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Old 12-19-2007, 11:13 AM   #261
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I suppose I might as well be throwing meringues into a black hole trying to talk about facts on this subject, but one more try:

The federal regulators were doing what they were supposed to be doing: they were regulating and restraining the banks in their lending. If you look at the last two years worth of "proposed guidance open for comment" (i.e. this is what we will force you to do shortly, so stop doing it now) that the bank regulators issued, you will see: restrictions on subprime lending, restrictions on construction lending, requirements to qualify borrowers for loans based on verifiable income, etc. system...

The problem now is that the non-bank lenders (who were regulated by the states if at all) have pissed in the punch bowl. Want a cup?

But it isn't the bank regulators' fault.
Brewer12345,

This Feds "Proposed Guidance open for comment" was a joke as was reported yesterday in a New York Times article, entitled, "Fed Shrugged as Subprime Crisis Spread." Regulators waited until December 2005 (the peak of housing prices) to issue "Proposed Guidance" to banks and thrifts. You are wrong in your assertion that the "guidance" as it was originally written applied to subprime loans, because consumer groups were outraged at the time that these new underwriting standards did indeed not apply to subprime loans. In reality, they applied to exotic mortgages, like Option ARM's (some accrued interest is added to principal). The problem here is that exotic mortgages were rarely being made by December 2005, but subprime mortgages were making up 25% of the total mortgage origination.

Finally, the Fed issued another "Guidance" in March of 2007 and this one did indeed address subprime loans. Problem is, these standards were not complete until June of 2007 when over 30% of subprime lenders had gone out of business and more were headed for their demise as well.

Mr. Gramlich, (now deceased) was appointed to the Federal Reserve's Community on Consumer Affairs from 1997 to 2005 and warned Alan Greenspan privately to send examiners into mortgage-lending affiliates of nationally chartered banks (such as Bank of America). Greenspan did not take Gramlich up on his warning because he felt that if the examiners missed any deceptive practices that this would be tantamount to a Fed seal of approval on these lending practices.

Fed Chairman Alan Greenspan was incorrect in his prediction that the, "Housing declines would be local but almost certainly not nationwide." Ms. Bair, Chairman of the Federal Deposit Insurance Corporation in 2006 stated, "Hindsight is always 20-20, but it's clear that the Fed should have acted earlier. Financial innovation is great, but you have to have some basic rules. One of the most basic rules is that a borrower should have the ability to repay."

http://www.nytimes.com/2007/12/18/bu...1&ref=business
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Old 12-19-2007, 11:37 AM   #262
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I would be the first to admit that I do not have a good understanding of the average home-buyer's psychological framework.

But, like many here, I was recently a first-time home buyer (in 2002, in my case). At the time, people at work curiously asked me if I bought it on zero down with an ARM and such. Even though I was a newbie to buying real estate, that all seemed so fishy to me! I couldn't imagine what I would do, if I wanted to stay in my home and couldn't refinance before the ARM rates went up. What if credit got too tight to do that? Besides, I wanted a predictable, solid 30 year fixed mortgage with a big, traditional bank (which I got). OK, I felt a little stupid but I would never have considered going for an ARM, not in a million years.

Seems like a lot of others that I know eventually decided on a 30-year fixed as well; I don't believe that I know anybody around here with an ARM on their own home. Seems like the only people I knew of around here, (or outside of California and the East Coast) with ARM's were flippers and speculators, not people who were planning to actually live in their homes.

The media cry and wail for Joe Average, the common hardworking homeowner and how his home is being taken from him. I think this may be a big misrepresentation. Maybe all this congressional action and otherwise is intended to protect the new INDUSTRY of flipping/speculating, not the average homeowner.

But on the news, all we hear is media sobbing about the poor homeowners. In middle America is this really happening to the extent being reported, or (outside of California) is it another example of the media distorting the truth? Maybe I just don't realize the extent of homeowner involvement here.
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Old 12-19-2007, 01:21 PM   #263
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The media cry and wail for Joe Average, the common hardworking homeowner and how his home is being taken from him. I think this may be a big misrepresentation. Maybe all this congressional action and otherwise is intended to protect the new INDUSTRY of flipping/speculating, not the average homeowner.
Interesting thought Want2retire. I think it is equally fair for both the average Joe to lose his home, or the speculator/investor to loose his investment. Just because someone has less money it does not make them a victim, nor does having more money make you corrupt (immoral). In almost all cases there will always be someone "richer" than you, and someone "poorer" than you. If we start making arbitrary decisions about who is right and wrong bases upon who had more money at the time, then any of us can be victimized at any time.
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Old 12-19-2007, 02:26 PM   #264
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It's a nationwide problem, but it's concentrated on the coasts. It's not just people who bought homes -- a lot of them simply refi'd at the top of the bubble.

As prices drop, more and more of them are underwater with negative equity. If we get a 30% drop in prices, I've read that 20 million homeowners could be underwater.

http://www.nytimes.com/2007/12/14/op...hp&oref=slogin
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Old 12-19-2007, 07:32 PM   #265
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The folks that bought my wifes old house bought it with a zero down ARM. They're going to get foreclosed on any day now.

A lot of these loans were sold via the same mechanism that cars are sold: people focus only on the monthly payment figure. "Other stuff" that might happen in a couple of years just isnt relevant.

And arent these homes just going to be worth 25% more next year anyhow?!?
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Old 12-19-2007, 08:44 PM   #266
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. Maybe all this congressional action and otherwise is intended to protect the new INDUSTRY of flipping/speculating, not the average homeowner.
I think it's protecting the new INDUSTRY of securitizing subprime and other exotic loans by the mortgage and financial institutions more than anything. I know its unpopular here, but I think I would be hurt worse if too many of my neighbors foreclose and the subdivision looks like a ghost town.

I remember my first home loan in '82. The going rates were >12% for 30yr fixed. I got a state sponsered loan guarantee program for 10.875! We thought rates would NEVER go below 9%. At the time 'creative financing' was popular. Sellers were holding a portion of the mortgage note. The high rates resulted in ARMs gaining popularity, but they offered 3-4% discount to fixed rates. It puzzles me that the current ARMs caught on when fixed rates are <7% and the premium is only 1-2% in many cases
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Old 12-20-2007, 02:05 PM   #267
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I have been away for a bit... but this got my goat...

I have no problem with someone getting a 'better deal' than me... I DO have a problem if they get that deal by using 'my' money.. this includes my taxes..

I am a well off person, but would never ever think about buying a house that is 4 or more times my income...

And I would take the hit for any of my 'bad' decisions... why not the other people out there?
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Old 12-20-2007, 02:21 PM   #268
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Let me go from a different direction on this... and it goes with some of what you say, but also is where I am at...

When I bought my house, I got gvmt assistance.... it was back when the interest rates were very high and they had first time homebuyer mortgages that were backed by local bond issues... I was 'poor' and 'deserving'... if there are some 'poor' and 'deserving' folks who are actually living in their home that is valued at less than the medium home price... then maybe, just maybe I can agree that a break is OK...

But, if someone is in a $200K or $400K home, or is a flipper and got stuck with the property.... screw 'em...

My point.. the crisis is more than just people getting kicked out of their home they scrimped and saved to get into... some took out second or third mortgages and bought 'stuff'... and now have to pay the price.. so, sell the Mercedes or the BMW, stop the expensive vacations and other cash eating activities... and pay your mortgage...

From what I understand... if you 'can' pay, you still will have to pay.
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Old 12-20-2007, 05:47 PM   #269
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Old 12-20-2007, 06:48 PM   #270
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Some of us think that's a good thing. People remember the mistakes of society.

Something of interest: The Associated Press: Bush Signs Mortgage Legislation
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Old 12-20-2007, 07:21 PM   #271
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It was reported today that Washington Mutual is now under investigation by the Securities and Exchange Commission for allegedly putting pressure on appraisers to inflate appraisals.

Free Preview - WSJ.com
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Old 12-20-2007, 07:56 PM   #272
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Old 12-20-2007, 08:08 PM   #273
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Some of us think that's a good thing. People remember the mistakes of society.

Something of interest: The Associated Press: Bush Signs Mortgage Legislation
People who receive interest forgiveness from lenders on their subprime loans will not have to pay on taxes on this income. However, people who sell second homes will now pay higher taxes and indirectly subsidize the subprime borrowers for defaulting on their loans.
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Old 12-20-2007, 08:22 PM   #274
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BofA is afraid that it's different this time:

Calculated Risk: BofA: Attitudes Changing Towards Default

There's been a change in social attitudes toward default
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Old 12-20-2007, 08:25 PM   #275
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Old 12-20-2007, 08:59 PM   #276
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BofA is afraid that it's different this time:

Calculated Risk: BofA: Attitudes Changing Towards Default

There's been a change in social attitudes toward default
I think there is a lot of merit to this article. Yesterday, I went to get a haircut. Probably because subprime loans have been on my mind lately, the subject of our conversation turned to mortgages. Well, the barber mentioned that he'd refinanced his home some time back. He seemed to be upset with his lender because they did the appraisal by computer and never physically inspected his house. It turns out that they are now upside down on their first mortgage to the tune of $112,000 (based on what they now think their home is worth). He seemed to be very upset with the lender as he accused them of inflating the value of his appraisal. He said the home was very much in need of repair. In other words, it was their fault. There are probably hundreds of thousands of mortgage holders that now hold contempt for their mortgage lender because of similar circumstances. What will happen if many of these people do indeed walk away from their homes? By the way, this article says that home values could drop as much as 30%. Keep in mind that if home values dropped by that amount that it would take nearly a 43% increase in value to return to the original market price. If lenders tighten up loan qualifications more than they already have and interest rates rise due to current inflation, how long do you think that will take?
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Old 12-20-2007, 09:13 PM   #277
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Old 12-20-2007, 09:26 PM   #278
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I think there is a lot of merit to this article. Yesterday, I went to get a haircut. Probably because subprime loans have been on my mind lately, the subject of our conversation turned to mortgages. Well, the barber mentioned that he'd refinanced his home some time back. He seemed to be upset with his lender because they did the appraisal by computer and never physically inspected his house. It turns out that they are now upside down on their first mortgage to the tune of $112,000 (based on what they now think their home is worth). He seemed to be very upset with the lender as he accused them of inflating the value of his appraisal. He said the home was very much in need of repair. In other words, it was their fault. There are probably hundreds of thousands of mortgage holders that now hold contempt for their mortgage lender because of similar circumstances. What will happen if many of these people do indeed walk away from their homes? By the way, this article says that home values could drop as much as 30%. Keep in mind that if home values dropped by that amount that it would take nearly a 43% increase in value to return to the original market price. If lenders tighten up loan qualifications more than they already have and interest rates rise due to current inflation, how long do you think that will take?
I'm confused by this. Your barber refinanced his house. He looked at the new payment and decided that would be OK and went ahead with the deal. Now home prices have dropped and he's upside down in the house. But, he's still cutting hair. He can still make the payment, just as before his house dropped in value (On paper - unrealized capital loss). What's his problem? Why would he walk out on the house? What's changed other than the current appraisal for his house is less?
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Old 12-20-2007, 10:38 PM   #279
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My barber is now upside down on his first mortgage. He feels that when he refinanced the house that the lender never should have appraised his house so high and this is why he now has negative equity. This is only his perception and whether it fits reality or not is irrelevant. My point is that if push should ever come to shove, that he would be more willing to walk away from his mortgage because he has absolutely nothing to lose. Besides, in his mind he believes that the lender was negligent in not physically inspecting the poor condition of the property. I agree that this does not sound like a responsible adult. In the article that Twaddle pointed us to, it states that there will be between 10 and 20 million Americans in the next two years who will become upside down on their mortgage, and it may become socially acceptable for the middle class to simply walk away from their responsibility. Although my barber never said he planning on walking away from his mortgage, the fact that he feels that the lender was careless and negligent in granting him the loan, that this could give him ample justification to join the group described in this article who simply walk away from their mortgage obligation.




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BofA is afraid that it's different this time:

Calculated Risk: BofA: Attitudes Changing Towards Default

There's been a change in social attitudes toward default
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Old 12-20-2007, 11:07 PM   #280
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Although my barber never said he planning on walking away from his mortgage, the fact that he feels that the lender was careless and negligent in granting him the loan, that this could give him ample justification to join the group described in this article who simply walk away from their mortgage obligation.
Hopefully, the rules will remain so that his credit will be ruined for many years by this so-called "walking away."
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