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Noble Realms → Conspiracy → Housing / Mortgage Crash
Does anyone see a conspiracy in the happenings in the various mortgage and residential real estate markets? Subprime crashing, Alt-A in trouble too -- it could just be the invisible hand of the market and the animal spirits of the people, but is it something more?
The conspiracy is the denial of the financial ruin the Western world as well as all other first-world countries already find themselves in. It is a central axis of 2012, because depending on how we swing with this huge global event, things can end up for better or for worse.. depending on what we manage to choose and do by then.
It does seem like a very big moral hazard. So many are spending beyond their means just because they can. And the others are supposed to have solidarity with them? Maybe solidarity is the way forward to the good outcome, but I see it differently.
I think that we're not primarily citizens of this country or that but citizens of the world and the universe. And if one country is full of irresponsible people, one can choose to associate with others -- even in other countries or places -- who are more responsible and engage in truer dealings.
Don't fear the reaper.
It does seem like a very big moral hazard. So many are spending beyond their means just because they can.
I was shocked to see the ridiculously high figure our mortgage company was willing to lend us when we bought our house. If we had maxed that out, there would be no room in the budget for anything else! What's really funny is that I had to stop my husband from thinking that this high number was what we should be shooting for price-wise. He kept saying, "Yeah, but if we can AFFORD a $150,000 house..." I reminded him that qualifying for a loan is NOT the same as affording.
But I think that's how people get sucked into too-high mortgages. That, and they get adjustable rate loans which give them the illusion of affording the house for a few years, then their payments skyrocket and throw them into default.
That's one reason the housing market is busted. We were latecomers to the game, because so many people bought a few years ago. Many of them are now barely hanging on by their toenails, or have already gone through repossession.
This old-timer security guard at Bank of America started a conversation with me when I left one day. He mentioned something about a mortgage crashing and other such things, it left an impression on me, to say the least.
This old-timer security guard at Bank of America started a conversation with me when I left one day. He mentioned something about a mortgage crashing and other such things, it left an impression on me, to say the least.
Wow, that's really random. What did he say about it?
There are a number of financial mechanisms which can create a downturn. The dollar itself being the one issue that has teedered on the edge for some time. The mortgage industry vascilates from guarded programs to very risky 125%'s just prior to a slide in property values. All stock markets are manipulated. The big boys get out clean and actually benefit from a slide or even a crash. The ham and egger gets burned ...hard. Being a broker for a number of years , I know I left alot of money on the table in the late 90's because I wouldn't write a 125er. In 99' that segment of the market folded and then by 03' they were back with a vengence. In 04' I saw the risk escallate in the sub prime market ,b-c paper- a 619 or less FICO score, where lenders wrote loans at 100% on inflated property values and qualifying ratios were near 50%. That is a disaster waiting to happen...It's happening now!
Maybe not an ideal scenario because the umemployment rate hovers at 14 % currently, but houses in Detroit that were purchased in 01' for 500k + were being auctioned off this past week in the 170ks. Homes that were purchased for 160K in 01' were going for 39k. The auctioneer was so incensed, he kept saying,"You folks do realize that the land and the lumber is worth twice that". Michigan's economy is a microcosm of what may well happen to states without diversity in their industry base.
Banks are not interested in owning your home. The debt to be concerned with is unsecured. Credit cards and small signature type loans. These , if things go south, will be called on overnight.
Banks are not interested in owning your home. The debt to be concerned with is unsecured. Credit cards and small signature type loans. These , if things go south, will be called on overnight.
A lot of the mortgages have been sold to big investors as CMOs (Collateralized Mortgage Obligations). All they're concerned about is "show me the money"; they'll sell in a New York minute if they think the value of the investment is dropping. When they do the mortgage will be called and the homeowner who doesn't have the cash will lose his house.
A lot of the mortgages have been sold to big investors as CMOs (Collateralized Mortgage Obligations). All they're concerned about is "show me the money"; they'll sell in a New York minute if they think the value of the investment is dropping. When they do the mortgage will be called and the homeowner who doesn't have the cash will lose his house.
Well it's not quite that simple ... the person who owes the mortgage retains the right to pay under the original terms. It can't be called unless he defaults, no matter who buys the mortgage.
They are already giving quiet deals to people to let them stay in the houses with more manageable payments. I don't know what the terms of those deals are and they certainly aren't publicized. And they surely aren't doing it out of the goodness of their hearts, because banks don't have hearts, but -- as ShineOn said -- because they don't want to own the real estate.
If the banks don't want to own the real estate, why would I? Rental is still cheaper than the all-in cost of owning. But to tell the truth I am a bit tired of renting (can't fix the place up the way I like) so I do keep my eyes open.
starling wrote:A lot of the mortgages have been sold to big investors as CMOs (Collateralized Mortgage Obligations). All they're concerned about is "show me the money"; they'll sell in a New York minute if they think the value of the investment is dropping. When they do the mortgage will be called and the homeowner who doesn't have the cash will lose his house.
Well it's not quite that simple ... the person who owes the mortgage retains the right to pay under the original terms. It can't be called unless he defaults, no matter who buys the mortgage.
They are already giving quiet deals to people to let them stay in the houses with more manageable payments. I don't know what the terms of those deals are and they certainly aren't publicized. And they surely aren't doing it out of the goodness of their hearts, because banks don't have hearts, but -- as ShineOn said -- because they don't want to own the real estate.
If the banks don't want to own the real estate, why would I? Rental is still cheaper than the all-in cost of owning. But to tell the truth I am a bit tired of renting (can't fix the place up the way I like) so I do keep my eyes open.
My mortgage company turned around and sold my original loan within a week. We still have the same terms, the same payments, interest rate, etc., but we send the payment to a different company.
What caused me to make the change from renter to owner was exactly the reasons you cited. I want to exercise my creativity any way I see fit. I want to plant flower gardens and know that I'll benefit from the perennials and organic materials I've worked into them years from now. I want to paint walls funky colors without worrying about repainting when I move (which I've had to do), tile with unusual materials without asking permission, etc. To me, these are the real reasons to own. All that crap about it being a necessary investment is just that-- crap. It may very well be a good investment, but then again, it may not.
What happens when the value of the asset becomes less than the outstanding debt? Can it be called? This may be bad info since I don't have a mortgage; would someone who does (Lono?) please check the fine print on theirs?
What happens when the value of the asset becomes less than the outstanding debt? Can it be called? This may be bad info since I don't have a mortgage; would someone who does (Lono?) please check the fine print on theirs?
This is usually called a short sale. Hopefully that's what you were lookin for...
A short sale is the sale of real property in which the proceeds (or fair market sale price) falls short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments (after a huge pain of a process, of course). By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (or foreclosure).
Starling, some types of contracts would be in default in situations like that, but not any mortgages I've seen. In fact the very last thing they want to do is to call the mortgage at that point. They want you to keep paying until you're no longer upside-down.
Then they want to call the mortgage (if they don't mind owning the real estate and reselling it)! 
But if you're upside-down and ask to get out of it, they may approve a short-sale as described above. Or they may not approve it. Recently I've seen a couple price increases in houses for sale, in a weakening market where raising the asking price makes little sense. I wonder if the bank is demanding full payoff and not approving a short sale, so as the seller gets further in debt they must raise the asking price.
Here are a few interesting links....( http://www.discharge-debt.com/id135.htm ) and ( http://www.discharge-debt.com/id112.htm ) and ( http://www.discharge-debt.com/id136.htm ) and ( http://www.discharge-debt.com/id111.htm )
I think the following is accurate:
It's true that "money" is created out of thin air. However your neighborhood bank doesn't get to spend that money. The money that's created is not "high powered money" aka "M0" aka "dollar bills". It has matching debit and credit entries. So the bank doesn't exactly get your car for free when you finance it. The money they gave you to pay for the car had to come from someone else.
The ones who get to create dollar bills out of thin air are the Fed. Whenever they so decide, they instruct the treasury to print up dollar bills and circulate them (thru Fed correspondent banks).
But the Fed does a P&L statement every year and reports its profit. It subtracts its operating expenses and remits the rest to the Treasury.
Noble Realms → Conspiracy → Housing / Mortgage Crash
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