A Second Mortgage Disaster On The Horizon?.... New Wave Of Mortgage Rate Adjustments Could Force More Homeowners To Default

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    Dec 15, 2008 2:14 AM GMT
    "...it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy."

    http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml
  • metta

    Posts: 39099

    Dec 15, 2008 7:56 AM GMT
    I knew about this already. This is why I don't see how we can have a recovery in 2009.

    I feel like the so called experts will just keep pushing the date back. No one really knows when the recovery will start, but if I was going to guess, I think that we probably will not see any improvement until at least 2011, at the earliest. The stock market may partially recover prior to that.

    Keep your expenses under control gentlemen because we are in the midst of a bumpy ride.
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    Dec 15, 2008 7:58 AM GMT
    Well, we've had the Iceland banks going under, some British banks and now it looks like the Irish banks are going to need "recapitalising". The American car industry is on its knees, who knows where it will all end?
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    Dec 15, 2008 12:25 PM GMT
    The Financial Crisis in the U.S.A. will happen in four stages . Stage one is just coming to an end and 3 more stages to goicon_sad.gif
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    Dec 15, 2008 12:50 PM GMT
    Unrestrained unchecked no rules capitalism got us into this mess, and it will take years to dig our way out, providing we don't listen to the same voices that got us here.
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    Dec 15, 2008 12:53 PM GMT
    OutdoorMutt saidUnrestrained unchecked no rules capitalism got us into this mess, and it will take years to dig our way out, providing we don't listen to the same voices that got us here.

    "Unrestrained unchecked no rules capitalism" = Republicans. And there are still idiots in the hinterlands and South that voted for them.
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    Dec 15, 2008 1:10 PM GMT
    i'll pop the pop corn so we can all watch this fun crash together.icon_eek.gif
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    Dec 15, 2008 1:17 PM GMT
    Caslon8000 said"...it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy."

    http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml


    Just an idea, why don't these mortgage companies, banks, etc that gave out these bad loans run actual credit / financial /background checks on these people like they should have in the beginning (instead of just doing what they did before) and have a sliding scale model of those that can pay the new adjusted rate get the new adjusted rate get that new higher rate as was stated in their loan documents if they chose to read them.

    Those that can't afford to pay the new adjusted rate keep their current rate (as long as they have been paying it on time and regularly) and are rechecked in 3 years for their time of possible readjustment.

    For those who have lost their jobs there should be a moritorium(sp?) for between 6 months-1 year on payment of their mortgages (by having a smaller flat rate - think of it like when you freeze a gym membership and you still have to pay a rate to keep it active and not go into default). Now for this to work, you would obviously have to check the person's lifestyle. If he or she is living in Manhattan, and has 250k in savings in the bank (which is not at all uncommon), then he or she should still be paying their mortgage vs someone who may have been living paycheck to paycheck.

    Then restructure the deals into new CMBS (Commercial Mortgage Backed Securities - pools of loans that banks bundle and sell to other investment banks to sell in the open market - generalization I realize) loans and have them rated accordingly by the ratings agencies (the ones with the best credit/financials are given AAA and so on down the line being truthful about the ones with the most risk. However this market most likely will change forever.

    Right now, I would say the biggest concern should be the CDS (Credit Default Swap) market. Think of a credit default swap as insurance. If I own stock in GM, I can purchase a credit default swap to hedge myself against loses for owning stock in GM the company should it go into default (bankruptcy/restructuring) and are basically saying that I think you are a good stock to own because of the idea of risk vs reward, but I think you are too dangerous and volatile to trust you so I am going to buy a CDS to protect myself from your possible default. The CDS graphs are also considered to be the clearest window into what Wall St. really thinks about a company. The more people watch this the more people will begin to pull money out of companies like Ford, GM, the big banks, etc. For many of these firms, the spreads are off the charts.

    So that's what I think - and trust me I am by no means saying that my idea is correct, but I think at this point something similar would be worth a shot.
  • Koaa2

    Posts: 1556

    Dec 15, 2008 3:23 PM GMT
    Caslon8000 said
    OutdoorMutt saidUnrestrained unchecked no rules capitalism got us into this mess, and it will take years to dig our way out, providing we don't listen to the same voices that got us here.

    "Unrestrained unchecked no rules capitalism" = Republicans. And there are still idiots in the hinterlands and South that voted for them.


    Exactly, where was the administration during this run up. Up until a few months before the collapse Bush was still saying the economy was strong. It is just incredible how many lives these people have ruined all around the world.
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    Dec 15, 2008 5:02 PM GMT
    The administration was supporting the "help everyone buy a house policy" to fool people into believing that even though we were spending Billions of dollars on a war, the economy wouldn't suffer. Now it's biting us all in the ass!
  • Laurence

    Posts: 942

    Dec 15, 2008 5:21 PM GMT
    I think we all have to be positive, but expect things not to get any better for a while yet.

    I'm sure the world's financial leaders will try to resolve the problems caused mainly by the recklessness of the world's banks. I hope this will result in a more accountable and scurtinized banking system.

    Lozx
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    Dec 15, 2008 5:32 PM GMT
    Wow, so people have no responsibility for their own actions?

    You can't solely blame financial institutions or Bush for people seeking venues to feed their own greed.

    If you can't afford it, don't buy it.

    Sure... Shame on the banks for helping those who can't --> have.
    But shame on you for not saying no thanks when knowing you truly can't afford to pay for it.

    No doubt the economy will gets worse, people finally realized, oh you won't help me pay for this, then I guess I better default and quit buying stuff... Yeah, it's just starting - kiss the 1st qrtr of next year good bye.
  • Mikeylikesit

    Posts: 1021

    Dec 15, 2008 5:40 PM GMT
    True true.......Lets not all forget that Clinton & greenspan are the ones the devised these loans. To make it easier for peoiple to get loans. These people should have never qualified or bought these houses they counldnt afford. So, Its not all bushes fault for this mess!!.....icon_twisted.gif
    I see no reason why all the Resonsible people should have to pay for all the dealing that banks and wall street did.
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    Dec 15, 2008 7:46 PM GMT
    Caslon8000 said"...it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy."

    http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml


    I started reading a fascinating book by George Cooper last night about the root causes of the current financial crises. The federal reserve chopping interest rates to keep the stock markets and economy pumped up anytime a recession was even possible are getting a fair amount of the blame. He also takes dead aim at the economists who espouse the "efficient market" theory (basically the stock price reflects all that is known about a company, it discounts irrational behaviour on the part of investors).

    The current crises started with too much cheap credit floating around resulting in people piling into the housing market which resulted in housing values going up which resulted in more people buying houses etc.. When credit is cheap banks also loosen their lending standards to boost their bottom lines.

    Real estate bubbles are very painful when they burst (look at Japan in the 1990s). This could take years to fully resolve itself. I don't even pay attention to what the "experts" say anymore. Remember the pundits who claimed oil could hit $200/barrel in the next few years? They could be in the same league as those people who predicted in 1999 that the Dow Jones could hit 36,000.
  • metta

    Posts: 39099

    Dec 15, 2008 7:46 PM GMT
    LaSalle04 said


    Right now, I would say the biggest concern should be the CDS (Credit Default Swap) market. Think of a credit default swap as insurance. If I own stock in GM, I can purchase a credit default swap to hedge myself against loses for owning stock in GM the company should it go into default (bankruptcy/restructuring) and are basically saying that I think you are a good stock to own because of the idea of risk vs reward, but I think you are too dangerous and volatile to trust you so I am going to buy a CDS to protect myself from your possible default. The CDS graphs are also considered to be the clearest window into what Wall St. really thinks about a company. The more people watch this the more people will begin to pull money out of companies like Ford, GM, the big banks, etc. For many of these firms, the spreads are off the charts.



    This American Life had an excellent episode on this very thing. If you have not heard it yet, I would highly recommend it. icon_smile.gif

    swaps
    http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1263

    mortgages
    http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1242

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    Dec 15, 2008 9:25 PM GMT


    Er, this is going to sound real pedestrian, but oh well. Why doesn't the federal government, busy bailing out all these banks etc, simply order them to honour the initial introductory interest rates as non-changing til it's time to re-new the 5, 7 or 10 year mortgages instead of this nonsensical pre-programmed rate-jump after the 'introductory' rate lapses? Some interest income from a mortgage is better than none, right Mr Big Bank? Better than a foreclosure too, eh Mr Big Bank? I wonder if any of 'em (CEOs etc) have memberships on RJ and will read this?heheheh

    PS we also knew all about this about a year ago. In Canada these introductory rate mortgage snafus don't exist that we're aware of - except for credit cards - 6.9 % for the first few months then whammmo! 19.5 percent after that!
  • Posted by a hidden member.
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    Dec 15, 2008 9:46 PM GMT
    meninlove said

    Er, this is going to sound real pedestrian, but oh well. Why doesn't the federal government, busy bailing out all these banks etc, simply order them to honour the initial introductory interest rates as non-changing til it's time to re-new the 5, 7 or 10 year mortgages instead of this nonsensical pre-programmed rate-jump after the 'introductory' rate lapses? Some interest income from a mortgage is better than none, right Mr Big Bank? Better than a foreclosure too, eh Mr Big Bank? I wonder if any of 'em (CEOs etc) have memberships on RJ and will read this?heheheh

    PS we also knew all about this about a year ago. In Canada these introductory rate mortgage snafus don't exist that we're aware of - except for credit cards - 6.9 % for the first few months then whammmo! 19.5 percent after that!


    The main reason banks don't do this is because they technically do not have to. A bank, like any business, is in the business of making money. For a bank, mortgages, not deposits, is how they make their money.

    So think about it, you have a person with a 250k home paying 3% (so maybe the interest but no principal) then you bump them up to 6% they are paying more money to you and you in turn are making more money. Banks are EXPECTING this income, while not having it on their balance sheets - it is still an income expectation. So for a bank to change even a few of these mortgages, show that they are going to have a loss and that is not a good thing - especially in market conditions like this.

    I agree with what you said, just check my post above, but when you think about it there is a lot more to it than just what we are discussing here. Every action has a reaction with this.
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    Dec 16, 2008 3:31 AM GMT
    'Short sale is often adhered to by the banks since as they prolong the keeping of the foreclosed house, the funds of the bank get tied up and the process will keep their operational costs rising and rising.'- ezine article.
    And of course, going for 6% from 3% can cause a foreclosure, where there's no interest income at all. Homes are selling a small fraction of what they used to, and foreclosures are huge.
    With that in mind, and with banks going forward with the flips from introductory to 'regular' interest rates partway though the mortgage, it seems that banks could be instead opting for a smaller loss instead of the larger one of holding foreclosed properties in vast numbers. It also, we think, could slow the economic slump to a point where the progress of it is more easily counteract-able.


    -Doug

    PS Hey LaSalle4, great post, by the way!