Memo to the US sub-prime mortgage finance sector

[snoopy369]

Ahh, okay. Then they should complain about the usury, not about the low rates

[DanS]

Interesting times.

These equities valuations (and real estate values) are still way too rich for my blood.

[One_more_turn]

Goldman Sachs finally bites the dust: its flagship fund is down 26% YTD. Lots of quants are going to be unemployed soon.

http://biz.yahoo.com/ap/070813/goldman_funds.html?.v=19

No more bonuses this year.

"Only when the tide recedes do we know who's swimming naked." - Warren Buffett

[PLATO]

I just had to jump in here on the issue of subprime lenders "offering" loans to black people disproportionatly.

This is the biggest line of crap ever! Subprime lenders could not care less what color a borrower is. Mortgage brokers offer most of the loans anyway and submit their packages to the lenders they choose...which is usually the one that has the lowest rate that pays the most in premium to the broker.

The mortgage industry is truly capitalistic in that it is based almost exclusively on profit and race, creed, or color have nothing to do with any lending decision I have seen made in the last 20 years...and I have seen literally tens of thousands.

This lawsuit speaks much more to the inequalities of education and the resulting opportunities that are prevalent among minorities than any type of lending discrimination.

[St Leo]

Re: Memo to the US sub-prime mortgage finance sector

Originally posted by Lazarus and the Gimp
Memo to US sub-prime mortgage customers. Pay your ****ing bills.

How are they supposed to do it? The whole business model was based on:
a) brokers bamboozling people with omission and misleading graphs to take on mortgages they cannot afford, so that brokers can get their signing bonus
b) speculators selling houses to each other for more and more paper money
c) the risk of foreclosures being spread around so that it couldn't possibly collapse; if it did, it would mean the whole system would crash

Pyramid schemes are illegal for a reason.

Originally posted by lord of the mark
Who exactly forced French banks to invest in US subprime mortgages?

- The high ratings given the investment by whoever rates investments
- The optimistic press releases from the sector
- capitalist rah-rah unreality from the Economist, Greenspan, Bernanke, etc

Originally posted by Lancer
On the news 97% of mortgagees are paying their mortgages. So 3% are screwing up the world? I don't buy it.

But no one is taking out new mortgages. And the alleged 3% is many times more than last year, and likely to skyrocket as the construction industry lays homebuyers off.

[St Leo]

Originally posted by One_more_turn
Subprime lending disaster already happened once during the last decade in US housing. But it only hit the manufactured housing industry hard, and it still hasn't recovered from that bust almost 10 years later.

Last time, real estate was not the one giant investment basket of the economy.

The good thing, of course, is that homes will stay cheap years to come. For people with lots of cash to spare

Yay for the tremendous US savings rate! Yay for the improbability of high inflation next year!

or lots of FUTURE earning powers, this is a great situation.

Millions filing for bankrupcy and sinking into poverty is going to be great for employment.

[St Leo]

Originally posted by snoopy369
Maybe i don't get subprime lending... but why is it bad that they offered black people more subprime mortgages than they offered white people? Isn't it the peoples' responsibility not to over borrow, and a good thing that they're getting offered the loans?

For the last decade, Americans have been told that they must consume, that buying a house is always better than renting, that they can borrow as much as they need, that their houses are worth hundreds of thousands in equity. And they have.

Overborrowing stops being an individual's problem when nearly everyone in a country has done it.

[Lancer]

All seems very depressing. So what's going to happen way out here in rural America? Soup lines? There's not really any tall buildings so the danger of falling stock brokers isn't great, or will someone else be jumping? Our bills are allpaid and our debt is nada, what to do?

What's next?

[PLATO]

Re: Re: Memo to the US sub-prime mortgage finance sector

Originally posted by St Leo

Originally posted by Lazarus and the Gimp
Memo to US sub-prime mortgage customers. Pay your ****ing bills.

How are they supposed to do it? The whole business model was based on:
a) brokers bamboozling people with omission and misleading graphs to take on mortgages they cannot afford, so that brokers can get their signing bonus
b) speculators selling houses to each other for more and more paper money
c) the risk of foreclosures being spread around so that it couldn't possibly collapse; if it did, it would mean the whole system would crash

Pyramid schemes are illegal for a reason.

The vast majority of Mortgage Brokers are reputable people who work for the benefit of their clients. (a) and (c) shows a real lack of understanding of the mortgage industry and the issues involved. (b) is unfortunately true in many cases.

Originally posted by lord of the mark
Who exactly forced French banks to invest in US subprime mortgages?

- The high ratings given the investment by whoever rates investments
- The optimistic press releases from the sector
- capitalist rah-rah unreality from the Economist, Greenspan, Bernanke, etc

There is much interest in the actual due diligence that the rating services performed and the methodology they employed. Howeve...greater scruitiny should be given to how the Investment banks repackaged these debt instruments in with other instruments to make the appearence of a safer investment. The ratings given to these Collateralized Debt Obligations are complex and need to be more appropriately weighted for default impacts instead of just being a sum of the parts.

WRT the press summaries...Wall Street is a "trend analysis" area in many cases where it should be more "risk analysis". In other words many of the people involved there look more to historical performance as opposed to downside risk. The historical performance on these instruments as very good. No one accounted for all the factors that combined to cause this. One analyst at JPMorgan called it "a Perfect Storm"...and it is.

Greenspan's and Bernake's differences in approach to this matter are vast enough to fill books, but let's just say that Greenspan's credbility and reputation in the subprime world is not what it once was.

Originally posted by Lancer
On the news 97% of mortgagees are paying their mortgages. So 3% are screwing up the world? I don't buy it.

But no one is taking out new mortgages. And the alleged 3% is many times more than last year, and likely to skyrocket as the construction industry lays homebuyers off.

3% is not exactly correct, although it is close. Lancer, this figure covers Prime Mortgages (Mortgages made to the people with the best credit and assets). This is very high actually with traditional default rates in Prime Mortgages being in the 0.8%-1.8% range. The problem is that the expected return on these instruments is now being lessened and these had the slimest of margins to start with. It has not happened yet, but it would not take much more for it to happen, that Prime Bond holders start to see negative yield (losses) on their portfolios. If that happens, then you have major economic problems.

Subprime mortgages on the other hand are seeing default rates higher than 20%. There are significant and deep problems in many of these instruments. Billions have already been lost and billions more will be. The secondary market (where all this stuff is bought and sold) is basically non-existent right now. This means that the holders of these instruments can eithier bail and take losses of 20-25% of their principal investment or hand around and weather the storm.

Now...one final thing. Default rates are not the same as foreclosure rates. Lenders have many options to offer borrowers in loan modification agreements and forebearence agreements. Most homeowners will struggle to keep their home. While foreclosures are up significantly, they d not approach the level of defaults. The latest figure that I have see(which is about a month old) is .51% foreclosure. This is still enormously high and translates into 1 out of every 200 houses across the country being foreclosed on. With recovery running at about 75-80 cents on the dollar, it is easy to begin to understand why many investors are running for cover.

[PLATO]

Originally posted by Lancer
All seems very depressing. So what's going to happen way out here in rural America? Soup lines? There's not really any tall buildings so the danger of falling stock brokers isn't great, or will someone else be jumping? Our bills are allpaid and our debt is nada, what to do?

What's next?

Rural America will be just fine...as long as you don't need to borrow money for the next year.

That is of course assuming that the central banks will keep pumping money in the system as needed to prevent a real liquidity crisis...

[Alexander's Horse]

looks like a good time to buy a holiday house

http://allhomes.com.au/c/ah?a=sp&p=284872

[Lancer]

Thank you Plato.

One other thing, the real estate bubble will burst big time when the lenders forclose and dump all those houses on the market, yes?

I so, take a wild eyed guess if you would please and tell me how long before we hit bottom.

Also, will interest rates decrease or increase or no loans at all?

I want to buy an acre or two and put a manufactured house on it. Well, actually Dolores does and I just do whatever.

[Kidlicious]

Originally posted by Lancer
I want to buy an acre or two and put a manufactured house on it. Well, actually Dolores does and I just do whatever.

You're a good boy. Err.. husband. Just rent the land for now, and wait a good while.

[Lancer]

Nah, I have 5 years more place to live for free. That 6th year is what I'm thinking about. Between now and then, hopefully after we get back from the Phils and save for a year or (gulp) two, I'll be ready. Otherwise I would have to borrow it all. Though my credit rating is excellent, my work history is a bit odd since we all quit our jobs and vanish to the Philippines for 6 months at a time, thank God.

Buying something in the US at this stage.



Though from the looks of this thread a good place to grow potatoes might come in handy.

[Kidlicious]

Originally posted by PLATO


Rural America will be just fine...as long as you don't need to borrow money for the next year.

That is of course assuming that the central banks will keep pumping money in the system as needed to prevent a real liquidity crisis...

Liquidity is only part of the problem. They will probably pump money into the economy, but will that maintain enough confidence? Pumping money into the economy can only help in certain situations.