Mortage Bailout

[Galaxy]

What does everyone think of the bailout plan? Is it a plan that will reward financially irresponsible people and give them a free pass, or is just a plan to allow them to lock in at current rates?

[Warhammer]

I think the mortgage bailout is really going to hurt the country in the long run. We need to realize that sometimes painful things need to happen to keep the economy from really falling a part. Cyclical recessions are part of that, as is a stock market correction.

I think my problem with the mortgage bailout is that many of the mortgage companies are reaping what they have sown right now. The problem is that the mortgage industry is pretty heavily leveraged right now and that could have a cascading effect through the economy, but is that necessarily a bad thing? If the mortgage companies get bailed out, what is to keep them from resuming the same practices that got them into this boat?

[CraigSca]

I really don't get this. Bush's plan torques me off, but Hillary's plan is over the top.

Ok - so....you can BARELY afford a house with an ARM. Then, you're surprised the rates go UP and now you can't afford it?! And....taxpayer $$$ is there to save the day?! Cool, I'm more than happy to pay for the mortgage you couldn't afford, bonehead.

If I had known I could have saved $$$ by getting an adjustable rate and then NOT have to pay the piper when the rate goes up, heck, I would have gone for that. I guess I never saw the fine print saying that an adjustable and a fixed rate were the exact same thing.

Who knows - maybe in the long run a massive bail out will pay for itself vs. the consequences of not doing so. In the meantime, this doesn't seem uh....equitable.

[Glengoyne]

Color me as against this. If people overextend themselves essentially inflating the market value of homes to unsustainable levels, we should expect a correction. With the way the local market exploded, I can't really see anyone claiming ignorance of that fact. Houses doubled in value twice in a three year period. If you bought in at the top of that market, I don't think you should be bailed out.

[wade moore]

In my tiny little brain I just can't fathom how this is a good thing. I won't claim to be the most educated on the subject, but we just can't continue to bail people on out - in this case in pretty large sums - because they make stupid decision.

I'm with WH, this could have potentially disastrous long-term repercussions.

[Young Drachma]

Color me as against this. If people overextend themselves essentially inflating the market value of homes to unsustainable levels, we should expect a correction. With the way the local market exploded, I can't really see anyone claiming ignorance of that fact. Houses doubled in value twice in a three year period. If you bought in at the top of that market, I don't think you should be bailed out.

+1

[panerd]

What really gets me is they act like the people were really duped. Like anyone with a 6th grade education can't understand there is something fishy about this...

"We can get you locked into this house for $1300 a month or with an adjustable mortgage for $600 a month." Hmmm I wonder if there is a catch to the second plan? Sad thing is that people like my brother in law actually fall for shit like this. (He isn't someone who is getting bailed out, but he has been bailed out by my parents several times for a-hole decisions like this)

[panerd]

Dola...

It's like picking between the attractive family woman with the heart of gold and the smokin hot blonde who likes to party. "Well someday the partier will want to settle down and have kids, right?"

[Young Drachma]

Seems to me the typical "something for nothing" situation. Coupled with the increasing sense of entitlement that more and more middle class folks seem to have in this country. The same folks who support universal health care as long as they don't have to pay for it and who want the government to make college "free".

[Flasch186]

Less foreclosures on the market for resale will help me in my career.

I know for a fact!! That some, not all lenders, not only had underwriters in their pocket but also appraisers, filled out info. for buyers or found it easier to sell them a NINA loan instead of having to go through the "hassle" of providing docs, or have a job. We're some people greedy? yes. Were some people duped? yes. We're some people taken advantage of? yes. It is disingenuous to think that the credit companies we're above board when they and Congress have admitted that the ball was dropped in regards to oversight. Do I think that speculators should lose? yes, but how do you find them without trying to help the person who falls into the duped/screwed category? Whether or not the duping or screwing occurred is undebatable. I work in one of the hot speculator markets and could spot the investors vs. the people getting screwed during the process but unfortunately am not/was not allowed to refuse a sale if someone can achieve financing. I saw it happen every week.

[miked]

It's a complete load of crap. When you are taking major risks, you sometimes get burned. So these people took major risks knowing that their rates could eventually go up, now it has and the taxpayers are footing the bill?

Lost in all this, however, is that the mortgage companies really get saved too. If the houses go into forclosure, they are going to get hosed since the property values have slid so badly. They took the same BS risk, and there's evidence they even cooked books to help people out and scuttle some of these loans. So basically tons of people played the game and lost, and now Bush is going to use more money we don't have to bail them out?? No wonder the approval rating of Bush and Congress is in the 30s.

[bob]

Not defending anyone here, but trying to find out more info. What taxpayer money is being spent here? My understanding is that ARM rates were being frozen by the lenders for up to 5 years for some people that could continue paying if their rates did not change - is the gov't paying the loan companies for the "lost" revenue? Otherwise, I don't see tax payer dollars at work.

[Flasch186]

I am telling you 20-30% of the people I dealt with didnt even understand their mortgages, the fact that there were actually 2 mortgages (one with a rate of over 10%), 4 different payment options, an appraisal 80K more than it shouldve been, and everyone involved telling them not to worry that this is great for them, not to mention commercials from companies you trust touting these programs. You act like everyone deals with mortgages every day of their lives....most of the people I think need to be helped were first time home buyers, not the investors.

[Butter]

Not defending anyone here, but trying to find out more info. What taxpayer money is being spent here? My understanding is that ARM rates were being frozen by the lenders for up to 5 years for some people that could continue paying if their rates did not change - is the gov't paying the loan companies for the "lost" revenue? Otherwise, I don't see tax payer dollars at work.

Agree with this. It seems to me like the government is just trying to appeal to the goodwill of the mortgage industry to try and help cope with the mess they helped create by freezing rates... not by taking giant government handouts to bail people out of their overextended loans. If this works, I'm all for some corporate goodwill for once. I'm not holding my breath.

[wade moore]

Less foreclosures on the market for resale will help me in my career.

I know for a fact!! That some, not all lenders, not only had underwriters in their pocket but also appraisers, filled out info. for buyers or found it easier to sell them a NINA loan instead of having to go through the "hassle" of providing docs, or have a job. We're some people greedy? yes. Were some people duped? yes. We're some people taken advantage of? yes. It is disingenuous to think that the credit companies we're above board when they and Congress have admitted that the ball was dropped in regards to oversight. Do I think that speculators should lose? yes, but how do you find them without trying to help the person who falls into the duped/screwed category? Whether or not the duping or screwing occurred is undebatable. I work in one of the hot speculator markets and could spot the investors vs. the people getting screwed during the process but unfortunately am not/was not allowed to refuse a sale if someone can achieve financing. I saw it happen every week.

The whole "duped" card just doesn't fly with me.

90% of people in this country will never make a purchase that costs more than their house. You do research when you make a purchase like that. You learn what an ARM is and you decide if you can afford it.

I'm sorry. Duping is just bullcrap.

Do I think lenders, etc. were shady, risky, etc, etc? Hell yeah. But in the end, the individuals know how much money they make, what the mortgage would cost, how it would balloon, etc. That's in the contract - it's not like the lenders put a blindfold on them.

These are poeple that were trying to get more house than they can afford and the lenders mearly facilitated a bad decision. Sure, there may be a very very very few exceptions. if they were really illegally duped, sue. If they fell on hard times - well.. that happens in a capitalistic society unfortunately.

[wade moore]

I am telling you 20-30% of the people I dealt with didnt even understand their mortgages, the fact that there were actually 2 mortgages (one with a rate of over 10%), 4 different payment options, an appraisal 80K more than it shouldve been, and everyone involved telling them not to worry that this is great for them, not to mention commercials from companies you trust touting these programs. You act like everyone deals with mortgages every day of their lives....most of the people I think need to be helped were first time home buyers, not the investors.

Again (and I know I posted this while you were writing so you didn't see it) - This is BY FAR the biggest investment these people make. It is THEIR responsibility to understand these things. If they don't, they suffer the consequences. It's not like it is even all that complicated.

Agree with this. It seems to me like the government is just trying to appeal to the goodwill of the mortgage industry to try and help cope with the mess they helped create by freezing rates... not by taking giant government handouts to bail people out of their overextended loans. If this works, I'm all for some corporate goodwill for once. I'm not holding my breath.
I don't have any idea what the proposed plans are out there. The topic said bail out so I assumed we were talking about an actual bail out.

[Butter]

I don't have any idea what the proposed plans are out there. The topic said bail out so I assumed we were talking about an actual bail out.

Yeah, I think it actually involves tax breaks for people in bad loans. If so, that is complete crap. You take risk in an investment like a house. Sometimes it fails. If you are too stupid to realize what you can afford, you shouldn't buy a house in the first place.

[bob]

I worked for a now dead mortgage company from Nov 2005 - Nov 2006 here in Atlanta. I was hired on to work on the new software application they were rolling out for loan processing, so I didn't do anything directly with customer loan, but once I saw how sleezy the entire industry really was I started looking to get out immediately. Any job in which people are paid on commission will lead to this sort of thing. Yes, consumers are ultimately responsible for their decisions, but I think a lot of people look at brokers more like financial advisers rather than sales people, and trusted some really bad advice.

[CU Tiger]

The whole "duped" card just doesn't fly with me.

90% of people in this country will never make a purchase that costs more than their house. You do research when you make a purchase like that. You learn what an ARM is and you decide if you can afford it.

I'm sorry. Duping is just bullcrap.

Do I think lenders, etc. were shady, risky, etc, etc? Hell yeah. But in the end, the individuals know how much money they make, what the mortgage would cost, how it would balloon, etc. That's in the contract - it's not like the lenders put a blindfold on them.

These are poeple that were trying to get more house than they can afford and the lenders mearly facilitated a bad decision. Sure, there may be a very very very few exceptions. if they were really illegally duped, sue. If they fell on hard times - well.. that happens in a capitalistic society unfortunately.


QFTMFT

I am sick of so many in this country not having personal responsibility.
hell no one is responsible for anything.

I WAS SCREWED, I'M NOT A LAWYER OR A BANKER

Here is some quick math sweetie you just bought a 300,000 with a monthly payment of $700 on a 30 year note. 30*12=360.....360*700=$252,000... If you are not smart enough to figure out that something is wrong with this picture YOU DESERVE TO BE BANKRUPT AND HOMELESS.

Heell I think I am going to sue someone for the "unnecessary" interest I have paid. if the lender had disclosed that the fed was going to bail my ARM out 5 years ago I would have went that way and saved money. I WANT MY MONEY BACK I AM NOT A FORTUNE TELLER WAAAAAA WAAAAAA

[CraigSca]

According to the commercials I hear on the radio, the realtor is there to help the buyer/seller through the entire process.

Let's face it, the entire industry got greedy - the banks, creditors, brokers, agents, etc.

[cartman]

Yep, that is the whole reason I went with a 30 year fixed rate when I got my mortgage back in 2004. Having a set payment for the next 360 months was a no brainer.

I can definitely see the attraction of an ARM when interest rates are high, but when they have been historically low like they have been for the past several years, were people really expecting them to stay steady or not rise at all over the life of the mortgage?

[bob]

People really expecting them to stay steady or not rise at all over the life of the mortgage?

I think a lot of people were expecting prices to continue rising, so if need be, they sell and make a quick buck. I also think people just thought "oh, I'll re-finance when I come to the end of my introductory period."

At least, that's what my friends that have bad loans thought.

[wade moore]

According to the commercials I hear on the radio, the realtor is there to help the buyer/seller through the entire process.

Let's face it, the entire industry got greedy - the banks, creditors, brokers, agents, etc.

and buyers..

Again, no doubt that there are some sleazy bastards in the industry and they deserve to rot in hell. But, like I said, you have to take personal responsibility with a purchase of something worth several times what your family makes in a year.

Yep, that is the whole reason I went with a 30 year fixed rate when I got my mortgage back in 2004. Having a set payment for the next 360 months was a no brainer.

I can definitely see the attraction of an ARM when interest rates are high, but when they have been historically low like they have been for the past several years, were people really expecting them to stay steady or not rise at all over the life of the mortgage?

I also went with a fixed rate 30 year loan in 2004. I don't think the people using an ARM thought about what interests rate would do, they thought they'd sell and make a big profit before the ARM kicked in.

[miked]

I went with fixed 30 year as well, in late 2005. I was having trouble verifying my employment because we were closing on February 27, but my job didn't start until May 1. I didn't have my official letter yet and my income was significantly less than it is now. I had the shadiest mortgage brokers telling me they could get me a no-doc loan with 3/1 or something like that, pay interest only and refinance in 3 years when my home would probably double in value (this was Atlanta, and home prices weren't even rising that much). Or worst case, I could refinance after a year or so and had a W2 to use.

Guess what, I said no. I actually used common sense and didn't want to take that risk. I shopped and shopped until I got a nice fixed rate with a major bank that used my preliminary letter. It's not that hard! If you have shitty credit and need a sub-prime loan, you probably shouldn't be buying a house anyway.

On a side note, there are lots of lawsuits against Beazer home builders and they are essentially blacklisted here in Atlanta because of their practices. Some of these suits allege the financing people at Beazer would forward false W2's to banks, or falsify information to secure loans that people couldn't afford, and convince these suckers that ARMs would save them. If you don't think you can afford a 700k new house, you can't and shouldn't be bailed out by the government.

[JPhillips]

I'm not in favor of the bailout plan as it has so many restrictions it seems like it's designed mostly to help speculators and not families who might lose their home.

However, this was caused by greed at every level, not just the home buyer. Hell, Alan Greenspan spoke about how everyone should get ARMs. Aside from the general hype there was also criminal behavior in many markets as appraisers and mortgage companies worked together to illegally inflate the value of homes.

I have a 30year fixed and wouldn't even discuss anything else, but I don't think I'm any better than a lot of people who made a choice based on the advice of their broker and/or realtor.

[Alan T]

I just bought a new home earlier this fall (My second home purchase in my life), and I still had the bank pushing Adjustable rate loans to me.. No thanks! I went with the tried and true 30 year fixed as well. Its amazing I also had to turn down several houses that were "steals" according to the broker because their price would put me a good $60-$100 a month over what I felt comfortable paying. I also find it interesting that I could get approved for a mortgage that would end up in a monthly payment of more than I make a month after taxes and child support...

All of that said, Wade I think you give some people too much credit. After talking to my boss who is purchasing a home.. he asked me what he needed to provide his insurance company for the home insurance.. I gave him a list of what i was asked. He did not know the answer to 75%+ of the questions. His response was ,"I know what color the house is..." .. I honestly think alot of people go into home purchasing without doing the research that you assume everyone does.

[Kodos]

The sad thing is they are still pushing bad but different ideas on buyers. My wife and I are closing on a house next week, and when we were working on the financing, the loan guy was trying to persuade us that we should take an interest only option for a while and get a bigger house. I told him it was crazy to be making payments that don't even touch the principle... :rolleyes:

Edit: We did the traditional 30-year fixed rate on our house as well. We did do an arm on our first house back around 2003, but we knew we were moving in 3 years or so, and sold right at the top of the market in the early summer of 2006.

[JPhillips]

Alan: That's what people have been told to do. Remember the "ownership society"? From all levels of government and business the message is buy a home. The tax code is even designed to reward mortgage payers, so an interest only loan, if you can sell later at a profit, can be a wise financial move.

People looked to their realtors and brokers as if they were doctors sworn to do no harm. A lot of people got screwed because they didn't realize the people they were dealing with were closer to used car salesmen.

[Radii]

Color me as against this. If people overextend themselves essentially inflating the market value of homes to unsustainable levels, we should expect a correction. With the way the local market exploded, I can't really see anyone claiming ignorance of that fact. Houses doubled in value twice in a three year period. If you bought in at the top of that market, I don't think you should be bailed out.


+3 or +4 by now.

The whole thing makes me pretty angry at everyone really. I called about home loans when the rates were so low a couple times, and qualified for loans that would have had me spending about 45% of my take home on a mortgage up front in an ARM that was sure to skyrocket. No way in hell should any bank have been willing to do that, but they all were.


And yeah, this is the biggest decision a person/family will ever make. Caveat Emptor. If you don't understand your mortgage or don't know what you're getting into, take the time to learn from an unbiased party. I basically have no sympathy towards anyone in the entire situation.

[knolysis]

I think another potential effect of this is the lessening of the downside of risk. A fundamental feature of our economy is the pricing of risk. Many companies make money from pricing risk and helping companies manage it (think insurers, banks, the equities markets, the commodities markets, etc.). If the government keeps stepping in and blunting the bad results of taking a high risk, it will really screw up risk pricing in our economy and we will continue to have these volatile cycles of binge buying and selling.

[lighthousekeeper]

The whole "duped" card just doesn't fly with me.

90% of people in this country will never make a purchase that costs more than their house. You do research when you make a purchase like that. You learn what an ARM is and you decide if you can afford it.

I'm sorry. Duping is just bullcrap.

Do I think lenders, etc. were shady, risky, etc, etc? Hell yeah. But in the end, the individuals know how much money they make, what the mortgage would cost, how it would balloon, etc. That's in the contract - it's not like the lenders put a blindfold on them.

These are poeple that were trying to get more house than they can afford and the lenders mearly facilitated a bad decision. Sure, there may be a very very very few exceptions. if they were really illegally duped, sue. If they fell on hard times - well.. that happens in a capitalistic society unfortunately.

I think you need to think a little about the situation that people were in to understand why 'duped' is appropriate.

When buying my house in 2004, 'my' realtor and lender continually fed me lines like: "don't worry - rates aren't going to go up" and "the more house you buy the better - housing prices are just going to keep going up and up.', 'Real estate is the safest investment you can make. - Just look how the housing prices have skyrocketed over the last few years.' 'Don't wait! You better buy today before the prices double again in another 6 months.'

Now I'm not a moron and suspected they were being sharks (and I didn't go with an ARM b/c I knew better), but I could easily see how others could trust what the realtor & lender were saying. In some respects, you place faith in a realtor/lender during a home-buying process just like you place faith in a lawyer or doctor when dealing with law or health matters - you trust that they know more than you about the industry, that they are looking out for your best interests (instead of the exact opposite) and that they will give you sound advice. Especially for most people, who are buying a house for the first time.




....now what all that said, I'm still against any government subsidy for a bailout (although it appears that this current plan isn't the case), only b/c I personally don't need it and I only favor government spending that benefits me directly.

[wade moore]

All of that said, Wade I think you give some people too much credit. After talking to my boss who is purchasing a home.. he asked me what he needed to provide his insurance company for the home insurance.. I gave him a list of what i was asked. He did not know the answer to 75%+ of the questions. His response was ,"I know what color the house is..." .. I honestly think alot of people go into home purchasing without doing the research that you assume everyone does.

You misunderstand me. I'm well aware that many people don't do the research. I'm saying they should and that it is their responsibility to. If they choose not to, they shouldn't get bailed out.

It's amazing to me how we've thrown personal responsibility out of the window in this country.

[wade moore]

I think you need to think a little about the situation that people were in to understand why 'duped' is appropriate.

I'm sure I'll be saying this over and over and over again in this thread.

I understand everything you laid out. I understand "duped". I say - it's your own damned fault. Again, you are making the biggest purchase you will make in your life. By FAR. To not research this on your own and just trust what some guy you don't know tells you - you get what you deserve for not understanding this stuff on your own.

[Kodos]

It's amazing to me how we've thrown personal responsibility out of the window in this country.

I know. I blame everyone else for that.

[Eaglesfan27]

I know. I blame everyone else for that.

:D

[st.cronin]

I am very much in favor of a bailout in general, although I don't know all the details. One of the functions of government is to protect people from the economy. Its easy to say that people were foolish/greedy. Its not so easy to realize that were circumstances slightly different we would be walking in those shoes.

[Dr. Sak]

There are a lot of good points being made so far, the one that I could not agree with more is how we've thrown personal responsibility out the window. Today it is a lot easier for us to finger point to a person or a specific reason why things went wrong instead of owning up to our own mistakes.

I went into the whole home buying situation just like I was buying a car. My realtor was a car salesman basically. I told him that I'd do all the research on the homes and for him to keep sending me the emails of homes that fell into my range. When I saw one I liked, I would call him to set up a viewing. That way I am not wasting his time nor my time by dragging me around to homes I don't want to see.

I look at realtors and mortgage brokers as necessary evils. You need them both to buy a house (not really but they make it a lot easier) but you have to remember that they are in it for the money too. The more you spend on the house, the more the realtor's commission goes up. Same with the broker in a certain sense.

IMO the worst thing you can do is go with the broker that is associated with your realtor. It is convenient, yes, but for the most part they know that and will try to leverage that ease with a higher rate. I played two companies against each other and both were telling me all about the ARMs. I wanted nothing to do with them, just a straight 80/10/10 loan, fixed rate.

After a few go rounds I got my fixed rate down to 5.45% for 30 with the home equity at 7% for 10 yrs. Yes the ARM would've saved me a few bucks in the early years, but now i am locked into that rate, which I'm pretty sure we as homeowners won't see for a very long time.

It takes time and energy to research all this stuff and weed out the bullshit. Most people don't want to do that and that's why they are stuck in this situation. Some knew what they were getting into and used it as a way to get a nice starter home then upgrade or if they knew they would only be living in an area for a few years they took advantage of it.

But the people who did do their job in researching should not be paying for the stupidity of others. I have a few friends faced with this problem and I told them years ago when they bought $300K homes on teachers' salaries that they better watch because the rates are going to skyrocket. They didn't listen and rubbed the fact that they have this huge house, many times more than what they need, while mine was modest size but still half the size of theirs. Now I all I hear is how they should've listened to me.

[wade moore]

I am very much in favor of a bailout in general, although I don't know all the details. One of the functions of government is to protect people from the economy. Its easy to say that people were foolish/greedy. Its not so easy to realize that were circumstances slightly different we would be walking in those shoes.Sorry, but that doesn't fly with me. I could objectively look at almost every circumstances where someone chose an ARM, no interest, etc and say it was a bad decision before it happened.

Hell, I was RIPE for one of these loans. I bought a house in 2004 when my income was much lower than I knew it would be within a year or two and my fiance was still in school and making no income. I knew within a year or two our total income would at least double. Yet, I smartly went with a fixed loan in a beat up old house that I could actually afford at that moment if all of these likely things didn't happen.

I just don't buy this. If this was happening because of massive job loss, that's protecting people form the economy. But this is happening because people speculated on a booming housing market. Or, were just stupid. Bailing these people out would not be protecting them from "the economy". The economy is not in some huge depression right now. People made stupid decisions and they need to take responsibility for those decisions.

[wade moore]

But the people who did do their job in researching should not be paying for the stupidity of others. I have a few friends faced with this problem and I told them years ago when they bought $300K homes on teachers' salaries that they better watch because the rates are going to skyrocket. They didn't listen and rubbed the fact that they have this huge house, many times more than what they need, while mine was modest size but still half the size of theirs. Now I all I hear is how they should've listened to me.

Exactly.

[st.cronin]

Sorry, but that doesn't fly with me. I could objectively look at almost every circumstances where someone chose an ARM, no interest, etc and say it was a bad decision before it happened.

Hell, I was RIPE for one of these loans. I bought a house in 2004 when my income was much lower than I knew it would be within a year or two and my fiance was still in school and making no income. I knew within a year or two our total income would at least double. Yet, I smartly went with a fixed loan in a beat up old house that I could actually afford at that moment if all of these likely things didn't happen.

I just don't buy this. If this was happening because of massive job loss, that's protecting people form the economy. But this is happening because people speculated on a booming housing market. Or, were just stupid. Bailing these people out would not be protecting them from "the economy". The economy is not in some huge depression right now. People made stupid decisions and they need to take responsibility for those decisions.

A bailout does not just protect THOSE people, it protects people who work in the industry, people honestly trying to sell a home, etc.

[miked]

A bailout does not just protect THOSE people, it protects people who work in the industry, people honestly trying to sell a home, etc.

Bah. They aren't trying to "honestly" sell a home. They are trying to make money, as much money as they can. My realtor, who was a guy I knew well, my landlord while I was in Atlanta, even tried to upsell us. He's semi-retired and doesn't want to make too much commission because he collects social security, and kept telling us how we could probably afford to go bigger because I'd be making more in a few years, the market would go up, rates would go down, the house would be worth more and we could refinance, etc.

Honesty in any job is rare, and even harder to come by when the stakes are lucrative. The brokers knew what they were doing was risky, as did the banks. They didn't care because it put money in their pocket. You don't think the banks knew most of these people would foreclose? They didn't care because they figured they'd get the home back and would then be able to sell it even more, and some sucker would just be paying them interest while their (the bank's) house appreciated. Of course their pushing for a bailout for these "poor" uninformed people that took the loans. Houses are worth less and the banks are getting stuck with the bill.

[wade moore]

A bailout does not just protect THOSE people, it protects people who work in the industry, people honestly trying to sell a home, etc.

That's how it goes in capitalism sometimes. The industry got overpopulated because of the inflation of the market, so rightfully it will shrink.. people honestly selling a home for the most part will be fine, if not you rent..

etc, etc..

[JPhillips]

Miked: I don't entirely agree. I think it was like all bubbles where people honestly thought they'd be able to get out before things fell apart. The costs associated with a foreclosure really don't play in the bank's favor. Maybe the realtors wouldn't care, but the financial folks generally lose money on foreclosures even if the market is strong.

I've also been reading about the CDOs that hold all these mortgages as investment vehicles. That's where things got really shady. The way the ratings on these were manipulated is possibly criminal. Unfortunately we're starting to see how many government funds and supposedly low risk mutual funds bought these shitty investments. That's where the real problems for the economy lie.

[sterlingice]

I know. I blame everyone else for that.

:D

SI

[flere-imsaho]

I'm not in favor of the bailout plan as it has so many restrictions it seems like it's designed mostly to help speculators and not families who might lose their home.

Yes and no. Let's look at the specifics that we've been given so far:


Participation in this "program" by lenders is voluntary. Translation: Treasury Secretary Paulson pulled some strings to get lenders to agree to this in principle. Lenders will likely make a cost/benefit calculation on foreclosing on all of these vs. extending the "program" to their borrowers: i.e. "are we better off just foreclosing on all of these, taking the financial hit but then not having the debt obligations, or are we better, financially, letting these people stay on the books?" Reaction from lenders so far seems to be siding with the former.
It's only available for people whose loans originated between 2005 and 2007 and will reset their interest rates between 2008 and 2010. Analysis: So it helps people who got a 3, 4, or 5-year ARM during a time period when they really should have known better (i.e. the press has been doomsaying since at least 2005). Why not help those with 5-year ARMS originated in 2003/2004 that are coming due now? Why not help those whose ARMS have already floated and are struggling with higher payments than expected?
The home must be owner-occupied. Analysis: This is the key anti-speculator provision (rebutting comments made earlier in this thread).
You can't have more than 3% equity in your home. Analysis: So basically anyone who made a really good faith effort to pay down their mortgages don't qualify, while those with interest-only loans (for example) qualify. Who are we rewarding here again?
You aren't behind in your mortgage payments. Analysis: a curious stipulation, considering that you'd assume most people targeted by this "program" would be those already not being able to handle their payments. Say you were paying $800/month, and then you had to pay $1,200/month, but couldn't. Wouldn't it make sense to just put this person back to $800/month and avoid the hassle (and asset hit to the lender) of foreclosure?
People with high credit scores (i.e. good ones), don't qualify. Analysis: Another confusing stipulation. Wouldn't these be exactly the people you'd want to throw a lifeline to? Their credit score means they're largely "good" for the mortgage, but probably have a temporary problem (maybe one or both borrowers lost their jobs?).


Like I said, it's a bit of a mess, so it's not surprising that there's a growing sentiment that a) it won't help out a lot of people and b) many lenders won't implement the program. It's looking more and more like an attempt to save face by the Administration and the industry.

Its easy to say that people were foolish/greedy. Its not so easy to realize that were circumstances slightly different we would be walking in those shoes.

I disagree. For the vast majority of people, their home will be their largest purchase in their lives. I'd expect them to treat this purchase with a bit of circumspection.

For reference, my wife & I bought our house in 2004 and took out a 5-year ARM. So we're a lot like the people who got in trouble here. The difference is that we looked at the monthly payments pre and post-adjustment and bought a house we could afford in either scenario and could afford at 75% of our (at the time) current income (for instance, if one of us was temporarily unemployed).


I only agree that there needs to be some sort of "bail-out" because the impact of the estimated 5 million foreclosures in 2008 is likely to be pretty serious to the economy, starting with its effects on market capital liquidity but also crucially on consumer spending, which is the engine that drives this economy.

My solution would be to force lenders into offering 5-year extensions at current rates to anyone with a current ARM who wants it, with the stipulation that if the borrower takes this deal, they're blocked from taking out another ARM for a period of X years (10, 15, or so).

The lenders won't like it because it slows the number of people originating loans, which was the point of ARMS in the first place (lower the entry so more people originate loans), but they need to take a good part of the blame here, and be a real part of the solution. The borrowers won't like it because it artifically restricts their future choice, but so does foreclosure, so they get to pick their poison.

Unfortunately, a solution which applies the "stick" instead of the "carrot" to both parties is not politically expedient, which is why we won't see it happen.

[sterlingice]

(It only took 45 posts to actually get something with meat in it as opposed to finger pointing, bragging, and "me, too"ing...)

SI

[flere-imsaho]

(It only took 45 posts to actually get something with meat in it as opposed to finger pointing, bragging, and "me, too"ing...)

SI

Well, it's either that or work and... hey, is it 10:00 already?! :D

[bob]

Maybe the realtors wouldn't care, but the financial folks generally lose money on foreclosures even if the market is strong.

The financial company might care, but at least in the short run, the broker doesn't care. He makes his money at closing, pushing a higher priced product for a more expensive house.

[wade moore]

(It only took 45 posts to actually get something with meat in it as opposed to finger pointing, bragging, and "me, too"ing...)

SIThat's a bit of an unfair assessment, but I agree that it was a great post by flere. Clearly he understands the details of this issue better than most of us.

[Mustang]

At least everyone learned their lesson and this will never happen again.

[cartman]

At least everyone learned their lesson and this will never happen again.

Hell yeah. I'm never buying Dutch tulip bulbs again!!!

[flere-imsaho]

Sorry, but that doesn't fly with me. I could objectively look at almost every circumstances where someone chose an ARM, no interest, etc and say it was a bad decision before it happened.

Well, obviously my wife & I were the expection that proved the rule. ;)

Our ARM has worked out well for us. We've saved quite a bit of money vs. a fixed, 30-year, and ended up plowing the vast majority of that money back into the loan, paying down the principal, specifically. But, again, we did our research and knew our financial situation, and our likely financial situation over the succeeding 5 years, backwards and forwards.

It's not as if we weren't tempted, though. When we qualified for loans, lenders were happy to offer us products (including ARMS) that would have resulted in monthly payments totalling 80% of our net income. :eek:

Anyway, we'll be refinancing in 2008, and my intention is to go to a 30-year fixed, since I really do think rates are about as low as they're going to get in my lifetime (or at least for the next 30 years).

[wade moore]

There are certainly smart circumstances to get into an ARM, but they are few and far between.

[Flasch186]

The whole "duped" card just doesn't fly with me.

90% of people in this country will never make a purchase that costs more than their house. You do research when you make a purchase like that. You learn what an ARM is and you decide if you can afford it.

I'm sorry. Duping is just bullcrap.

Do I think lenders, etc. were shady, risky, etc, etc? Hell yeah. But in the end, the individuals know how much money they make, what the mortgage would cost, how it would balloon, etc. That's in the contract - it's not like the lenders put a blindfold on them.

These are poeple that were trying to get more house than they can afford and the lenders mearly facilitated a bad decision. Sure, there may be a very very very few exceptions. if they were really illegally duped, sue. If they fell on hard times - well.. that happens in a capitalistic society unfortunately.

I had a meeting so Im just getting back to this.

What youre saying isnt true. Let me tell you how this happened, and this is exactly correct:

A person/family sees everything on TV from ads to stories to the news that says interest rates are at historical lows and NOW is the time to buy if they are ever going to.

So the person/family decide to go look for a home, now either:

A. they go see a new homes neighborhood where a salesperson shows them around and has them fallin love with a home

B. they go to a mortgage broker to find out how much they can afford

C. they meet up with a realtor who wants them to find out how much they can afford

And therein lies the problem:

The ratios that these lenders work off of are BS. The debt to income ration says that they can afford one thing but in reality what they should be buying is much much less.

so the deal now is on the verge of collapse until the broker (who now turns into a salesperson) tells them that these ratios and that program and the homes that the ratios tell them to look for are crappy and they really dont want to live in those sort of neighborhoods anyways, plus in a few years the home will be worth more and they'll likely be making more.....so lets just "go stated" and we can make it work.

So the person/family says, "jeez, youre a mortgage expert and I should trust you, so I will. I mean everyone is telling me that this is a good idea and while things are tight I believe everything Im seeing on TV, and in the speeches that the pundits are making, and Im tired of renting in an apartment and like everyone says, if I dont take advantage of these rates now Ill never be able to buy a home."

So they do, and all of the disclosures are full of Jargon and legalese and everyone said that what really matters is X, y, and z so I'm going to trust them.


Now this is the most mundane version. Im leaving out the buzzards who fly around the low income housing areas and get people to refi when not only is it a horrible idea but is scandalous and thievery. Im also leaving out the fraud wherein the lender actually tells the borrow what to put in the application or fills it in themselves. dont believe me? KB HOME one of the biggest builders in the country settled a lawsuit regarding those practices themselves.

It's not as easy as the personal responsibility people want to paint it. On the one hand it's usually the same people who want less govt interference and regulation but then yell at the victim when the unregulated industry ran roughshod over millions.

[Flasch186]

I worked for a now dead mortgage company from Nov 2005 - Nov 2006 here in Atlanta. I was hired on to work on the new software application they were rolling out for loan processing, so I didn't do anything directly with customer loan, but once I saw how sleezy the entire industry really was I started looking to get out immediately. Any job in which people are paid on commission will lead to this sort of thing. Yes, consumers are ultimately responsible for their decisions, but I think a lot of people look at brokers more like financial advisers rather than sales people, and trusted some really bad advice.


thank you. I dont know why these people, who arent believing me as I pull back the curtain. What Im telling you is true. I dont know much but on these things I am an expert and have been yelling about it since Bush's State of the union address many moons ago. remember that thread? I SAID THAT THIS WAS COMING!

[Flasch186]

On a side note, there are lots of lawsuits against Beazer home builders and they are essentially blacklisted here in Atlanta because of their practices. Some of these suits allege the financing people at Beazer would forward false W2's to banks, or falsify information to secure loans that people couldn't afford, and convince these suckers that ARMs would save them. If you don't think you can afford a 700k new house, you can't and shouldn't be bailed out by the government.

YES YES, Im not talking extremes here. Im talking 300K house and people who trusted the experts involved and were led down this path. SOMETIMES they would even lie about the upcoming payments by misjudging property taxes and HOinsurance figures so unless you were trained to read a HUD statement you wouldnt even know your true payment until the next year.

[chesapeake]

This is an interesting debate.

I have a related case that just hit my desk. A soldier with a wife and a couple of kids and on his way back to Iraq just had his ARM blow up on him. And now he deeply regrets opening that line of credit on his home equity, because his soldier's salary, even with the combat bump, probably won't cover all the payments. So about when this guy's boots hit the ground, the bank is going to take his house.

Your country thanks you for your service.

I agree, in principle, with those that say that the market has to be given a lot of room to correct itself. Lenders were making up lousy products and selling them to borrowers, and a market "correction" needs to happen to make it clear to both sides that the phony crap has got to go.

However, never forget that the market is correcting itself on the lives of real people with real families, and those folks are going to suffer enormously. If the government can take modest steps in a situation like this to help families, I think it should.

Also, at least one semester of financial literacy should be required in every single high school in the country. High school graduates not knowing how to manage a credit card or balance a check book is a traveshamockery.

[wade moore]

It's not as easy as the personal responsibility people want to paint it.

Yes it is.

10 minutes with a pen, paper, a pay stub, and your bills you can figure out that these things are a bad idea for most of these people.

[Flasch186]

Well, obviously my wife & I were the expection that proved the rule. ;)

Our ARM has worked out well for us. We've saved quite a bit of money vs. a fixed, 30-year, and ended up plowing the vast majority of that money back into the loan, paying down the principal, specifically. But, again, we did our research and knew our financial situation, and our likely financial situation over the succeeding 5 years, backwards and forwards.

It's not as if we weren't tempted, though. When we qualified for loans, lenders were happy to offer us products (including ARMS) that would have resulted in monthly payments totalling 80% of our net income. :eek:

Anyway, we'll be refinancing in 2008, and my intention is to go to a 30-year fixed, since I really do think rates are about as low as they're going to get in my lifetime (or at least for the next 30 years).

I am in exactly the same boat as you and will be refi-ing next year into a 30yr. fixed hopefully below 5.75% next yr.

[Flasch186]

Yes it is.

10 minutes with a pen, paper, a pay stub, and your bills you can figure out that these things are a bad idea for most of these people.

Welp, youre just wrong on this issue and it's that simple. Everyone a first time homebuyer was supposed to trust in this transaction, the biggest one youll ever make, where you'll most need some expert advice, were attempting to dupe people at every corner. From SISA loans, to closing costs, to interest rates, to fraud, etc.

On some things I listen to debate and can admit being wrong...I can remember some especially with glen or JimGA or you, but on this one your heels are dug in and unfortunately you just didnt have the visual evidence like I did and now dont want to trust that what many on this thread are saying. thats ok....youre still wrong on this specific issue regarding what occurred to people in their homebuying experience.

no offense.

[flere-imsaho]

Flasch, I don't disagree that lenders were convincing people to take loans they couldn't afford, and that realtors were complicit in this process (by pushing people to purchase homes with loans they couldn't afford), but I agree with wade here. Purchasing a home is likely the largest purchase of your life. If you can't be bothered to determine what you can and can't afford, and understand the basic concepts of your loan (for instance that your interest rate climbs after the initial period in an ARM), then the fault rests with you. Sure, your broker, lender and/or realtor didn't do you any favors, but they're salesmen, not objective, 3rd party advisors. If you wanted objective, 3rd party advice, you should have spoken to your accountant.

[st.cronin]

Even if people hadn't been "duped" I would still feel like a bailout was the right thing to do. Foreclosures are a bad thing that should be prevented when feasible.

[headtrauma]

http://www.forbes.com/home/wallstreet/2007/12/06/bush-mortgage-subprime-biz-wall-cx_lm_1207subprime.html

[flere-imsaho]

Even if people hadn't been "duped" I would still feel like a bailout was the right thing to do.

Except, as I described previously, it really isn't a bailout. It's a voluntary program that some lenders may or may not extend to certain borrowers who may or may not qualify for what in effect amounts to a temporary extension of their current circumstances.

Foreclosures are a bad thing that should be prevented when feasible.

Absolutely. The borrower loses money and loses equity and the lender loses value off the loan and loses a very real amount of expected income from the loan. It's a lose-lose scenario.

However, in the case of these subprime mortgages, both sides, the lender and the borrower, went into the loan knowing (or should have known) that the loan had a very high chance of failing in anything but the very best financial circumstances for the borrower. If there's anything to be learned from this, it should be that there needs to be a way to, in the future, ensure that loans under these circumstances aren't originated.

I'm not sure how that happens, of course. In theory the industry was operating under its own set of standards that was supposed to make sure this sort of thing didn't happen. Obviously that failed. The last resort, of course, is to put in regulations that will save people from their own stupidity or lack of foresight, but I always feel we've failed when we have to resort to that type of legislation.

[wade moore]

Flasch, I don't disagree that lenders were convincing people to take loans they couldn't afford, and that realtors were complicit in this process (by pushing people to purchase homes with loans they couldn't afford), but I agree with wade here. Purchasing a home is likely the largest purchase of your life. If you can't be bothered to determine what you can and can't afford, and understand the basic concepts of your loan (for instance that your interest rate climbs after the initial period in an ARM), then the fault rests with you. Sure, your broker, lender and/or realtor didn't do you any favors, but they're salesmen, not objective, 3rd party advisors. If you wanted objective, 3rd party advice, you should have spoken to your accountant.

Exactly flere.

I'm not disagreeing with anything you're saying about how dirty and rotten these people are.

In the end, this is the BUYERS decision. It's THEIR money. THEIR life. They are purchasing something worth many times what their salary is. They need to do a little work, come on now.

You are the one being naive and digging your heels in. Again, people need to take responsibility. It's not that complicated to understand that in 5 years your mortgage will all of a sudden be 75% of your income - or whatever the case may be.

Sorry. The whole deal that these people couldn't do anything cause of the mean old lenders and agents just doesn't fly.

[st.cronin]

Except, as I described previously, it really isn't a bailout. It's a voluntary program that some lenders may or may not extend to certain borrowers who may or may not qualify for what in effect amounts to a temporary extension of their current circumstances.



Absolutely. The borrower loses money and loses equity and the lender loses value off the loan and loses a very real amount of expected income from the loan. It's a lose-lose scenario.

However, in the case of these subprime mortgages, both sides, the lender and the borrower, went into the loan knowing (or should have known) that the loan had a very high chance of failing in anything but the very best financial circumstances for the borrower. If there's anything to be learned from this, it should be that there needs to be a way to, in the future, ensure that loans under these circumstances aren't originated in the future.

I'm not sure how that happens, of course. In theory the industry was operating under its own set of standards that was supposed to make sure this sort of thing didn't happen. Obviously that failed. The last resort, of course, is to put in regulations that will save people from their own stupidity or lack of foresight, but I always feel we've failed when we have to resort to that type of legislation.


You sound like a republican!

Seriously, I do understand why people feel the way they do. And I understand its not really a "bail-out," more like a temporary regulation which hopefully prevents some foreclosures.

On the other hand, over-financing a home is a mistake, not a crime (at least, I don't think its a crime). One of this country's principles is that we want people to be as happy and secure as possible, and if that requires some fiscal policy fudging on the borders, I guess I just don't understand why that's a big deal.

[BrianD]

Welp, youre just wrong on this issue and it's that simple. Everyone a first time homebuyer was supposed to trust in this transaction, the biggest one youll ever make, where you'll most need some expert advice, were attempting to dupe people at every corner. From SISA loans, to closing costs, to interest rates, to fraud, etc.

I don't want to get between you and Wade on this issue, but I don't see where the home buyer was so helpless. When I was a first time home buyer, I went to a mortgage company to get pre-approved. They let me know how much of a mortgage they would give me and I immediately sensed trouble. I asked them how much my monthly payments would be if I took out a mortgage of that amount and then did some quick math to see if I could come up with that much money each month. I couldn't come close to that amount, so I worked backwards to figure out how much I could afford. Just because you *can* get a certain amount of money from a lender doesn't mean that you can afford it.

The ARMs are just an extension of that idea. Getting a low initial rate sounds great, but there was no secret that the rate could go up. When the rates go up, the payments go up. At some point you have to listen to "expert advice" and give it the common sense test. Now clearly some people are probably not smart enough to see the expert advice doesn't match common sense, but most people should have known better. It took me about 2 seconds after seeing an ARM ad on TV to know that it was a bad idea.

[flere-imsaho]

http://www.forbes.com/home/wallstreet/2007/12/06/bush-mortgage-subprime-biz-wall-cx_lm_1207subprime.html

Heh, as I said earlier, the "program" smacks of giving lenders the opportunity to punt the problem into the future, if they so wish.

Of course, the irony is that some lenders (especially smaller ones) had already long gone the route of refinancing troubled loans to "workable" rates in order to avoid foreclosing on the properties. Calculating (rightly) that they served to lose more through foreclosing on these properties than helping borrowers into more favorable loans, these lenders are, in effect, now "doing the right thing."

Sadly, that's just a drop in the bucket. The majority of the problem loans now appear to have been sold by organizations that then resold them to larger financial institutions that packaged them as investment products for other investors. This is where a lot of the money has been lost.

That's a two-pronged problem. These vehicles (which are these loans, bundled up) are now not worth their original price, so they're now basically sitting at a loss for investors. Worse (this is the other prong), the market as a whole won't touch these vehicles with a ten-foot pole. The market knows that even if you were to subsume the loans and foreclose on the properties, you'd still have a lot of overvalued properties you can't sell in this property market, or at least can't sell at anywhere near the price that you paid on the loan.

As described in this article: http://money.cnn.com/2007/10/15/news/companies/mortgage_debt_fund/index.htm , the "solution" the big American banks have found is to create a fund which will simply buy up all these vehicles and then ride out the storm. Critics argue that all this will do is simply create an artificial market for these bad products, but proponents argue that at least these major institutions will have these off of their books and if the products can cycle out their bad loans, they should be able to realize some sort of return in a few years. I think both sides have decent points, but there are certainly a lot of "ifs" around.

Of course, the point I'm making here is that if the big banks like Citi have decided that the "solution" to the problem is to pay a one-time fee (i.e. contribute the money to the fund in question), then what they're essentially saying is that they could care less about the borrowers in question as long as they can get these bad debts off their books. While that's good for near-term market liquidity, it still doesn't solve the medium-term affect these combusting loans are going to have on the consumer economy.

I'd imagine it's this effect, specifically, that has Treasury Secretary Paulson concerned (assuming, for a moment, that he cares about the economy after 2008) and has led him to try and hammer out a deal for this "program". Unfortunately, it looks like the "program" in question is probably too little, too late, for most of the affected borrowers.

[flere-imsaho]

You sound like a republican!

Well, I may be a liberal, but I do believe in the strengths of a free market economy and I'm pretty loath to constrain it with undue regulation. However, one of the weaknesses of free market capitalism is that it necessarily encourages the rise of actors who will attempt to take it for all its worth, regardless of the consequences. Greed is good, yes, but not to the extent that it allows the entire system to fail, which is exactly what happened in this case.

[chesapeake]

Well, I may be a liberal, but I do believe in the strengths of a free market economy and I'm pretty loath to constrain it with undue regulation. However, one of the weaknesses of free market capitalism is that it necessarily encourages the rise of actors who will attempt to take it for all its worth, regardless of the consequences. Greed is good, yes, but not to the extent that it allows the entire system to fail, which is exactly what happened in this case.

You had me at "hello."

[Crapshoot]

Dumb idea, dumber implementation, almost certain horrific result. I

The solutions are awful:
- pressure on the companies (which will result in even less mortgages being offering, because damned if I want to take that risk without having the upside of high rates)

- a bailout (which will encourage to offer even more, as there is an implicit American guarantee that it can't get too bad)

Look, there has been predatory lending in the mortgage market - I won't lie, and I think enforcing that (and the many cases where people were outright lied to about the requirements) is absolutely justifiable. That being said, you cannot change the laws of economics and legislate the market/greed instinct away, and I'm not sure why you would want to.

[sabotai]

I dont know why these people, who arent believing me as I pull back the curtain. What Im telling you is true.

I believe every word you said about the process, and all it did was make me agree with wade more.

[Flasch186]

So the predators and the industry that has been built upon preying on those who are naive to the system is ok?

I agree with the post a couple above that Im not sure how to seperate those that deserve help from those that dont but doing nothing (as the regulators and Congress admit to failing in their job up to this point) isn't right.

The credit companies on the whole, from setting up tables at campuses where kids with no jobs get credit cards to lenders going through downtrodden communities to get people to refi into mortgages they cant afford, to brokers upselling their mortgage programs to first time homebuyers, isn't right but no one wants to hold them accountable at all.

I would agree with Wade or anyone else who wanted to hold all sides equally but that isn't what I hear. I hear that Wade and others feel ultimately it should fall on the consumer and I guess that where we disagree. I'll agree with those that have already admitted that they dropped the ball and are at fault for the problems we see.

If a speculator gets hurt than thats fine but when the scruples of this broken corrupt 5 years (remember Ive been pointing that this was coming a long time ago so how the experts didnt see it coming is beyond me) catch real first time homebuyer's chasing the American Dream trusting the experts from the President's State of the Union address all the way down to the Ditech agent pushing the interest only loan, isnt fair either.

[Flasch186]

Dola:

y'know what? This harkens back to a thread a long long time ago about trusting the big corporations and it seems that there is most certainly a correlation between those that want litigation caps and less regulation on business and this that we're talking about in this thread. It is the same as the long line of corporations that do not do anything but look out for their bottom line, and the shareholders value...

You can say, "Capitalism is the regulation because the ne'rdowells will go out of business" but Hasbro wouldn't have ever stopped importing lead laden toys unless a consumer tested it and went to the news and so on and so forth through time.

You can use any extreme to argue either side of this pill but it isn't the norm....in this case what you see is an industry using the extreme as their SOP and now the regulators were left chasing the ball. In the meantime, there are people that were "duped" and "defrauded" into these things and those that we're supposed to reject these loan applications, who we're supposed to regulate the industry didn't. They deserve their share of the responsibility and this voluntary bailout is a small start to try to help some those people who were roped.

[BrianD]

I would agree with Wade or anyone else who wanted to hold all sides equally but that isn't what I hear. I hear that Wade and others feel ultimately it should fall on the consumer and I guess that where we disagree. I'll agree with those that have already admitted that they dropped the ball and are at fault for the problems we see.

I think both sides are equally accountable. Mortgage companies were clearly pulling scams to get people into houses who shouldn't have been, but I never thought they were particularly clever scams. It was so obvious that they were putting people into high risk situations that I feel little sympathy for those that "didn't see it coming". I firmly believe that people knew they were getting in over their heads. You shouldn't need expert advice to tell you that adjustable rates at an all-time low were only going to go up, or that interest-only loans are not good ideas.

[Flasch186]

I firmly believe that people knew they were getting in over their heads. You shouldn't need expert advice to tell you that adjustable rates at an all-time low were only going to go up, or that interest-only loans are not good ideas.

But Joe at Ditech, showed me the Freddie Mac debt to Income ratio and it says Im fine. Plus Joe said, and I agree that I'm sure I'll get a raise in the next 5 years. Plus he showed me that the appraisal on home right next door, just 2 months ago was $15K more than what Im paying. My realtor says that this is a great deal and I can always pay more on the principle. All of them are saying that rates wont likely go up and if they do I've got 5 years to refinance. It only has a pre-payment penalty for 3 so Im good there. The mortgage package is 100pages thick and while I asked my realtor if I needed to have a lawyer read it he said "no, because we're closing at an attorney's office guaranteeing that things are legal." Like I said, mom, everyone, the experts have all shown me factual evidence that this is in my price range....even the monthly payment is fine (unknowingly the property taxes are underestimated by 3K/yr. but I wont find this out until January).

We can go around in circles all day. It boils down to enforcement on the individual but leave the corporate malfeasance alone. LESS GOVERNMENT intervention they scream but then the corporate morality you then bank on is nonexistent.

[flere-imsaho]

I think both sides are equally accountable. Mortgage companies were clearly pulling scams to get people into houses who shouldn't have been, but I never thought they were particularly clever scams. It was so obvious that they were putting people into high risk situations that I feel little sympathy for those that "didn't see it coming". I firmly believe that people knew they were getting in over their heads. You shouldn't need expert advice to tell you that adjustable rates at an all-time low were only going to go up, or that interest-only loans are not good ideas.

Exactly.

No one's saying this:

So the predators and the industry that has been built upon preying on those who are naive to the system is ok?

We're saying both sides are (generally) equally culpable.

[Flasch186]

We're saying both sides are (generally) equally culpable.

If this is the case then the people should be helped and the industry punished (or gently forced to comply with this voluntary bailout [which IMO should be broader])

[flere-imsaho]

It boils down to caveat emptor, Flasch. It's the biggest purchase of your life, by several orders of magnitude. All it takes to save these people from themselves is spending a couple of hours developing a budget and maybe seeking out an independent, objective source of advice.

What's crazy is that most people display the appropriate skepticism of other salespeople in their lives, say for the purchase of cars, vacation packages, vinyl siding, etc... but they can't do the same here?

Again, the point you're missing is that no one's saying the industry should get off free either. From the non-listening dingbat realtors to the brokers who don't give a damn to the possibly-criminal loan originators, etc.... But what do you want to do? Fine them? Regulate them? Regulate the whole industry? Tell us Flasch.

[flere-imsaho]

If this is the case then the people should be helped and the industry punished (or gently forced to comply with this voluntary bailout [which IMO should be broader])

How should people be helped?

[molson]

I'd like a bailout of my student loans.

Everyone who bought maximum football should also be bailed out.

This is the silliest thing I've ever heard.

[Fidatelo]

Debt-to-income ratio? neighbor's house price? great deal? Bank will lend the money?

The problem is that people even consider any of those things. How about:

- Based on my current earnings, and nothing more, can I comfortably afford the payments + insurance + taxes + utilities + repairs + my car payment + have some money for savings + retirement + entertainment?
- If the rates go up even as high 2x-3x, can I still afford it based on the calculation above (although understandably such an extreme might cut away the entertainment and potentially some savings)?
- If the housing market falls, am I ok sitting on this property for 10-20 years?

If you can't answer yes to those, you shouldn't be buying the house, no matter what anyone tells you.

[BrianD]

But Joe at Ditech, showed me the Freddie Mac debt to Income ratio and it says Im fine. Plus Joe said, and I agree that I'm sure I'll get a raise in the next 5 years. Plus he showed me that the appraisal on home right next door, just 2 months ago was $15K more than what Im paying. My realtor says that this is a great deal and I can always pay more on the principle. All of them are saying that rates wont likely go up and if they do I've got 5 years to refinance. It only has a pre-payment penalty for 3 so Im good there. The mortgage package is 100pages thick and while I asked my realtor if I needed to have a lawyer read it he said "no, because we're closing at an attorney's office guaranteeing that things are legal." Like I said, mom, everyone, the experts have all shown me factual evidence that this is in my price range....even the monthly payment is fine (unknowingly the property taxes are underestimated by 3K/yr. but I wont find this out until January).

Pretty much everything above fails the common sense test.

We can go around in circles all day. It boils down to enforcement on the individual but leave the corporate malfeasance alone. LESS GOVERNMENT intervention they scream but then the corporate morality you then bank on is nonexistent.

Corporate morality? Really? Does anyone believe this exists?

[JPhillips]

flere: One way to combat some of this is to regulate how these CDOs got packaged. There was very little transparency and seemingly quite a lot of dishonesty in packaging and selling loans. The SEC or FTC needs to put tighter rules in place so that the value of these investments is more easily determinable. A lot of the frenzy in buying these loans came about because the value was hard to determine. With a clearer understanding of value, there would be less of a market for these very risky loans and eventually the companies issuing them would back off as they had fewer options to sell them off.

I also might be in favor of a small fee on brokers with that money going to fund independent mortgage analysts that are recommended to new home buyers. Part of the problem is that the individual often isn't savvy enough to understand what they are getting. I wouldn't want to outlaw any loan type, but somehow buyers need access to a fully independent analyst. If enough people hear that these loans are crap they might stop jumping into them.

My problem is that a lot of the problem was caused by a lack of honesty and transparency. My suggestions may not be the right answers, but I believe that opening the door into loan practices and giving consumers an outlet for independent analysis will help both the buyer and the banking system.

Of course I also think the bankruptcy bill that passed a few years ago should be repealed, but that's only tangentially connected to the housing problem.

[Flasch186]

I dont have an answer for the problem but this "bailout" is a small start.

[Flasch186]

Of course I also think the bankruptcy bill that passed a few years ago should be repealed, but that's only tangentially connected to the housing problem.

agreed or at least couple it with stronger measures to hold lenders accountable. Again, I go back to the initial step of keeping Credit cards of Public university campuses. No student should be approved for a loan on the potential that they'll graduate, get a good job and be able to pay the money back. Happens all the time....plus you get a free T.

[Flasch186]

Pretty much everything above fails the common sense test.


Happened all the time, im afraid, common sense or not. The lenders, brokers, realtors, appraisers, regulators, etc. all share in the guilt. Im sure they dont feel guilty so instead you have to hit 'em in their books.

[ISiddiqui]

This is an interesting debate.
However, never forget that the market is correcting itself on the lives of real people with real families, and those folks are going to suffer enormously. If the government can take modest steps in a situation like this to help families, I think it should.

I somewhat do agree with that, but not necessarily to help families. I do think that some people should learn a lesson about what they can and cannot afford, but there are unscrupulous brokers out there and I do feel a bit of sympathy for those who trusted them and were duped.

I think, though, on of the big reasons for a smaller, modest plan like this one is to prevent a total clusterfuck in the economy. Maybe push up confidence and help out a few people and companies to avoid something disasterous (like trying for more of a soft-landing recession than a big crash and burn recession). It's not a good choice to make, I guess, but a choice to be made nonetheless.

[DanGarion]

I'd like to be able to afford a house in general. But I was to smart to fall for "creative financing".

[CU Tiger]

To me, it all comes down to good old fashioned common sense. Caveat Emptor. Its simple really, if something sounds too good to be true it probably is. Several have shared there experience let me share mine. I bought my first house at age 20, yes 20. I was told that I should buy in the 100-115k price range I refused. I looked at houses that needed work or were in less than great neighborhoods. I bought a house for 72k. On a 30 year fixed. When I was told how great ARMs were I lookeed the lender right in the face and asked, it seems to me that rates are at or near 40 year lows, what is the real possibility that they wont go up? He replied I should be assured rates were down to stay. BULL SHIT detector went crazy, I walked out and went to another lender. I went through 4 until I found one who had a teacher's heart and spent 3 hours answering questions. I read HOURS for months prior. Oh for one piece of advice, see when I bought my first home neither of my parents had EVER owned a home, I had no one to ask for help, yet somehow I avoided all these terrible wolves. I walked out of my first closing because the attorney my realtor recommended kept interrupting while I was trying to read through the document and telling me "it's all ok, just sign it" I came back to the second closing with a new attorney and it took 4 hours. AS I READ THE ENTIRE DAMN THING.

I am in no way arguing that there aren't snakes out there, but that does not excuse the ignorance of the actions of the consumer. As has been stated ad naseum, THIS IS THE BIGGEST PURCHASE OF YOUR LIFE INVEST SOME TIME IN THE DECISION.

In a lot of ways its like a drug dealer. No one is saying he is RIGHT for selling drugs, but what many here would have us believe is since he tricked those poor unknowing people into buying his wares we should not make them suffer the pains of withdrawal. No they were lied to and duped, they should be allowed to live their happy lives and stay high, after all its not their fault they are addicts. BULL SHIT.

I am not sure why, but this entire thread and it bleeding heart apologists have me sick to my stomach. It is embarassing and disgraceful. I meean it is not as if we are saying Johnny and Sue can't afford their house, we will execute them at ssunseet. No Johnny and Sue need to move into a house they can dman well afford, and if thy have to float negative equity, its called stupid tax. The options aren't pay or die, they are pay or move. Worst case scenario (and this is a VERY small minority) they are forced to file bankruptcy, their house is sold at auction to an inveestor that has stockpiled cash and the economy is infused with REAL money and not specualative money.

For some reason I am nearly shaking with anger as I type this, I am stoppin here before I have a stroke....

[Dekanth]

Let me tell my story.

I had fair credit at best, but was able to get a modest home. I was told to take an adjustable loan in order to save money now, and with a home on my credit and timely payments, my credit would go up nicely in the next couple of years and when the adjustable period came, I would just refinance into a fixed loan. Sounded like a great opportunity for somebody with a good income, but credit problems, to get a home, start building equity and repairing my credit.

Fast foward 2.5 years, and my credit has not improved due to various reasons, some out of my control. I am hitting the adjustable period now and obviously the new payments suck, making it even more impossible to improve my credit and qualify for a fixed loan in a refinance.

So yeah, after years of paying for numerous other social programs through my tax dollars its nice to see myself actually benefiting from something.

[molson]

Let me tell my story.

I had fair credit at best, but was able to get a modest home. I was told to take an adjustable loan in order to save money now, and with a home on my credit and timely payments, my credit would go up nicely in the next couple of years and when the adjustable period came, I would just refinance into a fixed loan. Sounded like a great opportunity for somebody with a good income, but credit problems, to get a home, start building equity and repairing my credit.

Fast foward 2.5 years, and my credit has not improved due to various reasons, some out of my control. I am hitting the adjustable period now and obviously the new payments suck, making it even more impossible to improve my credit and qualify for a fixed loan in a refinance.

So yeah, after years of paying for numerous other social programs through my tax dollars its nice to see myself actually benefiting from something.

You made a bad financial decision. You won't be the first, you won't be the last. There's no particular shame in it, it was a risk. If it paid off, great. But it didn't. That's the nature of risk.

Let me tell a story.

I'm 29, a ton of student loans, still pretty moderate pay. So I rent. Low risk, low reward. So no government handout for me.

[CU Tiger]

So yeah, after years of paying for numerous other social programs through my tax dollars its nice to see myself actually benefiting from something.

I understand your desire to see you benefit from this, but certainly you have to see my lack of interest in funding it, right?


I dont understand what is impossible about living within your means (and this is not aimed at the immediate above poster) but this seems to be the root of most of this.

I have enough personal and business credit to live in/drive anything I want, but I choose a 10 year old paid for truck and a house that is honestly smaller than EVERY one of my employees *shrug* I guess I just dont have anything to prove...

[JPhillips]

One of the mistakes that's being made in this thread is to assume everyone bought a home bigger than they needed. That's certainly true in some markets, but in many urban areas a liveable home started at 300,000. We didn't buy in D.C. because we couldn't find anything we would want our daughter in that was under 300k.

I'm not a big fan of the bailout, but until the home loan market is transparent, I'm not willing to heap all the blame on buyers. There were bad buyers and bad sellers and those tat were taken advantage of deserve some sympathy.

[molson]

One of the mistakes that's being made in this thread is to assume everyone bought a home bigger than they needed. That's certainly true in some markets, but in many urban areas a liveable home started at 300,000. We didn't buy in D.C. because we couldn't find anything we would want our daughter in that was under 300k.

I'm not a big fan of the bailout, but until the home loan market is transparent, I'm not willing to heap all the blame on buyers. There were bad buyers and bad sellers and those tat were taken advantage of deserve some sympathy.

Sympathy, sure.

But you're still using the phrase "want", ie. "we couldn't find anything we would want our daughter in that was under 300k."

That sentiment is shared by plenty of people that simply can't afford 300k. There's no entitlement to a $300k house just because you have a kid, I don't care where you live. They need to either put off parenthood, or live within their means.

I'm sitting here in a tiny 1-bedroom apartment, and at the logical end of this bailout argument, I'm no better (and actually worse) off then someone who threw responsibility, financial planning, and restraint to the wind.

But maybe I'm in the minority. I won't even buy a dog until I'm at a point where I can comfortably own a home. And even then, I'd be freaked out enough to have a backup plan in case I lost my job, or had other financial peril that forced me back to an apartment that might not allow pets.

[Radii]

But maybe I'm in the minority. I won't even buy a dog until I'm at a point where I can comfortably own a home. And even then, I'd be freaked out enough to have a backup plan in case I lost my job, or had other financial peril that forced me back to an apartment that might not allow pets.

Just because being financially responsible is in the minority doesn't make it a bad thing.

[molson]

Just because being financially responsible is in the minority doesn't make it a bad thing.

Of course. But some level of financial irresponsibility is practically assumed these days (and forgiven, and sympathized).

I think the underlying issue here is the decline in the American standard of living over the last 50 years. A blue collar worker used to be able to support his family (and non-working spouse) comfortably, in a nice house with a yard. That ain't reality anymore, and some are slower than others in realizing this.

We're not as well off as our parents and grandparents. Accept it.

[JPhillips]

But wouldn't you be willing to take a chance on a house your broker said you could afford if it meant a better live for your family? Objectively it may have been a poor financial decision, but it certainly is easy to see how some families got there.

[molson]

But wouldn't you be willing to take a chance on a house your broker said you could afford if it meant a better live for your family? Objectively it may have been a poor financial decision, but it certainly is easy to see how some families got there.

Yes. I'm not saying anyone who made that mistake is a horrible person or anything, and it's not that I don't understand the temptations. But it was a risk. And one shouldn't take a risk on their families without appreciating and understanding the potential downside of that risk.

I'm not annoyed by the bailout arguments because I want to punish anyone for making a bad decision. But there's responsible people who couldn't afford a house because the irresponsible people drove up home values with reckless borrowing. I have a real problem with that, and just think that a bailout isn't the right solution.

[Flasch186]

Yes. I'm not saying anyone who made that mistake is a horrible person or anything, and it's not that I don't understand the temptations. But it was a risk. And one shouldn't take a risk on their families without appreciating and understanding the potential downside of that risk.

I'm not annoyed by the bailout arguments because I want to punish anyone for making a bad decision. But there's responsible people who couldn't afford a house because the irresponsible people drove up home values with reckless borrowing. I have a real problem with that, and just think that a bailout isn't the right solution.

90% of the price increases in the heavily speculated areas was caused by speculation and new home builders feeding the machine. Unfortunately, if you were the one builder who wanted to not sell to investors and in turn not raise prices than you are the builder today without enough money in your coffers to weather the storm. Not saying it's right but true in the areas of heavy speculation, ie. California, Florida, Vegas, etc.

[JPhillips]

I absolutely agree that prices got driven up artificially. And I don't thin everyone involved was duped. I just think the situation has many faces and while some deserve to take their medicine because of their choices, some others deserve a helping hand.

How you determine that is the real problem, and one I don't have an answer for. I just want people to remember that families are being broken apart by this. Some of the same people who claim to honor family values are also the first to condemn folks trying to help their families get a better life.

Some of the borrowers made a mistake and not all of them should have to see their lives wrecked.

[molson]

Some of the borrowers made a mistake and not all of them should have to see their lives wrecked.

They'll lose the house they couldn't afford in the first place. And they'll have their credit destroyed, which is a reasonable consequence for someone that borrows recklessly.

Why should they be entitled to keep a house that a similarly-positioned but more responsible family could never have?

At the end of the day, both the responsible and irresponsible family live in a similar place - the only difference is that the irresponsible family has worse credit. Isn't that the way it's supposed to be? The family that did it's research, used caution, is certainly a better credit risk for any lender than the reckless family.

It's like if someone borrows to buy a car they can't afford - why should they be entitled to continued ownership of that car when they can't make payments? What the hell kind of sense does that make?

[Young Drachma]

Why should they be entitled to keep a house that a similarly-positioned but more responsible family could never have?


+1

[ISiddiqui]

Like I alluded to before, you don't do anything and let all of those families get kicked out, you may start a large panic felt throughout the economy.

[lynchjm24]

Sorry, but that doesn't fly with me. I could objectively look at almost every circumstances where someone chose an ARM, no interest, etc and say it was a bad decision before it happened.




We have a 10 year ARM. The payment now is $3,700. After ten years there are caps of 2% and 2% - so it can max out at 9.7% which moves the payment to $4,500.

The 30 year mortgages were coming in around $4,150.

It's a bit of a gamble, but we could make the $4,500 payment now, nevermind ten years from now.

I'm still liking the decision.

[CU Tiger]

I just want people to remember that families are being broken apart by this.


If your family is "broken apart" because of a stupid house (or any posession for that matter) it wasn't a true family to start with. My wife and children are my life partners, whether in this house, a tent in the forest, a box under a bridge or a mansion on a tropical island, my family is mucch stronger than any house, mortgage or material good I can imagine. If "their's" isn't then thee mortgagee is a symptom of a much larger problem.

We have a 10 year ARM. The payment now is $3,700. After ten years there are caps of 2% and 2% - so it can max out at 9.7% which moves the payment to $4,500.

The 30 year mortgages were coming in around $4,150.

It's a bit of a gamble, but we could make the $4,500 payment now, nevermind ten years from now.

I'm still liking the decision.


in your case an ARM may well have been the right move. But you did the homework and didnt bury your head. Anyone who bought a house at 40 year low interest rates and thought they wouldnt go up is foolish, naive or ignorant. I can have sympathy for all but I can not be held financially responsible for them.

BTW in 1983 the AVERAGE mortgage was at 18% and guess what people still lived in houses and had families. For those that have said that we can not afford thee life our parents had, most of those single income families had 1 car, no car payment, and a much more overall modest lifestyle. Hell I have a grandfather who is a multi millionaire and built a house in 72 for him,his wife and their 2 kids. It was a manssion at 1900 square feet, today thats a starter home.

[Flasch186]

prices were slightly less...

[Marc Vaughan]

prices were slightly less...

IMHO in earlier days peoples expectations and wants were less.

People were more content with what they had and enjoyed somewhat simpler pleasures, these days there is a constant barrage of advertising what you 'should' own and also much wider knowledge via. the internet of things out there.

The worst trick which has been played on society imho (and this is in pretty much all countries) is convincing families that they 'need' loads of luxury items so both parents have to work to provide them, it isn't items which families crave but relationships ... which only come with spending time together (which is much harder imho if both parents work).

Just my tuppence worth - but its something I live by, I don't have a huge house but I am lucky enough to have a wife who shares these values and we both spend as much time as a 'family' (and couple) as possible and value that far more than material things.

.... but yeah I have to admit I'd be lost without a PC and internet connection .... hey no ones perfect and I'm a self-confessed geek ;)

PS> Sorry don't know where that soapbox came from ... just sort of stumbled onto it ;)

[Flasch186]

I agree with you....now we did I score that indirect free kick? :)

[JPhillips]

CUTiger: Studies have shown that financial difficulties are the number one reason for divorce. You may not like it, but it's true.

[Flasch186]

CUTiger: Studies have shown that financial difficulties are the number one reason for divorce. You may not like it, but it's true.

true too.

[CU Tiger]

CUTiger: Studies have shown that financial difficulties are the number one reason for divorce. You may not like it, but it's true.


I understand and am well aware of that.

Point is if you are so concerned aout your marriage and the effect that financial strain could have, DONT GET INTO A RISK IN THE FIRST PLACE.

Unfortunately we will never agree on this. I am an indiviual isolationist by nature. I wwant no help from anyone and dont want to be expected to help anyone. If the lending companies had decided to relieve consumers I would have no problem with it. For a Gov't program to mandate it, thats a whole other story. Not to digress but undderstand where I come from philosophically, I do not believe in handouts, if I fail to plan for retirement I fully expect our society to allow me to lie and starve in the street. But i expect to do the same...

[Flasch186]

I think that they do that in India, seriously...I watched some story on a city full of shunned widows. Crazy stuff and dont want that to happen here or anything similar so understand where I come from Philosophically and I hope you and yours will accept my offer for a blanket and a hot meal should you ever need it.

[CU Tiger]

we are way off based, but there is a BIG difference between you offering a blanket and a meal, and the GOVERNMENT MANDATING you buy me a blanket and a meal

[molson]

we are way off based, but there is a BIG difference between you offering a blanket and a meal, and the GOVERNMENT MANDATING you buy me a blanket and a meal

I was home over Thanksgiving and was reading this scrapbook/mini-biography thing one of my great aunts wrote. The most interesting thing was her descriptions of day-to-day life in the 20s and 30s, and what was going on in her neighborhood.

When someone was in need, there was always discussion of someone from the church, or from the neighborhood, helping in ways that seemed incredibly generous by 21st century standards, but was just part of life then. If you lost your job and had no money, your neighbor would take care of you until you found another job. If someone's mother got sick, a woman from the church would take care of the kids until she got better - sometimes for weeks or longer. I don't see how my family could have possibly survived without the Lutheran church in Philadelphia. I guess in a sense, that's a mini-government, though obviously one with optional membership.

When did we decide that the government was better as such things than our neighbors? Did neighbors suddenly stop caring for some reason, or more likely IMO, was there just a cultural and political shift that just put the responsibility on the government.

Government handouts are mandated caring and charity from people. That's just incredibly backwards to me.

[JPhillips]

molson: I don't doubt what you read, but individual charity has never and will never be universal. It doesn't mean that government intervention always works, but at no point in human history did neighbors take care of each other in anything but small enclaves. There was a reason that the populace was ready to demand the government put in safety nets.

CUTiger: I don't think you're a bad guy, but your philosophy seems incredibly cynical to me. There are times people need hand and often it's in society's best interest to do so. You're right, we'll never agree, but I hope that if it comes to that point society won't let you lie on street.

[Flasch186]

I was home over Thanksgiving and was reading this scrapbook/mini-biography thing one of my great aunts wrote. The most interesting thing was her descriptions of day-to-day life in the 20s and 30s, and what was going on in her neighborhood.

When someone was in need, there was always discussion of someone from the church, or from the neighborhood, helping in ways that seemed incredibly generous by 21st century standards, but was just part of life then. If you lost your job and had no money, your neighbor would take care of you until you found another job. If someone's mother got sick, a woman from the church would take care of the kids until she got better - sometimes for weeks or longer. I don't see how my family could have possibly survived without the Lutheran church in Philadelphia. I guess in a sense, that's a mini-government, though obviously one with optional membership.

When did we decide that the government was better as such things than our neighbors? Did neighbors suddenly stop caring for some reason, or more likely IMO, was there just a cultural and political shift that just put the responsibility on the government.

Government handouts are mandated caring and charity from people. That's just incredibly backwards to me.

I wonder if this is a scaled equation. As one dissipated the other filled the gap. I dont know which came first, more govt. meant less "village" treatment/caring or less "village" treatment/caring therefore more gov't. (help).

[molson]

molson: I don't doubt what you read, but individual charity has never and will never be universal. It doesn't mean that government intervention always works, but at no point in human history did neighbors take care of each other in anything but small enclaves. There was a reason that the populace was ready to demand the government put in safety nets.



I think you can be for some level of a government safety net but be against massive mortage bailouts.

Someone who loses a house they can't afford anyway isn't doomed to "live on the streets". I think there's too much discussion of extremes here. They'll have to rent a smaller place, perhaps using more responsible friends and families as credit references or co-signers. Could a few actually end up homeless? I guess, and I'm not against government assistance to those truly in poverty. I think what we're more dealing with here though, is middle-class families overextending themselves, and their foolish decisions knocking them down a class. I don't have a problem with that at all. Like I said, they'll end up in a place they can afford one way or another, just like someone who behaved more responsibility. The only difference is ruined credit, which they deserve.

And sure, there will be greater impacts on the economy as a whole. As others have said, such things are occasionally necessary. A generation of kids who see the mistakes of their parents will "hopefully" not make the same mistakes when they see the results.

One other funny thing I remember reading in my aunt's "memoirs". A government census guy game by, and learned that my aunt's family had 11 kids, a mother, and the father was deceased. The census guy immediately took off, apparently scared that they were going to seek out government assistance. It was considered a funny moment - I think people thought of government as a last resort, an extremely reluctant provider of services. And that was fine, because they trusted their friends and family more than the government.

[PilotMan]

I could have bought a house (my first) two years ago, but decided that the timing wasn't right even though the rates were super cheap. Now, people who made poor decisions are getting help out of a situation that they should have never gotten themselves into?

The market will always have a balence between inflation, interest rates, and prices. Over the last few years, with interest low, prices have gone up, and with that expendable income.

Nobody promised that income would last forever. Prices have to be allowed to correct back because of the change in the economy. Change is inevitable, and we would be best served dealing with it instead of trying to promote the status quo.

[JPhillips]

molson: I'm not really in favor of this plan, but I can also see a reason to help a portion of buyers effected. I'm fairly willing to let the market run, but only if there is transparency. When either the buyer or seller isn't able to see the complete picture the markets can't work efficiently and something bad is bound to happen.

That's what I think happened to a lot of buyers with exotic mortgages. Companies were working to sell as many mortgages as possible with no concern as to the financial viability of those mortgages. That could have been alleviated to some degree at several levels, through self-regulation of mortgage brokers, education/independent analysis for buyers, transparency of the CDOs and SIVs that bundled these mortgages, honest/independent ratings for these investments, etc.

Most of the regulation I favor boils down to transparency and knowledge for buyer and seller. When that happens I believe in the power of the market. When things get hidden and information is not freely shared things go awry.

This whole thing is liable to get much worse over the next year or two.

Analysts at Credit Suisse Group estimate more than 30 percent of borrowers with subprime adjustable-rate mortgages are behind on their payments before their loans reset higher and 775,000 homes with $143 billion of mortgage debt will go into foreclosure through the middle of 2009.

[lynchjm24]

The government has to get involved for the sake of the overall economy. It's not about individual families, it's about the economy as a whole.

[CU Tiger]

I guess its a product of me living in a small southern town.
If someone is in touble they go to the Church office and let people know about their situation, they dont ask for anything just make them aware. The communities bounty will see to it that they make it through.

Just last year, I spent $700+ on a family I dont know just so their kids could have a good Christmas, and I was happy to do it. (BTW even the Mom doesnt know who left the gifts under the tree while she worked....)
But if a govt agency forced me to do this? Hell Id sooner take up arms.

Its all about motivation to me.


All an offshoot tangent conversation. Point is the bail out is garbage, socialism at work.

And no offense but anyone who think the collapse of pseudo stable financial institutions and an overall lowering of housing valuees will hurt the macro economy, is either short sited, overly simplistic and pessimistic in their views, or not thinking through the whole process.

Sometimes a rock backwards launches a great leap.

[molson]

The government has to get involved for the sake of the overall economy. It's not about individual families, it's about the economy as a whole.

So give the handouts to the ones that acted responsibility rather than the reckless losers that damaged the economy.

[JPhillips]

No, it's about banks that currently are sitting on a pile of bad loans equal to 100 billion dollars with double that or more coming in the next two years. The majority of ARM resets haven't happened yet. The problem is that banks and/or mortgage companies can't do much on their own due to the contracts written when these CDOs and SIVs were sold. Having the government put pressure on, or at least appear to allows banks to skirt the regulations and refinance the debt instead of losing the entire loan.

CU: There's no socialism at work. The government isn't spending any of your money on this. It's just pressure on financial institutions so that they can do what they need to do to at least make back some of the loan. Home values have fallen enough in some markets that banks couldn't get more than 50-60 cents on the dollar at auction. Foreclosures hurt banks, but these investment vehicles often came with guarantees that they would never renegotiate the terms and so banks need the government to step in so that they can refinance.

My guess is that this was initiated by the financial industry and not the government.

[Marc Vaughan]

I was home over Thanksgiving and was reading this scrapbook/mini-biography thing one of my great aunts wrote. The most interesting thing was her descriptions of day-to-day life in the 20s and 30s, and what was going on in her neighborhood.

When someone was in need, there was always discussion of someone from the church, or from the neighborhood, helping in ways that seemed incredibly generous by 21st century standards, but was just part of life then. If you lost your job and had no money, your neighbor would take care of you until you found another job. If someone's mother got sick, a woman from the church would take care of the kids until she got better - sometimes for weeks or longer. I don't see how my family could have possibly survived without the Lutheran church in Philadelphia. I guess in a sense, that's a mini-government, though obviously one with optional membership.

When did we decide that the government was better as such things than our neighbors? Did neighbors suddenly stop caring for some reason, or more likely IMO, was there just a cultural and political shift that just put the responsibility on the government.

Government handouts are mandated caring and charity from people. That's just incredibly backwards to me.

The problem as I see it is 'advancements' which might tehcnologically help people cut down on their 'work' but also have destroyed much of the essential fabric of society.

For instance in the 40's in England people would generally live in their home town their entire lives and because of this people knew each of other and had deeper relationships than they do today.

Today even if you stay in the same town for several years chances are you're commuting to work and probably don't know that many people from your neighbourhood - especially if you don't have children to draw you into the neighbourhood via. their playmates.

Similarly in earlier times women would be at home and thus form the 'gel' of a neighbourhood through their friendships with other wives in the neighbourhood (in a similar way kids do this role today - but to a leser extent).

Without knowing other people well and having real relationships with them people are naturally reluctant to risk pain and loss by committing themselves to enduring help in many instances ... thus while on the 'tally count' of capbalism and income society might have 'improved' in many ways imho man-kind has lost a lot ...

(bah humbug ;) )

[SportsDino]

I agree the government should not bail out people for making decisions they know were wrong.

So in that vein, no bail out for the banks that bought investments they no longer understand (or do and look the other way). Capitalism is all about removing subpar performers through competition, and if there happens to be 200 billion dollars worth of banks that are the subpar performers, well so be it.

The market will overreact and cry havoc for a while, but after the dust clears you will have a healthier banking system.

Same goes for getting a crazy expensive house with a risky loan package, even if the prices were hyper-inflated by an irrational herd of dumb buyers. Help people deal with the shock in the most extreme cases, but ultimately a lot of people will just have to sell/foreclose and live at a lower standard of living then they have put on credit the last few years. I feel no sympathy, I got railroaded by the banks because of a mere $5,000 in debt during the worst year of my life (lost job, lost school, lost my credit rating). You learn to suck it up, pay your bills, and do without the many luxuries we take for granted these days. A person can get by for not too much money if they are smart about it, without any loans, even with obligations.

[ISiddiqui]

And no offense but anyone who think the collapse of pseudo stable financial institutions and an overall lowering of housing valuees will hurt the macro economy, is either short sited, overly simplistic and pessimistic in their views, or not thinking through the whole process.

Or absolutely correct. What exactly do you think will happen if financial institutions go under as a result of an obscene number of foreclosures? It's not going to just stay in the housing market.

And the fear wasn't a "rock backwards", but your great leap in the opposite direction. The economy does not need a crisis right now, when it is already attempting not fall into recession.

[CU Tiger]

Look I dont feel like arguing the minutia of mcro economics, it is probably my least favorite academia subject in the world.

But for a $.10 answer, some banks amy go under but the big boys will survive and pick up the scraps the fly by nights left behind. This will increase their holding capital and cause them to offer incentives for joe public to get his money into savings vehicles instead of funds/stocks. I.E. interest rates will climb. It may take 10 years, but the economy would emerge stronger. It is a sad fact but an 80% of populus middle class is not good for long term viability. a 25-50-25 is much better and a 30-40-30 is even better. For these things to happen a few in the middle need tomove up and many more need to slide back.

Im exhausted andd dont feel like typing anymore, but it would be a HORRIBLE 2 years and a bad 5 years but a GREAT 25 years.,... of couse no politician can see past the 4 year mark

[path12]

Look I dont feel like arguing the minutia of mcro economics, it is probably my least favorite academia subject in the world.

But for a $.10 answer, some banks amy go under but the big boys will survive and pick up the scraps the fly by nights left behind. This will increase their holding capital and cause them to offer incentives for joe public to get his money into savings vehicles instead of funds/stocks. I.E. interest rates will climb. It may take 10 years, but the economy would emerge stronger. It is a sad fact but an 80% of populus middle class is not good for long term viability. a 25-50-25 is much better and a 30-40-30 is even better. For these things to happen a few in the middle need tomove up and many more need to slide back.

Im exhausted andd dont feel like typing anymore, but it would be a HORRIBLE 2 years and a bad 5 years but a GREAT 25 years.,... of couse no politician can see past the 4 year mark

Shit, right now it's more like 30-55-5 isn't it?

[Arles]

Here's some info from the US Census Bureau:

"Households that earn between $25,000 and $75,000 represent approximately the middle half of the income distribution tables provided by the U.S. Census Bureau. Over the past two decades, the number of households in those brackets decreased from 48.2% to 44.3% while at the same time the number of households overall increased almost 30%. During the same time period, the number of households with incomes below $25,000 decreased slightly from 28.7% to 25.2% while the number of households with incomes above $75,000 increased over 7%, from 23.2% to 30.4%."

So, if you use the 25-75K number as the middle class (again, adjusted for cost of living), you end up with 25-45-30. The rage now is breaking up the middle class so you have the "lower class" (under 16K, ~15%), "working class" (16-30K, 25%), "middle class" (30-85K, 40%), "Elite or upper middle class" (85-140K, 15%) and the "Upper class" (140+, 5%).

Just like anything, if you torture the numbers long enough, they will tell you anything. The main issue seems to be income level to jump from the middle class. As you shift that closer to 100K, the middle class gets bigger. So, that's why many groups are focusing more on education/job level AND income and not just a straight income tree. IE, a school teacher and fireman with 4 kids making a combined 120K in New York is not the same as a lawyer making 120K when it comes to discretionary income. When you start equating these, you start to get the 25-80-15 numbers some throw about. But, if you group much of the analysis done from 2005 to 2007 with this in mind, it seems that our current setup is somewhere in the 30-45-25 range.

[JPhillips]

CU: The problem is the big boys. That's what's gotten everyone so spooked. BOA and CitiGroup carry so much of this stuff that right now it's practically impossible to figure out their worth. Each may take one hundred billion or more in losses over bad loans. That's why they're out front in offering solutions.

And if the choices are a bailout that costs me nothing or a depression that leads to 2 horrible years and 5 bad years, please sign me up for the former. Of course I don't think your "depressions are good for the economy" theory really stands up anyway.We haven't had a major recession or depression since the thirties and we've done pretty damn well. Mostly because of brakes put in place to alleviate financial problems before they become meltdowns.

[PilotMan]

Here's some info from the US Census Bureau:

"Households that earn between $25,000 and $75,000 represent approximately the middle half of the income distribution tables provided by the U.S. Census Bureau. Over the past two decades, the number of households in those brackets decreased from 48.2% to 44.3% while at the same time the number of households overall increased almost 30%. During the same time period, the number of households with incomes below $25,000 decreased slightly from 28.7% to 25.2% while the number of households with incomes above $75,000 increased over 7%, from 23.2% to 30.4%."

So, if you use the 25-75K number as the middle class (again, adjusted for cost of living), you end up with 25-45-30. The rage now is breaking up the middle class so you have the "lower class" (under 16K, ~15%), "working class" (16-30K, 25%), "middle class" (30-85K, 40%), "Elite or upper middle class" (85-140K, 15%) and the "Upper class" (140+, 5%).

Just like anything, if you torture the numbers long enough, they will tell you anything. The main issue seems to be income level to jump from the middle class. As you shift that closer to 100K, the middle class gets bigger. So, that's why many groups are focusing more on education/job level AND income and not just a straight income tree. IE, a school teacher and fireman with 4 kids making a combined 120K in New York is not the same as a lawyer making 120K when it comes to discretionary income. When you start equating these, you start to get the 25-80-15 numbers some throw about. But, if you group much of the analysis done from 2005 to 2007 with this in mind, it seems that our current setup is somewhere in the 30-45-25 range.


Thats really interesting stuff Arlie. I can tell you that my modest income <45k/yr feels a whole lot different being the sole provider and having 3 kids at home all day, compared to when I was making 35k being a single guy 10 years ago.

[PilotMan]

CU: The problem is the big boys. That's what's gotten everyone so spooked. BOA and CitiGroup carry so much of this stuff that right now it's practically impossible to figure out their worth. Each may take one hundred billion or more in losses over bad loans. That's why they're out front in offering solutions.

And if the choices are a bailout that costs me nothing or a depression that leads to 2 horrible years and 5 bad years, please sign me up for the former. Of course I don't think your "depressions are good for the economy" theory really stands up anyway.We haven't had a major recession or depression since the thirties and we've done pretty damn well. Mostly because of brakes put in place to alleviate financial problems before they become meltdowns.


Sounds a lot like a family credit counseling plan for credit cards for families. Plans that are in place to help credit card companies recoup as much money from individual families so that they dont go into bankrupcy.

Wasn't there a recession in the early 90's? I have to agree that if you are correct about 7 bad years, then it's an easy choice. I am just not sold that the overall effects are that predictable.

[JPhillips]

Pilot: Exactly. The banks want a way to get something even if it's less than 100%. I don't think this bailout plan will do much, but this is more about big financial companies than individual buyers.

As to the effects of the mortgage problem, I don't think it will be that bad either, I was just using CU'spremise. The recession we had in the early nineties and the other recessions we've had since the Great Depression have been very minor in comparison to the boom/bust cycle common in the early twentieth and nineteenth centuries.

[wade moore]

If this is the case [that the responsibility is shared] then the people should be helped and the industry punished (or gently forced to comply with this voluntary bailout [which IMO should be broader])


Unfortunately i didn't have internet access for a few days so I fell out of this conversation.

But, this seems to be the big point that bothers me that Flasch seems to have summed up here.

Flasch says that if the responsibility is shared between the lenders and the borrowers that the lenders should be punished and the borrowers helped?!

Wha?

That's shared responsibility?

[ISiddiqui]

Look I dont feel like arguing the minutia of mcro economics, it is probably my least favorite academia subject in the world.

But for a $.10 answer, some banks amy go under but the big boys will survive and pick up the scraps the fly by nights left behind. This will increase their holding capital and cause them to offer incentives for joe public to get his money into savings vehicles instead of funds/stocks. I.E. interest rates will climb. It may take 10 years, but the economy would emerge stronger. It is a sad fact but an 80% of populus middle class is not good for long term viability. a 25-50-25 is much better and a 30-40-30 is even better. For these things to happen a few in the middle need tomove up and many more need to slide back.

Im exhausted andd dont feel like typing anymore, but it would be a HORRIBLE 2 years and a bad 5 years but a GREAT 25 years.,... of couse no politician can see past the 4 year mark

Fair enough about not arguing micro economics (though I don't share you POV on it ;)). However, regardless of whether the economy would end up stronger in 10-20 years if it allowed everything to fall, the problem is the fall itself. A big time recession is not going to be good on a number of people. Sometimes policy makers do have to realize that real people are being effected by the somewhat abstract numbers on the board. Sometimes what seems to be good economically may not be the best policy course of action because of the impact it will have on the people, and it isn't necessarily about seeing past the 4 year mark, but about how much egg breaking you feel like you can handle.

Oh, and I do doubt that many investors will be tempted by bank offers to shift away from mutual & hedge funds and stocks. The market is, as of yet, not in that much trouble. And by the time the big banks will be in a position to offer such incentives (after righting their ship), there may not be that much to lead investors to the banks (probably more of a "buy low" mentality).

[molson]

Sometimes policy makers do have to realize that real people are being effected by the somewhat abstract numbers on the board.

One pet peeve of mine when discussing "liberal" v. "conservative" economics (and I don't really like those terms), is this idea that the entire argument boils down to liberals caring about people, and conservatives not. That liberals are thinking about helping people, and conservatives don't. It's just not fair or accurate. It's two different philosophies about how all people can be harmed or benefited by a an economic systems. Just because a conservative may look at it differently, and feel a different approach will benefit people longer term, doesn't mean they enjoy people's misery.

[Flasch186]

Unfortunately i didn't have internet access for a few days so I fell out of this conversation.

But, this seems to be the big point that bothers me that Flasch seems to have summed up here.

Flasch says that if the responsibility is shared between the lenders and the borrowers that the lenders should be punished and the borrowers helped?!

Wha?

That's shared responsibility?

not quite the context I had in mind when it's pulled out of the debate like that.

Someone had said that no one is saying that the industry isn't culpable too therefore I was stating that if you are arguing shared responsibility than the idea that the banks aren't culpable too vs. your argument that the people shouldnt be helped doesnt make sense to me. If the banks are culpable than they should have to pay the price too. In this case paying the price would mean helping a subset of those that they screwed in the first place (referencing back to Flere's statement of fact of the limitations of those the plan actually helps).

I dont think I meant it to be pulled out that way....at least in my brain it worked during the debate. I see your point when it's pulled out like that that it looks like I want the only blame on the banks. thats not true as many many of the mortgagers are not eligible for the help, myself included.

[ISiddiqui]

One pet peeve of mine when discussing "liberal" v. "conservative" economics (and I don't really like those terms), is this idea that the entire argument boils down to liberals caring about people, and conservatives not. That liberals are thinking about helping people, and conservatives don't. It's just not fair or accurate. It's two different philosophies about how all people can be harmed or benefited by a an economic systems. Just because a conservative may look at it differently, and feel a different approach will benefit people longer term, doesn't mean they enjoy people's misery.

I never said they "enjoy" the misery, but I do think that many conservatives just don't care. One factor of capitalism that cannot be ignored is that it is a system of winners and losers. And there have to be losers. How each philosophy wants to treat the losers speaks volumes, IMO. Plenty of conservatives seem to want to blame the losers for their fate.

[Marc Vaughan]

Sometimes policy makers do have to realize that real people are being effected by the somewhat abstract numbers on the board.

I actually think people learn and its better for society for people not to be molly-coddled. If people are always protected from their mistakes then they never learn and will continually mess up, if they make mistakes yes it hurts - but they and others who are watching them will hopefully learn and avoid these problems in the future.

*Incidentally I still own property in the UK (advertised and available for purchase if anyones interested ;) ) and am watching nervously as the market looks to take a downturn on the back of the US mortgage kerfuffle knock-on, if it does drop heavily I'm not expecting handouts to help me or anything else - I bought it with my eyes open and want to be treated like an adult thanks all the same.

Strangely enough my favourite Poem is "if" which is all about taking risks learning from them and going on ...

If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings And never breathe a word about your loss;
If you can force your heart and nerve and sinew To serve your turn long after they are gone,
And so hold on when there is nothing in you Except the Will which says to them: "Hold on!"

[wade moore]

not quite the context I had in mind when it's pulled out of the debate like that.

Someone had said that no one is saying that the industry isn't culpable too therefore I was stating that if you are arguing shared responsibility than the idea that the banks aren't culpable too vs. your argument that the people shouldnt be helped doesnt make sense to me. If the banks are culpable than they should have to pay the price too. In this case paying the price would mean helping a subset of those that they screwed in the first place (referencing back to Flere's statement of fact of the limitations of those the plan actually helps).

I dont think I meant it to be pulled out that way....at least in my brain it worked during the debate. I see your point when it's pulled out like that that it looks like I want the only blame on the banks. thats not true as many many of the mortgagers are not eligible for the help, myself included.

The thing you seem to be missing here is the banks and lenders DO suffer. We're here talking about how this stuff needs to happen so that the banks/lenders don't go under.

They lent say 500k for a house. The owner has paid oh... say 5k in the last 2 years on the principal. Now they foreclose on the house. The bank sells the house for 300k on auction. The bank loses.

The banks/lenders are not harm-free here by any stretch.

[CU Tiger]

I never said they "enjoy" the misery, but I do think that many conservatives just don't care. One factor of capitalism that cannot be ignored is that it is a system of winners and losers. And there have to be losers. How each philosophy wants to treat the losers speaks volumes, IMO. Plenty of conservatives seem to want to blame the losers for their fate.


I see where you afre coming from, but my "conservative" view is more in line with "how you define help"?

I have a family member who had/has a major addiction problem. I stayed with him through his early physical withdrawal period.(mainly because the family didnt want him instituionalized, and I was the only one deemed strong enough to keep him from killing himself) During this time I watched him beg me to either A) Give him his "medicine" (heoin) or B) Kill him.

To him a needle would have been "help", ten years later he hugs me everytime he sees me and says I saved his life. But there were 14 AGONIZING days that left us both bruised, cut, and phsically and emotionally scarred.

Giving someone who is careless with their money and who has made poor decisions a bail out, would be just like me giving him the needle. Sure he would have felt better, but he'd be worse today.

What is the "Greatest Generation"? It is the children of the 30s. The despair and pain brought by the GD instilled character and drive into a group that produced wonders that few societies have ever equaled. As we try to isolate ourselves from pain and hardship we may alos alienate ourselves from drive, determination and personal responsibility.

[chesapeake]

The banks/lenders are not harm-free here by any stretch.

I'm not sure I'd call that suffering. Yes, the CEO may lose his/her job if things get too bad. Let's look at how painful departure may be for some of these folks who for whom dismissal is either likely are already done, according to numbers reported in BusinessWeek in November.

Richard Fuld, Lehman Bros. - $299 million
Stanley O'Neal, Merrill Lynch - $161 million
Kenneth Lewis, Bank of America - $120 million
Charles Prince, CitiGroup - $40 million

Other top execs at these companies get payouts upon dismissal as well. Although not quite as rich, they'll still be able to make their house payments. On all their residences.

This is why many, including myself, have little sympathy for the lenders. The mistakes they made are often far worse than the family that stupidly accepted the ARM that the lender made the hard sell on. But it does not appear to me that the punishment for failure in the lender's case is overly harsh.

Admittedly, $40 million is a lot of money to me. YMMV.

[wade moore]

I'm not sure I'd call that suffering. Yes, the CEO may lose his/her job if things get too bad. Let's look at how painful departure may be for some of these folks who for whom dismissal is either likely are already done, according to numbers reported in BusinessWeek in November.

Richard Fuld, Lehman Bros. - $299 million
Stanley O'Neal, Merrill Lynch - $161 million
Kenneth Lewis, Bank of America - $120 million
Charles Prince, CitiGroup - $40 million

Other top execs at these companies get payouts upon dismissal as well. Although not quite as rich, they'll still be able to make their house payments. On all their residences.

This is why many, including myself, have little sympathy for the lenders. The mistakes they made are often far worse than the family that stupidly accepted the ARM that the lender made the hard sell on. But it does not appear to me that the punishment for failure in the lender's case is overly harsh.

Admittedly, $40 million is a lot of money to me. YMMV.

Bail-outs do NOTHING to change this though. Nothing that happens (outside of criminal prosecution which is totally outside the realms of anything i'm talking about) is going to change this.

I don't have sympathy for the lender's either, but the COMPANIES are certainly going to suffer. Nothing I've seen suggested would have any impcat on these top execs.

[ISiddiqui]

What is the "Greatest Generation"? It is the children of the 30s. The despair and pain brought by the GD instilled character and drive into a group that produced wonders that few societies have ever equaled. As we try to isolate ourselves from pain and hardship we may alos alienate ourselves from drive, determination and personal responsibility.

The irony in that is that the 30s was also the era of the New Deal. When government started to step up and help individuals who were on hard times. Maybe that experience, as well, brought about a sense of community and a feeling that you should help society because it may need to help you at some point.

The difference between your example with the addict and this one is that you were there to give your support to the addict. You were there, telling him it'd be alright on the other side. If the government just turns away, it seems like they are just ignoring the plight of these people and seems somewhat cruel. As does the message, ie, you need to suffer so you learn not to do this again.

[Arles]

The difference between your example with the addict and this one is that you were there to give your support to the addict. You were there, telling him it'd be alright on the other side. If the government just turns away, it seems like they are just ignoring the plight of these people and seems somewhat cruel. As does the message, ie, you need to suffer so you learn not to do this again.
This has been a very interesting thread. The way I see it, we have three phylisophical paths discussed in this thread:

1. Do nothing and let the market sort itself out.

2. Some kind of financial bailout focused primarily on helping victims of the lenders for a few years. IE, tax writeoffs and other financial assistance for those deemed to have "bad loans".

3. Try to limit the impact of the "hit" by freezing rates for a certain period or even targeting a certain "maximum jump" in rate hike (ie, to prevent someone with a 5% mortgage from hitting 10%).

Here's the problem I see with items 2 and 3 - they're just delaying the inevitable. Many of the problem issues involve someone buying a $500,000 house on an interest only "teaser" rate with a bump in 2-3 years. These payments start at $700-$900 as you are paying less principle and increasing the loan size. So, let's take this case with item 2 - the loan jumps to 8% and this person now has a payment of $3500. Even if the government helps him for a few years and eats half his payment, the moment the help stops he will be forced with a payment in the $3000-$3500 (even with a sweet refinance). Now, item 3. Let's say the Gov't says the most you can charge this person is 5% (instead of the 8%). Even with this phenominal rate, the person still sees their mortgage jump from $800 to $2800. So, again, are you really helping this person? It seems all that either 2 or 3 does is allow people to throw more money into a house they can't afford and then be forced into a foreclosure a year or two later than the market would have caused if left alone.

In the end, you have people in houses they have no business being in. No matter how you try to help, unless the gov't just pays their mortgage indefinately, these people are going to hit a point where their payment "gets back to normal" and becomes an amount they can no longer afford. So, is it really better to string people along for 2 years before they go into default? Instead, you could simply use this time as a learning experience for people and banks with a focus on improving education at the HS level and lending process for the future. Heck, maybe offer a "lending class" (like a driving class for licenses) for first time buyers that gives you an extra gov't tax benefit for the first year if you take it.

In the end, people that got hit on buying houses that were 200-300K more than they can afford with be forced to rent or settle on much cheaper places until they can build their credit again (4-5 years in many cases) - but they won't be living on the street. And, if these "horror stories" help improve the industry standards and overall education level, everyone will be better off down the road.

[JPhillips]

Arles: That's not necessarily what will happen. If these rates are frozen for five years and in that time the market rights itself many home owners would be able to sell and get out from under the bad mortgage.

But again, this isn't som much about buyers. The big banks are scared to death. Today UBS wrote of ten billion in bad loans and BOA froze a 12 billion money market fund presumably due to a big discrepency between actual and stated values. Banks are hopeful that they can find a way to get out of this mess with the company intact. I don't expect a financial catastrophe, but I think we're closer than people want to admit.

[molson]

I never said they "enjoy" the misery, but I do think that many conservatives just don't care. One factor of capitalism that cannot be ignored is that it is a system of winners and losers. And there have to be losers. How each philosophy wants to treat the losers speaks volumes, IMO. Plenty of conservatives seem to want to blame the losers for their fate.

There's definitely people in all political spectrums that don't care, but there's definitely also those that just believe that a capitalist system with limited restraints ultimately provide more net happiness, wealth, and success for the civilization as a whole, both in terms of net results, and a desirable dispersion of succes and wealth (or at least an opportunity), across the whole.

It's really not good v. evil, despite how people try to frame the discussion. "These are REAL people!!!", etc.

[ISiddiqui]

But again, this isn't som much about buyers. The big banks are scared to death. Today UBS wrote of ten billion in bad loans and BOA froze a 12 billion money market fund presumably due to a big discrepency between actual and stated values. Banks are hopeful that they can find a way to get out of this mess with the company intact. I don't expect a financial catastrophe, but I think we're closer than people want to admit.

Exactly. This isn't something that will just blow over easily. There is the potential for a really nasty recession, especially when you start seeing the big banks getting really scared about things.

It seems all that either 2 or 3 does is allow people to throw more money into a house they can't afford and then be forced into a foreclosure a year or two later than the market would have caused if left alone.

As JPhillips pointed out, one thing it may do is allow those buyers to sell when the market is better. At worst, it spaces out the foreclosures, so the bottom doesn't fall out all at once.

One thing to realize is that consumer confidence matters a WHOLE lot and thereby, having the foreclosures spaced out instead of all at once may be far, far better, even though you may have the same foreclosures in the same 5 year period of time.

[Arles]

Arles: That's not necessarily what will happen. If these rates are frozen for five years and in that time the market rights itself many home owners would be able to sell and get out from under the bad mortgage.
OK, let's take this case. First, even if you freeze rates, the problem still exists. The problem most people in the danger area had is not that their 5-year ARM goes to 8%. That would suck for many people, but you are still only looking at an extra $400-500 a month. Most people could surivive that - and if they couldn't then there's just as good a chance something else similar happens in the next 5-6 years to cause an increase in their expendatures for $400. The problem areas are the people with interest-only. So, in these cases, the people would see a jump of $1500-$2000 if the rates freeze and they are just made to have a legit 30-year principle payoff loan at 5%.

Now, maybe you want a "payment freeze". If that's the case, every month that goes by will increase the debt on their home. So, if someone has a 500K mortgage, that means they will be at 510K mortage after a year - with it getting worse every year. So, if in 2 years they sell their home for 475K or even 500K, they would still owe between 25 and 50K after the sale just to cover the mortgage. Now, let's look at the higher % chance. Someone tries to sell their house for 3-4 years and can't (because they want atleast what they paid to cancel the mortgage) and then they miss their window and foreclose. Now, instead of just forclosing in 2008 and renting from 08-11 to build up credit (or equity with some apts), they've just thrown 40-50K away between 2008 and 2011 and are back in the same spot they could have been earlier had nothing been done.

But again, this isn't som much about buyers. The big banks are scared to death. Today UBS wrote of ten billion in bad loans and BOA froze a 12 billion money market fund presumably due to a big discrepency between actual and stated values. Banks are hopeful that they can find a way to get out of this mess with the company intact. I don't expect a financial catastrophe, but I think we're closer than people want to admit.
You'll just have more buyouts of the little guys (like the gas/airline companies in the 90s, early 2000s). The big guys will take a hit (and take a writeoff on some), but will have less competition on loans down the line. This is going to happen no matter what. The difference comes in if you bail out consumers and allow all this litigation. Then, a bank will have two issues with average to below average credit consumers - 1. the chance they default and are stuck with the loan and 2. the chance they default and sue. If these kinds of legal actions take place, you will find it nearly impossible to get a home loan without a credit score of 700+.

Any action that happens will have reprocussions - some extremely serious. The best course of action is probably to focus on educating first-time buyers before they sign anything and let the market work itself out over the next 2-3 years. Now, if things start getting real bad, you can revisit some kind of savings-and-loan style tax benefit. But, doing something now as you try to predict the damage is just going to cause more problems down the line. The horse is out of the barn in terms of damage to many financial institutions and bad loan consumers, trying to chance them down now with the barn door open will just allow more horses to leave (and prolong the pain for 3-4 years). Shut the door, let the market correct itself and count on the idea that the big guys will be left after the dust settles and the process of getting mortgages will just be tougher for people without good credit. At worst, you have a 2-year recession that picks itself back up when people see the worst is behind on these bad loans. Spacing it out over 5-6 years can create a culture of loan fear that doesn't go away or have a light at the end of the tunnel.

[Arles]

dola, look at it from another way. Would it have been better for consumer confidence to have an aggressive ground-attack from day 1 in Iraq that had 8000 casualties, but an end to the war in 2 years? Or, the 6-7 year war with slightly fewer casualties but guys still fighting it years later and seeing it on the news everyday?

[ISiddiqui]

It doesn't work that with the economy. Mostly because people actually have power with the economy and a big "offensive" could cause ordinary people to start to panic and make things worse.

[Arles]

It doesn't work that with the economy. Mostly because people actually have power with the economy and a big "offensive" could cause ordinary people to start to panic and make things worse.
I don't buy it relating to this issue. With our 24-7 news cycle, it's much worse on consumer confidence to have 5 years of bad news instead of 2 years of worse news. As long as there is a defined cause and a known timetable for improvement, people can handle 1-2 periods of bad news. Also, this isn't something like gas prices that impacts most people on a consistent basis. It's one of those items where the result of most surveys would be "I'm OK, but I'm worried about my neighbor". As soon as things start to get better, most consumers bounce back fairly quickly. If, instead, they keep hearing bad news on it year after year, they may just default to the fear state even when good news comes.

Here's another analogy. Let's say you drive to work downtown and get hit with a $200 speeding ticket. You go to traffic school newxt weekend, pay the fine and move on. It sucks, but next month you are probably OK and moving on with your life. Now, instead, let's say that every working day for the next 4 weeks you get hit with a $10 parking ticket - no matter where you park downtown. Now, the damage is the same (200 vs 10*20), but you are probably much more afraid to go downtown and park next month in the second instance. You can make similar parallels with investing. If we have a one-day 400 point hit - and then back to a gain/loss situation, it's much easier on consumer confidence than if you had 40 straight days of losses.

[ISiddiqui]

With our 24-7 news cycle, it's much worse on consumer confidence to have 5 years of bad news instead of 2 years of worse news.

Only if you think the news media is going to give 5 years of below average news the same coverage as 2 years of bad news ;). The news media doesn't like the stories that don't lend itself to alarmism, such as foreclosure spread over 5 years. They'd prefer to raise the alarm over it happening all at once. For example, how much do we really hear about the moderate growth the last few years? Most people seem to think the US was in a recession for far, far longer than it actually was (about 2 quarters in 2001/02, IIRC).

[JPhillips]

Arles: I get what you're saying, but it would only really apply if we were near the end of the problem. We're not. Mortgage resets escalate dramatically over the next 18 to 24 months. The problems today are really only the beginning. And the problems for the big guys are worse than you think. When big banks start freezing access to accounts it's a really big deal. Also, a couple of big mortage companies are near bankruptcy already. Seeing foriegn banks write off billions is also a bad sign.

A lot of this problem can't be fixed now, prices are too inflated to expect to get a full return in the short term. However, big finance is scared to death and don't be surprised if this bailout plan is only the first of many.

[Arles]

Arles: I get what you're saying, but it would only really apply if we were near the end of the problem. We're not. Mortgage resets escalate dramatically over the next 18 to 24 months. The problems today are really only the beginning. And the problems for the big guys are worse than you think. When big banks start freezing access to accounts it's a really big deal. Also, a couple of big mortage companies are near bankruptcy already. Seeing foriegn banks write off billions is also a bad sign.
I think if it does get to this point of impending mass bankruptcy, something will be done. I just don't know of the scope of bad loans that will be coming to fruition over the next 24 months. If that data shows reasons for alarm, I think someone should be done to help keep the main institutions afloat (much like the savings and loans). However, I don't think the focus should be the consumer with the loan (which was what started many of the discussions here). Whether some "economy-buoying" tax effort is made to help the top institutions survive the hit, it doesn't change the fact that the people with bad "teaser" mortgages are going to probably lose their house and not much can be done to stop that.

A lot of this problem can't be fixed now, prices are too inflated to expect to get a full return in the short term. However, big finance is scared to death and don't be surprised if this bailout plan is only the first of many.
I don't doubt this. My point was that it is not in anyone's best interest to help soften the blow on people who have bought a house they had no reason buying. Now, it may be in everyone's interest to help some of the big finance players get through it, but the backlash will be big. It will be another "Enron-style" press story where the little guy gets taken by the big, evil company. However, much like the Enron logic in putting all your retirement in one stock, the truth will probably show education (and not bailouts) are the only real answer to helping this issue moving forward for consumers.

[lynchjm24]

We won't even really attempt to sell to mortgage companies anymore. Just too much of a chance they either
A. Lay off all their employees polluting their risk pool
B. Go belly up instantly sticking us with their liability

[Flasch186]

just wanted to point out that much of the fedspeak, Congressional trumpeting, and campaigning the last few weeks has said exactly what I and the other people that have proclaimed the same things have said. Boiled down, systemic fraud from top to bottom in the industry, from Brokerages to appraisals. Now I can admit when I am wrong, for example, much to my surprise, the Bush Surge in Iraq either directly or indirectly has been a success (more positives than negatives)....I look forward to when you all on the opposite side of the fence can open your minds to the empirical evidence and say, "I am (was) wrong."

Not a threadjack regarding the surge so let's stay on topic :)

[Logan]

I didn't read every post...but wasn't the whole argument that everyone on both sides, including the "systemic fraud from top to bottom in the industry, from Brokerages to appraisals" as well as the homebuyer who didn't do his/her homework deserved to share blame equally? Did you expect Congress to come out and say "John Taxpayer is to blame for the mess he got himself into?"

Basically, who argued that the mortgage lenders were saints?

[Flasch186]

I didn't read every post...but wasn't the whole argument that everyone on both sides, including the "systemic fraud from top to bottom in the industry, from Brokerages to appraisals" as well as the homebuyer who didn't do his/her homework deserved to share blame equally? Did you expect Congress to come out and say "John Taxpayer is to blame for the mess he got himself into?"

Basically, who argued that the mortgage lenders were saints?

there is an insinuation, perhaps I read too much into it, i dont know, that the homebuyer's knew exactly what they were doing AND the group that didn't deserves exactly what they get. That pretty much covers the entire buyer's side as being culpable, each one in that they get the shared effect of what is going on. However, from what all of the experts, the last 2 weeks have said, is that MANY of these people WERE taken advantage of and preyed upon and DO, in fact, deserve help. The brokers, appraisers, realtors, lenders, underwriters, speculators, together share the great majority of the responsibility for what is going on and if I said otherwise I take that back. They deserve the bulk of the blame on a macro and micro level and deserve to share the bulk of the effects as opposed to the individual who was victimized.

by being against helping those in need due to the current situation you are, IMO, placing ALL of the blame on the individual because they are the one's who will suffer the harshest effects. The Brokerage companies and their big wigs will be fine in the long run but the individual who got taken will not be. I think we just went full circle in this thread. :)

[Flasch186]

Washington Mutual was just sued by Baltimore and the Mayor said that it's just the first.

The Attorney General of NY is looking into widespread fraud.

And you wanna know who really really really made the most out of this?


States probe banks' role in risky loans

By PAT EATON-ROBB, Associated Press Writer 1 hour, 46 minutes ago

HARTFORD, Conn. - Authorities in New York and Connecticut are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities that were sold to investors, Connecticut's Attorney General said Saturday.
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The investigations, first reported Sunday by The New York Times, center around "no-doc" or "exception" loans, that did not even meet even subprime standards, Attorney General Richard Blumenthal said.

"The loans were made to people who did not have any documents to verify their income or other verification for key requirements normally applied to mortgage borrowers," he said. "Many of the lenders made large amounts of loans, so that the exception swallowed the rule, or became the rule."

The loans were sold by subprime lenders to Wall Street firms that bundled them with other, less risky, loans into securities.

Investigators want to find out whether the banks properly disclosed the high risk of default on those loans when selling those securities to investors in Connecticut and elsewhere, Blumenthal said.

"The investment banks may have used very broad, boilerplate disclaimer language that effectively failed to disclose fully and fairly all the information," he said.

Blumenthal said Connecticut is cooperating with New York and that the investigation may eventually include the Securities and Exchange Commission.

The Times said charges could be filed in the coming weeks.

Jeffrey Lerner, a spokesman for New York Attorney General Andrew Cuomo, declined to comment Saturday.

In November, Cuomo said he issued subpoenas to government-sponsored lenders Fannie Mae and Freddie Mac in his investigation into what he claims are conflicts of interest in the mortgage industry. He said he wanted to know about billions of dollars of home loans they bought from banks, including the largest U.S. savings and loan, Washington Mutual Inc., and how appraisals were handled.

Spokesmen for both lenders said they require accurate appraisals and both agreed to appoint independent examiners as requested. Washington Mutual said it was conducting its own internal investigation into Cuomo's claims and that "the company will vigorously defend itself from all unfounded allegations and lawsuits."

Blumenthal declined to say which firms were under investigation, but said his office had issued over 30 subpoenas.

"These practices involving trillions of dollars in securities sold to ordinary investors go to the core of our financial system's integrity and efficiency," Blumenthal said. "We regard this investigation as a priority."

[Galaxy]

I've heard about this. Maybe banks like Goldman Sachs will have to par back those billions of dollars of bonuses they've paid out the last few years.

[molson]

"The loans were made to people who did not have any documents to verify their income or other verification for key requirements normally applied to mortgage borrowers," he said. "Many of the lenders made large amounts of loans, so that the exception swallowed the rule, or became the rule."

If that didn't give a borrower a red flag, I don't know what to say. People with bad financial sense deserve bad credit. That the way the system works. They'll lose their house, be back in an apartment they should have been in all along, and future lenders will have warnings about their lack of credit-worthiness. All is right with the world.

[Mr. Wednesday]

The way I read that, they're more concerned with the next stage after the initial loan: the packaging of the loans into securities to diffuse the risk. The concern is whether the risk of default on these specific loans was properly disclosed in the packaged investment vehicle.

[Flasch186]

....all the way to the top.

Reports: FBI Investigating Countrywide
Sunday March 9, 10:35 am ET
Reports: FBI Begins Investigation Into Countrywide Financial Corp. for Securities Fraud

LOS ANGELES (AP) -- Federal authorities are investigating Countrywide Financial Corp. for securities fraud, according to media reports.

The FBI is in the early stages of an inquiry into whether company officials misrepresented its financial position and the quality of its mortgage loans, The Wall Street Journal first reported Saturday, citing law enforcement officials and finance executives with knowledge of the development.

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The Justice Department is also involved in the investigation into the nation's largest mortgage lender, said the New York Times, which also cited anonymous sources who said they were not authorized to discuss ongoing criminal matters.

"We are not aware of any such investigation," Countrywide spokeswoman Susan Martin told the Times.

FBI spokesman Richard Kolko declined to confirm for the Times that an investigation had been opened.

Investigators are looking at evidence that may suggest that company executives knew their mortgage securities would see many more defaults than predicted in its public documents, one source told the Journal.

The inquiry is part of a larger probe involving as many as 15 companies and comes in the midst of the subprime mortgage crisis.

Bank of America Corp. is in the process of acquiring California-based Countrywide for about $4 billion in stock. Bank of America agreed to the acquisition in January, and the transaction is expected to close in the third quarter. A spokesman for Bank of America declined to comment.

Countrywide CEO Angelo Mozilo was one of three mortgage industry executives brought before a Congressional committee Friday to defend their exorbitant pay at a time the industry was reeling.

Congressional figures showed that Countrywide lost $1.2 billion in the third quarter of 2007 and another $422 million in the fourth quarter. The company's stock fell 80 percent between February and the end of the year.

During the same period, Mozilo received a $1.9 million salary, $20 million in stock awards contingent upon performance and sold $121 million in stock.

[Flasch186]

So the post before shows that the fraudulent thoughts went all the way to the top....now you see it went all the way to the bottom too.

The tip of the iceberg

http://money.cnn.com/2008/06/19/real_estate/mortgage_fraud/index.htm?cnn=yes

[flere-imsaho]

Today's WSJ has a front page article on the trial of some Bear Stearns honchos and their emails which show them telling each other that the investments were junk but that they were recommending them to their clients anyway. Good stuff.

[Flasch186]

It takes a while but sometimes, if it's not to do with equities, I end up being right.

[molson]

I hope the criminals are prosecuted, and that restitution is ordered. Though this wouldn't change my position on any government bail-out.

[DanGarion]

There should be no government bail-out. Buying a house is just like any other investment.

[Flasch186]

I guess instead of redebating the same thing to this point you can just go back to page 1.

[duckman]

I end up being right.

Your back must be sore from all the self patting. :devil:

[molson]

It takes a while but sometimes, if it's not to do with equities, I end up being right.

Nobody disagreed with you about the lenders/brokers being crooked. So we're all right.

Hire a lawyer before you enter into a major financial transaction. If you can't afford the lawyer, you can't afford the house.

[sabotai]

Today's WSJ has a front page article on the trial of some Bear Stearns honchos and their emails which show them telling each other that the investments were junk but that they were recommending them to their clients anyway. Good stuff.

It's a good thing these guys turn out to be incredibly stupid.

[Flasch186]

unfortunately it wont help the people who've lived in their homes for 50 years only to be swindled into a crappy Heloc and now have lost just about everything.

Hire a lawyer before you enter into a major financial transaction. If you can't afford the lawyer, you can't afford the house.

not everyone is as smart as everyone else, unfortunately Wall Street preyed on Main Street and, as Ive stated in this thread, I think the Government should keep that from happening.

[flere-imsaho]

It's a good thing these guys turn out to be incredibly stupid.

Seriously. Between this and Enron it really boggles the mind sometimes.

[molson]

unfortunately it wont help the people who've lived in their homes for 50 years only to be swindled into a crappy Heloc and now have lost just about everything.

not everyone is as smart as everyone else, unfortunately Wall Street preyed on Main Street and, as Ive stated in this thread, I think the Government should keep that from happening.

Do you feel this away about other "criminal losses", like theft caused by the victim's negligence?

I'd think there would be $$ available in criminal restitution as well as potential civil lawsuits from entities that have the resources to pay up.

[Fidatelo]

To: [email protected]
From: ITAdmin
Subject: Job Security

I love my job.


-----Original Message-----
To: Exec 1
From : Exec 2
Subject: RE: RE: Should we screw people?

Sounds good, I won't say a word. No one will know. We are genius!!


-----Original Message-----
To: Exec 2
From: Exec 1
Subject: RE: Should we screw people?

Yes. As much and often as possible. Keep it on the down low.


-----Original Message-----
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mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} </style> <![endif]--> To: Exec 1
From : Exec 2
Subject: Should we screw people?

So? Should we?

[Flasch186]

Do you feel this away about other "criminal losses", like theft caused by the victim's negligence?

I'd think there would be $$ available in criminal restitution as well as potential civil lawsuits from entities that have the resources to pay up.

I had a long night and am exhausted but I'm confused by the first question.

[molson]

I had a long night and am exhausted but I'm confused by the first question.

I won't be offended if you nap instead of answering the question.....

What's novel to me is this idea that because some third party is at fault for your financial loss, the government should help out.

Clearly borrowers made mistake. But it seems like you're saying that IF someone else (the lender/broker) acted criminally, than the government should help out the borrower.

I'm wonder if you feel this way just about mortgages, or if the government should pay back others who are criminally deprived somehow. Like if I leave my door unlocked, and someone comes in and takes my stuff.

[Flasch186]

Well, I think that when a federally regulated group breaks the regulations or it is admitted that the regulations failed or weren't enforced it changes the dynamic. This especially goes when it becomes racketeering wherein the lender is in kahoots with the appraiser whose in kahoots with the underwriter, etc.

I am absolutely not saying to help the speculators but those that were honestly duped, which it is actually quite easy to find out by looking at their paperwork, underwriting standards, appraisals that we're done, etc. should be helped. what help means, I dont know, but they deserve to be helped.

Im sure there have been other events similar to this in our past and will likely happen in our future but when the Government is shouldering the blame and admitting it and asking for more regulation during a Republican admin (where generally theyre for less gov't.) I'd say that theyre likely right and should help.

[Raiders Army]

I lost $80 on Amway. Damn illegal pyramid scheme. The government needs to pay me back!

[Raiders Army]

They promised me I wouldn't have to work after I got 200 people underneath me!

[CU Tiger]

Well, I think that when a federally regulated group breaks the regulations or it is admitted that the regulations failed or weren't enforced it changes the dynamic. This especially goes when it becomes racketeering wherein the lender is in kahoots with the appraiser whose in kahoots with the underwriter, etc.

I am absolutely not saying to help the speculators but those that were honestly duped, which it is actually quite easy to find out by looking at their paperwork, underwriting standards, appraisals that we're done, etc. should be helped. what help means, I dont know, but they deserve to be helped.

Im sure there have been other events similar to this in our past and will likely happen in our future but when the Government is shouldering the blame and admitting it and asking for more regulation during a Republican admin (where generally theyre for less gov't.) I'd say that theyre likely right and should help.


We are so far on opposite sides of this we'll never agree, but I'm curious about the regulations aspect. There is no regulation that says I cant lend money to someone with a 400 Beacon, nor is there a regulation that governs values and appraisals. Furthermore judging the validity of an appraisal in a purely speculative market retro-spectively, is damn near impossible.

No matter soon Obama will save us all by taxing the big bad businesses, thus sparking the worst inflation since the Reaganomics days.... And we'll keeep hand outs alive to all the poor uneducated PHDs....and mean while old men will sit around hardwaree stores and wonder why China is kicking our collective asses.

We ALL need to man up, grow up, and get a fucking clue....

[DanGarion]

unfortunately it wont help the people who've lived in their homes for 50 years only to be swindled into a crappy Heloc and now have lost just about everything.



not everyone is as smart as everyone else, unfortunately Wall Street preyed on Main Street and, as Ive stated in this thread, I think the Government should keep that from happening.

That's what happens when you take LOTS of equity out of your home and don't understand the terms you are signing up to. No market is safe, you take risk anytime you make an investment or if you take money out of your house.

[Flasch186]

No matter soon Obama will save us all by taxing the big bad businesses, thus sparking the worst inflation since the Reaganomics days.... And we'll keeep hand outs alive to all the poor uneducated PHDs....and mean while old men will sit around hardwaree stores and wonder why China is kicking our collective asses.


KIM, Obama has said to be leaning towards cutting the corporate taxes while increasing the income tax on those making over $250K/yr. So Im not sure if you didnt hear that or not.

[sterlingice]

No matter soon Obama will save us all by taxing the big bad businesses, thus sparking the worst inflation since the Reaganomics days....

Yes, and it will be all Obama's fault. Even if he doesn't win the election. Particularly since we aren't already experiencing a lot of inflation and signs of more :rolleyes:

SI

[sterlingice]

To: [email protected]
From: ITAdmin
Subject: Job Security

I love my job.


-----Original Message-----
To: Exec 1
From : Exec 2
Subject: RE: RE: Should we screw people?

Sounds good, I won't say a word. No one will know. We are genius!!


-----Original Message-----
To: Exec 2
From: Exec 1
Subject: RE: Should we screw people?

Yes. As much and often as possible. Keep it on the down low.


-----Original Message-----
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From : Exec 2
Subject: Should we screw people?

So? Should we?

:D

SI

[CU Tiger]

Yes, and it will be all Obama's fault. Even if he doesn't win the election. Particularly since we aren't already experiencing a lot of inflation and signs of more :rolleyes:

SI


No then it will be bush's fault for making Obama lose.....Gee whiz dont you know anything about politics :p

[Galaxy]

KIM, Obama has said to be leaning towards cutting the corporate taxes while increasing the income tax on those making over $250K/yr. So Im not sure if you didnt hear that or not.

Taxing success is not the answer.

Remember, Obama wants to tax you in other ways (that McCain should pounce on, I think). They key word Obama uses is "Income". However, he wants to:

-Increase SS taxes.
-Increase Capital Gains tax to an insane rate (I think that CGT is a very important tax system for creating businesses, spurring investments, and creating jobs). This impacts everyone. From retirement accounts, houses, investments, savings, ect.
-His spending plans are out-of-control. He blasts the GOP on spending, but he's doing the same thing (his health care proposal scares me in what the cost will be in 10-15 years)

I just don't see how you can raise taxes (and ones that are geared towards investments) in this economy. We need to cut spending, not increase spending and taxes.

I'm no fan of either, but I can't behind Obama for a lot of reasons.

[Flasch186]

The right has not been able to curb spending and has done nothing but push though tax cut after tax cut pushing our deficit to incredible levels that even Buffet and Greenspan think is the biggest threat to our country. Voting for the status quo is not an option, IMO. Someone who can go back to fiscal responsibility is a good thing AND support of "Pay go" and understand that the health care system, as it is now, is broken. Too many people are one sickness away from destitute....but that's not the point of this thread, there's another one for that.

[Galaxy]

The right has not been able to curb spending and has done nothing but push though tax cut after tax cut pushing our deficit to incredible levels that even Buffet and Greenspan think is the biggest threat to our country. Voting for the status quo is not an option, IMO. Someone who can go back to fiscal responsibility is a good thing AND support of "Pay go" and understand that the health care system, as it is now, is broken. Too many people are one sickness away from destitute....but that's not the point of this thread, there's another one for that.

I can agree with you on the first part. However, the Democrats aren't going to tackle the deficit either. Both parties are both full of themselves, creating class/social/political divisions as usual. Just frustrating to watch.

[Flasch186]

Well the last Democrat in office did a fairly good job with the budget so Im not sure where the historical assumption is, but again, probably for another thread.

[flere-imsaho]

-Increase SS taxes.

Quoting Obama's website for specifics:

Obama believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first $102,000 a worker makes. Obama supports increasing the maximum amount of earnings covered by Social Security and he will work with Congress and the American people to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.

Seems reasonable. I have no idea why SS payroll taxes were capped at $102,000 in the first place anyways. Speaking as someone who will be directly affected by this, I support it.

Obama will eliminate all income taxation of seniors making less than $50,000 per year. This will provide an immediate tax cut averaging $1,400 to 7 million seniors and relieve millions from the burden of filing tax returns.

Hey look! A tax cut. :D

-Increase Capital Gains tax to an insane rate (I think that CGT is a very important tax system for creating businesses, spurring investments, and creating jobs). This impacts everyone. From retirement accounts, houses, investments, savings, ect.

If by "insane" you mean "roughly in line with where they were from 1986 to 2000 (http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States#History_of_capital_gains_tax_in_the_U.S.)".

Specifically:

While Mr. Obama said he had not settled on how high to raise the capital gains rates, he added that he would “adjust the top dividends and capital gains rate to something closer to — but no greater than — the rates Ronald Reagan set in 1986.” Later, aides said the top rates would be 20 percent to 28 percent. Most people now pay 15 percent on capital gains, with lower-income people eligible for a 5 percent rate.

I'm no fan of either, but I can't behind Obama for a lot of reasons.

You probably wouldn't be able to get behind McCain either, except that he's hardly spoken of any specifics on finance and/or economics, so it's hard to tell, quantitatively, how bad he'd be for the economy.

[Tekneek]

I think the mortgage bailout is really going to hurt the country in the long run. We need to realize that sometimes painful things need to happen to keep the economy from really falling a part. Cyclical recessions are part of that, as is a stock market correction.

I'm on board, as long as that logic is applied to every business as well. I'm not signing onto the idea that banks can be bailed out because they entangle themselves together to the point that they would fall down like dominoes if allowed to experience real market forces. Let's not have one rule for big business and another for individuals. One rule for all. Either bailouts are provided to all, or to no entity. How will these banks learn to keep themselves free and clear of dependence on each other if they know they will be bailed out? It just encourages them to continue the bad behavior that created this situation.

They don't extend that same protection to people in a subdivision, where they will all lose equity in their homes if other homes are foreclosed. That's a domino effect as well.

[kcchief19]

Hire a lawyer before you enter into a major financial transaction. If you can't afford the lawyer, you can't afford the house.
That wouldn't have helped anyone pretty much. It wasn't the language or terms of the mortgages that got people into trouble, it was their ability to pay. A lawyer is not bound nor necessarily qualified to say, "this loan document is fine but you can't afford this and the ARM is going to kill you in two years." That's not the job of a lawyer.

No one is talking bailout. The terms of the Housing Rescue and Foreclosure Preventing Act would only cover primary residences, so speculators and investors are on their own. To take advantage of the foreclosure prevention measures, you're going to have to be willing to split the profit with the government. To my mind, this is exactly the type of assistance government should provide -- in the S&L debacle, we simply took the hit and charged the government. Now, the government is getting an equity stake so if you keep your house and sell it for a profit later, the taxpayers get their money back. You can't beat that.

[JPhillips]

We've already bailed out the banks, but it was done on the sly. The Treasury now holds billions of dollars of crap mortgages as collateral for loans to the banking industry. Not only did we bail them out, we did it through fiat of the Federal Reserve.

[Tekneek]

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/24/AR2008062401389.html

Credit Suisse, a large investment bank heavily invested in mortgage-backed securities, proposed allowing hundreds of thousands of homeowners to refinance their mortgages with lower-cost government-insured loans, relieving financial institutions of the troubled debt.

After the bank proposed this to Congress in January, it became known as the "Credit Suisse plan" among congressional staffers and lobbyists. It later formed the basis of housing provisions in both the House and Senate.

Bank of America, which is acquiring Countrywide Financial, the country's largest mortgage lender, followed with a similar and more detailed proposal, principal negotiators on the legislation said.

In approaching congressional aides, the lobbyists suggested that banks take less than full payment for the distressed loans on their books. But the measures would allow financial institutions to get cash out of foreclosed properties that would otherwise sit on their books as dead weight.

Since the new loans would be guaranteed by the Federal Housing Administration (FHA), taxpayers would ultimately pay for defaults. The Congressional Budget Office projected that this could cost $1.7 billon over five years.

So, even when a bill is marketed as helping the little guy, the individual, it is really only out there because big business wants it to be? Nice system we have here.

[DanGarion]

Gah, what f***ing bullshit!

[Noop]

So I am guessing this is not a good thing.

[Flasch186]

depends on who you ask :p

[Tekneek]

depends on who you ask :p

Indeed. K Street and Wall Street really love the idea.

[sterlingice]

I'm trying to figure out how the cost is only $1.7B. We're talking about billions in lost home values and that's the supposed cost of a "bailout". That sounds like a tax writeoff for a couple of companies that isn't even that much money. What's the deal behind the deal here?

SI

[flere-imsaho]

I'm trying to figure out how the cost is only $1.7B. We're talking about billions in lost home values and that's the supposed cost of a "bailout". That sounds like a tax writeoff for a couple of companies that isn't even that much money. What's the deal behind the deal here?

The $1.7 billion number is the projected cost of defaults on the new, government-backed mortgages. So if a homeowner with a current "bad" mortgage (i.e. an ARM that's now too high to pay) gets a new, lower-cost, government-backed mortgage and then defaults on it, the government, not the original bank, has the bad debt on its books. So the taxpayers pay for that.

The number doesn't address the lost home value, as that's already passed by the time this transaction takes place. It also doesn't address money lost in when the mortgage-backed securities lost their value, as much of that has already been written off (though, again, most of that was also subsumed by the government when the Fed agreed to do it earlier this year).

This is S&L all over again. Financial institutions make a bunch or horrifically bad mistakes that even a 5-year-old could see weren't a good idea, and then go crying to the government to help them out.

[Tekneek]

There is no shortage of people who come out of the woodwork when individuals want to get bailed out from their mistakes, but they get harder to find when business comes around looking for handouts. I'd rather just have the economy collapse than continue living with these double standards.

[st.cronin]

I'd rather just have the economy collapse than continue living with these double standards.

I don't think I believe you.

[molson]

when the Fed agreed to do it earlier this year).

This is S&L all over again. Financial institutions make a bunch or horrifically bad mistakes that even a 5-year-old could see weren't a good idea, and then go crying to the government to help them out.

You could say the same about about lendees crying to the government.

I'm against either getting these kind of benefits. The people and businesses it penalizes are those with good judgment, which is a quality we should reward.

A dumb-ass lender or company shouldn't be put in close the same position as someone that acted responsibility. That's what this country, should be about, IMO. An opportunity - if you work hard, do your homework, don't do anything stupid, you should come out ahead. If you don't, you shouldn't be subsidized by those that do.

[molson]

I don't think I believe you.

Sadly, I do.

He's the classic example of a guy who wishes for bad things so his political views can be promoted.

[Tekneek]

I don't think I believe you.

Probably right to doubt it, but I am really tired of everybody trying to hold individuals to a different standard than business enterprises. If anything, business should be held to a higher standard than some regular Joe. If getting bailed out is bad for the average person, it is just as wrong for any business entity as well.

[Tekneek]

I'm against either getting these kind of benefits. The people and businesses it penalizes are those with good judgment, which is a quality we would reward.

That is the way I feel about it. Unfortunately, according to the FED, these banks have intertwined their financial deals to the point that it is feared that the collapse of one would create a domino effect leading to the complete collapse of the economy. I'm sure this point was not lost on the managers who created this mess.

[Tekneek]

Sadly, I do.

He's the classic example of a guy who wishes for bad things so his political views can be promoted.

What political view is that? The elimination of double standards?

[st.cronin]

"The greatest good for the greatest number."

I feel like that is the criteria that should be used to judge this, not who comes out ahead.

[Tekneek]

"The greatest good for the greatest number."

I feel like that is the criteria that should be used to judge this, not who comes out ahead.

A business should be allowed to fail, just like an individual can. That's how capitalism works. When times are good, these same financial institutions would be whining about how they want an open and free market without government intervention or regulation.

[st.cronin]

People talk about banks like they're goblins or trolls, but how many people work for banks or have stock in banks? And pretty much everybody keeps their money in banks, and uses banks for lines of credit.

Banks are people - not literally, but when a bank fails, there are people who lose.

[Tekneek]

Corporations are treated as people under the law. That's how they get to have Constitutional rights to free speech, get to hold copyrights, patents, etc.

Sure, there are people who lose. That's why FDIC exists. They are there to mitigate some of the risk to those who have deposited money with banks that later fail. If the plan is to never have a bank fail in this nation, why does FDIC even exist?

"People" lose every time that a business fails, but that is what happens in capitalism. It sucks, but it is hardly a good reason to allow some businesses to fail and not others.

[Flasch186]

they let Drexel fail. It's a broader view they are trying to take.

[st.cronin]

"People" lose every time that a business fails, but that is what happens in capitalism. It sucks, but it is hardly a good reason to allow some businesses to fail and not others.

Well, I think its an excellent reason. Note that I have no opinion on this particular problem - I don't understand the details nearly well enough. But I think the function of government in a crisis like this is to mitigate the damage to the economy as much as is reasonable, and it seems to me plausible that helping the banks makes sense.

[Tekneek]

But I think the function of government in a crisis like this is to mitigate the damage to the economy as much as is reasonable, and it seems to me plausible that helping the banks makes sense.

You may be right.

You only hear the mantras of "capitalism" and "free market" when it is favorable to business to promote those concepts. When they are retreating, you don't hear them talking about it at all. I'd like to see those "brave" and "smart" people who ride the wave of deregulation and capitalism during good times actually stick by their guns when times get tough. They want government out of their way when it might prevent them from making an extra dollar, but they cannot wait to have government come back in when it might save them a dollar. I don't see the integrity in that.

[Flasch186]

from my parents foreclosure thread, one problem IMO, IMO is that the banks dont seem to be able to help themselves. There are people, like my parents, who dont want to get foreclosed on (they havnt yet) and want to rework something out with their lender but cant get them to respond to their cries. Instead the banks seem paralyzed and continue to accept foreclosure after foreclosure instead of being able to stave off the event and mitigate their own loss. BTW this is factual and a quick search will show you that the banks have been able to reach less than 5% of those that they think need help.

[flere-imsaho]

You could say the same about about lenders crying to the government.

Wait, that's exactly what I said. Do you mean "lendee"?

I'm against either getting these kind of benefits. The people and businesses it penalizes are those with good judgment, which is a quality we should reward.

Yes and no.

I would prefer to see free enterprise succeed and fail largely on its own merits. I would prefer to see regulation employed almost always only when individuals or corporations in the system act illegally or in such a way that's obviously detrimental to the entire system as a whole.

But.... In such cases as the subprime mess, if nothing was/is done to manage some of the losses, you're looking at a potential serious impact on the economy. Even worse than what we've seen already. Although maybe we're going to get there regardless of what the government does (or tries to do).

However, instead of the government just blanket bailing out individuals and/or corporations (and we've seen much more of the latter than the former, sadly), I'd prefer an approach as I've described earlier in this thread, which is equal stick and carrot, and to let these individuals and corporations shoulder their share of the pain.

It's a balancing act, but that's part of the job.

[flere-imsaho]

Unfortunately, according to the FED, these banks have intertwined their financial deals to the point that it is feared that the collapse of one would create a domino effect leading to the complete collapse of the economy. I'm sure this point was not lost on the managers who created this mess.

Here's an idea: treat these corporations like individuals. If they've so fucked up the entire system because of their stupidity, then bail them all out, but... garnish their corporate earnings to help pay for the bailout. :D

People talk about banks like they're goblins or trolls, but how many people work for banks or have stock in banks? And pretty much everybody keeps their money in banks, and uses banks for lines of credit.

Banks are people - not literally, but when a bank fails, there are people who lose.

This is just semantics, though. People aren't really criticizing the banks as entities made up of thousands of regular people who service millions of regular people. They're critizing the managers and leaders of these institutions who either got in over their head or just plain acted illegally. For the sake of brevity, however, it's just easier to say "banks".

And that's not even to mention that some of these institutions are hedge funds or high-end investment firms who aren't exactly made up of the "little guys".

[molson]

Wait, that's exactly what I said. Do you mean "lendee"?



I did.

Every loan agreement is different. Some are accurate on their face, and one side just makes a bad deal because they didn't do their homework, they were reckless, or they took a calculated risk that didn't pan out. Sometimes there's fraud and illegality. In the latter case, it's not a valid contract, I have sympathy for the victim, and full restitution should be paid by the wrongdoer (not the taxpayer). A company acting illegally is a HUGE drain on the system and I'm all for aggressive criminal prosecution, restitution, etc, etc.

I do understand that there's a negative impact on the economy as a whole, but I don't think that's necessarily a bad thing long term. We're so afraid of the lows but they're often necessary to create the highs. Lower home values create opportunities. Tougher credit means less foreclosures. The system being down doesn't mean the system isn't working.

[Logan]

Corporations are treated as people under the law. That's how they get to have Constitutional rights to free speech, get to hold copyrights, patents, etc.

Sure, there are people who lose. That's why FDIC exists. They are there to mitigate some of the risk to those who have deposited money with banks that later fail. If the plan is to never have a bank fail in this nation, why does FDIC even exist?

"People" lose every time that a business fails, but that is what happens in capitalism. It sucks, but it is hardly a good reason to allow some businesses to fail and not others.

There are banks that have already failed, and there are many more banks that will fail regardless of any "bailout" (see the FDIC's attempt to bring people out of retirement to deal with the upcoming work).

These banks are not being bailed out because, generally speaking, the only ones who will lose, outside of a small group of shareholders, are those who are inconvenienced enough to have to get their money back through the FDIC. Flere is right...its the interconnectedness of these larger banks, and our general reliance on these banks for a huge part of our nation's economic activity, that's the problem. It's not as simple as "they made the mess, they should deal with it." We all will deal with it in a way that no one wants to see and that's why they need to survive.

[Tekneek]

its the interconnectedness of these larger banks, and our general reliance on these banks for a huge part of our nation's economic activity, that's the problem. It's not as simple as "they made the mess, they should deal with it." We all will deal with it in a way that no one wants to see and that's why they need to survive.

Which leaves a blueprint behind to others as a way to keep their bank afloat. I already stated earlier in the thread that these banks are being saved because they made sure that they were too important to fail. I would expect banks that are too important to fail to make sure they weren't on the verge of failure, but these banks apparently thought it meant they had a free pass to engage in high risk activity because they wouldn't be ALLOWED to fail. They didn't see their position as a reason to be more responsible, but rather as a safety net for their irresponsible behavior.

[Logan]

Also just want to add that this is most likely a blip on the radar compared to what's coming when commercial real estate officially goes bust.

[Logan]

Which leaves a blueprint behind to others as a way to keep their bank afloat. I already stated earlier in the thread that these banks are being saved because they made sure that they were "too important to fail." I would expect banks that are too important to fail to make sure they weren't on the verge of failure, but these banks apparently thought it meant they had a free pass to engage in high risk activity because they wouldn't be ALLOWED to fail.

It doesn't matter how they got there; all that matters is the end result. Hell, take the CEOs and VPs and the rest of senior management (we all knew they were aware of the shit they were peddling, take a look at the results of the SEC's investigation into the credit rating agency's corruption for more proof) and throw them in jail, banish them to burn for eternity, whatever you want. But it doesn't change the fact that we are where we are right now, and simply teaching these banks a lesson so that 50 years from now, another bank doesn't make the same mistake...that's not feasible.

[Tekneek]

But it doesn't change the fact that we are where we are right now, and simply teaching these banks a lesson so that 50 years from now, another bank doesn't make the same mistake...that's not feasible.

They won't learn the right lesson regardless. Lots of banks collapsed back around the Great Depression. It did not stop people like Phil Gramm (and others) from trying to unwind financial regulation so these banks can run unbridled into disaster all over again. It will happen again and again until people start accepting responsibility for their actions. These people did these things out of nothing other than greed, whereas an over-extended person who was just trying to get a home for their family could not be characterized the same way.

[Logan]

They won't learn the right lesson regardless. Lots of banks collapsed back around the Great Depression. It did not stop people like Phil Gramm (and others) from trying to unwind financial regulation so these banks can run unbridled into disaster all over again. It will happen again and again until people start accepting responsibility for their actions. These people did these things out of nothing other than greed, whereas an over-extended person who was just trying to get a home for their family could not be characterized the same way.

I completely disagree with your last sentence, but that's besides the point.

What is the "responsibility" you want these people to learn? Is it worth it to have a further national disaster, economically-speaking, just so these guys can really understand what they did? Do you really think that because a lot of JPM/Chase/Lehman/Bear execs ruined the economy and paid the price for it, that's going to stop the future financial kingpins from becoming greedy? They're suddenly going to toe the line and only book conservative, fixed-rate loans while investing in treasury securties?

[Fidatelo]

I read in the local paper this morning that the Federal government here in Canada is putting in new rules for insured mortgages in hopes to avoid ever ending up in a similar housing meltdown. Apparently 40 year terms will be out (new max will be 35) and minimum 5% down payment will be in effect. I like the changes.

[sterlingice]

Also just want to add that this is most likely a blip on the radar compared to what's coming when commercial real estate officially goes bust.

How far off from that are we? I know that as part of cost cutting measures, the company I work for (a big one)- closed a lot of offices around the country. I'm sure this is happening with other companies, too.

SI

[Logan]

How far off from that are we? I know that as part of cost cutting measures, the company I work for (a big one)- closed a lot of offices around the country. I'm sure this is happening with other companies, too.

SI

Probably still a bit off. While it's being felt in many places, a big issue is developments that are still in the process of being built or have only recently been completed. All of these banks have been funding the construction, and they're considered "current" (i.e. nowhere near default because the scheduled interest payments have been made) but in fact these payments are being drawn from interest reserves that are structured into the loan. So in essence, the bank's are recording interest payments by just shifting the balance of the loan from the borrower's cash position onto the balance sheet.

Fast forward to when the interest reserve is tapped...now you realize that the construction delays, budget overruns, etc have caused the project not to be completed on time, which obviously delays the project from receiving cash flows from prospective tenants. Therein lies the problem. So a huge, huge amount of "current" loans are going to shift into write-down mode once the banks realize that there is no way they will receive the cash flow that can pay the loans once they're off an interest reserve and amortizing normally.

[Logan]

Good lord, Fannie and Freddie got crushed pre-market.

[JPhillips]

I was shocked at how much commercial real estate was empty in the St. Augustine Beach area compared to last year.

[Marc Vaughan]

The $1.7 billion number is the projected cost of defaults on the new, government-backed mortgages. So if a homeowner with a current "bad" mortgage (i.e. an ARM that's now too high to pay) gets a new, lower-cost, government-backed mortgage and then defaults on it, the government, not the original bank, has the bad debt on its books. So the taxpayers pay for that.
This might explain why I've heard frequently of banks turning down what appear to be reasonable offers on foreclosed houses in my area.

Simply put I think they're hoping to get more selling them to the goverment than they would get on the free market.

[Logan]

I'm not sure how the sale to the government would work, but at least for nationally-chartered banks, if a house is foreclosed on and auctioned off, the bank only receives the amount that was still owed on the loan. There's no profit for them.

[Galaxy]

Good lord, Fannie and Freddie got crushed pre-market.

What happen exactly?

[Tekneek]

A lot of FUD started spreading about Fannie Mae and Freddie Mac being insolvent, about to be bailed out, etc, overnight... At least that is the impression I got. When I saw competing headlines early this morning of it being insolvent, not being insolvent, needing an immediate bailout, and not needing an immediate bailout, I knew something was up.

[Tekneek]

Worst part about the market being dragged down by this, is that there will probably be another run made on oil as these fund managers/speculators dump other stocks and buy more oil futures.

[flere-imsaho]

I was shocked at how much commercial real estate was empty in the St. Augustine Beach area compared to last year.

I heard on NPR earlier this week that there is 300 million square feet of commercial real estate currently vacant.

That's not good.

I'm not sure how the sale to the government would work, but at least for nationally-chartered banks, if a house is foreclosed on and auctioned off, the bank only receives the amount that was still owed on the loan. There's no profit for them.

Bear in mind that the foreclosure price isn't likely to equal the amount still owed on the loan, so the bank loses money. If the bank sells the loan to the government, they at least get present value on the loan. That is the attraction to the banks.

[Flasch186]

the ethics side of the argument just simply got thrown in the trash today.

[Flasch186]

http://biz.yahoo.com/ap/080713/fed_mortgage_crisis.html

AP
Fed poised to curb shady home-lending practices
Sunday July 13, 12:13 pm ET
By Jeannine Aversa, AP Economics Writer
Federal Reserve ready to give home buyers more protection against shady lending practices

WASHINGTON (AP) -- Confronted by record foreclosures, the Federal Reserve is ready to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis.

ADVERTISEMENT
Chairman Ben Bernanke and his central bank colleagues were expected to approve a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers -- people with tarnished credit histories or low incomes.

Proposed rules made public in December would:

--restrict lenders from penalizing risky borrowers who pay loans off early.

--require lenders to ensure those borrowers set aside money to pay for taxes and insurance.

--bar lenders from making loans without proof of a borrower's income.

--prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the homes value.

--curtail misleading ads for many types of mortgages.

--bolster financial disclosures to borrowers.

Consumer groups have complained that the new rules are not strong enough. Lenders worry they are too tough, could limit mortgage options for people and made it harder for some to obtain financing.

Expected approval of the plan comes as the Fed copes with investors' dwindling confidence in the financial health of the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac, They hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the United States.

The Fed and the Treasury Department, consulting closely over the weekend, are exploring ways to shore up the companies. If one or both were to fail, it would deal a devastating blow to the already crippled housing market. Mortgages would become even harder to get and rates would rise.

The new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets. Also, some of the shady practices -- along with some lenders -- have not survived, felled by the mortgage meltdown.

"Clearly this is closing the barn door after the fact," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business. Yet, she said, "this is a very important move. It absolutely will make a difference going forward."

Ken Wade, chief executive of NeighborWorks America, a network of housing organizations that promotes neighborhood revitalization, hoped the new rules would curb future abuses. "It's not going to do anything (to fix) the problems we're wrestling with right now, but there's still a need to create the rules going forward," he said.

Much will hinge on effective enforcement.

The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.

Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions. "We have a very fragmented regulatory system. This will be a challenge to enforce. This will be daunting," Wachter said.

The Mortgage Bankers Association had asked the Fed to act carefully. Overly broad rules "could prevent many lenders from making loans to those borrowers most in need of credit and significantly increase the costs of credit for all borrowers," the association said in a filing with the Fed.

Under former Chairman Alan Greenspan, the Fed came under criticism for not acting earlier to address dubious lending. Some critics complained that Greenspan, who ran the Fed for 18 1/2 years, was not a forceful enough regulator, especially during the 2001-2005 housing boom when easy credit spurred subprime home loans and many exotic new types of mortgages.

Bernanke, who took over the Fed in early 2006, also took heat for what critics believe was lax oversight.

"How disappointed I am with all of us," Rep. Maxine Waters told Bernanke during a recent House hearing. "Members of Congress, for what appears to have been weak oversight of our regulatory agencies, and our regulatory agencies for what appears to have been weak oversight of our financial institutions," said Waters, D-Calif.

Bernanke replied: "Admittedly, it would be better if it had been earlier, but we have responded." He believed the rules would be "very effective" in stemming abusive lending practices.

Congress is working on legislation that would put into law some tougher provisions than those envisioned by the Fed. Prospects for final action are uncertain.

AP Business Writer Alan Zibel contributed to this report.


I dont understand. It's not the lenders fault. It's the stupid homeowners. Why would they need to curb something?

/sarcasm

[BrianD]

A few days ago I caught the tail end of some radio discussion about how odd it is that the government is now pushing restrictions to make lenders be more careful with risky loans when it was the government pushing lenders to make it easier for low income folks to get housing loans previously.

I don't recall lenders being pressured to relax their restrictions before all this trouble. Can anybody speak to this?

[Logan]

Yes, you're 100% right.

[Tekneek]

I am curious about this. Can anyone point me to when the government asked banks to not seek verification of income before offering someone any mortgage that represented 80% or more of the value of the house? Can anyone also point me to when the government asked banks to implement penalties for early payment of principle? I'm even more interested in the statements related to encouraging banks to not push escrow for tax and insurance payments, especially for any mortgages that represent 90% (or more) of the value of the home/property. I am not personally aware of that, but I allow for the possibility that it happened and definitely want to read about it.

[Flasch186]

The poorly regulated market and greed TOLD them to do it and push people into these loans because they made more on them (when they were resold in bundles). The best part is that many people who wouldve qualified for Alt-A or conventional loans were sold on loans in the subprime market so that the originator made more. In some cases (see Beazer & KB) the originator actually forged documents and applications to fill in those blanks you mention.

[Flasch186]

FDIC's Bair has put a halt to Indymac's homes in Foreclosure, 'We believe that a loan that is modified to a good faith Owner-operated household would always be worth more than a foreclosure.' Exactly what has been said in multiple threads but for whatever reason the banks just either cant or won't reach those that need the modifications. Maybe the Indymac failure will give the other banks some fair warning that they need to get their bearings when it comes to handling the loans on their books.

[Cringer]

Email received this morning, for some reason two days after it says it was sent in the body of the email, haha...........



To: Our Broker Partners
Sent: Sat Jul 12 14:51:22 2008
Subject: Indymac Federal Bank FSB

I have just come from a meeting with FDIC personnel and I am pleased to announce that as of Monday morning July 14th the REO Department will be back to business as usual.

There may be some minor changes in how we market property owned by IMB (less then 10% of our overall portfolio) but even those changes will be transparent.


I appreciate your support and our working relationship as we move forward during these historic times.



Thank You</pre>

[flounder]

I am curious about this. Can anyone point me to when the government asked banks to not seek verification of income before offering someone any mortgage that represented 80% or more of the value of the house? Can anyone also point me to when the government asked banks to implement penalties for early payment of principle? I'm even more interested in the statements related to encouraging banks to not push escrow for tax and insurance payments, especially for any mortgages that represent 90% (or more) of the value of the home/property. I am not personally aware of that, but I allow for the possibility that it happened and definitely want to read about it.

They didn't quite do that, but they did require Freddie Mac and Fannie Mae to purchase more "affordable" loans. Then they looked the other way as they bought subprime loans left and right (http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html).

In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

[Tekneek]

And this was happening under the watch of George W. Bush, supposedly a conservative?

[JPhillips]

A few days ago I caught the tail end of some radio discussion about how odd it is that the government is now pushing restrictions to make lenders be more careful with risky loans when it was the government pushing lenders to make it easier for low income folks to get housing loans previously.

I don't recall lenders being pressured to relax their restrictions before all this trouble. Can anybody speak to this?

It's a big myth that this is a low-income, subprime crisis. This is a general mortgage problem that only partially has to with low-income buyers.