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Old 04-30-2008, 11:12 AM
 
Location: louisville, ky
257 posts, read 771,730 times
Reputation: 96

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I know this is probably not the right place for this at all, but I trust my fellow Kentuckians on here. But I've tried reading a lot on this crisis and I guess I just can't really understand it a whole lot. I'm not too experienced with how a lot of this works because I'm only in college and haven't really dealt with lenders and such. What is going on with this crisis? How did it begin? Why is Kentucky not being affected as much?
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Old 04-30-2008, 11:42 AM
 
Location: Louisville KY Metro area
4,824 posts, read 12,478,331 times
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I will try to give you my two cents. First of all, without any doubt, much of the rhetoric is politics and media hype. Democrats want any spinnable subject they can find to help dislodge the Republicans even though they are as equally responsible. Republicans want any spinnable subject they can find to help defeat the Democrats even though they are as equally responsible.

That being said, the primary actions that caused the crisis can be focused on the mortgage industry's attitude of "if the buyer is breathing, they can get a home loan without risk."

Good lending practice says that a buyer has to have some "skin" in the game. 100% or greater loans are fine so long as the market is advancing, but any hiccup as we have recently had and being upside down doesn't mean too much, so why fight, just get foreclosed and we'll move on.

Realtors, appraisers, and homeowners all benefited from these loose policies. Now, with the slow down, they are hurting.

In reality, it's just a cycle. I saw it in 1979, 1991, and again now.
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Old 04-30-2008, 12:03 PM
 
Location: New Albany, Indiana (Greater Louisville)
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All of America's economic problems now are from people spending more than they earn in income. People need to simply live within their means.
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Old 04-30-2008, 12:12 PM
 
Location: Rural Central Texas
3,581 posts, read 9,002,297 times
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To add onto what Tomocox said....

The reason it is being called a subprime crisis is that a larger portion of the mortgages made recently are to subprime rated borrowers. With the weakening dollar, interest rates are rising and causing the Adjustible Rate Mortgages (ARMS) to raise their interest rates. This is resulting in higher payments on these ARMS and thus triggering a small increase in defaults in ARM mortgages.

Nothing scary or abnormal in this scenario, except that a disproportionate percentage of subprime borrowers are in ARM mortgages due to the lower entry payment availability. If the percentage of ARMs were equal among all borrowers, then all borrowers would be equally affected by the default rate. But more subprime borrowers have ARMS than any other type of mortgage so this means that subprime borrowers default than nonprime.

This statistic has become the hype the politicians are touting and basing the crisis upon. It is okay for financially stable folks to default due to the dollar as that is just bad luck, but it is the party in power's fault if poor people face the same issue because it is "the job of government" to protect people from everything.

Tomocox is absolutely correct in that much of the problem is a cyclical market price adjustment. If an area has been hot and prices have risen quickly, then that area is more at risk for adjustment than an area that has not seen dramatic price increases.

I am not familiar with Kentucky's price trends, but I think it might be safe to assume it has not seen the fast growth of California and the Northeast and thus less affected by the recent price adjustments.
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Old 04-30-2008, 12:43 PM
 
Location: Louisville KY Metro area
4,824 posts, read 12,478,331 times
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Quote:
Originally Posted by johnrex62 View Post
To add onto what Tomocox said....

I am not familiar with Kentucky's price trends, but I think it might be safe to assume it has not seen the fast growth of California and the Northeast and thus less affected by the recent price adjustments.
You are dead-on with every point. We have the greatest economic system the world has ever known. Just leave the government out of it and gas prices will go down, and interest rates will fluctuate. We all live better when the market sets prices for everything rather than governmental interference. Yes, with the free market there are hills and valley's, but guess what, we are free to buy or not.
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Old 04-30-2008, 01:02 PM
 
Location: Kentucky
6,749 posts, read 19,553,882 times
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Quote:
Originally Posted by censusdata View Post
All of America's economic problems now are from people spending more than they earn in income. People need to simply live within their means.
Absolutely! My mother is a great example of this. If she were to lose her job tomorrow and have to work at McDonald's, she could still pay her bills.
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Old 04-30-2008, 02:42 PM
 
Location: New Albany, Indiana (Greater Louisville)
9,583 posts, read 20,459,831 times
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Quote:
Originally Posted by tomocox View Post
You are dead-on with every point. We have the greatest economic system the world has ever known. Just leave the government out of it and gas prices will go down, and interest rates will fluctuate. We all live better when the market sets prices for everything rather than governmental interference. Yes, with the free market there are hills and valley's, but guess what, we are free to buy or not.
The ONE role government should have in a free market economy is to break up and prevent monopolies from creating a 'free market communism'. Today a huge amount a most businesses is handled by only a handful of companies.

Here in Louisville there is only ONE cable company that can raise rates as high as it wants and then spends millions in advertising saying what a great company they are. That is NOT the free market I read about in a business class text book.

It doesn't matter if the government bails out all home owners today if everyone starts living out their means again tomorrow. The current US system of 'make $1, spend $1.50' simply isn't doable.
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Old 04-30-2008, 05:22 PM
 
Location: Far Western KY
1,833 posts, read 5,752,426 times
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If something is working get the government involved and it's bound to screw up.

Simple facts are the sub-prime market problems not the government (i.e. taxpayers) problem. If you do not read the fine print of your mortgage then I fail to see how that is my problem and I need to bail you out. You have to many people not just trying to keep up with the Joneses, but surpass them. Again if you live beyond your means I don't see bankruptcy as an option as all that does is pass the cost of your poor money management on to me, and I take exception to that.
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Old 04-30-2008, 06:16 PM
 
Location: KY
285 posts, read 792,194 times
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OK I'm in a state that is foreclosing like crazy. What I see from people I know being effected by this is lenders lending money with assumptions that the market would stay viable. Also lenders are lending money to people who have financial troubles and they really didn't keep tight criteria to lend. So any little glitch is putting people in a state they can't pay their mortgage now is so undervalued they can't get a new non ARM mortgage. But the mortgage companies were making hand over fist so lets just blame the working public that got supplied a risky loan. It is at best A MESS. My house last year was valued at $235,000 (paid $125,000) today it is running about $165,000 to $180,000 and thank goodness I had to sell my home before this mess came about.
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Old 04-30-2008, 07:03 PM
 
1,712 posts, read 5,340,133 times
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Kentucky never had the run-up so we don't have the fall-off and foreclosures. A mixed blessing, but a blessing all the same.
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