Subprime lending worries hit home

[UpInArms]

http://www.chicagotribune.com/business/chi-0703160718mar18,0,5042548.story?coll=chi-business-hed

The national subprime lending calamity first reached the South Side graystone on Greenwood Avenue in November.

That was when the homeowner, a 67-year-old widow named Georgia Rhone, first missed payment on a mortgage that jumped from $974 a month in 2004 to $1,850 a month last year.

Her lender now has begun foreclosure procedures as a result of a deal she realizes she never quite understood but has her in a vise: a mortgage charging 11.625 percent after being refinanced twice in two years.

<snip>

Their subprime underwriting has become so "appalling," he said, that some borrowers are defaulting on adjustable-rate mortgages even before the rates change for the first time.

In Chicago, more than 56,000 high-cost mortgages were originated in 2005, double the number in 2004, according to figures that will be released next month in Woodstock's 2007 community lending fact book.

...more...

[Systematic Chaos]

1. And how long will it take for the "too bad, so sad" crowd to jump at THIS one?

I just have to ask.

People in this country are barely taught anything at all about civics or the constitution in high school, and are never required to step foot in a law library. We're spoon fed the belief that all these "experts", be they doctors, lawyers or whatever, are here to care for us and keep us on the straight and narrow so we should trust them. And that carries over into banking and other financial decisions as well. A lot of the realtors who push these overpriced homes on people and convince them that they can afford them are at least as much at fault as the people who don't understand what could happen when a rate readjusts.

I do agree that this individual should have done more research. Absolutely. But what we really need are regulations to guarantee that anyone who walks into a realty office to look into buying a house is told up front exactly what they can afford given their (proven!) income, so that there is no way anybody can be suckered into signing a deal on something beyond the safe threshold.

[NYC]

2. Americans for Fairness in Lending.

http://www.affil.org/

[Lone_Star_Dem]

3. I agree, with one exception

I think the brunt of these regulations responsibility should be that of the lender, not the real estate person.

My reason are that one is highly trained in finance already and the other only marginally. Lenders knew these were high risk parties they were making loans to and still handed them out like Halloween candy. Next we'll see them requesting a bailout.

[One_Life_To_Give]

16. A Bailout is what bothers me

The Originators on these loans pocketed their money up front. So everyone else can be left holding the bag. In other words, Privatization of Profits and Socialization of Losses.

[CHIMO]

4. Look For Another Bailout

A New World View?

"I think that, from an economic point of view, it was a failure. It was an interesting experiment. He deregulated the banking industry and we had the Savings and Loan crisis, with over a hundred billion dollars of bail out. He lowered taxes, we had this huge deficit - which by the end of the Bush administration was up to five per cent of GDP - and he undermined our investment. But he did not get faster growth. If you look at the growth rate the big demarcation came in 1994, after taxes were raised. The evidence is, I think, overwhelming, that the strategy was not good for the economy."

http://www.oxfordstudent.com/tt2004wk4/Features/a_new_world_view%3F

[jaysunb]

5. When you step into the casino in Vegas,

you are almost assured to be the loser against the house. The only ones with even a small chance, are pro gamblers, that do it for a living.
The same holds true anytime the other person is a pro ( realtor, banker, car dealer etc.) The pro holds all the good cards. ( think of information as a card ) Your only chance is to gather as much information as you can BEFORE you start the game. It's your only chance....

Oh yes, luck does play a part ( you keep your job, no catastrophic illness, inflation stays even etc) but even that requires you to have as many back up plans and hold cards as possible. And most importantly, try saying no to impulsive behavior. The house seems to have an uncanny ability to come up with 21 even when you're sitting on 20 three hands in a row....:evilgrin:

[Purveyor]

6. Sadly it seems that one should spend the money and have an accountant

review any loan documents/agreements before you sign the papers.

The language in these loans doc's are quite confusing and intentionly so.

[youngdem]

7. Congress should step in and attempt to assist those with adjustable rates

to move to a fixed rate with minimal closing costs. This will save the tax payers BILLIONS as we save the greedy bankers from themselves.

The way the loans are underwritten, it would be complicated, and we would have to proceed very carefully so as not to disrupt our creditworthiness, but it is imperative we attempt to stop this train. It is clearly coming.

[kineneb]

8. entire economy will be "victim" of sub-prime lending

Shit, meet fan...

Things may get ugly, sooner rather than later.


Good but depressing read:
http://www.informationclearinghouse.info/article17338.htm

Velkomin to the United States of Foreclosure

By Mike Whitney

03/17/07 "ICH" -- -- The stock market is about to crash. The only question is whether it will quickly drop down the elevator shaft or follow the jerky flight-path of a man pushed down a stairwell. Either way, the outcome will be the same; stocks will nose-dive, the dollar will plummet, and the bruised US economy will be splattered on the canvas like George Foreman in Rumble in the Jungle.

Troubles in the sub-prime market have just begun to materialize and already 38 main sub prime lenders have gone kaput. Foreclosures have reached a 37 year high, and an estimated 2 million homeowners will be put out on the street in the next few years.

And that?s just for starters.

The contagion has spread beyond the sub prime sector to other ARMs (Adjustable Rate Mortgages) where late payments and defaults are cropping up faster than their sub-prime counterparts. According to Goldman Sachs chief economist Jan Hatzius, ?Prime ARM delinquencies are above their worst levels of the 2001 recession?. By contrast, sub-prime fixed-rate delinquencies are well below their recession levels.? (Barrons)

Sub prime loans and other ?Prime ARMs? (alta-A loans) make up roughly 35% of current mortgages. That means that millions of homeowners are struggling to meet their ?upwardly-adjusted? payments. If Congress does not come up with a bailout strategy, then we will face a ?downturn worse than that resulting from the NASDAQ collapse?. (Barrons)

-snip-

[IChing]

9. My brother who is a lawyer

said this morning on one of the morning news talk shows,
that subprime is only has 1% of the market
and this "worry" is just to manipulate the stock market.

The loan mortgages are guaranteed anyway and
shouldn't effect the market as it is
the expert said it was a scam.
The rest of the panel was shocked when he said that.


I asked him to give me the link so I could link the information.

[Viva_La_Revolution]

10. Manipulation? Probably.

still bad? yea. :(

[oblivious]

12. He may have that 1% figure wrong. Investors stand to lose 100 billion (1% of outstanding home loans)

Investors holding mortgage-backed bonds stand to lose $100 billion from defaults on $10 trillion in outstanding home loans, Citigroup Inc. bond analysts said this month.

http://www.bloomberg.com/apps/news?pid=20601103&sid=agHGvijV55fM&refer=us

So the 1% is defaults in the subprime, not the total of subprime. Do you think that's right?

[salin]

11. Here is a guy making money on foreclosures

granted he does it on houses at the very low end.

I ran a news.google search on foreclosures - depressing set of links - all within 24 hours and local stories from across the country. This one was among the stories and was a very different story. Not sure what I think about it - is it better or worse than the subprime lenders? Probably a little better. Post it because I would guess that a real glut in the market due to foreclosures might lead to more business along this guys lines for more moderately priced homes. A business model that would appear to be outside of any regulation. Then again what has gone on with the subprime market appears to have suffered little regulation...

http://www.charleston.net/assets/webPages/departmental/news/Stories.aspx?section=business&tableId=135011&pubDate=3/18/2007

[salin]

13. Item by Ellison (D Min) - some interesting legislation is being considered...

(again from my news.google search on foreclosures)

From newly elected Congressman Ellison (D Minn)

http://www.startribune.com/562/story/1060561.html

Keith Ellison and Jim Davnie: Loose lending is coming back to haunt us
Amid foreclosures, we must take stabilizing steps to preserve the dream of home ownership.
Keith Ellison and Jim Davnie
Published: March 19, 2007

Growing up, our elders warned us that if something sounds too good to be true, it probably is. In the case of the thousands of homeowners facing foreclosure as a result of predatory practices, this has been a hard lesson learned.

But the downsides of these changes are dramatic and far-reaching. The results of foreclosure can be ruinous to families, and destabilizing to communities. They cast a pall over the entire mortgage industry and wreak economic havoc. One day last week, the Dow Jones industrial average sank almost 250 points after reports showed rising mortgage delinquencies, lending urgency to the concerns about broader economic impact.

---snip

Congress will consider proposals to help protect consumers from predatory lending. Some of these initiatives include requiring lenders to take into account the ability of a borrower to pay back an adjustable rate loan over the entire term (not just during the period when the teaser rates are low), as well as assistance to those who already have been on the receiving end of harmful policies.

The Legislature, acting on recommendations of a task force convened by the attorney general's office, is hearing bills designed to clamp down on deceptive practices and require full payment disclosure; prevent fast turnover of loans; ensure that lender fees, including payments to mortgage brokers, are capped at 5 percent of total loan cost, and prohibit negative amortization, which leads to monthly payments that don't even cover the accrued interest on a loan. There also are proposals to impose civil and criminal penalties for lenders who allow obviously unsuitable mortgages in cases where the borrower clearly lacks the capacity to repay or in which a loan officer knowingly processes applications containing false information.

more at link.

[winston61]

14. do you know what happens when you lend money to

people who can't pay it back? They don't pay it back!

[Zorra]

15. Now, who will buy these properties that are being foreclosed?

Will rich folks scoop up these properties at a bargain and then rent the properties out while the value of their bargain real estate grows, thereby giving these "haves" more control of the housing market?

Is this how it works?

[AlCzervik]

17. a house on my street was recently auctioned off, the new owners purchased it last spring for

$500,000 and within 4 months they were having trouble making payments so they put it on the market and there it sat and they lowered their asking price to $480,000--nothing, they lowered the price again and then again until finally it was at $430,000. Anyhow i found out it got foreclosed on and auctioned off last week for the price of $349,000. which really was a good price for whoever bought but it sucks on some many other levels.

[winston61]

18. Uh, Yes that is what will happen-

You can't destroy the middle class without taking away their jobs and homes. Still, it's hard to know who is more at fault. The predatory lenders, the institutional investors who give the money to the predatory lenders, or the chumps who take the loans knowing full well they can't make the payments. I've got relatives I would not lend money to and I'm no big shot financial wizard. But I do know a dead beat when I see one.

[InkAddict]

19. Neocons know what chumps look like too.

They're anybody who doesn't believe what they do and you and I qualify just by virtue of our presence here.

That being understood, I most humbly apologize for being born into the "wrong" family, marrying the right person with the "wrong" skill set, for not having the foresight to have at least one son, for working to pay my own tuition bills without going into debt, for learning the wrong up-and-coming occupation when the children could manage, for choosing to live in an affordable home, according to the lenders, in the wrong neighborhood on the wrong side of town and in the wrong state, for taking care of an elderly relative in a way best for that person but not for me. I'm truly ashamed I did not buy a better crystal ball at some point along those wasted years! What hubris to be so confident that our struggles were just flukes and nothing personal!

I'm truly sorry I was so selfish as to marry, have legitimate children, and then move away, so ungrateful for that superior HS education provided at the considerable expense of my "poor" parents, so greedy for that home I didn't deserve because Indians and communist Chinese have it so rough they couldn't be a neocon exploitation market without my help. Imagine learning English in school and having nowhere to practice it; imagine learning Spanish in school and not having anyone with which to converse. Sure gotta fix those barriers to free trade. I was even so lazy as to have tried to earn enough to pay for my Constitutionally guaranteed "freedom" to privacy, free speech and assembly, and honest/fair democratically elected representation! Just how could I have missed the plight of all those do-nothing Iraqis in subjection to bad Sadaam or the predicament of those well-oiled 9/11 hijackers I'll never know. :sarcasm:

I'm pretty sure I've missed quite a few more things for which I should probably apologize though, at my age and in my more enlightened state of "had", with far fewer years in which to "earn" back some dignity before becoming a undignified statistic of our great healthcare system myself, I most humbly bow to your expertise in discerning permanent dead beats.

[winston61]

20. I don't quite get your point-

But I do enjoy good sarcasm. I'm not dogging hard work, that is what makes a country great. It is refreshing to hear from someone younger than myself that does not have a shitty sense of entitlement.
The banking industry entraps people into debt they can't handle. Uneducated or inexperienced persons will grab the money with no thought of tomorrow. Greed and manipulation become the rules of the day. It may make some feel good to see a banker or insurer take a loss. But remember, it's not their money they're playing with. It ours.