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Liar Loans
Old 09-29-2006, 11:53 AM   #1
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Liar Loans

http://cbs5.com/30minutes/local_story_266005029.html

Japan's bank system slided to then hell, because of all the bad loans after the real estate crash.

Where is the whole risk control system?
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Re: Liar Loans
Old 09-30-2006, 02:53 PM   #2
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Re: Liar Loans

Unrestrained, unregulated crony capitalism is, and always has been, a threat and danger to economic prosperity and democracy itself.

John Galt and his ilk can rant and rave, but the historical facts speak for themselves.
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Re: Liar Loans
Old 09-30-2006, 09:32 PM   #3
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Re: Liar Loans

I learned something new on the Ray Lucia show about purchase money loans vs. refinancings. I ve heard the term purchase money loan, but I just thought it was an adjective. If I understand corectly, a purchase money loan is a "non recourse" loan meaning its easier for the lender to get stuck with the loan whearas refinance loans are "recourse" loans and buyer is more likely to get stuck. It's one reason why lenders are likely to quickly refinance a risky purchase money mortgage. I am sure someone here knows more about this.....
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Re: Liar Loans
Old 10-01-2006, 04:08 AM   #4
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Re: Liar Loans

a recourse loan here in new york means that the lender can foreclose on your house, lets say if its a real estate loan , evict you and sell it.

A non recourse loan means the lender can sue you , get a lien put on the house but cant put you out and sell the house. They have to wait until the house is sold or transfered to get their share back.
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Re: Liar Loans
Old 10-01-2006, 05:48 PM   #5
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Re: Liar Loans

It's a pretty shocking article. Someone will be left holding the bag when mortgage holders default. Will it really just be the hedge funds and pension funds? I kind of doubt it.

What shocks me the most is that this resulted in increasing house prices so much - outrageous house price inflation. Under "normal" circumstances, house prices would have stopped rising (and a housing slowdown) at least a couple of years ago since so many people could no longer afford them - a natural limit on speculation. But no - the party had to go on!!!

I don't understand how people can be allowed to take on mortgages under these circumstances!

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Re: Liar Loans
Old 10-01-2006, 08:30 PM   #6
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Re: Liar Loans

Quote:
Originally Posted by audreyh1
It's a pretty shocking article. Someone will be left holding the bag when mortgage holders default. Will it really just be the hedge funds and pension funds? I kind of doubt it.
What shocks me the most is that this resulted in increasing house prices so much - outrageous house price inflation. Under "normal" circumstances, house prices would have stopped rising (and a housing slowdown) at least a couple of years ago since so many people could no longer afford them - a natural limit on speculation. But no - the party had to go on!!!
I don't understand how people can be allowed to take on mortgages under these circumstances!
Audrey
Banks don't have to care anymore-- they get paid the same by us borrowers whether they do their due diligence or not, and they get a LOT more customers when they stop doing their diligence.

As long as banks are able to offload their toxic waste mortgage portfolios on greedy optimistic hedge funds & pension accounts, they're not going to be penalized for deadbeats or foreclosures.

If you want a real eyeball-opening tutorial on the subject, read Frank Partnoy's "Infectious Greed" or Lowenstein's "Origins of the Crash" or Eichenwald's "Serpent on the Rock".
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Re: Liar Loans
Old 10-01-2006, 10:54 PM   #7
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Re: Liar Loans

Well if banks don't have to do due diligence anymore, it seems like we're headed right for something akin to the S&L crisis and Resolution Trust Corp all over again!

As far as I know, none of my mutual funds hold any high-risk mortgages. I sure hope not.

Thanks for the links. I will read them.

Audrey
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Re: Liar Loans
Old 10-02-2006, 07:00 AM   #8
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Re: Liar Loans

I franly think the horse is already pretty much out of the barn, but here is the (belated) risk control system: http://www.occ.treas.gov/toolkit/new...c=M3ZM5FQW.xml
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Re: Liar Loans
Old 10-02-2006, 11:35 AM   #9
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Re: Liar Loans

I noticed the following interesting entry in the Dodge and Cox Income (DODIX) June 30 semi-annual report: http://www.dodgeandcox.com/pdf/share...ort_063006.pdf

Quote:
Opportunities in Mortgage-Backed Securities (MBS)

We conduct intensive, fundamental research on MBS securities, similar to our approach to corporate credit research. In MBS-related research, the key to security valuation is understanding the propensity of the homeowners underlying the mortgage loans to prepay their loans across a broad range of environments, and the effect of this prepayment profile on the security’s current valuation and prospective total return.

As a result of the rise in interest rates and the flattening of the yield curve, the yield premiums of slightly seasoned, deep-discount, 30-year MBS grew; as our analysis indicated that they offered attractive yields and good total return potential versus other high quality, intermediate-duration alternatives, we added to the Fund’s holdings. We also introduced a new type of Agency MBS to the Fund—slightly seasoned, 30-year, Hybrid ARMs. These securities combine attributes of normal fixed-rate mortgages with those of ARMs. Hybrid ARM borrowers pay a fixed rate on their loan for the first several years (3, 5, 7 or 10 years, depending upon the loan type); thereafter, the rate on the loan resets annually at a fixed margin to either LIBOR2 or U.S. Treasury yields. We have focused on “5/1 ARMs” (rate is fixed for the first five years, then resets annually for the remaining 25 years) that are trading at discounts to par as we believe they offer attractive expected returns relative to other high-quality, short-duration alternatives over a broad range of scenarios.
I have to trust that these guys know what they are doing (it's over my head). Dodge and Cox is all about due diligence, even if the banks themselves are not.

Interesting.....

Audrey
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Re: Liar Loans
Old 10-02-2006, 11:40 AM   #10
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Re: Liar Loans

Quote:
Originally Posted by audreyh1
Dodge and Cox is all about due diligence, even if the banks themselves are not.
It reminds me of the 1990s commercials of Janus' mutual-fund analysts diving down into the sewers to check out a company's fiber-optic equipment.

But you're probably going to survive a bad day at D&C better than at a company like Janus.
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Re: Liar Loans
Old 10-02-2006, 11:44 AM   #11
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Re: Liar Loans

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Originally Posted by Nords
But you're probably going to survive a bad day at D&C better than at a company like Janus.
That's what I'm "banking" on! I got rid of my one Janus fund many years ago. Plus D&C doesn't do commercials (thank God).

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Re: Liar Loans
Old 10-02-2006, 11:46 AM   #12
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Re: Liar Loans

Quote:
Originally Posted by audreyh1
I have to trust that these guys know what they are doing (it's over my head). Dodge and Cox is all about due diligence, even if the banks themselves are not.

Interesting.....

Audrey
The kind of stuff D&C are talking about in their report is very high quality, low risk stuff.
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Re: Liar Loans
Old 10-02-2006, 11:48 AM   #13
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Re: Liar Loans

I like Dodge and Cox, they run a tight ship.................

Ever notice some companies you never hear about? I guess that's a sign they're doing something right...............

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Re: Liar Loans
Old 10-02-2006, 12:08 PM   #14
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Re: Liar Loans

Quote:
Originally Posted by brewer12345
The kind of stuff D&C are talking about in their report is very high quality, low risk stuff.
Thanks so much for educating me Brewer!

Audrey
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Re: Liar Loans
Old 10-02-2006, 12:10 PM   #15
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Re: Liar Loans

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I like Dodge and Cox, they run a tight ship.................

Ever notice some companies you never hear about? I guess that's a sign they're doing something right...............
Yep! Funny how that works, isn't it! LOL!

Audrey
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