So much for "predatory lenders"

[armor99]

12 pct. are behind on mortgage or in foreclosure - Yahoo! Finance=

Ok... so now the numbers are out. More fixed rate mortgages are failing than any other type right now. So maybe that cry of "predatory lender" can go away now? At a fixed rate, people knew exactly what they were getting themselves into. As usual... the facts are often ignored.....

 

[ziggy29]

I think the first wave was, in part, due to some adjustable rates resetting upward. That helped trigger an economic mess leading to another wave hitting those with fixed rate mortgages and delivering the double whammy of job loss and being "underwater" on their mortgage. Many of them may just be walking away.

 

[Martha]

Well, a bit misleading. The leading edge of the foreclosures were the subprime, adjustable rate mortgages. Now prime fixed rate foreclosures are increasing as the recession marches on. In any event, the percentage of subprime loans in bad shape is far higher than for fixed loans. The article goes on to say: At the same time, almost half of all adjustable-rate loans to borrowers with shaky credit were past due or in foreclosure.

 

[Westernskies]

Not surprising. Why pay your mortgage if you think there is a good chance that someone will step in and offer you "a mortgage relief package"? After all, your neighbor got one when he defaulted and you are not certainly not going to get an abatement or reset if you are current... so, a lot of folks are now CHOOSING to walk away, has nothing to do with their finances. So much for those of us who did without the HELOC-financed expensive toys, lavish vacations, and extravagant lifestyles. We LBYM, saved instead of spent, lived modestly, and paid our mortgages off early. Now we get to pick up the tab for these losers.

How did we change to a society that advocates rewarding failure and penalizing success?

Rant Over.

 

[armor99]

Not surprising. Why pay your mortgage if you think there is a good chance that someone will step in and offer you "a mortgage relief package"? After all, your neighbor got one when he defaulted and you are not certainly not going to get an abatement or reset if you are current... so, a lot of folks are now CHOOSING to walk away, has nothing to do with their finances. So much for those of us who did without the HELOC-financed expensive toys, lavish vacations, and extravagant lifestyles. We LBYM, saved instead of spent, lived modestly, and paid our mortgages off early. Now we get to pick up the tab for these losers.

How did we change to a society that advocates rewarding failure and penalizing success?

Rant Over.

Now..now.. westernskies.... Remember... it is part of your social contract with America that you need to help these folks. They obviously did not know what they were doing. If we do not help them then the situation will just be worse for all of us.

Not everyone has a high enough intelligence like some of here in the forum to be able to plan out our lives and finances. Just because some of us were lucky and won the birth lottery, it is no reason that those with less ability should actually have any less than the rest of us...

Ok.. I think that will pretty much cover the alternate point of view... Am I getting better at understanding how the other side of this aguement thinks?

 

[freebird5825]

...How did we change to a society that advocates rewarding failure and penalizing success?

Rant Over.

Excellent rant. Heck, you even made ME feel better.
I guess I have a bit of a thicker skin for this type of thing because I already live in the Great Welfare State.
Oh the stories I could tell of the abuse of unemployment, food stamps, welfare, child protective services, divorce courts, etc that goes on unabated here in the Empire State...but I won't bore you and get myself all w*rked up ranting.

 

[ChrisC]

Oh the stories I could tell of the abuse of unemployment, food stamps, welfare, child protective services, divorce courts, etc that goes on unabated here in the Empire State...but I won't bore you and get myself all w*rked up ranting.

Oh, do tell them here; they will be warmly received by many. You'll feel better after venting, too. That's how you roll, right?

 

[Zoocat]

When making a conclusion based upon data, it's important to actually analyze the data.

The important data is as follows:

12% of ALL homowners with a mortgage are behind OR in foreclosure

6% of fixed rate mortgages were past due or in foreclosure.

Therefore, this data does not in any way excuse predatory lending. The economy could easily account for the 6% of fixed rate mortgages in trouble.

The more troubling piece of data is that "almost half of all adjustable-rate loans made to borrowers with shaky credit were past due or in foreclosure." The failure of these adjustible rate and interest only mortgages will be the next crisis IMHO. These are the "creative" mortgages that lenders wrote in all the bubble states.


"NEW YORK (AP) -- A record 12 percent of U.S. homeowners with a mortgage are behind on their payments or in foreclosure as the housing crisis spreads to borrowers with good credit. And the wave of foreclosures isn't expected to crest until the end of next year, the Mortgage Bankers Association said Thursday.

The foreclosure rate on prime fixed-rate loans doubled in the last year, and now represents the largest share of new foreclosures. Nearly 6 percent of fixed-rate mortgages to borrowers with good credit were past due or in foreclosure.
At the same time, almost half of all adjustable-rate loans made to borrowers with shaky credit were past due or in foreclosure."

 

[NW-Bound]

While the home buyers who were overreaching for their "American Dream" are guilty of financial stupidity, the mortgage and banking industries who loan them money are equally guilty. Trying to blame one group and not the other is like deciding whether the kettle is blacker than the pot.

Remember that both groups are being bailed out now with our tax money. How can anyone defend either group? Off with their heads!

I would have to agree with Martha and Oldbabe that some innocent unfortunate homeowners are now getting churned up in this economic cauldron. The people on this forum tend to be better off than the average US worker, and yet some of us have also been faced with job losses.

 

[Independent]

Now..now.. westernskies.... Remember... it is part of your social contract with America that you need to help these folks. They obviously did not know what they were doing. If we do not help them then the situation will just be worse for all of us.

Not everyone has a high enough intelligence like some of here in the forum to be able to plan out our lives and finances. Just because some of us were lucky and won the birth lottery, it is no reason that those with less ability should actually have any less than the rest of us...

Ok.. I think that will pretty much cover the alternate point of view... Am I getting better at understanding how the other side of this aguement thinks?

I don't think anyone has expressed that point of view on this thread.

Ziggy, Martha, and Oldbabe have all provided a different perspective.

 

[lets-retire]

Not in this thread, but definately on this forum.

 

[jug]

The avergage American is not good at math, thus to live by a budget is challenging. How is this evident? By the amount of home equity lines taken out, and used for goodies that they don't need.

In the home, good financial management needs good basic math skills along with discipline to look at reality and live within those numbers.

Unfortunately, many don't possess this combination, and with the loose credit of the past 10 years, and the media telling us that we must have it all, along with interest rates lowered after 9/11 pushing housing prices upward, the average Joe believed that he could have a Mac Mansion on his meager salary.

Bring in a lender, who should know better, but stretches the truth on the application, he convinces a poor sap making 50K a year that he can "manage" a 700K house, with the help of wifey who earns another 25K or so. It is the banker's job to see that this is quite risky, hence "predatory lending", the professional should know better, but the commissions and the selling of the loan to be packaged and securitirized is pressing on him.

Multiply this scene a few million times, and viola, we have the present situation, wife or hubby lost job, house is now worth under 400K, lender or who ever owns loan is underwater on this among many other loans, and we have the present situation.

Now is lender had used traditional underwriting practices, he would have denied poor Joe and wife the loan, forcing them to take a tandrum, and going for a cheaper home. This scene done several million times would have kept housing prices more reasonable and we wouldn't have our present fiasco.

I blame, bad math, bad discipline and above all, lenders who should know better.

jug

 

[Independent]

Not in this thread, but definately on this forum.

The part about "no reason why those with less ability should actually have less than the rest of us" seems to say "we should all end up with exactly the same amount". I don't recall seeing that on any other thread, but who can say for sure? I can't claim that I've examined every post in every other thread, maybe someone said that somewhere. But why make the comment here instead of on the thread where it was made?

 

[ChrisC]

The part about "no reason why those with less ability should actually have less than the rest of us" seems to say "we should all end up with exactly the same amount". I don't recall seeing that on any other thread, but who can say for sure? I can't claim that I've examined every post in every other thread, maybe someone said that somewhere. But why make the comment here instead of on the thread where it was made?

I don't recall and I don't believe anyone has made that claim, too. But I could be wrong. It appears to be an extrapolation of claims made by those that want the safety nets we have for the less fortunate to capture greater numbers of less fortunate people even when balanced against a downside risk of "moral hazard." I don't know of anyone who has posted on this forum who believes in equal outcomes regardless of personal sacrifice, work, or talent. In my opinion, the comment was made here because there's a tendency to steer the topic to a certain area of discussion, which gets debated ad nauseam.

 

[lets-retire]

The part about "no reason why those with less ability should actually have less than the rest of us" seems to say "we should all end up with exactly the same amount". I don't recall seeing that on any other thread, but who can say for sure? I can't claim that I've examined every post in every other thread, maybe someone said that somewhere. But why make the comment here instead of on the thread where it was made?

You are correct in that the exact words are not used. However the sentiment is often expressed on this forum. This is the last I'm going to speak of it here, I don't want to hijack the thread.

 

[ERD50]

When making a conclusion based upon data, it's important to actually analyze the data.

Agreed - maybe we can re-direct back to some data?

In my case, I recently looked back at the ARM I took out (a re-fi) ~ 7 years ago. I'm terrible at legalese, but there was a short (3 page, lots of white space, big font) document that spelled out the conditions very plainly.

So, can anyone post a link to ne of these documents that would "trick" someone into getting a loan that they could not understand (which means they should not have signed it to begin with)? I'm curious about this.

Another factor could well be that ARMs are being adjusted *downward* at this point (mine was adjusted down, 4.375 now )

I blame, bad math, bad discipline and above all, lenders who should know better.

jug

How about govt policies that encouraged those lenders to make loans to people who could not afford them? Yes, PLENTY of blame to go around. The only antidote I see is education.

-ERD50

 

[armor99]

Agreed - maybe we can re-direct back to some data?

In my case, I recently looked back at the ARM I took out (a re-fi) ~ 7 years ago. I'm terrible at legalese, but there was a short (3 page, lots of white space, big font) document that spelled out the conditions very plainly.

So, can anyone post a link to ne of these documents that would "trick" someone into getting a loan that they could not understand (which means they should not have signed it to begin with)? I'm curious about this.

Another factor could well be that ARMs are being adjusted *downward* at this point (mine was adjusted down, 4.375 now )



How about govt policies that encouraged those lenders to make loans to people who could not afford them? Yes, PLENTY of blame to go around. The only antidote I see is education.

-ERD50

Yes... I agree.... education is almost always the answer to such problems. I would love to see new mandates for public education to include such topics.... Might write my congressman later today to suggest it...

 

[NW-Bound]

The only antidote I see is education.
-ERD50

That, and no moral hazard to either the lenders nor the borrowers. Bitter pills are needed as part of the "education" process. People are generally not stupid. Get burned once, or seeing someone gets burned, they will learn.

But then, we all know this. The problem is to get some voters and their politicians to agree.

 

[lets-retire]

I agree there is definitely a lack of education when it comes to basic financial issues. When I took consumer economics in high school it dealt with theories that were not applicable to the real world of most people. It was more of an introductory macro-economics class. About the only thing I learned in the four month class was how to write a check and balance a checkbook. The class was a requirement for graduation so everyone who graduated had it.

I can't tell you how many disadvantaged people I've dealt with know the basic principle of don't sign anything unless you understand it.

 

[jug]

How about govt policies that encouraged those lenders to make loans to people who could not afford them? Yes, PLENTY of blame to go around. The only antidote I see is education.

-ERD50

I agree, but if the programs were designed to make loans to people in underserved areas that could afford to repay them, I see no problem. However twisting the arm of a bank to engage in poor underwriting practices under any circumstances is wrong. What I would like to know is what percentage of the poor underwritten loans were written under Government pressure.

I do believe that the bulk of the problem in underwriting was due more to greed, such as banks and loan brokers gathering up as many loans as possible to re-sell to secondary buyers for a quick profit, as opposed to the banks having their arms twisted to make such loans.

Profit I believe was the motive more than anything.

jug

 

[ERD50]

I agree, but if the programs were designed to make loans to people in underserved areas that could afford to repay them, I see no problem. However twisting the arm of a bank to engage in poor underwriting practices under any circumstances is wrong. What I would like to know is what percentage of the poor underwritten loans were written under Government pressure.

The trouble is, it seems that whenever an attempt is made to artificially influence a market, the law of unintended consequences comes into play. Push or pull the market one way, and inevitably you will get an equal and opposite force somewhere else down the line. And those forces arise faster than laws can address them (which just makes them pop somewhere else).

I do believe that the bulk of the problem in underwriting was due more to greed, such as banks and loan brokers gathering up as many loans as possible to re-sell to secondary buyers for a quick profit, as opposed to the banks having their arms twisted to make such loans.

Profit I believe was the motive more than anything.

jug

I've never bought into the "greed" explanation. Are you saying that the secondary buyers were not just as greedy, or were they just stupid? Doesn't make sense to me that one group would be benevolent while one group would be "greedy". How would this separation occur? I think the artificial market manipulation just changed the rules of the game, so that greed was not in check as it is in a free market. Did any of this happen in parts of the world where the govt was not trying to make loans available to people who could not really afford them? I don't think so. IMO, there is your answer.

Greed is good, profit motive is good. It is what advances our society. It's not perfect but it appears to be better than any alternative I've seen. My computer, my ISP, and this forum are motivated by profit. That is good IMO, w/o a profit motive I would probaly have none of them. Greed is good, profit motive is good.

OK, here's an explanation that I've considered using as a thread starter, but it fits here, so I will toss it in:

Greed is almost powerless to do harm in a free market.

Consider a Farmer's Market - ten farmers bring their apples to sell. All the apples are of equal quality. Nine of the farmers are "good guys/gals", seeking long term relationships with their clients. The price of those apples is going to float to the level that supply/demand dictates. If the farmers could get an exorbitant price for their apples, more farmers would travel to that market, increasing supply, and the price would come into balance once again. If the farmers cannot get enough to provide a reasonable profit, they will switch to other crops, or sell to other markets, until the supply of apples goes down, and demand brings the price back into balance. Econ 101, right?

The tenth farmer is a "greedy" old SOB. But... so what? How can he charge more for his apples? He can't, the people will go to one of the other nine farmers. He is almost powerless in a free market.

So, manipulated markets are the problem as I see it, not "greed". To me "greed" is like gravity - use it to your advantage (a paperweight, traction for your car) and it works just fine. Slip on the ice, and gravity might provide you with a broken hip. But gravity was not good or bad, it just "is". Greed is the same, in my view.

-ERD50

 

[armor99]

The trouble is, it seems that whenever an attempt is made to artificially influence a market, the law of unintended consequences comes into play. Push or pull the market one way, and inevitably you will get an equal and opposite force somewhere else down the line. And those forces arise faster than laws can address them (which just makes them pop somewhere else).




I've never bought into the "greed" explanation. Are you saying that the secondary buyers were not just as greedy, or were they just stupid? Doesn't make sense to me that one group would be benevolent while one group would be "greedy". How would this separation occur? I think the artificial market manipulation just changed the rules of the game, so that greed was not in check as it is in a free market. Did any of this happen in parts of the world where the govt was not trying to make loans available to people who could not really afford them? I don't think so. IMO, there is your answer.

Greed is good, profit motive is good. It is what advances our society. It's not perfect but it appears to be better than any alternative I've seen. My computer, my ISP, and this forum are motivated by profit. That is good IMO, w/o a profit motive I would probaly have none of them. Greed is good, profit motive is good.

OK, here's an explanation that I've considered using as a thread starter, but it fits here, so I will toss it in:

Greed is almost powerless to do harm in a free market.

Consider a Farmer's Market - ten farmers bring their apples to sell. All the apples are of equal quality. Nine of the farmers are "good guys/gals", seeking long term relationships with their clients. The price of those apples is going to float to the level that supply/demand dictates. If the farmers could get an exorbitant price for their apples, more farmers would travel to that market, increasing supply, and the price would come into balance once again. If the farmers cannot get enough to provide a reasonable profit, they will switch to other crops, or sell to other markets, until the supply of apples goes down, and demand brings the price back into balance. Econ 101, right?

The tenth farmer is a "greedy" old SOB. But... so what? How can he charge more for his apples? He can't, the people will go to one of the other nine farmers. He is almost powerless in a free market.

So, manipulated markets are the problem as I see it, not "greed". To me "greed" is like gravity - use it to your advantage (a paperweight, traction for your car) and it works just fine. Slip on the ice, and gravity might provide you with a broken hip. But gravity was not good or bad, it just "is". Greed is the same, in my view.

-ERD50

Very well thought out.... The ultimate power in a free market is to simply say "no". As long as there is no coercive power, govt or otherwise theatening your decision making, then I have no problem with it.

I tend to dislike anything that will "unbalence" the free market. A monopoly is a good example of this. Where there is no competition, business gets an unfair advantage. Price fixing, and colusion are other forms of illegal "market unbalencing". In such situations a company CAN charge more than the market will allow, because there is no alternative that a consumer can turn to.

At the same time, I am just as opposed to unions. In a way.... you can think of unions as a "people monopoly". In this situation, you wind up with businesses being "coerced" into paying wages they might not be able to sustain, and would normally say no to. This is one of the primary reasons for the current auto-maker meltdown. Eventually the debt monster that was created over the last 30 years could not be fed anymore. Most of the companies probably knew it was unsustainable years ago, but with union controll there was nothing they could really do about it.

And there you have it... not seen through a rich or poor man's prism. Just reality as I have found it....

 

[Independent]

I agree, but if the programs were designed to make loans to people in underserved areas that could afford to repay them, I see no problem. However twisting the arm of a bank to engage in poor underwriting practices under any circumstances is wrong. What I would like to know is what percentage of the poor underwritten loans were written under Government pressure.

I do believe that the bulk of the problem in underwriting was due more to greed, such as banks and loan brokers gathering up as many loans as possible to re-sell to secondary buyers for a quick profit, as opposed to the banks having their arms twisted to make such loans.

Profit I believe was the motive more than anything.

jug

Here's the best I could get with a little Googling:

Federal Reserve Board data show that:

• More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
  
• Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
  
• Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

Private sector loans, not Fannie or Freddie, triggered crisis | McClatchy

The reason the quote is relevant to your question is that "private lending institutions" supposedly aren't subject to the CRA. The big run-up in mortgage lending originated outside the regulated sector. I don't know the details of who's regulated and by whom, but that's the claim that I've seen. Maybe someone else can provide more data.

I'd like to see the link to the "Federal Reserve Board data" just to see for myself what it says.

My guess is that the most we could say about gov't pressure goes something like this: Gov't pressure in the 80's and 90's got banks to make loans they wouldn't have made otherwise. Banks discovered, to their surprise, that they could do this profitably. People didn't default just because they lived in the "wrong" neighborhood. This discovery may have been one of the reasons that the bubble got started, but not the reason it turned into a bubble.

 

[Independent]

I tend to dislike anything that will "unbalence" the free market. A monopoly is a good example of this. Where there is no competition, business gets an unfair advantage. Price fixing, and colusion are other forms of illegal "market unbalencing". In such situations a company CAN charge more than the market will allow, because there is no alternative that a consumer can turn to.

The complexity is that sometimes a "free" market is naturally "unbalanced". For example, any market that provides naturally high barriers to entry is likely to develop a monopoly. Think of electrical distribution to homes in your community. It's so expensive to run all the wiring that the first company to do it can scare anybody else out.

 

[ERD50]

The complexity is that sometimes a "free" market is naturally "unbalanced". For example, any market that provides naturally high barriers to entry is likely to develop a monopoly. Think of electrical distribution to homes in your community. It's so expensive to run all the wiring that the first company to do it can scare anybody else out.

Correct, and in those cases I think some sort of govt intervention can be the "lesser of two evils". Or even a good thing if the govt does it right, which it actually does sometimes, but it seems rare.

-ERD50