Subprime 'crisis' is just how our free market works

willard wrote:

Got to love such stupid explanations!
The entire subprime crisis has been caused by the purchaser thru an alluring combination of lies distortions and deceptions on their part. On the other hand, the lofty and perfectly honest practices of the banking/loan industries are so pure that they were all taken in by these loan applications.
Once again many on this list see people trying to get a part of the American dream as conspirators etc. The marketplace sucks the life out of people and is perhaps the greatest “reagan” myth of all. It’s a joke, along with deregulation and low taxes (only for the rich of course).

Do you know of an economic system - present or past - which has worked better to provide greater opportunity or prosperity to greater numbers of people?
The opportunity to succeed includes the possibility of failure

CIVICS 101 wrote:

As The subprime mortgage mess continues you should find the following very interesting.
Today, quasi-government agencies, including Fannie Mae and Freddie Mac, and the government agency Ginnie Mae facilitate the bundling of loans into mortgage-backed securities (MBS) to sell to institutional investors. Lenders use the proceeds from these sales to finance new mortgages. The government sets limits on the size and quality of the mortgages these agencies can purchase. Those that qualify — generally prime loans of under $417,000 made to borrowers whose total debt meets agency standards — are called conforming loans.(That limit has been temporarily increased through December 2008 to help make credit more affordable for qualifying borrowers.)
Investment bank securitization
More recently, investment banks began competing with the agencies in the securitization of mortgages. According to Inside Mortgage Finance, from 2003 to 2006, the agencies’ share of mortgage-backed securities (MBS) issuance fell from 76% to 43%. On the other hand, Wall Street’s share of the secondary mortgage market climbed from 24% to 57% during the same period. The rapid proliferation of so-called private label issues went hand-in-hand with an equally profound change in mortgage underwriting. Fannie Mae and Freddie Mac purchase and securitize loans they acquire based on guidelines which do not allow for the purchase of many subprime loans, or loans with balances above the conforming loan limit. Private label issuance was an outlet to the secondary market for many subprime and other non-conforming loans.
Please stop blaming Clinton for allowing freddie mac to buy subprime loans as it was the private label mortgage notes that are most to blame for this crisis.
Further to that idea John McCain was nearly indicted along with the other co-defendants in the savings and loans scandal of the 1980s.
These people fleeced Americans of their homes by giving them astronomical interest rates and selling their homes for a profit once they were in default.
I am a libertarian who voted for Bush the first time and I could never support McCain.

Thanks for the clarification. Most of what I found on research complies with your posting.
The S & L debacle from the 80's was pretty bad though I was a young adult during that time, I was highly disgusted with the likes of the Indiana S & L executive walking off freely with great profit and the savings people counted on for retirement was lost.

Realtor as well wrote:

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You're a huge fool if you would tell folks of just a ONE percent fee. What about the money on the back end? Many unscrupulous mortgage brokers make THOUSANDS and THOUSANDS on the back end. You know that.
Typically we as realtors split the commission with a co-op realtor. Then we split with our broker.
So we may get 1.5%, out of which we pay taxes and advertising.
We don't get a damn dime on the back end, screwing folks like you do, and then telling them how you "got" them a good rate.
Laughing all the way to the bank because they could have got 1-2-3% less, but YOU wanted to make more for yourself.
Predatory lending.
I personally could care less that you doubt if I am a realtor. We avoid your type like the plague, and that is why you don't sek our business because we recommend good ethical lenders, unlike your self.
SO, put that in your pipe and smoke it.

Mortgage brokers had to split their fees too and the standard is 1%, not 6%. Like realtors, they also had advertising and other costs. What makes you feel like you're so different or better?
As for back end points...Three things about that. 1) The back end points game was originally intended for consumers that didn't want to pay out of their pocket. If you didn't want to pay the broker commission up front (on the HUD), the broker could increase your interest rate .25 to .50 to cover that commission. That was the intention and that's how most brokers dealt with it. 2) There are definitely unscrupulous brokers out there. Realtors too. Probably more realtors than brokers. I know of several of them personally. 3) What consumer doesn't do their homework to learn the going interest rate they could get and instead accepts something higher?

Sorry but your holier-than-thou attitude doesn't fly. Realtors are just as involved in this mess as Wall Street, the investors, the government, the lenders, the brokers and the REALTORS. You put that in your pipe and smoke it.

One more thing to remember realtor as well... People are starting to go the "for sale by owner" route because they CAN. I doubt any of them will be getting a mortgage without a broker or lender.

Lake28804 wrote:

One more thing to remember realtor as well... People are starting to go the "for sale by owner" route because they CAN. I doubt any of them will be getting a mortgage without a broker or lender.

First of all, to the letter writer. We don't live iin a "free market" society. If you believe that, you are incredibly naive.

Second, I had to laugh when Rizzo fessed up to being a mortgage broker. How shocking is that! My respect for the BS Detector continues to grow, he certainly seems to be on the beam when it comes to detecting "stinky piles". LOL!

One of my neighbors who has a high school education and works as a driver for a well-known delivery company is also a "mortgage broker" on the side. A few years ago when he heard that my son was looking for a house to buy, he was all over him like stink on you-know-what trying to hook him up with some crooked realtor who in turn was hooked up with some crooked appraiser, and they were all in cahoots together peddling overpriced crackerbox houses to young inexperienced consumers because, as he put it, "I just like to help people". Don't make be barf. Fortunately, my son had the sense, wariness and self-control to not take the bait, instead he came to us for advice and avoided the fate of many other starry-eyed young people who hve been bamboozled by the money-grubbing sociopathic real estate and mortgage broker shysters that have been turned loose on the unsuspecting population.

I agree with Lake. I can't understand why more people don't sell (and buy) real estate using the many excellent options available through reputable "FSBO" companies, or just do it themselves following the guidelines laid out in many simple and comprehensive books and publications on the subject, often written by real estate people who have become disillusioned with the cut-throat unethical practices that dominate the industry, mostly to the detriment of the hapless buyers and sellers. I have bought and sold several properties and have never used a real estate agent because I simply did not need to.

As far as obtaining a mortgage, try joining a credit union and establishing accounts with them. They tend to be much more customer oriented and usually offer a wide variety of financing options that typically use fairly conservative funding practices, which means more stable loan products for their customers, and they almost always have much lower financing "fees" because they aren't in the business of trying to get rich off the backs of the most ignorant, inexperienced and ill-informed consumers.

Finally, what hope is there for a society that allows its most vulnerable members to be preyed upon by unscrupulous operators and then tells them that they should have known better? That certainly is not a society that I am going to blindly endorse. Just because I have been fortunate enough to avoid the pitfalls doesn't mean I am going to stand by and let others become victims because they are less fortunate or less educated. I guess I'm just old-fashioned in that way.

The Truth wrote:

<quoted text>
As far as obtaining a mortgage, try joining a credit union and establishing accounts with them. They tend to be much more customer oriented and usually offer a wide variety of financing options that typically use fairly conservative funding practices, which means more stable loan products for their customers, and they almost always have much lower financing "fees" because they aren't in the business of trying to get rich off the backs of the most ignorant, inexperienced and ill-informed consumers.
Finally, what hope is there for a society that allows its most vulnerable members to be preyed upon by unscrupulous operators and then tells them that they should have known better? That certainly is not a society that I am going to blindly endorse. Just because I have been fortunate enough to avoid the pitfalls doesn't mean I am going to stand by and let others become victims because they are less fortunate or less educated. I guess I'm just old-fashioned in that way.

Truth credit unions and similar institutions are definitely the way to go. One exception I take to all opinions of the "subprime mortgage crisis" is that everyone tends to think of a bunch of predators grabbing vulnerable people and sending them to financial ruin when they lose their homes. As always, there are unscrupulous people in every business. What gets overlooked a lot is that fact that a lot of these people had $0 for down payment and got a 100% loan for the house they were buying. What exactly did they lose? Their credit was probably already not great and they paid little or no money out of pocket. They essentially paid rent. What did they lose?

I don't condone the mortgage products or people that sent us down this road to hell but it takes two to tango and a heck of a lot of those folks that find themselves in foreclosure lost almost nothing. The lenders (and market) will take the hit. What goes around comes around.

Lake28804 wrote:

<quoted text>
Mortgage brokers had to split their fees too and the standard is 1%, not 6%. Like realtors, they also had advertising and other costs. What makes you feel like you're so different or better?
As for back end points...Three things about that. 1) The back end points game was originally intended for consumers that didn't want to pay out of their pocket. If you didn't want to pay the broker commission up front (on the HUD), the broker could increase your interest rate .25 to .50 to cover that commission. That was the intention and that's how most brokers dealt with it. 2) There are definitely unscrupulous brokers out there. Realtors too. Probably more realtors than brokers. I know of several of them personally. 3) What consumer doesn't do their homework to learn the going interest rate they could get and instead accepts something higher?
Sorry but your holier-than-thou attitude doesn't fly. Realtors are just as involved in this mess as Wall Street, the investors, the government, the lenders, the brokers and the REALTORS. You put that in your pipe and smoke it.

Realtors have a code of ethics and a self purging process for any bad apples.
The mortgage folks have no ethics and I will leave it at that.

Realtor as well wrote:

<quoted text>
Realtors have a code of ethics and a self purging process for any bad apples.
The mortgage folks have no ethics and I will leave it at that.

A self purging process? Let's hear about that. I'm interested. Seriously.

TO: The Truth
Our version of a free-market is roughly as good as it can ideally be. As consumers, we can't know what goes into the meat we buy or how thorough the mechanic is on our next flight. Government must regulate these things to keep the playing field level.
But, we can read what we sign, and we can know that buying property on the beach is risky. Every real-estate settlement has a legal fee charged to the buyer. If you pay a lawyer, he/she is your advocate. Ask him/her to explain what you're signing.

Like you and your son, I've stayed out of trouble by being careful and skeptical (and I'm no smarter than the average bear).

But if we bail out everyone who was reckless, why should any of us be careful the next time around?

The biggest bailout is yet to come, when my fellow baby-boomers figure out they can't live on what they've saved. In 10 years, politicians will be salivating at the votes to be had with that bailout!

Jerry Cohen wrote:

TO: The Truth
Our version of a free-market is roughly as good as it can ideally be. As consumers, we can't know what goes into the meat we buy or how thorough the mechanic is on our next flight. Government must regulate these things to keep the playing field level.
But, we can read what we sign, and we can know that buying property on the beach is risky. Every real-estate settlement has a legal fee charged to the buyer. If you pay a lawyer, he/she is your advocate. Ask him/her to explain what you're signing.
Like you and your son, I've stayed out of trouble by being careful and skeptical (and I'm no smarter than the average bear).
But if we bail out everyone who was reckless, why should any of us be careful the next time around?
The biggest bailout is yet to come, when my fellow baby-boomers figure out they can't live on what they've saved. In 10 years, politicians will be salivating at the votes to be had with that bailout!

_______

I would love to see the lenders and any realtors and mortgage brokers that helped approve these loans be held accountable.

Proof of income,credit histories and most every other pre-qualifying requisites were ignored to "make the sale".

The blame falls in many places and artificially drove up prices beyond reason.

Home prices almost doubled within a couple of years while a working family's income did not increase anywhere near that amount.

I understand the economic rule of supply and demand but what happened in the housing industry was nothing short of criminal.

If anyone should bail out these home-owners,an investigation of how this happened would not be out of the question.

A class action suit against the people in all sectors of the housing industry would be a more suitable resolution than adding more taxes to my already hyper-inflated home appraisal value.

I doubt the real estate and banking lobbies could be outspent but with enough evidence that these loans were fraudulent could inspire a law firm to take the case.

Take the money back from the commissions made on the "hot potato" market and hold the banking industry,mortgage brokerages and real estate brokers and agents responsible.

OutofTown Local wrote:

<quoted text>
_______
I would love to see the lenders and any realtors and mortgage brokers that helped approve these loans be held accountable.
Proof of income,credit histories and most every other pre-qualifying requisites were ignored to "make the sale".
The blame falls in many places and artificially drove up prices beyond reason.
Home prices almost doubled within a couple of years while a working family's income did not increase anywhere near that amount.
I understand the economic rule of supply and demand but what happened in the housing industry was nothing short of criminal.
If anyone should bail out these home-owners,an investigation of how this happened would not be out of the question.
A class action suit against the people in all sectors of the housing industry would be a more suitable resolution than adding more taxes to my already hyper-inflated home appraisal value.
I doubt the real estate and banking lobbies could be outspent but with enough evidence that these loans were fraudulent could inspire a law firm to take the case.
Take the money back from the commissions made on the "hot potato" market and hold the banking industry,mortgage brokerages and real estate brokers and agents responsible.

Now how does the realtor approve the loan? You folks are so dumb and talk out of both ends of your mouth.

Realtor as well wrote:

<quoted text>
Now how does the realtor approve the loan? You folks are so dumb and talk out of both ends of your mouth.

Lenders

The charge: Lenders relaxed underwriting standards far too much and made loans they should have known would not be repaid.

Lenders got increasingly accepting of high-risk loan applicants. They had discovered years ago that they could sell subprime loans in the secondary markets by adding stiff risk premiums to the interest rates they charged.

Even though a far higher percentage of the loans would go delinquent, the higher payments from borrowers still paying back the loans would more than offset the delinquencies.

Rising home prices enabled lenders to maintain this equation for years. Appreciation meant that even borrowers who fall behind might have already built up substantial home equity in those two years, equity they could tap to make up shortfalls.

But when home price appreciation stopped its meteoric rise, it caught up many borrowers with no more home equity to draw on.

Bottom line: Lenders made far too many loans to borrowers they knew, or should have known, would not be able to pay them back. That, probably more than any other factor, will drive an increase in foreclosures during the next year or two.

Realtor as well wrote:

<quoted text>
Now how does the realtor approve the loan? You folks are so dumb and talk out of both ends of your mouth.

Appraisers

The charge: Inflated appraisals put home buyers in immediate jeopardy.

The appraiser's job is pretty straightforward: Put an objective dollar value on a home. But according to Thomas Inserra, CEO of Zaio, an Internet-based appraisal service, inaccurate appraisals have become one of the substantial contributing factors to subprime's problems.

When a property is valued much higher than its actual worth, a borrower could owe more of the home than it would fetch on the open market. Inaccurately high appraisals also fed the rising home prices, which, by making homes less affordable, ensured that more borrowers would default on loans.

In a stagnant housing market or if prices are actually declining, owing more on a home than its value removes one of the safety nets. It makes it impossible for owners in trouble to tap home equity; there isn't any.

Bottom line: Appraisers don't bear the primary responsibility for all the bad loans, but more accurate appraisals could have lessened the severity of the problem.

Realtor as well wrote:

<quoted text>
Now how does the realtor approve the loan? You folks are so dumb and talk out of both ends of your mouth.

Real estate agents

The charge: Salespeople fed the frenzy.

"I'm frustrated that real estate agents have gotten off scot-free," says Shana Smith, president of the National Fair Housing Alliance.

According to Smith, agents encourage consumers to buy much more house than they can afford and the agents show them how to do it through the use of exotic mortgage products like hybrid ARMs, interest-only and negative-amortization loans.

"My neighbors just bought their first house," says Smith. "They carefully figured out how much they could comfortably spend -$325,000. The first thing their agent told them was,'I think we can go up to $400,000. We can get you into more house.'"

"When the real estate agent can show how she can get you into a $400,000 house, your eyes get big."

Real estate agents are salespeople and, just like any salespeople, it is in their best interest to move up their customers into a bigger, more expensive product.

Bottom line: Real estate salespeople are not always scrupulous about fulfilling their fiduciary responsibilities to their clients. They sometimes persuade consumers to overspend and take on mortgage payments that may ultimately be unaffordable. But borrowers, too, have to take responsibility for staying on budget.

Realtor as well wrote:

<quoted text>
Now how does the realtor approve the loan? You folks are so dumb and talk out of both ends of your mouth.

Mortgage brokers
The charge: Brokers steered borrowers to loans they couldn't afford.

The huge increase in mortgage originations, including a spike in refinancings, during the first half of the 2000s, attracted a flood of new mortgage brokers into the industry. Despite a lack of experience, many were soon earning six-figure incomes.

When business slowed near the end of 2005, brokers had to find new ways to churn out deals.

"Clients started to get harder to come by and the brokers started shaking the trees a little harder," says Allen Hardester, director of business development for mortgage broker Guaranteed Rate. Some very poor risks who would have been blown off during better times, got loans.

Critics also charge that many borrowers, especially minorities, whose credit scores qualified them for prime loans ended up in the subprime category.

Years of out-sized home price increases delayed the day of reckoning but when markets stopped their run-up in 2006, it left many borrowers unable to make payments. And the more recent the loan, the more tenuous is seems to be.

"Subprime 2006 loan originations are going delinquent much more quickly," said Bob Visini, vice president of marketing for First American LoanPerformance. But mortgage brokers have come in for an unfair amount of criticism, according to Harry Dinham, president of the National Association of Mortgage Brokers .

"It's the lender's money," he says. "They're reviewing the loans. They put loan programs out there and it's the mortgage broker's job to sell the programs."

Bottom line: Were mortgage brokers always careful about matching borrowers with affordable mortgages? No way. But lenders made the ultimate underwriting decision.

Realtor as well wrote:

<quoted text>
Now how does the realtor approve the loan? You folks are so dumb and talk out of both ends of your mouth.

From "10 things your real estate agent won't tell you" article on the Yahoo Finance search:

5. "Sometimes I forget whose side I'm on."
The past 10 years have seen the proliferation of the buyer broker, agents who are supposed to work strictly in the buyer's interest, helping him get a fair price on a home as well as avoid pitfalls along the way. Unfortunately, things don't always unfold so nicely. While buyers may think they're getting a broker who isn't commission-hungry, many buyer agents are just that: They usually get about 3%, the same amount any broker typically earns when he gets involved with another agent's listing. "Buyer brokers are sometimes too focused on closing the sale and getting that commission," says Max Gordon, an Overland Park, Kan.-based real estate broker and attorney, so it's often in their best interest to see you pay as high a price as possible.

Even worse, some brokers who call themselves buyer advocates are actually working for companies that also represent sellers. "Brokerages offer bonuses to buyer agents if they sell an in-house listing," says Israel. A good way to get a broker who has no such conflicts of interest: The National Association of Exclusive Buyer Agents, whose Web site (www.naeba.com) can help you find a buyer agent near you who pledges to help you get the best deal possible and has no ties to sellers' agents; many even work on a fee structure rather than on commission.

Realtor as well wrote:

<quoted text>
Now how does the realtor approve the loan? You folks are so dumb and talk out of both ends of your mouth.

You sir make your living doing this and are part of the problem whether you want to admit it or not.

You and your industry have taken advantage of so called "dumb folks" for way too long.

Maybe the other poster hit a nerve with you by calling for legal inquiries about everyone in the industry.

Maybe Congress will see fit to put an end to your money train.

Ft Meade wrote:

<quoted text>
You sir make your living doing this and are part of the problem whether you want to admit it or not.
You and your industry have taken advantage of so called "dumb folks" for way too long.
Maybe the other poster hit a nerve with you by calling for legal inquiries about everyone in the industry.
Maybe Congress will see fit to put an end to your money train.

No nerve. I said bring it on and we have a self purging process.
99% of the realtors have ethics and work for their clients much better than they could ever work for themselves.
The lenders on the other hand, have no fiduciary relationship and work (mostly unregulated) for themselves.
The public needs realtors as their advocate.
We do not create the market, just interpret it.

Realtor as well wrote:

<quoted text>
No nerve. I said bring it on and we have a self purging process.
99% of the realtors have ethics and work for their clients much better than they could ever work for themselves.
The lenders on the other hand, have no fiduciary relationship and work (mostly unregulated) for themselves.
The public needs realtors as their advocate.
We do not create the market, just interpret it.

Mortgage brokers and lending institutions are regulated by the Banking Commission at a state level and lenders have many federal regulatory agencies. The public needs relators as their advocate? I don't think so. I buy and sell my own houses without the $20,000 fee you would get. I know I am operating in my own best interest. I doubt you would be. Someone asked you previously about your self purging process. What is it?

Realtors are the lowest of all the categories involved in this comedy of errors. I have had realtors insist on using "their" appraiser, home inspector, closing attorney and mortgage broker. What a sham.