Housing Loans... new rules racist??

Carol

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they still have to be able to PAY FOR IT, and the people that frannie and feddie FORCED banks to loan to COULD NOT pay teh mortages

democrat social programs are what caused this entire mess

Did I say otherwise? If I did, please point to my exact quote where I did.
 

Big Don

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So are you saying that you feel someone who could pay cash outright for the home, should get a lower rate, by virtue of that wealth?
Yes, because that is exactly how risk is evaluated.
I simply disagree with that position.
Again, and believe me, subtle I am NOT, this is why you aren't in the financial business. Risk evaluation is based on income, assets, debts, and credit score, if you disagree with that, hooray for you, but that is how the system works.
Lots of people are in between. They can make the 20%, or maybe a bit less or a bit more, but are far from being able to pay cash for the whole purchase. They have good credit, they have ponied up the down payment, they have shown a history of financial responsibility. In my opinion, give 'em the same rate.
That's fine, but, the people who do this for a living, prefer to give good rates to good risks and less good rates to poor risks...
 

Flying Crane

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Yes, because that is exactly how risk is evaluated.Again, and believe me, subtle I am NOT, this is why you aren't in the financial business. Risk evaluation is based on income, assets, debts, and credit score, if you disagree with that, hooray for you, but that is how the system works.
That's fine, but, the people who do this for a living, prefer to give good rates to good risks and less good rates to poor risks...

I actually am in the financial business.
 

Big Don

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I actually am in the financial business.
Really? Because your assertion that those with fewer assets should get the same low intrest rates as those with lots of assets doesn't sit well with reality, it's nice, it just isn't how the world works.There were what they called NINJA loans, no income, job or assets those didn't turn out too well for the lenders or the country... Dishonest people made out pretty well...
Honest people have a harder time all around...
 

Sukerkin

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When it comes to mortgages, the house itself is the asset and the bank owns it. All a bank cares about is whether it will lose if a person fails to pay - normally this is a resounding "No!" but in the case of the housing bubble, the asset was hugely over-valued so when the crash inevitably came the banks had a mass of low value assets which they had rated as much higher value.

That's where the problem lay.
 

Carol

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The issue was/is deeper than the subprime market.

Remember the Houses That Hold Up The World? May 2002, The Economist described the scenario to a T.

The lesson which consumers—and also many over-sanguine economists—have to learn is that spending cannot outpace income for ever. House prices have saved America and the world from a deep downturn, but they do not remove the need for consumers to take care over their balance sheets. Homes are only as sound as their foundations.
So in preparation for buying my own home....I paid off all my credit cards and got out of debt (aside from my car payment). When I went to apply for a mortgage last year, the brokers were telling me that I would have been better off if I hadn't paid my cards off and instead had the extra cash. Isn't not being in debt supposed to be a GOOD thing? Even in today's mortgage climate...the decision makers say it isn't.
 

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Really? Because your assertion that those with fewer assets should get the same low intrest rates as those with lots of assets doesn't sit well with reality, it's nice, it just isn't how the world works.There were what they called NINJA loans, no income, job or assets those didn't turn out too well for the lenders or the country... Dishonest people made out pretty well...
Honest people have a harder time all around...

I've not heard of ninja loans, but I've said from day one that low teaser rates that balloon later are a really bad idea. How much common sense does one need to NOT have in order to not see that problem coming from a long way off?

I'm not a mortgage lender, but I work for a large financial company. I actually handle clients who are having assets seized due to unpaid tax and child support obligations. I see the result of plenty of poor financial savvy, poor decisions, and downright malicious (particularly with the child support issues) behavior on a daily basis. I know all about it, those are all my clients.

My wife and I actually managed to buy a house close to two years ago. We have always been careful with money. We paid off all of our student debt, paid off the car, pay off the credit card in full every month, always live within our means and do not carry debt. We saved, had a bit packed away, and when the housing market fell apart, we were uniquely positioned to buy a house that had been forclosed. The previous owner was already gone and the house was empty. Given we are just over the city border of San Francisco, nothing around here is cheap, not even a forclosed home. We wanted to stay in San Francisco, but we were forced to leave the City to afford a home.

We made the 20%, and managed to come up with additional funds to do some major improvements, like replacing the foundation, levelling the garage/basement and replacing all the plumbing and sewer. The house was sagging due to bad foundation, it needed to be done. I cashed out a couple of IRA accounts and borrowed heavily from my 401K account, which needs to be paid back before I leave my current employment, or else I have to take the balance owed as an early withdrawal and take the tax penalty. That is our current priority, to pay that off sooner than the 12 year payroll schedule I'm on now, because even tho I've been with my employer for over 12 years now, who knows if I'll still be here in another 12.

anyway, we pulled it all together and did it, but we could certainly not pay cash for the whole house. We make a decent living, but by San Francisco standards we are a long way from being wealthy. We have a 30 year fixed, with a very low rate because we have great credit, not because we are wealthy. If the rate had been much more than it is, we might not have been able to do it, it might have pushed us out of the market, especially knowing the kind of repairs the house needed.

There's another issue here: we are first time home buyers, it's a very small home, and we do not plan to have children. We may well spend the rest of our lives in this house. We are not looking to turn it over in a couple years and try to make a profit, we wanted to have a stable home that we can count on.

A big big part of the problem in the housing crisis came from speculators who had no interest in the properties as homes. They only were interested in the investment opportunity, expecting to sell the house in six months to a year and make a huge profit. That artificially inflated the market, made everything cost way more than it should, and it was done for profit, not for the sake of having a home. That contributed to the bubble growing and bursting, and I'd say most of the people in a position to do that are wealthy people. Those are the people getting the break in the interest rate, and those are the people creating the problem.

This is what happened when I was evicted from a rental property when the property was sold and the new owner wanted to condo-ize it and sell it off. He bought the property, a three story victorian, with about 20 tenants. He evicted everyone, held the property just long enough to comply with San Francisco regulations, turned the units into condos, and sold them off. Doing so put 20 people back into the rental market in 2000, when the dot com boom was at its highest, all of us looking for a new apartment. My own rent quadrupled when I found a tiny one bedroom. The guy who bought the house came from money, and his design on the property was only to make a quick profit. He had no interest in the property as a home for himself, tho he tried to convince all the tenants that he and his sister and his parents were going to move in and make a home out of it. It was all a pack of lies (not that any of us believed it for more than about ten minutes), but that was their game.

anyway, I'm not advocating giving loans to people who cannot afford them, who are likely to default on them. But I think there's more to it than looking at income and giving the breaks to the people who don't need the breaks. I'd say that more of the working class and lower income people would treat the house as a home and not just a short term investment, and would be more committed to living up to the loan and keeping the house. Those people don't tend to treat money as a game the way the wealthy do. If they are otherwise credit worthy, give them the same rate as the wealthy.
 

Big Don

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More on Ninja Loans:
A NINJA loan is a description of mortgage loan that originated without the important documentation to prove that the applicant can reasonably adhere to the loan terms. It stands for “No Income, No Job or Assets.”
Many of these loans were based on unsubstantiated lies from either the applicant, the mortgage broker or both. The lender that ultimately approved the loan did so without exercising due diligence to ensure that the applicant could afford the mortgage.
Additionally, many of these loans were packaged and sold to other lenders. Fannie Mae and Freddie Mac may have bought some of these loans. Additionally, many of these loans packages ended up in investors hands as Collateralized Debt Obligations (CDOs).
CDOs were previously viewed as relatively safe investments, since they were secured by real property. However, with many of these properties now worth less than the loan balance and record numbers of homeowners losing their homes to foreclosure, many CDOs were subject to heavy losses that would be incurred by investors.
 

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Flying Crane

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More on Ninja Loans:
A NINJA loan is a description of mortgage loan that originated without the important documentation to prove that the applicant can reasonably adhere to the loan terms. It stands for No Income, No Job or Assets.
Many of these loans were based on unsubstantiated lies from either the applicant, the mortgage broker or both. The lender that ultimately approved the loan did so without exercising due diligence to ensure that the applicant could afford the mortgage.
Additionally, many of these loans were packaged and sold to other lenders. Fannie Mae and Freddie Mac may have bought some of these loans. Additionally, many of these loans packages ended up in investors hands as Collateralized Debt Obligations (CDOs).
CDOs were previously viewed as relatively safe investments, since they were secured by real property. However, with many of these properties now worth less than the loan balance and record numbers of homeowners losing their homes to foreclosure, many CDOs were subject to heavy losses that would be incurred by investors.


yeah, very bad stuff and it should be no surprise to anybody when those fall apart. The lenders got greedy and stupid, and they got burned for it. I put most of the blame for these on the lenders. They created their own troubles, with these ones.
 
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LuckyKBoxer

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Those people don't tend to treat money as a game the way the wealthy do. If they are otherwise credit worthy, give them the same rate as the wealthy.

umm no the wealthy are wealthy because the vast majority of them do not treat money as a game.

btw I get your "idealism?" in regards to how you want it to be, but let me ask you..
if someone came and asked you to borrow 500,000 dollars and they did not have it in the bank or in investments, and they can make payments on a 30 year schedule but they dont have alot of wiggle room if there is a problem..
and then someone asks you to borrow 500,000 dollars and they have more then that in investments and bank accounts tied up, and can make the payments in 15 years and have alot of wiggle room who are you going to be more likely to feel safe in loaning your money to?
 

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Because the wealthy, the ones who actually went out and earned their money, do not treat money as a game, you used to have the system where the bank would give you an Anal exam to get a loan. The old saying went, they won't give me any money unless I already have money, if I had money I wouldn't need the loan. These ninja loans would never have been given out in the old days. Then guys like Obama came along and Barney Frank and Bill clinton and Janet reno and Jimmy Carter.

Obama and his olinsky trained community activists threatened banks with protests and demonstrations, Carter and clinton and Reno used the muscle of the police powers of the federal government to force banks to make bad loans. Barney Frank and his fellow democrats, and quite a few Rino Republicans, used their power to block the reforms necessary to stop these bad loan practices. The liberals wanted people who could not afford loans to get homes, they won in two ways. They recieved credit for forcing banks to make bad loans, allowing people to get homes they couldn't afford, and then when it collapsed, they could blame the banks and wall street for causing the problem. A win, win for the democrats.
 

Flying Crane

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umm no the wealthy are wealthy because the vast majority of them do not treat money as a game.

the one's who caused the housing bubble did. They set it up for the crash that came next. If they hadn't set it up in the first place, that crash may not have come or may have been less severe.

btw I get your "idealism?" in regards to how you want it to be, but let me ask you..
if someone came and asked you to borrow 500,000 dollars and they did not have it in the bank or in investments, and they can make payments on a 30 year schedule but they dont have alot of wiggle room if there is a problem..
and then someone asks you to borrow 500,000 dollars and they have more then that in investments and bank accounts tied up, and can make the payments in 15 years and have alot of wiggle room who are you going to be more likely to feel safe in loaning your money to?

It's not idealism. It's real, I've lived it and I'm in the middle of it right now. I'm not wealthy, I built a great credit record, and I got a good rate for it. If I had not gotten that rate based simply on my otherwise lack of wealth, I would not have been able to afford the mortgage and would not have been able to buy a house. Or, I might have THOUGHT I could afford the mortgage, gone in with a higher rate, and ultimately failed and defaulted because the rate itself pushed me over the edge.

I'm not against lenders doing proper due dilligence. I'm not against lenders denying someone a loan who is a poor risk. I think that both lenders and borrowers need to exercise common sense and make sound judgements, and there was certainly a shocking lack of that on both sides that contributed to the crash.

But a credit worthy person who simply is not wealthy should not be penalized with his interest rate. That just adds fuel to the fire and makes it more likely that he will default. In some cases I would not be surprised if the lenders do that on purpose, engineer the default thru higher rates. That way they have collected the down payment and a couple years of monthly payments, then the buyer defaults and the lender takes the house and sells it again. And again. And again. I think it might actually be deliberate, in some cases.

The wealthy, those who can afford to pay cash for the house? Why are they taking a mortgage? If they can pay cash, why not pay cash? Why pay any interest at all? Maybe it's because they are hoping to flip the house for a profit. They don't want to own the house, they make the smallest down that is allowed, and if the market doesn't look favorable in a year they can walk away from it and minimize their loss. The wealthy who could pay cash and choose to take a mortgage? That is a danger sign, in my opinion.
 
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LuckyKBoxer

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the one's who caused the housing bubble did. They set it up for the crash that came next. If they hadn't set it up in the first place, that crash may not have come or may have been less severe.



It's not idealism. It's real, I've lived it and I'm in the middle of it right now. I'm not wealthy, I built a great credit record, and I got a good rate for it. If I had not gotten that rate based simply on my otherwise lack of wealth, I would not have been able to afford the mortgage and would not have been able to buy a house. Or, I might have THOUGHT I could afford the mortgage, gone in with a higher rate, and ultimately failed and defaulted because the rate itself pushed me over the edge.

I'm not against lenders doing proper due dilligence. I'm not against lenders denying someone a loan who is a poor risk. I think that both lenders and borrowers need to exercise common sense and make sound judgements, and there was certainly a shocking lack of that on both sides that contributed to the crash.

But a credit worthy person who simply is not wealthy should not be penalized with his interest rate. That just adds fuel to the fire and makes it more likely that he will default. In some cases I would not be surprised if the lenders do that on purpose, engineer the default thru higher rates. That way they have collected the down payment and a couple years of monthly payments, then the buyer defaults and the lender takes the house and sells it again. And again. And again. I think it might actually be deliberate, in some cases.

The wealthy, those who can afford to pay cash for the house? Why are they taking a mortgage? If they can pay cash, why not pay cash? Why pay any interest at all? Maybe it's because they are hoping to flip the house for a profit. They don't want to own the house, they make the smallest down that is allowed, and if the market doesn't look favorable in a year they can walk away from it and minimize their loss. The wealthy who could pay cash and choose to take a mortgage? That is a danger sign, in my opinion.

I have news for you, it was Congress that set up the housing bubble.. it was not a choice of wealthy people as you put it, it was congress messing around where it should not have been messing around.

the rest of your comments really solidify that, like was already mentioned, you should not be a banker. First you can not base your judgement on all other people by what you have done, for every person like you there is another and most likely more then one more that has messed it up and gotten in over their head and had their home repossessed. So no you can not base it on what one person alone did you have to look at everyone in a certain group.

btw let me give you a lesson about money.. If you have money and its sitting somewhere where you can pull it all out in a day then its not really working for you. Granny stuffing 50,000 dollars in her mattress is not wealthy, when if she had invested that money smartly she could probably have hundreds of thousands in wealth. Truely wealthy people have their money constantly working for them, constantly in play, in all kinds of things. It is often much easier, and smarter with tax breaks, to take a loan that fits certain parameters then to go pull out all kinds of money and pay cash for something, who cares if they are flipping a house as you put it? thats irrelevant to the loan situation. Who cares if they want to buy out a block and tear all the houses down and build a football stadium? It doesnt matter, at least for the loan, what matters is that that loan can be repaid with as little risk as possible. Higher interest is charged to groups that fall into higher risk categories. that higher interest is part of what covers the gap when a certaiin percentage default on their loans. This is basic stuff Michael, I am not sure why we are having this conversation here to be honest.
 

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I have news for you, it was Congress that set up the housing bubble.. it was not a choice of wealthy people as you put it, it was congress messing around where it should not have been messing around.

the rest of your comments really solidify that, like was already mentioned, you should not be a banker. First you can not base your judgement on all other people by what you have done, for every person like you there is another and most likely more then one more that has messed it up and gotten in over their head and had their home repossessed. So no you can not base it on what one person alone did you have to look at everyone in a certain group.

btw let me give you a lesson about money.. If you have money and its sitting somewhere where you can pull it all out in a day then its not really working for you. Granny stuffing 50,000 dollars in her mattress is not wealthy, when if she had invested that money smartly she could probably have hundreds of thousands in wealth. Truely wealthy people have their money constantly working for them, constantly in play, in all kinds of things. It is often much easier, and smarter with tax breaks, to take a loan that fits certain parameters then to go pull out all kinds of money and pay cash for something, who cares if they are flipping a house as you put it? thats irrelevant to the loan situation. Who cares if they want to buy out a block and tear all the houses down and build a football stadium? It doesnt matter, at least for the loan, what matters is that that loan can be repaid with as little risk as possible. Higher interest is charged to groups that fall into higher risk categories. that higher interest is part of what covers the gap when a certaiin percentage default on their loans. This is basic stuff Michael, I am not sure why we are having this conversation here to be honest.


ok, clearly you know best. obviously i've not changed your mind, and that's really ok by me.
 
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LuckyKBoxer

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ok, clearly you know best. obviously i've not changed your mind, and that's really ok by me.

so wait are you trying to argue how it works or how it should work?
like I already said I get you idealistic you are being, its not reality though and I explained why.
in a perfect world everyone would get a loan for free with no interest because we are all looking out for each other right? unfortunately we do not live in a perfect world.
Fair? from whos perspective? the person wanting a loan, or the person giving the loan?
 

Flying Crane

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the rest of your comments really solidify that, like was already mentioned, you should not be a banker.

this is really weird actually, since two of you now have gone down this road.

when did I ever say I wanted to be a banker? How did that become an issue?
 

Sukerkin

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I stopped trying to talk economics here, other than the briefest of snippets, a while back. It sadly turned out that it was a waste of my 'internet breath' (and all those lovely letters after my name) to try and correct the misconceptions some people had on how things actually work in the global economy (as opposed to their little fragment of it).

Just blame the Democrats and you'll be fine, FC.
 
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