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Old 10-06-2008, 05:35 PM   #127
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Jason, sorry to disagree with a near neighbor (about 40 miles), but I believe the intent of the 1990's bills as well as previous regulations going back to the '70's, was to prevent "redlining". I haven't heard that term used for a long time, so I'll explain it. Banks used to actually draw lines around entire neighborhoods and refuse to take mortgages in those areas. Mostly they were areas where black people lived (and that didn't mean they were poor) although some where poor whites lived. It has been documented that banks then (and still do) offer loans with more stringent terms and higher interest to blacks with the same income and credit ratings as whites. Also single white women are similarly discriminated against. Redlining as well as offering different loan terms based on race or gender is simply discrimination.

Banks and mortgage companies were not required to forgo credit checks, give loans without getting proof of income, or submit fake loan applications. They did that to themselves and that started only in the past several years. If they had done that in the '90's, this collapse would have happened before 2000. People with little knowledge of how mortgages work (do you understand yours? Do you understand the closing documents? Read your mortgage document and then explain it to someone and ask them what you just said.) were duped by mortgage brokers and loan originators out to make a fast buck or fulfill quotas. Most people believe those people are the experts and tend to trust them. Few people understand all the paperwork involved in buying a home and financing it.

Banks and mortgage companies didn't care what mortgages they took because they promptly sold them to investment bankers who turned them into such instruments as "collateralized" debt and derivatives which simply meant they passed the risk off to someone else. Eventually this paper gets bought by investors who believe the hype or the false ratings provided by the three rating companies who didn't do their job. Most of these mortgages are being paid, but some aren't. The majority of these mortgages were good investments. Many people who otherwise wouldn't have been able to buy a house during the redlining era now have houses.

The failure is not in the legislation from '95, but in the repeal of the Glass-Steagal Act in 1999 (I think that's the year) and the deregulation that allowed banks and investment houses to combine and sell products they knew nothing about, take bad paper (mortgages, other investments), sell them them to some people who should have known better and some who didn't have a clue. It was a bubble like every other one, whether it was telecom in the late '90's or the tulip bubble hundreds of years ago in Holland. They always end in a panic. They can be avoided, but too many people forget to learn from history.

The bill passed a few days ago is a junkpile with all sorts of gifts to various interest groups to get it past some pretty craven legislators. It gives too much power to too few people who have not proven themselves capable of changing the system. The real problems are that credit is not available and mortgages need to be re-worked to stop the bleeding. There's some of that in the bill, fortunately. You couldn't get anything else through Congress and signed by the President. If it hadn't passed, things would be worse and worse. Not a happy choice. I am as dissatisfied as anyone. My dream is that FDR and his cousin Teddy come back to life and save us from ourselves.

Back to changing the lifestyle—if you lose your job, your investments go south, lose your health insurance and get sick, sure. It's certainly affecting us as well see our investments shrink.

Gene
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Old 10-06-2008, 06:27 PM   #128
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Jason's thoughts are exactly what the conservative side of this election are espousing to "re-write history". Sometimes if you state a falsehood enough times much of the world begins to believe it is true

In an attempt to be a "radical centrist" I offer the following;

1) Prosperity of the Clinton eight years had a lot to do with the euphoria created by the "dot-comm bubble"...which burst late 2000/2001. Also, a portion of the new home price escalation and the available "home equity" loans to buy cars/toys/second homes, etc. It was a period of lots of consumer spending accompanied by a balanced budget.

2) Prosperity in the Bush eight years was significantly due to the combination of deficit spending of general budget AND the trillion $$$s spent on the war effort...ALL "charged" and added to the national debt (very stimulative to the economy when you don't pay for it!)...AND the wild housing appreciation that supported continuing consumer spending way beyond their incomes. Plus, the bonanza of spending on new home construction and furnishing. Which has now all collapsed.

The "elephant in the room" was the earlier cited changes in the "rules" and the environment of "deregulation" and lack of oversite. The no downpayment/no documentation loans...accompanied by the exotic terms and sub-prime credit mortgages were the "lynch pin" that just got pulled!

The Bush years' "bubble" was exacerbated by the exotic credit swaps that were invented by Wall Street. If we just had to deal with bad home mortgages the current problem would be much less serious...but the Highly leveraged "toxic" credit swap brought the under financed lenders to their knees.

Thus we are now left with picking up the pieces for the next 1-2-3??? years? We will hear "We will never let this happen again!"...not until the next, best...get rich quick gimmick.

I for one have put on hold my plans to retire...I need to earn back some of my retirement equity "lost" in the last year. I would guess there are others here with similar agony.

Hope this has not been offensive to anyone...I obviously am way to analytical and spend too much time one this type of problem

Thanks for listening...an AS wanabee with "deferred" goals...Tom R in Two Harbors, MN
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Old 10-06-2008, 08:51 PM   #129
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Sounds like we have a couple of bona fide bankers in our midst.

I have a question that I can't seem to find an answer to in all of this mess. What happens to the people that walked away from their mortgages? In the real world (meaning every mortgage I've ever taken out) I was told that I would be responsible for the loan amount one way or another, regardless of circumstances.

My view is that a large part of the problem here is that people got home mortgages who simply weren't responsible enough to actually have one. And, folks "over-borrowed" against their homes. What is being done to track these people down and force payment? Now that these dead mortgages are essentially debts owed to the Federal Government, are the feds going to try and recoup some of the losses from the people that created them in the first place?

By the way, if you have a VA loan on your house, like I said earlier, in the real world, you don't get a bailout from the Feds if you default. They will absolutely come after you for the money.

Sorry if this is too simplistic. Just trying to put a little "blue collar" perspective out there.

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Old 10-06-2008, 08:55 PM   #130
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Hi Jim...not a banker...a CEO (but an accountant by training...and probably an accountant to the "core" )

I am not sure about your question...I do believe that many of the foreclosed homes do not yield the bank any more than they get when they sell the home...maybe "most" owners that loses their homes do not have other assets to go after??

Maybe a real banker can help out...Tom R
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Old 10-06-2008, 09:06 PM   #131
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But the Feds can always go after things like Income Tax Refunds. They also have the power to do things like: Deny Federal benefits under certain circumstances--Social Security benefits, SS Disability benefits, garnish wages of Federal Employees, same with Federal retirement moneys, deny basically any kind of government money going to an individual that owes the federal government money.

As one of the "Joe Six-Packs" that's having to pay for this mess, I'd sure like to see all of the irresponsible people involved suffer for their greed. And I'm including the people that took out the loans, the bankers that loaned it to them and the government folks that allowed all of this to happen (regardless of their party affiliation or position in government).

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Old 10-06-2008, 09:44 PM   #132
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Mortgage 101, week two

I'm not a banker either, but a retired lawyer. But most of this stuff has been written about extensively in the NY Times, Wall St. Journal and other of the country's top newspapers as well as discussed on CNBC and to a lesser extent on CNN and MSNBC.

If you are foreclosed on, whatever the bank gets for the property is subtracted from what you owe. Naturally if they get more than you owe, they owe you money. Also, they will tack on inflated lawyer's fees and other costs of foreclosure. They have a claim for a negative difference and can pursue you for the money just as any other debt. They can sell the debt to a collection outfit for 25¢ on the dollar (I have no special knowledge of what this kind of debt sells for now, but because there are so many foreclosures, such debt may be worth very little) and the collection company will try to get the whole amount, but probably settle for somewhat less. Collection cases like this are very easy to win.

You can make a deal before foreclosure sometimes. You give the deed to the mortgage holder (mortgagee*) and reach an agreed upon value for the house and avoid foreclosure. This is called a deed in lieu of foreclosure. You would not in the past have to pay the difference between the mortgage principal and the value of the property. The costs of foreclosure would not be added into a debt to the mortgagee because there would be no foreclosure. They would probably try to collect a fee nevertheless. Also in the past, if the IRS discovered this, they would want taxes paid on that difference because it met the definition of income. Since you couldn't pay the mortgage, how could you pay the IRS? I believe several years ago, Congress exempted difference from the definition of income. I have no idea if this is possible now because what would they want your house. They seem to think threatening people works better.

Now with the growing number of foreclosures, how can mortgagees handle the volume and pursue all this? On the other hand, they are cash starved and need every cent they can get. What makes sense is to rework mortgages—extend due dates, lower interest and get what you can. It is cheaper than foreclosing on people without jobs or minimal assets and then having to maintain the property and pay taxes. Then the mortgagees don't maintain the property and pay the taxes—just like the people they kicked out, but worse. The value of the property and the neighborhood drops, too many houses are on the market, and the value drops and drops. Maybe they try to get it from the the mortgagor although he could file a counterclaim for "waste", i.e., ruining the property. So it makes sense to make a deal, but these mortgagees don't seem to know anything but how to screw over debtors. And, the mortgages have been sold all over the place and no one seems to know just who owns what part of what. The mortgage service companies don't have authority to rework mortgages and have no economic interest to do so.

Add to this the voluntary government sponsored program to rework mortgages announced with great fanfare some time ago. It's been a total failure and hardly helped anyone.

I think a moratorium on foreclosures would be the 1st step. In the 1920's and '30's—the pre-Depression started in rural American not long after WW I was over—states adopted mortgage moratoria to give people time to get this straightened out. But then mortgages were held by local banks or individuals—these were people you could deal with when the state put a little pressure on for the common good.

I am not feeling good about all this. Henry Paulson, former Wall St. banker for one of the better run investment banks (Goldman Sachs), and now Sec. of the Treasury, is from the same bunch who brought this mess to us. He's one of the best of the bunch, but he's definitely one of them. We have to watch him very carefully. These guys have not learned much and seem incapable of learning, so I would be surprised if they soon are saying we need a completely free market and then we can recreate the 19th century when we had a constant succession of depressions, called panics then, and incredible human suffering.

I understand Bank of America, which recently took over the horribly managed and customer unfriendly Countrywide, is working hard to rework mortgages. Maybe they are going to show others how to do it.

So calling anyone a banker may be an insult these days. I have known good people who worked in banks as well as have had to deal with arrogant snobs. Of course, you can say that about lawyers too.

Now, get your blue books ready for the pop quiz.

Gene

*when you place a mortgage on property, you are the mortgagor—you give a mortgage to the bank, mortgage company or uncle moneybags. I still get this mixed up after all these years since I learned it—almost 40 now.
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Old 10-06-2008, 09:57 PM   #133
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The banks-investment houses are not upset about getting the principle back on a foreclosing style resale of a house - they are wailing over loosing the total amortized twice or thrice loan amount merrily rigged into their books for the next 15 or 25 years. I've read that in 1933 40% of the mortgages were in default, today's figure is 4%. It's a scary thing when market stampedes occur from a mere 4%...
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Old 10-06-2008, 10:21 PM   #134
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I've read that in 1933 40% of the mortgages were in default, today's figure is 4%. It's a scary thing when market stampedes occur from a mere 4%...
You don't suppose the media has any effect on that do you?
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Old 10-06-2008, 11:17 PM   #135
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Jason... You did what even my 80 yo dad didn't even dare. He wanted to blame this on Clinton somehow but he couldn't do it with a straight face. There is plenty of blame to go around. Here are two main causes. Another would be the theory that a weaker dollar wouldn't be so bad. It might even make our economy stronger. The DXY ( dollar index ) was 120 in 2001. It is less than 80 today. That means if you had a dollar in your pocket in 2001 you have 66 cents today. $ 66 oil becomes $ 100 oil, right on down the line. 1% fed funds will do that.

Bush even had a name for it. The Ownership Society. From his website...
Fact Sheet: America's Ownership Society: Expanding Opportunities

Phil Gramn single handedly may have done it himself
Gramm-Leach-Bliley Act - Wikipedia, the free encyclopedia

Deregulation started in the 80's and was a platform plank for the conservative party and it will die as a theory with this president.
The healthy banks are the regulated banks. Common sense wins out again. This the Savings and Loan crisis all over again and it has the same cause. Deregulation. No rules. No oversight. Corrupt lobbyists and politicians.
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Old 10-06-2008, 11:39 PM   #136
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Over the past few years there has been too much credit extended to people who can ill afford to take on so much debt. It has come to a head due to the home loans extended to those people. However, not much has been said about the people who have multiple credit cards with 10K, 20K, 30K and more credit card debt. I would imagine that many of the people with mortgages they can't afford, have massive credit card debt as well.

Some people are just not smart about money. That is why some sort of regulation is necessary.

My dad, who was a pretty smart guy, once told me "Don't borrow money for anything except a home or a business". I have lived by that. I borrowed for several business ventures, paid them off and did well. We own our home, drive nice cars, eat (too) well and have a nice Airstream we have towed 130,000 miles. We have been debt free for over 20 years. We are now retired and enjoy a nice, debt free life. Thanks Dad.

If more people lived by my father's words, the country surely wouldn't be in the situation it is in now.

How much is 700 billion dollars????????

If I could give you $1.00, every second, of every day, it would take me 22,750 years to hand out 700 billion dollars. Unfortunately, I don't have that much time or money.
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Old 10-06-2008, 11:50 PM   #137
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WOW!!! thats a lot to read..... Flashvackk I dont blame Clinton, Bush, or The bankers as much the people who took the loans.... ( It was a statement form a guy I new and not mine) Intersting to see what you all had to say... Two sides to every story....

We bought our first house in Grand Junction Colorado in 2000 with 0% down (I know I know) It was a foreclosed HUD house.. fixed loan for 5 years with a ballon after that... We new we were moving in 2 years.... Sold it two Years later for a $25,000 profit after realtor fees..

Took out a construction loan to build our next house in Trinidad Colorado In 2003 Built a house than transfered the loan to a fix rate for 30 years... Sold our dream home after we lived in it a year... Made $150,000 on that one and moved to Cedaredge.. Put that money down on the house we have now... Fixed interest for 30 years... Bought it through a local bank that sold the loan, Went to 3 different companies in 2 months...

Now we are going to buy the medical building my wife is in.. Commercial... totally different thing... But we are putting a good amount down.....

Now We did OK...... I don't understand everything I signed but I made sure it was a fix rate and low, and no payoff early penalties.

People are greedy, the Government is corrupt and greedy, the IRS is always watching..... and the bankers will try to as much money as they can..

The four things you can count on in life..

Glad my wife's a Doc... people are always sick!!!!!!!!!! although some can't pay now.... (COLECTIONS) just joking, we don't like to do that....

Yes Jim, while building the house I use a credit card and paid it with the construction loan They keep raising my limit, it's well of $60,000 now on that card.... IS THAT INSANE OR WHAT>>>>> I couldn't pay that off if I maxed it out..... Needless to say I don't use it anymore...
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Old 10-07-2008, 12:49 AM   #138
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We use a couple of credit cards. The kind with no annual fee and cash back. We charge everything we buy on those cards. We pay them off as soon as we see the statement cut on line.

Love the cash back.
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Old 10-07-2008, 06:21 AM   #139
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We use a couple of credit cards. The kind with no annual fee and cash back. We charge everything we buy on those cards. We pay them off as soon as we see the statement cut on line.
Love the cash back.
We have each a credit card that does the cash back. Since we pay off the balance each month, the company (Wells Fargo) is paying us to use the card. Usally comes out to about $100 per 3 months depending on how often we use it. Safer than a debit card.

Thanks alot Gene & Tom for your posts & Flashback for the links... Yeah, the "ownership" society" was the big push to open up house loans to even those who couldn't afford 'em.

We bought our current house going on 4 years ago and at the time, the banker kept telling us we could "afford" more house. Told him maybe so but we liked this one. Point was, he said that lenders were actually giving people loans where the payment was up to 50% of the income. 50%! I'd always grown up hearing from dad never go over 20% and try to keep it closer to 15%.

Man o' man, whoever the next president is going to be, they're going to have one heck of a tax bill to pay because of this mess. Glad we put our "tax rebate" in the bank... they're gonna want it back...

Read my lips: Yes new taxes!

Somehow, using the social security fund to invest in the very industry it was designed to offer a cushion to people from, doesn't look like such a good idea right now...
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Old 10-07-2008, 08:45 AM   #140
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I agree we will be in this for some time. We have been full timers for 6 yrs and have found you can live very cheaply as a full timer. Here are some things we do to save. Join escapees, Elks, Moose, there campground fees are very low. We stay at Penn Wood Airstream park in Pa. and lease a site for $600 a season. Volunteering at National parks and National Wildlife Refuges gets you a free campsite for only about 32 hrs a week. that only 16 hrs. each for a couple and its fun!
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