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Post by jeffolie on Jul 18, 2007 17:00:07 GMT -6
In big news in the mortgage market, the once-popular 2/28 "death mortgage" has been killed off by most of the lenders, including Countrywide Financial and others. This is a good thing for the market and economy as a whole over time, but it is certain to take yet another whack at the housing marketplace. With the death of the 2/28 (Adjustible Rate Mortgage that resets to a high rate after 2 years) those who are facing a refinance out of the 2 are in very big trouble as one of their few ways to continue to play the game has been pulled out from under them. Now why is this a "good thing"? Because the 2/28 was designed to rob consumers with weak credit histories blind by forcing them to come back for another mortgage, thereby insuring a recurring revenue stream for the lenders and a deteriorating financial environment for the borrower! You will never actually own your house if you're constantly coming back and resetting the amortization clock! In effect you're renting it from the bank but you're locked into it, unlike a true rental where you can just walk off at the end of the lease! In short, its about damn time that this form of abuse was shut down. Guys, this "subprime" thing is not really about subprime at all. It is in fact about ridiculously loose lending standards across the credit markets, of which the subprime is the only visible feature that most ordinary consumers see. market-ticker.denninger.net/
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Post by jeffolie on Jul 19, 2007 11:44:40 GMT -6
Another nail in the 2/28: "In an interview, Chief Executive Kerry Killinger said that effective immediately, Seattle-based WaMu will require full documentation of income and assets from prospective subprime borrowers, eliminating riskier "stated income" loans. WaMu will also no longer offer subprime adjustable-rate mortgages with initial fixed terms of fewer than five years. This eliminates so-called 2/28 and 3/27 loans, which carry low initial rates that jump to much higher, floating rates after two or three years. Stagnating home prices have left thousands of U.S. homeowners unable to refinance after rates reset higher. The thrift will also require tax and insurance escrow accounts for all new subprime home loans. "Too much money, and some would say, irrational money flooded the subprime market in the last couple of years," Killinger said. "This led underwriting standards to decline, credit spreads to narrow, and volumes to surge, and now has caused delinquencies to soar." Killinger said WaMu has reduced subprime loan volume 70 percent, and is selling most subprime loans the thrift makes. Still, he said "we're absolutely committed to the subprime mortgage business. It serves a very important customer need." calculatedrisk.blogspot.com/
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Post by Grapple on Jul 20, 2007 11:01:33 GMT -6
Yes , subprime is just the borrowers who had bad credit ratings, however a lot of people with good credit ratings borrowed too much money to buy too expensive of homes on too low a income. It was all covered up by these new lending packages and by the lenders ability to sell of these unworkable loans to bond holders.
Where I live there are a large number of new $500,000 - $750,000 – $1,000,000 and up houses yet there are not that many people who make enough money in the area to actually pay off the mortgages on these houses. And the ones who can pay these prices generally already have houses. These are not sub-prime borrowers but now that prices are not going up there are a lot of these houses sitting empty and more that are occupied but for sale yet no one is buying.
Basically many in the US tried to get rich based on reselling each other real estate at higher and higher prices without the fundamentals underneath of people who could actually afford higher and higher real estate prices.
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Post by unlawflcombatnt on Jul 20, 2007 18:09:06 GMT -6
Basically many in the US tried to get rich based on reselling each other real estate at higher and higher prices without the fundamentals underneath of people who could actually afford higher and higher real estate prices. Exactly right. Housing investment became another get-rich-quick scheme for many. They drove prices up for those who simply wanted to purchase homes for residential purposes. Now many of these speculators are going to get their due.
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