Lending crisis: From Wall Street to Main Street to Your Street

[bzimbelman]

Originally Posted by jfarsetta

Its a pity to think of an elderly person, who got sucked into an ARM, and now faces foreclosure on a home

How exactly did this poor elderly person get SUCKED into an ARM?

I've purchased a few homes during this boom era, and not once did I pick an ARM because of the potential for the rates going up. Obviously some people decided that they wanted to take that risk and gamble with their homes. Why exactly should we be feeling sorry for them?

So a bunch of folks gambled with their houses, some cashed out big, others held on too long and are going to loose everything, but wait, here let's have those of us who considered our options, didn't take the big risk, didn't make the big bucks, lets have them bail out the poor schmucks who acted irrationally in the first place.

[Joe Farsetta]

Many of the elderly, who needed some cash for sudden repairs or improvements, had no options. They were sucked into these loans, as has been documented time after time, by shifty mortgage brokers, only to find themselves in trouble after the fact.

Credit is a game, and any excuse to blemish a credit score has been used for the past 10 years or so as an excuse to sell money at a higher rate. I say "sell" money, because that's what lenders now do.

Take the nonsense with credit cards. For instance, if you are late on your electric bill, and it gets reported to a credit bureau, your credit card company can automatically increase your interest rate to 29%, even though your payments to them have been on time for years. What has to do with one has nothing to do with the next. Even personal bankruptcy protection from these credit card companies is gone. They flood the market wth offers for credit cards, raise your rate to the limt for sneezing out of turn, and the People are powerless to stop it.

This problem is pervasive.

Thirty years ago this was considered usery, and people were jailed for it.

Today, we call it business as usual.

Something is terribly wrong

[Blaine Wiley]

Originally Posted by jfarsetta

Its a pity to think of an elderly person, who got sucked into an ARM, and now faces foreclosure on a home, valued at (say) $400,000, with an outstanding loan of only $80,000. That's $320,000 to the bank for writing a bad loan, stiffing the client wth a balooned payment after the ARM lock-in period expired, or for simply gouging the client.

I think, according to the mortgage bankers that this is a rare and unlikely scenario.

The house I was speaking of earlier was for sale by the bank for $592,000. They would not consider a short sale for less than $580k. The mortgage amount on the property was $596k, including the second trust. Neither the first trust holder nor the second trust holder wanted to take the hit.

The house was a nice 3000 sq. ft. home on 5 acres with a pool. The owners business failed, thus they couldn't pay the mortgage. Today, after our market correction, the house is worth mid 400k range, maybe $475. Evidently, the house appraised for $675 when the loans were made, so the loan numbers on this particular property are aboveboard.

Now, is this the fault of the mortgage lender, or the appraiser? (Just don't let the inspector come in and "miss" something)

Perhaps the answer is to go back to the days of the 80% loans, where the homeowner has a true vested interest in the home. Investors who get 100% financing have an easy walk out. I believe it used to be that investors could get no more than 60% LTV, perhaps some were able to get 75%. That would certainly limit the investors incentive to walk away from the house, and would help curb the rapid (frenzied) escalation of the home prices.

Gerry got it, and yep, I remember 1989. Same stuff, different decade.

[Joe Farsetta]

Blane,

Here in the NE, its more common than anyone wants to believe. We have some banks working with exclusive realtors and sellng the homes for fair market value, when a fraction of it is actually owed on the property.