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The root cause of the housing bubble

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Nemesis 1

Lifer
Dec 30, 2006
11,379
0
0
Originally posted by: ironwing
Originally posted by: TastesLikeChicken
:confused:

So you're against minorities owning homes?
Homeownership didn't go up, only homeloanership*. While the nominal rate of home ownership has increased, the rate of equity ownership has declined faster than the nominal ownership rate has risen so more people own less of their homes.

Graph through 2003. If I could find equity data for more recent years I'd love to update the graph.






*I just coined that term. Makes you want to punch your monitor, doesn't it? ;)

This is exactly what happened. My son refinanced for 2x what he paid for his house. I to did the same thing.

I advised my son to invest the money . He didn't now he is paying more than he can afford. I invested my loan money . 3 years later I had 4x what I borrowed. Paid off the loan .

On a completely unrelated story my daughter was looking to buy new car . So she asked me what I thought.
I told here to borrow the money from her IRA. The repayment of the loan was @ 8% which she pays to her IRA. So she pays herself the interest . She couldn't believe she could do that . But she could and did. I stepped in once again . Me and wife bought new car . Gave daughter old car . I talked her into buying a stock I thought was going to do well . She bought it . After 3 years she 3x year investment . Plus paid herself interest on the loan . It was a WIN WIN all the way around.

 

RightIsWrong

Diamond Member
Apr 29, 2005
5,650
0
0
Originally posted by: brxndxn

The economy.. the way it is set up right now.. is doomed to 'bubbles' over and over and over.. until artificial incentives are taken away and free market capitalism is allowed to take place.
Bear with me....I've just found/read this thread but wanted to comment on a few different things at once.

This is the most prevalent thought or jingoistic phrase that comes to mind or out of the mouths of the "Free markets are the answer to all our ills".

Does this mean that the government should give no tax breaks to corporations and provide no bail out plans to corporations/industries? Maybe there should be no fed either controlling interest rates? After all, those are factors on the free market.

Originally posted by: WHAMPOM

What we are seeing now is the results of a predatory market rather than a free market in operation.
Agreed 100%

Originally posted by: blackangst1
Originally posted by: MadRat
Hey, lenders could of played it cool and kept rates down. But, no... they all had to hike them when their customers could least afford the change.
Or maybe the clients who took out the mortgage could actually consider the cost of this loan? Loan schemes like ARMs lay out the fees and interest rates CLEARLY in the docs. It's not like theyre buried in fine print. It's the consumer's fault, not the banks.
How is it not the bank's fault for offering a product that by its very nature is meant to tempt an otherwise non-capable person into a situation that they cannot possibly survive? Whether it was buried in fine print or flashing on a neon sign, the bank made the offer to someone that couldn't meet the obligations of the offer. It is their stupidity and greed that has caused this....not the consumer's.

Originally posted by: TheSlamma

and along with it when did the 3X salary rule stop applying? Remember back when banks used to advise people if you made $30K a year to buy a house that was 90K or less so you could... AFFORD IT.
This goes with what I am saying. Everyone, banks, consumers, realtors and their grandmothers all saw what they thought to be easy money.

Banks saw that they could now loan to anyone and just give them a new classification (sub-prime) and charge extra for doing it!

Consumers now had the option of owning a home that would get them 50% appreciation in 6 months time.

Realtors now had friends in different mortgage brokerages that could get a cadaver approved for 10x their gross income and make a really nice commission in the process.

Greed on everyone's part has caused this and as usual, it is only the consumer that is penalized for it.

The banks will get the property and/or a bailout from the taxpayers. The realtors will not have to refund a dime of the money that they talked others into spending.

The consumer? Now that is another story. They get the wonderful side effects of having foreclosure on their credit report for the next 7 years. They get to still go back to work and pay taxes that will go to the same bank that buried them by offering such a horrible product. And they get to rent again in a place that is probably 1/2 of what they were in previously.

Yeah...free markets.
 

Vic

Elite Member
Jun 12, 2001
48,165
8,675
126
Yeah, "free" markets suck... which is why communist markets are so great... :roll:
 

blackangst1

Lifer
Feb 23, 2005
20,761
777
126
Originally posted by: Nemesis 1
Originally posted by: ironwing
Originally posted by: TastesLikeChicken
:confused:

So you're against minorities owning homes?
Homeownership didn't go up, only homeloanership*. While the nominal rate of home ownership has increased, the rate of equity ownership has declined faster than the nominal ownership rate has risen so more people own less of their homes.

Graph through 2003. If I could find equity data for more recent years I'd love to update the graph.






*I just coined that term. Makes you want to punch your monitor, doesn't it? ;)

This is exactly what happened. My son refinanced for 2x what he paid for his house. I to did the same thing.

I advised my son to invest the money . He didn't now he is paying more than he can afford. I invested my loan money . 3 years later I had 4x what I borrowed. Paid off the loan .

On a completely unrelated story my daughter was looking to buy new car . So she asked me what I thought.
I told here to borrow the money from her IRA. The repayment of the loan was @ 8% which she pays to her IRA. So she pays herself the interest . She couldn't believe she could do that . But she could and did. I stepped in once again . Me and wife bought new car . Gave daughter old car . I talked her into buying a stock I thought was going to do well . She bought it . After 3 years she 3x year investment . Plus paid herself interest on the loan . It was a WIN WIN all the way around.
Holy shit worst advice ever man...

First..."borrow" your own money? LOL

Do you understand compund interest? Rule of 72- take the interest rate youre earning and divide into 72. That tells you the number of years it takes for your money to double, assuming no additions. Lets say the car is $12000. Lets say conservatively she earns 12% on her IRA. $12000 in say, 35 years (assuming she's around age 30) would be roughly$384,000.

Thats one expensive car!
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: Vic
Yeah, "free" markets suck... which is why communist markets are so great... :roll:
Depends on what your definition of "free" market. Does regulation and oversight agencies count as anti-free market? The problem with this housing bubble, like some already pointed out, is that mortgage lender weren't being held accountable for the loans they issued. They simply sold the loans to other agencies which resold it to investors as mortgage backed securities. So lenders would just pass the risk to the investors, and it benefits to the lenders to lend as much as possible without considering the risk carefully. Investors thought those loans were made after careful consideration of borrower's credit, but that wasn't the case. No agency and no regulation made sure loans were made to the appropriate people. I am sure there were ethical mortgage lenders that followed the rules, but I am sure many weren't too due to the lack of regulation.

Yeah it was "free" for the mortgage lenders to do what they pleased, and it caused problems. I am not saying we should all be communist. But markets need regulations and oversight agencies to make sure people follow rules and those who didn't need to be punished.
 

blackangst1

Lifer
Feb 23, 2005
20,761
777
126
Responding to the repsonse to my post

Originally posted by: RightIsWrong

How is it not the bank's fault for offering a product that by its very nature is meant to tempt an otherwise non-capable person into a situation that they cannot possibly survive? Whether it was buried in fine print or flashing on a neon sign, the bank made the offer to someone that couldn't meet the obligations of the offer. It is their stupidity and greed that has caused this....not the consumer's.

It is not the bank's responsiblilty other than to decide credit worthyness AT THAT TIME. How would a bank possibly know they would be incable of repayment some time in the future? And youre an idiot when you say "the bank made the offer to someone that couldn't meet the obligations of the offer". WRONG. Banks do NOT lend money to those who do not qualify.
 

Vic

Elite Member
Jun 12, 2001
48,165
8,675
126
Originally posted by: rchiu
Originally posted by: Vic
Yeah, "free" markets suck... which is why communist markets are so great... :roll:
Depends on what your definition of "free" market. Does regulation and oversight agencies count as anti-free market? The problem with this housing bubble, like some already pointed out, is that mortgage lender weren't being held accountable for the loans they issued. They simply sold the loans to other agencies which resold it to investors as mortgage backed securities. So lenders would just pass the risk to the investors, and it benefits to the lenders to lend as much as possible without considering the risk carefully. Investors thought those loans were made after careful consideration of borrower's credit, but that wasn't the case. No agency and no regulation made sure loans were made to the appropriate people. I am sure there were ethical mortgage lenders that followed the rules, but I am sure many weren't too due to the lack of regulation.

Yeah it was "free" for the mortgage lenders to do what they pleased, and it caused problems. I am not saying we should all be communist. But markets need regulations and oversight agencies to make sure people follow rules and those who didn't need to be punished.
Sorry, but this post is just silly. There is some truth to it, but that little truth is being used to justify false conclusions.
First, the mortgage industry is highly regulated. Regulation, however, cannot guarantee ethics and never will.
Second, the "investors" were the ones who made the rules and who did the majority of the underwriting. For example, if I wanted to do a Fannie Mae-conforming loan, then I would need to have Fannie Mae's own system carefully consider the borrower's credit before the borrower could sign loan documents.
Third, lenders were held accountable for the loans they made by use of the buyback system. If a loan defaulted within the first year (and sometimes longer), the original lender was forced to take back the loan.
You guys make it sound like Joe Blow mortgage broker made all the underwriting decisions. Total BS.
Finally, more than 80% of the money lent out in mortgages is either insured, backed, or guaranteed by the federal government. Wow... what a "free" market!
 

RightIsWrong

Diamond Member
Apr 29, 2005
5,650
0
0
Originally posted by: blackangst1
Responding to the repsonse to my post

Originally posted by: RightIsWrong

How is it not the bank's fault for offering a product that by its very nature is meant to tempt an otherwise non-capable person into a situation that they cannot possibly survive? Whether it was buried in fine print or flashing on a neon sign, the bank made the offer to someone that couldn't meet the obligations of the offer. It is their stupidity and greed that has caused this....not the consumer's.

It is not the bank's responsiblilty other than to decide credit worthyness AT THAT TIME. How would a bank possibly know they would be incable of repayment some time in the future? And youre an idiot when you say "the bank made the offer to someone that couldn't meet the obligations of the offer". WRONG. Banks do NOT lend money to those who do not qualify.
Someone ought to tell that to all of these banks STILL offering mortgages to sub 500 FICO borrowers then.

Now, I'm not a banker so maybe I am wrong on this....but I would think that someone with a sub-500 FICO is someone that probably wouldn't be able to meet the future qualifications of a mortgage.

Maybe you can enlighten me?

You can start by explaining how Countrywide (you know the sub-prime lender) got into the position that they are. Then you can move on to how e-Trade was facing BK because of their sub-prime branch despite being one of the biggest brokerage houses in the country. After that, you can move onto the initiative that the government is proposing to help out a couple million homeowners (the lenders are the real beneficiaries here b/c their sub-prime ARM now becomes a federally backed loan that you and I get to absorb the cost of) and how no one at the banks that issued those loans had any doubts about the repayment abilities of the borrowers.
 

blackangst1

Lifer
Feb 23, 2005
20,761
777
126
Originally posted by: RightIsWrong
Originally posted by: blackangst1
Responding to the repsonse to my post

Originally posted by: RightIsWrong

How is it not the bank's fault for offering a product that by its very nature is meant to tempt an otherwise non-capable person into a situation that they cannot possibly survive? Whether it was buried in fine print or flashing on a neon sign, the bank made the offer to someone that couldn't meet the obligations of the offer. It is their stupidity and greed that has caused this....not the consumer's.

It is not the bank's responsiblilty other than to decide credit worthyness AT THAT TIME. How would a bank possibly know they would be incable of repayment some time in the future? And youre an idiot when you say "the bank made the offer to someone that couldn't meet the obligations of the offer". WRONG. Banks do NOT lend money to those who do not qualify.
Someone ought to tell that to all of these banks STILL offering mortgages to sub 500 FICO borrowers then.

Now, I'm not a banker so maybe I am wrong on this....but I would think that someone with a sub-500 FICO is someone that probably wouldn't be able to meet the future qualifications of a mortgage.

Maybe you can enlighten me?

You can start by explaining how Countrywide (you know the sub-prime lender) got into the position that they are. Then you can move on to how e-Trade was facing BK because of their sub-prime branch despite being one of the biggest brokerage houses in the country. After that, you can move onto the initiative that the government is proposing to help out a couple million homeowners (the lenders are the real beneficiaries here b/c their sub-prime ARM now becomes a federally backed loan that you and I get to absorb the cost of) and how no one at the banks that issued those loans had any doubts about the repayment abilities of the borrowers.
Subprime != traditional mortgage, but you knew that. The subprime market still has minimum qualifications to meet. Predicting future money management isnt one of them.
 

RightIsWrong

Diamond Member
Apr 29, 2005
5,650
0
0
Originally posted by: blackangst1
Originally posted by: RightIsWrong
Originally posted by: blackangst1
Responding to the repsonse to my post

Originally posted by: RightIsWrong

How is it not the bank's fault for offering a product that by its very nature is meant to tempt an otherwise non-capable person into a situation that they cannot possibly survive? Whether it was buried in fine print or flashing on a neon sign, the bank made the offer to someone that couldn't meet the obligations of the offer. It is their stupidity and greed that has caused this....not the consumer's.

It is not the bank's responsiblilty other than to decide credit worthyness AT THAT TIME. How would a bank possibly know they would be incable of repayment some time in the future? And youre an idiot when you say "the bank made the offer to someone that couldn't meet the obligations of the offer". WRONG. Banks do NOT lend money to those who do not qualify.
Someone ought to tell that to all of these banks STILL offering mortgages to sub 500 FICO borrowers then.

Now, I'm not a banker so maybe I am wrong on this....but I would think that someone with a sub-500 FICO is someone that probably wouldn't be able to meet the future qualifications of a mortgage.

Maybe you can enlighten me?

You can start by explaining how Countrywide (you know the sub-prime lender) got into the position that they are. Then you can move on to how e-Trade was facing BK because of their sub-prime branch despite being one of the biggest brokerage houses in the country. After that, you can move onto the initiative that the government is proposing to help out a couple million homeowners (the lenders are the real beneficiaries here b/c their sub-prime ARM now becomes a federally backed loan that you and I get to absorb the cost of) and how no one at the banks that issued those loans had any doubts about the repayment abilities of the borrowers.
Subprime != traditional mortgage, but you knew that. The subprime market still has minimum qualifications to meet. Predicting future money management isnt one of them.
Actually it is one of them or they wouldn't be in the business of having to buy back mortgages that go into default within that certain time frame. That is what is called a guarantee that they believe the borrower to be sound enough financially to make the payments for x amount of time. But you knew that.
 

TheSlamma

Diamond Member
Sep 6, 2005
7,628
4
81
Originally posted by: RightIsWrong
Originally posted by: TheSlamma

and along with it when did the 3X salary rule stop applying? Remember back when banks used to advise people if you made $30K a year to buy a house that was 90K or less so you could... AFFORD IT.
This goes with what I am saying. Everyone, banks, consumers, realtors and their grandmothers all saw what they thought to be easy money.

Banks saw that they could now loan to anyone and just give them a new classification (sub-prime) and charge extra for doing it!

Consumers now had the option of owning a home that would get them 50% appreciation in 6 months time.

Realtors now had friends in different mortgage brokerages that could get a cadaver approved for 10x their gross income and make a really nice commission in the process.

Greed on everyone's part has caused this and as usual, it is only the consumer that is penalized for it.

The banks will get the property and/or a bailout from the taxpayers. The realtors will not have to refund a dime of the money that they talked others into spending.

The consumer? Now that is another story. They get the wonderful side effects of having foreclosure on their credit report for the next 7 years. They get to still go back to work and pay taxes that will go to the same bank that buried them by offering such a horrible product. And they get to rent again in a place that is probably 1/2 of what they were in previously.

Yeah...free markets.
Umm hold on dude.. the consumer signed the papers. If you show me a $230,000 house and a monthly payment of $1600 and my wife and I bring in $2700 a month after taxes shouldn't I be saying "I can't afford that shit!"

What is with you people who think people don't need to understand some basics in life? There are sooooooo many free classes out there that will help people know how to manage their money, hell the local libraries have free books and they have classes and people who come in to speak allt he time to inform people of how to better manage their money and how to buy a home without getting bent over.

 

Wreckem

Diamond Member
Sep 23, 2006
9,292
740
126
Originally posted by: brxndxn
Originally posted by: GrGr
President Calls for Expanding Opportunities to Home Ownership June, 2002

There are no deadbeats. There are only good citizens following the policies of their beloved President Bush.
The economy.. the way it is set up right now.. is doomed to 'bubbles' over and over and over.. until artificial incentives are taken away and free market capitalism is allowed to take place.
We tried that before, it didnt work out to well...
 

RightIsWrong

Diamond Member
Apr 29, 2005
5,650
0
0
Originally posted by: TheSlamma
Originally posted by: RightIsWrong
Originally posted by: TheSlamma

and along with it when did the 3X salary rule stop applying? Remember back when banks used to advise people if you made $30K a year to buy a house that was 90K or less so you could... AFFORD IT.
This goes with what I am saying. Everyone, banks, consumers, realtors and their grandmothers all saw what they thought to be easy money.

Banks saw that they could now loan to anyone and just give them a new classification (sub-prime) and charge extra for doing it!

Consumers now had the option of owning a home that would get them 50% appreciation in 6 months time.

Realtors now had friends in different mortgage brokerages that could get a cadaver approved for 10x their gross income and make a really nice commission in the process.

Greed on everyone's part has caused this and as usual, it is only the consumer that is penalized for it.

The banks will get the property and/or a bailout from the taxpayers. The realtors will not have to refund a dime of the money that they talked others into spending.

The consumer? Now that is another story. They get the wonderful side effects of having foreclosure on their credit report for the next 7 years. They get to still go back to work and pay taxes that will go to the same bank that buried them by offering such a horrible product. And they get to rent again in a place that is probably 1/2 of what they were in previously.

Yeah...free markets.
Umm hold on dude.. the consumer signed the papers. If you show me a $230,000 house and a monthly payment of $1600 and my wife and I bring in $2700 a month after taxes shouldn't I be saying "I can't afford that shit!"

What is with you people who think people don't need to understand some basics in life? There are sooooooo many free classes out there that will help people know how to manage their money, hell the local libraries have free books and they have classes and people who come in to speak allt he time to inform people of how to better manage their money and how to buy a home without getting bent over.
I am in agreement with you and was trying to state as much. My response was geared more towards the idiots that believe that the consumer is 100% to blame and the lending institution is guilt/responsibility free in this fiasco.

You are right that the person should look at their financial state and say..."We probably shouldn't go in for more than 35% of our monthly gross. But the lender is even more responsible for the mess because that family shouldn't even have had the option to go that far above their means in the first place. They should have been looking for a home in the $100k neighborhood instead based on their income guidelines.
 

blackangst1

Lifer
Feb 23, 2005
20,761
777
126
Wow. I didnt know there were lenders with crystal balls....you cannot predict future responsibility based on the past. You just cant, and banks dont. You make it sound like some personal banker asseses them from across a desk. It doesnt work that way anymore. Decisions are made by disinterested officers elsewhere.

As far as your <500 score comment...uh no. Subprime is considered anything below 620. I would be very suprised to find ANY lender who will loan at 500.
 

RightIsWrong

Diamond Member
Apr 29, 2005
5,650
0
0
Originally posted by: blackangst1
Wow. I didnt know there were lenders with crystal balls....you cannot predict future responsibility based on the past. You just cant, and banks dont. You make it sound like some personal banker asseses them from across a desk. It doesnt work that way anymore. Decisions are made by disinterested officers elsewhere.

As far as your <500 score comment...uh no. Subprime is considered anything below 620. I would be very suprised to find ANY lender who will loan at 500.
When you buy a TV or a car, do the manufactures offer you a warranty because they are certain that the product will break within that time frame?

No. They offer you one to give you some comfort that you are getting a product that will last at a minimum, that length of time. The same thing occurs with lenders.

The investors are buying these loans because they are fairly certain that the lender has done enough verification of information that the loan will last long enough that they will get through the "warranty" period.

With the advent of sub-prime loans to almost anyone (including sub-prime NO-Doc loans), investors are getting hit within the first 90 days more than ever.

Source

In some cases, the original lenders are taking the biggest hits. In typical deals, banks agree to buy mortgages back from Wall Street in the case of a payment default within the first 90 days. Now some are writing big checks. H&R Block Inc. (HRB ), owner of Option One Mortgage Corp. (HRB ), reported a fiscal 2007 first-quarter loss of $219 million as it set aside cash for buybacks. Defaults forced NetBank Inc. (NTBR ) and Fremont General Corp. (FMT ) to buy back more loans as well. Fremont paid $238.4 million in the second quarter, up from $67.7 million a year earlier.

But Wall Street is feeling the sting, too. A few lenders have refused to buy back loans, prompting arbitrations and lawsuits. Bear, Stearns & Co.'s (BSC ) mortgage affiliate, EMC Mortgage Corp. of Irving, Tex., is suing New York lender MortgageIT over $70.5 million in disputed buybacks. (Deutsche Bank (DB ) said in July it would buy MortgageIT Holdings Inc. (MHL ) for $429 million; it declined to comment.) And Lehman Brothers Inc. (LEH ) is trying to recoup $20 million on toxic loans bought years ago from Beverly Hills Estates Funding Inc., whose principal, Charles Elliott Fitzgerald, is believed to have fled the country to a South Pacific island. "While the speculation is that he's offshore, we don't have any leads to his whereabouts," says Michael Wachtell, an attorney for the receiver overseeing Beverly Hills Estates Funding's liquidation.
I don't think that you need a crystal ball to see as far into the future as the first payment's due date. :roll:

Oh, click the link to the google search I did for sub-500 mortgage and you will find 421,000 potential lenders.

Next excuse.
 

Nemesis 1

Lifer
Dec 30, 2006
11,379
0
0
Originally posted by: blackangst1
Originally posted by: Nemesis 1
Originally posted by: ironwing
Originally posted by: TastesLikeChicken
:confused:

So you're against minorities owning homes?
Homeownership didn't go up, only homeloanership*. While the nominal rate of home ownership has increased, the rate of equity ownership has declined faster than the nominal ownership rate has risen so more people own less of their homes.

Graph through 2003. If I could find equity data for more recent years I'd love to update the graph.






*I just coined that term. Makes you want to punch your monitor, doesn't it? ;)

This is exactly what happened. My son refinanced for 2x what he paid for his house. I to did the same thing.

I advised my son to invest the money . He didn't now he is paying more than he can afford. I invested my loan money . 3 years later I had 4x what I borrowed. Paid off the loan .

On a completely unrelated story my daughter was looking to buy new car . So she asked me what I thought.
I told here to borrow the money from her IRA. The repayment of the loan was @ 8% which she pays to her IRA. So she pays herself the interest . She couldn't believe she could do that . But she could and did. I stepped in once again . Me and wife bought new car . Gave daughter old car . I talked her into buying a stock I thought was going to do well . She bought it . After 3 years she 3x year investment . Plus paid herself interest on the loan . It was a WIN WIN all the way around.
Holy shit worst advice ever man...

First..."borrow" your own money? LOL

Do you understand compund interest? Rule of 72- take the interest rate youre earning and divide into 72. That tells you the number of years it takes for your money to double, assuming no additions. Lets say the car is $12000. Lets say conservatively she earns 12% on her IRA. $12000 in say, 35 years (assuming she's around age 30) would be roughly$384,000.

Thats one expensive car!
Your Kidding right . I hope your not going to college.

She borrowed $20'000 from herself paid it back in 4 years @8% interest and reinvested $60,000 . That she is making money on . You best redo your math.

 

Vic

Elite Member
Jun 12, 2001
48,165
8,675
126
Originally posted by: Wreckem
Originally posted by: brxndxn
Originally posted by: GrGr
President Calls for Expanding Opportunities to Home Ownership June, 2002

There are no deadbeats. There are only good citizens following the policies of their beloved President Bush.
The economy.. the way it is set up right now.. is doomed to 'bubbles' over and over and over.. until artificial incentives are taken away and free market capitalism is allowed to take place.
We tried that before, it didnt work out to well...
When was that tried? :confused:
 

Vic

Elite Member
Jun 12, 2001
48,165
8,675
126
Originally posted by: RightIsWrong
Oh, click the link to the google search I did for sub-500 mortgage and you will find 421,000 potential lenders.

Next excuse.
So call one of them up, tell them you have a sub-500 credit score, and see what happens...


I don't call what you've googled. I've worked in mortgage for 13 years and there has NEVER been a mortgage loan program available to a borrower with a sub-500 credit score. Never. Not now. Not in the boom. Not ever.
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: Vic
Originally posted by: rchiu
Originally posted by: Vic
Yeah, "free" markets suck... which is why communist markets are so great... :roll:
Depends on what your definition of "free" market. Does regulation and oversight agencies count as anti-free market? The problem with this housing bubble, like some already pointed out, is that mortgage lender weren't being held accountable for the loans they issued. They simply sold the loans to other agencies which resold it to investors as mortgage backed securities. So lenders would just pass the risk to the investors, and it benefits to the lenders to lend as much as possible without considering the risk carefully. Investors thought those loans were made after careful consideration of borrower's credit, but that wasn't the case. No agency and no regulation made sure loans were made to the appropriate people. I am sure there were ethical mortgage lenders that followed the rules, but I am sure many weren't too due to the lack of regulation.

Yeah it was "free" for the mortgage lenders to do what they pleased, and it caused problems. I am not saying we should all be communist. But markets need regulations and oversight agencies to make sure people follow rules and those who didn't need to be punished.
Sorry, but this post is just silly. There is some truth to it, but that little truth is being used to justify false conclusions.
First, the mortgage industry is highly regulated. Regulation, however, cannot guarantee ethics and never will.
Second, the "investors" were the ones who made the rules and who did the majority of the underwriting. For example, if I wanted to do a Fannie Mae-conforming loan, then I would need to have Fannie Mae's own system carefully consider the borrower's credit before the borrower could sign loan documents.
Third, lenders were held accountable for the loans they made by use of the buyback system. If a loan defaulted within the first year (and sometimes longer), the original lender was forced to take back the loan.
You guys make it sound like Joe Blow mortgage broker made all the underwriting decisions. Total BS.
Finally, more than 80% of the money lent out in mortgages is either insured, backed, or guaranteed by the federal government. Wow... what a "free" market!
Yeah right, what regulations? People can get mortgage broker license for pretty much a fee and a little or no education requirements. Compared to CPA/CFA and other serious certification, everyone and their grandma can get a broker license. Also Fannie Mae isn't really a investor per se, their main business is in securitizing and guaranteeing the mortgage. They just happen to own some of their own security and most of the security is sold to banks and other investors. I am not sure how good their system is, but judging from the default rate we have recently, it can't be that good. Lastly, 1 year in the life of mortgage is not significant at all. If you ask lenders to assume risk only for the 1st year, they won't take long term risk like if the borrower has enough reserve/insurance if she lost her job.

Sure we cannot eliminate all problem with regulations, but if the regulations is not tight enough, we have problem. We hear people go to jail for insider trading and stuff like that all the time, who has been prosecuted for making unethical loans to people who cannot afford it? Where are the regulations for that?
 

RightIsWrong

Diamond Member
Apr 29, 2005
5,650
0
0
Originally posted by: Vic
Originally posted by: RightIsWrong
Oh, click the link to the google search I did for sub-500 mortgage and you will find 421,000 potential lenders.

Next excuse.
So call one of them up, tell them you have a sub-500 credit score, and see what happens...


I don't call what you've googled. I've worked in mortgage for 13 years and there has NEVER been a mortgage loan program available to a borrower with a sub-500 credit score. Never. Not now. Not in the boom. Not ever.
Thankfully, I don't have to deal with companies like them. Here's something that I found on the first page of a google search for "475 fico mortgage"

http://pmeloans.com/loanprograms.html

Also, I think that you have a problem that I have....you are projecting your own personal experiences onto the rest of the population. I don't doubt that you have never written a loan for anyone in that boat from reading your posts on this board over the years. You sound too smart and too morally grounded from the impression I have gotten of you.

Unfortunately, those characteristics aren't something that everyone in your industry shares.
 

Vic

Elite Member
Jun 12, 2001
48,165
8,675
126
Originally posted by: rchiu
Yeah right, what regulations? People can get mortgage broker license for pretty much a fee and a little or no education requirements. Compared to CPA/CFA and other serious certification, everyone and their grandma can get a broker license. Also Fannie Mae isn't really a investor per se, their main business is in securitizing and guaranteeing the mortgage. They just happen to own some of their own security and most of the security is sold to banks and other investors. I am not sure how good their system is, but judging from the default rate we have recently, it can't be that good. Lastly, 1 year in the life of mortgage is not significant at all. If you ask lenders to assume risk only for the 1st year, they won't take long term risk like if the borrower has enough reserve/insurance if she lost her job.

Sure we cannot eliminate all problem with regulations, but if the regulations is not tight enough, we have problem. We hear people go to jail for insider trading and stuff like that all the time, who has been prosecuted for making unethical loans to people who cannot afford it? Where are the regulations for that?
My state (Oregon) has rather strict mortgage licensing requirements, including background checks, education, and testing. California even more so and for the past 15+ years IIRC. Illinois uses a system comparable to Oregon's (including the same testing contractor IIRC). The federal government just implemented a nationwide system.
Ironically, except for a very few "wild west" states, mortgage brokers are under considerable scruntity. It might be less that CPA, I suppose, but you're complaining about brokers while loan officers at FDIC banks are exempt from any and all state-mandated licensing requirements (but have their own federal regs from the OCC).

And about Fannie Mae, you're skipping around. You said, "Investors thought those loans were made after careful consideration of borrower's credit," and I said, "if I wanted to do a Fannie Mae-conforming loan, then I would need to have Fannie Mae's own system carefully consider the borrower's credit before the borrower could sign loan documents." What part about that is unclear? Mortgage brokers don't underwrite loans and never did. If a broker wanted to do a Fannie Mae loan, he would need to have access to submit it to Fannie Mae's nationwide automated underwriting system (called Desktop Originator). That system pulls and reviews the borrower's credit on its own, and whether or not the loan could be salable to Fannie would first and foremost be considered there, with manual (real person) underwriting to follow. The point is that the credit was carefully considered.

What's next? That lenders were throwing out 100% no-income-no-asset loans to sub-500 score borrowers without an appraisal?
 

blackangst1

Lifer
Feb 23, 2005
20,761
777
126
Originally posted by: Nemesis 1
Originally posted by: blackangst1
Originally posted by: Nemesis 1
Originally posted by: ironwing
Originally posted by: TastesLikeChicken
:confused:

So you're against minorities owning homes?
Homeownership didn't go up, only homeloanership*. While the nominal rate of home ownership has increased, the rate of equity ownership has declined faster than the nominal ownership rate has risen so more people own less of their homes.

Graph through 2003. If I could find equity data for more recent years I'd love to update the graph.






*I just coined that term. Makes you want to punch your monitor, doesn't it? ;)

This is exactly what happened. My son refinanced for 2x what he paid for his house. I to did the same thing.

I advised my son to invest the money . He didn't now he is paying more than he can afford. I invested my loan money . 3 years later I had 4x what I borrowed. Paid off the loan .

On a completely unrelated story my daughter was looking to buy new car . So she asked me what I thought.
I told here to borrow the money from her IRA. The repayment of the loan was @ 8% which she pays to her IRA. So she pays herself the interest . She couldn't believe she could do that . But she could and did. I stepped in once again . Me and wife bought new car . Gave daughter old car . I talked her into buying a stock I thought was going to do well . She bought it . After 3 years she 3x year investment . Plus paid herself interest on the loan . It was a WIN WIN all the way around.
Holy shit worst advice ever man...

First..."borrow" your own money? LOL

Do you understand compund interest? Rule of 72- take the interest rate youre earning and divide into 72. That tells you the number of years it takes for your money to double, assuming no additions. Lets say the car is $12000. Lets say conservatively she earns 12% on her IRA. $12000 in say, 35 years (assuming she's around age 30) would be roughly$384,000.

Thats one expensive car!
Your Kidding right . I hope your not going to college.

She borrowed $20'000 from herself paid it back in 4 years @8% interest and reinvested $60,000 . That she is making money on . You best redo your math.
Well, you failed to mention the addition of $60,000 in your origianl scenario. But, based on the info given, my numbers are correct.
 

blackangst1

Lifer
Feb 23, 2005
20,761
777
126
Originally posted by: rchiu
Originally posted by: Vic
Originally posted by: rchiu
Originally posted by: Vic
Yeah, "free" markets suck... which is why communist markets are so great... :roll:
Depends on what your definition of "free" market. Does regulation and oversight agencies count as anti-free market? The problem with this housing bubble, like some already pointed out, is that mortgage lender weren't being held accountable for the loans they issued. They simply sold the loans to other agencies which resold it to investors as mortgage backed securities. So lenders would just pass the risk to the investors, and it benefits to the lenders to lend as much as possible without considering the risk carefully. Investors thought those loans were made after careful consideration of borrower's credit, but that wasn't the case. No agency and no regulation made sure loans were made to the appropriate people. I am sure there were ethical mortgage lenders that followed the rules, but I am sure many weren't too due to the lack of regulation.

Yeah it was "free" for the mortgage lenders to do what they pleased, and it caused problems. I am not saying we should all be communist. But markets need regulations and oversight agencies to make sure people follow rules and those who didn't need to be punished.
Sorry, but this post is just silly. There is some truth to it, but that little truth is being used to justify false conclusions.
First, the mortgage industry is highly regulated. Regulation, however, cannot guarantee ethics and never will.
Second, the "investors" were the ones who made the rules and who did the majority of the underwriting. For example, if I wanted to do a Fannie Mae-conforming loan, then I would need to have Fannie Mae's own system carefully consider the borrower's credit before the borrower could sign loan documents.
Third, lenders were held accountable for the loans they made by use of the buyback system. If a loan defaulted within the first year (and sometimes longer), the original lender was forced to take back the loan.
You guys make it sound like Joe Blow mortgage broker made all the underwriting decisions. Total BS.
Finally, more than 80% of the money lent out in mortgages is either insured, backed, or guaranteed by the federal government. Wow... what a "free" market!
Yeah right, what regulations? People can get mortgage broker license for pretty much a fee and a little or no education requirements. Compared to CPA/CFA and other serious certification, everyone and their grandma can get a broker license. Also Fannie Mae isn't really a investor per se, their main business is in securitizing and guaranteeing the mortgage. They just happen to own some of their own security and most of the security is sold to banks and other investors. I am not sure how good their system is, but judging from the default rate we have recently, it can't be that good. Lastly, 1 year in the life of mortgage is not significant at all. If you ask lenders to assume risk only for the 1st year, they won't take long term risk like if the borrower has enough reserve/insurance if she lost her job.

Sure we cannot eliminate all problem with regulations, but if the regulations is not tight enough, we have problem. We hear people go to jail for insider trading and stuff like that all the time, who has been prosecuted for making unethical loans to people who cannot afford it? Where are the regulations for that?
Mortgage brokers dont make lending decisions. The lender does. And ~THEY~ are regulated.
 

BoberFett

Lifer
Oct 9, 1999
37,587
9
81
Originally posted by: blackangst1
Originally posted by: Nemesis 1
Originally posted by: ironwing
Originally posted by: TastesLikeChicken
:confused:

So you're against minorities owning homes?
Homeownership didn't go up, only homeloanership*. While the nominal rate of home ownership has increased, the rate of equity ownership has declined faster than the nominal ownership rate has risen so more people own less of their homes.

Graph through 2003. If I could find equity data for more recent years I'd love to update the graph.






*I just coined that term. Makes you want to punch your monitor, doesn't it? ;)

This is exactly what happened. My son refinanced for 2x what he paid for his house. I to did the same thing.

I advised my son to invest the money . He didn't now he is paying more than he can afford. I invested my loan money . 3 years later I had 4x what I borrowed. Paid off the loan .

On a completely unrelated story my daughter was looking to buy new car . So she asked me what I thought.
I told here to borrow the money from her IRA. The repayment of the loan was @ 8% which she pays to her IRA. So she pays herself the interest . She couldn't believe she could do that . But she could and did. I stepped in once again . Me and wife bought new car . Gave daughter old car . I talked her into buying a stock I thought was going to do well . She bought it . After 3 years she 3x year investment . Plus paid herself interest on the loan . It was a WIN WIN all the way around.
Holy shit worst advice ever man...

First..."borrow" your own money? LOL

Do you understand compund interest? Rule of 72- take the interest rate youre earning and divide into 72. That tells you the number of years it takes for your money to double, assuming no additions. Lets say the car is $12000. Lets say conservatively she earns 12% on her IRA. $12000 in say, 35 years (assuming she's around age 30) would be roughly$384,000.

Thats one expensive car!
Oh good, the cute little financial guru found an interest calculator online. :roll:

Do you understand how borrowing from an IRA works? You pay it back, it's not gone for 35 years.

And if you really understand interest (you obviously don't) then borrowing money from a bank at a higher rate than your investments are making doesn't make sense.
 

Vic

Elite Member
Jun 12, 2001
48,165
8,675
126
Originally posted by: RightIsWrong
Originally posted by: Vic
Originally posted by: RightIsWrong
Oh, click the link to the google search I did for sub-500 mortgage and you will find 421,000 potential lenders.

Next excuse.
So call one of them up, tell them you have a sub-500 credit score, and see what happens...


I don't call what you've googled. I've worked in mortgage for 13 years and there has NEVER been a mortgage loan program available to a borrower with a sub-500 credit score. Never. Not now. Not in the boom. Not ever.
Thankfully, I don't have to deal with companies like them. Here's something that I found on the first page of a google search for "475 fico mortgage"

http://pmeloans.com/loanprograms.html

Also, I think that you have a problem that I have....you are projecting your own personal experiences onto the rest of the population. I don't doubt that you have never written a loan for anyone in that boat from reading your posts on this board over the years. You sound too smart and too morally grounded from the impression I have gotten of you.

Unfortunately, those characteristics aren't something that everyone in your industry shares.
I really doubt that they're still offering that product. I tried calling, but no one answered. There were a very rare number of "hard money" loans out there that would go to such scores, but those loans were private, never publicly traded, and had strict equity requirements (usually 65% LTV max) that made it so the private money investor was essentially purchasing the home for pennies on the dollar.

I appreciate the kind words. And I agree. There's a lot of dirtballs out there. And believe it or not, most of them were the buyers.
 

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