Subprime Bailout

Who's going to help pay for all those homeowners who didn't read the fine print? Take a guess.

Christopher Cagan, director of research at First American CoreLogic, says rising mortgage payments on adjustable rate loans will force 1.1 million homeowners into foreclosure over the next 6 years. He estimates the cost of paying off the debt for those borrowers would be $120 billion.

But there's good news!

A spokesperson for Sen. Schumer says the senator is not suggesting the government should pay off borrowers' loans in full. The spokesperson says Schumer believes a mixture of counseling and restructuring of the loans would bring down the costs of the program considerably.

...and bad news.

Larry Litton, whose company Litton Loan Servicing oversees the payments on 400,000 subprime loans, says on average it costs his company $16,000 to put one of its customers through a "loan modification" program if which borrowers get moved into loans with slightly lower rates. That would put the price tag of a nationwide program to assist troubled borrowers at $17.6 billion, using Cagan's default estimates.

Hey, someone has to help all those people that make less than $20k/year and financed for $720,000!

It makes no sense to "restructure" these people so that they can continue to spend every last dime on their mortgage. If it is too much house for them, they should simply move out and rent. (A whole bunch of articles are saying how good it is to rent in a bad housing market.)

In my state there is already a system of loan restructure and re-education camp, that your lender must officially tell you about before they foreclose. As long as we're talking about those dumb people who get a big ARM they can't afford:



Now I must tell you I am in no danger, I have already rearranged my financial situation and paid these folks. I'm sure that they count me in that 1.1 million, although my story isn't told in CNN/Money, because I am a professional and am qualified for all kinds of stuff, and will make money soon and have sort of anticipated the financial situation. I am happy that they decided to give me the stupid loan. Because they did, I could continue to live in this fabulous place and soon Jacquelita will move in with me. And that's... the rest... of the story.

As long as we're talking about those dumb people who get a big ARM they can't afford:

I read about this one guy who was in his seventies and suffering with the early onset of dementia who'd been conned into signing up for a second mortage under these terms. His daughter found out about it months later when she examined his finances and found that the mortgage payments now exceeded his pension. Not all of them are dumb. Some of them are vulnerable.

One homeowner was going to lose his house - as most of his neighbors because of his sub-prime loan. Then the report provided the numbers. His mortgage increased from $800 per month to just over $900 monthly. For $100 per month more, he would suffer foreclosure?

What is worse are the same fools who have car loan payments. Take out another loan for a depreciating commodity? No wonder we so desperately need illegal immigrants to raise the intelligence level in America.

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

tw;333713 wrote:

One homeowner was going to lose his house - as most of his neighbors because of his sub-prime loan. Then the report provided the numbers. His mortgage increased from $800 per month to just over $900 monthly. For $100 per month more, he would suffer foreclosure?

What is worse are the same fools who have car loan payments. Take out another loan for a depreciating commodity? No wonder we so desperately need illegal immigrants to raise the intelligence level in America.

how do yuo feel about 0.00% apr loans on cars, mr smarty pants?

This whole mess was created by a deliberate chain of events. First, the Feds take away tax credit for consumer loans, leaving only mortgage interest as deductible. The lending market, knowing a good thing when they see, begins offering equity loans in order to put people's home equity into the pockets of others.

The value of the average house subsequently appreciates way out of proportion in order that people have more equity to borrow (gotta keep feeding the credit machines). Housing prices escalate beyond all reason, so in order to continue to feed the credit monster, subprime loans are created and doled out liberally to people who can't afford them. The balloons hit, and at the same time, the resale/newhousing markets go tits up, and voila! Crisis.

I believe that part of the problem was that people were using subprime loans, i.e. no down or higher than the normally accepted income multiplier, as a way to invest in homes. I've read some stories of people buying many homes at once, but as the down turn happened and investors got stuck with houses because the builder would be able undercut the flipper's price to get a home sold.

The value of the average house subsequently appreciates way out of proportion in order that people have more equity to borrow (gotta keep feeding the credit machines). Housing prices escalate beyond all reason, so in order to continue to feed the credit monster, subprime loans are created and doled out liberally to people who can't afford them. The balloons hit, and at the same time, the resale/newhousing markets go tits up, and voila! Crisis

The previous post sums it up pretty good. Right now in the previously hot markets people have to get exotic loans to afford homes, but now since credit is starting to be tightened buyers can't qualify for a loan to buy a house at the currently inflated pricing. Another way the the housing market could be saved would be to have increased wages, which hasn't happened. For some borrowers, a bailout would just prolong an eventual foreclosure because there is no way a person could ever afford the mortgage mention in the first post, i.e. $720,000 mortgage while making $20,000 a year.

As a personal note, I was looking to buy in my area, but have been priced out of the current market. I would rather rent than get myself into a risky loan that I wouldn't be able to afford.

Elspode;333758 wrote:

This whole mess was created by a deliberate chain of events. First, the Feds take away tax credit for consumer loans, leaving only mortgage interest as deductible. The lending market, knowing a good thing when they see, begins offering equity loans in order to put people's home equity into the pockets of others.

Others factors besides a market gone mad with easy money, rabid investors, and shady lenders have a perfect storm beginning to spin in Florida. Hurricanes caused insurers to either raise prices or flee the state entirely, leaving homeowners to suddenly find themselves paying more than four times what they once were for insurance and now stuck with state coverage that has been bankrupt for years. Mix that with reassessed property taxes on those high home values everyone was cheering as the great windfall of the new century and suddenly mortgages, new and old, are out of reach.

The proposed solution? Eliminate homeowner property taxes. What a disaster.

jbt;333781 wrote:

I believe that part of the problem was that people were using subprime loans, i.e. no down or higher than the normally accepted income multiplier, as a way to invest in homes.

You think?

I'm a 24 yr old "would-be real estate mogul" from Sacramento CA. After going to a few seminars I bought 8 houses in 8 months in 4 states with no money down looking to fix 'n flip. I made some mistakes and am now millions in debt, trying to avoid foreclosure, sell quickly, repay everyone, and share my lessons to help others in trouble.

lumberjim;333757 wrote:

how do yuo feel about 0.00% apr loans on cars, mr smarty pants?

I'm a fan.

Though I'm not sure I'm making more interest on the money I'm keeping than I spend on postage stamps for the payments.

Happy Monkey;333847 wrote:

I'm a fan.

Though I'm not sure I'm making more interest on the money I'm keeping than I spend on postage stamps for the payments.

you could set up direct pay and have them take the money out electronically?

Not with Nissan! They get an extra $5/month for that service!

THOSE COCKSUCKERS!

they have a new website for finance.....nissanfinance dot com. check that out, UT

lumberjim;333757 wrote:

how do yuo feel about 0.00% apr loans on cars, mr smarty pants?

0% interest his how money games claim profits on cars that are so bad as to otherwise not be saleable or profitable. Company plays money games. Mortgages its future profits to realize that same money as a profit today. It's a 'hope and a prayer' that the company can build something profitable next decade.

Why 0% car loans? Because the vehicle that sells at almost no profit is both grossly overpriced and technologically obsolete. 0% is a gimmick to dump bad products on the public.

Same gimmick in the 1990s was to claim profits while shorting pension funds. Pension funds are $7 billion short, the company's products are still crap, and a new "money game" is needed to keep the products moving. Mortgage the finance unit to make the auto assembly unit look profitable. Mortgage X and make Y look profitable. If done overtly, it would be called criminal. 0% interest is simply a money game so that a pathetic product can continue selling for another 10 years.

Meanwhile the intelligent consumer never borrows money for a disposable item. If one cannot pay for disposable item, then one does not need that disposable item. Borrowing money for a car (or any other non-capital item) is just another form of addiction.

Even at 0% interest, if the consumer needs a car loan, then the consumer never needed that disposable item. Loans are for capital items whose value is expected in increase with age such as a home, an education, or to build a business. Car loans are simply another example of consumer addiction - so that a debtor will never become a creditor.

tw considers a car to be a disposable item.

Undertoad;333914 wrote:

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.

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.

deadbeater;333756 wrote:

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.

Beestie wrote:

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.

Clodfobble;333931 wrote:

Holy crap, some banks do that??

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

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.

Undertoad;333924 wrote:

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.

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.