Yes, about 55% of the people given subprime loans could have gotten a prime loan.
I understand that salesmanship took the following form: sellers were told to say things like, “I want to give you the best deal possible [checks computer] ok, I can get you xxxx.” If the buyer didn’t have his gameface on, he got fleeced.
Conservatives like to place the onus on the individual: I wonder how many of them have read a car rental contract recently.
Look. The game is simple. Make a bunch of jackass loans (those that require no documentation, clearly cannot be paid off, or that depend on land prices rising forever), bundle them up and sell them to doe-eyed money market managers. Take millions of dollars in bonuses. When real estate prices drop (instead of increase), call the situation unprecedented, send your company into bankruptcy and pocket the proceeds. Hope for a conservative administration that won’t regulate this activity away in the name of free markets. Rinse. Repeat during the next cycle.
Read the article linked to on page 1, the testimony of a guy who sold these loans. Plus, lenders got bonuses for selling higher interest subprimes. Do you think they were going to lighten up the chumps they were selling to? Get real.
Including if you were a victim of fraud?
Right, that is why so many of these people in fact qualified for prime loans, at lower interest. What if they were told however that they didn’t qualify? When you’re attempting to close on a house, especially in a still-hot market, you don’t have time to wander around to five lenders to check to see if your certified lender is lying to you. So, I don’t think many of them deserved it. Do you think lenders who cheated the borrowers and sold them loans they knew couldn’t be repaid don’t deserve to lose their money? They had more information, time, and power.
Then what the crap is a credit check for? If you lend $1,000 to that bum in the street, and he doesn’t repay you, is the bum at fault or is the lender a moron? The bank has procedures to determine the risk of a loan. The borrower doesn’t. Of course what really happened was that the lender didn’t give a shit if the borrower could pay or not - they got their bonuses and origination fees, and sold the paper to suckers who didn’t know that the loans were so risky.
All politicians? Or the ones who rail on about how regulation is bad, and when things collapse because of lack of regulation then start want to blame the victims. I notice you aren’t nearly concerned about the execs who made a fortune from this mess giving their money back. These wonderful market corrections are always on the back of those who can least afford to pay it - the CEOs get their golden parachutes.
The current proposal is to freeze the rates of those who are not behind, and thus who haven’t spent beyond their means. I see that your message to those forced into bad loans through lies is fuck you, and your message to those who did it is sympathy at the very thought of being forced to freeze the rates. Boo hoo.
As for dot com, honest losses are one thing, but I’ve gotten plenty of mailings for class action suits for companies who lied about their balance sheets and profits. I trust you, believing in the market as you do, tear them up. Cool, more for me. If each loan made with no income verification had a big red mark on it, we wouldn’t be in nearly as much of a mess. But I guess in your eyes it’s all the fault of the average guy who you despise.
I see, so if someone running a Ponzi scheme is caught when he still has money, he should get to keep it because his victims are stupid? Or does someone who gets sick taking medicine because he is unable to properly evaluate claims deserve it?
If someone gets a legit loan, and can’t pay either through bad money management or even a catastrophe, I’m not at all for a bailout. (Especially in the former case.) I feel differently about loans made under false pretenses. Plus, all that is being asked is that the loan be kept at the same interest rate. (I’d be in favor of letting a reasonable rate be negotiated, but that was considered too complicated.) I wouldn’t worry - the thing is voluntary, few are going to do it, only 12% qualify anyway, and it is all a way of preventing real reform. People are going to be tossed out of their houses, neighborhoods will go into the crapper, banks will lose money on the foreclosures, the value of your house and mine will go down more than they have to, and you’ll be happy.
The end of the bubble hurt, but that isn’t the major problem here. Just after I left Louisiana in 1980, the bottom fell out of the oil market and lots of homes there and in Texas were worth less than the loan, and people having to move either brought money to closing or walked away from the loan. But that only affected those who had to move. Since everyone else had reasonable loans, and ARMs were just being invented because of high interest rates, they could sit tight until the market returned. The problem today is that even people making current payments will get forced out when their rate skyrockets. Now they might have been able to refinance if the prices had gone up, but without the ripoff loans they wouldn’t have had to.
It’s true that some people would not have been able to get a house they couldn’t afford. I can’t afford a Rolls either, that’s life.
Prime refers to the creditworthiness of the borrower, not the terms. I suspect plenty of prime loans with 5% down were given out. Even prime interest only loans are possible. If someone expects to have to move in five years, the amount of equity built up in a standard loan is trivial.
The standard litany. Before the crash, doing anything would limit market freedom. After the crash, it is too late. Regulation yesterday, regulation tomorrow, but never regulation today.
The liquidity issue is a big one, and that comes from uncertainty. If some “bailout” stabilized the market, those looking for their first loans would have a much easier time. Around here even jumbo loans are almost impossible to get because of the liquidity crisis. You think tightening up credit to unreasonable limits is going to help?
As I mentioned above, prices have gone into free fall before without this much of an impact. Besides Texas, when the defense business went titsup around LA whole towns were in trouble. But it was never nationwide. There is no problem “sitting” on a house worth less than a loan, assuming that it doesn’t prevent you from moving to get a new job or something. It’s great that my house is worth so much more than I bought it for, but it doesn’t affect my life any, and it going down 10% or so won’t affect it either. It is true that people will no longer be able to live beyond their means by borrowing on equity, but that’s a good thing in my book. If people who can no longer borrow stop buying, maybe companies will figure out that if you stop giving people raises they can’t buy your products. it would be about time.
Voyager, why on earth did you respond to every one of the points I made to unconventional, as though you were he? Quite confusing.
Unconventional wrote, “I consider sub-prime lending predatory.” I pointed out that such is not always the case. The further change in definition you are suggesting makes even less sense. That would mean the argument would be that nobody under a particular credit rating should have gotten a loan. How would that be fair? If someone has a lower rating and is willing to pay higher interest on a loan, the government ought not to tell them they cannot. It’s not necessarily predatory.
I’m afraid you aren’t reading carefully. I never, ever said “before the crash, doing anything would limit market freedom.” That’s a complete mischaracterization. In fact, I said almost the exact opposite. I said something should have been done.
When did I advocate, “tightening up credit to unreasonable limits?” You really need to be more clear about who and what your are responding to. I’m just against a blanket bailout of everyone who took out a loan he couldn’t afford. No, that WOULDN’T help first-time buyers at all, because bailing out foreclosures will artificially prop up the market, which is still bloated and needs to adjust itself. How do higher home prices help first-time buyers? I mean, please, you aren’t reading what I’m writing at all. The current tightening of credit is too little too late. IF it were going to do any good, it should have been done while the bubble was inflating, not after it has burst.
Um, I didn’t write that. It was an error in my attribution that I corrected in the next post. Funny that you took the exact opposite stance from me when you thought I had written that. Turns out we actually agree.
But that’s not what’s happening. Proving the loans were made under false pretenses is not required. They are simply freezing the interest rate. No distinction is being made between fraudulent loans and non-fraudulent loans.
But the interest rate increase is a TRADE-OFF for getting an extremely low introductory rate and/or an extremely low down-payment. It’s as if a car dealer said, “If you trade in your old car, you get $5,000 off”. Then the government says everyone who traded in a car gets the old car back AND gets to keep the new car. But all the people who DIDN’T trade in their old car still have to pay the extra $5,000. That’s patently unfair. It’s rewarding irresponsibility. They GOT something in return for agreeing to that higher interest rate. It’s a gross oversimplification to say “all that is being asked is that the loan be kept at the same interest rate.” If they wanted the interest rate to stay the same, they should have gotten a fixed-rate loan. Not rocket science.
I do agree with you on one thing: A bailout does not constitute reform. And I don’t have a house, because I got priced out of the market. And I was seemingly one of the few who didn’t panic and get into some idiotic loan that I could never repay. But it’s nice to know you think people like me will send neighborhoods into the “crapper”. :rolleyes: What will make me happy is when we get back to more than 10% of the local population being able to afford a home. I feel bad that people will lose their homes, but at least they had a home for awhile. The rest, who got priced out of the market, never even got that.
Read it. Don’t see the part that says: “Over 50% of people who got subprime loans qualified but weren’t told about the better fixed rate ones.” You’ll have to point that out, please.
Personally, an alt-a mortgage was the only kind I was going to get. With traditional qualifying, I would have been able to afford a $135,000 home, which wouldn’t buy you a 300 sf apartment here. Just because lenders were giving “stated income” loans doesn’t necessarily mean they were engaging in predatory lending practices. Most of my friends who have bought homes had to get these kinds of loans. If you do free-lance work, it’s harder to document your income.
Don’t know what that means.
Sounds like pure speculation. For the third time, if there’s evidence that fraud took place, why not prosecute?
I think people should read the forms they are signing. I made an offer on a house, and got the loan through Countrywide. They did try to sell me on a more exotic loan, but also explained the terms when I asked them, and were willing to tell me what else was available. And the information was all on their website at the time, explaining the difference between an ARM and a fixed-rate. Plus it was all explained very clearly on the papers I signed. You do have to be able to read, though. Just because the car-salesman tries to sell you on the undercoating doesn’t mean you have to get it, or that he committed fraud.
I believe I explained that. The bank generally won’t give you a loan if you are a bad risk (although a lot of them did). The credit check is for THEM, to assess your risk, not so they can be your mommy and nag you about how much you can afford. YOU have to decide how much you can afford.
Nonsense. You are responsible for the financial decisions you make. If you don’t know whether you can afford to pay back a loan, you should not take out the loan. These are not children; they are adults, capable of adult decisions. You know how much money you make, and you know how much you spend. Subtract one from the other, and that’s how much you can afford to pay.
I’m sure a lot of that went on. A blanket bailout doesn’t solve that problem.
So it’s better to bail out those who took out bad loans on the backs of those who couldn’t even afford to buy a house? What kind of logic is that? This plan isn’t going to hurt ANY predatory lenders. In fact, it will probably help them.
Wrong. If you AGREE to a loan with an increasing interest rate that you can’t afford, you have spent beyond your means. By your logic, a broke person who gets that mattress with no payments until January hasn’t exceeded his spending ability. I mean, sure, if you can’t see beyond next week… :rolleyes:
Nice strawman, there. I think YOUR message is, “If you couldn’t afford a house, you should have spent way beyond your means, because we’re being rewarded for our stupidity”. Home prices will stay high, but that’s o.k. because we got ours and the rest of you are SOL. The problem is that people were paying prices for homes that were all out of proportion to the fundamentals of the market. Think tulip-bulb mania.
The strawmen are sure flying today. Pretty lame. And again, your reading skills are lacking, since I already said I would have been in favor of trying to reign in these loan companies while the bubble was inflating.
Having said that, I know lots of folks who got their homes with stated-income loans, and KEPT them. They were offering stated-income loans with fixed interest rates. If you’re not retarded, and are capable of identifying how much money you have to spend, it’s not a problem. Not as simple as you are making it out to be.
I don’t consider an ARM or a Step loan predatory lending. I consider the subprime loans with excessive fees, exploding balloon payments, and penalties for refinancing predatory. These loans are geared to people with credit or money problems. Lenders know these loans will probably result in default. The people who can least afford the penalties and exploding payments are the most vulnerable and easy to sell or mislead.
I agree people should live within their means and not purchase a home they can’t afford, but people don’t always make good financial decisions or truly understand the terms of the loan. The lenders are paid to analyze risk and exercise sound judgment and responsibility when generating loans. Instead, good judgment and responsible lending were thrown out the window in exchange for a dollar. Now, we all pay.
The free falling home values are hurting all homeowners. It isn’t going to help people buy a home. Mortgage companies are going bankrupt and now banks are hesitant to carry a mortgage or extend any credit. The current foreclosure rate for subprime mortgages is one in five. http://www.responsiblelending.org/issues/mortgage/subprime-mortgage-crisis.html
I apologize for taking so long to respond. I don’t get to spend as much time as I would like on the Strait Dope.
lowbrass, not that it is terribly important, but I am a she.
Sure, not all subprime loans are necessarily predatory. The Step loan starts below prime but caps at the rate available when the home was purchase. Investors frequently use adjustable rate loans when they plan to sell the property before the rate increases. The VA loan is not subprime but doesn’t require a down payment. There are alternative loans avalable to help people buy a home that are not exploitive.
Voyager, the upside down market does impact homeowners who now have a massive increase in their payment but can’t sell, rent, or refinance. I agree that people with a fixed rate or plenty of money can ride this out. I know many people, including the elderly and people on fixed incomes, refinanced with bad subprime loans during the frenzy and can no longer afford the payments. It is tragic.
I’m still not sure if there is a standard or acepted definition of “subprime loan” or “predatory lending.” When I bought my house 5 years ago, I chose a 5-year ARM b/c the interest rate was lower, among other reasons. My FICO score was over 800 and I certainly could have chosen a 30-year fixed. But the ARM was better for me.
I do not consider my loan or situation to be “subprime.”
I sold last month for a nice profit and am now in great position to take advantage of falling prices and builder’s incentives.
I knew exactly when my ARM would reset, what index it was tied to, what the yearly cap was and what the loan lifetime cap was. I can’t fathom all these people that say “they didn’t know” the terms of their loan.
Having said that, the person who bought my house (a month ago! in the middle of all the meltdown!) had no down payment, no stated income, and not even enough money to bring to the closing table. In fact, I offered to pay off the balance of his car loan (not very much in the grand scheme of things) just to get things done. I figured I might as well, seeing that he offered *more than my asking price * while other houses in my neighborhood were dropping prices by $5 or $10K per week just to get showings.
Either he is an idiot or his lender is an idiot. But not everyone who takes an ARM is a misguided or clueless idiot.
Right - which is what I was trying to get at. Not everyone who got an ARM was a victim of predatory lending. Also, not everyone who defaults on their mortgage is a victim of predatory lending. You cannot make a blanket assumption that every person who is in financial trouble right now, is there because an evil loan-broker tricked them. Yet that seems to be the very assumption many people are making now. If everyone who got talked into a bad loan deserves to get a handout from the government, why doesn’t everyone who got talked into buying an expensive car, or buying a crappy timeshare, or buying an expensive vacation, or buying an expensive and useless life-insurance policy, etc., deserve a handout? Like I said before, I got suckered into buying overvalued tech stocks and lost a buttload of money. Am I demanding a handout? No. What exactly is the difference between any of these situations, and the present one? Nothing, that’s what.
That’s patently false. You are saying lower prices do not help first-time buyers. How can you possibly say that? OF COURSE it would help. Surely you would not argue that a higher-priced item is easier to purchase than a lower-priced one. That makes no sense.
So then your argument is that we should help the loan companies not to go bankrupt, even though their difficulties are a direct result of their foolish policies? I don’t think I can agree with that.
Yes, it IS going to be hard for first-time buyers to get a home now. And if we bail out all the homeowners who already “got theirs”, and try to prop up prices in a market that is already at its most overinflated point in history, we make it even HARDER.
In the GQ thread on this subject, someone brought up a key step in this process that helped create this mess and that I don’t see being discussed in this thread. It would have been a lot easier to assign blame here if the original lenders were stuck holding these mortgages. But they were packaged and repackaged as investment instruments, then sold all over the world as “safe” based on bogus ratings. I’m not sure who assigns the “AA” or “AAA” ratings, but whoever did was either asleep at that the wheel or engaging in deliberate fraud. This practice is analogous to the auditors (Arthur Anderson?) who missed the shady financing going on at Enron.
So, in addition to some greedy lenders and greedy consumers, we have shady investment ratings practices that ended up tainting all sorts of investments, and we can’t be quite sure which ones are infected and which are not. It’s like a product reacall, where some unacceptably high level of defects makes all the products suspicious, even if most of them are still OK. But you can’t be sure which are the good ones and which are the bad ones, so you have to recall all of them.
I have not read of suspect loans being labeled as such. However, these loans got higher interest rates, so the rating agencies and those who bought the repackaged loans should have had some clue. Plus they knew of the terms, so it should not have been a shock that many people would not be able to handle the increased interest. (Not to mention that this has been all over the media for a while.)
I’d think that the solution would be for some sort of labeling of loans, for better risk management. I don’t know how this could be done - perhaps a credit rating number for the borrower associated with a loan?
Like I said, it was discussed in the GQ thread either last week or the week before. There were links to articles in that thread. And in checking, it was you who gave me a link to an article on that in the thread.
I seem to recall that S&P and Moody’s based their ratings on historical data. The problem was that no documentation loans (liar loans) and certain combinations of loan features (e.g. combining negative amatorization with subprime customers, though I’m talking out of my posterior here) didn’t have any past data. So I guess they winged it and collected their fee.
The market wasn’t wholly clueless, incidentally: exotic AAA paid a half percent more than vanilla AAA. Of course, some of the AAA debt probably should have been rated as junk, but…
Saw a quote in yesterday’s Wall St. Journal that I think supports my position on this.
It’s strange to me that this issue seems to divide along partisan lines, since I am generally quite liberal in my political views, but seem to agree with conservatives on this.
There are no bad loans, though, only bad borrowers. The situation only goes bad when a borrower signs their name agreeing to terms and then says “you know what, when you gave me that cash, I said I was going to follow that contract, but on second thought, fuck you and I’ll keep the cash.”
People have been screaming for years about why can’t lower-income folks get loans. It’s because they don’t pay them back. Extend them credit at rates that help justify the risk, and you get accused of usury. People won’t be happy with financial policy until it entails throwing bags of cash out the back of dump trucks. Somehow we never hear personal accountability mentioned in these scenarios at all.
