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

[BigMoneyJim]

Help me get up to date on this....... Did the current administration, or the current Congress, do something that changed lending rules? Or is there some action specifically related to mortgage loans, either the administration or Congress took I'm not remembering that enabled this current situation?

I actually hadn't been linking this situation to partisan politics...... Perhaps my head is in the sand?

My comment wasn't partisan, just cynical.

 

[youbet]

My comment wasn't partisan, just cynical.

OK, gotcha. In fact, I can agree with that. I've been cynical about all national level politicians, most state level politicians, and some local level politicians for a while now.

 

[BigMoneyJim]

OK, gotcha. In fact, I can agree with that. I've been cynical about all national level politicians, most state level politicians, and some local level politicians for a while now.

Just had a revelation: new third party for cynics. We'll call it "Together We Cyn".

 

[ERD50]

Wait a minute....

The 'good deal' that they got was a low introductory rate. They also have an obligation to pay any contracted increase in the rate, or go shop for a new mortgage, or sell the house - even if it for a loss. That is the risk you take on any leveraged investment.

I don't think the stock market would benefit if we left people who bought stocks on margin 'off the hook' if they lost money. I don't think the housing market is served by it either.

Part of the 'deal' was not to be able to say: 'no, I want the low introductory rate to be permanent'.

Now, if you want to put that in the same category as 'I can't stand to see a shoplifter get a 'good deal' ', then yes. Not meeting your contractual obligations is breaking the law.

Put the shoe on the other foot. What if the bank called you about the 5 year, 5% CD you bought, and they said - you know, we are only going to pay you 4.5%, and the government told us it was OK.

-ERD50

 

[barbarus]

Put the shoe on the other foot. What if the bank called you about the 5 year, 5% CD you bought, and they said - you know, we are only going to pay you 4.5%, and the government told us it was OK.
-ERD50

Happened to me at PENFED. They dropped the CD rate while my check was in the mail. Missed a 3-year 6% rate by two days.

 

[ERD50]

Happened to me at PENFED. They dropped the CD rate while my check was in the mail. Missed a 3-year 6% rate by two days.

I would assume that the receipt of your check was the beginning of the contract - so not really the same at all.

Would they let you decline the new terms? I'm guessing yes.

-ERD50

 

[barbarus]

The fellow I talked to said that the organization would go by the day of our conversation when setting the rate. We all know a verbal contract is worth the price of the paper it's printed on. Wonder if they would have given my any increase in rates, had one occurred in the interim?

They did send my money back and some of their phone workers are extremely helpful and pleasant. I would have preferred testier salespeople but a more generous management however.

And I haven't forgotten you, Ben Bernanke.
Your misguided, timid policies are wrecking monetary havoc even now.
Think I'll send Paul Volker over to your crib to work you over!!

 

[clifp]

I don't think it is envy. I feel sorry for people who are about to have their homes foreclosed, doesn't make sense to be envious of those less fortunate than oneself. This proposal maybe very well be the less of evils and it is probably better to bailout a few overextended homeowners than risk the collapse of a whole segment of the economy.

Still it establishs a very bad preceden: that you can take on more debt than you can afford, and if you do it during a time when "everybody is doing it" you can get away not fullfilling your loan terms.

Regardless if this ultimately turns out to be a taxpayer subside or not, all of us who didn't get loans with teaser rates, are subsidize those who did. As investor we see lower bank and financial company profits, a drop in the value of non-government bonds. As customers we will see higher bank fees and interest rates, as bank try to dig themselves of the hole. Finally many employee of banks and other lending will lose their jobs, which effects the whole economy.


In general when a person or group of persons breaks a rule or law, and doesn't get punish it it harms society, because it decreases the respect for rules.

 

[Gumby]

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[Gumby]

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[Gumby]

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[ERD50]

[
Are you saying there was obvious negligence on the part of those offering the mortgages?

There probably was in some cases, but there is also 'buyer beware'. I see low introductory rates offered on all sorts of products. It is my responsibility to ask what it is 'really' going to cost me, and I do.

If those offering the mortgages broke the law, they should be prosecuted. If the laws and regulations are insufficient, they should be strengthened (although I probably prefer education - you can't regulate everything, people need to learn to think for themselves)

-ERD50

 

[Gumby]

[..

 

[ERD50]

But that does not mean that we should not voice our opinions if we disapprove of a policy. While I would also hate to see some of these people face foreclosure, I also have to wonder if the alternative isn't worse (in the long run).

If I had not had to confront some bad financial decisions I made earlier in my life, I may have entered ER with far too much risk in my portfolio, and that could hurt me very much. Those earlier loses were painful, very painful. But it was a 'tuition payment' - I learned and moved on. And I believe I'm in a better position today because of it.

If the 'softening' of the short term pain results in more overall suffering, is it really such a good thing to wish for?




Well sorry, I just don't follow, that's why I went for the secondary meaning.

-ERD50

 

[Gumby]

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[barbarus]

Are you sure you're a lawyer?

 

[ERD50]

How will this world you describe work? One where everyone is saved from feeling miserable? Make a mistake - no problem, we will save you, we don't want you to feel miserable. Geez, I guess there is no reason to learn not to make mistakes - will save me. In fact, why bother to get an education, or work hard, let's just let someone save us. Let's give all the kids a grade of 'A', we don't want any of them to feel miserable, some of them never would have learned anyway.

I think we would run out of hard working suckers pretty quickly, then everyone is miserable. Sound familiar?

OK, that is an extreme view of this situation, but it holds true. It sets a dangerous precedent, it extends beyond the people that are 'saved'. Others observe that the govt bails you out of bad decisions, and it just snowballs.

Though it sounds harsh in the short term, I really think that expecting some personal responsibility is the kindest thing to do in the long run, and the fairest.

The Declaration of Independence refers to the 'pursuit of Happiness' as an unalienable right. Not 'happiness', the 'pursuit of Happiness'. Big distinction.

-ERD50

 

[Gumby]

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[ERD50]

I never said 'punish' - I said they should have to abide by the contract they signed (unless fraud was involved). Isn't that the law? I don't think they should be above the law. And I didn't use any deprecatory adjectives that I recall. I think I said that if people are going to take on as large a financial decision as a home mortgage, that yes, they should educate themselves about it first. Terms like 'fixed rate' and 'adjustable rate' are not such difficult concepts. Or they should probably rent until they do learn. Or get some help. I'll stand by that.



And all I am saying is - has that really been weighed against the long term impact of telling a group of people that they won't be held to their contracts if it goes against them? Won't everyone want a piece of that in the future? Unintended consequences?

Hey, maybe some bail-out really is the best that can be done in a bad situation, I'm just offering up an opposing view. I don't think that plan comes w/o some large risks of it's own.

-ERD50

 

[jazz4cash]

What amazes me is the focus on the homeowners. Rather than focus on individual homeowners as beneficiaries despite thier naivety, greed, or ignorance, I am more ticked off about the irresponsible actions of various elements of the mortgage industry are being smoothed over (temporarily). Hopefully the intervention will insulate the rest of the economy, but more of these folks should be facing criminal investigation. I would say the companies should pay big fines, but that cost WOULD be passed on to legitimate customers

 

[ERD50]

What amazes me is the focus on the homeowners. Rather than focus on individual homeowners as beneficiaries despite thier naivety, greed, or ignorance, I am more ticked off about the irresponsible actions of various elements of the mortgage industry

I think if you look back at the posts, most people that call for holding people to their contracts put in the caveat at some point 'unless there was fraud on the part of the lender'....

Those people should be held to the law also - not doing so has bad long term impacts also. Some of that fraud may have been complicit though - like 'oh, you can get this mortgage if you tell us you have some other income...., and then the buyer agrees to this fraud'. I have no idea how common this was, but if it was complicit fraud, I say hold the buyer to the contract and punish the lender.

If the govt is getting involved, I prefer prevention/regulation to reaction. There should be 9have been) tougher standards to prevent the problems in the first place.

-ERD50

 

[armor99]

I agree with you ERD50... there are MANY unintended consequences that will come out of the govt helping the lenders, and the homeowners. I think at the very core of it, is a bogus idea that is held by way to many people. Somehow people (and the govt) have come to believe that home ownership is a right in the US. It is not a right to own property, it is a privalege. If you have the money to make the purchase, the home can belong to you. There is no pledge in the consitution that the govt is responsible to "give" you anything. Although there are many that try to spin it that way.
Do not misunderstand me though... if the banks themselves want to re-negotiate deals with their mortgage holders so that bankruptcy does not happen, then I think they are free to go ahead and do so. I think that many lenders would choose that option because the banks really do not want to hold the properties either. But the govt should not get involved here. I think that the govt trying to change the contracts of thousands of homeowners is a very dangerous idea. I do not believe in coersion, by the govt or anyone else. Please keep in mind that stealing $5 from Bill Gates, is just as wrong as stealing $5 from me.

 

[Retire Soon]

Our government has set a precedent this year that will do irreparable damage to both our economy and society for many generations to come. The five year freeze on interest rates and the U.S. Senate bill to lower standards for FHA loans will both serve to bailout irresponsible homeowners and lenders.

I once earned a living as a loan officer for a major mortgage banker in San Diego. We originated FHA, VA and Conventional loans. Although, I only did this for five years beginning in 1978, the knowledge that I gained in personal finance has stayed with me ever since. Those were the days when people were expected to make sufficient money to make payments on a house and make a sizable down payment before loan documents could ever be drawn up. We had two ratios for conventional loans that were required: 1) ratio of monthly Payment (principal, interest, taxes, and fire insurance) to monthly gross income 2) ratio of payment plus bills to monthly gross income. The first ratio could go no higher than 29% and the second ratio could go no higher than 34%. Some lenders were even more conservative than this. Qualifications for FHA and VA loans were different, but in many ways were similar, with the exception that VA loans required no down payment. We tried to do the best job possible in prequalifying borrowers, because nothing is worse for all parties involved in the sale of a home then when a loan is denied by an underwriter after being in escrow for eight or nine weeks. However, with careful pre-qualifications, this rarely ever happened.

What has helped me in my own personal finance and enabled me to retire early on a modest income is that I learned first hand that monthly debt service was the most frequent cause of a single person or married couple's inability to qualify for a loan. Usually, this took the form of one or two car payments. From practical experience, being in the mortgage business taught me not to abuse credit and to avoid high monthly bills, especially on new cars.

It saddens me to see what has happened to society in recent times. There is not longer a sense of personal responsibility for one's actions and decisions. As armor99 so eloquently stated, home ownership is indeed not a right but is rather a privilege. This kind of reminds me of what my high school driver's education teacher would say about our driver's license, "Remember it's a privilege, not a right. You have to earn it and follow the rules of the road in order to keep it." In the same way, many of these subprime borrowers in recent times did not hear, or choose to hear someone tell them that homeownership is a privilege and not a right. To start with, many did not even have to put down money on their house. Many did not even have to pay closing costs. Many did not even have to have good credit. Many did not even have to prove that they even had a job. When the escrow officer explained terms of the loan and what the index was tied to and what was the most they could expect their payment to go up to, many chose not to hear this. But, they liked the idea of moving their family into a big McMansion with little or no down payment and a small starting monthly payment, perhaps even close to what they were paying for rent.

My, how society has changed since I was a loan officer in the late 70's and early 80's and I don't mean for the better. It seems that many do not want to accept responsibility for their poor decisions and now we have a government that reinforces their lack of good judgement. Many want to blame someone else. We've been so generous with our "privileges" that we have even granted driver's licenses and home ownership to many who live illegally in our great nation.

Unfortunately, we're all going to pay for this big time, because society and our economy will suffer for generations to come because of it. I think we've had it far too easy in recent years. Things have been just going too good for us. What happened to the days when we were expected to put 20% down on a house. If you had golden credit, you might be able to get by with 10% or even 5%, if you showed you had a good job history. Was money just so plentiful the past couple of years that banks found it necessary to just give it away?

 

[Spanky]

Was money just so plentiful the past couple of years that banks found it necessary to just give it away?

Yes, the Federal Funds rate was 1% from June of 2003 until June of 2004 that created a substantial surplus of liquidity.

 

[Spanky]

Here is the blame list:
The Fed - creating cheap money
Wall Street - making risky products available
Mortgage lenders - creating high-risk mortgage products
Loan originators - pushing high-risk products to clients who cannot afford it.
Real estate agents - selling to buyers who could not afford it

Borrowers - going over their heads.