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

[youbet]

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?

 

[Finance Dave]

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.

 

[ERD50]

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?

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.

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

 

[Finance Dave]

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

 

[Finance Dave]

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.

Dave

 

[barbarus]

Greed

Greedy borrowers
Greedy lenders
Greedy government
Greedy builders
Greedy businessmen


Greedy me

Did I leave anyone out?

 

[cute fuzzy bunny]

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

 

[steve88]

Greedy borrowers
Greedy lenders
Greedy government
Greedy builders
Greedy businessmen


Greedy me

Did I leave anyone out?

"Its all about money the rest is just conversation"

 

[youbet]

Oh the bank will probably take it, and make up for it by charging more to the low-risk customers like me.

I think that remains to be seen. Stricter requirements will mean fewer borrowers. Rates are partially determined in the marketplace. If there are few enough people qualifying to borrow, rates could actually go down.

Or, just pay cash. Your house now becomes a disproportionate percentage of your total net worth in some cases, say while you're young, but you avoid sky high interest rates.

Edited to add: the "just pay cash" comment is intended for members of this board, most of whom I'm guessing, could pay cash if necessary and they really wanted their own home.

 

[ERD50]

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

 

[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."

 

[emilylynn]

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.

 

[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]

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

 

[Retire Soon]

This link will take you to interviews with George Soros, Paul Volcker, William Seidman and Robert Shiller on their thoughts of the mortgage crisis.

Interview Excerpts: Volcker, Soros, Others Weigh In on Mortgage Crisis - WSJ.com

 

[Retire Soon]

"U.S. Mortgage Crisis Rivals S&L Meltdown" is very interesting read.

U.S. Mortgage Crisis Rivals S&L Meltdown - WSJ.com

 

[Finance Dave]

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.

 

[Finance Dave]

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

 

[Finance Dave]

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.

 

[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

Like I said, it varies by municipality. One thing I've seen - they often cycle the appraisals, you may get reappraised one year, the area next to you gets reappraised 3 years from now, etc.

So, if you get appraised at the peak of a boom, you get hit until the next appraisal, unless they decide to adjust. I think that happened in Chicago this year, and maybe that is what happened to you.

My appraisal went up 20% this year (!), but from my research, it looks like all my neighbors went up as much, and they do use a formula here to distribute the tax burden, so I don't see any sense in asking for a review - they might raise it!

-ERD50

 

[Zoocat]

This writer editorializes in the SF Chronicle that the subprime freeze is just a scam to keep investors from suing US Banks to make good on the worthless paper they sold.

"The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process."
MORTGAGE MELTDOWN / Interest rate 'freeze' - the real story is fraud / Bankers pay lip service to families while scurrying to avert suits, prison

 

[emilylynn]

Word coming in just now that a Bank of America institutional "money market-like" fund has just been frozen due to "subprime" issues. Don't have the time to find the link just now, but will come back later and post it.

 

[barbarus]

Looks like some of the members of this forum are finally starting to "get it".

 

[Retire Soon]

This writer editorializes in the SF Chronicle that the subprime freeze is just a scam to keep investors from suing US Banks to make good on the worthless paper they sold.

"The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process."
MORTGAGE MELTDOWN / Interest rate 'freeze' - the real story is fraud / Bankers pay lip service to families while scurrying to avert suits, prison

This article does sound very plausible. If it is indeed true, I hope those involved go to prison, because they certainly deserve it. Secret meetings do tend to raise suspicion. I've often thought that America should be ashamed of our loan originators for selling mortgage securities rated AAA around the world, when the truth was that many were nearly worthless. Whether we like it or not, this reflects negatively on all of us. So far, home prices have dropped an average of 10% nationally over the past year, if they continue this downward spiral to 30% (which today's WSJ reported as a possibility) someone needs to pay with hard time for their criminal misrepresentation.