August 09, 2007
Lopped off at the ARMs.
Is the recent failure of a number of mortgage companies and the turbulence in the stock market just a small indicator of what's to come? "The peak month for the resetting of mortgages will come this October...when more than $50 billion in mortgages will switch to a new [higher] rate for the first time. The level will remain above $30 billion a month through September 2008." Particularly worrying is the default of borrowers with supposedly better than subprime credit. This is likely to result in the first major recession in years. Are we ready?
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Are we ever ready? The headline of my local paper today was that the average monthly mortgage jumped some $250 in one day due to all the resetting ARMs.
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The Psychology of Subprime Mortgages
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I've been wondering about this recently; have also read some disturbing reports about the UK and Irish markets.
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Also this: in the first six months of the year. The number of [foreclosures] 573,397 is 58% higher than...for the first half of 2006.
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A timely post, StoryBored. See also.
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You know what this thread needs? NINJAS!
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Calculated Risk is a mortgage blog mr medusa has been reading fanatically lately.
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Typical. Blame the corporations, when it's obviously actually the fault of people who want to borrow money to purchase a place to live.
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And before anybody jumps down my throat: Yes, I understand that much of the current situation was caused by speculative real estate purchases. And yes, people should know better than to take out loans they can't handle. But so should bankers know better than to lend money on terms that will lead to defaults -- even moreso, IMO.
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Alright!!! Maybe there's hope that with our combined incomes we'll be able to buy that decrepit 600 sq ft crackhouse in San Francisco that we've had our eye on.
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I think one problem is that the people driving the former bubble weren't raised by depression-era parents. My 90 year old mother is going deaf depressingly quickly, but she won't consider a hearing aid since she doesn't think she'd get her money's worth with the time she has left. That pretty much capsulizes her approach to risk-taking. On the other hand, she and my father did accumulate 11 rental houses which paid for themselves over time and provide her with an income now. When they retired from the grocery business, my father put in a huge garden in the back-back yard of their home, and sold tomatoes, strawberries, asparagas, figs, bell peppers, red onions, etc. as the only farmer's market in town. But my mother, who's net worth is quite nice, won't buy a new washer and dryer since the old ones still work to a degree. My sister, brother and I are slightly less risk averse, but were startled by the plethora of risky loans that were offered in the last few years. No one raised by my parents would have thought them sensible. A few years ago, I ran across a comment that seemed to tme to explain the stock market over-valuation. I don't remember who said it, but: "of course, the market went up too much. The prople who were driving it were all on Prozak."
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Yeah, path, some things are hard to be wary of unless you can remember them.
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My job is as an accountant at a large, well know company, within the department that makes loans to the mortgage companies. Natually, we thought we had our risks well defined, and we thought that we could make money by charging margins of three-quarters of one percent up to two percent on the loans. Right now the assholes are so clenched around here that people squeek when they walk. We can't take calls from certain clients, and even from certain employees within our institution. The short- to mid-term effect of the so-called subprime loan problem is that if you want a mortgage loan you had better be nearly a saint, otherwise it is going to be hard to get a lender to talk to you.
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Hawthorne Wingo: no, the correct answer is that there are easy to be wary of if you have any sense.
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Would that that were true, path!
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I do agree that consumers need to be more aware. But I also believe financial institutions need to be reined in a bit from some of the more dirty lending practices that we've seen. Coming from that industry, I should probably keep the rest of my comments to myself.
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I'm hearing what you're thinking, Lara. Have a sis-in-law that works in titling, a friend in mortgage lending--stories will raise your hair, people. Yes, consumers are not educated enough--especially the ones that will be hurt the most. Sure, some folks have overextended buying their 2 vacation homes--one for the beach, one for the mountains, but many of these poor souls are in the situation my kids are in: They just can't afford to buy right now, and some get so hungry they fall into a bad deal without realizing. It's hard for ME to wade through all the bullshite out there, and I've been around twice as long! Would that they could get a decent loan for a house. IMO, rent money is wasted.
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Thanks for those additional links, islander, polychrome and Medusa. Those ninja-loans are a sad commentary on industry practice and consumer ignorance. This is not good.
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The psychology of subprime mortgages.
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double comment! bring out whatever punishment machine is reserved for double comments! Bind HawthorneWingo in PVC! Or something!
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I suggest.....THE COMFY CHAIR!!!!
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nnnnNNNNNNOOOOOOOOOO!!!!1111!!!
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Gilded Age Crime: Poor Go Homeless, Wealthy Get Bailouts
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Well, color me surprised! Na. Don't bother. I'm not. Except the end of the article is so fairytale. Like anything's going to change after Bush leaves office.
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Don't worry, after 8 years of President Romney, you will be wistfully pining for the halcyon days of Gee Dubya.
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Reaping What You Sow: Hedge Fund and Housing Bubble Edition
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From an interview of Alan Greenspan: Q: ...the housing bubble has burst, the subprime-mortgage market has melted down and we're in a credit crunch. Critics have charged that the Fed contributed to the trouble by keeping interest rates low for so long. A: This particular problem was an accident waiting to happen. The euphoria that existed in the expansion of the housing-market bubble induced investors around the world who'd had a huge buildup in liquidity—largely because of the lower real long-term interest rates that occurred as a consequence of the end of the cold war—to invest in something with a higher rate of return. And, lo and behold, the subprime-mortgage market provided it. Q: The mortgage brokers were just meeting demand from investors? A: Precisely. And so you had Wall Street's securitizers basically then talking to the mortgage brokers saying, "We'll buy what you've got." ... The big demand was not so much on the part of the borrowers as it was on the part of the suppliers who were giving loans which really most people couldn't afford. We created something which was unsustainable. And it eventually broke. If it weren't for securitization, the subprime-loan market would have been very significantly less than it is in size.