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Cemil

Are greedy lenders guilty of ruining good people's credit histories, by causing the subprime mess?

No need for further explanation I guess. The subprime mess is the result of greedy lending. But in the end it not only hurt the subprime borrowers but also ruined the housing markets damaging the credit histories of once credible borrowers.
Aidtopia:

What happened to your focus group? Still have it in sight? Or out of focus for now?

Jack:

LOL

His focus is very blurry on this topic, that's for certain! ;-)

Jodi:

Hello Cemil---Are you a memmer of this modern finger pointing the other way, irresponsible thinking? All involved in any action are responsible for the outcome. The Devil only tempts and offers the contract, but the individual must choose the devils deal. Both come together into an agreement or one declines the offer....

Imponderables:

I used to work in Predatory Lending, Cemil.. I'm swing both ways. Lenders make it so "dreamy" for first time buyers, that they think they can afford to pay for homes they purchase. Also there are so many confusing lending terms, such as balloon payments, which many in my neighborhood (new construction subdivision) took the opportunity to finance accordingly. Next thing you know they have to rent because what they were paying initially increased. They simple could not afford a jump from $500 a month to let's say $1200.

Ultimately, and I do think it's up to the buyer to be honest with what they can afford, and what buying limits they have. Another unfortunate thing is that some investors purchased second homes, and property with the notion that they could quickly get their investment returned by flipping the property, BUT the housing market fell through. Is it their fault that it didn't, YES, because they didn't take into account the possibility. Same goes for me if I buy some bad stock. I think people are greedy really... for living lifestyles by which they can't afford.

Wow, ephinay, I just flipped to Defense work, lol. =)

Cemil:

Epiphany indeed Imp, and that for all of us as a new wave of defaults is crawling into because of the workings of the mortgage system. As you know, mortgages are only backed by the property that is mortgaged and lenders have no other way of recourse to the creditors if they default on their mortgage obligations.
Now, more and more good people are defaulting on their mortgages since their home values have fallen below what they owe in total. An example would be like this. Two years ago say a house was at $800K, and the mortgage on it $600K. Now the house is down to $500K and the mortgage is still around $600K. In this case when the borrower pays the full mortgage over time they would be paying $600K for something that is just worth $500K and possibly less. So rather than continuing with the mortgage payments they opt for defaulting saving total payments of $600K while giving up an asset that is only worth $500K. This I know is not a good credit decision but is a good business one.
Now with markets to flood with this secondary wave of defaults home values are prone to come down even further and credit histories suffering more giving rise to more stringent credit processes making it harder to obtain mortgage and possibly coupled with requirements of additional security to cover the debt. This will make new sales a wsihful dream and demand will come down tumbling even further.
Epiphany? Yes. But that is just coming and it has already started across the land.
Now who is guilty in this case too? Greedy lenders? Or squeezed out borrowers?

Aidtopia:

And I love that good job well done.

Imponderables:

Interesting enough Cemil, I live in Florida, where you can claim exception for property if a person decides to file Bankruptcy. So even though one hurts their credit, they can still maintain their home. Lenders are in the business of making money, and over time, I've realized just how much folks over extend themselves, and "jump" into purchases that they simply are hasty over, and with little knowledge about the housing market. The ole adage comes to mind: A wise fool.

I must mention that I know hundreds of folks that even though they have made poor financial decisions, really DO have the ability to restructure their credit scores, and can STILL get financiing, which leads to the more serious predatory lending issues that I dealt with. I even have a family member file bankruptcy, default on several loans, yet was able just about every six months to finance a used car, and obtain a rental acceptance. Yes, that person did pay higher interests rates, but shouldn't he? Cost of doing business, and that my friend is why lenders are in business.
If one thinks about their purchase as a serious life investment, they need to seriously ask themselves if they can afford the payments. Also, I must say, don't believe the media hype. It's my opinion that there is NOT a mortgage crisis. My neighborhood is STILL appraised very well and homes are selling. I realize that I'm in a geographical heatwave of ownership.. but things DO indeed bounce back, or maintain value. Truth is, if enough people cry out that the sky is falling, don't more people look up, at least to see if it's true? Banks don't want the homes, now they have to sell it.. so they do want lendees to have choices in payment options, especially when the housing market is so slow. Your example would be precise, IF your hypothetical lender was selling immediantly, however over a 30 or even a 15 year mortgage, who's to say that the value would not surpass the original lending ter

Jack:

SO Cemil, you are saying that no matter how bad your business decision, you shouldn't have to suffer the consequences that everyone else does? Why? Because you are a nicer guy?

Everyone plays by the same rules in the mortgage business. Yes, there were a few renegade brokers and crooked Loan Officers, but by-and-large the industry has done a pretty good job of policing itself and conforming to a plethora of government (over)regulations. Government was complicit in the subprime mess. Government demanded lenders grant higher and higher LTV (Loan-To-Value) so that more people would qualify. Government also incented developers and encouraged builders to overbuild in some markets. It was a disaster waiting to happen.

The benefits of the market correction: I have a couple of $1.1 million executive homes available at $750K. Brand new, ready to move in. With the weak dollar, that is a half price sale to foreign nationals. ;-)

Heck ,I recently sold a new home for $150K ... to a builder who could not build it that cheaply. He flipped it the next week for a $25K profit. The home was originally offered for sale at $259K two years earlier. I say the buyer did alright for himself at $175K

Jack:

You are sadly mistaken.

It was GOVERNMENT mandates that lead up to the subprime lending debacle that caused more than 270 wholesale mortgage lenders to shutdown, tens of thousands to lose their jobs, and countless thousands of mortgage brokerages to close their doors forever.

GOVERNMENT is almost always at the root of all evil, and this was no exception. That, and the fact that far too many buyers with an entitlement mentality (also instilled by government) were willing to commit mortgage fraud in order to buy a house they could not afford.

The vast majority of all mortgages are paid on time. Fancy that. Of those in default, probably half involve mortgage fraud of some sort.. Half also involve first time investors who thought they could make a fortune flipping houses, but had no clue on managing projects or meeting budgets. Those people DESERVE to lose their homes.

Now we have a wave of new "Predatory Lending" legislation to make things look as though it was the lender's or broker's fault. I call this crap "Predatory Legislation".

The market has overcorrected. Now it is exceedingly difficult to qualify for a loan, even with good credit. You most definitely will not get 100% financing ... except ... from GOVERNMENT loan programs (VA and FHA.). Gee, how'd have thunk it!

Wait to see the FHA (aka "new subprime") meltdown in another couple of years. It'll make the subprime mess look like a picnic. In the mean time, housing prices have corrected by 15% to 40%. Cool huh?

Kevin13285:

I don't think it's the lenders fault. The borrowers should take responsibility for their actions, and I don't see why the tax payer should bail them out.

Cemil:

Hi BabePhat, this probably is like asking whose fault it is that people get addicts at such young ages (cigarettes, alcohol, drugs, etc) Of course one may say that it is the fault of the patrons of a business that illicit business thrives. However in real life we also know that without supplies there is no demand and once there is ample and attractive suplly then demand is created and once there is demand in the addiction business then there will always be supply, guaranteed for sure.
So is it not the drug dealers' and peddlers' fault that drugs destroy lives or is it just the users who should take responsibility for their actions and tax payers should not help such people get public rehab assistance.
Maybe you are right. I don't know. Your point definitely has good weight.

Rick:

I don't agree with your premise. In part the lenders are responsible. But the borrowers are the main problem. They were taking out equity loans out of a desire for all sorts of things. I rehab homes for the poor folks and you can't believe the stories i've heard about why they are now poor. Clearly a third of them got equity loans to buy new cars and vacations, and childrens weddings.

Jack:

I have seldom seen a property in foreclosure that didn't have a big screen television in the living room and a new car in the driveway, unless it was an "investment" property, which are either mortgage fraud through borrower deception or lack of investment savvy.

Precious few "good" people get hurt. Most get what they rightfully deserve and the worst part is the lender takes it in the shorts. The average foreclosure costs the lender $65K. SHort sales (pre-foreclosures) cost them even more.

The Oracle:

Indeed that's true, but many of these "good" people were equally as greedy....hoping to flip, hoping to make a quick buck. It wasn't JUST the lenders.......

Aidtopia:

I think the subprime problem is caused by greed and over crediting the borrower, however anyone who borrowed is also responsable. I live inexpensively, of choice and not of choice, or rather circumstance. I think all the cheating blankity blankity blanks ought to pay every cent back to the american public, course you don't have to worry about that now, and that the ones borrowing the money in the first place ought to live in a tent like half the rest of the world, that is being put at financial harm, like yourself. For surely it is greed at the top and at the bottom and that is where most are now feeding.

K:

I think that this is a great possibility. When I went to purchase my first home, the one I'm still in, 10 years ago, they told me I could afford a home almost 3 times what I bought. My realtor of course wanted to show me homes in that price range as well. Trust me they were beautiful, required no work or help to make perfect, etc. I'm glad I went with my instincts and only purchased what I was comfortable with, despite the urging from the lender. We have struggled over the years to make ends meet with what we have, I couldn't imagine where we'd be if our home cost more. I do know that I have continued to stay in the plus on the value of my home as well, at least thus far.

Alabama:

You can't cheat an honest man. It goes both ways.

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