FriendlyFire
Codex WMDicanious
Here too. Heavy borrowing, low interest rates and sky rocketing house prices.
(Inflationary fears and recession as a result of Real estate market slump)
Housing Bubble News Update: We will use creative financing to get out of the mess
- Thread starter mrt144
- Start date
Here too. Heavy borrowing, low interest rates and sky rocketing house prices.
(Inflationary fears and recession as a result of Real estate market slump)
Here is another thing to consider on the rate freeze. even if their mortgages freeze at the same price, other things will increase in price. if owners still can't afford their mortgage after a rate freeze because of inflationary pressures outside of mortgages how will this rate freeze even work? its stupid!
i wonder how many people wont be able to afford any mortgage in spite of the rate freeze?
further; will other countries who have investments and a legit stake in being repaid on their investments really stand for this? If I was a foreign investor I would drop other american investments or at least threaten to if this plan went through. Im not gonna get paid on a contractual obligation? well you arent going to get any more money from me.
i wonder how many people wont be able to afford any mortgage in spite of the rate freeze?
further; will other countries who have investments and a legit stake in being repaid on their investments really stand for this? If I was a foreign investor I would drop other american investments or at least threaten to if this plan went through. Im not gonna get paid on a contractual obligation? well you arent going to get any more money from me.
There's no such thing as a "do over" when it comes to taking risks. Everyone in this process understood this.
Investors were not rewarded for irrational exuberance during the internet bubble and should not be rewarded this time around. The other issue is how do you explain to the investor who was anticipating the higher reset when he bought that securitization will now not reset..what then?
The problem with the Paulson plan is it still doesn't address the supply problem. It would simply delay the pain for borrowers since their plan was likely predicated on \being able to sell that property (or refinance a neg. amortization loan).
All this does is encourage homeowners who can barely afford their teaser or "ninja" (no income, no job or assets) loans to continue making these frozen monthly payments in the hope that the property market will recover quickly and allow them to sell their homes (which is what most specs, who are 70% of defaults, were looking to do). So if that doesn’t happen, they’re back at square one.
So less short term pain and ultimately with no chance of gain. Better to lose the house, rent cheaper and rebuild. Let prices come down and new home owners come in.
The teaser freezer will not work.
Investors were not rewarded for irrational exuberance during the internet bubble and should not be rewarded this time around. The other issue is how do you explain to the investor who was anticipating the higher reset when he bought that securitization will now not reset..what then?
The problem with the Paulson plan is it still doesn't address the supply problem. It would simply delay the pain for borrowers since their plan was likely predicated on \being able to sell that property (or refinance a neg. amortization loan).
All this does is encourage homeowners who can barely afford their teaser or "ninja" (no income, no job or assets) loans to continue making these frozen monthly payments in the hope that the property market will recover quickly and allow them to sell their homes (which is what most specs, who are 70% of defaults, were looking to do). So if that doesn’t happen, they’re back at square one.
So less short term pain and ultimately with no chance of gain. Better to lose the house, rent cheaper and rebuild. Let prices come down and new home owners come in.
The teaser freezer will not work.
I imagine paulson saying this "sorry foreign investor, those bonds you bought backed by CDOs are never going to yield what you thought they would, and we arent going to hold the people responsible who made this mess. buyer beware!"
to which a foreign investor will say "there is no accountability, no responsibility, and no respectability." I imagine that foreign investment will not fare well because of this whole debacle.
to which a foreign investor will say "there is no accountability, no responsibility, and no respectability." I imagine that foreign investment will not fare well because of this whole debacle.
The real surprising part is many people will just walk away. even if you paid reduced rates for 5 years, price decreases in housing would pretty much dictate whether you would sell or not. if after 5 years you paid reduced rates and still couldn't sell for a profit or break even...why go through the 5 years of pain for nothing?
Simply repealing Reg FD (open disclosure of these securities) will alleviate all of this. It may crush the market capitalizations of the rating agencies (the only ones who know what's inside) however investors should be able to value these securities so they can truly evaluate a purchase or sale. We repealed it for equities so it's time to do the same for fixed income.
All it does is delay the inevitable and creates a artificial floor on price that shouldn't be there anyhow. I think some people have "negative am" loans to begin with so if you tack on 20% decline in price and they'd never recover. Bailing would be the best bet. It's amazing how far out of whack the loan to income ratios (4.75x at the end of 2006) got over the last few years. That number went below the 3.25x average after the S&L crisis.
innonimatu
the resident Cassandra
- Joined
- Dec 4, 2006
- Messages
- 15,418
I thought that the revaluation of those securities was precisely the thing everyone was afraid of. And could any buyers really evaluate them on their own? That would cost, debt is far harder to evaluate that securities, and may even be unfeasible.
putting off revaluation isnt going to change the fact that the real value of those securities changed downward. badly. if the companies hide that fact they will be sued and if companies offer full disclosure it might be a nightmare for the individual.
regardless, the rating agencies didn't rate things correctly either out of stupidity or malice, and the status quo just isnt working. Offering FD for people like me who are fascinated with debt, debt risk, etc etc. would be like giving me a huge part time hobby.
Godwynn
March to the Sea
- Joined
- May 17, 2003
- Messages
- 20,524
And I am selling all my US equities tomorrow.
heres a pretty good article about why this subprime crap is only the start.
http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/
necrosmith
Warlord
- Joined
- Dec 6, 2003
- Messages
- 167
Government screwing with the free market.
I thought conservatives were against this.
Oh well, another thing they throw out the window.
I thought conservatives were against this.
Oh well, another thing they throw out the window.
innonimatu
the resident Cassandra
- Joined
- Dec 4, 2006
- Messages
- 15,418
Well, it is certainly funny to see the US government resorting to what amounts to price fixing. And unlike, say, your typical south american populist leader, the US is doing it for the sake of the banks, not the "poor homeowners".
Those "homeowners" (do they really own something
) would be better off simply handing over their houses to the banks and getting rid of their debt slavery - their mortgages are greater than the current value of the homes!
Capitalism US style: the government fixes prices to help the big banks and the other financial swindlers.
Those "homeowners" (do they really own something
) would be better off simply handing over their houses to the banks and getting rid of their debt slavery - their mortgages are greater than the current value of the homes!Capitalism US style: the government fixes prices to help the big banks and the other financial swindlers.
JerichoHill
Bedrock of Knowledge
Well, it is certainly funny to see the US government resorting to what amounts to price fixing. And unlike, say, your typical south american populist leader, the US is doing it for the sake of the banks, not the "poor homeowners".
Those "homeowners" (do they really own something
Capitalism US style: the government fixes prices to help the big banks and the other financial swindlers.
No. That's not what's going on here. Its not for the banks. Firstly, the Bush plan is complete and udder cow crud. It's filled with so many criteria's I think it will at max apply to maybe 250,000 homedebtors, not the million they say. Secondly, its a last gasping at by the Bush government to push a recession into 2009. There is not one single good economical or policy reason for this. The motive is purely political, and yes, I'll be just as critical of this as I would be any of a certain SA Dictator's policies.
Stapel
FIAT 850 coupé
I'm still puzzled by this phenomenon. The current interest rates are still relatively low. It's hard to believe it actually does cause so much troubles for so many people to pay their monthly interest.
One source (radio news here in NL) mentioned that some of these mortgage work like this: Pay 1% the first 2, 3 or 4 years, but pay extra interest thereafter. This would explain things a bit. Yet, the interest-rates, even if they include a make-up interest for the earlier years, should still be relatively low! I cannot grasp the idea so many people are effected by this so hard, that they can no longer afford to pay their monthly amount of dollars.
One source (radio news here in NL) mentioned that some of these mortgage work like this: Pay 1% the first 2, 3 or 4 years, but pay extra interest thereafter. This would explain things a bit. Yet, the interest-rates, even if they include a make-up interest for the earlier years, should still be relatively low! I cannot grasp the idea so many people are effected by this so hard, that they can no longer afford to pay their monthly amount of dollars.
Stapel--credit became easy and for the low quality borrower they were not getting 1% but more like 7% for 2 years and then the rate would adjust. Many of these rates are adjusting to 10-11% right now. In addition, a number of them did a 100% finance deal where they took a 2nd mortgage (instead of cash down) borrowing at 10-11% (floating). Now tack on a collapse in home values and you have a recipe for disaster.
Speculators have been the primary people crushed by this trend. See Las Vegas, Sacramento, Phoenix, Miami (FLA in general) and apparently Portland.
Speculators have been the primary people crushed by this trend. See Las Vegas, Sacramento, Phoenix, Miami (FLA in general) and apparently Portland.
Stapel
FIAT 850 coupé
Well, first of all it should be pointed out that a collapse of home values is never the principle problem. Not being able to pay the monthly amount is, I guess. But if these indeed rise to 11%....., well then I can grasp why stuff is so bad.
Yet, how in the world can mortgage loans have interest rates of 10-11%? That's odd, weird and uncomprehendable to me! US interest rates for mortgages are, today, mostly below 6%.
BTW, here in NL, mortgages up to 125% of the execution value of a home are completely and utterly common business for Joe Average Dutch Sixpack. However, banks are only forced to execute a residential home about a dozen times each year (on 16+ mio people, about 50% living in own homes).
So, there is still something I do not understand
.Well, first of all it should be pointed out that a collapse of home values is never the principle problem. Not being able to pay the monthly amount is, I guess. But if these indeed rise to 11%....., well then I can grasp why stuff is so bad.
Yet, how in the world can mortgage loans have interest rates of 10-11%? That's odd, weird and uncomprehendable to me! US interest rates for mortgages are, today, mostly below 6%.
BTW, here in NL, mortgages up to 125% of the execution value of a home are completely and utterly common business for Joe Average Dutch Sixpack. However, banks are only forced to execute a residential home about a dozen times each year (on 16+ mio people, about 50% living in own homes).
So, there is still something I do not understand
the assumption was that people would be able to sell it 2 years later before the higher interest rates kicked in.
Those 6% rates are for high quality borrowers not low quality. What's happened is in the past low quality borrowers got traditional loans from the FHA. No 100% finance, no “liar” loans (where people could claim a false annual income without fear that their mortgage lenders would check), "Nina” loans (short for “No Income, No Assets”Well, first of all it should be pointed out that a collapse of home values is never the principle problem. Not being able to pay the monthly amount is, I guess. But if these indeed rise to 11%....., well then I can grasp why stuff is so bad.
Yet, how in the world can mortgage loans have interest rates of 10-11%? That's odd, weird and uncomprehendable to me! US interest rates for mortgages are, today, mostly below 6%.
BTW, here in NL, mortgages up to 125% of the execution value of a home are completely and utterly common business for Joe Average Dutch Sixpack. However, banks are only forced to execute a residential home about a dozen times each year (on 16+ mio people, about 50% living in own homes).
So, there is still something I do not understand
or the worst of all kind of loans “Ninja” loans (for “No Income, No Job or Assets). These loans were especially popular with the spec buyer in the hot markets I mentioned before and now they literally do not exist any longer. In the meantime, jumbo rates (over $417,000) have skyrocketed regardless of the quality of borrower...bad, bad. So what you have is a three pronged problem...
1. a consumer with the easy money provided by these lenient arrangements. All the sudden FHA is their only option again.
2. Prices pushed to record levels as measured against personal income (5x national median income versus 3.2x which is more typicial).
3. More new inventory being built by developers (also with easy money) since 2000 than what was necessary. I wish I could show you the chart but I can't post it here.
If I were European, like you
, I'd use that strong currency and look for US foreclosures in Florida. You'll find some bargains over the next couple years.Similar threads
- Locked
