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ARM and interest only loan Bailout (pisses me off)
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ARM and interest only loan Bailout (pisses me off) - December 5, 2007, 02:23 PM

This may offend some folks here, but I am sick of this BS that everyone expect Big Brother to bail out everyone that doest make sound decisions in their life.

How is it that I was intelligent enough to figure out taking a loan that adjusts to market is a bad idea.

The wife and I made the decision to pay a higher mortgage based on a 30 year fixed rate to a house we were happy with.

We budget off that and we are good to go. Now that the housing market is shitty, we know we cant move w/out taking it in the ass, but that is fine b/c we can afford the mortgage.

So many people got suckered into a lower mortgage, and those on a fixed income or in a house beyond their financial obligations are up shits creek now. So of course it us up to the government to bail them out.

Im sorry if that offends some of you possibly in this situation. But really, if you are maybe you shouldnt have gotten those extra "upgrades" or moved somewhere else more affordable.

/rant over


Source:

http://www.reuters.com/article/polit...rpc=22&sp=true

Bush to outline 5-year rate freeze plan: sources

Wed Dec 5, 2007 3:02pm EST
By Patrick Rucker and John Poirier
WASHINGTON (Reuters) - President George W. Bush is expected to outline on Thursday a plan to freeze mortgage rates for five years for many U.S. homeowners facing sharp increases in their monthly payments, industry sources said on Wednesday.
Final details of the plan are still being worked out after a trade group that represents large mortgage investors presented its framework for implementing a broad rate freeze to the Treasury Department late on Tuesday, the sources said.
"The president will make a statement on housing issues tomorrow afternoon," a senior administration official said, declining to elaborate on details.
The sources, who are familiar with details of the trade group's pitch, said the plan envisions covering subprime loans taken out between January 1, 2005, through the end of this past July, with rates that are due to reset over the coming 2-1/2 years.
An estimated 1.8 million U.S. homeowners who took out loans with low teaser rates face pricey loan resets next year alone, the Federal Reserve has said. Officials fear half a million borrowers risk losing their homes.
Treasury Secretary Henry Paulson has worked closely with the investor trade group - the American Securitization Forum - as well as mortgage servicers and lenders to hammer out a comprehensive plan to modify troubled loans.
On Wednesday morning, Paulson outlined to a closed-door meeting of Republican lawmakers his efforts to broker a rescue plan for troubled borrowers.
"It was all broad-picture," said Ed Royce, a California lawmaker who sits on the House Financial Services Committee and who attended the briefing. "He was upbeat about the way those negotiations are going."
House Republican Leader John Boehner of Ohio said "I think the proposal being outlined is a good one."
SPREADING FEARS
Rising defaults on U.S. subprime loans, aimed at borrowers with a spotty credit history, have spooked financial markets around the globe in recent months, tightening credit conditions and threatening to derail the U.S. economy.
Many sinking loans had been repackaged as securities and sold to investors, who are having a tough time getting a handle on the value of their assets.
The proposal to temporarily freeze mortgage rates is primarily aimed at borrowers who can afford their existing rates and who are current on their payments, but who would face default when the rate resets at a higher level.
Under the plan pitched by the ASF, distressed homeowners would be offered mortgage help according to their ability to pay.
Borrowers with strong credit would be encouraged to drop their existing loan and be shepherded to more affordable mortgages like those offered under the Federal Housing Administration. In August, Bush expanded that government program so that it could reach an additional 240,000 troubled borrowers next year.
A second class of borrowers who simply do not have the resources to make mortgage payments would return to the rental market.
A third group of borrowers who have shown that they are a reasonable credit risk but who could not afford their homes with higher rates would qualify for "fast-tracked" loan modification and a five-year interest rate freeze.
Other existing borrowers who have struggled to keep up their loan payments could still qualify for the freeze, but would face more scrutiny before receiving any loan modification.
The backing of mortgage investors is important to the success of any rate freeze plan as it would give some cover to mortgage servicers and others in the industry who could face lawsuits from bondholders if they began to tinker with loans.
(Additional reporting by Jeremy Pelofsky in Omaha, Neb.; Editing by Andrea Ricci)


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December 5, 2007, 02:37 PM

That's really funny to me, Alex... because it will never happen. Those products are tied to other instuments and priced accordingly, with the different risk types (not just default risk). Enacting such a plan would actually CAUSE financial crisis, not avert it at all.

I'm too tired to expound on this, and too busy to try. The market is working it out and repricing the assets as well as the derivitives. There's still more pain to come, but the free market will work it out better in the end. I think this was just a way for the administration to appear proactive. Don't worry, it's an absolutely silly idea.


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December 5, 2007, 02:42 PM

Oh, JP, you are right. I forgot to add that I never thought that this would happen.

I am more pissed at this is once again the gov't having to bail out the lowest common denominator.

Sorry, needed to be more clear about my rant.


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December 5, 2007, 02:57 PM

I worked in the mortgage industry from August 04 - May 05. I saw what the loan sharks did on paperwork to get people into houses they simply couldn't afford... unless they were paying 1.2% that compounded after the first year...
Crazy shit. I guess the general public was optimistic about the housing market and thought it would never slump? They thought interest rates wouldn't fluctuate? They had a really good salesman that convinced them that the majority of people don't stay in one house for more than 5 years anyway?
I don't know. I know that I went with 30 yr fixed on my house, too - against what my loan officer told me would be best for ME....

Thought- provoking post, Alex... I guess I'll just sit back and watch what happens to the market.


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December 5, 2007, 02:59 PM

:shrug:

I'm on a 7 year ARM and am not sweating it. But then again I have roommates and I didn't get in over my head when I first bought the place.


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December 5, 2007, 03:09 PM

I decided on a fixed, however I just closed and at the time it was the same rate for a 7 year arm, due to the sub prime crisis and lenders getting more conservative, my sister did a 5/1 arm and its just about time for her to refi, and rates are around 6 1/8th so she will do well.

If they were to put bail outs togeather it would piss me off.


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December 5, 2007, 03:09 PM

see, you at least took into consideration to make sure you could afford the place and got the finances covered.. eg you wouldnt rely on the govt to fix your problem for you so you could keep the house...

*edit responding to Rob's post...


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December 5, 2007, 03:10 PM

dunno why it bothers me so much today more than any other day..
I guess i read miami's post and it reaffirmed my disappointment in many things wrong with today's society in general.


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December 5, 2007, 03:15 PM

i'm happy i don't have to worry about a mortgage yet

youngin ftw....although scary to think about housing prices when i get to that point in my life


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December 5, 2007, 03:23 PM

Tanya, perhaps like Alex, I don't have sympathy for folks who sign documents in a dozen places without reading them and understanding them first. Sorry, I just don't. I'm admittedly a "free-market can fix-it" person, as a former commodities trader who grew-up in a small family business.

I don't remember much of the Latin I took in prep school for three years, but "Caveat Emptor" covers it for me. Let the buyer beware. "Loan Officer" is almost a misnomer. Neither are these folks authorities on any subject, as officer implies; nor are they in a position to give you objective loan advice. They're salespeople. Nothing more, nothing less.

It reminds me of the people who lost their retirement savings on Enron stock. Fact is, they were looking to grow their money fast, just as people who buy too much house with a fancy derivative loan product. Perhaps these folks have better intentions; ie, taking care of their families, etc. All the more reason they should be even more careful, imo. They're not any better than the speculators in the market. Having said that, perhaps we need a more standardized loan document with more disclosure in layman's terms, and maybe even more regulation if not government oversight.

We need these types of volatile corrections to shake the markets periodically. When it's finished, we'll have a better sense of the true values. I hold no malice toward the folks who got in over their collective heads. Anecdotally, a few of their stories might bring tears to my eyes. However, as a group of people who were careless with their finances, I say let 'em twist in the wind! Not my problem. They should have read every word, and paid for professional advice that a broker can't offer.

Use the old WIFM rule. Your counterpart in a transaction is. It means "What's in it for me?" If you have perspective on mortgages, you know the "loan officer" isn't the oracle of advice for a personal finance situation. They're there to sell loans.


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December 5, 2007, 03:27 PM

in my opinion it has little to do with helping people and more to do with helping the economy. The worse off it is for these people the worse off it is for the mortage industry meaning our economy gets worse. Then the people who were smart enough to get a good loan start to get affected as jobs and the economy get worse and worse and then layoffs starts and our economy gets into a recession. Bailing out these people is just a way of lessening the impact of tons of forclosures and credit problems for big companies.
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December 5, 2007, 03:29 PM

Quote:
Originally Posted by dubplaya
i'm happy i don't have to worry about a mortgage yet

youngin ftw....although scary to think about housing prices when i get to that point in my life
its not a bad thing.

I was a "youngin" when I bought my place.. well.. 25... and between the money you can deduct for interest and the money you theoretically are supposed to make on appreciation, its pretty dumb to WANT to rent.

But that of course is in an up market which was the first several years of when I had my place. I saw it jump up 200k in value (which is untaxed profit btw). It's settled down but I'm definitely glad I bought versus continued to pay rent the past several years.


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December 5, 2007, 03:32 PM

Quote:
Originally Posted by JPVaccaro
Tanya, perhaps like Alex, I don't have sympathy for folks who sign documents in a dozen places without reading them and understanding them first. Sorry, I just don't. I'm admittedly a "free-market can fix-it" person, as a former commodities trader who grew-up in a small family business.

Agreed. Completely, thoroughly, absolutely.


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December 5, 2007, 03:35 PM

I completely agree but if you look at the cost of ownership many people had no choice but to take an arm or "interest only" loan. The whole idea to me was pretty stupid because it drove up prices to a point where you need a near six-figure income to afford a decent size house with a fixed loan...they all knew eventually the terms would come to an end and when interest rates increased or housing prices slowed down it would kill the housing market because people were in over their head.

I think it was a combination of the sales pitch and people not knowledgeable enough to comprehend the contract details.

It's a bad situation no matter which way you look at it. Just off 234 there is a large housing lot where the homes were selling for high 500's...I drove by it yesterday and noticed that the houses are now selling for the "mid 300's" Imagine what the people who bought in at the high 500's are thinking


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December 5, 2007, 03:35 PM

636 true:

However my rant still holds true that the gov't wouldnt feel the need to do something to correct the market if it wernt for those folks not paying attention to what the fuck they were doing.

My uncle is a Realator (sp?). One time i called him to ask about a family function coming up. He said, he needed to call me back he was just getting to the closing meeting for a client. I was like cool. I wasnt expecting a call back for over a couple hours...

He called me back in 20 minutes. I was like 20 minutes. He said oh yeah, a bunch of his closing meetings go that way. Folks go in and just start signing and initialing left and right w/out reading.

Fak dat! If im commiting to half a million in loans, im damn sure reading everything. I think my closing took about an hour and 15 min or so. And i still felt like i didnt read eveything.

*sigh


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