mortgage meltdown

[Mathguy]

Originally Posted by deuterdu

They have made more than they will lose. This is part of the illusion and the media got suckered into reporting it that way. Take all of their earnings since 9-11-2001 subtract their losses at the end of this subprime "meltdown" and they have still made nice average annual returns and they knew it going into it. They consider this years in advance just likje the insurance companies. Just like the neg am loans. They show the full payment on their books as profit to boost their share prices even though it is negatively amortizing. Brilliant!

Link? I'm open to learning something new.

Also, why should the starting point be 9-11-2001?
Why not a 1, 3, 5 or 10 year horizon.
(Not that there is "a" right answer but I'd like to hear your rationalization)

[Mathguy]

Originally Posted by UseJeff

Mortgage backed securities...2ndary market... it's not just mortgage companies that have been hurt. The trouble most mortgage companies got into was when the 2ndary market lost faith in Sub Prime loans and pulled the plug. This left a ton of companies with loans on their books they couldn't sell. Their creditors exercise a margin call on their credit and they are toast.

There's a ton of investors who are not mortgage companies who got drilled on Sub Prime loan foreclosures. What's worse, there's a HUGE amount of loans that will go adjustable in October. Expect to see lots of foreclosures at the beginning of next year... It will be some time before we stabilize the way things are going.

Excellent post.

Investors that got into CMO's.....well that's buyer beware. I heard lots of talk about how "you need to invest in CMO's blah blah blah" replace CMO's with Internet Stocks, Silver, Gold, Beanie Babies ;-). Same schtick, different year.

Everyone knew that the loan market had gotten loose as heck....there were harbingers of this in Greentree with their long term mobile home loan business...this is no surprise.

[findingmesomeday]

If you add even $25 to your monthly mortgage payment and specify that it go to principle, you will cut your total payments by some pretty large amount--I don't exactly know what.

The banks get their interest back up front so your first years' payments are applied first to interest then to principle. In one year, you might pay less than just a few hundred towards principle. That's why including a bit extra each month and specifying it go towards principle, will get you to payoff quicker.

[UseJeff]

Adding $25 to principal every month on a $200,000 30 year fixed loan at 6.75% will drop your term to 28.27 years. Although, if you're not maxing out your IRA (or something similar) you're way better off investing it there. The tax write off from the IRA, and the mortgage interest could be re-invested in the following year to your IRA as well.