Subprime Bailout

[Undertoad]

tw considers a car to be a disposable item.

[tw]

Originally Posted by Undertoad

tw considers a car to be a disposable item.

Do you believe it is a capital expenditure? When its value disappears massively the minute it leaves the new car dealer? Yes, some economists call it a capital expenditure. Cars are not. One does not invest in a car. Investing in one's ego is not a capital investment.

[Undertoad]

In almost all locations, you use a car to live your life. You can't go to work without one, you can't shop without one, you can't do most social activities.

Furthermore, you're confused by the term "capital expenditure" - because it's not an economics term, it's an accounting term. It's actually used to describe assets that are NOT disposable, which are capitalized long-term and considered investments because their value takes years to totally diminish.

In other words, it means the exact opposite of what you think it does. But you're right, all accountants would capitalize vehicles for the depreciation.

[Beestie]

Originally Posted by deadbeater

There are cases in which people with excellent credit got conned into making subprime loans when they should have had fixed loans.

Doubtful. When people with excellent credit get a subprime loan it pretty much means that they bought a house they couldn't afford and had to resort to sub-prime because they didn't have the income for a conventional loan.

There's nothing wrong with sub-prime loans. There is everything wrong with irresponsible consumers.

When people with fixed incomes are using "stated income" sub-prime loan products, then there is a good chance they are going to have problems when interest rates rise.

But even with all that, according to the article, only 1 in 12 loans are sub-prime and only 1 in 10 sub-primes are delinquent (delinquent just means behind - not foreclosed) and not all delinquent loans go to foreclosure - let's assume 25% do - I doubt its even half or a quarter that much. That means that overall, there is one additional foreclosure for every 480 loans because of the existence of sub-prime loans.

Now out of the 480 loans (for which there is one foreclosure) how many people now own a house that but for sup-prime would have been shut out of owning a home? 39!

So by introducing subprime loans, 40 people get a house that otherwise wouldn't and one person doesn't get to keep it.

And if those 40 were just a little more careful about how much house they bought then the 1 in 40 could easily be changed to 1 in 100.

The system isn't broke but I do think that using "stated-income" on subprime loans should be made unlawful.

edit:
Stated-income is where you tell the mortgage broker/lender what you make and the number is not verified - no documentation is submitted to support the figure it is just accepted without question.

[Clodfobble]

Originally Posted by Beestie

Stated-income is where you tell the mortgage broker/lender what you make and the number is not verified - no documentation is submitted to support the figure it is just accepted without question.

Holy crap, some banks do that?? My bank wouldn't even allow "stated income" for a fixed rate loan with excellent credit and demonstrable regular deposits into one of their own checking accounts. Their process to prove it was such a pain in the ass, in fact, that we ended up just pretending I don't have any income at all since we were still well qualified for the loan without it.

[Beestie]

Originally Posted by Clodfobble

Holy crap, some banks do that??

Banks don't usually offer subprime loans but they are widely available from other places.

[lumberjim]

funny....with cars...unless you are bad credit, new credit or if the buyer smells a rat (like a pizza delivery guy making $50,000 or something like that).....they don't ask for proof of income. the bad credit banks usually do.

i've had to provide extensive proof of income for both of the mortgages i've gotten......the first one, i actually had to have my employer switch me to salary in order to get bought.

[tw]

Originally Posted by Undertoad

In almost all locations, you use a car to live your life. You can't go to work without one, you can't shop without one, you can't do most social activities.

If one is living where a car is not affordable, then one has no business living there. Plenty of locations exist where a car is not necessary.

Anyone borrowing money for a disposable item - and that is what a car is regardless of how accounting games rephrase it - is asking to remain a debtor.

I also need food. Therefore food is a capital expenditure? Therefore loans for food are acceptable? Of course not. It's a simple rule. Only those in major financial trouble borrow money for disposable items. That even included buying something (ie computer) on monthly payments. More examples of people who want to be debtors their entire life. If one cannot afford that car or computer, then one did not need them. If one needs a loan for either, then one probably has been taking loans foolishly for disposable items (ie maintaining credit card balances), and is one step closer to bankruptcy.

Responsible finance means no loans for disposable items. It means no outstanding balance on any credit card. Loans are for capital items such as an education, a home, or to create a new business. If I need a loan for food, then I never needed that food. Either that food was too expensive or I am bankrupt due to buying things I had no right to own.

[Beestie]

Loans for which the term is shorter than the useful life of the collateral are perfectly economically justifiable.

Using your logic, only the wealthy would have cars. And the ability to move from not-wealthy to wealthy would be substantially more difficult without one.

A mobile workforce is a pre-requisite to a healthy economy.