My take on the Sub-Prime scandal

[Qtec]

IMO, the recent sub-prime crisis is a result of the Govt printing money [ worthless money ] and giving it to the banks to stimulate the economy.
The banks now awash with cash, have SO much money to lend THEY start giving loans to almost ANYBODY and basically gamble on the housing market.
The Sub-Prime loan means many people who previously didn't have the credit rating to get to get a loan and so couldn't buy a house , now can.
More people are now buying houses so the price goes up. In the beginning of this pyramid game, the rising house prices mean the bank makes a profit! eg, buyer loaned 300,000 and when they default 2 years later the house is worth 400,000. The bank has the payments for the last 2 years and a 100 grand profit on the loan. Happy days.

This is fine as long as the amount of defaulters doesn't go critical. This is the point when there are so many defaulters and so many houses for sale that the price starts to drop. The bank, who have made recent loans at top prices are now repossessing houses that have lost %20 or more of their value. etc etc the SHTF.

The more simple explanation.

web page (http://www.youtube.com/watch?v=0YNyn1XGyWg) /ccboard/images/graemlins/laugh.gif

They all made money, except the defaulter and its really all his fault!

Q

[dg-in-centralpa]

Q,
While this is partially right, the one thing they didn't tell you, is that the mortgage is an adjustable rate starting higher than the average person with good credit. Most of these were starting in the 8-10% range and would go up 2% per year with a stiff penalty if you paid off earlier than two years. Which means that you had to keep this loan 2 -3 years before you could refinance and get a lower rate. I am a real estate broker and have been in this business for 13 years. I don't work with these lenders unless the buyer finds them. Last year I had one of these lenders file bankruptcy while in the middle of a deal. It went through, barely. None of the banks in my area will lend like this. I don't deal with Countrywide who was bailed out by Buffett. A lot of money can be made on these subprime loans if you're willing to take the risk.

DG

[Gayle in MD]

Q,
I think there were a lot of predatory lending practices going on, and that they did target the more unsophisticated mortgage shoppers. They were buying and selling bad loans, like crazy. Some Real Estate agents, pushed those interest only loans, with big baloon payments, and higher rates to follow, too.

When the government steps back and doesn't regulate various industries, they have a free for all, and the consumers suffer in the end. Relying on big corporate interests to do the right thing, is about as reasonable as relying on the mafia to exercise good conscience. IMO, the real culprit at the end of the day is corporate greed, without integrity. The government should protect the consumer, not big business.

Gayle in Md.

[SKennedy]

I got an e-mail ad from a local real estate agent as I had inquired about some property. Her ad indicated that with an ARM she could basically get me more house than I could really "afford." If that is her viewpoint and a selling point she uses, I'll make sure I never use her as an agent. But there are plenty of greedy folks, on all sides of the issue and party to the sale, willing to do business this way.

[Drop1]

Sub-prime was selected by the American Dialect Society,as word of the year....really.

[dg-in-centralpa]

Whenever I work with a first time homebuyer, I tell them not to go to the maximum that they can afford. They look at me dumbfounded, because I am cutting my salary. I would rather have them spend less and not be "Married" to the house where they can't go to the movies or out to dinner, because of not making their mortgage payment. This in turn will get me referrals since I don't push going straight to the max. Any agent who pushes to put you in something you can't afford, is not doing their job. We're not looked at with high regard as it is, and this doesn't help.

DG

[DickLeonard]

Gayle my one daughter works in the Sub=Prime market, her company went from 600 to 20 people. Banks,Brokers,Hedge Funds don't have any idea how to determine if the loan is any good.

There throwing the Baby out with the Bath water according to her.####