.

 

 

[Whip]

What I'm sayin is these kinda mortgage loans have a place in our world.

Yeah but it would seem that the banks counted on most borrowers being to pull it off while in reality only a much smaller percentage are really able to do this, especially in the current economy. I'm afraid that your success is probably going to be more the exception than the rule.

 

 

 

Could be....

[David]

My guess is that you didn't have a reverse amortization or interest-only approach, either.

 

It's not people like you that are the problem. It's people who abuse the setups provided for people like you.

[Whip]

My guess is that you didn't have a reverse amortization or interest-only approach, either.

 

It's not people like you that are the problem. It's people who abuse the setups provided for people like you.

 

 

Your right.....matter of fact we are close to paid off.

 

I was really just defending the concept of using your credit score as the determining factor more than your income tax statement.

 

 

[Dave McReynolds]

What I'm sayin is these kinda mortgage loans have a place in our world.

Yeah but it would seem that the banks counted on most borrowers being to pull it off while in reality only a much smaller percentage are really able to do this, especially in the current economy. I'm afraid that your success is probably going to be more the exception than the rule.

 

 

I don't think the bankers really cared if the borrowers could pull it off or not. Some bankers thought real estate prices would just continue to increase forever; other bankers thought real estate prices might flatten out; almost no bankers thought there would be a major decrease in real estate prices. Therefore, they thought that at worst, some owners might not be able to afford their payments and might have to sell out to someone else who could afford them, or if they were stupid enough to default, the banks would just do the same thing. The favorite phrase at the time was, "They keep making more people, but they aren't making any more real estate." (Or some variation of that theme).

 

You were here in this forum when the real estate boom was on. I'm sure you remember discussions we had on this topic that reflected the same beliefs among our members at the time. The closer those members were to the real estate industry, the more optimistic their beliefs were. It's amazing to me if you go back through history how often these bubbles occur, and how surprised people are when they burst. Which leads me to predict that we will see another one somewhere in the economy within the next 20-30 years.

 

As far as the article David referenced is concerned, it doesn't surprise me any more that someone with a million dollar mortgage who finds that their house is now worth 600-700 thousand would walk away from that mortgage than it does for someone with a much lower mortgage. Just that someone with a million dollar mortgage and substantial other assets had better check with an attorney first to make sure the mortgage is non-recourse.

[smiller]

I don't think the bankers really cared if the borrowers could pull it off or not.

Yes, quite right.

 

And I find myself having exactly the same thoughts with regard to your comments on the real estate boom threads. The number of optimistic 'Real estate has to rise, they're not making any more!' sentiments were amazing and as far as I can tell made without any regard to the laws of economics or knowledge of history. But of course many other real estate owners were caught in the same way that many stock investors were (including myself), knowing full well that we were in a bubble that couldn't last forever but at the same time underestimating the downside at maybe 20% at worst instead of more like 50% (I hope... ).

[John Ranalletta]

I don't think the bankers really cared if the borrowers could pull it off or not.

Bankers didn't care because "bankers" weren't holding the notes. If loan originators had to own and service 50% of all mortgages they originate (like the old days), this would never have happened. Credit availability should be localized, not globalized. Doing so, would balance demand and availability.

 

How much sense does it make for a Swiss investor or hedge fund to own a mortgage on a 2 bedroom house in east Piskeeswitch, TN?

 

The Economist article DCB sites is optimistic. It could be more like this.

 

 

[Pilgrim]

The Economist article DCB sites is optimistic. It could be more like this.

John, based on my fundamental belief that things are never as bad as they could be, but they're always headed that way, I'm with the blog guy.

 

The idea that the Fed is going to print scrip as a monetary policy is pretty damned scary. My government retirement income is pretty comfortable, but throw in Carter-style (or worse) inflation and that could change.

 

Pilgrim

[KCB]

This morning ---TODAY--- Freddy and Fanne reduced the requirements for obtaining a loan by reducing the down payment percentage, lowered the income required and dropped in most cases the requirement for an appraisal. These actions were taken to clear a backlog of applications and to further speed the mortgage process, which in theory will aid in the economic recovery. Where have we heard this before? These are some of the reasons we are in this mess. Not bragging but Vermont has one of the lowest foreclosure rates in the country because even during the "boom" local banks made loans conservatively, with down payments and income levels consistent with the loan amount, then THEY HELD the note! Obviously Banks and borrowers still haven't learned....what the heck we'll--taxpayer- bail them out again.

kc

feeling better now

NPR and BBC Canada reported this 2/6/2009

[Selden]

I was half asleep when I heard this shortly before 6:00 this morning. Same reaction -- some people can't be taught.