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Author Topic: Should the government aid those with rising mortgage rates?
Vadon
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quote:
Originally posted by Stephan:
quote:
Originally posted by Amanecer:
I'll add in another "no". That said, I would love to see a basic financial literacy class become a high school requisite.

AMEN! I took a personal finance course by choice in high school, and it was the most valuable course I have ever taken. He taught me everything from doing my own taxes to balancing my check book.
We have that required at my high school. It was a mostly useless class to me because the teachers that taught it don't have a real degree in finance. They're all either business teachers or history teachers.

I actually transfered out of it into another because how my teacher taught it was "What morals do we hold in society? We need to have values and weigh our savings into account with that."

There was no direction and I got into a better class with a teacher that was able to explain things a bit better, but still...

Do I know anything on taxes, loans, equity, or anything like that from my class? Nope. I just learned to avoid high interest rates when you pay out, seek them when you're investing.

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Jutsa Notha Name
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quote:
Originally posted by katharina:
No kidding. If credit wasn't so easy to get, then housing prices wouldn't be driven so high. The solution is NOT to subsidize the false high prices with taxes.

ESPECIALLY since those who pay a mortgage actually pay LESS in taxes.

Do you really believe that homeowners pay less in taxes overall? That is, in urban and suburban areas in the country, patently false. They get tax incentives on income, and pay those incentives right back in property taxes and taxes on equity at the time of sale, among other things. It levels off, especially with homeowners that have children or other dependants. It is not unfair in the same way those property taxes going toward school budgets in localities is not unfair to homeowners without children. There are other factors that level off the loss / gain ratio.

Sub-prime lending on its own should be heavily regulated. The problems we are facing today with the housing bubble and sub-prime lending are based on two main things: the general lack of education for most people how to manage long-term finances, and the lending institutions who are quick to take advantage of that lack of knowledge. Even if the government wanted to aid those who have gotten themselves mired in a sub-prime mortgage debt, there are too many cases with too much money at stake for the government to be able to change much. The only assistance the government could give as a whole is to either provide partial help that will still not get the people who are troubled in the black.

Perhaps if the lenders were required to hang on to those liens for longer before subsidizing them at a profit, perhaps the trend will slow down and prevent a huge crash in the market. As it stands now, the largest danger isn't the people suffering individually from the sub-prime market, it is the economic implications as a whole on the housing market in general. Further fallout could prompt a spike of inflation or, even worse, a period of heavy deflation. Both create a risk of more recession and, if the problem continues long enough, depression.

I don't feel that it is the government's responsibility to bail out people in financial trouble, but the problem exists and the damage it could cause if the floor falls out could extend to those of us who have gone far to establishing financial stability and responsibility. For those of you with homes, this can affect your home's value depending on what happens. It can affect your ability to sell the home in the future. It can eventually affect your own interest rates. It is already a problem for more than just the financially irresponsible.

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Jutsa Notha Name
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quote:
You should never buy a house that is more than 2.75 times your annual income. . .
In a vacuum. Tell that to someone living in southern California, in or around New York City, or the San Francisco Bay Area, and they will laugh at you to your face. 2.75 the average annual income in those areas would barely buy enough space to park an automobile.
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Zalmoxis
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JNN:

Which is why it may make a lot more sense to rent in those markets -- esp. in the current climate.

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Jutsa Notha Name
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I disagree. In those markets, supposing someone can make the payments or at least manage the initial costs until refinancing brings down the amount of payments, the long term advantage to actually owning property in those areas is immense. Space is limited in those markets, and as the demand grows (and it is almost always going upward) the profitability is higher for owners of property in those areas compared to lower cost regions. There is also the added benefit of living closer to a region where there is a higher chance for greater income. It is not an easy investment, but it is a smart investment if someone is able to cover the monthly and yearly costs. There is risk, and if the risk seems too high, then certainly rent instead of buying. But if deciding to finance, then make sure to be aware of the risks and your ability to cover those risks. The people in those areas who hold on to those homes for 15-20 years may be paying more than seems sensible during the time they have the properties, but the benefits they reap later are a much higher guarantee of financial stability after retirement. It isn't a guarantee, but nothing is, not even a low priced market.
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scholar
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quote:
Originally posted by Belle:
I'm just floored that anyone would buy a home with an adjustable rate and a pre-payment penalty. Honestly, who does this? It's so obvious why those are two very bad ideas.

No prepayment penalty, but I did do an arm and I have no regrets. It is a 5 year arm though and I do not plan on being in the house that long (please, please, let me not be here that long). My loan company recently called trying to convince me to refinance to a fixed loan and we talked about my dream of graduation in a year and they were like, jeez, it would be stupid to do a fixed loan in that case. I easily qualified for a fixed loan (also qualified for 60,000 more than I used), but with the situation as it is, this was a better deal.
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Zalmoxis
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JNN:

Excellent points -- with the only caveat being that past returns are no guarantee of future results.

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rivka
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quote:
Originally posted by Zalmoxis:
Also -- the New York Times has a rent vs. buy calculator that's very cool: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

Very helpful. I was actually trying to decide whether to look further into the possibility of buying a specific condo today, and that calculator (especially if you adjust numbers in the Advanced section) was very useful.

Turns out the condo is 1.5 miles from the closest synagogue, so the point is moot. But it was an interesting exercise, and I will probably use the calculator again.

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Dagonee
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Top mortgage lenders to freeze subprime rates:

quote:
President Bush will announce this afternoon an agreement with major mortgage firms to freeze interest rates for five years for financially troubled homeowners -- a plan advocates say will help forestall a major foreclosure crisis but some conservatives say amounts to a bailout of people who made bad financial decisions.

The plan would apply to homeowners who got adjustable-rate subprime mortgages between Jan. 1, 2005, and July 31 of this year and are facing a sharp jump in their rates before July 31, 2010. It would also offer to put them on a fast track to refinance their mortgages through lenders or through state and local housing authorities, according to several people briefed on the matter who spoke on condition of anonymity because the deal has not been officially announced.

Eligible homeowners are those with enough income to pay their mortgages at lower rates but not so wealthy that they could afford the increase in monthly payments. The plan would be offered only to people who live in their homes, an effort to exclude real estate investors and speculators.

...

it appears no tax dollars will be used to subsidize the freeze on interest rates. That cost would be borne primarily by lenders and investors, and by homeowners who may have to pay a fee to modify their loans. The details will be released today.

There are some interesting complaints about the program in the article.

The details are not released. I can't tell if this is an actual interest freeze or if there will be negative amortization of the interest rate increase that would have occurred absent the plan.

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Mucus
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quote:

An analyst at the Competitive Enterprise Institute, a conservative think tank, said Bush's plan is bad policy.

"In some ways it's worse than a taxpayer bailout," said John Berlau, director of the Center for Entrepreneurship at the institute. "It pressures an industry to essentially alter the terms of millions of contracts, and it's going to make investors think twice about investing in America again."

It is really weird, but how do I end up agreeing with a conservative thinktank? However, the math does seem odd, mortgage lenders need to raise money somehow and if there is an agreement forcing them to reduce interest rates on the money that they loan out below "market rates" then it will be much harder for them to raise money in the first place. People would rather invest elsewhere in safer products with (now) higher yields.

Maybe you're right, maybe they will use a negative amortization to make up the money...

There is also:
quote:

Others, including Sen. Hillary Rodham Clinton (D-N.Y.), criticized the plan for not going far enough. Yesterday, the Democratic presidential candidate called for a moratorium of at least 90 days on subprime mortgage borrowers facing foreclosure and a five-year rate freeze on all subprime loans.

I thought the US was supposed to be filled with fiscally conservative folks [Wink]
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fugu13
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Mucus: this is an attempt to dissuade people from defaulting on their mortgages . . . and put them into what is essentially permanent indebtedness.
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TomDavidson
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I have a 7/1 ARM right now that will adjust in two years. Why isn't the government freezing my mortgage at its current low rate?
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Mucus
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I know, it makes sense politically. It just doesn't seem to make sense for those mortgage lenders. This would seem to greatly hurt their ability to raise funds and since their whole business is entered on raising funds and loaning that to others, I'm not sure how they would continue functioning.

But I could be wrong, the US financial industry seriously confuses me. (and many people in the industry itself too, it would seem)

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Dagonee
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quote:
It just doesn't seem to make sense for those mortgage lenders
It probably makes pretty good sense for them when the costs of foreclosure are factored in. Banks almost always lose principal on a foreclosure.

quote:
their whole business is entered on raising funds and loaning that to others
At one level, this is true. However, the disconnect between the people loaning the money and the people providing the ultimate funds for that loan - that is, the people who buy the mortgage-backed securities - is one of the factors that led to the problem.
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pooka
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So a cascade of loan failures wouldn't make people think twice before investing in America again?

I had one of these loans several years ago and going from 7% to 9% to 11% on a $100,000 mortgage pretty much causes one to start to feel no remorse about contemplating various desperate measures. Fortunately we were able to find a private lender. But contemplating it on today's prices is really sobering.

Did they make bad decisions? Most people get these loans assuming housing values will increase enough with a two year period that they can get a favorable refinance. We've just come through two years without increase, and decrease in many areas. At some point they probably hoped they could sell and at least come out even after two years, but that isn't even possible in many cases.

Anyway, I'd be all for folks being less greedy to begin with, but the consequences of not providing relief are more grim. When it comes to changing millions of contracts, one has to take into account that most of those contracts were not intended to run past two or three years.

I hope the freeze is what they say it is and not any reverse amortization. By the time people are in the position of needing relief, they are paying plenty of interest.

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Dagonee
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quote:
Did they make bad decisions?
Almost by definition, yes, and the reason is your next sentence: "Most people get these loans assuming housing values will increase enough with a two year period that they can get a favorable refinance."

That's a bad assumption, and an important financial decision based on that assumption is a bad decision.

In many cases it's excusable, because financial education in this country is pathetic. But even if it's not entirely the borrowers' fault, it's still a bad decision.

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msquared
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My brother is happy with the downfall of the sub prime market.

He owns an 86 unit apparmtment complex. The past 5 years have been tough keeping occupancy above 80% since every one was out buying houses, even those he knew could not afford it.

Now all those people who were renters before are coming back. He is at 95% occupancy.

msquared

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Mucus
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quote:
Originally posted by Dagonee:
quote:
It just doesn't seem to make sense for those mortgage lenders
It probably makes pretty good sense for them when the costs of foreclosure are factored in. Banks almost always lose principal on a foreclosure.

I don't follow. If it makes sense not to foreclose after government intervention then it still made sense for them not to foreclose even before government intervention. All this does is force the mortgage lender to not foreclose on loans that they "should" have. This money needs to be made up somewhere, there is no free lunch.

See (AFAIK, not in the financial industry and I could be wrong), the government through this agreement can force the mortgage lender to stay in place. However, it cannot force the investor in the lender to stay in place. The mortgage lender still needs to raise money on a constant basis to pay for the mortgages. Normally, this money is raised through short-term instruments such as money market funds and long term instruments such as corporate bonds.

Normally, since they are in a risky business, investors in the mortgage lenders have to be compensated for this with a higher yield. At a future point, when someone with a subprime loan stops paying higher interest, then the investor will stop getting that yield, then the investor can pull out.
In money market funds, this can happen instantaneously. In corporate bonds, this will just mean a whole lot of mortgage lenders defaulting on their bonds, not being able to sell new ones, and then shutting down anyways.

It is kind of similar to what happens with price controls. Sometimes, you can fix the cost of the product at the distributor level (the mortgage lender), but then it just means the producer (the investor) won't produce since it is no longer worth it for them and the system fails anyways.

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fugu13
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Ah, I see, you're misunderstanding the modern mortgage market, and the motivations behind pushing for this bill.

Mortgage lenders do not so much raise funds and loan them to others, but instead loan money to others and then sell the rights to the returns on the mortgage in securitized form (bonds) to others at a slight premium.

If a loan holder defaults, who is holding the bag varies. If not many default, only a few people who bought the highest risk portions of the mortgage are (mortgage bonds are organized into tranches, which basically works as follows: the one holding the first tranch gets the first $x paid on mortgages, the one holding the next tranch gets the next $x paid, and so on, so even with people defaulting, the people holding the less risky mortgage bonds aren't harmed) have problems, and they were the ones who invested in risk.

Now, if a good number default, theoretically the bond holders are insulated by the value of the property, since that will be taken and sold by the worst debtors, paying off the bond.

However, home sales are low, inventories are climbing, and prices are dropping. This means selling a house is no longer capable of covering the bonds the mortgage is involved in.

So, depending on the exact terms, when people default, the mortgage company is unable to liquidate for the sum they need to cover the bonds. Who is left holding the bag varies, but basically, both the mortgage lender and the bond holder are to varying degrees.

These holders are major investment banks, small towns in Norway, cities in the US, Florida schools, money market funds, all sorts of people.

Now, normally the situation would be stabilized by the financial markets, but there's a big credit crunch going on, related to the same situation. A large number of financial companies managing the bonds were keeping these bonds in off-book accounts (through a vehicle called an SIV), and thus were not accurately describing their risk to investors. As the true, lower value of the bonds being held becomes clear, firms are being forced to mark their value to market . . . and that value is currently very low.

This endangers a number of funds that were overexposed to SIVs, and is causing them to either be sold off at pennies on the dollar (and these aren't just subprime holdings), or infused with cash (which basically goes straight to payments, and so doesn't help the cash situation) -- and there isn't much cash to be had.

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Dagonee
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quote:
All this does is force the mortgage lender to not foreclose on loans that they "should" have.
This is not a law, but a negotiated deal which lenders are entering into voluntarily.
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Enigmatic
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I approve of this rate freeze, or at least I approve of all of the parts of it I understand. (If there are some missing details we don't have from the news here, I reserve the right to not like them. [Wink] )

From the analysis I heard on NPR before the deal was finalized, the main reason the lenders couldn't or wouldn't do this on their own is the competitive factor. Like, if 3 of the big 4 all did this they'd share the downside of it but the 4th one who didn't would still get some of the benefits. So with the government brokering the deal the big lenders can all agree to the same thing and none of them takes a disproportionate hit by being the first one to do it or the one to do it on a wider scale than the others.
(To the best of my understanding. I'm not an economist.)

--Enigmatic

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Mucus
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Dagonee: I must admit, that is the other part I do not understand. I can only guess that this deal will put off the problems for now but possibly at the cost of further prolonging the credit crunch. (Or what Enigmatic said, that kind of makes sense)

quote:
Originally posted by fugu13:
Mortgage lenders do not so much raise funds and loan them to others, but instead loan money to others and then sell the rights to the returns on the mortgage in securitized form (bonds) to others at a slight premium.

I think you're helping, but I'm sot sure. So what you're saying is that they loan out money first, and then sell bonds in order to make up the money afterwards, rather than beforehand? Ok.

What stops people from just refusing to buy these bonds from this point onwards if either the yield goes down because people are paying less interest or because of the risk of default?

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fugu13
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It isn't so much a do one thing then do the other situation; they're always in the process of making loans and issuing bonds (which are backed by specific loans, so the loans are first in a sense, of course).

Stops people? They've already stopped buying certain sorts of bonds; the mortgage lenders are thus being more conservative about mortgages. The problem is (partly) that people already have bonds. The bonds that are owned as investments, often highly leveraged investments, by various institutions are the issue, not whether or not new bonds can be sold.

New mortgages and new bonds are essentially not an issue (except that their numbers are declining). Mortgage brokers are finally doing the sorts of due diligence they should have been doing for years. There's nothing inherently wrong with the sort of bonds, just with how people were treating them (on both sides). Now that they're being backed by people who actually have the creditworthiness they are marked as having, new bonds are just fine.

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fugu13
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Enigmatic: the big problem is, this is going to leave a lot of people in houses with loans they will never be able to pay off. Once this situation is over, those people will essentially be at the mercy of the mortgage lenders, under this deal. Right now they have a lot of leverage to gain actual readjustment of mortgage amounts, keeping them able to pay the loan off in the long run. By acting unilaterally 'in the interests of the loan holders' the mortgage brokers are able to do an end run around the borrowers' leverage. Anyone who tries to push for better terms that don't make them permanently indebted will be pilloried for trying to exploit the companies that have 'already made such a big concession'.
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Mucus
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fugu: I think you're somewhat missing the point of my question. I'm not asking about new bonds to cover new mortgages, I'm talking about new bonds to cover the existing subprime mortgages.

By extending the lengths of and lowering the interest rates on the mortgages, it means there will come a time when the existing bonds will expire before the mortgages expire and people will want their money back. The lender will need to sell new bonds to continue covering the mortgage and I kind of doubt that the investors will want to continue buying these risky bonds, especially if the interest rates are lower.

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pooka
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What, does the rate freeze carry with it some kind of pre-payment penalty? No, the opposite:

quote:
. It would also offer to put them on a fast track to refinance their mortgages through lenders or through state and local housing authorities, according to several people briefed on the matter who spoke on condition of anonymity because the deal has not been officially announced.

As for all the worry about a free lunch, these loans are already at interest rates well in excess of market rates, because the sub-prime borrowers generally took inflated rates to begin with due to their poor credit and will have had 2, 4 or more percentage points increase.

No one makes these loans expecting people to stay in them, so I don't feel these investors are being robbed.

Granted, there are markets where people are going to wind up in indentured servitude, new construction where the house is valued $100k less at the completion of construction than when earth was broken. People who started out in a reverse amortization situation will continue in one. But not everyone is in reverse amortization.

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Enigmatic
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quote:
Right now they have a lot of leverage to gain actual readjustment of mortgage amounts, keeping them able to pay the loan off in the long run.
How does that work? I understand that you can refinance to lock in a better rate. But short of paying down additional principal (which I assume the sub-prime borrowers don't have) how could someone get the actual amount of their mortgage adjusted?

I think the point of the rate freeze is more to give people time to refinance if they need to, for the market to improve a bit so that if somebody bought too much home maybe they can sell it in the next few years during the freeze. I think that stepping in to reduce everybody's mortgage amount does sound like too much of a giveaway, personally.

--Enigmatic

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fugu13
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Mucus: what new bonds? Those mortgages are already securitized. Unless you're somehow going to get someone to refund or forgive the bonds, there're no new bonds to issue.

These bonds, effectively, are parts of the mortgage holder's obligation. As long as the mortgage holder has an obligation (which is as long as they're paying on the mortgage), the bonds exist.

And if it were possible, there would be no problems selling the bonds (beyond the short term cashflow issues). The problems with the bonds were the disconnect between asserted quality and real quality. Bonds backed by subprime mortgages are a perfectly reasonable thing, they just need to be treated with proper caution.

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Javert Hugo
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quote:
I think that stepping in to reduce everybody's mortgage amount does sound like too much of a giveaway, personally.
No kidding. Where's the line to recieve a free down payment on a house?
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theCrowsWife
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quote:
Originally posted by Katarain:
I refuse to watch Flip This House because of exactly that cultural climate. I don't know if the show is making it worse to afford a home or if it's simply feeding off of the greed already out there. It doesn't matter to me. Either way, it represents exactly what ticks me off so much.

I know this is from several months ago, but I think the better show to watch is "Property Ladder." Most of the people on that show actually fail to sell their house for a profit (many fail to sell it at all.) I think this show gives a much more realistic look at flipping than Flip This House where every episode is a success.

We managed to buy in a buyer's market and sell at the tail end of a seller's market, so we took our profit and paid cash for a much cheaper house in a poorer part of the country. At this point, any sort of real estate bust is in our favor, since we aren't looking to sell our house but we would like to pick up some additional property.

--Mel

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ketchupqueen
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We could have got qualified for a house when we moved here (one of those Very Very Bad mortagages.) I know someone who did, and is losing her house.

I'm so glad we knew enough not to. We're betting that by the time we can pay off some more debt, save closing costs, taxes, and money for the initial lump payment on a VERY GOOD home insurance policy, and maybe a 1-3% down payment (because after all, this is CA), probably in 2-4 years, we'll be able to buy a fire-sale or foreclosed small house or large condo (forclosures are JUST starting in our area...) It's a different kind of betting, but still betting I guess. But the difference is, if we lose our bet, we will have savings and still have a place to live (albeit a rental.)

I'm thinking that's a better kind of bet.

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The Rabbit
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I wish it were as simple as a few people making bad financial choices. This is a systemic problem that involves not only people making bad financial choices but dishonest morgage brokers who diliberately misrepresented the risks both to home buyers and investors and a loop whole in government regulations that allowed them to get away with it.

What really gets my goat is that because of this lending crisis, my home value is ikely to drop and my retirement plan is aso likely to take a big hit even though I made very good financial choices.

They are estimating that 1/3 of all American homes will loose value as a result of the subprime morgage defaults. Add to that all the losses in mutual funds that bought those morgages and the only Americans who won't be loosing anything in this debaucle are those who don't own either homes or pension plans.

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Dagonee
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quote:
I wish it were as simple as a few people making bad financial choices.
I don't think anyone said it was as simple as a few people making bad financial choices. But many of the homeowners who will benefit from this new plan undeniably made bad financial choices. There are other contributing factors, certainly, but if we don't address the appalling lack of financial knowledge in this country this same type of problem will happen again, although probably in different form.
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Mucus
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quote:
Originally posted by fugu13:
Mucus: what new bonds? Those mortgages are already securitized. Unless you're somehow going to get someone to refund or forgive the bonds, there're no new bonds to issue.

These bonds, effectively, are parts of the mortgage holder's obligation. As long as the mortgage holder has an obligation (which is as long as they're paying on the mortgage), the bonds exist.

AFAIK, when the bonds are sold as part of a mortgage backed security they have a maximum date of maturity. The lender will enter a contract that says that the person that buys the bond will get their money back on that date.

Thus, if mortgage lender extends the period of the mortgage, the corresponding bonds will expire and the money returned to the investor before the borrower has finished paying off the mortgage. After all, they cannot just ignore the contract that they have with the person that bought the bond simply because they modified their contract with the borrower.

(Could you imagine the reverse? Would you ever loan money to someone without some guarantee as to when you'll get it back? )

At that point, the lender will need to sell a new bond to cover the difference in time periods.

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erosomniac
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I want the government to insure my bet the next time I double down my eleven against the dealer's six.
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rivka
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Rabbit, how much of the lost value was only created in the first place because of the ridiculous prices buyers were willing to pay, because they took out mortgages they couldn't afford?

House prices aren't so much going down as going back to normal. [Razz]

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pooka
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KQ, why would you need to make an initial lump payment on a homeowners insurance policy? I honestly don't know. I was pretty sure that was one part of my financial life where I am not abnormal. House insurance is like car insurance and not like whole life insurance. My mother used to say that when she worked in insurance, none of the insurance salesmen had whole life insurance, they all used term. Now that may be because they knew the products better than their customers, or it may be that salesmen are by nature optimistic people.
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Lupus
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I don't think that people should get bailed out of loans they can't afford...because they should not be in the houses in the first place.

When you buy the house, they tell you the rates...and that they could go up if you don't get a fixed mortgage.

If they government starts bailing people out, it will cause the market to stay artificially high for a longer amount of time...but I think it will cause more problems in the future. Sure, if there are a lot of houses that are foreclosed on, it will cause a drop in the market...but that is simply correcting the market to where it should be. The government can't keep it propped up forever.

That being said, I think the prepayment penalties should be voided. Yes they are in the contract, but I think many brokers who put them in where putting people into homes that they knew they couldn't afford...and helped cause the problem to start with.

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fugu13
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If the lender chooses to issue a new bond, I foresee no problems. Particularly as anyone who is still making payments at that point has proven themselves fairly soundly, so it might not even be that highly discounted.

Rabbit: the issue for me is, homeowners are in a situation to negotiate far better deals than these (security holders are desperate for reasonable revenue streams in the near term). This aid keeps people in homes who can't afford to be in them in exchange for permanent indebtedness (retirement while making a mortgage payment is going to be fun), and makes it harder for those who can afford to be in homes in the general to leverage their ability to secure other finances to improve the terms of their mortgage.

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Icarus
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Let me join the trickle of people saying that not every ARM is an awful decision.

I bought my house six and a half years ago with a thirty year fixed mortgage (and a substantial down payment, so I had equity from the start). Then property values skyrocketed beyond all rational expectation, giving me tons of useless equity, but killing me with outrageous property tax increases. Suddenly, even though I had a fixed mortgage that I could afford when I bought the house, but I could no longer afford to keep up with. I had reason to believe that my income would eventually rise to the point where I could make those payments, so I got an ARM with a lower interest rate and a five year fixed period. This made it possible for me to make my monthly payments, and I did it fully expecting to refinance in less than five years. Three years later, I had repaired the damage to my credit caused by my inability to keep up with my rising mortgage payment, and I refinanced to another thirty year fixed loan. Okay, yes, I "lost" six years, when you consider that six years before I had a thirty year loan. But I was actually able to get a lower interest rate than my original one, even after the increases in mortgage rates. And my income did increase as I had reason to expect it to. The three years I spent with an ARM allowed me to keep my house, by basically freezing/lowering my payments until the rest of my situation stabilized--until my income caught up with my property taxes and insurance rates.

As for the topic here, I'm inclined to agree with Dag. I feel badly about it, like I'm being uncharitable. But I fell into a hole and worked my way out. I took a risk or two, and nobody promised to bail me out if it didn't work out. It doesn't seem right that taxpayers like me should pay to bankroll other people living in houses they couldn't really afford. When I got an ARM I knew the risks and I made sure I got out when the time was right.

I reckon I'm about as liberal as rivka is.

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scholar
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If people don't have a home when they retire, they will still be paying rent, which is in some ways unstable. I live in a location where rent is as high as my house, so perhaps my perspective is off. It seems like owning a home in the long term is a better thing financially for poor people. Of course, I am assuming you buy a house that is smaller.
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Jhai
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quote:
Originally posted by The Rabbit:

What really gets my goat is that because of this lending crisis, my home value is likely to drop and my retirement plan is also likely to take a big hit even though I made very good financial choices.

This is true, though, generally with all housing markets and all financial situations. If your neighbors don't keep their house looking nice, your home value goes down. If your city doesn't keep things running smoothly (low crime, nice neighborhoods, plenty of jobs), your house's value goes down. If the economy does badly because of widespread poor financial decisions(dotcom bubble, anyone?), your investment portfolio will go down.

I mean, isn't being affected by others' decisions, good or bad, a major part of living in a society?

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Icarus
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Unless you're planning on retiring in the next five years, I bet this doesn't make that big a difference (except possibly insofar as your retirement plan was artificially inflated before). Real estate prices don't really seem to be going down all that much. It seems like a slight dip before it returns to its usual pattern of rising gradually (instead of meteorically). Kind of like the stock market.
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rivka
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quote:
Originally posted by Icarus:
I reckon I'm about as liberal as rivka is.

Really? I think you're somewhat more liberal than I. Although maybe not fiscally.
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Icarus
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Who knows? I don't think of myself as all that liberal, but I guess it's in the eye of the beholder.
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King of Men
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quote:
Originally posted by fugu13:
These holders are major investment banks, small towns in Norway, cities in the US, Florida schools, money market funds, all sorts of people.

Correction: Small towns in Norway whose politicians are total and utter idiots, incapable of reading contracts before they are signed; but quite well able to blame everyone else for their incompetence and demand that the state bail 'em out. Pshah. I'm surprised nobody there has thought of asking the US government for a bailout yet.
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ketchupqueen
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pooka, just 'cause we have a broker who can get us really good rates if we pay once a year instead of spreading it out.

So if we save up the first year's payment, we can get really good coverage (more than required for home value) for a lower rate, then save the rest of the year toward the next year's payment, etc.

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ketchupqueen
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(And I would not buy whole life insurance, either. Muuuuch more beneficial to buy term.)
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Dagonee
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quote:
Let me join the trickle of people saying that not every ARM is an awful decision.
Just to be clear, my statement was far less general.

It is an awful decision to buy a house on terms that require an increase in the home price within two years in order to be able to refinance, when the alternative to refinancing is not being able to make the payments.

That's a small subset of all ARMs.

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fugu13
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Yep, the small towns were idiots. Though the risk exposure disclosure was insufficient in numerous cases, due to the ways SIVs are structured under disclosure laws.
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