Subprime Storm Winds Will Keep Blowing
Source: USA TODAY
Publication date: June 19, 2007
Home foreclosures in Minneapolis doubled in 2006 and are on pace to double again this year. The number of vacant buildings is rising in working-class neighborhoods with high levels of subprime loans. Some families are simply walking away from once-secure homes.
“People are upside down; they owe more than their house is worth,” says Glennis Ter Wisscha, deputy director of Neighborhood Housing Services of Minneapolis, who counsels borrowers. Homeowners “can make it at the (initial) teaser rate, but the adjusted rate is going to go up $400, $800, $1,000 a month.”
But alas! we do like cowbirds and cuckoos, which lay their eggs in nests which other birds have built, and cheer no traveller with their chattering and unmusical notes. Shall we forever resign the pleasure of construction to the carpenter? What does architecture amount to in the experience of the mass of men?
–Thoreau’s Walden
Replies
There ought to be a law...
Against adjustable mortgages and those who provide them.
You can't convince me that this scenerio wasn't well thought out with visions of windfall profit when the poor slobs tried to make their ballooning payments, managed to do so for a while and then the lender gets the property back via foreclosure to be able to sell all over again.
I think they dangled the fat juicy carrot and downplayed the big stick they held behind their back.
Well, the supposed idea behind the ARM was that young buyers have rapidly rising income and so can afford a mortgage that gets more expensive over time. It's combining it with subprime practices that has made life hell for so many.
So convenient a thing it is to be a reasonable Creature, since it enables one to find or make a Reason for everything one has a mind to do. --Benjamin Franklin
I had an ARM, and it was good for me. I could not have affrded without it, the first four years or so were less expensive than a fixed rate, and then I re-wrote the mortgage when it turned around. I think the problem is greed on the part of the HOs when they go for too much, fail to educate themselves, and live beyond their means.The package of paper I had to sign full of disclaimers, consumer educations, informations disclosures, etc, etc, etc was half an inch thick. Any homebuyer who buys and signs alll that without reading and understanding it is crazy and asking for whatever they get.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
DanH added the kicker that I should have in my first post. The subprime practice.
Given the history of the applicants it should have been obvious that an ARM for a lot of those folks was a disaster waiting for a binding signature. There was no way short of a miracle that these debtors were going to increase their income to support the upcoming increase in the interest charged.
In addition, their history should also have shown that they would be unable to qualify for a refi before the other shoe dropped. I don't have to show proof of income to qualify for a refi but I do have track record to support that lending position.
It's unfortunate that many would have been stuck in rental mode, perhaps forever, but not as unfortunate as what is happening to them now as well as the snowballing effect it is having on the housing and lending business.
Cheap money defintiely hurt things as much as it helped provide jobs, but remember that on an overall basis, housing is almost the only thing keeping the economy perking for a couple of years.I think the subprime and the liars loans were the worst part, but still I think hte most of the people being pinched now were willing participants in their own execution procedure
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
You took two paragraphs to say...
Thems hosed,
I see it, daily....
Madison Co Ky has 15 a week in the paper...55k on a 119k note 0n the sherriffs step...10% down gets ya in, 30 days for final mortgage....pathetic, I could bargain agaianst this hovel, and be a slum lord.
But I won't, being a liberal conservative federalist Pa Dutch amish athiest catholic suni shiitee nuslim snugglissum loveum thiet in my faciaum and motor boating blurbbing nipplelister.
Ya, ougtta see us on Sundays
The package of paper I had to sign full of disclaimers, consumer educations, informations disclosures, etc, etc, etc was half an inch thick. Any homebuyer who buys and signs alll that without reading and understanding it is crazy and asking for whatever they get.
Gotta disagree with you on the understanding everything part.
I have been involved with enough closings (with my lawyer present) to know that many of the documents are written in a purposefully obtuse manner, usually in the lenders favor. When my lawyer challenges a clause usually the bank officer can't give a rapid reply, they have to run it by their lawyer who drew up the document and even then sometimes concrete answers are hard to get.
I do agree that a person should feel comfortable with whatever they are signing, but do not expect loan papers to be self-explanatory to a layman (or a lawyer sometimes).
Always remember that the bank is not looking out for your protection. First and formost they are going to protect themselves. Most of the disclosures, consumer education papers, etc, are there because lending laws require them. The laws were probley written because of past abuses.
I think we are going to see a bunch of new consumer protection laws in the next several years due to our present lending fiascos. Some of the problems were caused by the banks and some caused by clueless and/or greedy borrowers.
So you better be smart and you better be smart enough to know when you aren't smart.
<<< There ought to be a law...
Against adjustable mortgages and those who provide them. >>>
They real problem is folks using the equity in the homes as a credit card to enable them to live beyond their means. Refinancing over and over taking out more and more cash. Did they really think it would never end?
I'm getting tired or reading stories in the press that portray the homeowner as an innocent victim. The homeowner takes the cash, then walks away from the loan. Seems to me the lender is the victim, no?
I would add that we will all be victimized by the over exuberance of the lenders and the borrowers. Don't forget where all the money loaned came from. I also don't believe that the banks are going to make much money taking beat up houses back in a downturning market place. Both parties wanted to do business that they could not otherwise do, and now they are learning what happens when you ignore the obvious facts of the situation. Life has lots of ups and downs, guess which this is! Like Piffin, I did make use of an ARM once, and it worked, but I knew going in the risks and planned accordingly. Just think of the rental chances for some of the more adventorous Investors in our group.
Dan
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"What people will notice and remember is the broad brush of how how we act.We can aspire to reach our high ideals, or we can slide down the slippery slope towards the despicable." rjw
http://www.john-lennon.com/imagine-neilyoung.ra
http://WWW.CLIFFORDRENOVATIONS.COM
the paper here, The Oregonian, said real estate still going up 8 percent from last year, other newspapers across the country are calling wanting to know why, I think BEND , OREGON went up 15 percent
People leaving the northeast have to have somewhere to go? ;o)I never in all my walks came across a man engaged in so simple and natural an occupation as building his house. We belong to the community. It is not the tailor alone who is the ninth part of a man; it is as much the preacher, and the merchant, and the farmer.
-Thoreau's Walden
Forclosures in MA have gone through the roof. Yet, building is still going on in the $500,000+ house range. Was working in a small town last week where a massive condo subdivision is up for sale, builder went broke. And across the street, new custom homes starting at $1 million.
Go figure..l