It's No Longer Only Subprime Borrowers

[youbet]

Quote:

Originally Posted by chinaco Thanks. Looks like borrowers that walk away in California get a pass if it is an initial mortgage.

What do you mean by "get a pass?" I understand the lender can't sue them for the balance due after the house is sold or auctioned. But, do they "get a pass" on having a default on their credit rating?

[chinaco]

Quote:

Originally Posted by youbet What do you mean by "get a pass?" I understand the lender can't sue them for the balance due after the house is sold or auctioned. But, do they "get a pass" on having a default on their credit rating?

Yes that will have an impact... but the debt cannot be collected.

Some of them do not care about the credit rating... they will wait till it clears.

That California law is being abused. The State legislature should make some changes. Investor, (retirees) pension funds, 401ks, etc will pay for those people gaming the system on a consumer purchase. It really sucks.

I would expect lenders to tighten credit underwriting rules substantially in that state. PMI will be mandatory and larger down payments required.

[youbet]

Quote:

Originally Posted by chinaco I would expect lenders to tighten credit underwriting rules substantially in that state. PMI will be mandatory and larger down payments required.

I also would expect lenders to tighten up substantially. The amusing part will be when we observe, two or three years from now, an outraged cry from folks who believe they are being screwed because lenders won't make loans to them due to prior defaults on their record! Or, if they will make the loans, that PMI premiums will be very expensive!

[Retire Soon]

Credit Suisse Group is hoping to convince the federal government to allow for the refinancing on 600,000 mostly delinquent subprime loans into FHA loans. Meanwhile, J.P.Morgan Chase is working on a similar plan. The Treasury Department is skeptical of plans such as these that could expose taxpayers to losses and bailout lenders.

I find proposals such as these very disturbing to say the least. In the past FHA has financed homes for worthy borrowers who make reasonable down payments and have earned good credit. FHA charges 1/2% per year to insure the loans. We are currently experiencing a downward spiral in home prices in many areas of the U.S. Many of these subprime borrowers never put money down on their homes and have shabby credit. Let's say that FHA does agree to refinance 600,000 of these loans. A lot can happen in coming years. How many of these new FHA loans are going to go into default? My worry is that this 1/2% charge for mortgage insurance may not cover all of these foreclosures.

It has now become socially acceptable and trendy for borrowers to walk away from upside down mortgages and use jingle mail to return their keys to lenders. Prices may very well continue their downward spiral leaving homeowners very little financial justification to continue house payments. We simply should not have to pay taxes to subsidize irresponsible homeowners and bankers.



Free Preview - WSJ.com