So maybe the Sub-prime mortgage crisis isn?t that big of a deal after all

[Phokus]

Originally posted by: ProfJohn

Originally posted by: Phokus

Originally posted by: ProfJohn
What is with the constant barrage of personal attacks?

I am just repeating what is in the story.

If you have a problem with the story then comment on it.

Personal attack? It's an observation. A highly partisan publication quoting a highly partisan individual making a highly partisan argument which you use as your source, you should be prepared to defend it if you post it. I would think you should at least respond to LegendKiller, who knows quite a bit about this issue seeing as he's in the investment banking business.

What is partisan about the mortgage market?

Are there Democrat mortgages and Republican mortgages?

Point out ONE thing in my OP that is partisan please.

Give me a break, we all know what you mean when you say 'the economy is going great' (hint: it's to give Bush credit). Every thread pertaining to the economy you try to paint an unrealistic rosy picture of the economy but you always seem to ignore how we have to borrow and leverage ourselves for this 'economic bliss' you keep espousing. It may not matter to you, but i'll eventually have to pay for our misadventure into Iraq, the ridiculous porkk barrel spending, and the baby boomers who collect social security checks.

I'm not knowledgeable enough about the subprime market to debate it, but i do know enough about finance that everytime they mention that there's leverage involved in these investments on the news, I know the problem is multiplied and spread elsewhere than just the subprime market. This is very similar to your thinking that Bush is some economic guru while ignoring the economic impact if his presidency down the road.

 

[umbrella39]

if you ignore him, he will go away

 

[theeedude]

Prices are determined on the margins. Even a small increase in supply without additional increase in demand will have a big impact on pricing.
I am seeing homes that would have moved in a day a couple years ago still vacant several months after construction.
Also, it's not just a sub-prime issue.

 

[mshan]

Realtors often use "comparative market analysis" to help buyers and sellers determine fair market value for a given property.

A low priced foreclosure will set a new comp for that neighborhood, and given current housing market pscyhology, that will probably set the new high price a given buyer is willing to pay for a similar property.

Since the housing market isn't as liquid as the stock market, this repricing of homes will probably be a grinding price where home sellers slowly realize their home is no longer worth what they think it is and someone finally caves and sells their home at what the the market is saying the home is worth now (e. g. recent report I read said year over year price decline nationally was only 2.2%)

Apparently, inventory of new homes was sufficient to fill all demand a couple years ago. Speculators and people upgrading to homes while still not having sold their existing home may have created a perception that there is more demand there actually is.

Fundamental problems in the housing market are 1) massive oversupply of new and existing homes, and 2) for most people, home prices have appreciated much more rapidly than wages, so there are affordability problems all around the country. Artifically low costs of borrowing just exarcerbated this problem.

http://www.realestateconsultin...local/local200706.html

 

[Vic]

Originally posted by: umbrella39
if you ignore him, he will go away

Meh. I tried that with dmcowen674 a long time ago. Didn't work (obviously!).


BTW, this attitude seen almost only on the internet that it is a requirement to have a kind of teenage-angst style pessimism about the economy in order to be a democrat/Bush-opponent is something that I have repeatedly warned against. Not only is it completely false (the President is scarcely even a figurehead when it comes to the economy), but it is something that could bite you in the ass politically.
On this note, it's interesting to watch the Democratic frontrunners distance themselves IRL from the party's internet extremists. There's a very valid reason for this, although I do oppose of some of their tactics (i.e. Hillary recently pandering to Billy Graham and the fundie-set). The Dems don't want to see a repeat of '72 (and neither do I). Wake up!

 

[heyheybooboo]

Originally posted by: LegendKiller
... according to the Federal Reserve 18% of income goes to debt service compared to only 13% in 1981? That percentage increased quickly in the last 2 years.

I'm thinkin' (and please correct me if I'm wrong) that those figures represent the mean or average debt service. as a percent of income. My crystal ball tells me that the median is likely to be substantially higher.

 

[LegendKiller]

Originally posted by: heyheybooboo

Originally posted by: LegendKiller
... according to the Federal Reserve 18% of income goes to debt service compared to only 13% in 1981? That percentage increased quickly in the last 2 years.

I'm thinkin' (and please correct me if I'm wrong) that those figures represent the mean or average debt service. as a percent of income. My crystal ball tells me that the median is likely to be substantially higher.

I would agree that it's probably much higher and has skyrocketed for your "average" citizen, it's much much higher for anybody but a regular prime borrower.

 

[kedlav]

Originally posted by: rchiu

Originally posted by: ProfJohn
So maybe all the doom and gloom about the sub-prime mortgage crisis doesn?t reflect reality and is just another example of bad news getting ratings and selling news papers.

Of all the mortgages in the country only 14% are sub-prime and of those only 13% are late on payments.

Also there are 254,000 mortgages in foreclosure right now, this compares to 219,000 at this point last year.
Read the article and draw your own conclusions.
Link with nice chart

Ben Stein said it well this past Saturday on Fox?s Cavuto on Business: The sub-prime mortgage problem is grossly overstated; the sector is just too small.

Smart guy, Ben. Ferris Bueller never should have skipped school that day ? he would have learned economics from a master. (Stein, for those who might have missed it, played Bueller?s (Matthew Broderick?s) high-school teacher in the pop hit, Ferris Bueller?s Day Off.)

But let?s switch movie metaphors for a moment. In Rain Man, autistic savant Raymond Babbitt (Dustin Hoffman) is asked two economics questions by Charlie, his money-loving younger brother (Tom Cruise).

Charlie: Raymond, how much does a candy bar cost?

Raymond: About a hundred dollars.

Charlie: Raymond, how much does an automobile cost?

Raymond: About a hundred dollars.

The questions are designed to reveal a systematic flaw in the way Raymond looks at the world. For all his skill at counting the minutia in life (like toothpicks), he just doesn?t understand the issue of scale. He doesn?t have an inherent sense of how big things are.

I?ve thought a lot about Rain Man over the past few months as I?ve been following the press coverage of the sub-prime mortgage crisis. The story?s been on the front page of the Wall Street Journal nearly every day. Pretty much every show on CNBC ? except Kudlow & Co. and one or two others ? has been obsessed with the topic. Yet no one seems to be asking the Rain Man question: ?How big is the sub-prime mortgage market??

And the answer, as Ben Stein makes clear, is not very big at all.

Currently there are about 44 million mortgages in the U.S., and less than 14 percent of them are sub-prime. And only about 13 percent of those are late on payments, with the majority of late payers working through their problems with the banks.

So, all in all, when you work through the details and get down to the number that really matters, only about 0.6 percent of U.S. mortgages are currently in foreclosure. That?s up a hair from roughly 0.5 percent last year. That?s it.

Actually, that?s not it. Things are actually better than the numbers suggest, since sub-prime-mortgage homes are less expensive than prime-mortgage homes. This makes sense. Wealthier people, generally, can afford costlier homes than less-wealthy people. The recent sub-prime surge brought large numbers of moderate-income families into the home-ownership market, and their houses are less expensive than most. Therefore, the dollar impact of the sub-prime default is smaller than if it were a prime default.

With approximately 254,000 mortgages in foreclosure at the moment ? up from roughly 219,000 last year ? the sub-prime meltdown has given us an increase of 35,000 mortgage foreclosures over the last quarter. Since the average sub-prime mortgage clocks in at almost exactly $200,000, we?re looking at an approximate $7 billion increase in foreclosed value in the first quarter of this year.

Raymond, how big is household net worth in the U.S.? About a hundred dollars?

Actually, it?s a lot bigger than that ? about $53 trillion. In other words, the recent increase in sub-prime foreclosures amounts to 0.01 percent of net U.S. household wealth.

That?s toothpicks, Raymond.

An article with both Rainman and Ferris Bueller references? how cool is that?

Do you rather listen to some guy who played Ferris Bueller?s teacher or Fed Chairman.

Quote:

Bernanke: Subprime hit could top $100B
Housing slump could hurt consumer spending; Fed is moving to protect consumers from predatory mortgage lending.

It'd be nice if someone would bust Bernanke's balls as for why he didn't move before this exploded in his face when it was well known for some time that these loans were a bad idea and the shit was going to hit the fan.

 

[dullard]

Originally posted by: ProfJohn
Umm one of the reasons I posted this was to see what people like you think on this subject.

If you read my posts on this subject I do not claim to be an authority nor do I claim that what I say has special meaning.

Why not focus on the details of the story instead of attacking me?

ProfJohn, maybe I can help ease things for you.

1) You post an opinion, or possibly a conclusion that could result from a debate. "So maybe all the doom and gloom about the sub-prime mortgage crisis doesn?t reflect reality."

2) You hope to start that debate.

You keep putting the cart before the horse. Posting the conclusion and then hoping to learn from a debate later is the wrong order. Instead, try asking for a date, discuss it, and THEN come up with a conclusion.

You can't conclude that the mortgage crisis isn't a crisis and then have a discussion about whether it is a crisis or not. If you truely aren't an authority and if you truely don't claim that what you say has any special meaning, then don't start out with a conclusion. Don't start out with a link to only one side of the story. Etc.

Instead, link BOTH sides of the stories and ask a specific question about them. Then those people who are authorities (certainly not me on this subject although I like to toss in some facts to guide the discussion) can discuss your question. Then you can learn from them. And finally, you can post your conclusion AFTER you listened to them.

 

[Harvey]

Ben Stein is occasionally brilliant and funny. That stops when it comes to politics and financial matters where he's just one more ultra right wing turd. The fact that his blather is on Faux Noise with Cavuto, another ultra right whore, is enough to put his credibility on the subject in doubt. :roll:

Originally posted by: dmcowen674
If you loved your country you would expect a whole lot better for it.

If ProfJohn really loved his country, we should expect a whole lot better from him than trying to whistle past the graveyard and posting happy talk about all of his Traitor In Chief's colossal failures.

 

[mshan]

"It'd be nice if someone would bust Bernanke's balls as for why he didn't move before this exploded in his face when it was well known for some time that these loans were a bad idea and the shit was going to hit the fan."

As painful as it might be right now, I think this is a necessary and healthy cleansing of the market. The markets are thin right now, and there are apparently a lot of forced selling from essentially margin calls and redemptions at hedge funds that are taking good stocks down with bad. And other hedge funds catch wind of another distressed fund that has to sell, they all pile on.

Many commentators speak of how there is now a lot of value in the stock market; they just aren't necessarily ready to step in and buy aggressively unless they are a truly long term investor.

Until recently, everyone (except the poor homeowner that actually got stuck with this loan) made a lot of money on these extremely profitable loans (mortgage brokers could get like a 3%+ additional kickback from the loan originator for selling this loan to someone; and that is addition to the disclosed 1% loan origination fee. If they are kicking back that much money to the mortgage broker, how much money do you think everyone else further up the subprime mortgage foodchain is making?)

When people point at Wall Street investors as the ultimate cause if this bubble, they say Alan Greenspan was the one who told them to do it.

I haven't read enough to explain it, but I believe the dilemma facing Greenspan is referred to as "Greenspan's Conundrum."

Maybe Legend Killer can chime in on this.

 

[dmcowen674]

So is CNN and AIG full of shit or the P&N OP???

They both can't be right.

8-9-2007 Mortgage defaults growing - residential mortgage delinquencies and defaults are becoming more common among borrowers in the category just above subprime

AIG (Charts, Fortune 500) said total delinquencies in its $25.9 billion mortgage insurance portfolio were 2.5 percent.

It said 10.8 percent of subprime mortgages were 60 days overdue, compared with 4.6 percent in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading.


More than 2 million hybrid adjustable rate mortgages (ARMs) come up for reset this fall - peaking in October with more than $50 billion due.

Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low "teaser" rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.

Foreclosures could explode, which would hurt everyone on the food chain: Borrowers lose their homes; lenders lose their payments; local governments lose tax base; and neighborhoods lose resiliency.

The already poor performance of many mortgage loans will worsen substantially through the rest of the year, according to an analysis in late July by Moody's Economy.com.

The company predicts that 2.5 million first mortgages will default this year, with little chance for improvement soon - Economy.com expects delinquencies to peak in the summer of 2008 at 3.6 percent of all outstanding mortgage debt, up from 2.9 percent during the first three months of 2007.

 

[Vic]

Read the thread, Dave. I already posted that article.

 

[dmcowen674]

Originally posted by: Vic

Originally posted by: umbrella39
if you ignore him, he will go away

Meh. I tried that with dmcowen674 a long time ago. Didn't work (obviously!).


BTW, this attitude seen almost only on the internet that it is a requirement to have a kind of teenage-angst style pessimism about the economy in order to be a democrat/Bush-opponent is something that I have repeatedly warned against. Not only is it completely false (the President is scarcely even a figurehead when it comes to the economy), but it is something that could bite you in the ass politically.
On this note, it's interesting to watch the Democratic frontrunners distance themselves IRL from the party's internet extremists. There's a very valid reason for this, although I do oppose of some of their tactics (i.e. Hillary recently pandering to Billy Graham and the fundie-set). The Dems don't want to see a repeat of '72 (and neither do I). Wake up!

Jesus Christmas.

Do you see me linking to a Faux news opinion between GOP parrots Ben Stein and Neil
Caputo????

As far as Billary pandering to the religious, how come it was perfectly fine for your Republican heroes to recruit the religious (Ted Haggard ring a bell?) but it's not OK for the Dems?

 

[Vic]

Originally posted by: mshan
"It'd be nice if someone would bust Bernanke's balls as for why he didn't move before this exploded in his face when it was well known for some time that these loans were a bad idea and the shit was going to hit the fan."

When people point at Wall Street investors as the ultimate cause if this bubble, they say Alan Greenspan was the one who told them to do it.

I haven't read enough to explain it, but I believe the dilemma facing Greenspan is referred to as "Greenspan's Conundrum."

Maybe Legend Killer can chime in on this.

Well, the real conundrum for The Street is whether to let all those soon-to-begin-adjusting ARMs pay off way early (through refinancing) or to stop buying up the paper (which will trigger a rash of foreclosures). Either way, there's a lot of money to be lost by the big players, and it seems to me that the consensus opinion is on the latter.

 

[mshan]

Got to also remember that some of these toxic loans may have also been interest only (i.e. didn't include any principal paydown) or negative amortization (minimum payment they were sold didn't even cover monthly interest, so loan balance keeps going up; once it hits like 15%, whole loan is recast to reality).

So payment shock may be just more than 2% rate bump because of difference in teaser rate and current rates.

But what you are seeing in the stock market isn't because these subprime consumers are no longer going to spend (this is where Ben Stein et. al may actually be technically correct in saying that the subprime crisis is "contained"); it's because investors around the world, who borrowed cheap money and leveraged the hell out of it, now potentially have billions and billions of dollars of losses that they haven't yet revealed is why credit markets around the world are seizing and stock markets are so turbulent.

 

[Vic]

Originally posted by: dmcowen674

Originally posted by: Vic

Originally posted by: umbrella39
if you ignore him, he will go away

Meh. I tried that with dmcowen674 a long time ago. Didn't work (obviously!).


BTW, this attitude seen almost only on the internet that it is a requirement to have a kind of teenage-angst style pessimism about the economy in order to be a democrat/Bush-opponent is something that I have repeatedly warned against. Not only is it completely false (the President is scarcely even a figurehead when it comes to the economy), but it is something that could bite you in the ass politically.
On this note, it's interesting to watch the Democratic frontrunners distance themselves IRL from the party's internet extremists. There's a very valid reason for this, although I do oppose of some of their tactics (i.e. Hillary recently pandering to Billy Graham and the fundie-set). The Dems don't want to see a repeat of '72 (and neither do I). Wake up!

Jesus Christmas.

Do you see me linking to a Faux news opinion between GOP parrots Ben Stein and Neil
Caputo????

As far as Billary pandering to the religious, how come it was perfectly fine for your Republican heroes to recruit the religious (Ted Haggard ring a bell?) but it's not OK for the Dems?

Oh sorry, I forgot, you predict earthquakes now!

:roll:

And it's not okay for the Dems because I don't vote Republican, dumbass.

 

[Vic]

Originally posted by: mshan
Got to also remember that some of these toxic loans may have also been interest only (i.e. didn't include any principal paydown) or negative amortization (minimum payment they were sold didn't even cover monthly interest, so loan balance keeps going up; once it hits like 15%, whole loan is recast to reality).

So payment shock may be just more than 2% rate bump because of difference in teaser rate and current rates.

Rate adjustments are not tied to amortization changes. Please educate yourself on how mortgages work before expressing any more opinion like this thank you very much.

 

[mshan]

Interest-Only Loan? No Problem
By Simon Constable
TheStreet.com Staff Reporter
8/8/2007 6:05 AM EDT
URL: http://www.thestreet.com/newsa...alestate/10372939.html

Some mortgage lenders still haven't cleaned up their act.

Despite the financial-market fallout sparked by subprime mortgages gone bad, several banks continue to offer the types of loans that caused so much trouble in the first place.
At an open house this summer in Brooklyn, N.Y., for example, one could find financing offers from mortgage provider Countrywide Home Loans, a division of Countrywide Financial (CFC) . Incidentally, shares of Countrywide have dropped from the low $40s in May to $27.35 on Tuesday.
One document featured a pitch for a Payment Advantage ARM (adjustable-rate mortgage), which showed a monthly expense of $1,962, noted as "minimum payment." Also included in the examples were estimates of monthly costs of interest-only loans, the lowest of which was $2,556, based on a rate of 5.875%.
What wasn't shown was the cost of a current 30-year fixed-rate mortgage, which would run $3,299, assuming a rate of 6.5%. That makes the payment almost 70% higher than the "minimum" listed. Countrywide declined to comment on the offer.
Countrywide, which the Mortgage Bankers Association ranks as the top mortgage provider by number of loans issued as well as by dollar volume, isn't the only big mortgage provider to offer such dubious financing products.
Washington Mutual (WM) , the third biggest lender, also makes this type of loan, as does Bank of America (BAC) , the fourth-largest mortgage lender. Pasadena, Calif.-based IndyMac (IMB) offers such a loan under the FlexPay name, according to the firm's Web site.
Washington Mutual and Bank of America point out that such loans are certainly not for everyone, and that they represent only a small portion of the total credit extended. In addition, Washington Mutual also says it made option-ARM loans only to prime borrowers.
Many of the loans in question go well beyond adjustable-rate debt or even "interest only" borrowing. Many fall under the rubric of "negative amortization mortgages," but also are often called "option ARMs." Those borrowers making only the minimum payments run the risk of quickly dropping into subprime territory, especially if they had taken the loan because they couldn't afford the standard 30-year mortgage with a higher monthly payment.
You might have seen these types of loans offered, but didn't know it at the time. Internet ads proclaiming "$300,000 mortgage for under $719/month" generally fall into the category because the monthly payment wouldn't even cover the interest.
"Any loan product for which your payment doesn't cover the interest will become a negative amortization loan," says Jean Fullerton, a personal-finance adviser at Lodestone Financial Planning in Manchester, N.H. With a negative amortization loan, the shortfall between the amount paid by the homeowner and the sum needed to cover the interest is added to the overall total, so over time the borrower effectively gets further into debt.
That's the opposite of how a regular mortgage works, in which initial payments consist mainly of interest on the borrowed sum, with a small fraction in the early years going toward reducing the debt. After all the payments are made, the homeowner in fact owns the property.
But with an option ARM it works in reverse, until at some point the repayment portion of the mortgage must begin. Then monthly payments can jump massively, possibly forcing the borrower into foreclosure.
Here's how:
Looking at the example of the Countrywide loan: After five years, the principal on the negative amortization loan offered by Countrywide would grow to $603,677 if only the minimums were paid. At that stage, the fully amortized monthly payment on the remaining 25 years of the loan would jump to more than $4,000 a month, TheStreet.com estimates. Countrywide didn't specify the required monthly payment for such loans, and the local representative who put together the examples declined to comment.
But a steep jump in loan payments is only part of the problem with negative amortization loans. If the homebuyer had put down only 10%, and the property value failed to rise, the borrowed amount would exceed the property's market value. That's a factor that would make it very hard to easily exit the loan by selling the home, something cash-strapped "owners" could once do when prices were rising.
Borrowers of such option ARMs are not restricted from making payments higher than the minimum. Sometimes the lenders specify four different payment choices corresponding to the fully amortized 30-year rate at the top with lesser levels down to the minimum. But many debtors choose these loans solely because they couldn't afford anything more and so seem doomed to watch their debt grow as they struggle to make even the minimum payments.
In addition to negative amortization mortgages, the interest-only ARM is another unconventional mortgage offer still available that is best avoided by average home buyers.
Although interest-only loans don't generally result in an increasing loan balance, mortgage payments still can jump radically when the lower teaser-rate period ends. And in that way, such loans are as risky as option ARMs because home owners can find themselves unable to cover the higher expense.
Officials at the Center for Responsible Lending also add that such loans are particularly problematic when offered in the subprime area, as interest can skyrocket at reset periods even more than with prime loans. They also caution taking on loans in which lenders have grab bags of features.
Countrywide and Bank of America both offer I/O ARMs, as do GMACs Ditech unit, Citizen's Bank and First Horizon, among many others.



Mortgage Shopping Resources:
- not mainstream, but a good source of info on lots of pitfalls when shopping for a mortgage: http://www.themortgageinsider.net
- Excellent, more mainstream book on how to shop for a mortgage: http://www.amazon.com/Mortgage..._1/105-9760540-8025206

 

[Vic]

Am I the only one who sees the irony that every single one of these doom and gloom and finger pointing articles about mortgages/housing have mortgage ads on them?

 

[dmcowen674]

Originally posted by: Vic

Oh sorry, I forgot, you predict earthquakes now!

:roll:

And it's not okay for the Dems because I don't vote Republican, dumbass.

I predict a lot of thing including this Real Estate crash.

Of course I never expect you guys to admit I got anything right.

Voting is private and no one knows which way you vote, can only go by your posts which clearly support the GOP agenda a hell of a lot more than Dem.

 

[dullard]

Originally posted by: Vic
Read the thread, Dave. I already posted that article.

Ok, I have to chime in there.

Vic, read the thread. I already posted that article 1 hour before you did. I was going to let it slide as it didn't matter. But your comment to Dave made me laugh.

 

[Vic]

Originally posted by: dullard

Originally posted by: Vic
Read the thread, Dave. I already posted that article.

Ok, I have to chime in there.

Vic, read the thread. I already posted that article 1 hour before you did. I was going to let it slide as it didn't matter. But your comment to Dave made me laugh.

Hey, you just posted the link, not the article! And it's hard to see all the little individual posts in this thread when mshan keeps posting 4 or 5 screen long articles.

I think it's time we keep a record of all of Dave's "predictions." Doesn't he claim to have predicted Katrina too?

 

[dullard]

Originally posted by: Vic
Hey, you just posted the link, not the article! And it's hard to see all the little individual posts in this thread when mshan keeps posting 4 or 5 screen long articles.

I think it's time we keep a record of all of Dave's "predictions." Doesn't he claim to have predicted Katrina too?

I never post articles for that reason. Reading this particular thread is quite difficult with all the articles. I always try to highlight what I think is important (which basically was exactly what you highlighted). But of course, I leave the link there for people to read. So, I guess your rebuttal to my post is technically correct.

Dave actually predicted that I would make this post.

 

[JD50]

Originally posted by: dmcowen674

Originally posted by: Vic

Oh sorry, I forgot, you predict earthquakes now!

:roll:

And it's not okay for the Dems because I don't vote Republican, dumbass.

I predict a lot of thing including this Real Estate crash.

Of course I never expect you guys to admit I got anything right.

Voting is private and no one knows which way you vote, can only go by your posts which clearly support the GOP agenda a hell of a lot more than Dem.

Dave, claiming that you predicted the real estate crash is ridiculous. You just say that things are going to happen, obvious things, like the stock market going down after a long run, or the real estate market slowing down after a long run. The problem is, that you don't give any type of timeframe, and when you do, you are wrong, then change the timeframe that you originally predicted.

For example, you predicted that gas will be $5 per gallon, and most recently $6 per gallon. Neither of which have come true, but because you have revised your timeline for this so many times and you now refuse to give a timeframe for when this prediction will come true. Well duh, of course gas will eventually be $5 or even $6 per gallon, its just a matter of time.

Your "predictions" just prove that you are able to state the obvious, its just funny that you think thats such a big deal and you are so proud of that.