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Do you understand that, yes, the government DOES have to get involved or else a major part of that local economy literally goes down the tube? It happens, and the governments know it can happen in their county/town/state, so yes they HAVE TO get involved for the greater economic good, else they/their party/etc will be pinned with the negative outcome. The multiplier effect also pertains to an economic or credit contraction, you know. Check it out.
In the aftermath of the Great Depression in America, it is a tacit political bargain with the People that the Government is charged with ACTIVELY managing the economy. Who's going to rewrite that history?
The government is not in the business of bailing out private investors (which homeowner's are in this case) and bailing out private companies....
Now I realize the government can help with interest rate adjustments and raising the cap on FHA loans and such.
That is within their power and not really what I have a problem with. We have an economic glut that is in need of a serious correction. Let the correction happen and the government should do what is allotted to them to soften it, but that does NOT include the bailing out of private companies or resetting of terms on signed loans and documents...
There ARE a LOT of people waiting to buy houses, but are waiting for a more complete correction before they jump in. Artificially propping up home prices isn't going to help that.
I refinanced five years ago. At that time I was told by eh bank that my income and credit rating would allow me to finance over 300k on a house instead of my condo. I said, “Gee wiz, I didn’t think I was that rich.” Actually, I thought it was a sucker trap. I was right so I just refinanced with a less than 5% fixed rate short-term mortgage.
If I had been foolish enough to believe that the 450 k house I could have bought would have gone to 600 k in a couple of years I might have bitten. The historic trend for the previous five years had been a nearly doubling of price. I did not bite because I recognize a speculative bubble when I see one. I think anybody could have recognized this.
When bubbles begin to break there is a mad rush to get out first. The big financiers have already done so by shorting the REIT market. They aren’t stupid. Now the most recent investors in what was a disguised pyramid scheme are getting what amounts to margin calls. So many have to cover their margin by selling out that the prices have collapsed to below the loaned amount. In that situation the investor just hands the property to the lender and walks away. The unfortunate part of this situation is that, unlike a margin call on stocks, people were living in the houses. Damn.
IMHO the housing/building/mortgage market will collapse no matter what the Fed or anyone else tries to do to save it.. It was far too overextended to continue. It should collapse. As the rest of the debt ridden consumer economy spirals down after the housing collapse we may just realize that a credit driven consumer economy is not such a great idea and we can get back to being the world’s industrial supplier and not the world’s policeman. It is beyond time to get our own house in order instead of protecting the international financiers, oil producers and other international thieves.
VA Fury - thanks for noticing. I am a fiscal conservative, an isolationist, a social liberal and a Constitutionalist.
I am a social liberal that really believes in “Liberty and Justice for ALL”. I believe that this Liberty and Justice is better enhanced and protected under a socialist economic system as typified by the Scandinavian countries than by a corporate kleptocracy as typified by ours.
There needs to be MUCH more regulation in the mortgage industry...not to protect people from themselves, but to protect responsible borrowers from the fallout of predatory lending practices and irresponsible borrowers.
Um.. its MY job to read the disclosure statements on documents that I am signing. If I dont.. the BANK is to blame?
Um, I wan't referring to loan disclosure documents.
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Originally Posted by pghquest
9%, you've never seen anyone pay 9% for a mortgage? I've seen people finance homes at 18%, yes, they dont own them anymore.. I wonder why.
Well, neither of us has seen any such thing since the 1980's. And while those people might not own those same mortgages anymore, there is no a priori reason why they should not own the same homes.
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Originally Posted by pghquest
As for the 2%, the federal reserve rate has gone as low as 1% in the past.
The federal funds rate is the rate which member banks charge each other on usually overnight loans of funds on deposit at the Fed in order to cover their close-of-business reserve requirements.
Your theory seems to be that because mortgage interest rates were at 9% as recently as the 1980's and the federal funds rate was in the vicinity of 1% between mid-2003 and mid-2004, there was some opportunity for mortgage lenders to borrow hundreds of billions of dollars from the government at a 7% favorable spread or better. This theory does not reach the first rung on the ladder.
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Originally Posted by pghquest
The fed does not influence the market, they directly control it. The Federal Reserve Board quarterly reviews the rate that they will charge to loan money to bank overnight.
The Board meets monthly. It may or may not set a new target range for the federal funds rate, the rate that member banks charge each other for typically overnight loans of federal funds. Again, federal funds are those that member banks must have on deposit as reserves. The Fed is not a party to these loans. The actual rate is negotiated between the lending and borrowing banks. You appear to have no actual understanding of this process at all. You seriously need to look further into the matter.
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Originally Posted by pghquest
Your confusing issues. There is a huge difference at the rate that banks borrow money at, and the rate they loan money at. There should be.. Banks should be profitable.
There is certainly a difference between the rates that banks pay depositors and the rates they charge borrowers. It isn't huge, and it doesn't involve any of the factors you have mentioned.
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Originally Posted by pghquest
I'm not quite sure what your issue is, are you stating that the consumers who lied on their application about their income hold no blame?
Lenders take six weeks or so to verify the financial information included in the borrower's application. The confirmed status of an applicant is then tested against the lender's underwriting standards. Not even a trace proportion of people facing foreclosure are in that situation because they lied about their income on a mortgage application.
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Originally Posted by pghquest
Or are you stating that the consumers who read that their interest rates will go up in a year, never understood that their interest rates would go up in a year?
Lenders are required to disclose the terms of their loans at settlement, and do, even if one has chosen to forego the expense of retaining a settlement attorney. As this very thread continues to demonstrate, however, it is almost impossible to underestimate the financial savvy of consumers. Not so with lenders. Lenders knew what resets were and how they worked, and they knew that the interest rate increases that would trigger them were already beyond being on the horizon. But the lenders job is to lend. It would be the regulator's job to sound a warning. But things are so deregulated that there isn't a responsible regulator and there isn't in any case the needed transparency in disclosure reporting. I will say again that what you are seeing today is the natural result of a free market philosophy that believes in simply loosing the unbridled hounds of American ingenuity and nothing else.
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Originally Posted by pghquest
We all know that given a chance, the banks will increase interest rates the minute they can, A consumer would be foolish to bet their life on buying a home under the guise that the banks will not raise interest rates out the the kindness of their hearts.
This may come as a shock, but banks are prohibited under contract law from altering the terms of an existing mortage contract. Adjustable-rate contracts are adjusted based on rates determined at the world and national levels. Individual banks have no influence over these.
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Originally Posted by pghquest
A home mortgage lasts 30 years on the average and if your betting that interest rates wont go up for 30 years, you'll lose everytime. 30 years is a VERY long time to be gambling on ones home.
The average mortgage is a fixed-rate mortgage. You don't care if interest rates go up. You wait to see if they go down by a point or more, in which case you look into refinancing. The typical ARM will have a variety of caps designed to protect a borrower from precipitous interest rate increases. What they don't protect against is resets and markets driven in signifcant part by mass hysteria that turn the otherwise reasonable options of refinancing or simply selling into events of personal financial destruction. In many circumstances, ARM's are a perfectly sensible option. In many other countries, ARM's are the only mortgage vehicle that is commonly available. To suggest that those who fiananced via an ARM are somehow morally weak and deserve whatever punishment comes their way is regretably just another example of the selfishness and calculated mean-spiritedness that has unfortunately come to typify the modern right-wing.
Last edited by saganista; 12-14-2007 at 08:06 AM..
Reason: Spelling, typo's, the usual...
My question is, what about the lenders and the investors who made the money available?
Uhh, they're losing billions. I think that's motivation enough for them not to do this again.
Quote:
Do they bear any responsibility for lowering their underwriting standards to the point where, if you could fog a mirror, you qualify? Many of these loans were not sold to FNMA/FHLMC/GNMA - many of these loans were sold to private secondary markets
Who says they aren't? The secondary mortgage market is not federally backed, that's why they can have lower standards. We're not talking about food here, where people could die from contaminated meat.
The secondary mortgage market is akin to you loaning money your neighbor to buy a house. You can put almost any terms you want into that mortgage. You don't have to run a credit check. You don't have to verify income. You can even have a LTV of over 100% if you so choose. If your neighbor defaults, your only option is to foreclose. If that was a bad investment, it's your fault.
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It was this type of market - the subprime market - not the conforming market, that fueled the upswing -
What about looking to the lenders for some responsibility
Why always look to the government?
The Federal reserve is the only part of the government that is responsible (keeping interest rates so low, for so long). Lenders are bearing responsibility in the form of billions in losses.
There is certainly a difference between the rates that banks pay depositors and the rates they charge borrowers. It isn't huge, and it doesn't involve any of the factors you have mentioned.
Yeah, this margin is usually in the 2% range and varies depending on the borrowers credit rating.
Quote:
Lenders take six weeks or so to verify the financial information included in the borrower's application. The confirmed status of an applicant is then tested against the lender's underwriting standards. Not even a trace proportion of people facing foreclosure are in that situation because they lied about their income on a mortgage application.
You have heard of no-doc mortgages, haven't you?
Quote:
Lenders are required to disclose the terms of their loans at settlement, and do, even if one has chosen to forego the expense of retaining a settlement attorney. As this very thread continues to demonstrate, however, it is almost impossible to underestimate the financial savvy of consumers. Not so with lenders. Lenders knew what resets were and how they worked, and they knew that the interest rate increases that would trigger them were already beyond being on the horizon. But the lenders job is to lend. It would be the regulator's job to sound a warning. But things are so deregulated that there isn't a responsible regulator and there isn't in any case the needed transparency in disclosure reporting. I will say again that what you are seeing today is the natural result of a free market philosophy that believes in simply loosing the unbridled hounds of American ingenuity and nothing else.
Oooh, an anti-capitalism rant!
This secondary mortgage market was created for investors. (Smart) investors typically do their homework. The families that took loans using this vehicle did so because they would have NEVER QUALIFIED FOR AN A-PAPER LOAN! They simply took part in something they were not prepared to handle.
Perhaps there should be two (or more) tiers of federally backed loans? That much I can understand. If anyone thinks that ALL mortgages should be regulated like the primary market, you need to rethink that. There needs to be a highly liquid mortgage market to aid investors. Without this, investment will suffer.
Writedowns are money that disappeared from YOUR wallet, the money however is in someone elses wallet as you paid them for whatever it is your writing down..(in this instance, property)
Read a book. To oversimplify, what people are writing down in this case is the value of mortgage- and other asset-backed securities (ABS's). These securities evidence a payment stream to be generated from the proceeds of the bundled mortgages (or other assets) that underlie them. When borrowers begin defaulting on those mortgages, there are no (or sharply reduced) proceeds from which the payment stream can be generated. The value of the ABS therefore either declines or vanishes. There is no offset. The value simply disappears. The money originally invested by the ABS holder went to an intermediary bundler as his recovery for the cost of purchasing and then packaging the original mortgages from lenders. The money paid by the intermediary to the lenders in order to acquire the mortgages to begin with is what created the liquidity from which the lenders themselves were able to make new loans.
My question is, what about the lenders and the investors who made the money available?
Do they bear any responsibility for lowering their underwriting standards to the point where, if you could fog a mirror, you qualify? Many of these loans were not sold to FNMA/FHLMC/GNMA - many of these loans were sold to private secondary markets
It was this type of market - the subprime market - not the conforming market, that fueled the upswing -
What about looking to the lenders for some responsibility
Why always look to the government?
The way it appears, the right states yes.. I hold the banks 100% liable, and the banks should forclose, and then lose money on the backend when they sell at a loss.
The Democrats want to bail out these homeowners, which in fact, is a bailout for the banks.
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