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Author: Subject: This Won't Help The Crisis

Ultimate Peach





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  posted on 9/17/2008 at 02:37 PM
A friend of mine is selling his in laws home for them (recently placed in long term care). The lender financing the buyer is a large national bank that is a major mortgage lender. The lender pulled their commitment today for a legitimate reason. They did say however, they would reissue one at no higher than a 50% LTV (originally they were at 75% - LTV is loan to value ratio and stands for how much loan a lender will give relative to the value of the house. 80% was a long time rule of thumb, recent excesses ran it over 100%). Essentially, they are petrified that the housing market is nowhere near the bottom and will be tightening their credit until they're sure we've cratered out.

Their fear is one problem. Tighter lending is a bigger one. Most people don't have 50% of a home's value to put down.

 

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Zen Peach



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  posted on 9/17/2008 at 02:39 PM
Say "adios" to free market forces.

 

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  posted on 9/17/2008 at 02:40 PM
quote:
Say "adios" to free market forces.


What makes you say that?

 

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Zen Peach



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  posted on 9/17/2008 at 02:46 PM
quote:
quote:
Say "adios" to free market forces.


What makes you say that?


I don't like where all of this is heading.

 

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  posted on 9/17/2008 at 02:50 PM
quote:
quote:
quote:
Say "adios" to free market forces.


What makes you say that?


I don't like where all of this is heading.


Ah. I hear you there!

 

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Maximum Peach



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  posted on 9/17/2008 at 03:12 PM
quote:
Say "adios" to free market forces.

No criticsm here, but isn't just the opposite true?

We've gotten in this mess because of lack of free market forces. Federal gurantees meant that lenders loosened their requirements. That became more and more extreme until we had the all out chaos of the last few years. It's real easy being brave with someone else's money backing you.

Now institutions will be more careful if they know it's their money at risk. It's going to be volatile for a while, but if government stops backing up everything, then don't common-sense market forces reassert themselves?

 

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  posted on 9/17/2008 at 03:13 PM
quote:
quote:
quote:
quote:
Say "adios" to free market forces.


What makes you say that?


I don't like where all of this is heading.


Ah. I hear you there!


I haven't spent a day in the financial field as you and Greg have, so I probably shouldn't come on here and pop off. The wheels just seem to be coming off and it frustrates the hell out of me. Sorry.

Maybe I should pop some tops instead.......

 

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Zen Peach



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  posted on 9/17/2008 at 03:19 PM
quote:
quote:
quote:
quote:
quote:
Say "adios" to free market forces.


What makes you say that?


I don't like where all of this is heading.


Ah. I hear you there!


I haven't spent a day in the financial field as you and Greg have, so I probably shouldn't come on here and pop off. The wheels just seem to be coming off and it frustrates the hell out of me. Sorry.

Maybe I should pop some tops instead.......


No, no, my friend, you're correct. I don't like where this is headed, either.

 

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Maximum Peach



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  posted on 9/17/2008 at 03:28 PM
I like the popping tops idea.

 

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Zen Peach



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  posted on 9/17/2008 at 03:29 PM
quote:
quote:
A friend of mine is selling his in laws home for them (recently placed in long term care). The lender financing the buyer is a large national bank that is a major mortgage lender. The lender pulled their commitment today for a legitimate reason. They did say however, they would reissue one at no higher than a 50% LTV (originally they were at 75% - LTV is loan to value ratio and stands for how much loan a lender will give relative to the value of the house. 80% was a long time rule of thumb, recent excesses ran it over 100%). Essentially, they are petrified that the housing market is nowhere near the bottom and will be tightening their credit until they're sure we've cratered out.

Their fear is one problem. Tighter lending is a bigger one. Most people don't have 50% of a home's value to put down.


And they've got nobody but themselves to blame. Giving loans to too many people who had no business buying houses in the first place came back, bit their asses off, and now they'll lose their asses because they "learned their lessons".

Funny how greed works.


I think it's more complicated on all the levels, though. For one thing, if all the people that had gotten loans had all gotten a 30 year fixed, we wouldn't be in anywhere near the mess we are in. But, without the ARMs and the refi machine, this mess would never have been created, either.

I'll never fault anyone for wanting a house or a better life for their family. it's not like people go to the closing table thinking "Man, I hope they foreclose on me."

 

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Zen Peach



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  posted on 9/17/2008 at 03:44 PM
quote:
And they've got nobody but themselves to blame. Giving loans to too many people who had no business buying houses in the first place came back, bit their asses off, and now they'll lose their asses because they "learned their lessons".

Funny how greed works.
I think in the example GAF supplied the opposite of what you say above has happened. Lesson has been learned and the lendor is being more responsible about what type of loans they will offer (also sounds like their credit checking procedures may have firmed up if they pulled original loan and replaced with a 50% ltv offer ... 80/100 is standard ... 1st I've heard of 50% LTV terms). Bhawk is right - ARM's, balloons, and creative refinancing caused a majority of today's problem. It's a problem with the lendors who made these types of loans available but it's also a problem with the borrowers who agreed to these terms without understanding what they were signing on for and possible ramifications of market changes and not budgeting income successfully to meet the financial responsibility they had undertaken.

 

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  posted on 9/17/2008 at 03:46 PM
quote:
I like the popping tops idea.


LOL...Done!

 

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  posted on 9/17/2008 at 03:54 PM
quote:
quote:
Say "adios" to free market forces.

No criticsm here, but isn't just the opposite true?

We've gotten in this mess because of lack of free market forces. Federal gurantees meant that lenders loosened their requirements. That became more and more extreme until we had the all out chaos of the last few years. It's real easy being brave with someone else's money backing you.

Now institutions will be more careful if they know it's their money at risk. It's going to be volatile for a while, but if government stops backing up everything, then don't common-sense market forces reassert themselves?


You're correct, Rich...100%. This mess is largely the result of the government thinking they had to get into the real estate business, IMO. They are not alone in taking the blame, but they made it awful easy for a lot of bad decisions to be made.

 

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  posted on 9/17/2008 at 03:57 PM
quote:
quote:
quote:
Say "adios" to free market forces.

No criticsm here, but isn't just the opposite true?

We've gotten in this mess because of lack of free market forces. Federal gurantees meant that lenders loosened their requirements. That became more and more extreme until we had the all out chaos of the last few years. It's real easy being brave with someone else's money backing you.

Now institutions will be more careful if they know it's their money at risk. It's going to be volatile for a while, but if government stops backing up everything, then don't common-sense market forces reassert themselves?


You're correct, Rich...100%. This mess is largely the result of the government thinking they had to get into the real estate business, IMO. They are not alone in taking the blame, but they made it awful easy for a lot of bad decisions to be made.


That's a little short-sighted. Subprime loans were non-conforming. The government had little to do with the rise, success or fall of that side of it.

 

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Zen Peach



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  posted on 9/17/2008 at 04:05 PM
quote:
quote:
quote:
quote:
Say "adios" to free market forces.

No criticsm here, but isn't just the opposite true?

We've gotten in this mess because of lack of free market forces. Federal gurantees meant that lenders loosened their requirements. That became more and more extreme until we had the all out chaos of the last few years. It's real easy being brave with someone else's money backing you.

Now institutions will be more careful if they know it's their money at risk. It's going to be volatile for a while, but if government stops backing up everything, then don't common-sense market forces reassert themselves?


You're correct, Rich...100%. This mess is largely the result of the government thinking they had to get into the real estate business, IMO. They are not alone in taking the blame, but they made it awful easy for a lot of bad decisions to be made.


That's a little short-sighted. Subprime loans were non-conforming. The government had little to do with the rise, success or fall of that side of it.


I respect that. Those subprime loans were a bad idea.

 

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  posted on 9/17/2008 at 04:12 PM
quote:
quote:
It's a problem with the lendors who made these types of loans available but it's also a problem with the borrowers who agreed to these terms without understanding what they were signing on for and possible ramifications of market changes and not budgeting income successfully to meet the financial responsibility they had undertaken.


Oh - I agree.

It bothers me that some folks were stupid enough to get into these type deals. I don't care if you're a first time house-buyer or what, people HAVE to do a little research before doing it. If they were dumb enough to get into balloons or ARMS - then that's strike one. If they were dumb enough to be mislead by a crook lender, then strike two. Finally - if their only desire was to look cool in a big house for just a few years and then think everything would work it's way out - strike three.

A lot of these dumbasses thought that housing prices would keep going up forever, and that they'd be able to sell their houses when the rates jumped or the balloons were due. Those are the ones that really baffle me.... Unreal!


And listening to people like Alan Greenspan saying there was no housing bubble, and they should go ahead and get ARM's..

Strike Four!

 

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Ultimate Peach



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  posted on 9/17/2008 at 08:40 PM
The WSJ has an excellent piece in yesterday's paper about the causes of the housing/mortgage crises. Along with the usual suspects, they point the finger directly at the Clinton Administration for pushing as national policy, the idea that everyone should own a home. At the time, homeownership was 70% and they wanted more. Hence, Freddie/Fannie began accepting loans with no income verification, initiating first time homebuyer programs, higher LTVs and the like. Regulators looked the other way.

I know the WSJ is right enough to almost balance the NY Times, but their reporting is as accurate as it comes, so their emphasis may be off, but this push for homeownership was certainly a major factor in changing how lenders underwrote mortgages.

[Edited on 9/18/2008 by Gregallmanfan]

 

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Zen Peach



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  posted on 9/17/2008 at 09:21 PM
quote:

Now institutions will be more careful if they know it's their money at risk. It's going to be volatile for a while, but if government stops backing up everything, then don't common-sense market forces reassert themselves?


wasn't a lack of regulation of the selling of risky mortagage securities the root of all this problem?

you keep selling free market forces even when unregulated greed is at the root of the problem.

 

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  posted on 9/17/2008 at 09:33 PM
quote:
quote:
The WSJ has an excellent piece in yesterday's paper about the causes of the housing/mortgage crises. Along with the usual suspects, they point the finger directly at the Clinton Administration for pushing as national policy, the idea that everyone should own a home. At the time, homeownership was 70% and they wanted more. Hence, Freddie/Fannie began accepting loans with no income verification, initiating first time homebuyer programs, higher LTVs and the like. Regulators looked the other way.

I know the WSJ is right enough to almost balance the NT Times, but there reporting is as accurate as it comes, so their emphasis may be off, but this push for homeownership was certainly a major factor in changing how lenders underwrote mortgages.




I don't know if we could blame Clinton, but I do know that this sh$t took off when he was in office.....

awaiting the fallout on this one!!!!



No-no! I just saw Nancy Pelosi on TV and she said it's all Bush's fault. Dammit aren't you listening, Maconga?......

 

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Ultimate Peach



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  posted on 9/17/2008 at 09:42 PM
quote:
wasn't a lack of regulation of the selling of risky mortagage securities the root of all this problem?


Not really.

The first problem with your post is the question of punctuation, (eats shoots and leaves). Do you mean risky mortgages or risky securities? Regardless.

The mortgage industry is already one of the most highly regulated. Enforcement of these regs can be spotty. But there's lots of them. Apply for a mortgage and the reams of paper you get are primarily driven by reg upon reg upon reg.

Vanilla mortgage backed securities are not new, nor are they riskier than they were before. Banks have always been able to sell their loans to the "secondary market" be it Freddie/Fanny or other banks/investment banks etc. There are some esoteric securities beyond simple mortgage pools but they're not new either. I can remember looking at derivative transactions in the '80s set up as interest rate hedges or speculative instruments depending on their use. These were CMO's (collateralized mortgage obligations), residuals and the like that were sophisticatedly structured instruments.

Beyond first mortgages, whole new classes of assets are now being pooled and used to "back" securities. Commercial mortgages, commercial loans, second mortgages, SBA loans, credit card receivables - name the debt instrument and someone securitized it. In theory, this is not bad, pooling the loans spreads the risk, sells them to investors who earn a return and bring liquidity back to the market so others can borrow. It's intermediation and nothing more.

The cause of today's problems is not the idea of having a Freddie/Fannie to buy paper, or for institutions like Lehman or Merrill to hold it. Believe me, these guys understand the risk involved. The problem is the underlying loans have performed poorly. Some were riskier because traditional underwriting guidelines were abandoned. But regardless of the underwriting, the housing market was overpriced and the economy tanked and ARMs reset leading to high defaults.

The holders knew all this though...they bet that the housing market bubble would not burst. The risk they took was not in buying these types of securities, but in allowing them to be such a concentration on their balance sheet. It's just poor risk management in my opinion. I happen to work for a very large bank that is respected for its risk management - not avoidance, management. We substantially cleared all this stuff off our books two years ago fearing the market would collapse. I'm not saying "I told you so" but what surprises me is the level of this stuff companies like Lehman, Merrill, WAMU, Wachovia etc. got stuck holding.

 

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Maximum Peach



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  posted on 9/17/2008 at 09:57 PM
Thanks for providing your insight Gregallmanfan. I know more now having read some of it.

quote:
The WSJ has an excellent piece in yesterday's paper about the causes of the housing/mortgage crises. Along with the usual suspects, they point the finger directly at the Clinton Administration for pushing as national policy, the idea that everyone should own a home. At the time, homeownership was 70% and they wanted more. Hence, Freddie/Fannie began accepting loans with no income verification, initiating first time homebuyer programs, higher LTVs and the like. Regulators looked the other way.

I know the WSJ is right enough to almost balance the NT Times, but there reporting is as accurate as it comes, so their emphasis may be off, but this push for homeownership was certainly a major factor in changing how lenders underwrote mortgages.


In all fairness, I remember President Bush often citing home ownership as part of his State of the Union and other speeches. It is likely that both Presidents and parties in Congress made the push for larger home ownership.

 

Ultimate Peach



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  posted on 9/17/2008 at 10:01 PM
quote:
Thanks for providing your insight Gregallmanfan. I know more now having read some of it.

quote:
The WSJ has an excellent piece in yesterday's paper about the causes of the housing/mortgage crises. Along with the usual suspects, they point the finger directly at the Clinton Administration for pushing as national policy, the idea that everyone should own a home. At the time, homeownership was 70% and they wanted more. Hence, Freddie/Fannie began accepting loans with no income verification, initiating first time homebuyer programs, higher LTVs and the like. Regulators looked the other way.

I know the WSJ is right enough to almost balance the NT Times, but there reporting is as accurate as it comes, so their emphasis may be off, but this push for homeownership was certainly a major factor in changing how lenders underwrote mortgages.


In all fairness, I remember President Bush often citing home ownership as part of his State of the Union and other speeches. It is likely that both Presidents and parties in Congress made the push for larger home ownership.


Agreed Nebish, that's why I disclaim that while I think the WSJ reports accurately, they lean right pretty hard.

 

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Zen Peach



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  posted on 9/17/2008 at 10:06 PM
quote:
quote:
quote:
A friend of mine is selling his in laws home for them (recently placed in long term care). The lender financing the buyer is a large national bank that is a major mortgage lender. The lender pulled their commitment today for a legitimate reason. They did say however, they would reissue one at no higher than a 50% LTV (originally they were at 75% - LTV is loan to value ratio and stands for how much loan a lender will give relative to the value of the house. 80% was a long time rule of thumb, recent excesses ran it over 100%). Essentially, they are petrified that the housing market is nowhere near the bottom and will be tightening their credit until they're sure we've cratered out.

Their fear is one problem. Tighter lending is a bigger one. Most people don't have 50% of a home's value to put down.


And they've got nobody but themselves to blame. Giving loans to too many people who had no business buying houses in the first place came back, bit their asses off, and now they'll lose their asses because they "learned their lessons".

Funny how greed works.


I think it's more complicated on all the levels, though. For one thing, if all the people that had gotten loans had all gotten a 30 year fixed, we wouldn't be in anywhere near the mess we are in. But, without the ARMs and the refi machine, this mess would never have been created, either.

I'll never fault anyone for wanting a house or a better life for their family. it's not like people go to the closing table thinking "Man, I hope they foreclose on me."


I bought a one bedroom co-op in 1997. I sold it in 2000 for a $50,000 profit. I used that to buy a three bedroom house where I put 25 percent down and borrowed the rest. My first mortgage was 30 year fixed at 8.6 percent. A year later I re-financed to a 30 year fixed at 7 percent. A year after that rates had dropped so much I re-financed to a 15 year at 5.2 percent. It is a struggle to make the monthly payment but we will have the whole house paid off in 10 more years. I am a responsible home owner. Many people overextended themselves and bought Adjustable rate or balloon mortgages thinking the gravy train would never stop. Not smart.

 

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Zen Peach



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  posted on 9/17/2008 at 10:12 PM
quote:
Thanks for providing your insight Gregallmanfan. I know more now having read some of it.

quote:
The WSJ has an excellent piece in yesterday's paper about the causes of the housing/mortgage crises. Along with the usual suspects, they point the finger directly at the Clinton Administration for pushing as national policy, the idea that everyone should own a home. At the time, homeownership was 70% and they wanted more. Hence, Freddie/Fannie began accepting loans with no income verification, initiating first time homebuyer programs, higher LTVs and the like. Regulators looked the other way.

I know the WSJ is right enough to almost balance the NT Times, but there reporting is as accurate as it comes, so their emphasis may be off, but this push for homeownership was certainly a major factor in changing how lenders underwrote mortgages.


In all fairness, I remember President Bush often citing home ownership as part of his State of the Union and other speeches. It is likely that both Presidents and parties in Congress made the push for larger home ownership.


Home ownership is a good thing but not everybody makes enough to afford it and those people were essentially suckered in. Nobody ever thinks a house will lose it's value. I paid $338,000 for my house in 2000. I was told last year it was worth over $600,000 (it's a three bedroom attached house in New York City) I never believed it. As far as I'm concerned the house is worth what I paid for it until proven otherwise. When I payoff my mortagge I expect to have $338,000 in equity. Anything else is gravy.

 

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  posted on 9/17/2008 at 11:26 PM
quote:
what surprises me is the level of this stuff companies like Lehman, Merrill, WAMU, Wachovia etc. got stuck holding.


not really, the same board of directors that own these companies operate the central bank for the Fed.
they bailed themselves out.

sorry about the poorly constructed sentence, I meant the largely unregulated selling of bad paper based on
risky loans. .

[Edited on 9/18/2008 by spacemonkey]

 

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