"underwater" mortgages

[Spexxvet]

Originally Posted by classicman

And before you get all bent on the ARM spexxie - They do serve a purpose when used properly and in the right application.
Just because PEOPLE and Lenders abused their design for their own profits...

Guns don't kill people, ARM's do!

Thanks, but I'll pass on the ARM. If there's a chance that I'll get fucked, I WILL get fucked.

I am very risk averse

[Pie]

We had an ARM at one point. Re-fi'd it in 2007 to a 15-year fixed. We had advise from some very smart people when we went into it; we got out of it (a year before the adjustable part was scheduled to kick in) largely due to orthogonal circumstances.

Now-a-days, we all know better. But back then it wasn't seen as a risky thing at all.

[Shawnee123]

I'd give my right arm for the right ARM.

(I don't know anything...not a homeowner here, just a court jester)

[squirell nutkin]

Fear, Uncertainty, Doubt.

When I re-fied my house the bank had a mortgage broker who looked at my numbers and told me
"Well, you probably made more than that and you just forgot some cash payments made to you. The bank is looking for $XYZ so, I'll just put down that you made XYZ.

When I signed I had to state that all the info was true.

They covered their ass. even though they told me exactly what lie to make, they also told me I wasn't supposed to lie.

It's a game and if you fuck up it is still your fault. No one dragged me into the bank and forced me to sign anything.

I feel bad for the dumb ass immigrants who spent all their life's savings buying the Brooklyn Bridge, but in any ecosystem it's the predators who keep the herd strong.

It's a little easier to be detached about it when you are hearing Marlin Perkins do a V.O.

[tw]

Originally Posted by Pie

Now-a-days, we all know better. But back then it wasn't seen as a risky thing at all.

ARMs were always a most risky thing. Long ago, banks held the mortgages. Therefore bankers shared in the risk and would not make deals that were risky and so stupid. With new financial games (ie mortgage backed securities and CDOs), bankers no longer held risk. They could lie and be believed because once banks were responsible. Once banks did calculate risk and determine who could qualify for loans. No longer. Bankers no longer determined what was and was not a risky loan. He would simply sell that loan to others. And reap rewards by no longer doing what was his job.

Once, mortgages were a safe investment because bankers would never make risky loans. Therefore buying a mortgage backed security was a safe investment – until bankers discovered they could ignore risks.

Everyone forgot to notice what made mortgages safe and stable. Bankers could ignore all risks. Therefore homeowners and naive investors got stuck with all risks. Bankers and Wall Street shysters got rich since that is the only purpose of the Mafia and business school graduates.

ARMs were always risky. Smart people who recommended them were enriching themselves using overt lies. An industry where regulations were removed or bypassed routinely, risky ARMs were sold in the tradition of a ponzi scheme. Bankers ignored risk. After all, the only purpose of their business is to enrich themselves. Providing a service was not relevant.

[classicman]

ARM's were created for specific situations and used properly contained very little risk. none in fact.
If abused, for example: One trying to buy more than one could realistically afford, or applied in the wrong situation they were not risky at all, they were outright stupid.

[tw]

Originally Posted by classicman

ARM's were created for specific situations and used properly contained very little risk.

Right. And Saddam had WMDs. We just have not found them yet. Clearly so many homes worth less than their mortgage as those mortgage interest rates increase - absolutely no risk. Clearly interest rates with no limit - absolutely no risk. Clearly you mock me with fictions. Extremism is alive and well in casing blame elsewhere.

[classicman]

Could you not understand what I wrote? Apparently so.

Here is a hint ... Try reading THE WHOLE POST.

[richlevy]

ARMs were always a most risky thing. Long ago, banks held the mortgages. Therefore bankers shared in the risk and would not make deals that were risky and so stupid. With new financial games (ie mortgage backed securities and CDOs), bankers no longer held risk. They could lie and be believed because once banks were responsible. Once banks did calculate risk and determine who could qualify for loans. No longer. Bankers no longer determined what was and was not a risky loan. He would simply sell that loan to others. And reap rewards by no longer doing what was his job.

I have to agree with TW on the principal of his statement if not on the actual objection to ARMS. This whole mess that we have gotten ourselves into is because of hyper-capitalism. If I collect a bet from you for a horse, our relationship is not investor and broker, it is gambler and bookie. We are not investing in the horse and directly supplying it's owner with capital. While securitization, hedges, and other methods were useful in spreading risk, they were never intended to be primary investments. In the insurance industry, there is also a concept called reinsurance, where an insurance company sells some of their risk in, say oceanfront Maryland properties and takes on earthquake risk in California. This is so that a single catastrophe could not bring down a company. Hedges and the securitization of mortgages were similar in that they allowed spreading risk or betting 'for' risk. Southwest Airlines famously did this by buying fuel hedges. When the price went up, the profits from the hedges offset rising fuel costs.

Banks, however, took it too far. They oversold, securitized, and re-securitized to the point where no bank kept any appreciable risk from any mortgage. This removed their incentive to apply due diligence. Loan officers and brokers, who have a legal obligation to borrowers and lenders, were either untrained or committed actual fraud when dealing with borrowers. Yes, if borrowers lied and knew they were lying, then they were accomplices. But in these dealings the people brokering the loans were the experts.

ARM's serve a legitimate purpose. Interest-only mortgages, however, and some of the more exotic offshoots, are more like rent than mortgages. I can't believe the IRS allows mortgage deductions for them.

Broker: How much did you make last year?
Borrower: Well, I got paid $45,000, but my aunt died and left me $15,000.
Broker: I see. Income $60,000.
Borrower: But I only got the last $15,000 because my aunt died. What am I going to do next year?
Broker: You have other relatives, don't you?

[classicman]

That wasn't the fault of the ARM was it?
And no one forced people to sign for them... they just WANTED it.

[tw]

Originally Posted by richlevy

Banks, however, took it too far. They oversold, securitized, and re-securitized to the point where no bank kept any appreciable risk from any mortgage. This removed their incentive to apply due diligence. Loan officers and brokers, who have a legal obligation to borrowers and lenders, were either untrained or committed actual fraud when dealing with borrowers. Yes, if borrowers lied and knew they were lying, then they were accomplices. But in these dealings the people brokering the loans were the experts.

Risk is a concept that international banking standards such as Basel 1 and Basel 2 were designed to address. The US simply refused to accept these standards. And then watered them down to enrich the finance industry at the expense of America and other nation's economies. For example, investment banks including Lehman, Bear Stearns, Morgan Stanley, etc were exempt from Basel standards so that their debt to equity ratios could exceed 30 to 1.

We have finally finished with health care reform. Coming is the next and absolutely necessary regulation of financial industries. The same naysayer will attack it for the same political agenda reasons. Finance industry foolishly claims the purpose of a company is profits. Same philosophy behind the mafia. The product (service to an economy) be damned.

Key is long overdue regulation due to LTCM 12 years ago (hidden risk that could not happen on open markets), Enron accounting (that was made so legal in 2001 as to be called REPO 105 in Lehman Bros), and insurance (AIG wrote thousand page insurance policies to remain exempt from insurance regulations and to hide risks that even top management could not understand).

Overt fraud is so widespread in the American financial economy so that stock brokers (salesmen) routinely reap $250,000 plus (not including bonuses). The senior VP in Merrill Lynch was fired for warning about what would happen years later. Board of Directors in AT&T remained completely uninformed when AT&T was only 3 months from default. Major bankers were told they had eight hours to save the entire American economy. We all learned later that is was that bad.

Coming is the next and necessary fight. To heavily regulate an industry ripe with corruption. With people so grossly overpaid because they actually believe they deserve it. Risk is simply a major part of a massive problem directly traceable to profits reaped without any responsibility for the consequences. ARMs are just a little part of that larger problem.

Essential to risk markets is complete transparency. ARMs are quite risky. And only one example of the larger problem. That battle looms.

[tw]

Originally Posted by classicman

That wasn't the fault of the ARM was it?
And no one forced people to sign for them... they just WANTED it.

Once upon a time, bankers determined if you could afford the loan. It was called risk analysis. ARMs were always available. And almost nobody could afford them - once risk analysis was performed.

To corrupt that system for higher profits, responsibility was removed. Home owners told they afford homes because risk analysis was subverted to maximize profits. ARMs never existed (except in extreme exceptions) when the system was doing risk analysis.

Blaming the victim is political spin. Risk analysis was intentionally subverted so that elite financial greed could be rewarded. Once the political spin is stripped away, ARMs were dumped on unsuspecting consumers to only enrich the financial elite. It’s just not that difficult to understand once a political agenda is removed.

[Shawnee123]

Using personal responsibility to excuse corporate crap is exactly WHY they do it. They knew ahead of time they could blame the victims.

Not everyone is a financial analyst. Some just want to try to make it in this stupid material world. Some are gullible and believe the liars. That doesn't negate the evil and the corruption. It just makes those who didn't "fall for it" feel superior.

[Griff]

Now that corporations are people you'd think personal responsibility would cover them as well...

[Shawnee123]

One would think! There must be a loophole.