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Old 12-06-2007, 10:07 PM   #161
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Excerpt from Tanta's blog on mortgage loan servicing (response to reader comment):

My thing is this: there is reasonable money to be made in lending people money to buy houses. I refuse to believe that there is, really and sustainably, enough money in it for the originators and the servicers and the insurers and the bond underwriters and a hundred different tranche buyers and swap dealers and my pet kitty to take a piece of the interest. The short reason for why we have a subprime/Alt boom is not that we have so many consumers on whom we must--altruistic souls that we are here on Wall Street, gag me--take such risks. It's because it's the only way to generate enough spiff for the entire ridiculous food chain. When that delusion stops, Mr. Party is very, very over.
2.20.07
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Old 12-06-2007, 11:17 PM   #162
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Here's an article on "Who Bears the Losses" RGE Monitor Roubini a noted economist writes for this site. He's no fan of Bush but he does see the necessity of the Bush subprime plan. Before we get all excited, it's important to learn all the facts. There's no taxpayer bail out, as yet, folks.
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Old 12-07-2007, 12:23 AM   #163
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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.
The dollar figures you're giving......... is that the amount of wealth that's actually going to go poof? Or is it the value of the mortgages/loans that will go into default.......but a portion will be recovered via selling the collateral such as the home?
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Old 12-07-2007, 01:12 AM   #164
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The dollar figures you're giving......... is that the amount of wealth that's actually going to go poof? Or is it the value of the mortgages/loans that will go into default.......but a portion will be recovered via selling the collateral such as the home?
That's just how much bubble inflation we've had since this thing started. I don't know how much of it will deflate. I'd guess most of it, since credit will be tighter going forward than it was going into this thing. As that mortgage exec said -- we'll have lots more inventory and significantly fewer qualified buyers.

I've seen "official" estimates of $2-4 trillion in lost housing wealth in the next 3 years, but that assumes that prices drop "only" 15% or so. Historically, we've often seen these things overcorrect to lower than pre-bubble levels.
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Old 12-07-2007, 01:36 AM   #165
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since credit will be tighter going forward .
By "tighter," do you mean higher interest rates or more stringent requirements or both?

If requirements are more stringent (and I think they will be), will that mean a return to guidelines similar to what we had a decade ago........ like typical 20% down, live in the house you buy, have a job or some dependable income flow....... those sort of things, or even more stringent?
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Old 12-07-2007, 01:47 AM   #166
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If requirements are more stringent (and I think they will be), will that mean a return to guidelines similar to what we had a decade ago........ like typical 20% down, live in the house you buy, have a job or some dependable income flow....... those sort of things, or even more stringent?
You bet . Tighter loan-to-value, debt-to-income, full-doc, FICO premia, the whole 9 yards.

Not only that, but banks may be making a lower volume of loans due to a bunch of the exotic structured finance stuff going extinct. For example, this just in today from Holland:

Eddie Villiers, responsible for European sales at Rabobank, said: "The current SIV business model is dead and so there is no prospect of its survival in its current form."
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Old 12-07-2007, 02:05 AM   #167
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Thanks twaddle.

You know, it's too bad that the ripple effects of all this will be painful to the economy because, frankly, I'll be glad to see lenders less willing to loan money to high risk borrowers.
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Old 12-07-2007, 05:16 AM   #168
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Thanks twaddle.

You know, it's too bad that the ripple effects of all this will be painful to the economy because, frankly, I'll be glad to see lenders less willing to loan money to high risk borrowers.

I agree.... all the 'problems' that are coming is only getting back to where we should be in the first place... and to me that is a good thing.
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Old 12-07-2007, 12:11 PM   #169
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By "tighter," do you mean higher interest rates or more stringent requirements or both?

If requirements are more stringent (and I think they will be), will that mean a return to guidelines similar to what we had a decade ago........ like typical 20% down, live in the house you buy, have a job or some dependable income flow....... those sort of things, or even more stringent?

they always had ARM's and stated income loans. i have family that bought and refinanced since the 1980's using only stated income because they were self employed and put down a lot less than 20%. back in the day ARM's were called bridge loans where you paid a low rate, sold your current house and refinanced. and the only reason for the loan was you needed as low monthly payments as possible while you sold your current home

people forgot about risk and pushed lending products to people who had no business using them
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Old 12-07-2007, 12:15 PM   #170
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I don't remember seeing something like this before. FNMA just released new guidelines for loans in declining markets:

pdf link

Basically, they're making all loans more expensive. And if you want a house in a declining market, they raise the LTV requirements by 5%. A 95% LTV program would be restricted to 90%, for example.

"Honey, are you sure we should buy a home while prices are dropping?" "Well, look on the bright side -- FNMA will give us less rope to hang ourselves."
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Old 12-07-2007, 12:48 PM   #171
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I have not followed the details of all this sub-prime stuff. But I have some personal experience.

I did re-finance 4 years and 11 months ago. It was an ARM, fixed at 5% for 5 years. So, I will see what the increase is next month. The 5% rate was cheaper (of course) than a 15 or 30 year fixed at the time. So I made this choice, with the full intention that I would pay it off if the rate got too high.

So, if I don't like the increase, can I stick with my 5%? It seems like this is exactly what people are asking. I signed a contract, I expect to be held to the terms. I would expect that if I were on the other side of the contract.

Again, I have not followed this in detail, but here is what I saw on TV yesterday - An older woman, is talking about how she took out a mortgage, and now the rates are going up and she can't afford it. She wants someone to 'do something', so she can afford to stay in her home.

OK, it seems pretty darn simple to me. There were fixed mortgages available to that woman, and she took this one because it was cheaper at the time. But it came with some risk. Now, she wants CHEAP AND NO RISK. Life is not like that. I want a bond that pays 15% with no risk.

Some will say, 'but she didn't understand'. I still say, if you are going to make the largest financial transaction in your life, you better go find out. It ain't rocket surgery. Fixed means fixed, adjustable means adjustable.

Do we need to have a test you need to pass in order to sign a mortgage contract? I'm sure someone will say that is discriminatory. But isn't education to prevent a problem better than a bail-out after the fact? I guess this goes to the whole class warfare thing - education is the key, not bail-outs or hand-outs. How does anyone ever learn what most of us know - that there is a relationship between risk and reward, if you are bailed out all the time? I think these ideas of bailouts just keep the lower class enslaved rather than actually helping them.

Can I claim I didn't understand my contract, and keep my 5% rate? Why not? I think that is discriminatory, if others get this deal, and I do not. Why not let all the poor people invest in penny stocks, and then give them their money back if they don't hit the big winner?

Weren't there complaints not too long ago that mortgages were not being made to the poor and to minorities? So now they make the mortgages, and they get criticized.

geez, sorry, that started out short

-ERD50
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Old 12-07-2007, 01:04 PM   #172
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Tanta sez:

Calculated Risk: What Is "Subprime"?

My new motto—“we are all subprime now”—is an attempt to keep reminding the attention-impaired (that would include but isn’t limited to reporters and politicians) that demonizing “subprime people” isn’t going to prevent you from going there yourself. The fact is that huge numbers of people who have “prime” mortgage loans couldn’t refi or sell right now to—literally, for some of the uninsured—save their lives. They may well still be making payments on the mortgage, but they’re rapidly approaching upside-down if they’re not there yet, they’ve spent the proceeds of the previous cash-outs that kept up the lifestyle or just kept life together, and if the truth were known about credit card balances, their current FICOs probably aren’t the envy of the neighborhood either. They are, in short, subprime. They just don’t recognize themselves in the stereotype of the deadbeat serial bankruptcy filer or the undocumented immigrant or the waitress in the McMansion or whatever extreme case you can dredge up and label “typical” for subprime. They are, increasingly, “us.”

The invisible subprimers will do okay if this blows over and they don’t lose their jobs: if and when the RE market recovers, anyone who hung onto the mortgage he has will come out “prime” again. That’s the good news. The bad news is that attributing this solely to your own prudence and good judgment and inherent worth as “not one of those subprime people” is a form of delusion. Subprime is like the weather: when it rains, everybody gets wet. The political pressure for “bailout” measures has a little bit, in my view, to do with bleeding-heart sympathy for the poor and a lot, a whole lot, to do with the dawning recognition of too many middle-class homeowners that, well, we are all subprime now, but nobody’s filling our orders.
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Old 12-07-2007, 01:29 PM   #173
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Can I claim I didn't understand my contract, and keep my 5% rate?
I think you can do whatever you are able negotiate with your lender. And, the lender's negotiating guidelines will likely be influenced by the government proposals currently being put forth and which are being discussed here.

If you are successfully arbitraging that 5% money you got from the refinancing and want to continue doing so, why not get yourself up to speed on what's going on and be prepared to negotiate?

IMHO, there will be lots of folks keeping their teaser rates who could probably afford the higher rates, could just pay off the mortgage, could successfully downsize because their housing market is still OK, could sell their second home, etc., etc.

Don't be shy. Take advantage of the situation and negotiate for what you want.
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Old 12-07-2007, 02:43 PM   #174
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Don't be shy. Take advantage of the situation and negotiate for what you want.
Well, doesn't that lady on TV have the same option? It seems to me she is saying, 'The govt needs to take care of this for me'.

I understand what you are saying though - to whatever extent these deals go through, I should be able to leverage that in my favor. But I'm looking at the bigger picture - all the people that decided on a fixed mortgage at maybe a point higher than an ARM. They are all going to feel like chumps - they could have had the low rate, and push the risk on the govt (you and me), too.

It just seems like bad precedent.

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Old 12-07-2007, 03:22 PM   #175
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Well, doesn't that lady on TV have the same option? It seems to me she is saying, 'The govt needs to take care of this for me'.

I understand what you are saying though - to whatever extent these deals go through, I should be able to leverage that in my favor. But I'm looking at the bigger picture - all the people that decided on a fixed mortgage at maybe a point higher than an ARM. They are all going to feel like chumps - they could have had the low rate, and push the risk on the govt (you and me), too.

It just seems like bad precedent.

-ERD50
I agree with you completely ERD50.... So let me get this straight..... The people that got caught up in this subprime mess were not smart enough to know the terms, conditions, etc of the loan they got, but they ARE smart enough to live in their own homes? I fully believe that if you can prove that any lender told a consumer something that was completely untrue, or put something in writing that was untrue, then the lender should get the blame for it. But if you cannot, screaming at the top of your lungs "I did not know any better, now you must save me" is completely irrational.
Tell you what I would do if I were the govt... sure... I will absolve you of your irresponsibility this one time, but you need to renounce your right to home ownership in america from that point forward.
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Old 12-07-2007, 03:51 PM   #176
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Well, doesn't that lady on TV have the same option?

Dunnoo...... Didn't see the lady on TV. And doubt if they gave details about her ability to pay off the house, sell and downsize, or whatever. But, in your case, you gave details. You said you could simply pay it off and wanted to know "So, if I don't like the increase, can I stick with my 5%?" And I still say, go study the new rules and get ready to negotiate. No sense getting left out if you want to keep the 5% money.

I was simply trying to comment on your question, not editorialize on the whole proposed bailout program.

In the future, I would like to see a set of rules laid out for mortgage brokers similar to the rules laid out for stock brokers. If a stock broker recommends an investment clearly inappropriate for your circumstances, they can get their hand slapped. A similar set of rules for mortgage brokers would be appropriate.

In the meantime, I'm trying to determine if there is some angle I can benefit from. My house has been paid off for years. Son and DIL are several years into an attractive 15 yr fixed. Doesn't look like the family can benefit from the bailout aspect........ Maybe housing prices will dip enough I can finally afford that second home on a lake "up nort" and pay cash?

Anyone have any clues? Could there be a pony under that pile of manure for financially ultra-conservative, no-debt types with cash available?
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Old 12-07-2007, 04:36 PM   #177
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Put yourself into the home owner's shoes.

If you saw houses appreciating at 10-20% each year, and somebody offered you 100% financing with a low teaser rate, what would you do? Is it hard to imagine some people taking that deal? Unlimited upside and no downside from the borrower's perspective.

And the banks thought they could shed the risk to investors. In part, they did, and investors were fools. But now the fed is saying "hey, banks -- let's keep the teaser rates you offered to those folks who shouldn't have been given a loan in the first place!"
No, I would NOT take it. Where do you get "no downside"? We're seeing that downside right now.
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Old 12-07-2007, 04:37 PM   #178
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Dunnoo...... Didn't see the lady on TV.

...But, in your case, you gave details. ....

I was simply trying to comment on your question, not editorialize on the whole proposed bailout program.
Yes, I know. I did mean to throw my example out there as part of the bigger picture, (people who made the decision between risk of ARM vs a higher fixed rate), so we are kind of mixing metaphors here - or something?

Quote:
In the future, I would like to see a set of rules laid out for mortgage brokers similar to the rules laid out for stock brokers. If a stock broker recommends an investment clearly inappropriate for your circumstances, they can get their hand slapped. A similar set of rules for mortgage brokers would be appropriate.
Yes, I think something along those lines is an appropriate amount of regulation. Prevention is way better than reaction after-the-fact.

Quote:
Maybe housing prices will dip enough I can finally afford that second home on a lake "up nort" and pay cash?
That is probably the most reasonable benefit. There will probably be an opportunity for house flipping again sometime in the future - but that would require too much effort for me now!

Speaking of 'flipping', I guess that is the other aspect of this that gets me riled up. When all the news was about people flipping houses and some average joes making highly leveraged fortunes, did we ever hear them say ' gee, I sure made a lot of profit, and I couldn't have done it w/o this loan - gee, thanks Mr Banker, here's an extra payment for you!'. Me either.


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Old 12-07-2007, 04:40 PM   #179
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I have not followed the details of all this sub-prime stuff. But I have some personal experience.

I did re-finance 4 years and 11 months ago. It was an ARM, fixed at 5% for 5 years. So, I will see what the increase is next month. The 5% rate was cheaper (of course) than a 15 or 30 year fixed at the time. So I made this choice, with the full intention that I would pay it off if the rate got too high.

So, if I don't like the increase, can I stick with my 5%? It seems like this is exactly what people are asking. I signed a contract, I expect to be held to the terms. I would expect that if I were on the other side of the contract.

Again, I have not followed this in detail, but here is what I saw on TV yesterday - An older woman, is talking about how she took out a mortgage, and now the rates are going up and she can't afford it. She wants someone to 'do something', so she can afford to stay in her home.

OK, it seems pretty darn simple to me. There were fixed mortgages available to that woman, and she took this one because it was cheaper at the time. But it came with some risk. Now, she wants CHEAP AND NO RISK. Life is not like that. I want a bond that pays 15% with no risk.

Some will say, 'but she didn't understand'. I still say, if you are going to make the largest financial transaction in your life, you better go find out. It ain't rocket surgery. Fixed means fixed, adjustable means adjustable.

Do we need to have a test you need to pass in order to sign a mortgage contract? I'm sure someone will say that is discriminatory. But isn't education to prevent a problem better than a bail-out after the fact? I guess this goes to the whole class warfare thing - education is the key, not bail-outs or hand-outs. How does anyone ever learn what most of us know - that there is a relationship between risk and reward, if you are bailed out all the time? I think these ideas of bailouts just keep the lower class enslaved rather than actually helping them.

Can I claim I didn't understand my contract, and keep my 5% rate? Why not? I think that is discriminatory, if others get this deal, and I do not. Why not let all the poor people invest in penny stocks, and then give them their money back if they don't hit the big winner?

Weren't there complaints not too long ago that mortgages were not being made to the poor and to minorities? So now they make the mortgages, and they get criticized.

geez, sorry, that started out short

-ERD50
I agree with almost everything you say....

but what is rocket surgery?

Perhaps you wanted to pick either rocket science or brain surgery, but couldn't decide.

Dave
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Old 12-07-2007, 04:43 PM   #180
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When these ARM rates are locked for five years as proposed, is the lender taking the hit of the difference between the teaser rate and the hypothetical higher rate, or is the taxpayer?
Oh the bank will probably take it, and make up for it by charging more to the low-risk customers like me.

We have a 15-yr fixed and are 9 years into it. I've refinanced once, but told them to MAKE THE TERM SO MY LOAN ENDS AT THE SAME TIME. Many people I know refinance with another brand new loan and start all over. They pay on a 30 year loan for 8 years, refinance, and, voila...they have another 30 years to pay. I just don't understand such thinking.

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