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Old 11-30-2007, 02:13 PM   #21
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Talk about a growth industry! I want a piece of the large-scale algorithmic home loan work-out business!
Here you go: OCN
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Old 11-30-2007, 02:14 PM   #22
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Let me guess: you have a Ron Paul in '08 bumper sticker on your car?
Personal attacks are a cheap trick to try to strengten weak arguments. The simple fact is when you susbsidse irresponsible behavior you get more irresponsible behavior.
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Old 11-30-2007, 02:19 PM   #23
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Personal attacks are a cheap trick to try to strengten weak arguments. The simple fact is when you susbsidse irresponsible behavior you get more irresponsible behavior.
Ah, ever the vindictive type. 40 lashes and a year of hard time, then.

Frankly, the time to lay down the law will be later, after the mess is cleaned up. Right now, we need a more pragmatic solution and we need it fast. You really, really don't want to see what the economy would look like if the mortgage market stays frozen for a few years.
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Old 11-30-2007, 02:19 PM   #24
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The simple fact is when you susbsidse irresponsible behavior you get more irresponsible behavior.
This is true, as far as the simple facts go. BUT -- the more complex facts are that if you don't do something to help "subsidize irresponsible behavior" under the current set of circumstances you could allow something far worse to happen.

Doing nothing and letting the banks rot for their bad decisions, while satisfying in some sense, would be disastrous for the entire economy and not just irresponsible lenders and borrowers.
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Old 11-30-2007, 02:32 PM   #25
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This whole mess should not be looked at as an opportunity to kill the wounded. Trust me on this one: if banks, there investors and the borrowers all go under, and that drives us deep into a recession/depression, then corporate business notes and bonds will be the next victims. That would make the sub-prime mess look like a stroll in the park. Business weakens, jobs disappear, housing values sink, etc. It's all connected my friends. You might not like mega-corp, businesses in general and the distasteful things it forces people to go through, but every one of us needs the system they all represent.

I don't care much for the snakes who wrote the bad loans with no documentation or even the flippers who lied about living in the home they never did. Nor do I think much of the so-called experts who dreamed up ways to leverage their banks into insolvency without any idea of how they would recover the collateral if needed if defaults occurred. But I DO care about the value of my real estate, the strength of the USD, value of my financial assets (which represents ownership in the whole system), the US and world commerce, and the future for my daughter in this world.

Write your congressman. That's a great idea, if you're a citizen ,AND you vote. But give him or her some advice that he or she might be able to use to fix this mess, not make it worse.

What is NOT useful are mobs of uninformed people screaming for someone's head just because they "think" their taxes might go up a few bucks! You'll have plenty more to worry about than paying taxes, like eating and paying the mortgage.
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Old 11-30-2007, 02:37 PM   #26
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should have bought five 1 million dollar homes 2 years ago
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Just the facts maam.
Old 11-30-2007, 03:33 PM   #27
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Just the facts maam.

I know it is always more fun to rant when it comes to politics or gummint but eventually (as the brewmaster is saying) one should return to the facts.

"As envisioned, the plan would effectively extend the fixed-rate period for stressed borrowers and so shield them from a payment spike that could push them into foreclosure."

Link

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Old 11-30-2007, 04:23 PM   #28
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This whole mess should not be looked at as an opportunity to kill the wounded. Trust me on this one: if banks, there investors and the borrowers all go under, and that drives us deep into a recession/depression
This mess is not big enough for THAT impact. Just have to go back ~20 years to the S&L "crisis" .... Resolution Trust Corporation "bailout" ... same stuff just fast forward a couple decades. I made my wad killing the wounded ... just sit still; they're coming.
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Old 11-30-2007, 04:27 PM   #29
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This mess is not big enough for THAT impact.
A lot of people have underestimated the magnitude of this thing. So far, the most pessimistic predictions have turned out to be on the optimistic side.

Imagine a crash bigger than the dot-com crash, but instead of a bunch of nimble 20-somethings out of work for a couple years, the banks are the dot-coms. Banks are the backbone of our economy. Dot-coms we can live without.
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Old 11-30-2007, 04:37 PM   #30
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I don't see it ... yes, lots of banks will go under (and they NEED to). BUT lots of banks did NOT get sucked into the caze. Smaller banks stuck to thier principals.

Owners not moving into properties; bribbed appraisals; hidden second mortgages; fasified incomes ... saw it all in 1989.

BTW, bet you could sell a Venn Diagram: GDP vs Banking vs Subprime Mess.
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Old 12-01-2007, 12:05 AM   #31
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Just my opinion... but I don't think that there are a lot of banks that are going under if nothing is done... most have a good amount of capital and can absorb the losses...

And a lot of the losses are in CDO and CMOs, and why should they be bailed out?

Will it hurt, yes, but I would be the economy will be stronger for it...

And on one of the shows that had a 'poster boy' on the bad lending had a house that was PAID FOR, but got a mortgage on it so he could 'buy stuff'... now his house is being repoed and he is blaming the lending people... WHAT HAPPENED TO THE MONEY? He spent it..

And how many of the people should not be in their house anyhow

The banks will make concessions to the borrowers if they do not want to take a bigger loss... and if the person is not a good risk, then they should not have made the loan in the first place....

I do NOT want any of my taxes to bail out anybody... this is not something like the S&Ls where the depositor was who was being protected... but the S&Ls went under...

SO, let the banks take it in the chin.. if there are some that go under, then someone else will be there to buy it and keep it going... that is the system we have and it has worked well for a long time..
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Old 12-01-2007, 12:59 PM   #32
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I don't see it ... yes, lots of banks will go under (and they NEED to). BUT lots of banks did NOT get sucked into the caze. Smaller banks stuck to thier principals.
I think that we need to be a little more careful with language here. Actual banks mostly did not make the really hideously stupid loans that are going bad in droves. The worst subprime loans are the 2/28 loans that were very popular through early 2007. This structure has a fixed rate for two years, then the rate adjusts (higher, most likely). The idea is that after two years you have either fixed your credit, refinanced, or sold the house. Most of these loans were not made by actual banks that are backed by the FDIC (with a few notable exceptions). They were made by non-bank lenders who either sold the loans into the capital markets or held them and financed them. Why didn't banks make these loans? Because the bank regulators wisely held the banks to higher standards than the non-bank lenders, which meant that when the stupidest loans were being made, it was done by non-bank lenders because the regulators wouldn't let the banks be that loose. Some actual banks made subprime loans, but they generaly underwrote the loans a lot better and didn't make use of the 2/28 structure, so their loss experience has been much better.

And so who has blown up? Mostly, the non-bank lenders: New Century, Novastar, Saxon, etc. Actual depository institutions that blew up are few and far between. So I think that this demonstrates that bank regulations do work, if imperfectly.

What is putting pressure on all the banks now is that there has been credit market contagion that has spread throughout the mortgage market. The capital markets entities that financed a lot of mortgages (and not just subprime: prime jumbos, Alt A, etc.) have been shut down or hamstrung, and many of them ae being forced to liquidate in a stressed market. That means that banks that usually made loans and sold them in the ordinary course of business can't sell and ended up keeping lots more loans than they intended to. So these banks didn't (mostly) make droves of bad loans, they just ended up with a bigger balance sheet than they planned. Until they can delever a bit or sell some of these loans, many banks are pulling back on lending so as not to overstress their capital. And therein lies the problem for the wider economy. A widespread contraction in credit is a big damper on economic growth.

I see some signs that things are starting to loosen up a bit. I see some deals getting set up to sell or securitize some pretty squeaky clean loans (prime jumbos, etc.), so maybe this is a sign that the machinery of the mortgage part of the capital markets will get unstuck. I sure hope it happens soon, though, because we will all feel the effects pretty quickly if it doesn't get going soon.
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Old 12-01-2007, 01:04 PM   #33
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Just my opinion... but I don't think that there are a lot of banks that are going under if nothing is done... most have a good amount of capital and can absorb the losses...


I do NOT want any of my taxes to bail out anybody...
Agree on both counts......

If banks find it in their best interest to modify a lot of loans to reduce the risk of default, fine. That's their business. But it would be a mistake to use any public funding to bail out home owners or banks.
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Old 12-01-2007, 01:26 PM   #34
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I think that we need to be a little more careful with language here. Actual banks mostly did not make the really hideously stupid loans that are going bad in droves. The worst subprime loans are the 2/28 loans that were very popular through early 2007. This structure has a fixed rate for two years, then the rate adjusts (higher, most likely). The idea is that after two years you have either fixed your credit, refinanced, or sold the house. Most of these loans were not made by actual banks that are backed by the FDIC (with a few notable exceptions). They were made by non-bank lenders who either sold the loans into the capital markets or held them and financed them. Why didn't banks make these loans? Because the bank regulators wisely held the banks to higher standards than the non-bank lenders, which meant that when the stupidest loans were being made, it was done by non-bank lenders because the regulators wouldn't let the banks be that loose. Some actual banks made subprime loans, but they generaly underwrote the loans a lot better and didn't make use of the 2/28 structure, so their loss experience has been much better.

And so who has blown up? Mostly, the non-bank lenders: New Century, Novastar, Saxon, etc. Actual depository institutions that blew up are few and far between. So I think that this demonstrates that bank regulations do work, if imperfectly.

What is putting pressure on all the banks now is that there has been credit market contagion that has spread throughout the mortgage market. The capital markets entities that financed a lot of mortgages (and not just subprime: prime jumbos, Alt A, etc.) have been shut down or hamstrung, and many of them ae being forced to liquidate in a stressed market. That means that banks that usually made loans and sold them in the ordinary course of business can't sell and ended up keeping lots more loans than they intended to. So these banks didn't (mostly) make droves of bad loans, they just ended up with a bigger balance sheet than they planned. Until they can delever a bit or sell some of these loans, many banks are pulling back on lending so as not to overstress their capital. And therein lies the problem for the wider economy. A widespread contraction in credit is a big damper on economic growth.

I see some signs that things are starting to loosen up a bit. I see some deals getting set up to sell or securitize some pretty squeaky clean loans (prime jumbos, etc.), so maybe this is a sign that the machinery of the mortgage part of the capital markets will get unstuck. I sure hope it happens soon, though, because we will all feel the effects pretty quickly if it doesn't get going soon.

Really really good description Brewer.
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Old 12-01-2007, 02:21 PM   #35
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The problems extend well beyond subprime. I think it was Bill Gross who used a plankton analogy for subprime. Once the plankton dies, the entire ecosystem is affected. The subprime lenders are already dead. The Alt-A lenders are near death. Even the GSE's are hurting. They need to raise capital to meet their capital requirements, and that new capital is expensive in this environment.

But those are all first- and second-order effects. As brewer points out, an extended credit crunch would choke the economy. And combine that with depressed consumer demand, and you have a potentially lethal combo.

If a large number of ARMs were allowed to reset, there would be an increased default rate. Most of the current focus is on the new wave of bank write-offs that would lead to.

But that would also dump a bunch of REO inventory on an already saturated market. That would drive down prices for everybody, and we could start to see lots of "prime" mortgages upsidedown. This thing goes all the way up the food chain.
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Old 12-01-2007, 02:50 PM   #36
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The problems extend well beyond subprime.
Monthly Mortgage Rate Resets

I don't know what the proper resolution is but I think people should look at the chart at the link above and ask what the impact COULD be five years from now.
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Old 12-01-2007, 03:16 PM   #37
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Excellent summary Brewer. Twaddle, the plankton analogy is point on, as I would expect from Pimco's Bill Gross. It's far to complicated for most of us to understand clearly or predict reliably. But I do feel that too much emotionally uninformed screaming will add only coloring and clouds to an already serious issue.
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Old 12-01-2007, 04:53 PM   #38
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Monthly Mortgage Rate Resets

I don't know what the proper resolution is but I think people should look at the chart at the link above and ask what the impact COULD be five years from now.
Nice find! This is a keeper!

Looks like a real blood-bath thru 2008 ... opportunity abound in 2009. Looking out any further is futile (things change).
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Old 12-01-2007, 08:05 PM   #39
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Is there a pony under this manure pile?

Yes, some people who over-extended themselves with aggressive mortgage terms are going to get hurt. But, now that home prices are down, are homes more affordable for many?

We complain about the price of gas going up, and the price of homes going down? Sure, if you own a house, and buy gas, that *could* be bad, but what about first time home buyers?

I say *could* be bad, because I fail to see why housing price drops are bad for *most* people. If you are moving, your house is worth less, and the house you buy is worth less - all comes out in the wash. For first time buyers, or those upsizing, seems like a good thing. Seems like the only problem is if you are downsizing, or took on more mortgage than you can afford, and are forced to sell.

-ERD50
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Old 12-01-2007, 08:20 PM   #40
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Let's dig for that pony!

Are there more home owners or more first-time buyers? Right, there are more home owners. In fact, more than ever before in our history.

What kind of shape are those home owners in? Not so good -- they have they highest debt burden in our history.

Besides the wealth effect and spending based on equity extraction, what else might homes affect? You guessed it. They are used to collateralize debt. The lower the equity value, the lower the quality of debt. Banks and investors should care about that.
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