Time to stop blaming the housing mess on the interest rate increase!

[scooterbug44]

The problem isn't the rates on ARMs, it's that they loaned money to people who couldn't afford the loans to begin with!

Subprime loans defaulting even before resets

It turns out that massive interest rate spikes aren't the problem -- many borrowers couldn't afford these mortgages even at the low, introductory interest rates.

By Les Christie
February 20 2008


NEW YORK (CNNMoney.com) -- For months, we've fretted about the Armageddon that will hit when subprime adjustable rate mortgages start resetting to much higher interest rates.

What's happening is even worse: Many of these loans are defaulting well before their rates increase.

Defaults for subprime loans issued in 2007 - none of which have reset yet - hit 11.2 percent in November. That represents perhaps 300,000 households, and is twice the default rate that 2006 loans had 10 months after being issued, according to Friedman, Billings Ramsey analyst Michael Youngblood.

Defaults are spiking well before resets come into play thanks to the lax lending environment of the past few years. Many borrowers were approved for mortgages that they had little chance of affording, even at the low-interest teaser rates.

full article: http://money.cnn.com/2008/02/20/real_estate/loans_failing_pre_resets/index.htm?postversion=2008022010

[SHELLY]

Commissions.


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[Mango]

I'm convinced the writers of these mortgage articles at CNN are the faux news reporter equivalents. Have you seen their other articles? How to get the best jumbo rate is one of my personal favorites. :blink:

This part is absolutely brillant.............:roll:
"Defaults for subprime loans issued in 2007 - none of which have reset yet - hit 11.2 percent in November. That represents perhaps 300,000 households, and istwice the default rate that 2006 loans had 10 months after being issued, according to Friedman, Billings Ramsey analyst Michael Youngblood."

We all know that most subprime borrowers couldn't afford these loans to start off with. This is nothing new. But to make it sound like that's the reason loans written in 2007 (which BTW, I stricter u/wing guidelines came into play as well strings of subprimate shops closing) is not logical.
Economic conditions are playing a huge role in this. Even though these Borrowers may not be the sharpest crayons in the box, they can see the writing on the wall, taking their mattress money or what little savings they have, moving it elsewhere, and walking now. It's the herd mentality.

[SHELLY]

Even though these Borrowers may not be the sharpest crayons in the box, they can see the writing on the wall, taking their mattress money or what little savings they have, moving it elsewhere, and walking now. It's the herd mentality.

They also know that the "tax break" for the forgiven portion of the loan from a foreclosure/short sale runs out in 2009. Why should they sit tight and continue feeding a depreciating beast when they can walk alway now with their savings intact and a tax-free forgiven loan. The government is providing incentives for people to foreclose sooner rather than later.


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[Mango]

They also know that the "tax break" for the forgiven portion of the loan from a foreclosure/short sale runs out in 2009. Why should they sit tight and continue feeding a depreciating beast when they can walk alway now with their savings intact and a tax-free forgiven loan. The government is providing incentives for people to foreclose sooner rather than later..

Exactly. Including all this in the article would have been more accurate reporting and shown some intellect.

[SHELLY]

Exactly. Including all this in the article would have been more accurate reporting and shown some intellect.

And who should we blame for this?

------------------------------------------

This house was a steal

The new buyers of a rundown graystone on the South Side showed up Jan. 9 to look at the house they won at a foreclosure auction. They took the plywood off the front door and went inside to make sure the utilities had been shut off. Then they called the police.

Sitting upright in the corner of a bedroom off the kitchen was a human skeleton in a red tracksuit. Next to him lay a dead dog. Neighbors told police the corpse was almost certainly Randy Johnson, a middle-age man who lived alone in the North Kenwood house.

The cause of Johnson's death has not yet been determined, but it is just one of the mysteries about 4578 S. Oakenwald Ave. Somehow, Johnson's house was transferred three times to new owners without anyone noticing he was inside. It's a story involving forged deeds, a corrupt title company and a South Side family that has been under investigation for mortgage fraud.

Left holding the bag is Countrywide Home Loans, the nation's largest mortgage lender and a company whose practices are being scrutinized by the Illinois attorney general's office. Countrywide made mortgages of $450,000 on the property. Now it is likely to lose it all because it financed the sale of a home whose rightful owner was in no condition to sell. .............

http://www.chicagotribune.com/business/chi-sun_fraud_0224feb24,0,3601248,full.story

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[Margarita]

Blame seems to me to go to greedy mortgage companies that clearly knew what they were doing and greedy buyers who clearly didn't know what they were doing.

[Yellow Hammer]

It turns out that massive interest rate spikes aren't the problem -- many borrowers couldn't afford these mortgages even at the low, introductory interest rates.


Other news stories.......the sun is hot and water is wet.

The only encouraging news I can find is that economists are almost all in agreement that we are approaching a recession, and usually that means that we are in the middle of one so, the end is that much closer.

[spinDrAtl]

No one ever seems to mention that a lot of times these idiot borrowers COULD afford their mortgages when they got them, but then proceeded to go out and buy a new car with a $600 monthly payment, then maybe even a 2nd car after that, because the auto companies will make loans to just about anybody, due to the fact that it's fairly easy to take a car back if the borrower doesn't pay.

However, when times get tough, the idiot borrowers would rather have their sweet ride than pay their mortgage. I don't know how many times I've seen a borrower with large past due balances on their mortgage but those suv payments are right on time.

[Here4Good]

Left holding the bag is Countrywide Home Loans, the nation's largest mortgage lender and a company whose practices are being scrutinized by the Illinois attorney general's office. Countrywide made mortgages of $450,000 on the property. Now it is likely to lose it all because it financed the sale of a home whose rightful owner was in no condition to sell. .............

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Sounds like they had some thorough appraisals on the property, and the title work was top-notch!

[SHELLY]

No one ever seems to mention that a lot of times these idiot borrowers COULD afford their mortgages when they got them, but then proceeded to go out and buy a new car with a $600 monthly payment, then maybe even a 2nd car after that, because the auto companies will make loans to just about anybody, due to the fact that it's fairly easy to take a car back if the borrower doesn't pay.

However, when times get tough, the idiot borrowers would rather have their sweet ride than pay their mortgage. I don't know how many times I've seen a borrower with large past due balances on their mortgage but those suv payments are right on time.


....but...now they're discovering that these car loans (that were packaged up like mortgages and sold) are going bust as well. While it is true the car, like the home, can be repossessed--the car loan, like the home loan, is also way, way underwater.

Remember when the automobile dealerships were advertising "Do you still owe money on your old car--no problem, we can help you with that!" What they did was roll the unpaid portion of the loan on the old car into the loan for the new car. So the $7,000 the owner owed on the 2003 Honda Civic was rolled into the new loan for the $32,000 2005 Dodge Durango (with leather interior and side stripe). The $39,000 loan was then packaged up with others and sold off to the Teacher's Union Pension Fund.

Now the Durango owner has stopped payment on a $39,000 loan for a truck that is worth (if they're lucky) about $15K. It doesn't make a heck of a lot of sense to keep paying for that loan--better to give the keys to the repo guys and go out and buy a beater, or a $15K used Durango. :idontno:


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[Mango]

Shelly, giving back the keys on the Durango would be the logical solution, but that is not what happens in the real world. Spin is right. I've seen enough credit reports in 20 years to know what he says to be fact and a trend. These behaviours never change with that type of Borrower. They will keep making those car payments and they will find a way to get the latest and greatest rides and tech toys. You won't find many lates on the car payments and the cell phones, but the mortgage and their child support payments will be behind.

[kathydwells]

I am sooooooo thankful that I am not "House and Car poor". I have made some bad decisions in my life, but I never felt the need to have the bestest, biggest, most expensive house or vehicle. I am really, really thankful for that. When I keep reading all this stuff about the mess these people have gotten themselves into....I keep saying to myself "what were they thinking?". :shock:

[SHELLY]

Shelly, giving back the keys on the Durango would be the logical solution, but that is not what happens in the real world. Spin is right. I've seen enough credit reports in 20 years to know what he says to be fact and a trend. These behaviours never change with that type of Borrower. They will keep making those car payments and they will find a way to get the latest and greatest rides and tech toys. You won't find many lates on the car payments and the cell phones, but the mortgage and their child support payments will be behind.

...Ah-so--but we've never seen credit dry up and blow away like this before either--it's just a matter of time before they come to take away all the toys--and/or write off the loans.




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[SHELLY]

....I keep saying to myself "what were they thinking?". :shock:

If they were "thinking" at all it would be--"Golly, I can't believe these morons would lend money to a worthless moron like me!"


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[Mango]

When I keep reading all this stuff about the mess these people have gotten themselves into....I keep saying to myself "what were they thinking?". :shock:

It became a mass psychology of me, me, look what I can have now that was only available to some before. Credit used to be what high net worth people were offered, but didn't really need. Gradually mortgage loan programs expanded more, then post 9/11 the Feds start dropping rates like bird droppings, 0% on credit cards, low rates on car loans, and furnishings, expand loan programs even more now too. Qualify an adjustable rate mortgage at the start rate vs. the way it was qualified before with the index and margin, fix up your house, buy pools, your house is a credit card also so get an equity line. People who didn't have access before to all this credit before but felt "entitled" to it suddenly had get out jail free cards. No, they weren't thinking, they were swept up in it without thinking about the consequences of tomorrow.

[spinDrAtl]

I realize that packaged car loans may be a problem, but my point is that the blame on many of these foreclosures, barring fraud, job loss, illness, lies on the borrowers.

Typical scenario:
Borrower: I want to refinance my home, I can't afford the payments anymore.
Loan Officer: How is your credit? Do you know your score?
Borrower: It's good, I'm sure. I got a new car loan a few months ago, no problem.

Loan Officer pulls credit, which shows a mortgage taken out in 2004 that now has a 60 day late on it and a past due balance of 2 full payments. There is a $450 car payment that began in 2006. There is another car payment of around $550 taken out 4 months earlier. Credit score is around 540.

[SHELLY]

I realize that packaged car loans may be a problem, but my point is that the blame on many of these foreclosures, barring fraud, job loss, illness, lies on the borrowers.

Typical scenario:
Borrower: I want to refinance my home, I can't afford the payments anymore.
Loan Officer: How is your credit? Do you know your score?
Borrower: It's good, I'm sure. I got a new car loan a few months ago, no problem.

Loan Officer pulls credit, which shows a mortgage taken out in 2004 that now has a 60 day late on it and a past due balance of 2 full payments. There is a $450 car payment that began in 2006. There is another car payment of around $550 taken out 4 months earlier. Credit score is around 540.

You forgot to finish the story:

.....Loan Officer pulls credit, which shows a mortgage taken out in 2004 that now has a 60 day late on it and a past due balance of 2 full payments. There is a $450 car payment that began in 2006. There is another car payment of around $550 taken out 4 months earlier. Credit score is around 540.

Loan Officer: Congratulations, sign here, here, here and here, initial here and here....here's your check.

(Afterall, how else did these "deadbeats" get their hands on the money in the first place?)


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[spinDrAtl]

You forgot to finish the story:

.....Loan Officer pulls credit, which shows a mortgage taken out in 2004 that now has a 60 day late on it and a past due balance of 2 full payments. There is a $450 car payment that began in 2006. There is another car payment of around $550 taken out 4 months earlier. Credit score is around 540.

Loan Officer: Congratulations, sign here, here, here and here, initial here and here....here's your check.

(Afterall, how else did these "deadbeats" get their hands on the money in the first place?)


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Typical know-it-all response that has nothing to do with what I said. These 'deadbeats' are making their own decisions on what to buy and how far to extend themselves with consumer goods purchases. Just because someone says 'Sure, you can have this $30,000 truck for $600 a month' doesn't mean they have to buy it.

This scenario is what's happening now based on borrower's irresponsible behavior and decision making. Borrower gets a loan they can afford while their credit is good. They bought a house they could afford monthly payment wise but never gave a thought to keeping their current furnishings. They buy new furniture with 24 month no interest financing. Then they try to keep up with Jones's across the street because they have the 'I want it now' attitude with flashy vehicles and plasma tv's. Then they discover that those suv's have put a burden on them. However, foreclosure takes many months so they keep paying for the sweet rides that the neighbors see driving up every day while not paying their mortgage.

Here is the real finish of the story:

Loan Officer: "Sorry, I can't help you at this point unless you get your mortgage caught up and your credit score up. Did you ever think of selling one of those cars in order to save your house?".

Personal responsibility is a real b*tch.

[SHELLY]

Just because someone says 'Sure, you can have this $30,000 truck for $600 a month' doesn't mean they have to buy it.


....but if a fat commission check rests on the $30,000, getting the response "Great! Where do I sign?" it is like manna from heaven. Everyone wins and the transaction couldn't have happened without participation of BOTH parties.

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[spinDrAtl]

....but if a fat commission check rests on the $30,000, getting the response "Great! Where do I sign?" it is like manna from heaven. Everyone wins and the transaction couldn't have happened without participation of BOTH parties.

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Again, personal responsibility lies with the buyer. A car dealership is in the business to sell cars. As long as the customer's credit meets the qualifications and there is no fraud involved, the dealer should not be in the business of policing how a person spends their money. What do you want, a nanny state?

[Pirate]

Again, personal responsibility lies with the buyer. A car dealership is in the business to sell cars. As long as the customer's credit meets the qualifications and there is no fraud involved, the dealer should not be in the business of policing how a person spends their money. What do you want, a nanny state?

Hillaryville.

[scooterbug44]

Again, personal responsibility lies with the buyer. A car dealership is in the business to sell cars. As long as the customer's credit meets the qualifications and there is no fraud involved, the dealer should not be in the business of policing how a person spends their money. What do you want, a nanny state?

There will always be people who are idiots about their money, my issue is with the people who KNOWINGLY loan money to people when they know they are a bad credit risk and without verifying their income etc.

Better qualification standards and checking data would have prevented most of the current mess!

[SHELLY]

Again, personal responsibility lies with the buyer. A car dealership is in the business to sell cars. As long as the customer's credit meets the qualifications and there is no fraud involved, the dealer should not be in the business of policing how a person spends their money. What do you want, a nanny state?

Spin,

Would we be in a different situation if the money that brokers lent was their own?

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[spinDrAtl]

Spin,

Would we be in a different situation if the money that brokers lent was their own?

.

Hard to tell. If someone is lending their money, only that person/company can assess the risk.

You seem to imply that brokers make the decisions to lend money. Brokers do not lend money or make lending decisions. Brokers submit loan applications/packages to wholesale lenders. The decision to lend or not lend lies solely with the lender's underwriter. These wholesale lenders do not want to deal directly with end customers, just like wholesalers of any other product.

Outside of fraud by the broker on the application package or fraud by an appraiser, etc (which I know happens), the lenders decisions are based on their own lending guidelines, which differ from lender to lender and change frequently.

[SHELLY]

Hard to tell. If someone is lending their money, only that person/company can assess the risk.

You seem to imply that brokers make the decisions to lend money. Brokers do not lend money or make lending decisions. Brokers submit loan applications/packages to wholesale lenders. The decision to lend or not lend lies solely with the lender's underwriter. These wholesale lenders do not want to deal directly with end customers, just like wholesalers of any other product.



So essentially mortgage brokers are highly compensated secretaries; no value-added, no responsibilities to the client. Just the kind of job that can be suitably substituted in the way that travel agents were replaced with Travelocity and cashiers were replaced with self-checkout counters.

[spinDrAtl]

So essentially mortgage brokers are highly compensated secretaries; no value-added, no responsibilities to the client. Just the kind of job that can be suitably substituted in the way that travel agents were replaced with Travelocity and cashiers were replaced with self-checkout counters.

This sounds like an answer straight out of your hero Dubya's mouth. Either you are ignorant or trying to put your own version of the truth out there.

[Mango]

:lol:
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:popcorn:

[SHELLY]

This sounds like an answer straight out of your hero Dubya's mouth. Either you are ignorant or trying to put your own version of the truth out there.

So what are the "responsibilities" of a broker?

To collect and verify employment information from the borrower.
To collect and verify income information from the borrower.
To ensure the home is appraised.
To prepare and submit the loan package to the underwriter.

You stated, "Brokers do not lend money or make lending decisions. Brokers submit loan applications/packages to wholesale lenders."

Is it fair to say that the underwriters should assume that the loan package was a true and honest representation of the applicant's financial standing--isn't that what they pay the broker to do? (Not to mention offering juicy increases in YPS for upselling to lenders.)

I'm not saying that "Jose the Strawberry Picker" isn't guilty when he claims to be an Executive VP with Smuckers...but one simple phone call by the broker would have found out otherwise. :idontno: (Granted it wouldn't be profitable, but that's not what we're talking about here.)

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[Chip and Dale]

The Subprime Primer:

http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1