Understanding The Issues: Subprime/Housing Crisis

I don't know which candidate has a better plan, but the lenders and borrowers were dumb. The brokers may have been slimy with the borrowers, but the lenders did not want to see people lose their houses. The lenders wanted people to borrow as much money as possible without going into foreclosure. As others have noted, the borrowers often got ARMs for houses they couldn't afford and now they are paying for living beyond their means. Sure, there are exceptions, but I that those sweeping generalizations pretty much capture what's happened.

Going forward, I'll support any plan that helps the economy (helping the borrowers/lenders is just gravy). Unfortunately, I have no clue what that plan would entail.
At the corporate level, that's true. However, most of the sales reps making these slimy calls were commissioned, so they got paid on the loan, regardless if it was affordable long-term.

I don't know which candidate has a better plan, but the lenders and borrowers were dumb. The brokers may have been slimy with the borrowers, but the lenders did not want to see people lose their houses. The lenders wanted people to borrow as much money as possible without going into foreclosure. As others have noted, the borrowers often got ARMs for houses they couldn't afford and now they are paying for living beyond their means. Sure, there are exceptions, but I that those sweeping generalizations pretty much capture what's happened.

Going forward, I'll support any plan that helps the economy (helping the borrowers/lenders is just gravy). Unfortunately, I have no clue what that plan would entail.

My mindset matches with this pretty much exactly.

In some cases, lenders did prey upon the elderly. Still though, being old is no excuse for signing something without knowing exactly what you're getting into. Borrowers have to take the responsibility for making decisions without fully thinking it through, or failing to understand the risks. It takes two signatures to enter into a mortgage contract. Both sides need to act responsibly.

At the corporate level, that's true. However, most of the sales reps making these slimy calls were commissioned, so they got paid on the loan, regardless if it was affordable long-term.

paid, and paid well. 25-40k per sale and a "if i don't do it someone else will" rationale... bad mix. we need more people with the "let's not screw people over just because we can" moral compass.

At the corporate level, that's true. However, most of the sales reps making these slimy calls were commissioned, so they got paid on the loan, regardless if it was affordable long-term.

Agreed. Those people were definitely acting unscrupulously. And in cases where those slimey lenders flat out lied to borrowers about the terms and risks of certain deals, you can't fault the borrower at all.

But in the majority of cases, slimeballs or not, the borrowers still signed deals without knowing enough about them. You gotta stand up and look out for yourself, because you can't assume others will.

I like McCain's plan though I have serious misgivings he will follow through with it. Dude has the same people (http://www.newsweek.com/id/139443) that perpetrated the problem advising him on how to solve the problem. UBS Bank is helping to craft his mortgage policy...this is the same company that tells it's executives and senior employees not to travel to the US (http://www.ft.com/cms/s/0/060c5c38-2c17-11dd-9861-000077b07658.html) because they might get arrested.

p.s. I don't like the idea of wolfs guarding the sheep.

I'm not sure that the 98% of Americans who didn't take a bad loan should get in a twist about the 2% who did. They can rent apartments until they get back on their feet.

As for the Wall Street crooks that seem to come up with a new confidence scheme every ten years or so (junk bonds, tech stocks, subprime loans) , many should go to Federal pound them in the ass prison and any bailouts that are necessary for the overall stability of the financial system should be accompanied by regulatory oversight. I'm still laizess faire when it comes to small businesses, but these Wall Street ass clowns continually demonstrate a complete inability to function within the limits of the law. Now we need to go after the oil speculators.

What evidence do you guys have to prove that lenders prayed on the elderly or hid information from their borrowers? I'm in a business when people refinance I'm notified and I cannot remember may of my eldery customers refinancing their homes. Banks are not in the realestate busines and usually loose money on forclosers so why whould they want these bad loans. If I'm correct my understandin was that if a person took out an ARM they had to get approved on what the loan would jump to when the ARM was up. The problem was that the people who took these loans did not pay down the princple or saved the money they took the extra cash and obtain more dept buying cars and stuff. Now that the ARM's are coming due the extra money is now tied up in new purchases.

What evidence do you guys have to prove that lenders prayed on the elderly or hid information from their borrowers? I'm in a business when people refinance I'm notified and I cannot remember may of my eldery customers refinancing their homes. Banks are not in the realestate busines and usually loose money on forclosers so why whould they want these bad loans. If I'm correct my understandin was that if a person took out an ARM they had to get approved on what the loan would jump to when the ARM was up. The problem was that the people who took these loans did not pay down the princple or saved the money they took the extra cash and obtain more dept buying cars and stuff. Now that the ARM's are coming due the extra money is now tied up in new purchases.

an ARM isn't really a predatory loan, though taking out cash for boats and cars is extremely stupid. the predatory loans are the negative amortization deals (and also payday loans, though those are just ridiculous interest rates).

this explains some of the issues of general predatory lending pretty well:
Predatory Lending | Dollars & Sense (http://www.dollarsandsense.org/archives/2000/0100bradley.html)

I gotta go w/ McCain on this:

I've been a loan officer w/ a mortgage banker for 7 years now. To hear some politicians talk, I wonder to myself whether they really know what they're talking about. They broadly talk about ARM's adjusting higher and broadly talk about people who can't afford they're housing payments.

A "normal" conforming ARM is actually a decent performing product. Right now if you have a 5 yr fixed ARM this is getting ready to adjust (you're on the 6th yr), you would adjust to 5.875% or 6% most likely. Not bad. Then next year you'll adjust again depending on what short term rates are doing. You can also refinance if you choose.

Alot of the loans in question are subprime loans...riskier higher interest rate loans. There are usually 3 options, a fixed, a 2 year fixed arm, and a 3 year fixed arm. The borrower has a 2 or 3 year window to fix their credit to refi to a conforming, market interest rate. Now, if the borrower doesn't fix there credit they have to keep there loan and let it adjust which generally adjusts MUCH higher. That's the issue. Now virtually all subprime lenders are extinct now. I've probably done 3-4 subprime loans in 7 years as a last resort. I laid it all out there to tell them they had to keep there credit up or there wouldn't be any other options.

Then there are the Payment Option ARM's. They were supposed to be marketed towards the wealthy, upper class, instead the were used to qualify persons who wanted a home larger than they could really afford. Usually a few options...pay a 30yr fixed payment, 15 year fixed, Interest only, OR pay the minimum payment which was usually a low % rate of 2 or 3%. The kicker is the min payment is a negative amortization loan where you balance goes up each month. So all of those commercial you heard about a $200k house for $500/mo...there you go.

Once your credit goes..it leaves you w/out options. Multiply that w/ declining value you have a problem.

I'm not saying that lenders aren't to blame and i'm not saying some loan officers aren't to blame but i don't think the gov't should jump in and help every consumer out there. I think unfortunately we've got to let this thing correct itself and it will.

As a lender, i've always taken alot of pride in the fact that i make recommendations to people that come to me. I tell them what i would do. I tell them to make sure that you are comfortable w/ your payment no matter what i can qualify you for and i can qualify you for more than you want to pay. I've never done a Payment option ARM (not that they are always bad). I have done loans where i've counseled persons and qualified persons on loans they've said they could afford where in reality i've wondered how they are going to do it.

My two cents i guess.