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Old 12-06-2007, 01:12 PM   #141
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I wouldn't hold out much hope for a significant amount of refinancing. After all, these were folks who were unable to qualify for conventional mortgage loans during a period of time that spawned what may have been the loosest lending standards the industry has ever seen. With the specter of governmental interference amounting to nothing less than the large-scale abrogation of private contracts, you can bet that nobody in the private sector is going to be lining up to do business with them again. Lenders will be demanding a premium for not only the risk inherent in making loans to this class of borrower, but an additional premium to compensate them for the risk of entering into contracts with a protected class which may receive special legal protections at any time.

Furthermore, after the government gets through stripping the investment community of their legal rights, there will no longer be a private secondary market for mortgage loans. The availability of credit will be drastically reduced--meaning higher rates for everyone, and the standards imposed by lenders (who will be keeping more of these loans on their own balance sheets) will be much more stringent.

As much disdain as I have for the fraudulent practices of the lenders vis-a-vis the mom-and-pop investors who will ultimately take the hit, I do not believe that the subprime borrowers in this picture were the victims of any similar deception. Since the dawn of time it has been the case that a high risk borrower pays a commensurately high price for the extension of credit. And where an already high-risk borrower requires terms that defer the payment of interest. . . Well, there's nothing too surprising about the fact that there's going to be a day of reckoning. No sympathy here.
I agree with Emilylynn. Additionally, I think this "bailout" of subprime borrowers will haunt generations to come. The secondary mortgage market will never be the same again. They'll be overly cautious because of the threat of government intervention. What lesson will the children of subprime borrowers who received a government rescue learn from all of this?
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Old 12-06-2007, 04:21 PM   #142
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I think the secondary mortgage market will never be the same again anyway simply because there won't be the same extent of subprime mortgages again, and CDOs, etc. will never be rated the same way again.

This is not necessarily a bad thing.

Audrey
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Old 12-06-2007, 04:39 PM   #143
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I think the secondary mortgage market will never be the same again anyway simply because there won't be the same extent of subprime mortgages again, and CDOs, etc. will never be rated the same way again.

This is not necessarily a bad thing.

Audrey
Agreed. I'm all for tighter controls by the industry for the quality of mortgages written, even if it means I pay a higher rate. Why? Because property values will not shoot up at such a dramatic rate. When I buy a house, I plan on LIVING IN IT, not looking at it as a nest egg investment. True, my house will the be most valuable (and expensive) thing I own, but it's better to have it appreciate at a reasonable level. Otherwise, my property taxes will go through the roof, which is even more money out of my pocket.
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Old 12-06-2007, 04:40 PM   #144
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I think the secondary mortgage market will never be the same again anyway simply because there won't be the same extent of subprime mortgages again, and CDOs, etc. will never be rated the same way again.

This is not necessarily a bad thing.

Audrey
Amen!
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Old 12-06-2007, 05:22 PM   #145
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I think the secondary mortgage market will never be the same again anyway simply because there won't be the same extent of subprime mortgages again, and CDOs, etc. will never be rated the same way again.

This is not necessarily a bad thing.

Audrey
This would have happened anyway, even without government intervention. Everyone will suffer because of subprime loan modification. We'll all be paying higher interest rates and will have fewer loan choices with higher down payments. The consumers who signed up for these loans will never learn a lesson in personal responsibility. Today, our government told them that it was OK for adults to behave like children, because Uncle Sam will always be there to get them out of a fix.

Many of these borrowers being bailed out purchased homes or McMansions that they could never afford, with little or no down payment. If they're somehow fortunate enough to be able to make the payments for five years, there's a good chance that they still won't have any home equity at the end of five years and will lose their homes anyway.

In the future, lenders on all types of loans will be reluctant to loan to people with lower credit scores, because they now know what can happen when they do--big government might step in and rescue them from their contract.

We will all suffer from what happened today. There is no such thing as a free lunch.
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Old 12-06-2007, 05:36 PM   #146
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Here is an interesting article that came out today. It explains why the "subprime" situation is just the first inning in a much bigger mortgage meltdown.

Herb Greenberg » Blog Archive » Straight Talk on the Mortgage Mess from an Insider
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Old 12-06-2007, 05:43 PM   #147
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We will all suffer from what happened today. There is no such thing as a free lunch.
Maybe. But don't forget that we all benefited on the way up. These people went into debt and spent oodles of money. They gave banks record earnings. In fact, the entire market had record earnings. And, of course, they made the values of all of our homes go up.

Like you said -- there's no free lunch. We'll simply be paying for some of that free lunch we got on the way up.
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Old 12-06-2007, 06:15 PM   #148
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We'll all be paying higher interest rates
Absolutely not true. For example, I pay zero interest now and will pay zero interest going forward.
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Old 12-06-2007, 06:44 PM   #149
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We will all suffer from what happened today. There is no such thing as a free lunch.
I'm not saying that I agree with the steps taken today - there is a rather perverse reward that favors those with the worst credit history. This is very disturbing. But coming up with a way to give borrowers more time to negotiate alternatives seems like a good idea. When time constraints are relaxed in financial crises it usually helps. Five years seems like too long, but maybe that's quibbling.

I'm just saying that a couple of the arguments against the solution don't hold water:

1. That the government is interfering and breaking a contract, when in fact by defaulting on a loan a borrower will be breaking the contract anyway. The CDOs are already trading as if more contracts will be completely broken than perhaps can be reasonably expected.

2. That this will damage the secondary mortgage market when this market has already been terribly damaged. The banks, brokers, rating agencies, etc. have already had their credibility destroyed.

Audrey
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Old 12-06-2007, 07:00 PM   #150
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I pay zero interest now and will pay zero interest going forward.
In the spirt of all the moral outrage around here -- I'm outraged! Money makes the world go around. It's your civic duty to spend spend spend!

Remember that boat you've had your eye on? And the Bimmer? Pssst -- the new FNMA tightening doesn't happen till March. Extract a little equity, won't you? Helping the economy is in all of our interests.

FWIW, I think history will view the teaser freezer as too little, too late. But let's see how it goes.
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Old 12-06-2007, 07:05 PM   #151
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FWIW, I think history will view the teaser freezer as too little, too late. But let's see how it goes.
I suspect you'll be right.

Audrey
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Old 12-06-2007, 07:08 PM   #152
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Here is an interesting article that came out today. It explains why the "subprime" situation is just the first inning in a much bigger mortgage meltdown.

Herb Greenberg » Blog Archive » Straight Talk on the Mortgage Mess from an Insider
Emilylynn, thanks so much for sharing this article. I just finished reading it and started the reader comments, which I will go back to later. I really wondered why our government seemed to be running around like chickens with their heads cut of the past couple of weeks. Now I know, from somebody in the know, Herb Greenberg. We are only in the first inning of this mortgage meltdown. I never really thought about all of the other so called prime mortgages that were in danger of default until I read this article. I recommend that everyone who is interested in this thread to read Mr. Greenberg's take on the situation.
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Old 12-06-2007, 07:29 PM   #153
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I have not seen the 'final' word.. but from what it appears to be is PR crap..

Let's 'freeze' the rate for the people who have paid on their mortgage and can continue to do so... WELL, what the heck do you think they did BEFORE It was not always a foreclosure that took place if they could get someone to continue to pay...

A bunch of wind wasted, but some people will feel 'good' that it was 'worked out'...
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Old 12-06-2007, 07:37 PM   #154
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Scary article!

"Most sub-prime loans in existence are refinances not purchase-money loans. This means that more than likely they pulled cash out of their home, bought things and are now going under. Perhaps the loan they hold now is their third or forth in the past couple years. Why are bad borrowers, who cannot stop going to the home-ATM getting bailed out?"

Okay, I have no interest in a bail-out for those folks.


"Already, many lenders are locking up the second lines of credit and not allowing borrowers to pull the remaining open available credit to stop the bleeding."

Looks like the government's not the only one breaking contracts...


"Moody’s is expecting a 15% default rate among ‘prime’ second mortgages. [snip] Wells Fargo recently said they owned $84 billion of this worthless paper."

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Old 12-06-2007, 07:37 PM   #155
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TP, Tanta has a nice summary you'll like:

Calculated Risk: The Plan: My Initial Reaction

I love it when she talks about REMICs, SFAS 140, and losing your Q.
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Old 12-06-2007, 08:26 PM   #156
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Absolutely not true. For example, I pay zero interest now and will pay zero interest going forward.
Perhaps we'll be paid lower interest in the future as a result.
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will IRA'S with Wauchovia be affected?
Old 12-06-2007, 08:26 PM   #157
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will IRA'S with Wauchovia be affected?

I glanced over some of the names in Herb Greenberg's column, and a thought came to mind. My husband has an IRA with Wauchovia, with most of the money in mutual funds. Should we be worried about default on those? I know they are not guaranteed.
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Old 12-06-2007, 08:45 PM   #158
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Gotta love that CR site.

Both borrowers and lenders are responsible for this problem. I think both groups got greedy. Many of the borrowers were naive, but the lenders don't have that excuse, as cited by the insider in Greenburgs peice. We all knew this had to blow up...just a matter of how long the party would last and how big the collapse would be.

If it was just a matter of helping the homeowners, there would be no New Hope Plan. The lenders are getting bailed out from thier bad behaviour as much or more as the borrowers. It only makes sense if it dampens the damage to the rest of the economy. I thought the exotic prime loans were held by folks that had other options (cashing out of thier 401k or whatever) to bail themselves out, but maybe not.

Every new and 'different' financially engineered scheme seems to make a few folks wealthy in a short period of time before reality regains control. Most of these start out as legitimate financial tools suitable for a very specific limited situation. Then some financial whiz expands thier usage exponentially until the whole thing collapses on itself. Last time it was derivatives, and now its exotic loan CMOs.
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Old 12-06-2007, 09:11 PM   #159
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Here is an interesting article that came out today. It explains why the "subprime" situation is just the first inning in a much bigger mortgage meltdown.

Herb Greenberg » Blog Archive » Straight Talk on the Mortgage Mess from an Insider
Good article. It says the worst is yet to come.

However, it still seems to me that the "worst" will be big losses for foolish lenders and buyers, and a modest recession for the rest of us. That seems about right given the size of the bubble.

Recessions are painful. Conventional wisdom holds that physical pain is unpleasant, but it's useful in the long run. I expect the same is true about economic pain that results from bad decisions.
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Old 12-06-2007, 09:25 PM   #160
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However, it still seems to me that the "worst" will be big losses for foolish lenders and buyers, and a modest recession for the rest of us. That seems about right given the size of the bubble.
This is a fun topic for speculation. But the mess is so complex (and global) that I see no way for anybody to come up with a reasonable magnitude or duration for a recession.

As for the size of the bubble, that's a little easier. It's about $6 trillion in residential real estate "froth" coupled with about $3 trillion in too-much-mortgage debt. Those are the numbers we'll have to work off to get back into shape. No idea what the scope of the problem might be world-wide, but you can be certain that the US was not the only nation with a credit bubble.
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