Just finished my refi today. We reno’d a duplex in Ferndale, fourth in a series of rentals. This property only appraised at 158k. It should have easily come in at 190k.
I put 65k out of pocket and after waiting 1 1/2 months for the refi I got a whopping 15k back. The banks are only giving investors in Michigan 60% LTV.
Talk about stopped in your tracks. Doesnt look like i’ll be buying much this spring.
The banks are complaining about excess inventory, the fed lowered rates, and now no one will give a dime to buy with.
Ever wish someone would just shoot you and make things easier?
I’m sure glad were not heading for a depression.
Edited 2/22/2008 5:52 pm ET by MSA1
Replies
what's the angle to get in at the local banks to buy their inventory? Friend in Tampa has been buying finished ready-to-rents for 50% from a local bank
Ask your friend. When he tells you please let me know. I'd love to get in on that.
I'm not sure what he's doing.
Surprised to hear thats going on in Florida. My banker tells me Mi & Fla are the worst right now. According to my banker i'm the last guy to get a refi on investor property from WA MU.
Is it a coincedence that WA MU rhymes with F U?
He's built a rep with a local bank. Probably the same up there. They don't want to own the properties and you never can tell what they'll take unless you make a lowball offer. Tell them up front that's what you're looking to do. They'll either be interested or not and little time is wasted at that point.
Thats fine. My problem is getting my money back out after I fix the house to go on to the next one.
I'm in the process of refinancing my house now. Applied on the 13th. Great credit scores for my wife and I with 30%+ equity in the house. Since the 13th, the local mortgage rate has gone up .625%. Was supposed to close on Monday. That isn't going to happen. Our application is good through next month so we'll check the rate daily and wait for it drop again. Combine that with a mandatory 20% pay cut 4 weeks ago and I'm not sleeping too well right now. The reduced pay is supposed to be temporary until we get a few new jobs but it can't happen soon enough.
boiler7904
Things aren't much better here in Minnesota.. I was laid off just before labor day and I haven't had a single interview in my field since.. Jobs outside of my field have hundreds of applicants.. I spoke to one company and they got 240 applications for someone with pretty specific talents.. those are applications that got past the electronic prescreening.. then personal whittled it down to 100 to be interviewed (I was #80) Never heard back from them so I guess I'm not hired <grin>
Houses here are going on their third birthday in some cases without an owner.. My sister-in-law bought a model home on a repo from the bank for 50% of it's original asking price and now she's sitting on it hoping not to lose too much when it finally does sell.
I know contractors who would love to have just 20% of their original earnings (not a 20% cut, a 80% cut) One is working at a local grocery store as a bag boy just to bring in some cash for food.. He's more than a year behind in his house payments and as long as he keeps sending them a little once a month they aren't going to repo because while he's an underperforming loan at least he's performing..
They are letting the owners live in their houses for free (no mortgage payments at all!) in MI if they keep the electricity and water on and mow the lawn. Bob's next test date: 12/10/07
That sucks frenchy.
Good luck.
"I never met a man who didn't owe somebody something."
Frank just told me that the bank is accepting a short sale on a house he knows about. The house would have sold in one day for 210k a few years ago. The bank is accepting 157k even though the mortgage for it is over 200k.
Bob's next test date: 12/10/07
I dont know what the banks are doing. On one side they continue to hemorage (short sales) but on the other their tightening way up (60% LTV).
Actually 60% was the best we could find right now. I'd love to help the banks and take some more of that inventory off their hands but I cant get my money back out of my houses.
The banks financial positions are probably a lot shakier than most people think. From the outside, it looks simple: make more loans to people who will pay the loans back...right? The problem is that they are subject to rules and regulations designed to keep them from loaning out more than they are financially able to service. Just like ordinary folks, they are subject to the limits imposed on them by their sources of income. They have a certain level of reserves that they have to maintain. For every dollar in reserve, they get to loan out "x" times that amount. The reserve amounts were lowered back in the 90's which authorized Freddie Mac and FAnnie Mae to back larger amounts of loans. The old rules which were designed to keep a lid on the lending industry were loosened up to unprecendented levels. The banks, with their sudden increase in loan amounts, went wild seeking new markets. Instead of using their new found abilities to loan wisely and conservatively, they opened the floodgates by using risky ARMs to attract borrowers. Fast forward to the inevitable problems with foreclosures and the compounded problems are now hampering the banks. They cannot loan money out because they can't meet the reserve requirements with so many non-performing loans which change the equations in a significant way. For every nonperforming loan they get off the books, they get to loan many times that amount but they also have to face the music. The "write downs" damage their overall credit rating and their stock crashes, which further reduces their net asset value. They are caught between a rock and a hard place: keep the nonperforming loans on the books or write the losses off and take their lumps from that point of view. Either way, they don't get to make loans because their reserve position is damaged. Bob's next test date: 12/10/07
I know why its happening, doesnt mean I have to like it though.
The way I see it the banks are reacting (behind the curve). They lost their shirts with all the bad loans, they have EXCESS inventory of something they didnt want to stock to begin with (your house), and now they have decided not to get bent over anymore so they are staying low on the LTV.
This way as values continue to drop they still have some head room.
It actually kind of raises an eyebrow when you pay attention to what the banks are doing.
I'd really like to talk candidly with a banker and see just how bad they figure this "non recession" is going to get.
The banks make money on interest and by lowering LTV's they're giving profit/interest away.
Is there a buy out clause in the contract on the new refi?
al
Edited 2/24/2008 5:21 am ET by eleft
Not sure right this moment. Why do you ask?
If so, you are required to pay a penalty if you sell property (close mortgage) or want to refi again.
Time to ask lender about it is now.
al
No. No prepay penality.
MSA1
I know two bank managers pretty well and both feel like a deer in headlites.. they have so much underperforming and non-performing inventory to dispose of that write downs are a joy.
They are as they say, "Out of trust" and willing to do astonishing things to bail. To give you an idea they have funded three used car lots to dispose of repossed cars. We're talking some high end cars like Vipers, Corvettes, and Mercedes etc.. plus tons of SUV's and etc.. They don't really care if the lot makes money because it's disposing of assests they had to carry on the books. They actually help the lot manager do the bookkeeping so at least on the books the lot is selling cars for near the banks investment..
They also have two marinas stocked with inventory's of boats they've repossed. The houses they juggle among themselves and realitors.. "selling" a realitor a house on the books and then taking it back after the bank audit is over.
they better be watching what they are doing. that is fraud and could do jail time for that. Of course that assumes they aren't going to jsil for finacing people who had no business writing those loans in the first place. It looks like hillary has a plan, just force the banks to not reset those arms etc. for 5 years. Just long enough to allow her if elected to be reelected before we are in it again. Your part of the country is a little bit different than most of US. Mi. is not in recession but depression.
I don't have the answers to these problems, I do know I would prefer the government not be involved in any bail outs.
Frammer52,
I suspect that is why those bankers have that deer in headlites look.
However since the fundamental problem was caused by the government loosening up the rules (They use the word deregulation) rules that were put in place because of what we learned during the depression. It's the governments responsibity to deal with the problem..
In a perfect world government doesn't interfere with society. However that assumes that everybody is honest and above board and follows the basic concepts of the bible et.al. (you know, the golden rule, do unto others as you would have them do unto you)
Since mankind isn't always good and decent government must have rules that we can all accept.. Rules that have proven value. Tested over time..
There will always be government involvement in our lives..
In case that bopthers you a lot.. realize that you are the government.. You and all 300 million of us..
True you won't always get what you want. You won't always get what is fair, but as terrible as that is it's the best society has come up with so far..
Personally, I wish that the games the banks are playing would stop. Then we could get a picture of where we are. The gov. loosing regs. should have had no effect. The problem as I see it is, some bankers ethics are in the toilet. @ yrs. ago, my dad and I had a discussion about these 100% loans in cal. etc, we new that sooner or later something bad was going to happen
The worst in all of this is the wall street bankers. They are the ones who dreampt up these stupid loan products. The second worst are the people that used these loans.
Mi. is a seperate case. Someone posted the unemployment #'s, they are better than I thought.
"Mi. is a seperate case. Someone posted the unemployment #'s, they are better than I thought"They're only better than you thought because so many workers have left the state. The other workers are classified as 1099 employees now. It's as bad as it was in 82 when unemployment hit 10%. The numbers don't show that, but it's just as bad and worse because back then, the foreclosure rate wasn't anything close to what is going on now. Bob's next test date: 12/10/07
Blue
Or they may be still in Mich. but off the radar. No activity on your social security security number because you work for cash or are living on assests etc.. can cause that..
Unemployment numbers are very misleading as well. You may have been earning $50,000 a year before and now you are making minimum wages part time but according to the numbers you have a job so the rate doesn't go up.
One number that would be really indicative of the strength of the economy isn't used at all.. I used to hear it once in a while but no more, it's the cash volume of the fed. I suppose since so much is credit card that number has become pretty meaningless.
So here's what I don't get. I'm not quite as bright as many that post here. I live in Michigan, the bottom of the barrel of this economic downturn. Try to go out to eat at 6 pm Wed. thru Sat. and you will wait for a table for an hour, went to buy a new TV (after putting it off for two years...) and I waited in line just to talk to someone about what I want, they were so busy. Grocery stores and supercenters are continually packed with paying customers. IF (note the capital letters) this is the worst it gets, we are doing pretty well. I don't personally know too many people laid off (I can count 2 in fact).
This doesn't mean we're all getting rich here, just pointing out that our society seems to expect instant wealth and full employment without a minute of discomfort in our lifestyle or income so when a slowdown does happen people tend to freak out and b**** and moan to no end. My parents made it through the recessions of the 70's and 80's and I'll make it through the great recession of ought 8.
My business is double fiscal ytd in sales and net income with a typical full year's sales on the books. As I started this rant, I'm no genious, I just work hard and try to make good decisions and so far it is working, praise God.
When I do hear of a contractor or sub closing their doors I wonder if the business was started on the right pretense, had a good business plan, was not started on borrowed unsecured credit, etc. NOT that it existing merely because the owner woke up one day and decided to start a business. A city of population 'X' doesn't NEED 100 different electrical contractors, 80 plumbing contractors, 50 concrete subs, etc. etc.
With the country's worst unemployment rate we still see bottom of the barrel applicants come to the door. Many turn around when they see the drug testing sign on the front door. Rarely do unemployed people come looking to us for a job that have actually improved themselves either during their career or during their layoff.
None of us are owed a job or our next project, we all earn it. That is the way it is and the way it should be. I mean no disrespect to anyone that is unemployed or underemployed. If you are here at breaktime you are probably of the mindset to continually improve your knowledge and skillset anyway.
And one more thing, reading through the CNN article that was posted earlier in this thread that the LARGEST industry in Mississippi, Alaska and DC is GOVERNMENT??? 21.2, 25.9 and 33.3% respectively. I expected DC but if 20-25% of the jobs in just two of the states on this list ("top" 10 in unemployment) are government employees what does that say about the size of our collective government??? Am I reading that correctly?
GregT
Michigan, there's now place like home. I do mostly restoration for fire and water damage. Sub thru several companies. Sofar staying busy.
Mom & Dad moved to NC for work reasons, Brother moved to NC for work reasons, Sister moved to NC for work reasons, other sister moved to St. Lewis for work reasons. I am staying for other reasons(I love Michigan).
Jennifer is going to make things even tougher for contractors in the coming years(new license regulations), but I see better days in the future. I am going to hang in here and try to make it work.
Russell
"Welcome to my world"
PS: It's hard to ice fish in NC and St. Lewis
I moved to NC for work...and nicer weather!
PS: I caught a 8# largemouth last saturday here. It was 63deg and sunny. No shid. I've caught rock bass here over a pound. You can keep your ice fishing up there!
"I never met a man who didn't owe somebody something."
Edited 2/26/2008 10:21 pm ET by Buttkickski
I think that may have factored in to my families decision to move also. I am kinda stubborn and I also don't like hot weather(70 max). Some say my skull is as thick as the ice is in Mich now.
Russell
"Welcome to my world"
I live in MI as well, all my work is in the Battle Creek area. Although I have gone to Kalamazoo at times, or even restored a historic home in Allegan, or Hastings. But for the last 10 years Battle Creek has been my home base.
This year has me a little worried, but I am a pesimist when it comes to work.
Most people that I hear that are out of work specialize in one aspect of new construction. I have never specialized and I think thats why I am booked for a few months.
I have put my name in every contractors hat that is any good. Commercial work or residential. I am going to do what I can to stay busy, even if I have to knock on doors.
My general area (Battle Creek) is the cereal capital of the world, Kelloggs, Post, Ralstons, Archway all are here. And these people keep me busy.
Kalamazoo is a college town (Western Michigan), they have offered free college to anyone who moves there and that has people flocking to that area. As they come in they either want a new home, or an old one fixed up.
If I run out of work then I am jumping ship as well, I hate winters here, it be tough starting over but I have t do what I have to do. And Granholm isn't making it any easier on those of us who want to stay here.
Woods favorite carpenter
"Kalamazoo is a college town (Western Michigan), they have offered free college to anyone who moves there and that has people flocking to that area."I forgot all about that. I was impressed when they implemented that decision a few years ago and it's obviously paying off dividends now. That is the type of governmental leadership that the state needs.Incidently, my daughter graduated from Kalamazoo College, which is down the street from Western U. She played 2 years of soccer there and loved her college experiences. Bob's next test date: 12/10/07
"That is the type of governmental leadership that the state needs."
Just to clarify the Kalamazoo Promise was a PRIVATE venture and the kids can go to any public Michigan university or college. A bunch of anonymous donors got together and came up with this. It is still a secret who they are but there are a few billionaires in the area that many speculate helped to bankroll this. I spoke to a 9th grade English teacher at one of the Kzoo public schools tonight and his thoughts so far are that the college bound kids are now going for an extremely low cost, the kids that weren't going anyway still aren't going but there are some on the edge that this has motivated to do better and give college a try. I do know several families in the Kzoo school district that refuse to send their kids to the Kzoo schools. Hard to imagine turning down free college for your kids but they believe that it is not a good environment for their kids. Hopefully this will change.
Had this been taxpayer funded, we all would have paid to send someone else's kid to college so they could FLEE our state for better opportunities and better weather.
I don't do residential so I don't have experience with how this has helped the local housing market but the papers say it has had an effect. Nothing negative about what these very generous people have done in my book. It has motivated the local taxpayers to pass a millage and we knocked down a large contract for one of the new buildings so far.
Kalamazoo's Promise has had a big effect on your area, I have seen it first hand.
People I know moving there just to become a part of it. ANd I don't blame them one bit.
It's only twenty minutes from here so I am not far from the ones that I know moved there.
It has kept your economy growing, residential and commercial, need more homes for the new masses that are moving there, commercial need more roads and public services for these people.
Good on these investors, I call them that because they have taken it upon themselves to invest in the futures of this state.
You going to be be headed to Battle Creek area anytime soon? Woods favorite carpenter
There's a guy here in Denver that's trying to put together a program for the whole city also.
peteschlagor,
California used to be very nearly the same deal.. get into college and it was very nearly free. Few bucks to register and maybe $15 for tuition per semester.. Books could be checked out of the libraries for a semester.
I have to come over sometime soon but haven't set a time. I'd bring my hammer but judging by your photos wouldn't be much help. You had the roof up by noon the day you started. I'd still be at it! It's fun seeing how the pro's do things.
It isn't about who can swing a hammer the best, it's about a group of guys working towards a goal.
Woods favorite carpenter
Anyone else get a letter from the state wanting every member of your LLC liscensed now? They want $225 for another licscense when I already have one.
So now I have to have two liscenses? One for me and one for my business, great. Might as well be a sole prop. Woods favorite carpenter
I didnt recieve any letter but maybe because i already have two. Their was a discussion recently on this (check 100963.1).
It is not required that you hold two, just that you hold one in your LLC name, however most guys I know do hold two in case you want to do a project outside your bussiness like maybe family, friends etc.
Personally, its probably wiser to keep both than it would be to reapply later if needed due to the tougher requirements that are coming.
I dont recommend going sole proprietor, An LLC is cheap to set up in Michigan and really amounts to a cheap liability insurance policy, having to hold a second license is just part of the cost.
"It is not required that you hold two, just that you hold one in your LLC name, however most guys I know do hold two in case you want to do a project outside your bussiness like maybe family, friends etc."What does that mean? Bob's next test date: 12/10/07
I believe he's talking about how many GF's the Deetroits mayor has at the moment...
Can you believe he sent the national Mayor's Conference away due to his "situation?"
Personally, its probably wiser to keep both than it would be to reapply later if needed due to the tougher requirements that are coming
What tougher requirements?
Michigan is instituting continueing education requirements, If you have been licensed for 6 or more years you will need 1 hour/yr. If less than 6 yrs, you will need 6 hrs/yr, For new licenses, it was quite a bit more, i dont remember exactly.
Okay, good to know. So, by continuing ed are you speaking of seminars and such?
I have had my MI license since '90 or there abouts.
I dont know what they are going to require, and they dont either yet! LOL
21 hours / year for the newbies. I think I just slip under. I got licensed in 02.
Thanks for the clarification.The leadership in Detroit peeved a private donor out of funding a very large educational inititative. After messing around for a year with their nonsense, the philantropher pulled the plug. Bob's next test date: 12/10/07
"The leadership in Detroit peeved a private donor out of funding a very large educational inititative. After messing around for a year with their nonsense, the philantropher pulled the plug."
Too funny (if it weren't so sad). I had forgotten about that. I think that guy wanted to build a charter school system to enable those stuck in the failing schools AT NO COST TO ANYONE as I recall. Who in blazes turns down any kind of help when your schools and community is failing so miserably??? Of what harm could he have done? This baffles me. I would never survive living on the other side of the state. I'd go nuts.
I had the pleasure of supplying stairs and railings to charter schools in Detroit, Youngstown, Cleveland and a few of it's suburbs. The neighborhoods around the schools were in pretty bad shape. Besides being very profitable work it was gratifying knowing that we were a small part of helping those families improve the lives of their next generation. I had witnessed a few families on a site visit crying tears of joy when finding out that their kid was accepted at the new school.
Boy this doesn't have much to do with fine home building but at least I feel better.
I live in Ann Arbor and, in the past, the city has been able to handle recessions better than elsewhere in Michigan. The University of Michigan and especially the University hospital system keeps expanding all the time. Also, a number of small hi-tech firms have been doing well here. The county always has the lowest unemployment rate in the state and, until very recently, the housing market continued strong.
However, yesterday, my copy of the Ann Arbor Observor arrived in the mail. There was an article about foreclosures in the city (115 in the last month). That's huge by our standards. It was interesting to note, on the map provided, that very few of the foreclosures happened in the inner city or in the older more modest neighborhoods surrounding the core. Most seemed to be newer more expensive homes a bit further out and in Ann Arbor township. I suspect that the older homes may be owned by retirees (like myself) who payed off their mortgages 10 years ago. I feel sorry for some of those younger buyers who may have been talked into buying more house than they should have, especially if adjustable rate mortgages were involved. It's tough for a young person to buy a house even in the best of circumstances.
Chip
My venting for your consideration …
<!----><!----> <!---->
We (the country) are not in a recession but a fatal depression helped out by the loss of the one day 9/11 war.
Costs of moving in, out and around our country have skyrocketed impacting what little is still produced here thanks to ‘free trade agreements’.
Cost of military actions in two countries that have no benefit to us.
<!----> <!---->
Some of the other stars that are aligning:
Huge trade deficits, specifically oil imports.
<!----><!---->North America<!----> can’t match the former third world’s potential market growth.
Free trade agreements.
Our uncontrolled, incompetent and corrupt government.
<!----> <!---->
And more venting …
<!----> <!---->
The oil producers can kill this country whenever they choose. That threshold is being tested all the time by the fluctuation of oil prices and will happen when the third world market is more profitable than ours.
You can't make money if you don’t produce a tangible product. We’ve opened our markets to global competition and did it on their playing field. The world pie is only so big, as the standard of living increases in the third world, it must decrease elsewhere. Research the unemployment rates of industrialized countries.
Free trade has allowed poor areas the means to improve. The current and future wage and benefit cuts we’re seeing are financing it. The housing crisis is only the natural change in valuation caused by the shift from the old to the new economy.
We don’t control our own government. There are more serious issues than which ball players took steroids. Never re-elect anyone.
<!----> <!---->
The earmarks are there. Research what ended the great depression and the trade and financial pressures on <!----><!---->Japan<!----><!----> that led them to the start of WW2.
<!----> <!---->
Geez … Sure hope I’m wrong but I feel a lot better … thanks guys
Time out!!!
It may feal like a depression to you but we are not even in a recession.
The free trade policies have worked to increase our standard of living.
We are still a large man. country even if you don't think
The obvious benefit of fighting 2 wars has been no action on our soil.
The oil co. do not set the prices.
you do make money with services, not ned. to produce tangible prod.
Unfortunataly you are string things together that don't go together to reach your conclusions.
relax, the economy will be moving quite well by end of third quarter of this year. I'm sorry things aren't goung well in your life, but the country as a whole isn't doing too bad.
Yes, what you say.
I tried to take wife and daughter to Pizza Hut/Wing Street for dinner friday night. Now parking in lot left and over 1 hour wait.
AppleBees, 45 min wait.
Walmart parking lot full.
Meijer parking lot full.
Times are not as bad as we make them out to be.
Russell
"Welcome to my world"
by the way, I am listening to news and last quarter gdp ROSE by .5%
grantedit is small, but it still is an increase!!!!
@ quarters of neg. growth=recession
we still haven't had 1
I really believe what is happening is just a correction of greedy big business'.
I think it will happen to the oil business also.
Many (not all) people that are having money troubles brought it on themselves by living on credit for everything.
I do feel for all people that this is effecting. Hopefully we all learn to not buy unless we can pay cash. (easier said than done).
Russell
"Welcome to my world"
the correction that is needed is on wall street. they keep thinking up these schemes that end up causing bubbles. This is where there needs to be a congressional investigation. There won't be because the big money people on wall street are big time donors to democrats.
frammer52
That last statement is sort of like yelling to a drowning man, relax and start swimming..
For one thing we don't know we are ina reccession untill the recession is here for a couple of quarters.. That's technical data that even the president doesn't buy.
We have a problem and while you might not be affected yet enough Americans are that the government is taking steps
Greg,
Kalamazoo is not affected nearly as much as the motor city counties (Wayne, Oakland etc.) which is where the majority of MI's population lives. Last I checked; Kalamazoo county was 235,000 and Wayne county alone was 2 million. Kalamazoo is more like the rest of the nation; Detroit suburbs are like ground zero.
Head east toward Detroit and check out cities like Redford, Garden City, Livonia, Westland etc. These were all built on manufacturing which is hardest hit in MI. Many of the contractors there are out of work as a result of the automotive industry.
How do you expect someone to commute all the way from Westland to Kalamazo for a job at $12 per hour with gas costing $3+ per gallon?
"I never met a man who didn't owe somebody something."
I am fom Allegan, but most of my work is from Kalamazoo. It is better than many parts of the state, but I know many contractors that are not working at all. Tough time all over. Not just in the building trades.
Russell
"Welocme to my world"
How do you expect someone to commute all the way from Westland to Kalamazo for a job at $12 per hour with gas costing $3+ per gallon?
I wouldn't.
Kalamazoo county was 235,000 and Wayne county alone was 2 million. Kalamazoo is more like the rest of the nation; Detroit suburbs are like ground zero.
Yes and to the extent that the government affects things it is very frustrating that they keep electing the same jacka$$es that contribute to the same old same old for all of us in the state. Sometimes I think Detroit (speaking of the City of, not the area in general) desires exactly what it has gotten due to it's own actions. They don't have to be victims. How amazing that city was before 1950. Truly amazing.
I'll be in the suburbs north of Detroit this weekend. I'll talk to the cousins and hear how they are doing. He works in the auto industry and his dad retired from same.
LOL you remind me of when the mayor was re-elected. My FIL said "no way they'll re-elect him" and I bet him dinner they would and sure enough I ate a steak dinner later that week. They LOVE Kwame in Detroit! He is everything Detroiters aspire to be.
"I never met a man who didn't owe somebody something."
"They LOVE Kwame in Detroit! He is everything Detroiters aspire to be."
Couldn't have said it better. And it speaks to the root of the issue.
I was shocked when KWAME was reelected. I've never seen a politician so blatently / openly dirty and loved at the same time.
He's our little "hip hop jack a$$"
Coleman Young was just as bad and re-elected 4 times IIRC.
"I never met a man who didn't owe somebody something."
In any state, there will be regions that are doing better than others. Obviously, Kalamazoo is doing better than Metro Detroit. That might explain your full stores and restaurants. Regarding the governemental employment stats: The government is now the largest employer in the US. Libertarians have been wagaing a war against this. Ron Paul is fighting against this. Maybe you can join us? Bob's next test date: 12/10/07
frammer52
Loosening regs was the whole cause of this problem.. The reason the regs were in place was because this sort of thing (with a slight twist) was done just prior to the great depression..
Hopefully I can explain this simply enough so you can understand what they did and why it's wrong..
IT's insanely complex if you let it be and what I'm saying isn't exactly correct but I'm not trying to quote banking regs BillHartmann, simply translating it..
Banks used to have a certain amount of reserves on hand so in case some loans went bad that aren't forced to call in good loans and start a panic or a run on the banking system.. (like the depression)
When they deregulated the banking industry they took off those reserves and let debts be called assests etc.. (not exactly but close enough)
That's sort of like you being able to claim your bills as assests..
What happened is with all those new found funds to lend out banks didn't take the time to be prudent, they lent to anyone..
Then they bundled all those loans together and got the rating agencies to rate the loans as good quality loans rather than basically the junk many of them were..
They then took all those bundled up loans and sold them overseas.. As defaulting occured foriegn bankers realising the bankers had cheated them refused to lend us money which caused a problem with the foriegn banks.. not having easy access to foriegn cash meant banks had little more to lend out.. So they got extremely carefull about who they leant to. Great credit and a significant amount of down payment was required..
The abundance of housing built on speculation starting in 2006 added to no further zero down loans meant we were over built.. amounts vary.. Here in Minnesota there was at least a 3 year and more realistically a 5 -7 year excess..
a loan to a bank is an asset
Frammer52,
Are you going to start quoting banking regulations? Then do so but be complete.. compare the before and the now. and show how the American public was better served by the changes..
I am not quoting regs. Just the facts sir.
they didn't take away the reserves, they lowered the requirements
To straighten it out, Prudent banks did not lend more of their former reserves. Most banks sell mortgage products on the secondary market and have for many years.
My understanding, the secondary markets became so huge, too much money, they lowered their underwriting standards. In the short run, this made them money. They forgot one thing. People have to want to pay their bills. They were lending to the risky, without requiring large enough, or any, downpayments.
The problem, again as I see it, goes to wallstreet. To greedy bankers, ignoring the rules.
Again as I see it, The lack of proper supervision by SEC, actually caused this.
The next bubble, again as I see it, will be the oil prices. Wall street sets the price on the futures market. Unfortunatly, the law of supply and demand is not working in the short run. It will catch up. It has become to easy to control oil prices without large money, in the futures market.
frammer52
Due to easing or restrictions (deregulation) Banks could and did lend easier and that is what caused the oversupply of spec built houses..
Yes banks have sold mortgages on the secondary market however in the past when those loans were bundled the rating agencies weren't under pressure from the banks to rate them AAA. so they could be sold at a premium..
We are in agreement in that the average person had little to do with this deception. Fault can and should lie with Bank management, senior management.. They were the ones who decided to go after the subprime business. They were the ones capable of putting pressure on the rating agencies to rate those bundled loans higher than they should have been. They were the ones who profitted most when they were sold overseas to foriegn investors..
However we (people like you and I )are paying the cost of fooling those overseas investors with money. Our income is either reduced or eliminated due to the problems in financing the housing market. That slow down in our industry is having repercussions across America..
Fewer refrigerators are being made so factories are closing, Less of us are buying new trucks and fewer of us are stirring the economic pot..
I don't agree with you that greedy bankers were ignoring rules. That would land them in jail.I don't agree that there was a lack of supervision by the SEC. I've read nothing about that anywhere but in your post. If you have something to support that, please offer it up. I'm willing to learn something and eat some crow pie. Bob's next test date: 12/10/07
you don't have to eat crow pie but, hedge funds, both foreign and domestic, are not regulated by the SEC. They are useing sofisticated investments to the detriment of the rest of us. The greedy bankers I am refering to are the wall street banks, not your local ones.
The hedge funds are controlling most of the movements in the futures market. When I watch CNBC, time after time I see ceos of oil refiners stateing that there is plenty of crude oil to buy. The two when tied together indicates someone is playing games.
for example: Chavez gets on tv and states he may cut of oil suplly to us from his country. What happens, there is a $5 movement, even though he would have a hard time selling to anyone else.
another example: the oil refinery that blew up, is that really worth a $7 rise in the price of crude?
The latest on CNBC today was the speculating on banks having taken to large of writeoff on the subprime mess. It almost made me pull the triger on buying some bank stock.
I wondered how long before the numbers were reworked. The last I heard, only 20% of subprime loans were in trouble. Subprime loans make up approx. 20% of all loans. take these numbers trogether and what do you get? In my little mind, I come up with an awful lot of performing loans.
I almost wondered if all the worry was political. hmmmmm.
"However since the fundamental problem was caused by the government loosening up the rules (They use the word deregulation) rules that were put in place because of what we learned during the depression. It's the governments responsibity to deal with the problem.."Exactly what did they deregulate that caused this.And what about the laws that congress passed that punished bankers if they did not make loans in certain area where the only buyers would be marginal..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
The houses they juggle among themselves and realitors.. "selling" a realitor a house on the books and then taking it back after the bank audit is over.
Hope they look good in orange jumpsuits
Here is something else to add to your list about Michigan:
http://www.cnn.com/2008/LIVING/worklife/02/25/worst.job.states/index.html
Also, the wife is in big finance stuff. The sub-prime domino effect is still ongoing although with things that most people don't know about, such as auction rate notes and SIVs, and doesn't directly impact them. She is thinking that credit will get tighter all across the board.
Better look for another notch in your belt to tighten it up with.
Impossible is just an opinion
I don't think I know about auction rate notes and SIVs. Can you explain? Bob's next test date: 12/10/07
Jim
Auction Rate Notes
Long Term debt with interest rates that reset periodically. Sometiomes weekly or monthly. Lot of it out there. New Jersey Port had some. Went to market to reset the rate and nobody bid. So the rate got up to about 20% before they sold it all.
Essentially buying a house on a credit card. And then rolling over the balance to a new card. Works well when rates are going down. Rates going up? Not so much.
It sounds like the Bond Insureres were a big part of the collapse. Nobody believed the insurers were/are solvent. So they won't buy the underlying issue
http://moneynews.newsmax.com/money/archives/st/2008/2/22/143932.cfm
SIV
Structured Investment Vehicles
that's all I know about em
Scrapr has it right.
The auction bonds are used for banks and investment firms that want there money tied up for short terms such as 5-7 days while still earning interest. The interest rates were usually on the 3-4% range compared to the fixed rate which is now at about 5.25%.
Wiki has a good definition of SIVs: http://en.wikipedia.org/wiki/Structured_investment_vehicle
So how does this affect you and me? Well a lot of municipalities have had their debt bonds parked in the auction rate notes due in part to their low interest rates. So with the interest rates jumping up as Scapr noted, and the bonds my wife handles jumping up to 15% from their average of about 3%, this means that you and I will being pay taxes/fees on them longer to pay off the bonds.
The second part of this is that you will see a lot of municipalities converting their debt bonds from auction rate to fixed. And I believe this market is in the $300 billion range. So with a lot of capital being tied up in this conversion, banks will have a lot less capital themselves to fall back on.
I do have some interesting discussions at the dinner table with the DW. I may not have married into money, but I married someone that knows how to handle money! Even better!
:)
Impossible is an opinion.
Any municipalities that had there money borrowing in these auction rate notes should be firing their money managers. They had to be crazy, unless these were for short term needs.
Better look for another notch in your belt to tighten it up with.
I ate my belt last week.
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"A stripe is just as real as a goddamn flower."
Gene Davis 1920-1985
I ate my belt last week.
Does it taste like chicken?
Impossible is an opinion.
LOL
"I never met a man who didn't owe somebody something."
I hear things are tight in Michigan however last year was my best year since I started in 1967. This year has all the makings of following suit.
Granted I'm not booked up for two years like I used to be but still enough to fill up the calendar months out. Most of the other shops I know have their hands full as well.
where are you? your profile is empty.
"I never met a man who didn't owe somebody something."
north central UP
That is funny cause last year was my best to date also. I'm working right now and I am getting calls but i'm not booked up by any means.