Whose Mortgage Crisis?

I certainly agree and it's right in line with what I've been saying based upon my own observations.

There was a time when getting a home loan was difficult but then the social re-engineering efforts started forcing changes to the time-tested qualifications in order to make housing "more affordable". Before that time somewhere around one third of non-farm homes were owned by their occupants. The government interference accelerated with the New Deal era with federally insured long term loans with low down payments. Before that loans were short term and required considerable equity.

It did increase the percentage of home ownership. It did, in some areas, increase the quality of home construction because of the standards imposed on the builders by the government's insurance program.

Then in more recent times the bar was lowered even more to provide mortgage finance with very low down payments, low closing costs, and adjustable interest rates or repayment schedules to people with much higher debt to income ratios that in the past. This was, as the article states, done to target specific demographics of our society.

Many of these people might could afford them at first but just could not handle it long term and especially in a market when the home inflation trend changed direction leaving people with little or no equity. They didn't have the cash reserves to ride out the inevitable storm.

Everyone must share in the blame - Congress, the lenders, and the borrowers. They've all had an active part in it. The Executive will get blamed the most but, in reality, they only implement the programs that Congress creates.

I wouldn't look to Congress for a solution. Their track record is extremely poor!

 

The other thing that most people don't understand is that this crisis is unfolding like the visitation of the three ghosts in Dickens' A Christmas Carol. Subprime is the ghost of failed mortgages past. Next to come will be Alt-A loans, and finally Prime loans. Both of the later two are potentially larger crises than Sub-Prime loans have been.

http://money.cnn.com/2008/08/12/real_estate/prime_defaults_price_drops/index.htm?cnn=yes

 

Lessons learned: Don't buy more than you can afford - rich, poor, or in between. Live within your means. Never believe a deal is too good to be true. Don't let the salesman talk you into something you don't need. Pay your bills on time - especially your mortgage. Pay it off early if you can! Keep the government out of your business. Don't go looking to government to solve your problems.

 

Yea thank you Carter

 

They could afford it when they signed on the line. They didn't know their jobs would be sent overseas.

 

If they didn't put 20% down from their personal savings they couldn't afford it.

 

If they've been keeping up with the payments the last 5 to 7 years they could afford it.

 

You apparently don't understand finances. People cannot wisely live while committing too large a percentage of their income to housing, and that is what people did. It wasn't fraud on their part, unless they lied about their income. It was lack of wisdom. I don't know of anyone in my church who did it though.

I am not turning a blind eye to anyone. And I don't necessarily think the government should bail out anyone. It is very complex. But people make choices with their money. If I go out and run up 50K in credit card debt, should I expect you to bail me out? Why is it any different with a house?

Not for the amount of people that would be covered by it. We are talking 700 billion dollars. The bonus won't make that up. It is a much bigger problem.

But if you start telling companies they can't pay big bonuses, where does that stop? What's a big bonus? If I got a 10K bonus, that would be big for me (as it probably would be for you). Should the people who got a $500 bonus complain and get my 10K taken away? Of course not. It makes no sense.

 

Then you don't understand what ARMs are.

 

ARMs are dangerous for exactly this reason.

But to blame this on jobs going overseas is just misguided. I think when you look at the foreclosures, the bulk of them are not from people who lost their jobs to overseas. I know of three people on this street who walked away from their houses still having the jobs they had when they bought them.

But they were not prepared for the balloon. One family a couple of doors down just loaded up and moved out because they had a 50,000 balloon coming due.

People make bad choices and lenders did too. Now both are holding the bag and expecting the government to bail them out.

 

This statement leads me to believe that you haven't done the math to know what happens when the interest rate goes up on an ARM. A house payment that was affordable suddenly becomes unaffordable when the interest rate goes up.

My wife and I were looking at house that was on a "short sell to foreclosure". As it turns out, the previous owners put down less than 1% on their house. If you put down less than 1%, that tells me one thing: you can't afford the house. Not only that, I'd bet anything they had a 3 year ARM and once that was hiked, they couldn't begin to afford the payment anymore. Shame on the bank for financing 99% of a house on a 3 year ARM and shame on the borrower for not building up more capital to begin with so they didn't have to have 99% financing on a 3 year ARM.

 

Nope, that's a different problem because most of the people walking away from their mortgages are still employed. The problem is too much debit - living on credit - to have everything now without thinking ahead to what might go wrong and making some allowance for it.

 

You're right on target with the main problem! Both the lender and the borrow are to blame. The government was right in the middle of it pushing the "affordable home ownership" concepts for the last 50 years of more and especially in the last 20 years. The consequences of increasing interest rates means higher payments. That combined with additional debt incurred from other installment purchases - credit cards, automobile loans, home improvement loans, etc. - and the decreased value of the home making sale at less than a loss impossible results in missed payments which leads to foreclosure.

 

Stan is WRONG....

There is ONE primary factor, the 100% LTV, NINA (no income verification / no asset verification) loan available to borrowers with less than “A+” credit character (720 credit score). As long as the borrowers paid on these mortgages, the market would have stabilized and maintained some semblance of normality, but if these loans demonstrates higher than normal delinquency factors or default rates – we would see a crash that will dwarf the S and L crash.

These loans allowed virtually ANYONE to buy a home. With so many buyers “in the market”, prices just skyrocketed as eager owners watched their homes sell for thousands over asking price with multiple offers. It was a feeding frenzy as so many people jumped into the market and purchased homes that they not only couldn’t afford, but the loans themselves were also “ticking time bombs”. Loans, for example, that had substantial negative amortization, long term prepayment penalties and adjustment periods after as little as 24 months. Buyers were “betting” on continued appreciation so they could sell for a quick profit or refinance into a more favorable loan after the property appreciated.

Wall Street was peddling off these “safe” mortgage back securities to unsuspecting investors as fast as lenders and brokers could close them. In its peek lenders and mortgage brokers were bragging how they offered 100% stated income loans to borrowers with credit scores as low as 580. Wholesale lenders and mortgage brokers were popping up all over specializing in these high risk 100% “NINA” mortgages. At this peak, lenders would “bid” for the brokers loans. The broker would pawn off the loan to the lender that would make them the highest commission with little regard for the borrower’s ability to pay.

As suspected you just can’t offer mortgage loans to borrowers with NO money down, NO income or asset verification and credit scores under 600 and expect then loan to perform. As these loans began to suffer exorbitant FIRST PAYMENT DEFAULT figures, Wall Street reacted by ceasing to purchase these loans. Lenders could no longer sell them to Wall Street, so they stopped offering the product, since they stopped offering the product; a huge swath of buyers no longer could secure financing, with so many buyers out of the market, there were no longer a buying frenzy and multiple offers, so sellers had to drop their prices to sell. Soon there were MORE defaults and delinquencies and loans began to “recast” in the case of a Neg Am loan or the rates would adjust resulting in substantially higher payments so people began to stop making their mortgage payments all together and values began a never before seen tailspin downward.

The mortgage market essentially collapsed in July of 2007. If it was limited to just the “less than credit worthy” borrowers, the damage would have been less severe, but as values continued their downward trend, even the A+ borrowers found it financially unjustified to continue making mortgage payments on a house that now was worth tens and in some cases hundreds of thousands less than their mortgage balance. Even these “cream puff” borrowers began walking away, to suffer some damage to their credit history, but in a few years they could recover.

Like a junky to smack – it is difficult to control the euphoria that GREED can instill in people. Though the instrument of this debacle was a mortgage, it was basic GREED that fueled it from Wall Street, to the lenders, to the mortgage brokers, to the realtors and even to the BORROWERS all were caught up in making money.

Now we ALL are suffering.

 

Show some proof of this... Many of the people in financial trouble either lost their job after signing on the line or they have a new job paying less than what they made before.

 

Le Buick,

That is not the case, yes some lost their jobs, but the PRIMARY factor was the 100% loan that fueld the rise and then when that loan was no longer available, prices dropped and MANY employed people just walked away and are still walking away from thier homes. Why pay on a $350K mortgage on a house that is worth $200K??

Prices will drop MORE through the end of 2009 / 2010 and these 5 years mortgage loans begin adjusting. I know MANY people that have said that in 1-2 years if their payments ajust too high when their loan adjusts they are going to WALK AWAY.

Just hold on brother......

 

Don't think I wanted to put 25% down, it is what it took to get the loan for the house. If I recall correctly it was a FHA loan. Then you had to show that your loan payment wasn't more than a weeks net pay of my pay. I believe that is what some are trying to show where folks got in over their heads.
Go back to the 50's and 60's when most factories closed down for a few weeks each year to a month or two. My wife's family worked for Holly Carburetor in Bowling Green,Ky. and they planed on not working for about 6 to 10 weeks a year. I know many folks felt good if they could get 35 to 40 weeks a year work in some types of work.

So the more one had to have to get the loan the less of a chance of not making the payments and the principle of one week's net pay is high as one's payment could be for a sound loan, the less folks lost their home.

 

Who needs a book, it was caused by fiat money.

 

So no responsibility to the borrower? You are determined to blame everyone accept those responsible.

 

In most cases, when the loans were made, the borrowers COULD make the payments. The collapsing fiat monetary system is causing a lack of paper promissory notes. Banks are trading paper dollars for hard assets. Who is really losing here?