Zombie debt

They should sue the banks for loaning more money than the house is worth. The bank is the expert on theses things they should have known better.

Probably 7 years ago I went to BoA to get a HELOC. They told me my house was worth $365K (150K more than I paid for it a few years earlier). They wanted to give me $150K. I told them they were crazy and that if I took that much money I'd be upside down in the house in 5 years. They looked at me like I was nuts and told me housing prices never go down. I told them there was no way my house was worth more than $250K, if that, and that I only wanted $20K. They told me that was too low and the best they could do was a $50K HELOC and I would just have to only take $20K out of it. I agreed and ended up taking a little more than $20K over the next few years. Last month I got a letter explaining they were closing the line of credit because my house is only worth $250K. These people were the "experts" and they got schooled by a 30 year old auto mechanic that never went to a real college. Idiots.
 
Maybe we should be..

producing more auto mechanics and fewer bankers:woot:

Had a friend who was a doctor with a lot schooling who chose to believe the bankers in a similar situation. He bought a house at the very peak of the market in San Diego then immediately arranged an equity loan to finance a remodel and then of course did the remodel using up every penny of the equity loan and then some. Well, by the time he was done he,and by extension the bank, were into this small house for $1.4M. Six months ago the bank finally arranged a 'short sale' that fetched $890K:shock2::shock2::shock2: He should have asked his mechanic:laugh::laugh:
 
Matthew said:
They should sue the banks for loaning more money than the house is worth. The bank is the expert on theses things they should have known better.
Click to expand...

I have to agree with you! I think the only thing bankers were experts at is talking starry eyed people into bigger loans. There is a percentage of people who will sit there and 'know' this loan officer or whatever makes more if I take out more... but a whole bunch of others sat there, were told they could or 'would' be able to afford it, and believed it.

The whole home buying thing always seemed to be a game to me. Almost everyone we worked with seemed to be less than straight up. It was like buying a used car from a fly by night used car dealer, except instead of one guys BS, we dealt with 4-6 peoples BS. Realtors, home inspectors, bank officers all seemed to be working the system.

Their realtor while showing the house trys to play up how much it's worth. (of course!) But even the realtor I had 'hired' to help us find a house seemed to be pushing us towards more expensive properties, or properties from a builder she knew... and no doubt was going to score something under the table from! And the more house we bite off, the larger her commission ends up.
The inspectors I've dealt with come up with property values that were basically to the dollar of what we were going to offer? Gee, how did that happen? Maybe he checked out the place and then talked with our realtor who contacted him in the first place?
Finally, our second home purchase wasn't so bad bank wise, but the loan officer we worked with on our first home purchase years ago left my wife and I feeling strung along. "Lets try to pay this off, and lets see if you can get that paid off!" Then they wanted more money down, "Oh, you don't have any more to put down because you paid off the car? Hmmmm, gee, that really wouldn't have mattered... it would have been better to put more down." We really left feeling like the bankers were clowns. Several times we were told one thing, so we did it, then only a day or two later were told "well that really won't affect your application." We were left feeling like the guy was totally clueless in his own profession. It felt like a racket where they were trying to see how much a young couple could score off mom and dad, because we'd unfortunately let is slide that if needed we could probably pay off some of our smaller bills with a little help if needed. They never seemed to be able to come out and say "You need to put down X% to get this rate, and this amount down will get you this rate... If you could pay off this credit card, it would look much better. Don't worry about the $1400 you still owe on this car." Nothing seemed set in stone, and what we needed to do to get the loan seemed to change with each phone call.
 
Many years ago...

my wife and I bought a condo in San Diego. Neither of us particularly cared if the purchase went through, it was just a tax thing more than anything else because of bumps in salary we both got at the time. Anyway, the mortgage broker/agent started in with his little routine and my wife and I looked at him and started talking over one another but saying the same thing, which was, ".. well, whatever, if you want us to buy and want us to do the deal through you make it work, because we don't really care one way or the other..." The whole thing was wrapped up in 24 hours and he paid the downpayment through some trick I don't even want to think about. If you want something too bad the seller is always in charge:help:
 
And do not forget

Those that got an adjustable rate mortgage as highly suggested by their realtor. Got into the house at a low payment but then the rates started to go up and they could not afford the payments. Bought our house 23 years ago, really had no idea what we were doing. The realtor was good and help us through it, he messed up the paper work and ended up with no commission, it was HUD repossessed home.
 
How do the Adjustable Mortgages...

work now that the interest rates are going down? Do they just keep going up at some predetermined pace or follow the prime rate or what?:hmm::hmm:
 
The banks knew exactly what they were doing...

nearly all of the banks writing these HELOC, refi w/cash out's, the dreaded "fixed rate for 5 yrs then ARM after that with balloon payment thereafter"'s, artificially bloated home values, etc, didn't see the long term affects of what they were doing, nor did they care at the time, as the lure of the big commissions "right here and now" was all the rage, many of these loan originators at the big banks were seeing 5, 10 to even 20 thousand dollars or more per loan written, and because of the market boon 5 years ago, many were falling over each other to get that bonus, only thinking short term windfalls, sadly, many homeowners got caught in the greed as well, (myself included, foreclosed on my house in CA because of it), we all can blame the big (and small banks) but homeowners in the end were the ones that could've said no, but, like the big banks, many of us didn't want to think that the market would crash sooner or later, then, it happened, the ballooned payments came due, it was time to "pay the piper" so to speak, many of these payments were nearly DOUBLE the payment that was agreed upon initially....this problem led to the thousands of foreclosures across the country, caused small and large banks to collapse, because of pure, unadulterated greed...eventually this was one of the major contributing factors in damaging the economy stateswide and national, because of the foreclosures, there were diminished property taxes, which ruined city and state budgets and the domino effect goes on from there. Cheers - Rich
 
After two years of...

following the aftermath of the 'meltdown' in the various financial journals, I have to say your precis on this is pretty much the story.
There was an interesting series of articles about a year ago with interviews that inclued Anthony Mozilo and another principal at Countrywide that were very revealing of the 'short termism' at play in their decision making (and this probably was true of the big loan originators in general). For Mozilo the whole issue was to capture as big a market share as possible; all other consideration aside, this was the root of all evil for Countrywide. That strategy led them to take, in his words more or less, a 'price any loan' tactic, which meant they would originate a loan to just about anyone if they could get the price of the loan and the risk to meet certain modeled assumptions. They wanted to get literally half the market in loans but never got above about 30% utilizing this approach because every other lender was starting to do the same. Perhaps needless to say their models for price and risk were not correct. They had both supply and demand working in their favor(or to thier ultimate ruin as it transpired) initially-everyone wanted to borrow and the market for mortgage backed securities was huge and constantly growing. The most illuminating thing Mozilo said was that Countrywide could simply not keep up with Wall Street's demand for securitizable mortgages, so Countrywide constantly broadened its market by offering ever dodgier loans to ever dodgier applicants. Then it all came apart starting in 2006. The funny thing is that when you go back and read the financial press on the 'sub-prime' market in about 2004-2005 it all sounds reasonable and optimisitc. There is a sense that the whole banking industry thought it had found a way of turning dirt into gold through securitizing loans at just about any risk level and selling them off under rating tranches that sounded good but were just hot air. The rest is history as they say. And the infection didn't take long to spread from sub-prime borrowers to Prime ARM borrowers and finally to Prime Fixed borrowers.

But you make the truly salient point, in my view, there had to be borrowers willing to take on this debt in the first place or nothing could happen, and for that who do we blame?:mad2:

I love your car Rich! By the way.:thumbsup:
 
usta in Portland said:
But you make the truly salient point, in my view, there had to be borrowers willing to take on this debt in the first place or nothing could happen, and for that who do we blame?:mad2:
Click to expand...

I have problems with the whole 'mortgage mess' from both sides. First off, I do wonder what some of these people were thinking taking on loans the size some did...

but...


There are plenty of 'smart' people who don't know how the human body works, how electricity works, how their car works, etc... they let the professionals in that particular field handle it for them. If a doctor overprescribed medication, or had the person run through extensive and dangerous un-needed test, you'd have a malpractice suit. If your mechanic did actual intentional damage to your car, to guarantee himself more work via additional repairs, you'd have a case...
But, for some reason when the financial industry causes harm, gives people bad financial advice, soley for quick gain, you have people saying "Well, the dummy should have known better!"
 
It is a murky situation....

I'm sympathetic to your point of view and wasn't really trying to blame the victim (if that is what they were). To me it is more an issue of indicting a culture like ours where the ownership of a house becomes like a fetish object and both the individual and the society align behind gaining that object pretty much regardless of cost. There really isn't a villain here exactly, except for lack of perspective and prudence. Leaving the discharge of responsible lending in the hands of the banks who, once the loan is originated and sold off, has no further skin in the game, is just giving the keys of the hen house to the fox. They aren't professionals with that kind of responsibility and don't even have fiduciary responsiblity to the borrower. Just like the robo signing foreclosures, an enormous number of the loans made were automated approvals and in the case of Countrywide they had loans for virtually anyone breathing and the automated system would offer those loans.
Part of the perception issue is that we have forgotten, if we ever knew in the first place, just how effective and popular the seccuritizing of debt was (and still is) as an investment product for both the buyer and seller of those securities. It spread risk around so banks could loan more money and it kept interest rates very low for a long time. I think everyone involved had just settled into a world view that the buying of a home in America as a problem had been solved once and for all-just as the world's central banks believed they had found the secret to both low inflation and high employment through monetary policy-the so-called 'Great Moderation'. Everyone was wrong because the investors got too frisky and the lid on legal leveraging of investments was lifted at the request of the big investment banks and then things went from OK to horrible in a hurry:mad2:

By the way, here is a chart showing the increase in leveraging ratios before and after the 2004 SEC decision to lift restrictions of those ratios for the five big investment banks. You can see what happened by 2007 just before the crash. A significant amount of the portfolio that was leveraged at these high levels was in mortgage backed securities. This doesn't show the foreign banks-like Royal Bank of Scotland-that were in the same boat but at even higher ratios or Fannie and Freddie leveraged at 100:1 over some parts of there holdings. Note also how many of the big five went under.

http://en.wikipedia.org/wiki/File:Leverage_Ratios.png
 
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