Mortgages and Subprime Lending

[Fifthfiend]

Oh man if that thread title doesn't get your blood pumping...

Anyway I don't know a whole lot about this other than Hillary Clinton's kind of concerned about it. I guess the deal is banks gave out loans to people who really couldn't afford them under lots of wacky-ass conditions over the last few years, and now housing prices are all gone to shit so people are gonna lose their houses?

Don't really have anything on how big a problem this is but it sounds kinda scary.

[Mannix]

i don't know too much about the housing situation state-side what with living in another country at the moment, but i imagine its similiar to how credit card companies do business. spam the poor with applications and confusing legal jargon on the contract, then when the poor bastards innevitably spend money on the card and can't make payments the banks own them. i see no reason why the bank's wouldn't use a similar scheme to make a killing on the real estate market. get a bunch of saps to take out loans for houses, when they fail to make payments you own the house and have a dude that's gonna spend years and years paying you back with huge interest to boot. rinse and repeat for profits.

[adamark]

Be in debt for your entire life, it's the American way!!!

It's not surprising this stuff goes on, just sickening. If I were king I would make confusing, unreadable contracts illegal. The average citizen is confronted with confusing legal documents many pages long ALL the time and expected simply to sign their name and trust the person telling them to sign it. It's gotten so that you can't do anything without a lawyer by your side. What a shitty way to live, eh?

[Akamaz]

actually, working for a mortgage company myself, banks lose a shitload of money if they have to do a foreclosure (regardless of what you may think, banks don't want your house, they want you to be able to make payments for the 15-30 years of the term of your mortgage, after all, what do you think a company would rather have? (also, when a property is foreclosed on, anything that the mortgage company gets that's above and beyond what is needed to pay off the mortgage and legal fees goes to the person who owned the house when it was foreclosed on)

i mean, think about it. would you rather just get back the money you loaned someone right now, or get the interest from the remaining term of the loan? (the interest does add up, mortgage companies generally make at least as much in interest as what they lent to you for the house in the first place)

just looking at an online mortgage calculator, with an original loan $200,000 with aan interest rate of 6.5% over 30 years the total interest amount paid is around $250,000.00

Now if a mortgage company had to foreclose on that house, they'd most usually (after legal fees and the generally lower cost for the sale of a foreclosure home) end up losing money, not making it, and like i mentioned earlier, if a mortgage company makes more than what/'s nessecary to pay off the loan with the sale, they don't get to keep it, they have to give it to the original borrower of the money. that being said, most moretgage companies who are doing a foreclosure sale, are only looking for the amount to cover the legal fees and the remaining balance on the loan

[adamark]

If the bankers are so smart--and have figured all this out--why the hell are they giving loans that people can't pay back? Sounds like a lose-lose situation.

[Mannix]

if the initial borrower fails, the debt goes to a collection agency - most likely owned by a bank - the original borrower still owes the money borrowed and interest on top of all the fees the agency adds on. Collection tasks are bought from the bank for a large portion of the debt, which is why collection fees are so high. So the bank doesn't lose that. But now they have a house they own, and real estate is fucking golden. The fluctuations in the housing market are fairly regular, so they can repossess low and 'sell' high.

To quote Jefferson: "Banking institutions are more dangerous than standing armies."

[Akamaz]

Originally Posted by Mannix

The fluctuations in the housing market are fairly regular, so they can repossess low and 'sell' high.

yep, and whatever is left after the house and fees are paid for goes to the initial borrower, not the bank

Originally Posted by adamark

If the bankers are so smart--and have figured all this out--why the hell are they giving loans that people can't pay back? Sounds like a lose-lose situation

because so many times, the person buying the house CAN afford it, but then things can change. bills can go up based off of if the taxes or homeowners insurance go up, or many folks went with an adjustable rate mortgage, where the interest rate can change based off of the government standard. believe it or not,(like I had said before) mortgage companies don't want your house, they want you living in it mand making payments (that is after all, how they make their money, not through foreclosure sales, most banks and mortgage companies LOSE money from foreclosures)

[Fifthfiend]

This seems related.

http://www.bloomberg.com/apps/news?p...d=ai0NF1.Z3P9M

Senate Weighs Aid to 2.2 Million Subprime Borrowers (Update4)

By James Tyson

March 13 (Bloomberg) -- U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today.

``The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,'' Dodd, a Democrat from Connecticut, told reporters in Washington after a speech to the National League of Cities.

Foreclosures involving homeowners who took out subprime loans from 1998 until 2006 could cost $164 billion, Dodd said, citing a December study by the Center for Responsible Lending in Durham, North Carolina. The government needs to provide at-risk homeowners ``forbearance or something like that to give them a chance to work through and get a new financial instrument here that they can manage financially better,'' Dodd said.

Delinquencies among subprime mortgage borrowers hit a four- year high in the fourth quarter, the Washington-based Mortgage Bankers Association said today. The trade group said 13.33 percent of subprime borrowers were behind on payments in the quarter, the highest rate since the third quarter of 2002.

More than two dozen mortgage lenders have gone bankrupt, closed operations or sought buyers since the beginning of last year as the effect of looser lending standards, slowing home- price gains, and less wage growth left banks holding bad loans.