Donny Deutsch Has ‘The Right Idea’ On Mortgage/Housing

Posted on November 24th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

In case you have not watched Donny Deutsch over the past few weeks, his new format is in-your-face coverage about the financial crisis using CNBC anchors or contributors as guests each night. His favorites seem to be Gasparino and Jeff Mackey.  It is very good. It’s funny to see the CNBC guys say things they would never say during the trading day. The word ‘insolvent’ comes up more times during the Donny hour than during than regular 12-hour CNBC day.

Housing and exotic mortgages comes up a lot. Donny is very vocal about helping out the little guy.Gasparino is all about blaming irresponsible home owners for ‘buying homes they could not afford’. Donny on the other hand says ‘people are not financial experts, they do what their banker, Realtors and mortgage professionals tell them to’.

BINGO Donny – you nailed it!  Gasparino is wrong.

But Donny needs to take it one step further – at the time the loans were made, most of the people really could afford it.

This housing and mortgage crisis is not a result of millions borrowers buying beyond their means or some massive consumer driven multi-year mortgage fraud era where everyone lied to buy a home. This crisis was caused by fraud alright – but not by the consumer.

The greatest real estate bubble of all time was only able to occur because of the bank’s allowing home owners to use extraordinary leverage created through exotic loan programs and easy credit that never existed before and never will again.

PEOPLE VIEW THEIR HOME AS AN INVESTMENT – NOT A PLACE TO LIVE

What’s worse is that over the past five years there was a fundamental shift of how people viewed their home – from ‘a place to live’ to their single ‘largest investment’. How could they not when all loan programs from Subprime to Prime allowed 50% of gross income (greater when considering limited income doc loans) to be used towards debt. In the good ‘ol days when housing was viewed as a place to live financing was sound with down payments required and no more than 28% of gross income going towards housing debt. 50% debt-to-income ratios changed the game.

Make no mistake about it – MOST BORROWERS ARE NOT WALKING BECAUSE THE CAN’T AFFORD THE PAYMENTS. They are walking because all of their after-tax income each month is going out in bills and the largest portion is going to a home worth half of what they owe. When they are spending such a large portion of their income on a massively depreciating asset, it makes good financial sense to dump that asset. When you can’t sell, that means walk away.

That being said, there are many who can’t afford their payments because of an ARM adjustment. But at one time they were qualified by the bank and given the way the loan was structured they could in fact afford the home. Banks and Realtors in every city in the nation used high-leverage, exotic loans in order get people to qualify for ever increasing loan amounts. By 2005, interest only was industry standard, so was stated income.

Lenders didn’t worry over what would happen to the loan after a few months because the loan was sold and they lose all liability after six months or so.  The 2/28 Subprime ARM was a perfect example of a loan program not designed to hold over the initial teaser period and one that the lender didn’t care about because most were sold and securitized.  Therefore, who cares about creating loans that will last – just make loans that will last at least six months.

Even the securities investors never planned on holding these long.  Exotic loans with teasers were sold as a ‘way to get into the home more cheaply’ or a ‘way to improve your credit then refi into something better a couple of years from now’.  The high churn rate out of these loans was what kept MBS money flowing into this sector. They were short-term, high yield investments. This philosophy was not isolated to Subprime 2/28’s either – Prime 5/1 interest only ARMs and Pay Option ARMs were also sold the same way.  ARMs were the majority of mortgages in the bubble states through the bubble years.

EVERYONE EARNED $150K PER YEAR

Due to the way the loans were structured, from 2003 through 2007 everyone made $150k a year for the purposes of buying a home.  Teaser rates, interest only, high allowable debt-to-income ratios, zero down, stated income etc made all homes affordable and borrowers rich. Home prices responded by surging higher to meet the new found nationally high affordability level. As home prices surged, new loan programs were rolled out what seemed like daily to keep affordability in check.

Everyone was suckered, as these loan programs became the norm. Folks who really earned $150k a year went out and bought over priced homes based upon flawed and temporary fundamentals not knowing they were being suckered.  Now they too are upside down in their home by 50% and have seen their life savings go up in smoke.  They overpaid because the janitor was bidding against them using a stated income 100% interest only combo.  Hey, the loan officer at the bank and the Realtor told the janitor that ‘based upon his income and credit you qualify for this loan’.  Why should he argue with his bank? They know best. They are the experts.

REALITY

But now it is obvious that the past six years was an illusion and none of those easy credit, high-leverage programs exist any longer.  Prices are coming down to the real affordability levels using 15 and 30-year fixed rate loans and a down payment, which has rendered the nations financial institutions and millions of home owners instantly insolvent. The same household that earns $75k per year that two years ago could buy a $650k home with no money down can now buy a $275k home with 10% down.  It now takes at least $150k a year and a large down payment to buy a $650k home.

100% stated interest only and Pay option ARMs will not return.  Nor will 100% HELOCs. They were doomed to fail from their creation. The banks had modeling systems that they never stress tested.  You mean to tell me that it never occurred to the smartest guys in the room to plug into the model that home prices could actually fall? That was a fatal error that the world is paying for.

This is why this crisis was never ‘contained’ to Subprime. This is why those who put down 20% are walking away from their homes – it makes for a sound financial decision. Negative equity is now the leading cause of loan default among higher paper grades. As house prices fall further, more will walk.

Yes, there were people who took advantage of the system. But, that was a small percentage of everyone who bought a home on flawed and temporary market fundamentals induced by easy credit and exotic loan programs that never should have existed in the first place. This five year period of absolute recklessness and blind greed on the bank’s part was the real driver of home prices. Taking that away is ‘going straight’ is the leading driver for the destruction of the housing market and consumer.

THE SOLUTION

If not for the unregulated institutions providing unlimited and irresponsible credit and leverage to every household in America this never would have happened.

First off, I am a fan of letting the market work and the housing/foreclosure crisis clearing itself up on its own. We are already seeing positive signs that the Subprime crisis is on the other side of the hill mostly on its own. The problem is that the Alt-A, Jumbo Prime and Prime mountains lie ahead. However, if the government and banks are hell bent on modifications, I am going to use whatever voice I have to try to convince as many as possible to do it the right way.

This blame does mostly lie with the banks, law makers, and regulators (including Greenspan) who branded and endorsed these loans as mainstream until 80% of all loans in the state of CA in 2006 were exotic by definition. This is very similar to the cigarette makers not telling the American consumer for decades that Cigarettes were highly addictive and cause cancer. They were branded as the ‘cool thing to do’ and then lied about the health effects and addictive qualities in nicotine for two decades until science caught up.

To fix the housing market and greatly aid the economy you must focus on two important segments that made up 80% of all housing activity – the refinancer and move-up buyer. Now they are the minority. This is a major problem. We need to get these people back into the market.  Investors, vacation home buyers, renters and first-time home buyers have always been the smallest segments of the market and now they its primary participants.  The may be great for low priced homes in foreclosure epicenters, but as the problem jumps tracks into Alt-A, Jumbo Prime and Prime, higher end areas will follow down the same path. Without any reasonable financing available for loans over $417k, it is already a foregone conclusion.

Prices are coming down fast and the market will clear at some point and at some level. But that level could be years away.  The banks, regulators and lawmakers with all of their terrible loan modification plans will ensure it takes two decades for this to happen.  See ‘The Great Loan Modification Pump- God Save Us All! for the reason why.  Recidivism rate after loan mod is 50% because most loan mods keep the borrowers levered up and underwater in their homes. The plans by FDIC, banks and lawmakers do exactly this. My plan will achieve the same within a couple of years. Yes, there will be pain but much less. As with the financial institutions, the quicker the borrowers de-lever and raise cash the better for the housing market and economy in general.

It is time for the very same financial institutions that created all of this to do what’s right and re-underwrite every loan originated between 2003 – 2007 using prudent underwriting guidelines. Then, they must reduce the principal balance to what the borrower really earns using a 28% housing and 36% total debt-to-income ratio at a market rate 30-year fixed loan. When home owners are levered at 28/36 they are able to save money and live a decent lifestyle. If they go upside down in their property who cares – they are still able to save money. At 28/36, their home once again becomes a place to live.

If reducing the principal balance to 28/36 on a market rate 30-year fixed loan is $100k lower than the present value of the home, the bank can take can take the differential through a second mortgage or equity warrant.  if the borrower sells or walks away then, the banks gets paid. But the home owner gets all of the upside. If the borrowers can’t prove income, then they need to leave the house and rent.  They should have been renters all along. Anything less and the program will fail.

This will not prevent housing prices from coming down substantially over the next few years especially considering the massive multi-year foreclosure overhang, gross amount of negative equity across all paper grades and terrible mortgage modifications that the banks and regulatory agencies are now trying to push.  But at least it would be the best way to begin to undo the irresponsibility of the past five years and get back to basics where prices are based primarily on traditional factors such as incomes, interest rates, macroeconomic conditions, sentiment and rental rates.  – Best, Mr Mortgage

79 Responses to “Donny Deutsch Has ‘The Right Idea’ On Mortgage/Housing”

  1. I wonder why no one is complaining about falling gas prices or huge discounts on automobiles. We have to do something now to stop them from falling!

    How well everyone seem to bit into the idea of an urgent need to salvage the crashing economy, which was based on … “housing market” and keep the thing the way they were with the housing prices steady and indefinitely going up. Don’t you feel the whole idea of such the economy is sounding wrong? Why everyone seems to be willing pay more and more for the houses or at least looking for the ways to do so? Can’t we find some better ways to spend our earnings?

  2. I have to agree with the majority of writers here and glad there is some degree of SANITY left in this world. It all comes down to personal responsibility. To all you that are temporarily under water, sorry your greed led you to pay too much for something you shouldn’t have bought in the first place. (No wait, I’m not really sorry for you.)

    After the third or so article of this tone Mr. M, I’ve really lost respect for your personal view. I do appreciate some of the information you provide however, you obviously have a personal agenda to pimp, just like the mortgage brokers, bankers, realtors, et al.

    Bravo for those who waited and have cash and credit. We are in the same camp and will buy when there is value. You’ll (we’ll) have our day!

  3. Mr. M, Does the individual who paid cash for a house at the peak of the bubble also receive a rebate to account for the lose in value of his purchase?

  4. Mr. Mortgage,
    Am I reading this right? You are saying (or agreeing with Donny) at the beginning that it is the banking community’s fault that we got into this mess because the average consumer is not a financial expert?

    This sounds a lot like saying it’s the gunmaker’s fault when someone gets shot. The gunmaker makes the gun and makes it available, but it’s the person that pulls the trigger.

    As a marketing professional, I do not consider myself to be a financial expert. However, my wife and I still managed to set up spreadsheets and calculate our income and future expenses to figure out what we could afford. The lender approved us for way more, but we decided we couldn’t afford it. We put in weeks and months of research before pulling the trigger. We are in the process of waiting to hear back on an offer on a short sale. If we were to rent it out, it would be cash-flow positive after paying mortgage, insurance, taxes, and HOA. Cash-flow positive?? Yeah, I came across that term in my research.

    If we can be smart about it, why can’t the average american? If they can’t, then I would argue they are too dumb to make that kind of investment. And if they do go thru with it, they shouldn’t cry about it and point fingers at the banker who was only making the product available. The consumer only has themself to blame.

  5. If you paid cash at the height of the bubble without running analysis such as a simple cap rate spreadsheet you were just being greedy or are a terrible investor. There would be no way that would work out to be a good investment.

    The ones in the high-leverage, exotic loans doomed to fail from their creation were made to purchase more home than they should have by virtue of the structure of the loan. These people were looking for a place to live and Wells Fargo said ‘based upon this 5/1 interest only ARM that qualifies at interest only payments with a 50% debt-to-income ratio and the 15% second we will put behind it, you only have to put down 5% and you can have this $650k home. Your income of $85k per year works just fine. You qualify’.

  6. Jack, you go to buy a home and find the one you like. Wells Fargo Bank and the Realtor give you fancy booklets saying how much you can afford based upon a specific down payment and loan program type. Only 20% of all loans going off at the time are fixed and the rest are exotic, high leverage interest only, stated, piggy-backs etc. They were branded over the years as the new normal complete with Greenspan endorsing them. The person buys the home then all of this financing disappears and values drop back to where they were prior to the time when all this leverage was available.

    First, the consumer was participating in a marketplace doing the same as 80% of the players doing what the bank and Realtor instructed. They really could qualify using the loan programs provided. Why the hell would Wells Fargo and Coldwell Banker set them up to fail.

    Your gun analogy makes no sense. It is apples to oranges. This is how it was done.

    Now, if guns were advertised every minute of television, every household had guns, the President told everyone to buy a gun asap and gun and ammo makers, the government and all of their respective industry advocates spent years branding the notion that by pointing a gun at peoples head and pulling the trigger, it is the responsible thing to do because it tests true loyalty between family members and friends, then yes they would be responsible.

    This mortgage deal is more like the Cigarette makers not telling the American consumer for 50-years Cigarettes caused cancer.

  7. Mr. M, What about the individual who paid cash to invest/speculate in a house as an honest primary residence and sell later at a profit — does that individual receive a rebate to account for the loss in value of his purchase? Terrible investor or not.

  8. While Mr. M and I might disagree on a few minor technical items, his plan reducing the principal mortgage according to borrowers income and my plan reduces the principal mortgage by the decrease in property values for each neighborhood. Our the main idea is the same, principal mortgage reductions is a necessary requirement to reduce foreclosures for the middle class.

    In reply to the notion that a profit could be obtained within 6-7 years and also proving that the real estate prices DID increased because of the lenders changing their qualifying ratio to 50%.

    Lets take an example of a homeowner who purchase a home for $300,000. and with a 33% decrease in property values, leaves the home with a value of $200,000. Negative equity of $100,000. it doesn’t matter whether they can afford the payment or not. Why should the homeowner stay if it will take 18.5 years of making mortgage payments every month before paying down the mortgage to a principal balance of just below $200,000.? A mortgage should cost more than a rental monthly.

    To modify(mr.m’s) or refinance (my way-term of loan starts at 30 again, that is one of the homeowners penalities) the homeowner at 6.5% for a (30 year) fixed rate with the principal mortgage amount of $200,000. using the ratio of 28% making the home affordable, the borrower(s) has to earn $69,000 a year, documented. ( with real estate taxes of $3000 a year and homeowners insurance of $1200 a year included in the ratio)

    Jumpshoot ahead 9 years at a steady 5% per year appreciation increases, the value is now roughly $309,000. Now if there was a 5% appreciation or inflation increase, the original real estate taxes lets say ONLY went up 2% per year and the interest rate ONLY increased by .25% per year.

    The NEW purchaser will need to earn $115,800. per year to qualify at a 28% ratio for a mortgage loan of $300,000. UNLESS

    lenders increased their housing ratio over 28% or issued exotic mortgage loans, then the new purchaser earning the same $69,000 a year could afford to purchase your house for $309,000. in 9 years time for you to make a profit.

    In my opinion, lenders aren’t going to go back into sub-prime underwriting again in the next decade or two nor will home prices appreciate at 5% per year for the same decade or two.

    Once the market finishes over-correcting unless the government mandates the banks to stop discounting their REO’s, a maximum appreciation of 1-2% will be seen for the next decade or two, allowing borrowers incomes time to increase before housing values increase again. I hoped I explained why principal mortgage reductions are necessary for all homeowners and potential homeowners alike.

  9. MM/admin I’ve said this before.. this is not fair..
    – to the person that paid cash for their home in
    – to the person that already lost their home ..
    – to the person that never bought a home…
    – to the person that bought before, but never refied

    NOT A GOOD SOLUTION PRESENTED YET! Help all or none!

    Susan.. can we also increase the principal balance back up, if he/she gets a raise, or a better paying job ??

    What about the laid off person, should we reduce it accordingly to the unemployment pay amount??

    What about if the unemployment ran out? reduce it to 0?

  10. Why not give every family 100K cash and 100K at 2% interest and it would only available to be used for mortgage related (help you keep your home, or help you buy a home) if you want it.

    This will help everybody. yes this may add 15 trillion on top of the 5, I’m just suggesting to speed this thing up..

  11. ex owner:

    My mortgage reduction plan is based on the location of the property to eliminate negative equity, not matching the borrowers income to a mortgage payment. The borrower still must qualify for a 30 yr fixed rate with the reduced principal balance mortgage payment. If they can’t qualify, they should be renters. My plan also eliminates the “shouldnt have” been homeowners at “that” purchase price, I am not calling anyone stupid but I am putting some responsiblity on the homeowners.

    Take a house that was purchased anyway from $393,750 to the market peak of $525,000.already having negative equity.( at the market peak the house would have been worth $525,000. now there has been a 25% reported and verifiable decrease in the market, these homeowners already loss their equity and if their mortgage is higher than the current value, they are in negative equity. This includes your prudent homeowners who put down 20%, they loss their equity too )

    Under my plan the new reduced market value would be $350,175. * this is based on a 25% decrease in values/prices since the market peak creating negative equity situations. The formula uses 1.33% of the reported and verifiable decrease to be ahead of the deflationary cycle. The homeowner if they were current on mtge payment would have to earn $93,000. a year to receive a reduced principal balance, rewarding the homeowners who pays their bills . If they were delinquent would have to earn $126,000. a year, since they already shown that they couldn’t budget their money. and to pay for the FHA premium charged they need to earn more money.

    My plan will control the market value at $351,750. stopping negative equity from occurring, and the area will have working homeowners who could afford the mortgage payments comfortably.

    Note: the homeowners who fall in between $3507500. and $393,750. , would also be eligible for a reduced principal mortgage reduction equal to the current loan balance to decrease value they are currently at, a mortgage loan balance issued at 375000 divided into 393750 decrease value equals 95 % or a mortgage reduction to $334,150.

    The main difference in reducing the principal to an area’s location instead of a borrowers income . In the example printed earlier, a borrower who earned $69,000 a year could have purchased a home for $525,000 under an adjustable rate of 3.5% at 50% ratio, which again proves how the banks regulated the values of the housing market upwards by qualifying some borrowers who shouldn’t have been homeowners.

    Using Mr.M’s income to match the mortgage balance guideline, the borrower who earned $69,000. would get his mortgage reduced to $200,000. under my plan, they wouldnt qualify.

    It does help everyone but the homeowner who already lost their house. My plan stops and controls the price reductions at up to 40% of the market peak for each area which protects all homeowners from further losses in equity, which they are already taken, even if they paid cash for the property.

    The number one reason for foreclosures is negative equity, the number two reason is the borrower can’t afford the payment.

  12. Susan… you want to control the market? are we now moving even further to comunism? You know what hapends then right?

  13. The housing market were controlled by the greed of Wall Street, thru exotic loan programs enabling the rapid increase in housing prices without regard for Main Street’s true income capacity. The government allowed capitalism or free markets without over-sight and the reduction of laws to protect the consumer.

    Now the government is trying to control the market only for the greed of Wall Street, as shown in their “modifications” programs proposed. All modifications purposed by any bank or branch of government is solely for the benefit of the banks to ensure their cash flow regardless of protecting the consumer. What kind of government is that called?

    My plan doesn’t create communism( which is a political theory of the public owning private property/entities), it makes a democratic government take an active role in governing by controlling that the losses to Main Street for the majority are reduced and redirected back to Wall Street the elite few where they belong.

  14. I am going back to my original off the wall theory.

    The big banks are basically bankrupt – right ? So anyone who invested in them has already lost their investment.

    The majority of houses are in negative equity. Including those who bought with 20% down.

    The car industry is bankrupt.

    The likes of starbucks etc and malls will be bankrupt.

    The taxpayer has to pay to fix the situation because there is no one left to fix it.

    Essentially Mr Mortgage you have declared America Bankrupt.

    So why not – let the banks collapse completely guarantee the deposits to the $250 000 level as promised. Let the government re-create a money lending market for business creation. Give all businesses and property their homes / offices that were in debt to the banks these properties as 100% paid up. Now people don’t have to pay mortgages and have disposable income available.

    Its a crazy idea but it seems sane because the alternative seems to bankrupt the middle class tax payer for life in order to try save some rich bankers and their overseas friends in the long term.

    I would rather see the millionaires of the finance world all wiped out then the entire middle class of the USA.

  15. Mr. M says: “If you paid cash at the height of the bubble without running analysis such as a simple cap rate spreadsheet you were just being greedy or are a terrible investor. There would be no way that would work out to be a good investment.”

    I enjoy your blog but I’m a bit disappointed here by this. A buyer who paid cash at the height of the bubble without thinking is greedy or stupid, but a buyer who bought a house 6x their income w/a teaser rate is a poor cheated soul who deserves to have their principle reduced on a handout. ok.

    And this: ..”The ones in the high-leverage, exotic loans doomed to fail from their creation were made to purchase more home than they should have by virtue of the structure of the loan. These people were looking for a place to live and Wells Fargo said ‘based upon this 5/1 interest only ARM that qualifies at interest only payments with a 50% debt-to-income ratio and the 15% second we will put behind it, you only have to put down 5% and you can have this $650k home.Your income of $85k per year works just fine.”

    No one “made” anyone purchase anything. It was done by choice and free will. Anyone w/an $85k income who bought a $650k home at *anytime* is just plain silly. The ratio has never worked. Shady mortgage brokers can’t be held responsible for buyers’ stupidity.

    The principle reduction described may very well come to pass and may eventually be necessary, but it won’t help to re-condition the silly buying & financial habits of those that helped get us into this mess. And re-conditioning and re-educating is needed, otherwise we’ll be right back to square one.

  16. Mish

    If bars can be sued for serving an intoxicated person who later goes out and injures somebody then banks should be sued when they issue loans designed to fail or without due diligence to confirm income, or with debt to income ratios to high leaving a high probability of default. The reckless actions of the banks lending practices unleashed severe economic trauma to a nation. We are now all economically injured.

    Moving on to some law. I would like to bring your attention to the word “shall”, which means that it is not voluntary but a responsibility. In this instance it would seem to be the responsibility of the Chairman of the Federal Reserve Bank of San Francisco to report on California conditions. It is the duty of that Chairman to report to the Board of Governors of the Federal Reserve.

    I would like to see Bloomberg dig into this little point of law and see what the various Fed bank Chairmen covering the bubble states reported to the Board of Governors and if the Board of Governors acted or ignored etc.

    TITLE 12 > CHAPTER 3 > SUBCHAPTER VII > § 301Prev | Next § 301. Powers and duties of board of directors; suspension of member bank for undue use of bank credit.

    “Each Federal reserve bank shall keep itself informed of the general character and amount of the loans and investments of its member banks with a view to ascertaining whether undue use is being made of bank credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions; and, in determining whether to grant or refuse advances, rediscounts, or other credit accommodations, the Federal reserve bank shall give consideration to such information. The chairman of the Federal reserve bank shall report to the Board of Governors of the Federal Reserve System any such undue use of bank credit by any member bank, together with his recommendation. Whenever, in the judgment of the Board of Governors of the Federal Reserve System, any member bank is making such undue use of bank credit, the Board may, in its discretion, after reasonable notice and an opportunity for a hearing, suspend such bank from the use of the credit facilities of the Federal Reserve System and may terminate such suspension or may renew it from time to time.”

    http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000301—-000-.html

  17. Mish, I could not possibly agree with you more!!!

  18. Mish – America being bankrupt is being confirmed by 10-year notes and TIPS.

  19. Mel – I was being patronized so thought I would swing back for a change – I have said many times EVERYONE WAS SUCKERED including those who bought at the wrong time paying cash. To be honest I don’t know what to do with the person who did everything right other than fix all the messed up people with my plan and get housing back on a stable footing in 5-7 years vs 15 years. That would benefit them. Perhaps a tax break. What’s most important is undoing all of the toxic loans with re-underwriting and principal balance reductions.

  20. Mr. M, You are performing a great service for the general public thru your web site. As for your proposal to lower mortgage principles, all corrective plans require attention to details. The devil is in the details. That’s how plans and laws become complicated. Your plan as proposed may work on paper, but to be politically viable, it needs to ensure that financially responsible individuals end up better off than those who got caught-up in financial arrangements they can not afford.

  21. The greatest real estate bubble of all time was only able to occur because of the bank’s allowing home owners to use extraordinary leverage

    “…allowing home owners to use…”. This is an example of enabling, and enablers cannot be the main cause; they require another participant to take action. A gun enables murder, it alone cannot commit one.

    “over the past five years there was a fundamental shift of how people viewed their home – from ‘a place to live’ to their single ‘largest investment’.”
    There is your main cause.

  22. Truth doctor

    Did the bank enable the home buyer or did the home buyer enable the bank? While the home buyer saw a house as their biggest investment, the banks saw fat profits. From this side of the fence, it looks like the banks were the ones that got into the big accident and totaled their cars while the homeowners just walked away…. Is it the home buyers fault that the banks were lousy drivers and did not understand their investment?

    While the home buyer might have viewed their house as their biggest investment, zero, five and 10% down is not much of a vested interest, whereas the bank is putting up 90% or more of the money. Truth be told, it was the banks biggest investment regardless of what the home buyer thought.

  23. These victims that you describe are those that would spend more time conducting research before purchasing a plasma tv than buying a $500k house. They each should have hired a CFA and a lawyer that graduated top-of-class from a good school, rather than hastily dropping a lifetime of earnings based on the musings of an ex-convict turned loan officer.

    It’s just common sense. Do your due diligence or else you face a higher chance of getting rocked.

  24. […] the already demonstrated incompetence of the overly compensated Financial Industry CEO’s, their legions of sycophants, as well as […]

  25. THE FINANCIAL INDUSTRY TAKES TOO MUCH

    Well that was pretty much what I was saying, the banking industry allowed DTI to expand well beyond reason and the bubble sucked in so many home buyers that the end result was a choking off of the economy even without the current crisis. In essence, banking had turned into a leach on the productive efforts of society, consuming all like a hungry lion that in the end would even eat their young.

    One certainly has to ponder the worth of finance when the benefits provided are then totally erased and we lose decades of accumulated wealth in the process. Clearly banking is an item that needs to be kept on a short leash and as we have observed, other entities cannot exist that pressure banks into unsound loans.

    With Japan being a recent example of banking gone bad, how was this allowed to happen? Somewhere lurking under the covers I suspect we will find that it was allowed due to an otherwise inability to show any growth in GDP via a straight economy.

    You would think by now that congress would have straightjacketed banking back to it’s post depression cage….

  26. And it looks like it played out exactly as I said. The congress having their moment of glory with the auto makers to show “tough on bailouts” when what they should have done is funded it to Obama and got the autos off the Christmas table. Instead everyone went into Black Friday weekend with doom on their minds which showed up on Wall Street today with a 9% drop, one of the largest in the history of the stock market.

    You think our leadership would perform better than that and not torpedo the number one shopping day of the year. When all the cards are counted, I would not doubt that not funding the autos and getting them off the table does not in fact end up costing the economy in excess of the 25 billion the autos wanted in the first place.

    So where are we now? The consumers are standing around looking at Wall Street saying “OMG, it IS worse than we thought!” We are now reduced to a downward spiral with the consumer and Wall Street feeding off of each other all the way down…. Nice move congress, hope you enjoyed your get tough stance while torpedoing consumer confidence. Happy Holidays… It boggles my mind that they did this, you would think they are working for Osama.

    Yeah, I might be a little opinionated but that is how BertDilbert sees it.

  27. Lots of interesting discussion going on here and it’s clear we have a big split between those that want to help the homeowner and those that refuse to bailout the homeowner. Some of my best friends are homeowners and like Mr. M said they began to think of the home as an investment. All of the ones that bought after 2004 were absolutely sure they couldn’t really afford the house they were buying but, “hey, its an investment” it will go up won’t it? I’ve done that same thing with stock but I never got to live in a nice “stock”. Some of my friends got to live way beyond their means in a nice house for a couple of years. Lately I’ve had a few stock investments tank. I sell that stock, take my lumps and try to figure out how to do better next time. I never even thought of asking anyone for a rebate on what I invested. From what I see on this board and in the streets there will be to much of a backlash against principle reduction. It might happen but people are going to be upset.
    My thinking is that we don’t need a plan. Let them forclose and let the market clean them up. If people really want to help then lets uncover and publicize every forclosed home out there as they forclose and tell the banks, (which we will soon all own), that they have 18 months to sell after forclosure. That’s an 18 month slow motion auction but it will eventually work as after the last month the property lists for a $1. If you’ve been to many house actions you will find that investors will come out of nowhere and the values on these homes will be more real then anything you will get from a real estate estimator.

  28. David Said:
    November 25th, 2008 10:32 am
    How utterly stupid.

    All the Bush admin. is doing is propping the whole mess up as high as they can in a final gasp, before they shove it all over to Obama’s plate.

    We just have to accept that houses are worth no more than 3x the wages of the average citizen in most areas, GET PRICES BACK TO THESE LEVELS, so that people can actually afford houses and let’s move on!!

    We just have to face the PAIN, and we are a very pain-averse society.
    —————————————————————–
    David, you are the stupid one. This whole mortgage thing falls soley on the democrats and gay boy Barney Franks. Did you not watch the 5 minute YouTube clips where the Republicans were fighting for the people and the democrats were saying “nothing was wrong”?

  29. […] faced in 2008 with much higher reset mortgage costs to pay down the debt on a depreciating asset. Notes Mr. Mortgage: “The same household that earns $75k per year that two years ago could buy a $650k home with […]

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