Do you want to pay for the Sub-Prime freeze?

[twaddle]

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."

[ERD50]

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

[youbet]

Quote:

Originally Posted by ERD50 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.

[ERD50]

Quote:

Originally Posted by youbet 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.

-ERD50

[armor99]

Quote:

Originally Posted by ERD50 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.

[youbet]

Quote:

Originally Posted by ERD50 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?

[ERD50]

Quote:

Originally Posted by youbet 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.


-ERD50

[barbarus]

Greedy borrowers
Greedy lenders
Greedy government
Greedy builders
Greedy businessmen


Greedy me

Did I leave anyone out?

[Finance Dave]

Quote:

Originally Posted by ERD50 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

[ERD50]

Quote:

Originally Posted by Finance Dave but what is rocket surgery? Perhaps you wanted to pick either rocket science or brain surgery, but couldn't decide.

It's a euphemism (isn't that like a small Tuba?) that I heard recently. I really liked it - I thought the guy slipped up too, but it was a purposeful mangling of the two terms. Kind of like a yogi-ism.

'Brain Science' just does not sound as good, IMO.

I should google it, see if I can find a source...

Nice to see you were paying attention!

-ERD50

PS - wow -82,400 hits for 'rocket surgery' - nice Etymological NOTE here

"rocket surgery" definition from Double-Tongued Dictionary

[emilylynn]

Quote:

Originally Posted by ERD50 It's a euphemism (isn't that like a small Tuba?) . . . PS - wow -82,400 hits for 'rocket surgery' . . .

It's "oxymoron," I think. Hey--I'm as bad as you are. . . It's when I start trying to use sports metaphors around my male colleagues that I really get into trouble.

[Finance Dave]

Quote:

Originally Posted by ERD50 It's a euphemism (isn't that like a small Tuba?) that I heard recently. I really liked it - I thought the guy slipped up too, but it was a purposeful mangling of the two terms. Kind of like a yogi-ism. 'Brain Science' just does not sound as good, IMO. I should google it, see if I can find a source... Nice to see you were paying attention! -ERD50 PS - wow -82,400 hits for 'rocket surgery' - nice Etymological NOTE here "rocket surgery" definition from Double-Tongued Dictionary

Learn something new every day ERD....I'd not seen that used before.

[twaddle]

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.

[cute fuzzy bunny]

Funny, and all these selfish people are all employed!!

[Retire Soon]

Excerpts from Bend Bulletin Editorial 12-7-07

"For years, President Bush has touted the value of an "ownership society" that emphasizes personal responsibility, among other things. To that end, we wonder if his administration's plan to freeze hundreds of thousands of home mortgages was the sort of policy he had in mind."

"Irresponsible lending institutions deserve much of the credit for today's mortgage mess and they deserve to suffer whatever consequences the markets hands to them. In their folly, however, they had millions of eager partners: average citizens who were willing to borrow money on potentially dangerous terms. In part because of the dip in the housing market, many of these people now risk defaulting of their loans and losing their homes. That is unfortunate. But forestalling the predictable consequences of bad decisions does not justify the plan Treasury Secretary Henry Paulson's is pushing on the lending industry..."

"Even so, many holders of risky mortgages would lose their homes. That's sad, but it comes with living in a society that expects adults to make responsible decisions or accept the consequences. And speaking of responsible decisions, the Bush freeze is incredibly unfair to the millions of Americans who did not borrow irresponsibly during the recent housing craze. They didn't buy more house than they could afford. They didn't gamble on an ever-escalating housing market. And their reward is...seeing irresponsible people rewarded for their irresponsibility."

"Assuming the frozen mortgages reduce revenue for lending institutions, meanwhile, one has to wonder whether they'll seek to pass the cost along to the next batch of responsible mortgage holders. That sure seems fair, doesn't it?"

"Finally, minimizing a correction in housing prices-which the Bush freeze intimately will do-hurts other responsible citizens who would like to become homeowners but can't afford to now. In retrospect, perhaps they should have secured risky loans when they had the chance, then counted on the government to reward their shortsightedness. It's a pity they weren't aware of the president's commitment to a "loanership society."

[Finance Dave]

Quote:

Originally Posted by Retire Soon And speaking of responsible decisions, the Bush freeze is incredibly unfair to the millions of Americans who did not borrow irresponsibly during the recent housing craze. They didn't buy more house than they could afford. And their reward is...seeing irresponsible people rewarded for their irresponsibility." "Assuming the frozen mortgages reduce revenue for lending institutions, meanwhile, one has to wonder whether they'll seek to pass the cost along to the next batch of responsible mortgage holders. That sure seems fair, doesn't it?" "

I agree especially with the excerpts above....which I partly stated in my original post.

[Martha]

A little touch of how defaulted mortgages will effect everyone:

States' investment strategy scrutinized

Florida officials disclosed their $27 billion investment pool had about $2 billion sunk into subprime-tainted debt -- and $725 million of that had already defaulted. Local governments rushed to withdraw about $13 billion from the battered fund, and there are worries similar runs might happen elsewhere.

[twaddle]

Yeah, I alluded to the muni mess in the muni thread. Shades of Orange County, but I think it'll be worse this time since it's so widespread. Add to that the fact that most municipalities get revenue as a function of property values. And finanlly consider that many local economies are pretty dependent on the housing market for jobs.

If nothing else, I think we'll start seeing higher muni bond yields pretty soon.

[ERD50]

Quote:

Originally Posted by twaddle Add to that the fact that most municipalities get revenue as a function of property values.

I don't know how other municipalities do it, but our property taxes do not go up based on property values alone. The taxes are fixed for the year, and are allocated across all properties. If everyone's home price doubled, the rate would be cut in half (all else being equal) so taxes would be the same $ amount for all. Same if home prices halved.

-ERD50

[Finance Dave]

Quote:

Originally Posted by ERD50 I don't know how other municipalities do it, but our property taxes do not go up based on property values alone. The taxes are fixed for the year, and are allocated across all properties. If everyone's home price doubled, the rate would be cut in half (all else being equal) so taxes would be the same $ amount for all. Same if home prices halved. -ERD50

I live in Indiana, and we just had a huge increase in property taxes based strictly on a fresh appraisal that resulted in higher home values. Nothing else was changed.

The increase was so large that 10,000 citizens picketed the Governor's house, and they eventually revised all the calculations temporarily to give relief to the taxpayers. It was a real mess, and now the Governor has proposed an increase in the sales tax of 1% to make up for the lost revenue of not being able to increase property taxes. It's a huge shell game that started when Indiana eliminated the business inventory tax a few years ago without (IMO) fully thinking through the ramifications.

Dave