80/20 gone...

[Vic]

Originally posted by: dullard

Originally posted by: waggy
how is it ANYONE would give a loan to someone without makeing sure they can afford it?

just seems the whole mess could have been avoided with a sliver of common sense. yeah i know many many people made tons of money and most wont be in forclosure.

I like your viewpoint waggy.

Companies and investors were stupidly buying mortages from banks and brokers. Stupid buyers were begging and pleading for mortgages that they can't possibly afford. Insurance companies were stupidly insuring the whole transaction. Other people and companies are involved too, all of which did stupid things.

So what did the banks and brokers do? They acted as middle men between the many stupid parties. Everyone was happy. Everyone was happy until reality hit.

I wish somewhere there were more checks and balances. Someone should have stepped in and said "No, this is a stupid manuever." Everyone in the mix had the ability to stop it, but no one did. They were all caught up in a feeding frenzy.

I naively thought banks and brokers had the BEST opportunity to stop it. They were the ones that the borrowers dealt with directly. They were the ones who ultimately either shook the buyer's hands or sent them out the door. They of all people, should have stepped in. Yes, many other parties should have too, but how often do buyers talk directly to the other parties? Rarely if ever.

I have since been educated. My should-haves and could-haves were just a pipe dream. I just had much higher expectations of brokers and bankers.

What the hell were they supposed to do? What you're suggesting that brokers and bankers should-have or could-have done is not only contrary to federal lending regulations, but any single banker or broker who did so would simply be sending the customers directly to his competitors.
Regardless, most did try to follow reasonable lending practices. The ones that people seem to be most upset at represent only a very small and slimy minority of the industry.

 

[alkemyst]

Originally posted by: waggy
how is it ANYONE would give a loan to someone without makeing sure they can afford it?

The broker doesn't care as long as the long is bought by a servicer.

There are still low down programs out there. Just that they require proof of income and a decent credit score.

Stated Income loans weren't really designed for self-employed people as they regardless would be able to provide tax returns for income. They were more designed by those with complex income types that either significantly changed from their last years income or decyphering their tax returns would prove lengthy.

Usually the credit report and a verification of assets would be done. Recently credit reports were nearly ignored giving the borrower the ability to simply pay more for the loan in rate / fees and no assets were checked; or worse they were checked and found to be non-existant or worse leveraged to the hilt.

The thoughts were on the broker's end was that they did their 'due-diligance' to get the customer. The customer was usually thinking they'd flip the property quick and profit or they would have some sort of windfall.

We currently have a customer that is trying to refinance. They bought in 3 years ago and both were banking that they would get the maximum bonuses their company offers (they have not earned any yet) as well as advance as quickly as possible (they have not been promoted).

They also thought they would have flipped this home. They sold their old house at a loss and are in an extreme debt to income ratio now. Worst of it is their loan program is adjusting to a rate 3% higher.

As much as we would like to help them I don't think we can. They have no reserves, they have gone 90-120 days on many of their debts, and the house is now appraised far less than they owe.

Fortunately for some the american government even rescued Chrysler when it couldn't sell cars. Something as holy to America as home ownership will have a life line thrown at some point. Unfortunately that is going to cost us all a bit in National debt as well as difficulty in future financing.

 

[geecee]

Originally posted by: Vic
Of course, it's a pump and dump. Look at AHM's recent collapse. Who's gonna buy up all their billions in unsold paper for pennies on the dollar? C'mon... just 'cause the media is stupid doesn't mean everyone else is. The buying frenzy of "distressed paper" has only just begun.

Foreclosure rates are near where they historically always are. Hell, FHA/VA is still leading that as always, with rates pushing 10% in some markets (once again, as always). The greatest factor pushing foreclosures right now is that those who need to sell can't due to the declining market.

I love the Orwellian doublethink in your last sentence BTW. That is simply awesome. Who is "they"?

Vic, I'd first off like to say that you've always dispensed good and responsible mortgage advice here. But I have to agree with much of what LegendKiller is saying. There is simply nothing wrong with expecting people to be able to pay their mortgage/own their house based on their income levels and not because a particular mortgage product is created to allow them to do so (temporarily at least). As you say, the "easy" credit era has driven up home ownership (and home prices unfortunately), but there was a reason why it took the homeowners of previous generations longer to be able to buy a home (because there was more of a sense of responsiblility all around - borrower and lender). People's expectations are different now because of how leveraged a society we are and how easy it has been to obtain financing. They want instant gratification, instead of saving up several years for a downpayment and/or waiting for their income to rise to a more feasible (for borrowing) and stable level. Many have skipped the traditional step of looking for an affordable starter home, and are simply looking to purchase their "idealized" house right away.

While I agree to some extent that much of the recent subprime hysteria is driven by the media and those who don't truly understand what's going on, I have to disagree with your assessment of foreclosure rates, at least among securitized loans. Delinquency and default rates are on the rise, even up into the Alt-A world, and that can only worsen as many ARM products begin to adjust and borrowers can no longer afford to make their payments. Those same borrowers will also not be able to get out of their situation by selling the home because of potential coming home price corrections and the lack of buyers due to the end of easy credit.

I do agree though that those with the stomach for some volatility could potentially make a killing buying up subprime loan portfolios for cents on the dollar. Who cares if you have a 20-25% default rate when you're buying at that big a discount?

 

[dullard]

Originally posted by: Vic
What the hell were they supposed to do? What you're suggesting that brokers and bankers should-have or could-have done is not only contrary to federal lending regulations, but any single banker or broker who did so would simply be sending the customers directly to his competitors.
Regardless, most did try to follow reasonable lending practices. The ones that people seem to be most upset at represent only a very small and slimy minority of the industry.

In my idealistic world, the regulations would have enabled them to tell the borrower that there is no possible way for them to afford the mortgage that they wanted. In my idealistic world, the rogue competition (who still knowingly gave mortgages that can't be afforded) would face severe fines. Thus, in my idealistic world, there would be no competitor for the buyers to flee off to just to get a product that they can't afford. In my ideal world, an association of brokers (and others in the industry) would have lobbied to make all that possible.

But, the world isn't ideal. No one could or did step in and tell the buyers that they are making the dumbest move possible.

If the only way possible to pay off the mortgage as written is to (a) hope the buyers get promoted, (b) hope there is a large increase in house prices so a refinance can happen, or (c) hope some other miracle happens, then that mortgage wouldn't be offered in my ideal world.

 

[Vic]

What particular "subprime loan portfolio" has a 20-25% default rate?

And where have I ever argued that people should be able to buy a home they can't afford? Pardon me, but it's that kind of sh!t that tends to make me a bit testy.


The fact is that the products existed. If a bank offered such a product, or had access to it, and the loan applicant was approved for it, then the bank was required by federal law to extend the loan if the applicant wanted it. A bank could require counseling, education, etc. but if they were going to decline the loan they'd better have a solid reason for it, and that reason better be uniform for all. Otherwise, it could be construed as a discriminatory lending practice.


Edit: I guess what bothers me most about these arguments is what Gore Vidal coined as the "United States of Amnesia." Nobody remembers yesterday. Because of that, there are these constant irrational and extreme swings of attitude. It is annoying to me.

 

[HomeBrewerDude]

Originally posted by: spidey07

Originally posted by: ZeroIQ

Originally posted by: HomeBrewerDude
whats wrong with a 80.20 loan?

My understanding is the economy went down a bit, everyones forclosing. Therefore I get screwed.

Nothing is wrong with them if only people who can afford them were give one.

Ummm, of course they are gone.

Wanna buy a house? Put down a payment, also known as a downpayment. Can anybody really blame a bank for recovering what they put out?

But I honestly think if you want to do this kind of loan there are plenty of people out there that want to sell it to you. You may not like the terms however.

oh i thought 80 20 meant 20% downpayment. i see that the OP meant a second note/lien for the 20% downie.

 

[kranky]

Originally posted by: Vic
The fact is that the products existed. If a bank offered such a product, or had access to it, and the loan applicant was approved for it, then the bank was required by federal law to extend the loan if the applicant wanted it. A bank could require counseling, education, etc. but if they were going to decline the loan they'd better have a solid reason for it, and that reason better be uniform for all. HMDA is not to be f'ed with.

That's a factor I hadn't thought about. The irony! A banker who might have been truly concerned that someone was headed for a loan they couldn't handle would have to offer it anyway.

I wonder if that will be a viable defense once the class-action suits start coming from the people who are losing their homes. I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

 

[geecee]

Originally posted by: Vic
What particular "subprime loan portfolio" has a 20-25% default rate?

Simply a hypothetical.

EDIT: Just because the product existed that made some kind of home ownership possible, doesn't mean that the borrower that qualified could actually afford the home. With some of the lax underwriting standards that were present for non-prime loans, this was certainly the case. Again, Vic, not an attack on you. Don't get testy.

 

[dullard]

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

 

[rudder]

Is this your first home?

Although not advisable... you can get 95% FHA loans for first time homebuyers. Just need to be careful into getting a house that is more than you can afford. Of course the amount you can borrow is limited and that may be the slums where you live. Where I live the max amount would buy a avery large house.

 

[LegendKiller]

Originally posted by: Vic
What particular "subprime loan portfolio" has a 20-25% default rate?

And where have I ever argued that people should be able to buy a home they can't afford? Pardon me, but it's that kind of sh!t that tends to make me a bit testy.


The fact is that the products existed. If a bank offered such a product, or had access to it, and the loan applicant was approved for it, then the bank was required by federal law to extend the loan if the applicant wanted it. A bank could require counseling, education, etc. but if they were going to decline the loan they'd better have a solid reason for it, and that reason better be uniform for all. Otherwise, it could be construed as a discriminatory lending practice.


Edit: I guess what bothers me most about these arguments is what Gore Vidal coined as the "United States of Amnesia." Nobody remembers yesterday. Because of that, there are these constant irrational and extreme swings of attitude. It is annoying to me.

Above you mentioned that

It's said to see that NPR is in on this. They, of all groups, should IMO understand the larger ramifications of restricting access to homeownership AND what a decline in property values will do to local governments who depend on the tax revenue.

Nobody is advocating restricting homeownership in any case. However, we do advocate restricting it to those who can afford it. Many of the people who now "own" homes cannot pay for it and only could, in the first place, because of these idiot loans. I see no reason why we should weep for their poor judgement.


As far as the default rates. Default rates in some pools are approaching mid-teens and could spike higher as delinquency rates are in the high teens and even low 20s in a few extreme examples. If the situation gets worse his number could become more of a norm for subprime pools.

 

[waggy]

Originally posted by: dullard

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

that would be nice. my broker didn't do crap.

though i did get a fixed rate loan. i could have got a ARM but i don't like th eidea of it changing.

 

[Vic]

Originally posted by: dullard

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

That's what the Truth-in-Lending Disclosure is for. You and every other homebuyer who bought with a bank loan has signed one at closing since 1968.

It contains a schedule of payments section, and if the loan is an ARM, then it will show when and how the payment is scheduled to change if the index that the interest is based on remains unchanged.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Vic
What particular "subprime loan portfolio" has a 20-25% default rate?

And where have I ever argued that people should be able to buy a home they can't afford? Pardon me, but it's that kind of sh!t that tends to make me a bit testy.


The fact is that the products existed. If a bank offered such a product, or had access to it, and the loan applicant was approved for it, then the bank was required by federal law to extend the loan if the applicant wanted it. A bank could require counseling, education, etc. but if they were going to decline the loan they'd better have a solid reason for it, and that reason better be uniform for all. Otherwise, it could be construed as a discriminatory lending practice.


Edit: I guess what bothers me most about these arguments is what Gore Vidal coined as the "United States of Amnesia." Nobody remembers yesterday. Because of that, there are these constant irrational and extreme swings of attitude. It is annoying to me.

Above you mentioned that

It's said to see that NPR is in on this. They, of all groups, should IMO understand the larger ramifications of restricting access to homeownership AND what a decline in property values will do to local governments who depend on the tax revenue.

Nobody is advocating restricting homeownership in any case. However, we do advocate restricting it to those who can afford it. Many of the people who now "own" homes cannot pay for it and only could, in the first place, because of these idiot loans. I see no reason why we should weep for their poor judgement.


As far as the default rates. Default rates in some pools are approaching mid-teens and could spike higher as delinquency rates are in the high teens and even low 20s in a few extreme examples. If the situation gets worse his number could become more of a norm for subprime pools.

I also said: "Now we're going back to the days of begging borrowers, and guidelines so strict that the only people getting loans are those who don't actually need them."

Nice of you to pretend that I was arguing that people should be able to get home loans they can't afford. This is a PERFECT example of why I think you're an ass, LK, and is typical of your usual arguing style. You don't argue a person's actual points, you simply take little snippets out of context and then use that in order to demonize them.


edit: Oh, and further than that, I'm not "weeping for their poor judgement," but for your poor judgement in believing that the fallout from this will not affect you.

 

[LegendKiller]

Originally posted by: waggy

Originally posted by: dullard

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

that would be nice. my broker didn't do crap.

though i did get a fixed rate loan. i could have got a ARM but i don't like th eidea of it changing.

Ideally I'd love to see some type of fiduciary duty "reasonable man" type of regulation passed. I think a large part of the problem is that there is no reasonable standard for brokers and up. Additionally, some of the problem is also in the appraisers and RE brokers.

It's too easy to get into these positions and start pushing questionable stuff. Obviously Vic is pretty well versed in this stuff and is a professional. However, too many soccer moms and uneducated/experienced people flooded in and started pushing crap. This wasn't helped by the fast money that was pushed from above (bankers).

I was witness to this crap when, in 2003, a mortgage broker who was supposedly a family friend of my fiance (now wife), tried very hard to get me to buy a place I didn't think I could afford nor wanted to buy. He tried to pull all sorts of trash on me, hiding things, trying to portray the wrong things (RE never goes down, ARMs aren't risky..etc). I was already in the cfa program and had just come out of b-school in finance, so I wasn't that easy to fool. I ended up telling him off and walking. We later found out he was implicated in mortgage fraud.

The industry, top to bottom, needs to be revamped.

 

[LegendKiller]

Originally posted by: Vic
edit: Oh, and further than that, I'm not "weeping for their poor judgement," but for your poor judgement in believing that the fallout from this will not affect you.

You have no idea what markets I play in and you've never even asked. Not that I can disclose those markets or the companies we do business with since they are all under confi. However, many of the areas I do business in are defensive in nature. I know that you'd probably like to see me get burned but my career moves are a bit better than that.

 

[alkemyst]

Originally posted by: Vic

Originally posted by: dullard

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

That's what the Truth-in-Lending Disclosure is for. You and every other homebuyer who bought with a bank loan has signed one at closing since 1968.

It contains a schedule of payments section, and if the loan is an ARM, then it will show when and how the payment is scheduled to change if the index that the interest is based on remains unchanged.

Vic is right here...however; like always the bleeding hearts in this country are going to be pro-stupid and side with the borrowers on this. Some are already talking about it's in their best interest to stop paying now and wait for the bailout.

Problem is most borrowers (and the brokers knew this) do not read/understand what they are signing.

Heck 9 out of 10 people think a bank should be able to just post a rate that applies to everyone. Not only is rate a lot different than what the APR will be, but there is no way to quote a rate for any individual without knowing their income, loan purpose, debts, credit score, etc. Not to mention it's impossible to compare rates without know upfront fees and closing costs associated with them.

 

[Vic]

Originally posted by: geecee

Originally posted by: Vic
What particular "subprime loan portfolio" has a 20-25% default rate?

Simply a hypothetical.

EDIT: Just because the product existed that made some kind of home ownership possible, doesn't mean that the borrower that qualified could actually afford the home. With some of the lax underwriting standards that were present for non-prime loans, this was certainly the case. Again, Vic, not an attack on you. Don't get testy.

Oh, trust me, I was downright shocked and horrified by some of the crap that actually got approved.
I've been ringing the warning bells about the housing market here since 2003 (when I was flamed for that then even worse than I have been flamed for this now). And as far as I'm concerned, we're already almost 2 years into the housing crisis, and yet most people are only now beginning to wake up to it. Like I said, "United States of Amnesia." From my perspective, the Titanic hit the iceberg long ago. Nice of the rest of America to wake up and take notice now that the bow is beginning to go under, but you'll have to pardon me if I chuckle cynically at the sudden cries of alarm.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Vic
edit: Oh, and further than that, I'm not "weeping for their poor judgement," but for your poor judgement in believing that the fallout from this will not affect you.

You have no idea what markets I play in and you've never even asked. Not that I can disclose those markets or the companies we do business with since they are all under confi. However, many of the areas I do business in are defensive in nature. I know that you'd probably like to see me get burned but my career moves are a bit better than that.

I wasn't referring to your own career but your belief (professed many times in the P&N thread by you and several others) that you're going to be able to easily walk right into a house at a cheaper price once all this shakes up as though nothing had happened.

 

[waggy]

Originally posted by: alkemyst

Originally posted by: Vic

Originally posted by: dullard

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

That's what the Truth-in-Lending Disclosure is for. You and every other homebuyer who bought with a bank loan has signed one at closing since 1968.

It contains a schedule of payments section, and if the loan is an ARM, then it will show when and how the payment is scheduled to change if the index that the interest is based on remains unchanged.

Vic is right here...however; like always the bleeding hearts in this country are going to be pro-stupid and side with the borrowers on this. Some are already talking about it's in their best interest to stop paying now and wait for the bailout.

and that is what scares/bothers me.

i have seen it on news shows. people saying if you are near forclosure or rates going up. the best thing they can do is stop paying and fight the forclosure because the goverment is going ot bail you out.

i don't want my tax's going to someone who made a fucking greedy stupid decision. now the level of "bailout" is what is really going to matter.

 

[rchiu]

Originally posted by: LegendKiller

Originally posted by: waggy

Originally posted by: dullard

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

that would be nice. my broker didn't do crap.

though i did get a fixed rate loan. i could have got a ARM but i don't like th eidea of it changing.

Ideally I'd love to see some type of fiduciary duty "reasonable man" type of regulation passed. I think a large part of the problem is that there is no reasonable standard for brokers and up. Additionally, some of the problem is also in the appraisers and RE brokers.

It's too easy to get into these positions and start pushing questionable stuff. Obviously Vic is pretty well versed in this stuff and is a professional. However, too many soccer moms and uneducated/experienced people flooded in and started pushing crap. This wasn't helped by the fast money that was pushed from above (bankers).

I was witness to this crap when, in 2003, a mortgage broker who was supposedly a family friend of my fiance (now wife). He tried to pull all sorts of trash on me, hiding things, trying to portray the wrong things (RE never goes down, ARMs aren't risky..etc). I was already in the cfa program and had just come out of b-school in finance, so I wasn't that easy to fool. I ended up telling him off and walking. We later found out he was implicated in mortgage fraud.

The industry, top to bottom, needs to be revamped.

well, not only the industry needs a better watch dog, all consumer needs to better educate themselves when it come to money and sense. buying a house is a big financial decision and you cannot just listen to bunch of people who have their self interest in mind. There are tons of tools out there that can calculate your monthly payment with Fix or ARM with if then scenarios. People need to understand that 5~6% interest is historic lows and there is no guarantee that it won't go back to 10~15% like in the 80's. People need to look at their own disposable income and see if they can or cannot afford different types of loans based on different scenarios and not just listen to some strangers who gets commission selling you the loan.

 

[Vic]

Originally posted by: alkemyst
Vic is right here...however; like always the bleeding hearts in this country are going to be pro-stupid and side with the borrowers on this. Some are already talking about it's in their best interest to stop paying now and wait for the bailout.

Problem is most borrowers (and the brokers knew this) do not read/understand what they are signing.

Heck 9 out of 10 people think a bank should be able to just post a rate that applies to everyone. Not only is rate a lot different than what the APR will be, but there is no way to quote a rate for any individual without knowing their income, loan purpose, debts, credit score, etc. Not to mention it's impossible to compare rates without know upfront fees and closing costs associated with them.

Heh. Well, to be fair, most brokers/loan officers don't understand the TIL either. It's an old joke in the industry for a manager to role-play an experienced loan officer with a common borrower question like "Why is the APR different from the interest rate you quoted me?" and then watch the LO struggle and fumble and tell some ridiculous nonsense in front of the rest of the staff.

 

[LegendKiller]

Originally posted by: Vic

Originally posted by: LegendKiller

Originally posted by: Vic
edit: Oh, and further than that, I'm not "weeping for their poor judgement," but for your poor judgement in believing that the fallout from this will not affect you.

You have no idea what markets I play in and you've never even asked. Not that I can disclose those markets or the companies we do business with since they are all under confi. However, many of the areas I do business in are defensive in nature. I know that you'd probably like to see me get burned but my career moves are a bit better than that.

I wasn't referring to your own career but your belief (professed many times in the P&N thread by you and several others) that you're going to be able to easily walk right into a house at a cheaper price once all this shakes up as though nothing had happened.

I was just touring an area that I have been looking at and noticed that prices for houses in my range have already fallen by a fair amount. Considering my savings, amount of current debt (all student loans), income, and position, I won't have any problem at all. no 80/20 high DTI for me. Again, your assuptions about my situation are incorrect.

 

[waggy]

Originally posted by: rchiu

Originally posted by: LegendKiller

Originally posted by: waggy

Originally posted by: dullard

Originally posted by: kranky
I remember seeing a quote a few months ago from someone with an ARM who wasn't worried about rates climbing. "It won't affect me much... if the interest rate goes up 2%, my payment goes up 2% and I can handle that." Not a real good understanding there.

And that is exactly where the mortgage brokers and bankers could do the most good. It would be so wonderful if this is what the people saw front and center:

[*]Your monthly payment is now $1500.
[*]In 3 years if interest rates stay the same, your monthly payment is $1600.
[*]In 3 years if interest rates go down significantly, your monthly payment is $1400.
[*]In 3 years if interest rates go up significicantly, your monthly payment is $1850.

2% interest increase isn't $1500 * 2% = $30. No, 2% interest increase is $350.

that would be nice. my broker didn't do crap.

though i did get a fixed rate loan. i could have got a ARM but i don't like th eidea of it changing.

Ideally I'd love to see some type of fiduciary duty "reasonable man" type of regulation passed. I think a large part of the problem is that there is no reasonable standard for brokers and up. Additionally, some of the problem is also in the appraisers and RE brokers.

It's too easy to get into these positions and start pushing questionable stuff. Obviously Vic is pretty well versed in this stuff and is a professional. However, too many soccer moms and uneducated/experienced people flooded in and started pushing crap. This wasn't helped by the fast money that was pushed from above (bankers).

I was witness to this crap when, in 2003, a mortgage broker who was supposedly a family friend of my fiance (now wife). He tried to pull all sorts of trash on me, hiding things, trying to portray the wrong things (RE never goes down, ARMs aren't risky..etc). I was already in the cfa program and had just come out of b-school in finance, so I wasn't that easy to fool. I ended up telling him off and walking. We later found out he was implicated in mortgage fraud.

The industry, top to bottom, needs to be revamped.

well, not only the industry needs a better watch dog, all consumer needs to better educate themselves when it come to money and sense. buying a house is a big financial decision and you cannot just listen to bunch of people who have their self interest in mind. There are tons of tools out there that can calculate your monthly payment with Fix or ARM with if then scenarios. People need to understand that 5~6% interest is historic lows and there is no guarantee that it won't go back to 10~15% like in the 80's. People need to look at their own disposable income and see if they can or cannot afford different types of loans based on different scenarios and not just listen to some strangers who gets commission selling you the loan.

personally i think part of it is they do listen to "experts". well at least the experts on business news and shows like "flip this house" and seeing everyone buying McMnsions.

they think well if he can buy a house for $300k and sale it for $500K 3 months later then it should be worth tons in 3 years before the ARM matures!

then they find out it does not work that way.

i think its a case of "just enough knowledge to be dangerous"

 

[LegendKiller]

Originally posted by: rchiu
well, not only the industry needs a better watch dog, all consumer needs to better educate themselves when it come to money and sense. buying a house is a big financial decision and you cannot just listen to bunch of people who have their self interest in mind. There are tons of tools out there that can calculate your monthly payment with Fix or ARM with if then scenarios. People need to understand that 5~6% interest is historic lows and there is no guarantee that it won't go back to 10~15% like in the 80's. People need to look at their own disposable income and see if they can or cannot afford different types of loans based on different scenarios and not just listen to some strangers who gets commission selling you the loan.

Agreed. However, consumer education can only go so far. I personally think that everybody in HS needs to have at least one personal finance class and one intro economics/business/finance class before they can graduate. That will help in knowledge, but it won't stop the problem.

I would like to see something like a JD/Series 7, but not quite as stringent (no 3 years in school) become the norm with a stronger watchdog agency. I am normally not a person who advocates expansion of the government, but I really think that it would help here. Consumers do need protection and in many cases a higher standard is set for those who are in the positions above.

These are positions of trust, having any HS graduate or non-professional enter into the market to chase pure profit at the expense of the consumer, without significant oversight, will naturally cause problems.