Am I the only one who does not feel too sorry for lending institutions who lend money to people who have no collateral and then seem amazed when they cannot make their payments.
My understanding is large banks and specialty houses that bundle mortgage loans were under writing individuals who were not required to produce paper showing their ability to repay their loans. So without any equity in the houses these people just walked away from their obligations leaving the banks holding the bag.
I remember when I applied for a home loan I was required to show proof of employment and present a down payment at closing of 20% of the amount of the loan.
Perhaps I am not use to this new world of finance were someone else is suppose to cover losses for those who take risks and cannot afford the consequences for their bad investments.
...I have concern for - but their investors - as in those who have financial institutions in their mutual funds, pensions, etc...
The tax payers that are going to get possibly with the bail outs if the lenders go to the government, remembers the Savings and Loans Scandal/crisis?
http://toledoohioneighborhoodconcerns.com/blog
This problem has so many facets that it seems to be true that, although you can't shine one, a turd can glitter.
The investors were so eager for MBS (mortgage-backed securities) that they created a huge market pressure. Where were the regulators? {chirp chirp} The lenders were so enamored with mortgages that they packaged and RE-packaged these mortgages into tranches, using untested funny methods for evaluating risk for these tranches, thus magically (i.e. fraudulently) turning thousands of unstable mortgages into pure investment gold (i.e. highly-rated securities). Where were the regulators? {chirp chirp} The lenders were so eager for mortgage activity that they indulged in the following activities:
Unfortunately Americans have been led by Financial people to believe that a house cannot lose value.
While it is true that a home is normally a safe investment it is not a guaranteed investment. That means you can still lose money.
But most who got adjustable rate mortgages who cannot pay them could still get out from under them by taking in most cases a 5-10k loss. Sometimes more. However even if you took a 20k loss that's still better than foreclosure. And 10-20k is what we essentially lose in 5 years when we buy a car anyway. I ask what's the difference if it means you still have a decent credit rating and don't have to file bankruptcy.
Always remember the realtor's adage of "ANY home can sell in ANY market if the price is right"
MikeyA
investors are those who play the market, and make decisions on how mutual funds are going to be invested...
The investors I was talking about would be our neighbors who've got pension plans, mutual funds, etc...they don't decide how those funds are going to be invested - others do - It's the people who run those plans and funds that you should be mad at - not the ones to whom I was referring...
(slides GZ's coffee away slowwwly) :-) Heh.
And I hate to break the news to everybody but the lower-middle class is now credit strapped as well. And, (proportionately), in the same upside down position. Hey - they're sending out credit card applications to my kids. It started when they were about 13.
There is a legal premise called 'detrimental reliance'.
This is the premise that conveys the idea that no man can be master of all trades and skills. In that - if a man goes to a dentist, pays professional fees - he has a reasonable right to believe that he can rely on the information the dentist gives him.
If the dentist proves to be full of the reliable brown stuff - says the tooth is fine and the man winds up with a toothache over the weekend, a canceled vacation - then the dentist is on the hook. He was the professional - it was his job to provide good information and PERFORM.
When you buy a home, a 401k or stocks - you seek out and vet a professional in those areas. It is prudent to qualify the person thoroughly.
IT IS NOT A REQUIREMENT to be a stock broker to invest in stocks. It is not a requirement to be an investment counselor to have money in a 401k. It is not a requirement to be familiar with the teachings of Ghandi to expect to be able to own your own home.
I think, maybe, the overall lesson is that a prudent person would know that on, say a 100k a year income - there is something wrong with idea that it is a good idea to spend more than 100k a year. For any reason.
Isn't that the bottom line?
I have a friend who had an A.R.M. mortgage, and it adjusted last year to cost him an extra 300.00 a month. He has sold his house at a loss, and is renting now. My friend has also had some health problems which have prevented him from getting any type of affordable insurance. Luckily, his wife has a good policy now. Who knows how long that will all last? The truth is as you speak it GZ. Things are not fair and balanced here in the United States. The rich are making (buying) the laws to enable greater riches, and screw the middle class.
But there is a movement in the States and at the Federal law to create controls just as you are discussing GZ. It's a valid discussion.
http://www.google.com/search?hl=en&q=predatory+lending+laws&btnG=Google+...
http://en.wikipedia.org/wiki/Predatory_lending
Take our coffee for example. Yes, he who has the most money can 'corner' the market on coffee. This is a basic premise in a Capitalist society.
We then, as a group, appeal to our government for aid in breaking an unfair monopoly.
It's a cycle. And it truly is survival of the fittest. You are right.
The next bubble? Care to speculate on that? We haven't recovered from the latest wave of predatory banking, hell we don't even have a rough idea of what the fallout will BE yet - but surely there is a plot hatching out there somewhere for next great investment scheme.
Although wasn't this a remarkably STUPID scheme? "Hey. I know. Let's get a large marketing plan together. We can finance houses for less than prime interest rates for just a couple of years. That way people will buy houses."
The other guy says, "Hey - that's freaking brilliant! AND if we lend under prime - they can afford payments on a much MORE expensive house!! Much bigger mortgages!!!"
The first guy gets excited at this idea and starts hopping excitedly from foot to foot, "Yeah! Yeah - and then after we lull them into a false sense of security and they love the house and all that - THEN we spring the trap and move their interest rate to the REAL interest rate and make a fortune!!"
What's wrong with this? Simply that they were using people's desire to have a nice home into borrowing more than they could afford to pay for by artificially lowering the true cost of the obligation these folks were taking on. Because really - which one of us doesn't think our financial situation will a whole lot better in three years? Five years?
Is it wrong that we feel this optimism? No. Is it wrong to capitalize on it? I say yes. But I'm sure that's why I ain't a mortgage lender for one of these ARM outfits.
...things as well, I guess it's true that people don't appreciate things they've been given as much as the things they've worked for.
And then there's the whole issue of how good something is if you can't sustain it...
As a general rule, I don
Another point barely mentioned by GZ is the house inspection. Prior to buying a house, have the place inspected by a competent inspector. This might be the smartest money you
For a while I was getting 0% check offers from my credit card company for 6 months. I just kept shredding them.
Recently I wrote myself one of these checks and put the money into my savings account with its 5.05% return. Before the 6 month statement, I plan on giving their money back. Automatic bill pay has been set up.
After taking out the onetime fee of $75, I stand to make $550 profit off of something that used to annoy me.
you said, "Compare this to a typical home inspection, where the inspector walks around the house before handing you a paper that says, in effect, that there isn
are not a function of government and shouldn't be done. But the statistic I heard today was that 14% of the sub-primes were expected to be in default. That shouldn't be enough to constitute a bailout...
Mags, your pension and 401k and mutual investments are still your responsibility to oversee. You can't seriously expect me to honor their decision to toss their money at some self-involved elites who will never starve as a result of their decisions.
A lot of investors let themselves be lulled by easy returns. Ghandi warned us about attaining "wealth without work", but I guess such warnings have no value in our Hypercapitalist society.
So, I further suppose a lot of people have to starve, then. It's not so much that I believe stupid people should suffer; it's just that people who should know better, yet defend their willful ignorance to great lengths, are the ones who MUST suffer.
I'm mad at each and every market participant. Now the Congress and legislatures are rattling their "bailout" sabres. Maddie's right. It's getting to be that if you pay taxes, you're just a sucker. Fiscal conservatism has NO representation at any level of government in the United States. We deserve to fail. We're simply getting to be too stupid to survive.
I'll make you a deal, Mags. I'm willing to "bailout" the fucked borrowers. Their debts can just be cancelled. In return, they have to move back into sensible, 1500sqft homes like the lower-middle-class and poor they thought (in all their unsupported arrogance) that they had left behind. They also have to give up their suanas, cable TV, cellphones, SUVs, and all other trappings of credit-fed "wealth". They have to go back living like the middle class must. They have to work for their daily bread, and save for the future (instead of having the -1% national savings rate we have now). Do we have a deal?
Any basic survey (taking a few hours at most) of historical housing prices would show that even housing bubbles included, housing prices track incomes. PERIOD. So there's no reason to think the common American is not to blame here.
No, this is not one of the usual performances of GuestZero's Coffee Theatre
I never thought of that. Thanks, BrassMonkey!
"Even the federal government, hardly known for its prescience or nimbleness, flagged the problem 15 months ago when the Treasury Department, the Federal Reserve and other agencies jointly urged lenders to:
...I don't support any bailouts. I'm more of the personal responsibility type...if you've made bad decisions, you live with them. And while I can have concern for my neighbors who've trusted fund managers to manage their investments, I don't go to the next step and say that someone has to make them whole in their losses.
But your idea about people being in homes and having expenses in line with their earnings is a great one.
But GZ, middle class is considered by some - perhaps many - to be mediocre. People don't aspire to be mediocre - I just don't think it's in the nature of the human race.
So people aspire to be wealthy - and how wealth is defined may vary from person to person...but they don't aspire to be mediocre.
It's a matter of perception and changing perception is often the hardest task of all.
... somebody oughta tell Senator Dodd all that, Mags:
Senate Weighs Aid to 2.2 Million Subprime Borrowers
http://www.bloomberg.com/apps/news?pid=20601087&sid=afYyXxov1Xxs&refer=h...
Quote:
"Foreclosures involving homeowners who took out subprime loans from 1998 until 2006 could cost $164 billion, Dodd said, citing a December study by the Center for Responsible Lending in Durham, North Carolina. The government needs to provide at-risk homeowners ``forbearance or something like that to give them a chance to work through and get a new financial instrument here that they can manage financially better,'' Dodd said."
Dodd just makes me sick. They're already gearing up $5M in Massachusetts for a bailout. Sure, $5M is a drop in the bucket for the sheer amount that people in MA are in over their heads for, but it's the very idea of a bailout that will produce an incredible future problem. We already had the GSEs (Fannie Mae and Freddie Mac) help the housing bubble along at lot, with their easy buying up of low-rated mortgages. The pressure to continue the irresponsible lending party (despite the failure of over 2 dozen subprime lenders so far) is enormous and all it takes is an easy failure of will to take the next inflationary step.
BTW, trading in New Century Financial Corp. was halted completely on the NYSE, and I spent some time on the Yahoo message board for its stock ticker (symbol 'NEW') mercilessly taunting the investors for being such morons and for furthermore continuing to pretend that NEW's business model had any validity whatsoever. Great fun!
Well, when they see their Rent-a-Center belongings at the curb, I hope they enjoyed their little moment in the sun.
I refuse to label the middle class as mediocre. I refuse to see reading a library book as being mediocre over going out to a movie. Being middle class is a sensible aspiration and ANYONE who considers such a lifestyle 'mediocre' is in serious need of a pharmaceutical treatment regime for a new kind of mental illness.
Some days, I just don't know what to do. Our culture is rotting away one misspent dollar at a time (and yet people like McCaskey don't understand that link to education, egads!). Saving money became pass