I believe I heard one report that said the "subprime" (high risk) loans could directly/indirectly cause havic for some large hedge funds (the same ones giving out million dollar Xmas bonuses). I don't think the hedge funds hold the mortgages just stock in the companies that hold the mortgages. So bailing out the mortgage holders in effect would bail out the hedge funds wouldn't it?

I had a close friend who was a senior vice president (sales) for Freddie and she basically said that the "public" would be appalled if it were aware of some of the things (besides the recent accounting scandals) that went on.....me, I was just in awe of her no limit expense account......first class air/limo to & from work/business trips to ski resorts, etc.

When I single, I bought a small house that I figured I would eventually move out of and started off with a 7 year balloon mortgage. But I was still there at 7 years, so I figured I would be out pretty soon and got a 3 year ARM, with the first rate change not scheduled for 3 years. By that time I was married and figured kids would be on the way and I would be out again before the 3 years was up, so the 3 years at a low rate sounded good. But I ended up staying for another 4 years instead. I was convinced that I was going to get messed up when the ARM rate changed, but it was 2002, and guess what, my mortgage payment went down.

So alternative mortgages like balloons and ARMs have worked out for me in the past to save a few bucks, but I agree getting in on an ARM with mortgage rates at historic lows would worry me. That worry, plus the idea that I was planning on my second house being a long term thing, made me choose a 30 year fixed rate loan.

The interesting thing about the ARM that I got was that even though the rate for that loan was lower than the fixed rate, I think they still made me qualify for the ARM as if I was taking out a 7% fixed rate loan. I guess they figured that I would have to be able to afford some rate increases down the road. If people are getting themselves into such trouble, I wonder if the banks at some point stopped making people qualify for a higher fixed rate like 7% when applying for the ARM? Or maybe they lowered that 7% bar to something much lower.

How about all of the home equity loans that people have been taking out. Want a new big screen TV, vacation, or some other toy? Just take out a home equity loan. Sounds simple but assuming that you are actually going to be able to make the payments, you are going to be paying back the loan for 20 or 30 years on a short term or disposable item which is stupid especially if you are already deeply in debt.

The banks didn't care because they calculated that the prices of houses would keep going up and up so even if the home owner borrowed 100% of the value of the house today, it would still be worth more than that tomorrow. Now house prices are dropping and many people have mortgages well in excess of 100% of the market value of their home.

Credit is a good thing but unlimited or uncontrolled credit is turning out to be dangerous.

Wayne

Tampa,
I guess your right.

I still believe that the Fed should NOT lower rates right now. It is because of the past zero% loans that a lot of people are in trouble. I think it would cause people to get back on the borrow, borrow, borrow boat. That is simply not good for anyone, except the credit card companies.

If the Fed would leave the rates alone and let the losses be taken by the mortgage companies, and yes many, many homeowners. I think it would create a more stable outcome. I do think they might need to lower them in the future to help get the housing market back in line.

Once the mortgage companies take back the millions of homes they will have to insure them, maintain them, pay taxes, security water electric, winterize etc they might just realize they have created this themselves. We may as well face it, things will not get better until the mortgage companies get their act together.

I had a client yesterday that had A+ credit, 22 years on the same job as an engineer. 30% down. 8.15% interest 30 yrs fixed. The bad part is they took the appraisal and would usually finance 80% of appraisal. No longer. They took 100 % of the appraisal, and deducted 20% from that, then they would only finance 80% of that figure. That is just stupid. Now the mortgage companies are in panic mode and have basically shut down all home loans. I realize there are other companies out there but it is just stupid what they are doing now.

You would be surprised at how many people I see that have new cars with zero % interest rates. They are on VERY short notes. For example a $65K Mercedes on 18 months. Payments were almost $4,000.00 a month. The guy was trying to buy a new house, so he could then borrow the equity and pay off the car. I still can't figure than one out.

At least in this area, the Fed's low interest give aways produced 1000s of speculators. I know several school teachers who bought/moved into/sold a house every year and others who purchased 2nd, 3rd and 4th "investment" properties using the Fed's low interest cash . In fact, the VP I knew at Freddie purchased 12 houses in Oakland........a big part of the subprime mortgages gone bad are because the mortgage is now 1000s x the value of the property. We had condo's here double in price over 2 yrs. and are now on there way back to 1/2 price with full price mortgages.

Yes.
In Florida they had people standing in lines to buy ten condos at a time. Ten was the most one person could buy at a single purchase. They would go get back in line and buy ten more. Now those people are the very ones screaming they have lost their retirement money.

Most all builders, me included now have investor clauses in our contracts. if you own one home it must be sold and closed before you settle on the new one or you must put 50% down. This is, I agree too late but it is what helped stop the runaway train.

It has hurt us all. A lot of people blame the builders for this mess. We were just building what people were buying. Were there 2 and 300% mark-up like everyone says. No, in fact our cost went up faster and higher than the sales prices did.

The general concept was people would buy a home and by the time it was built they would sell it. They money was to be made because the new ones for sale at a later date would cost more than the brand new one that was just finished. Yes that is how it worked. And a lot of people made a killing.

Now I know of builders in Florida that are trying to sell homes at $250K less than they cost to build. I put together communities in Naples and Fort Myers and I know the homes in that area cannot be built for what they appraise for.

A great article on mortgage companies and them being suid.


http://money.cnn.com/2007/08/16/real...ents/index.htm

Thanks Steve. (the bribe was mailed today)

I guess I didn't word it correctly (normal).
I wasn't suggesting that anyone that can"t pay cash for their home shouldn't be buying.
But that people who can not put down 20%,at least,should wait until they can.And while they are saving up,to get their credit sorted out.

They have found that people that put down less than 20% are the most likely to default.Less invested,less to lose.
They end up with "piggyback mortgages" to make up the 20% and a lot of the lenders stopped requiring mortgage insurance on this same loans.The lenders figured that housing prices were rising so fast that they would be safe.
These people are accounting for 43% of the defaults.

They way I am suggesting is :
1.At least 20% down
2.fixed rate loan. 15 years if at all possible.
3.minimum debt or none before getting the mortgage
4.A monthly payment that is no more than 25% of your take home pay. The point in this is so you have some breathing room for those certain unexpected expenses.To beable save for the kid's college and your retirement.Plus being able to have a life.

One other thing,schools do a pretty good job of preparing people to make a good income. They don't do $hit in teaching people how to keep some of their income.

Ok, maybe I at least understand this part?? Countrywide has a lot (???) of assets (mortgages) that may be worthless, i.e., a $500,000 mortage on a $300,000 house, that can't be sold at any price (now anyway), is worth ???
Countrywide can not borrow directly from the Fed (ineligible). The Fed loans money to Bank of America at 5.75%. BoA buys non-voting "preferred 7.5% stock" in Countrywide with an option to buy voting stock at a 20 percent discount over the current market price. BoA waits to see whether or not Countrywide can be saved by the Fed pumping money out (or lowering the interest rate to regenerate the housing bubble. Either way, BoA is the beneficiary of the Fed's discount. If Countrywide's assets somehow balloon again BoA buys Countrywide with the options it acquired (using the cheap Fed money). If Countrywide's assets decline, BoA still gets (maybe) to collect a bonus on the cheap Fed money.

Actually, it's not a FED increase in rates that will cause homeowners to loose their homes as any increase will be relatively small, it's the fact that billions in sub-prime loans are scheduled to adjust to market rates in a few months and throughout 2008 - billions and billions. That increase may be, for example, from 2% to 8% either immediately or over a period of 6 months to a year. That's a huge increase for a homeowner, but it's also an increase that they signed up for.

This entire issue is simple - those who were involved in the transaction - lender and buyer need to come to terms, without help from us - the lender either lowers the rate adjustment or takes the house if payments are not made. The buyer simply purchased something that they cannot afford, oh well.

This mess makes me glad I paid off my mortgage. Right now I'm completely debt free! People seem to be living way beyond their means and are getting burned now. Maybe I'm just lucky to live in a part of the country where housing costs are more reasonable. The biggest mortgage I've ever had is $50,000.

CDC
yes that is true a lot of people bought homes they could not afford. But if the FED lowers rates they will still have those homes, and it will only put of the inevitable. Or will it?

What it would do is give these people time to get the mortgages refinanced and into a fixed rate loan.

I really don't think the Fed rate has that much to do with it any longer. It is just being used as an excuse. The mortgages are written to "adjust" maybe someone should tell them that could also mean down and NOT just up.

... getting back to the "why"... I know that a few years ago when I bought in, the sub-primes were a way to get into MORE house than would normally be affordable. I think most were expecting (or were told) to ride the appreciation wave for a year or two, then do a re-fi with their now superior loan to value ratio. That was before the bottom fell out of the market.

I did two re-fi's in the first year. I found it amusing when they asked how much cash-out I wanted. NONE!, was my emphatic answer. I wanted to build as much equity as possible.

I tried to make sure that I didn't get too carried away, price-wise. I hate my house, but at least I can afford it... even with a fixed rate. Relocating from central Florida to Southern California was a bitter pill to swallow, housing-wise. My mortgage tripled (too bad my salary didn't)... and that was for a smaller, older home that needs tons of updating.

My strategy is to go the interest-only route for a few more years. Now, I'm not out spending that money that would've gone towards the principal... I'm investing it for a little bit of return. With my current mortgage, I don't see the point of paying down the principal right now... so I'll continue to get the maximum tax advantage in the meantime. When my note starts to adjust (fixed for 5 years), I'll either re-fi into a fixed rate or just let the rate adjust. Either way, I'll dump some cash in to keep the payment within my comfort level (if I'm still in this house). Right or wrong... it's a plan.

But yea, the teaser rates are everywhere. I get 2 or 3 offers a day, wanting to re-fi my house. Most all are of the negative amortization type... which scare me. I guess a lot of people are more tolerant of risk than I. I see so many people living WELL beyond their means. That "live for today, don't worry about tomorrow" mentality is quite popular in Southern California. I just don't embrace it. I was out of work for 10 months before I got this job, & luckily I was able to ride it out because I maintained some "rainy day funds"... and it rained for quite a while! Luckily, I emerged with my 812 credit score in tact.

anyways... of my soapbox. It's just that I can see why people would go for the sub-primes... (as long as the market is skyrocketing)

Fred,
That's true, however most of these exotic loans were refi's and not purchases. Most people do not know that. Most of the loans that are now defaulting were originally set up on a fixed rate loan. They were then refi'd into the LIBOR ARM. The concept was to lower "required" payment amounts and then to make annual principle payments. This would shorten the term and the note would pay off earlier than the note life.

Also people have to live somewhere. These houses going into foreclosure will be occupied by other people who lost their homes the same way. What it amounts to is a lot of people credit will get screwed up and everyone will play house swap.

I guess you're aware that you can get the exact same tax deduction giving to a charity.The two are treated the same.

25% tax bracket = $25 deduction for every $100 in interest paid or $100 to charity. YOU CAN GO BROKE SAVING MONEY LIKE THAT.

That is giving the banker $100 to keep from giving the IRS $25.

This really isn't a comment on how you want to do it.You know what's best for you.:)

I'm just pointing this out because of the number of educated people I've discussed this with that had never really thought about it.
With a charity you can increase,decrease or stop and keep your money in your pocket.
The banker gets you to make his car payment every month,for years & years.

Good point about the tax savings. The other consideration is that there is NO tax advantage to itemizing until the total of the itemized deductions exceeds the standard deduction. Let's say your itemeized deductions for 2006 were a total of $20300. The standard deduction was $10,300 (I picked figures for easy math). So in the 25% bracket you save $2500 on taxes, not $5075. If it's there you take it, of course, but it isn't that big of an advantage.

Some of those "loans in trouble" for next year include mortgages that allowed the borrower to pay "any amount" monthly...no set payment minimum....if the monthly payment did not even cover the interest due, the difference was added to the prinicple owed. Borrowers took these in the belief that the rapid appreciation on their homes would allow them to sell and still reap a profit. This was especially true in the two hottest markets (Fl and CA). Surprise, the two hottest are now the two with the steepest declines. So, what to do: (1) get the Fed to bail them out by lowering the interest rates, making it possible for some creative refinancing, or (2) let them walk away from the property and stick the lender with it.
Should be no wonder why the CEO at CountryWide wants the Fed to bail them out (or, as he said yesterday...risk recession).

That is why I believe the FED should not lower rates. I think it would be a bailout.

Look everyone is stating it is the borrowers fault. I for one (my opinion) disagree. If these creative exotic mortgage plans had not been created and made available by the mortgage companies no one would have them. The mortgage companies created these exotic loans to get people to refinance their existing loans so they could get the new fees and added interest. That is the truth of the matter. I have had situations where the mortgage companies themselves come up with some stupid loans to get the deal refinanced.

They told my homeowners just that. Why make big payments now when you can ride the appreciation wave. Well we all know the wave at one point will hit the shoreline don't we? The idea was to "later" refi again, let them collect more refi fees and add new interest to old money.

Surely you have heard of decreasing term loans? If they can have a borrower pay interest only for a few years and then refi again, they get the best of both worlds. Double fees and new interest on old money.

I think Countrywide needs to fail just like every other business that is not run properly. I'll bet you money, marbles and chalk that the CEO of Countrywide has a very nice retirement umbrella, even if they di fail.

I think the rate should be lowered by the Feds, for me! :D

I borrow money and turn around and invest it. Been doing it for years and done all right. But now the interest costs are hurting me, I can't get 'cheap money' anymore. No current borrow/invest schemes coming from me unless the rates drop...

I do agree that it would help quiet a few people but it would hurt everyone in the long run.

We have to look at it from a different standpoint of who would be affected by it the most. Personally I do not care if Countrywide goes belly up. They have screwed more of my customers than I care to recount.

Like they say. What goes around comes around.